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



 
                CREATION OF HOMELAND SECURITY DEPARTMENT
=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 26, 2002

                               __________

                           Serial No. 107-74

                               __________

         Printed for the use of the Committee on Ways and Means




                       U. S. GOVERNMENT PRINTING OFFICE
81-233                          WASHINGTON : 2002
___________________________________________________________________________
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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











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









                            C O N T E N T S

                               Page______
Advisory of June 19, 2002, announcing the hearing................     2

                               WITNESSES

U.S. Department of the Treasury, Hon. Jimmy Gurule, 
  Undersecretary for Enforcement.................................     7

                                 ______

Joint Industry Group, and JBC International, James B. Clawson....    30
National Treasury Employees Union, Colleen M. Kelley.............    38
Port of Tacoma, Timothy Farrell..................................    25
Sara Lee Branded Apparel, Jerry Cook.............................    35

                       SUBMISSIONS FOR THE RECORD

American Apparel & Footwear Association, Arlington, VA, Stephen 
  Lamar, letter..................................................    63
American Civil Liberties Union, Timothy H. Edgar, statement......    64
American Petroleum Institute, Charles E. Sandler, letter.........    70
American Textile Manufacturers Institute, statement..............    72
Border Trade Alliance, San Diego, CA, statement..................    73
National Customs Brokers and Forwarders Association of America, 
  statement......................................................    74









                CREATION OF HOMELAND SECURITY DEPARTMENT

                              ----------                              


                        WEDNESDAY, JUNE 26, 2002

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 5:22 p.m., in 
room 1100 Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]






ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 19, 2002
No. FC-20

                      Thomas Announces Hearing on

                Creation of Homeland Security Department

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the President's proposal to create a U.S. Department of Homeland 
Security including the transfer of all assets and authority of the U.S. 
Customs Service to the new Department. The hearing will take place on 
Wednesday, June 26, 2002, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses. Any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee or for 
inclusion in the printed record of the hearing.

BACKGROUND:

    Since 1789, the Customs has been a separate Federal agency under 
the U.S. Department of the Treasury. Virtually all Federal Government 
revenue was originally collected by Customs through duties. Today, 
Customs collects about $20 billion of revenue and ensures that all 
imports and exports comply with U.S. laws and regulations. Customs 
collects and protects the revenue, guards against smuggling, and is 
responsible for the following:

         Assessing and collecting Customs duties, excise 
        taxes, fees, and penalties due on imported merchandise.
         Interdicting and seizing contraband, including 
        narcotics and illegal drugs.
         Processing persons, baggage, cargo and mail, and 
        administering certain navigation laws.
         Detecting and apprehending persons engaged in 
        fraudulent practices designed to circumvent Customs and related 
        laws.
         Protecting American business and labor and 
        intellectual property rights by enforcing U.S. laws intended to 
        prevent illegal trade practices, including provisions related 
        to quotas and the marking of imported merchandise; the Anti-
        Dumping Act; and, by providing Customs Recordations for 
        copyrights, patents, and trademarks.
         Protecting the general welfare and security of the 
        United States by enforcing import and export restrictions and 
        prohibitions, including the export of critical technology used 
        to develop weapons of mass destruction, and money laundering.
         Collecting accurate import and export data for 
        compilation of international trade statistics.

    Today, in addition to its own laws, Customs enforces well over 400 
other provisions of law for at least 40 agencies. A number of these 
statutes are quality of life issues that relate to the environment, 
such as motor vehicle safety and emission controls, water pollution 
standards, pesticide controls, Freon smuggling, and the protection of 
endangered wildlife. Other laws safeguard American agriculture, 
business and public health, and consumer safety.
    On June 18, 2002, President Bush proposed to transfer all of the 
authority and assets of Customs, as well as any other Federal agencies, 
to a new Homeland Security Department. Specifically, Customs would be 
placed under an Under Secretariat for Border and Transportation
    Security along with the Immigration and Naturalization Service, the 
Animal and Plant Health Inspection Service, the U.S. Coast Guard, and 
the Transportation Security Administration.
    In announcing the hearing, Chairman Thomas stated: ``Customs has 
long performed the critical balancing act of assuring the security of 
our ports and borders while also ensuring that vital international 
commerce continues to flow. Our Nation's long-term defense rests 
equally upon the protectors at our borders and the engine of our 
economy. During this hearing, I hope we can examine how these dual 
functions would continue to be performed if Customs were transferred 
entirely to a new Homeland Security Department.''

FOCUS OF THE HEARING:

    The President proposes to create a new Homeland Security 
Department, the most significant transformation of the Federal 
Government in over a half-century by transforming and realigning 
current government activities into a single department whose primary 
mission is to protect our homeland. The creation of the Department is a 
key step in the President's national strategy for homeland security. 
The hearing will focus on details of how this realignment will affect 
Customs and its core functions such as collection of duties and trade 
facilitation.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Monday, July 8, 2002. Those 
filing written statements that wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 300 copies to the full Committee in room 1102 Longworth 
House Office Building, in an open and searchable package 48 hours 
before the hearing. The U.S. Capitol Police will refuse sealed-packaged 
deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
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comments must conform to the guidelines listed below. Any statement or 
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    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
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    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.

    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 
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materials in alternative formats) may be directed to the Committee as 
noted above.

                               

    Chairman THOMAS. The hour of two having arrived----
    [Laughter.]
    Chairman THOMAS. For those of you who have not had a chance 
to take a look at the document that is spread out on the table, 
courtesy of the National Archives, to try to set the tone of 
our discussion about the changes that may or may not be made in 
creating a new Department of Homeland Security, dealing with 
those areas that have traditionally been under the Committee on 
Ways and Means jurisdiction, what you have in front of you is 
the fifth act of Congress. That's correct. There were four 
previous acts. This was the fifth act, which created the U.S. 
Customs Service, the first agency of the U.S. Federal 
Government to be created.
    It was signed more than 220 years ago.
    This fifth bill passed by Congress was to create the agency 
to implement the first act of Congress, which was the Tariff 
Act of 1789.
    So when we talk about making some fundamental decisions, 
the idea that the first and fifth act creating the Tariff Act 
to produce revenue, which was the sustaining revenue source for 
the U.S. Government for some time, along with excise taxes, and 
the agency to carry it out, means that, since Alexander 
Hamilton as the Secretary of the U.S. Department of the 
Treasury, the Customs' mission has always been, primarily, to 
collect revenue and to ensure that imports flow smoothly across 
the border.
    Perhaps one of the reasons we are holding the hearing today 
is to examine the ``primarily'' aspect of it and to see what 
might be done in creating a greater degree of security for our 
homeland.
    Today, Customs collects more than $20 billion in revenue 
each year. However, obviously, Customs over the years has taken 
on many other functions, because of its unique presence on the 
border: fighting against illegal drugs; illegal transshipment 
of T-shirts; illegal Rolex knockoffs; and you could go on and 
on and on.
    And one of the reasons we need this hearing is to 
understand the changing priorities and the Administration's 
current point of rethinking our border security.
    I just thought, in engaging in this discussion of change, 
it might be useful to reflect briefly on what has been 
constant. Obviously, the fundamental questions, as we move into 
the 21st century, are: What is Customs? What is the new role 
for Customs? To what extent is it a continuation of the old 
role? And to what extent, notwithstanding the fact of Customs 
physically being relocated somewhere else, should it maintain 
the long-term ties of revenue through Treasury and back to the 
Committee on Ways and Means?
    So some of the fundamental questions we should be looking 
at are:
    If we combine Customs with several more entities and have 
them answer to a Homeland Undersecretary in some way, will 
former Customs' inspectors start doing Coast Guard or 
Immigration and Naturalization Service (INS) or other work that 
is being pulled together under Homeland Security, or would they 
be somewhat moved but essentially the same in terms of the 
responsibility and the jurisdiction?
    Are they going to be more specialized, more generalized?
    Will they combine two or three different functions 
currently performed by other agencies' inspectors at the 
border?
    Just how will the generation of information be shared 
between these disparate groups now pulled together?
    And I guess the bottom line for this Committee is: Give us 
the vision that explains Customs first task, the collection of 
revenue, in this new department and 21st century.
    So I look forward to the testimony. My guess is that we 
will have more questions than there are answers. But we have a 
very tight schedule. The leadership on both sides of the aisle 
have asked us to, by July 12, report the Committee's 
reflections on what ought to be done, for the purpose of 
putting a bill together to move it through the House. July 12 
is our deadline.
    And I now recognize the Ranking Member, the gentleman from 
New York, Mr. Rangel, for any comments he may have.
    [The opening statement of Chairman Thomas follows:]
Opening Statement of the Hon. Bill Thomas, a Representative in Congress 
from the State of California, and Chairman, Committee on Ways and Means
    In front of us today is a historic document courtesy of the 
National Archives. It is the fifth Act of Congress creating the United 
States Customs Service, the first agency of the United States Federal 
Government ever to be created. It was signed more than 220 years ago by 
President George Washington in 1789. Customs was empowered to implement 
the first Act of Congress, the Tariff Act of 1789. Earlier this month 
another AGeorge W.@ proposed changes, which the Congress and American 
people welcome, to reorganize the government and create a Department of 
Homeland Security by transferring other agencies, including Customs, to 
that new department.
    Since Alexander Hamilton first oversaw the fledgling Customs 
Service, its mission has always been primarily to collect revenue and 
to ensure that imports flow smoothly across the border. Today, Customs 
collects more than $20 billion in revenue each year. Over time, 
however, Customs has taken on many other functions because of its 
unique border presence. Fighting against illegal drugs, illegal trans-
shipped t-shirts, and illegal Rolex knockoffs are just a few of these 
other functions. This hearing is about how changing priorities have led 
us to the point of rethinking our border security in a dramatic way. In 
so doing we should remember why Customs was created in the first place.
    This hearing will focus on fundamental questions as we rethink the 
role of Customs in the 21st century, recognizing the historic and 
significant role of the Customs Service while exploring options and the 
effects of these options on a new department and the customers it 
serves. A group of people, now at Customs, fulfills many missions, 
often on an impromptu or ad hoc basis, that then become permanent. As 
we examine this further, we should ask ourselves fundamental questions: 
(1) If we combine Customs with several more entities and have them 
answer to the same Homeland undersecretary, will former Customs 
inspectors start doing Coast Guard or INS work or continue as they have 
been doing? (2) Will it be more effective to have each specialize or 
generalize? (3) Will the information generated by one entity more 
easily be shared with the others? (4) And what will happen to Customs' 
first task--revenue collection? (5) What do these changes mean to a 
small or large American business that relies upon imported component 
parts in order to manufacture something? (6) What do they mean to the 
American retailers and consumers?
    I look forward to the testimony of our witnesses today as we 
consider legislation by our July 12 deadline.
    The Chair would like to now recognize the Ranking Member, Mr. 
Rangel.

                                 

    Mr. RANGEL. Mr. Chairman, I do not like to talk about our 
differences publicly, but you know that the minority has 
pledged to the leadership and to the President to try to set up 
this Homeland Security on a bipartisan basis as soon as we can, 
and that is why I was so pleased that you were one of the first 
to have hearings on this very important subject.
    But I do not know how in the world you expect--is this the 
only hearing we are going to have on this before we----
    Chairman THOMAS. I will tell the gentleman, if it is 
necessary to have additional hearings, we will. And I have put 
a request in that Governor Ridge speak with us. As you might 
imagine, he is very much in demand. I believe he has 18 
different committees he is appearing in front of. He could not 
be here today, but he said he would make himself available at a 
future date.
    And I do not think that it would be absolutely necessary, 
unless the gentleman from New York believes it to be the case, 
that we would need to meet in another public hearing. We could, 
as we have done in the past, perhaps meet bipartisan in the 
library or some other location to continue to ask questions 
from someone who, if he is not named the Secretary following 
the formation of the Cabinet, would certainly have most of the 
precise information about how this Cabinet would be structured.
    Mr. RANGEL. Well, I would assume that our responsibility is 
not just to have a bipartisan meeting in the library but to get 
answers to serious questions that Americans and the rest of the 
House would have. They rely on us to a great deal. Customs is 
such a very important part of Treasury. And it is kind of hard 
for me to see why we do not have the Secretary of Treasury 
here, we do not have the Customs Commissioner, or anyone 
representing Customs. And, of course, I can see why we will not 
have Tom Ridge, because, actually, we do not know what role he 
is going to play with Homeland Security.
    Chairman THOMAS. Will the gentleman yield briefly?
    Mr. RANGEL. Yes, sure.
    Chairman THOMAS. One of the things that we tried to do, 
given the demands on everyone's time, is to get someone who 
will be able to provide us with answers. The answers to the 
gentleman's questions would perhaps be better responded to at 
the end of the hearing, to see if in fact we have gotten some 
questions answered. And to the degree we have, then we can make 
additional decisions. To the degree that we have not, then I 
think we can go forward.
    But one of the things we need to do is to have the hearing. 
And then we will decide if in fact the questions have been 
answered or not. It is harder for me to do it a priori.
    Thank the gentleman for yielding.
    Mr. RANGEL. Let me ask you this, could you at least tell me 
the thinking of the Chair in putting together the panel as to 
how the questions that I would have for Secretary O'Neill or 
the Customs Commissioner or a representative from Customs or 
Tom Ridge--you know the questions that Republicans and 
Democrats would want to ask. Just tell me the thinking of why 
you put together this panel, that's all.
    Chairman THOMAS. The answer is, you have to begin 
somewhere. One of the things that I want to make sure there is 
a public record on is exactly what Customs' officials do. There 
is still a lot of failure to understand that diverse role. In 
looking at the way in which the structure was initially 
presented in discussions with a number of people who have 
interactions with Customs' officials in many different 
capacities, we thought it might be a pretty good idea to at 
least lay on the record what Customs' folks do today.
    I know the gentleman wanted the representative of the 
Treasury employees, because we have had a number of discussions 
about the work hours, the locations, some of the difficulties 
in terms of the kinds of work hours that Customs' 
representatives carry out. That I think also has to be 
appreciated. I was pleased to have that individual on the panel 
at the gentleman from New York's request.
    Mr. RANGEL. Well, Mr. Chairman, these people have waited 
for 3.5 hours, and if you are having this hearing in order to 
find out what Customs does, and not ``where do we go from 
here'' with Secretary O'Neill and the Customs Commissioner and 
how they see the split-up, they could have sent us an official 
document as to what Customs does. We want to find out what 
impact the President's recommendation is going to have on 
Customs when we make this move for them.
    But let me thank the panel and everyone else for your 
patience with us.
    But I just wish, Mr. Chairman, that you would see your way 
clear to have me to encourage more of my Members to be here to 
participate in something like this, because they had every 
reason to believe that, if we are talking about the Homeland 
Security, the President's new Cabinet position, that this 
Committee, just because of who we are, to be quite frank, would 
have the Secretary in front of us to see how it impacts on 
Internal Revenue Service (IRS) enforcement, on Alcohol, 
Tobacco, and Firearms (ATF) on a variety of things.
    But this is the hand that you dealt us, and I pass.
    Chairman THOMAS. I will tell the gentleman, you asked me 
about the panel that will follow the presentation of Mr. 
Gurule, who is the Undersecretary for the Office of 
Enforcement. At the time the Committee was structured, at 2 
p.m., Mr. Ridge was scheduled to appear before the Judiciary 
Committee. I perhaps would not dismiss the Undersecretary of 
Treasury until you have heard his testimony.
    And I understand that the gentleman would much rather be in 
my seat than his, so I appreciate the concerns.
    With that, the gentleman from Treasury, Mr. Gurule, if you 
will give Mr. Rangel--and I will be listening very intently--an 
understanding of the current vision and direction of Treasury 
as this homeland security issue moves through, especially with 
emphasis on Customs.

    STATEMENT OF THE HON. JIMMY GURULE, UNDERSECRETARY FOR 
          ENFORCEMENT, U.S. DEPARTMENT OF THE TREASURY

    Mr. GURULE. Thank you. Chairman Thomas, Members of the 
Committee, thank you for the opportunity to testify. Let me at 
the outset say that we want to work closely with you, 
Congressman Rangel, and the Members of the Committee to address 
your questions and concerns as we move through the legislative 
process on this very important issue.
    We appreciate the Committee's historical role on trade and 
tariff matters, which, along with Customs itself, dates back to 
1789. We also recognize the highly compressed schedule you are 
operating under, and we will make every effort to be responsive 
to you and do so in a timely manner.
    I am proud to be here on behalf of the Administration to 
discuss President Bush's proposal to create the Department of 
Homeland Security. It includes moving the entire U.S. Customs 
Service into the new department, which is the subject of 
today's hearing.
    Secretary O'Neill, Customs Commissioner Bonner, and I fully 
support the President's proposal and strongly believe that the 
new Homeland Security will play a key role in safeguarding the 
American people.
    In his June 6 address to the Nation, President Bush called 
for the creation, and I quote, of ``a single, permanent 
department with an overriding and urgent mission: securing the 
homeland of America and protecting the American people.'' The 
President also stated, and I quote, ``The reason to create this 
department is not to increase the size of government, but to 
increase its focus and effectiveness.''
    Two days ago, President Bush toured Port Elizabeth, New 
Jersey, and commended employees of Customs, the Coast Guard, 
and the New York/New Jersey Port Authority for their vital work 
in keeping dangerous cargo from entering our country. The 
President told the employees that his proposed Homeland 
Security would make their jobs easier. President Bush said, and 
I quote, ``It'll make our Federal Government more responsive. 
It will allow us to communicate better, to more effectively 
secure the homeland.''
    Since September 11, at the direction of the President, the 
top priority bar none at Customs has been responding to the 
continuing terrorist threat at our land border, seaports, and 
airports. The Customs is working diligently to protect homeland 
security by keeping terrorists and terrorist weapons from 
entering the United States, while at the same time enhancing 
our economic security by moving goods and people efficiently 
across the borders.
    The Customs has implemented several key programs since 
September 11, and I just want to touch on a few of them 
briefly. These are initiatives that respond to the new threat 
our country faces.
    First there is Operation Green Quest, a Customs-led multi-
agency initiative that targets terrorist financing. This task 
force has already initiated hundreds of investigations, 
aggressively moved against terrorist funding sources, and led 
to the seizure of suspected terrorist assets.
    Then there is the Container Security Initiative, CSI. 
Customs is entering into partnerships with foreign seaports to 
conduct prescreening and more effective risk targeting of sea 
containers before--and I stress ``before''--they are shipped to 
our ports.
    And there is Project Shield America, where Customs' agents 
monitor exports of strategic weapons and materials from the 
United States to prevent international terrorist groups from 
obtaining sensitive U.S. technology, weapons, and equipment 
that could be used in a terrorist attack on our Nation.
    On April 16 of this year, Secretary O'Neill, Governor 
Ridge, and Commissioner Bonner launched the Customs-Trade 
Partnership Against Terrorism, or C-TPAT, in Detroit. The C-
TPAT is a unique partnership with U.S. importers, carriers, 
brokers, and others to improve security along the entire supply 
chain, while expediting the flow of legitimate commerce into 
the United States.
    The success of programs like CSI and C-TPAT demonstrates 
how Customs seeks to balance its important dual missions of 
security enforcement and trade facilitation, dual missions that 
are inextricably linked.
    With C-TPAT, for example, Customs has been successful in 
recruiting companies to join the program and make additional 
investments in supply chain security solely because Customs is 
able to offer those companies the benefit of expedited 
clearance at the borders.
    Another example of how Customs' trade and enforcement 
functions are intertwined can be seen in the way Customs' 
inspectors, import specialists, and special agents currently 
work closely with each other to enforce trade and anti-
smuggling laws. I cannot stress enough the importance of these 
dual missions and the interconnectedness with respect to the 
duties and functions of these important components of Customs.
    When Customs' inspectors make a substantial bulk cash 
seizure at the border using resources such as canine 
enforcement teams and non-intrusive inspection equipment, they 
hand the case over to Customs' special agents. These agents 
then conduct a follow-up investigation, such as an 
investigation into the source of the funds or the destination 
of the funds. This cooperative effort between inspectors and 
special agents is a seamless one precisely because of Customs' 
dual missions. The same is true with other border-related 
enforcement matters, such as intellectual property piracy. What 
begins as an infringement identification is often directly 
turned into an investigative effort.
    There are three additional points that may be self-evident 
but cannot be overlooked in describing the link between 
Customs' dual missions. First, many trade enforcement functions 
are carried out by the same Customs' personnel who ensure 
border security. Second, Customs uses the information it 
receives from trade compliance examinations and manifests also 
to assess security risks for shipments; this information is the 
cornerstone of many of Customs' anti-terrorism efforts. And 
third, Customs relies on the expertise of its trade enforcement 
personnel to recognize anomalies in their review and processing 
of commercial transactions information associated with the 
admissibility and entry of imported goods that assist law 
enforcement in developing targeting criteria as well as 
targeting suspect shipments and initiating investigations.
    Mr. Chairman, Treasury is proud of the vital role the men 
and women of Customs have played and will continue to play 
under the President's plan in defending our homeland.
    Thank you again, Mr. Chairman and the Members of the 
Committee, for this opportunity to testify. And at this time, I 
would be happy to answer any questions you might have.
    [The prepared statement of Mr. Gurule follows:]
  Statement of the Hon. Jimmy Gurule, Undersecretary for Enforcement, 
                    U.S. Department of the Treasury
    Chairman Thomas, Members of the Committee, thank you for this 
opportunity to testify. Let me at the outset say that we want to work 
closely with you, Congressman Rangel, and the Members of the Committee 
to address your questions and concerns as we move through the 
legislative process on this important issue. We appreciate the 
Committee's historical role on trade and tariff matters which, along 
with Customs itself, dates back to 1789. We also recognize the highly 
compressed schedule you are operating under, and we will make every 
effort to be responsive to you and do so in a timely manner.
    I am proud to be here on behalf of the Administration to discuss 
President Bush's proposal to create a Homeland Security Department. As 
you know, President Bush's proposal includes moving the entire U.S. 
Customs Service into the new Department, which is the subject of 
today's hearing. Secretary O'Neill, Customs Commissioner Bonner and I 
fully support the President's proposal and strongly believe that the 
new Department of Homeland Security will play a key role in 
safeguarding the American people.
    In his June 6th address to the Nation, President Bush called for 
the creation of ``a single, permanent department with an overriding and 
urgent mission: securing the homeland of America, and protecting the 
American people.'' The President also stated, ``The reason to create 
this department is not to [increase] the size of government, but to 
increase its focus and effectiveness.''
    After the President's announcement on June 6th, Treasury Secretary 
O'Neill applauded President Bush for his bold plan to concentrate our 
homeland security resources in a single Cabinet department. The 
Secretary said, ``The President has demonstrated real leadership, 
recognizing the new challenges we face and redesigning our system to 
rise to those challenges. I fully support for this plan to integrate 
our resources into one collaborative, efficient and nimble structure to 
focus solely on protecting the American people.''
    Two days ago, President Bush toured Port Elizabeth, New Jersey, and 
commended employees of the Customs Service, Coast Guard, and the New 
York/New Jersey Port Authority for their vital work in keeping 
dangerous cargo from entering our country. The President told the 
employees that his proposed Homeland Security Department would make 
their jobs easier. President Bush said, ``It'll make our Federal 
Government more responsive. It will allow us to communicate better. It 
will allow all of you to make sure that the hard hours you're putting 
in are able to more secure the homeland.''
    For over 200 years, the U.S. Customs Service has defended our 
country's borders and facilitated legitimate international trade and 
travel. Since September 11th, at the direction of the President, the 
top priority of Customs has been responding to the continuing terrorist 
threat at our land borders, seaports, and airports. The Customs Service 
is working diligently to protect homeland security by keeping 
terrorists and terrorist weapons from entering the United States, while 
enhancing our economic security by moving goods and people efficiently 
across the borders.
    The Customs Service has implemented several key programs since 
September 11th that respond to the new threat our country faces. 
``Operation Green Quest,'' a Customs-led multi-agency initiative that 
targets terrorist financing, has already initiated hundreds of 
investigations, aggressively moved against terrorist funding sources, 
and led to the seizure of suspected terrorist assets. With the 
Container Security Initiative (CSI), Customs is entering into 
partnerships with foreign seaports to conduct pre-screening and more 
effective risk targeting of sea containers, before they are shipped to 
our ports. Under ``Project Shield America,'' Customs agents monitor 
exports of strategic weapons and materials from the U.S. to prevent 
international terrorist groups from obtaining sensitive U.S. 
technology, weapons, and equipment that could be used in a terrorist 
attack on our nation.
    On April 16th of this year, Secretary O'Neill, Governor Ridge and 
Commissioner Bonner launched the Customs-Trade Partnership Against 
Terrorism (C-TPAT) in Detroit. C-TPAT is a unique partnership with U.S. 
importers, carriers, brokers, and others to improve security along the 
entire supply chain, while expediting the flow of legitimate commerce 
into the United States.
    The success of programs like CSI and C-TPAT demonstrates how 
Customs seeks to balance its important dual missions of security 
enforcement and trade facilitation, dual missions that are inextricably 
linked. With C-TPAT, for example, Customs has been successful in 
recruiting companies to join the program and make additional 
investments in supply chain security solely because Customs is able to 
offer those companies the benefit of expedited clearance at the 
borders. The same is largely true for CSI, which offers expedited 
processing at U.S. ports for pre-screened cargo from its partner ports. 
These programs underscore how Customs is capable of effectively 
increasing security at the borders while facilitating the critical flow 
of trade into and out of the United States. These programs also reflect 
how Customs has effectively established partnerships with private 
industry to work together to protect our borders.
    Another example of how Customs' trade and enforcement functions are 
intertwined can be seen in the way Customs inspectors, import 
specialists, and special agents currently work closely with each other 
to enforce trade and anti-smuggling laws. When Customs inspectors make 
a substantial bulk cash seizure at the border using resources such as 
canine enforcement teams and non-intrusive inspection equipment, they 
hand the case over to Customs special agents. These agents then conduct 
a follow-up investigation, such as an investigation into the source of 
the funds or the destination of the funds. This cooperative effort 
between inspectors and special agents is a seamless one precisely 
because of Customs' dual missions. The same is true with other border-
related enforcement matters, such as intellectual property piracy. What 
begins as an infringement identification is often directly turned into 
an investigative effort.
    There are three additional points that may be self-evident, but 
cannot be overlooked in describing the link between Customs' dual 
missions. First, many trade enforcement functions are carried out by 
the same Customs personnel who ensure border security. Second, Customs 
uses the information it receives from trade compliance examinations and 
manifests also to assess security risks for shipments. This information 
is the cornerstone of many of Customs' anti-terrorism efforts. Third, 
Customs relies on the expertise of its trade enforcement personnel to 
recognize anomalies in their review and processing of commercial 
transactions information associated with the admissibility and entry of 
imported goods that assist law enforcement in developing targeting 
criteria as well as targeting suspect shipments and initiating 
investigations.
    Recognizing these links, the President has proposed that the 
Customs Service as a whole be transferred intact into the new 
Department of Homeland Security. In the legislation for the new 
Department, the President noted that the Department will ``ensur[e] the 
speedy, orderly, and efficient flow of lawful traffic and commerce.''
    Therefore, under the President's plan, Customs will continue to 
administer and enforce our Customs laws, protect our borders from 
terrorists, and facilitate the flow of legitimate commerce. The 
President's plan strikes the appropriate balance between enforcement 
and trade facilitation that is so critical to our nation's economy and 
security.
    Mr. Chairman, the Department of the Treasury is proud of the vital 
role the men and women of the Customs Service have played, and will 
continue to play under the President's plan, in defending our homeland. 
Thank you again, Mr. Chairman and the Members of the Committee, for 
this opportunity to testify. I would be happy to answer any questions 
you may have.

                                 

    Mr. CRANE. [Presiding.] Thank you very much, Mr. 
Undersecretary.
    Governor Ridge has stated that the Homeland Security will 
have a single mission, the most important job of the Federal 
Government, namely to protect the American people and our way 
of life from terrorism, and it will have a single, clear line 
of authority to get the job done. It will bring together 
everyone under the same roof, working toward the same goal, and 
pushing in the same direction.
    In what way do you see Customs and, in particular, the 
collection of duties by Customs, fitting into the overall 
mission of the new agency?
    Mr. GURULE. That is a very important question. And, again, 
I think it goes to the decision the President has made to move 
the entirety of Customs to this new department, this proposed 
Homeland Security.
    First, it is clear that the enforcement efforts of Customs 
are inextricably linked with its trade and revenue functions. 
It is very difficult to split out those responsibilities. If 
you have Customs' inspectors at the border on the one hand 
inspecting cargo and conveyances for contraband, these same 
inspectors are likewise looking to determine trade compliance, 
looking to follow up on issues involving evaluation and 
certification of goods. And this information is shared both 
with Customs' agents and offices such as the Office of 
Regulations and Rulings. It is shared with import specialists.
    So, again, this dual mission of Customs cannot be 
overstressed, overemphasized. And, again, it is very difficult 
to simply just carve out the trade and revenue collection 
function, because it is so closely linked to what Customs does 
on the enforcement side.
    Mr. CRANE. Will there be a reorganization within Customs 
after the move?
    Mr. GURULE. Well, the President's proposal, as you know, 
provides for the transfer of the entirety of Customs. It does 
provide, however, for a transition period after the legislation 
is enacted, with respect to when different functions of Customs 
or any of these other border security agencies would be 
transferred over. So there is some time there for looking at 
some of these complex issues and evaluating them and deciding 
when these functions will be transferred over.
    And at the same time, the new Secretary of Homeland 
Security would have the authority to reconfigure or consolidate 
in a unique way or a different way, I should say, some of these 
agencies. But those decisions with respect to any 
reconfiguration or consolidation have not been resolved at this 
point in time. But at the same time, because these are complex 
issues, complex questions, we certainly welcome the opportunity 
to work with Members of this Committee, and we are certainly 
open to considering any concerns that you have.
    Mr. CRANE. Can you describe how Treasury reviews revenue 
regulations and rulings prepared by Customs now and how that 
will change when Customs goes to Homeland Security?
    Mr. GURULE. Well, it is envisioned that when Customs is 
transferred over to this new department, that its mission will 
be transferred intact as well. So there is not any sense, at 
least at this point, that there is going to be some major 
change with respect to its mission involving, for example, the 
promulgating of regulations for Customs that the Office of 
Regulations and Rulings is engaged in, or the issuing of 
binding rulings on matters such as classification valuations 
and such.
    So the same mission transfers over as well.
    Mr. CRANE. What can and will Treasury do if it disagrees 
with Customs' post-reorganization on such matters as 
classification, revenue collection, or transshipment?
    Mr. GURULE. Well, I think that the President's bill is 
clear on this point. Those responsibilities transfer over. 
Those responsibilities become the responsibility of the 
Secretary of Homeland Security. So these operational functions 
that the Secretary of Treasury currently maintains would 
transfer over to the new Secretary of Homeland Security.
    Mr. CRANE. Thank you, Mr. Undersecretary.
    Mr. Rangel?
    Mr. RANGEL. Thank you.
    Mr. Undersecretary, the exchange I had with the Chairman in 
no way meant to infer that you and the panel that follows you 
are not qualified to do what you do.
    But I love the work of this Committee, and I have worked 
very closely, for 35 years, with the oversight of Customs. And 
it just seemed to me that we should have the Secretary of 
Treasury before us, or the Commissioner of Customs, since we 
are very sensitive as to what is going to happen, not what is 
going to be envisioned or what you hope is going to happen. But 
we cannot protect these line outfits as Members of Congress 
unless we really know the concerns of the people who work every 
day with Customs.
    And with all due respect, you have not worked with Customs, 
have you?
    Mr. GURULE. Well, I have. In fact----
    Mr. RANGEL. How long have you?
    Mr. GURULE. My oversight responsibility includes oversight 
responsibility for Customs. The Commissioner of Customs reports 
to the Undersecretary for Enforcement. I, in turn, report to 
the Deputy Secretary, and the Deputy Secretary reports to 
Secretary O'Neill. So I work very closely with Customs, and 
have worked very closely with Customs since I was confirmed in 
August. Granted, that is a----
    Mr. RANGEL. August of last year?
    Mr. GURULE. That is true. In that sense, it is a short 
time.
    I would add one other point. My relationship with 
Commissioner Bonner goes back 15 years, when he and I worked 
together in the U.S. Attorney's office in Los Angeles. I have 
great respect for him. We have a very good working 
relationship, and we have worked very closely, shoulder to 
shoulder, on important issues involving terrorism, especially 
post-September 11.
    Mr. RANGEL. I am not challenging your commitment. I am 
challenging the fact that I think the Commissioner of Customs 
could do a better job in terms of telling us the concerns that 
he may or may not have as we work our way through this 
legislation than you who he reports to.
    But having said that, I have a chart that came from the 
Secretary of Treasury's office on the organization of Homeland 
Security, and Customs is not even on it. One of my staff wrote 
in ``Customs'' next to ``Border Security.''
    Something like this, a table of organization, are you 
familiar with that?
    [The chart follows:]
    [GRAPHIC] [TIFF OMITTED] T1233A.001
    
    Mr. GURULE. I cannot see the chart.
    Mr. RANGEL. No, but it says, ``Organization of Homeland 
Security.'' On top is ``Secretary.'' There is a ``Deputy 
Secretary.'' Then to the left of it is ``Secret Service.'' To 
the right is ``State, Local, and Private Sector Coordination.'' 
Then it goes down and the umbrella has four departments under 
it, and one of the departments is ``Border and Transportation 
Security.'' Another is ``Emergency Preparedness and Response.'' 
Another is ``Chemical, Biological.'' And the other is 
``Information Analysis.''
    And under all of these hangars, all of these nice, 
rectangular boxes, the list that I am looking under is ``Border 
and Transportation Security.''
    Under that hangs ``Border Security,'' ``Transportation 
Security,'' ``Coast Guard,'' ``Immigration and Visa 
Processing.''
    Mr. GURULE. I do have it in front of me now.
    Mr. RANGEL. And Customs is not even in a box.
    Mr. GURULE. Well, it is envisioned certainly that the 
border security function, that Customs would fall in the box 
here for border security. And as I have stated, Customs plays a 
very important, crucial role.
    Mr. RANGEL. No matter how important the role is, it was not 
important enough even to give them a box. And we do not have 
the Secretary of Treasury to reaffirm the fact that, if they 
have every reason to believe that the Committee on Ways and 
Means that provides oversight over Treasury and over Customs, 
that if we are not going to be certain that in this transfer, 
that they do not have someone to look after their interests, 
besides just hoping that we do the best by the them--I do not 
think it is fair for us not to have the Customs Commissioner or 
the Secretary of Treasury or Tom Ridge here before us.
    Do you know when this change is supposed to take--how many 
employees are there in Customs?
    Mr. GURULE. In Customs, there are--let me tell you exactly.
    Mr. RANGEL. Roughly.
    Mr. GURULE. I will tell you exactly. There are 19,628, so 
approximately 20,000 employees.
    Mr. RANGEL. When do they move over to the Homeland 
Security?
    Mr. GURULE. The bill that the President has submitted to 
Congress provides that within--there is a transition period. 
After the legislation is enacted and signed into law, there is 
a transition period of up to 12 months. And within that 12-
month period of time, the President has discretion to decide 
which particular functions and offices and agencies transfer 
over during that period of time.
    I think that is a very important point to highlight, 
because it does provide time for addressing some of the more 
complex issues that are implicated by the creation of this new 
department. And it does afford an opportunity to work closely--
--
    Mr. RANGEL. I am on a clock, and my time is about to run 
out.
    Will we have a Customs Commissioner under the new program? 
Will that be his title?
    Mr. GURULE. Again, the entirety of Customs would go over--
--
    Mr. RANGEL. Will the union status and civil service status 
of the Customs' office as it exists now be the same?
    Mr. GURULE. Yes. At this point, it is envisioned that----
    Mr. RANGEL. No, no.
    Mr. GURULE. They will transfer with the union status, with 
their----
    Mr. RANGEL. It's a mean gavel. ``Yes'' is good for me.
    Mr. CRANE. Thank you.
    Mr. RANGEL. I have time. Don't I have a little time? Just 
one last question.
    Can you say with some degree of accuracy that Customs, as 
we know it, with all the functions as we now know it, will be 
transferred intact with the Commissioner under the present 
setting without any changes that we should be concerned about?
    Mr. GURULE. The initial transfer, it is intended that it be 
transferred over in its entirety and with the same mission, 
with the same responsibilities that it currently possesses.
    Mr. RANGEL. Could you write and tell me why Customs just 
didn't make the organizational chart?
    [The information follows:]

    Under the proposed bill, the new Department would continue 
to fulfill all of the existing functions of the Customs 
Service. While not specifically designated by name in the 
organization chart, as you point out, the President proposes to 
transfer the entire Customs Service--its border security, 
trade/revenue, and investigative missions--into the new 
Department of Homeland Security.
    To recognize the importance of Customs' functions, section 
401 of the proposed legislation specifically includes within 
the jurisdiction of the Under Secretary for Border and 
Transportation Security a number of ``primary 
responsibilities,'' including: ``(1) preventing the entry of 
terrorists and the instruments of terrorism into the United 
States; (2) securing the borders, territorial waters, ports, 
terminals, waterways, and air, land, and sea transportation 
systems of the United States. . . . (4) administering the 
customs laws of the United States; and (5) in carrying out the 
foregoing responsibilities, ensuring the speedy, orderly, and 
efficient flow of lawful traffic and commerce.''
    Certainly, the new Secretary will consider how to best 
organize the new Department in order to maximize efficiencies 
and synergies and minimize redundancies and overlapping 
missions. It is anticipated that there will be integration of 
many of the border security functions--particularly when it 
comes to headquarters bureaucracies and duplicative inspection 
activities at our ports of entry. The President wants to create 
the most efficient structure possible to ensure that our ports 
of entry and other critical assets are protected and combining 
key components will help do so.

                               

    Mr. GURULE. Sure. It may not have a separate box, but 
certainly what is most important is in the President's bill 
that has been submitted to Congress, it is very clear that the 
entirety of Customs is transferring to this new department, to 
address and to enhance security at the border.
    And then lastly, I would just like to comment with respect 
to Commissioner Bonner's absence, and he does send his regrets. 
He is in Europe working on a very important initiative, the 
CSI. And he is presently, as we speak, negotiating agreements 
with the governments of the Netherlands and Belgium to 
implement this important initiative with respect to containers 
and, in essence, moving our border back to the point of origin 
with respect to containers, so that the inspections can be 
conducted in those foreign ports.
    So it is a very important trip that he is on at this time.
    Mr. CRANE. Thank you. Ms. Dunn.
    Ms. DUNN. Thank you very much, Mr. Chairman.
    And, welcome, Secretary. It is good to have you here, 
because I think a lot of us are seriously interested in exactly 
how this whole situation will work. And as you told our Ranking 
Member, in fact in the legislation covering homeland security, 
there is a statement that the entire operation of Customs and 
its responsibility to the Secretary of Treasury will be 
transferred over to Homeland Security. That is helpful.
    I have been hearing from numerous carriers, people from my 
hometown, which is a port city, Seattle, Washington--shippers, 
truckers, express air service--about Customs' efforts to 
require more information on their manifests for security 
reasons that are obvious to all of us. Many of the carriers 
are, though, very concerned about the information they have to 
provide, the degree of it, the depth of it, as well as when 
they have to provide this information.
    The additional requirement applies to both outbound and 
inbound flow of products, and we are, of course, looking for a 
balance between security and trade, because we do not want to 
slow down the passage of product and want very careful security 
to come out of this new relationship that we are forming.
    Let me ask you a couple of questions that perhaps you can 
provide either general answers to or maybe even something more 
particular.
    Is the Administration intent to collect information on the 
manifests of all types of carriers before the cargo is loaded 
or submission of the manifest prior to departure? If so, how 
will you accommodate carriers like trucking lines and air 
couriers who are often delivering within hours of receipt of 
cargo?
    Airborne Express is an example of the kind of company that 
I represent that does overnight mail. I am sure that FedEx and 
others are in this same category.
    Can you tell me how this is going to work? Are they going 
to have to measurably change their way of doing business?
    Mr. GURULE. I would say that since September 11, we have 
certainly learned and appreciate the value and importance of 
information. I think that perhaps information is the most 
valuable weapon against terrorism and terrorist attacks. And it 
is information that must be shared if we are to prevent future 
terrorist attacks. It must be information that is shared on a 
real-time basis.
    But at the same time, we have to be sensitive to this 
important balance of security and the facilitation of trade. I 
have had numerous conversations with Commissioner Bonner on the 
subject, as well as Secretary O'Neill. And they both feel 
strongly, as I do, that we must maintain that balance.
    With respect to the sharing of information on a timely 
basis, and, as you stated, in some cases it is literally within 
hours, we want to get that information in advance. I think that 
the Automated Commercial Environment (ACE) system certainly is 
very important to achieving that end in terms of facilitating 
the easy collection of information, because when ACE is up and 
running, we will have an electronic filing system, where 
businesses can file electronically, not in paper form, but 
electronically, information with respect to manifests and goods 
that are being shipped.
    So, again, that emphasizes the importance of the ACE system 
and its value both to trade facilitation as well as security.
    Ms. DUNN. Would the Administration support a staggered 
implementation of data collection based on the type of carrier? 
And would, for example, the Administration support different 
implementation periods for outbound and inbound traffic?
    Mr. GURULE. I think on that point, certainly we would be, 
and we always are, interested in your views and concerns on 
these types of issues. And so if there is a particular issue or 
concern here, we would like to hear it. We want to work with 
you.
    We, obviously, want to do this right. We want to do it in a 
way that, again, addresses these important dual missions of 
Customs.
    Ms. DUNN. That sort of consultation would be very useful. I 
would like to take you up on that offer.
    There seems to be unanimity among carriers and importers 
that information that Customs needs should be shared directly 
with the government rather than requiring that importers send 
sensitive commercial information to a carrier which then sends 
the information on to Customs. Do you support allowing 
importers and shippers to deal directly with the government?
    Mr. GURULE. That is a question, if I might, I would prefer 
to get my response back to you in writing, so that I am 
accurately communicating the Commissioner's views on that 
particular issue.
    [The information follows:]

    This issue involves the level of reporting detail which is 
required on cargo manifest reports--the reports which carriers 
file to notify Customs of the cargo they are bringing to the 
United States. For security targeting it is desirable to have 
the most detailed information that can be practicably provided 
in the manifest report. The issue you raise is that it is not 
the carriers that have the most detailed information about the 
cargo, but their clients, importers and exporters who do not 
necessarily want to share those details with the carriers 
because the details involve confidential business information.
    One method to address this issue, and the method that is 
embodied in the G-7 standardized electronic customs messages 
that the U.S. Customs Service is incorporating in its ACE 
design, is to build links between the carriers' manifest report 
and the importers' and the exporters' reports that would allow 
the government to combine the information received from both. 
This approach can provide detailed information to the 
government while shielding confidential information, and not 
requiring carriers to report information that the government 
can obtain from another source. In the interim, it is critical 
that the carriers improve the level of detail above that which 
had been provided in the past. Descriptions such as ``freight, 
all kinds'' are no longer acceptable.

                               

    Ms. DUNN. Thank you, Mr. Undersecretary.
    And last, on the function of Customs, it sounds to me like 
you are envisioning a new Homeland Security that pays very 
careful attention to balancing the agency's core functions 
relating to trade and their new law enforcement functions, and 
that pleases me. I hope we can continue to stay in touch with 
you and make sure that it ends up that way.
    I have great regards for Customs, because it was a very 
alert Customs' agent who was able to catch for us Ahmed Ressam, 
who you recall is the foreign terrorist who moved from Canada 
to the United States through one of our ports in Washington 
State, with a trunk loaded with potential bomb materials that 
he was going to transport down to blow up the LA airport.
    And so, it is very important to us that we continue to 
operate very well in the areas of security with Customs on our 
borders and on our two ports in Washington State. But also, our 
State depends on trade for one out of three of its jobs these 
days. And so it also very important to us that that balance 
take place, because we want the transport of people and product 
to continue in the way that it has so successfully in the past.
    Mr. GURULE. Well, I am here to reassure you and every 
Member of this Committee that the Administration is committed 
to that balance of responsibilities. And that commitment will 
carry over with equal vigor to this new Homeland Security.
    Ms. DUNN. Thank you for being here.
    Mr. CRANE. Mr. McCrery.
    Mr. McCRERY. Thank you, Mr. Chairman.
    Mr. Gurule, you talked about the ACE computer system. Can 
you give us an update on the status of that, and tell us if it 
is going to follow Customs into the new Homeland Security? And 
will Customs have control over that computer system once the 
transfer is made?
    Mr. GURULE. First, the Administration strongly supports 
ACE. Again, there are many things that we have learned 
following the terrorist attacks of September 11. And as I 
stated before, the importance of information and information-
sharing is certainly one of those.
    And I think ACE is even more important today than it was 
prior to September 11, because of the enhanced ability that we 
will have to engage in better targeting of high-risk shipments 
and high-risk containers.
    So we see ACE as being important to identifying high-risk 
cargo on the one hand, and expediting low-risk trade on the 
other hand.
    Yes, it will carryover. That responsibility will remain 
within Customs, as Customs is transferred to the new 
department. And it is our intent to work aggressively to get 
ACE up and running as quickly as reasonably possible.
    Mr. McCRERY. So there is no danger that the funding is 
going to be delayed during this transfer?
    Mr. GURULE. Absolutely not. The Administration remains 
fully supportive of ACE.
    Mr. McCRERY. Let's talk about one of the specific functions 
of Customs, and that is revenue-raising functions. It seems to 
me that this is a function unique to Customs, unique among 
those departments that are to be transferred to the new 
Homeland Security. Aren't there some offices within Customs 
that do nothing but raise revenues?
    Mr. GURULE. Well, there are certainly some offices that are 
more heavily engaged in trade functions and trade revenue-
related functions than enforcement. But having said that, at 
the same time, there is a strong nexus between those office 
functions and the enforcement function, the sharing of 
information for dual purposes.
    And one example of that, if I might, is the Office of 
Strategic Trade, or OST. It has two principle purposes. One is 
to analyze trade data for trans-anomalies in compliance, and 
second, it oversees the regulatory audit function. So it 
engages in onsite audits of companies to make sure that they 
are in compliance.
    Well, that certainly has a revenue-related function, to 
ensure that these audits are not highlighting anomalies or 
revenue that should be collected that is not being collected. 
But at the same time, once these anomalies and trends are 
identified, this information is shared with Customs' 
inspectors. And a Customs' inspector may be asked, ``Well, with 
respect to this particular company, there is a shipment coming 
across the border on this date, and we want you to target it 
for close inspection.'' Or the information may be shared with a 
Customs' agent to conduct an investigation into possible trade 
fraud.
    So, again, there is a very strong synergy between these 
enforcement functions and trade revenue-collection functions.
    Mr. McCRERY. Well, while there may be a synergy, still, 
those functions seem to me to be unique, again, among the 
departments that are going to be transferred. So I just wish 
that you all consider the special needs and circumstances of 
those offices within Customs that are primarily if not wholly 
trade-related or revenue collecting-related, and make sure that 
those functions get all the resources they need in that new 
department.
    Mr. GURULE. I certainly do not want to suggest that 
anything in my comments that we would do other than that. In 
fact, we recognize, certainly, the importance of the Office of 
Strategic Trade, the importance of the ORR, the Office of 
Regulations and Rulings. And it is certainly envisioned that 
those functions will continue. They will continue with Customs. 
They will transfer over with Customs. And we need to preserve 
them. We need to preserve the work that they are currently 
engaged in.
    Mr. McCRERY. Thank you.
    Mr. CRANE. Mrs. Johnson.
    Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Chairman.
    In your work on this matter, and I assume that you have 
been in on some of the discussions about the development of the 
new department, what exactly do you think might be the 
consequences of having Customs, the Coast Guard, and 
Immigration in the same department?
    Mr. GURULE. Well, certainly, it is envisioned that the 
consolidation, bringing together these different agencies that 
have related functions, will enhance cooperation with respect 
to border security, and will enhance information-sharing and 
coordination.
    Mrs. JOHNSON OF CONNECTICUT. I can generally see that. 
Could you give us examples? I can see that there might be some 
good cross work there, but can you give some examples of INS at 
the border, of you guys at the border? How will these missions 
complement one another so that actually you could each do your 
job more effectively? Or will it make any difference, you will 
just be side-by-side?
    Mr. GURULE. No, I think it definitely will make a 
difference. And I think one way is that there is accountability 
here. There is a streamlining of the chain of command. So 
instead of these different agencies reporting to different 
departments with different secretaries, different leadership, 
now we have these agencies that are in the same department. And 
in the case of the division for border and transportation 
security, they will report to a single Undersecretary. And the 
single Undersecretary will be overseeing the coordination of 
these important functions and responsibilities.
    So it is a streamlining of the information chain, if you 
will, and the complementing and the targeting and concentrating 
of resources.
    Mrs. JOHNSON OF CONNECTICUT. Do you foresee cross-training 
at any level?
    Mr. GURULE. Well, it is certainly a possibility. And it 
could be that it would make sense to have that done. But that 
is a decision that the new Secretary for Homeland Security will 
make and I think will certainly make with the objective of 
enhancing security and enhancing good government, because, 
again, that is another important objective of the President's 
bill, to reduce the redundancies, reduce the overlapping of 
responsibilities, to make these agencies work more effectively 
and efficiently. So certainly, I could envision that happening.
    Mrs. JOHNSON OF CONNECTICUT. Thank you.
    Mr. CRANE. Ms. Thurman.
    Ms. THURMAN. Thank you, Mr. Chairman.
    Mr. Undersecretary, we welcome you and thank you for being 
here today.
    And I think as you know, all of us are wanting to see the 
Homeland Security Bill passed and implemented. But I do also 
think that we need to be concerned.
    And I would kind of want to pick up a little bit on what 
Mr. Rangel and this box thing. I do not know if you had an 
opportunity to look at Colleen Kelley's testimony that she is 
going to be giving today. She really does make some very good 
points as to having Customs kind of as their own entity instead 
of being folded in as one large entity, because we are not 
doing it with Coast Guard, we are not doing it in some other 
areas, but just talking about what they have to do and what 
they have been doing in protecting our borders, interdiction of 
drugs, all of the other kinds of things. And so I am a little 
bit concerned that they are going to lose identity.
    And you can respond to that, and I hope that you will get a 
chance to look at this and give us some response back to what 
they have said. And hopefully, as we go forward, we do in fact 
take into consideration those that know the job out there every 
day and why they feel so strongly in their commitments to their 
jobs. On the security issue, I think we do need to be listening 
to those people that are on the frontlines.
    The second thing that I would bring up, and I do not know 
if you remember this, but last year we had a Customs' bill 
before this Committee, and we had a huge fight over the benefit 
issue, particularly as it dealt with how they were paid and the 
differential pays that they received for nighttime work and 
those kinds of things. And according to some work that has been 
done by our staff, one of the things that they looked at is 
saying that section 730 of the proposal appears to remove all 
Homeland Security employees from the existing statutory 
framework governing employment of Federal employees. 
Specifically, section 730 removes all employees transferred to 
the new Homeland Security from existing Title 5, which governs 
the employment of Federal workers by creating new chapter 
within the title. So section 730 then leaves it to the 
discretion of the Secretary of Homeland Security and the 
Director of the Office of Personnel and Management (OPM) to 
decide what rules and regulations to apply to Homeland Security 
employees.
    What comfort can you give us here today, as those Members 
of this Committee who have been through this fight over the 
last couple of years, and certainly was taken out of the bill 
in changing it, what comfort can we get that these employees 
will be treated as they have been and certainly considered and 
given the rights that Federal employees are given?
    Mr. GURULE. First, let me publicly state what I have stated 
personally and directly to Customs' employees, and that is that 
this country owes a great deal of thanks and gratitude to the 
hard work, the dedication, and the professionalism of Customs' 
employees who have worked tirelessly, certainly since September 
11, who are working 12 hours and in some cases longer----
    Ms. THURMAN. Absolutely.
    Mr. GURULE. And 6 days a week and so on. It is remarkable, 
and we owe them a great debt of gratitude.
    I think it is interesting to note that the important 
contribution that Customs' inspectors are making to make this 
country safer for all Americans was recently recognized by 
Commissioner Bonner when he went ahead and changed or upgraded 
their GS status from a GS-9 to a GS-11.
    Ms. THURMAN. But could that change if they were transferred 
over?
    And let me ask, before my time runs out, second, and being 
recognized and doing that is great, but in the development of 
this plan, how much have we counted on those people on the 
frontlines to give us input into this, into the President's 
proposal?
    Mr. GURULE. Let me respond to your first question. You 
asked about the change of status and such. It is envisioned 
that these Customs' employees, when they would transfer over to 
the new Homeland Security, would carry with them their current, 
present GS status, their pay status, their benefits, even 
including their union status. What this bill seeks to do is 
provide the new Secretary of Homeland Security with some 
flexibility to retain employees, to promote employees, to make 
sure that we have the right people with the right expertise to 
ensure that this new department gets up and running effectively 
and as quickly as possible. That is the objective. And I think 
that, if anything, Customs' employees seek to benefit and 
benefit in a very significant way from this legislation.
    And second, I'm sorry, was?
    Ms. THURMAN. And how much input have we used from those 
employees on the front line, in putting this together?
    Mr. GURULE. Well, I think certainly, in kind of a 
democratic process, it is the senior staff that obviously have 
been engaged, and extensively, in discussions about this 
proposal. And then it is dependent upon the senior staff to 
engage their supervisors and such. And so in that way, I think 
that has been an opportunity for input.
    Mr. CRANE. Mr. Portman.
    Mr. PORTMAN. Thank you, Mr. Chairman.
    And thank you, Mr. Gurule, for being here today and getting 
us started on what will be a major undertaking, but one that we 
are all committed to, because it is so critical to try to 
better protect, in the case of Customs, our borders and ports 
and ports of entry, many of which are inside the United States, 
including Cincinnati, Ohio, that I represent, from terrorism.
    I guess a couple quick questions. One would be, if you were 
arriving in the greater Cincinnati airport and going through 
Customs and Homeland Security was in charge of Customs rather 
than Treasury, what difference would it make?
    Mr. GURULE. Well, that, in terms of what difference it 
would make, is a decision that ultimately is going to be 
decided by the new Secretary of this new department. And as I 
stated, there is this 12-month transition period that the 
legislation provides, with respect to the functions being 
transferred over. But at the same time, there is a transition 
period--and, actually, beyond that 12-month period, for the new 
Secretary to decide how these agencies are going to be 
configured or reconfigured or how they are going to complement 
one another.
    And so I think it is a very thoughtful and a very 
deliberate plan, because I think it does three things that are 
very important. I think, first, it advances the President's 
goal with respect to consolidating quickly these very important 
border agencies. Second, I think it does so in a way that is 
least disruptive to the border security functions, because it 
transfers over Customs intact. And then, third, it provides for 
this transition period to work through some of the more 
difficult and complex issues, issues that, again, we welcome 
input and consultation with the Members of this Committee in 
resolving and working out.
    Mr. PORTMAN. A couple of quick questions.
    One, do you all have a sense that you have lost any 
employees to the new Transportation Security Administration?
    Mr. GURULE. Oh, we have. It is not even a question of--I 
mean, clearly, clearly we have. There have been Secret Service 
Uniformed Division officers that have been----
    Mr. PORTMAN. How about Customs?
    Mr. GURULE. That have left.
    Less so. Less so with Customs. I think for me, and I have 
oversight responsibility not only for Customs but Secret 
Service, I have seen the exit more so with Secret Service. 
There have been some instances with Customs, but I do not think 
the numbers have been all that high.
    Mr. PORTMAN. I ask that because we have seen that here with 
Capitol Hill police, and you have seen that with the UD guys at 
Secret Service, and other law enforcement. And I think it just 
makes the point that there are different rules that now pertain 
to the roughly 100 agencies and departments and offices that 
would be consolidated.
    And getting to the earlier question about flexibility, it 
would seem to me that there would be the need not just to give 
the Secretary some flexibility on hiring and firing, to be sure 
that he is able to retain good people and attract the kind of 
people we need for this function, but also that there be some 
leveling of some of the pay and benefits so that you don't have 
one agency robbing another, robbing Peter to pay Paul, within 
the same department. It would be particularly acute within the 
same department, I would think, given that your goals will now 
be to work together.
    I have read your legislation, and you do not have much 
specificity with regard to your personnel issues, but you do 
ask for some flexibility, which I hope that you will have, in 
part to be able to level out some of these issues, so that you 
don't have that kind of competition.
    Mr. GURULE. I think that is important. It is certainly 
important for continuity of operations, for enhancing 
efficiencies, and for these agencies to work even more closely.
    Mr. PORTMAN. Do you have pay bands at Customs?
    Mr. GURULE. Well, that is an issue that--there has not been 
a decision reached on that. I think the legislation provides 
some flexibility. We are seeking flexibility there. But with 
respect to pay banding, that is a decision that is better left 
and will be left for the new Secretary.
    Mr. PORTMAN. Do you provide intelligence information from 
Customs currently?
    Mr. GURULE. Do we provide intelligence? Certainly there is 
intelligence information that is being shared on a regular 
basis between Customs and the intelligence communities. We see 
that through Operation Green Quest. Operation Green Quest is 
collecting information, enforcement information, intelligence 
information, and sharing it regularly with the FBI and working 
closely with the intelligence community.
    So I think we have made some significant and substantial 
progress to breaking down stovepipes and engaging in a free 
flow or certainly a much freer flow of information and 
information exchange.
    Mr. PORTMAN. I think that is an important point to make, 
that part of the advantage of this agency is not just FBI and 
CIA information that can now be more readily collected, 
synthesized, and hopefully matched with vulnerabilities or 
risk, but that many of these entities, including Customs, have 
valuable information, some of which may be integrated already, 
some of which may not. And the same would go for the INS, even 
the inspections and the Coast Guard. And this could be a 
valuable advantage to us and a more efficient way to get that 
information where it needs to go.
    Mr. GURULE. And I would add that this is one other 
important reason for moving forward and moving forward 
aggressively with ACE, because ACE has the potential of being 
the IT platform for multiple law enforcement agencies that are 
involved in tracking goods and personnel across the U.S. 
borders. So they would be able to access this information, 
including the INS. And in a very expeditious way, it would be 
accessible.
    Mr. PORTMAN. Thank you, Madam Chair.
    Mrs. JOHNSON OF CONNECTICUT. [Presiding.] Thank you. Mr. 
Doggett.
    Mr. DOGGETT. Thank you very much.
    Mr. Secretary, the President has of course urged the 
Congress to move swiftly in enacting this legislation. If that 
occurs, how soon after enactment is it realistic to expect that 
these Customs' employees will be over working as a part of the 
new Homeland Security?
    Mr. GURULE. Well, there is no question that, first of all, 
the legislation is very specific on this point. These 
functions, these agencies and responsibilities, will transfer 
over within a 12-month period of time, so within that period of 
time. Twelve months is the outside limit. But it is certainly 
envisioned that these agencies could transfer over sooner than 
that. But, again, the actual timing will be decided by the 
Secretary working closely with the President.
    Mr. DOGGETT. But the outside limit is not more than a year 
after it is signed.
    Mr. GURULE. That's correct.
    Mr. DOGGETT. It was quite natural, of course, to see 
Customs transferred. I was surprised that the agency within 
your department that has principle responsibility for keeping 
tabs on explosives and guns that could fall into the hands of 
terrorists, that that agency was not transferred. Does the 
department oppose the transferring of the ATF agency to this 
new department?
    Mr. GURULE. Well, the President made the decision based on 
what needs to be done quickly to secure the homeland. I 
recognize that there are other ideas out there about other law 
enforcement agencies and whether they should be included as 
part of this new department. But this proposal is designed to 
cover the changes that need to be made now to enhance security.
    Mr. DOGGETT. And the President does not think that dealing 
with explosives is something that needs to be done now?
    Mr. GURULE. No. Certainly, dealing with explosives not only 
is something that needs to be done now, it is being done now. 
And it is being done quite effectively by ATF. In fact----
    Mr. DOGGETT. Does ATF have a key role in the war on 
terrorism?
    Mr. GURULE. They are playing a very important role, 
especially with respect to inspection of facilities that house 
and store explosives. So the answer is yes.
    Mr. DOGGETT. The department does not oppose their being 
transferred there, the Treasury Department?
    Mr. GURULE. The Administration has not made a decision with 
respect to ATF.
    Mr. DOGGETT. I guess it has made a decision not to transfer 
it in that it is not included in the bill.
    Mr. GURULE. It is not included. That is correct.
    Mr. DOGGETT. But Treasury has taken no position itself of 
opposing the transfer?
    Mr. GURULE. The position that Treasury has taken is to 
support fully the Administration's position at it stands.
    Mr. DOGGETT. And what reason is there to separate out the 
key role that ATF plays in opposing terrorism from this 
Homeland Security?
    Mr. GURULE. The only thing that I can say is that this was 
certainly considered by Homeland Security, considered by 
Governor Ridge, and the President. The decision was made to not 
include ATF. A decision was made that the current 
organizational structure that is proposed is sufficient to 
provide the enhanced security that the President is seeking.
    Mr. DOGGETT. Thank you.
    Mrs. JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Gurule.
    Mr. Rangel, do you have any additional questions?
    Mr. RANGEL. No, but I really did not understand the last 
answer, as to why ATF was not included in Homeland Security. I 
mean, if we all agree that they are doing a terrific job in 
terms of protecting our great Nation, and if this is Homeland 
Security, get them all under the same umbrella, what was the 
thinking in not just automatically including them as a part of 
that? Just what is the thinking? We support you, and we support 
the President, just why did you not do it?
    Mr. GURULE. Again, as I stated, there are certainly 
different views with----
    Mr. RANGEL. Just give us one.
    Mr. GURULE. Respect to which agencies should be included, 
should be excluded. The President made a decision with respect 
to these particular agencies and believes that including these 
particular agencies in this new department will enhance 
security and will enable us to do so, enable the Administration 
to do so in a very timely, very timely way.
    Mr. RANGEL. So it doesn't matter how many different ways I 
ask the question, you will not tell me why they reached that 
conclusion, right?
    Mr. GURULE. I believe I responded to the question the best 
that I am able to.
    Mr. RANGEL. Thank you.
    Mrs. JOHNSON OF CONNECTICUT. Thank you very much for your 
testimony. We apologize for keeping you so late. And we will 
move on to the next panel.
    Mr. GURULE. Thank you. It was a pleasure. Thank you.
    Mrs. JOHNSON OF CONNECTICUT. I would like to welcome 
Timothy Farrell, Deputy Executive Director of the Port of 
Tacoma in Washington; James Clawson, the Chief Executive 
Officer of JBC International and Secretariat of the Joint 
Industry Group; Jerry Cook, Vice President of International 
Trade, Sara Lee Branded Apparel, Winston-Salem, North Carolina; 
and Colleen Kelley, National President of the National Treasury 
Employees Union.
    Welcome to all of you.
    And thanks very much to our national Archives for bringing 
this fine document for our observation today. Thank you.
    Mr. Farrell, if you will proceed?

 STATEMENT OF TIMOTHY FARRELL, DEPUTY EXECUTIVE DIRECTOR, PORT 
                 OF TACOMA, TACOMA, WASHINGTON

    Mr. FARRELL. Thank you. I would like to thank the Committee 
for the opportunity to speak with you this evening.
    As you mentioned, my name is Tim Farrell. I am the Deputy 
Executive Director of the Port of Tacoma, Washington.
    Among the responsibilities that I oversee at the port is 
the integration of security into the free flow of trade through 
our port. And since September 11, we have dedicated more 
resources and greater vigilance to that task. And certainly we 
have had great partnership and help from the Federal Government 
and its various agencies, including Customs, as well as our 
private sector customers and partners.
    I want to focus on three messages tonight. First, as you 
know, Customs is a very important player in both international 
trade and border security and, as such, has a major role to 
play in the economic vitality of the United States. As you 
heard earlier from Representative Dunn, Washington State is the 
most trade-dependent State in the Union, with one in three jobs 
related to international trade.
    Second, as Customs integrates new security programs and 
standards into its operations at border crossings and ports, 
Customs needs to take care to assure that uniform application 
of these procedures at all border crossings and ports takes 
place. A non-level playingfield, from a regulatory standpoint, 
impacts both security and commerce, as I will explain a little 
bit later.
    And third, continued cooperation and coordination with 
Canadian Customs to assure comparable security protocols is 
essential in averting the risk of diversion of U.S.-bound 
cargoes from U.S. ports to Canadian ports.
    Let me give a little bit of background on the Port of 
Tacoma, which operates on 5,000 acres of tide lands on Puget 
Sound about 30 miles from Seattle.
    Tacoma along with Seattle comprises the third largest 
container gateway in the United States. The two combine to 
handle nearly 3 million containers each year. Most of those 
containers move through our ports into other parts of the 
country. In fact, 70 percent of imported containers move on to 
places such as the U.S. Midwest and Northeast. The Port of 
Tacoma handled $20 billion in international trade in 2001, and 
$3 billion in domestic trade as the gateway to Alaska.
    The Port of Tacoma is also one of the U.S. Maritime 
Administration's 13 strategic ports, based on its proximity to 
major military installations and its ability to load military 
cargoes out from those installations.
    As I mentioned, Tacoma is close to the Canadian border, and 
that has an impact on our activities and on the regulatory 
framework in which we operate.
    Finally, the port generates directly and indirectly over 
100,000 jobs within the State of Washington. And as such, we 
take regulation and security matters very seriously because 
trade is a major part of our economy in Washington State.
    A little bit about what we have done in the ports, 
particularly in Puget Sound, about security since September 11: 
Ports of Seattle, Everett, and Tacoma jointly filed an 
application for Federal funding under the grant program that 
came out earlier this year. As far as we know, we were the only 
port range that submitted a joint application. We work closely 
together because you are only as secure as your neighbor. That 
grant program focuses much on target hardening, as it is 
called, fencing, barriers, cameras, officers, lighting, that 
sort of thing.
    In addition, the Ports of Seattle and Tacoma are working 
together on a version of Operation Safe Commerce; Secure 
Maritime Asian Routes for Trade, SMART is our acronym for it, 
but essentially, it is similar to what you have heard about 
going on in the Port Authority of New York and New Jersey.
    This program is designed as a way to determine best 
practices in securing the container logistics chain from the 
point of origin to the point of destination. It is based on the 
principle that if we find a weapon of mass destruction in a 
container in a U.S. port, it is too late. And so the critical 
information that we need to know is whether or not a container 
is loaded in a secure environment. And then from that point to 
its destination, is it secure, has it stayed en route, has it 
stayed on scheduled, has it been tampered with? And the Ports 
of Seattle and Tacoma, along with the other two major gateways 
for containers in the country, Los Angeles and New York-New 
Jersey, are working to determine some best practices for how we 
might consider and determine that containers are loaded and 
moving in a secure fashion.
    We are looking forward to Federal assistance and 
partnership in making that process go forward.
    With regard to Customs, it is critically important that in 
this time, where we consider changes to Customs and where its 
reporting relationships lie, that we do not compromise the non-
security-related functions of Customs while at the same time we 
pay very close attention to security.
    Customs, as you heard earlier from the Undersecretary, does 
have trade and revenue functions, as well as security 
functions.
    I would call on the Congress to assure that, as we go 
forward in this security environment, that not only do we pay 
very close attention to security but that those things that 
Customs does to help the flow of commerce, including the 
development of the ACE system, be continually funded and 
supported.
    I mentioned briefly in my introductory statement about our 
proximity to Canada and balanced implementation of regulation. 
There is a concern in our part of the country, in the Pacific 
Northwest, as well as some other places, including New York-New 
Jersey and Boston, that implementation of security regulations 
could have the negative impact of diverting cargo to foreign 
ports, foreign in this case being Canada.
    This is an instance where we want to be very careful not to 
do the terrorists' jobs for them and use our security system to 
slow down commerce to the extent that commerce chooses to go in 
other directions.
    Should that happen, two things occur. One is the obvious, 
immediate economic impact. I mentioned 100,000 jobs rely on the 
Port of Tacoma. The second is security. If cargo moves through 
another country, then we face the potential of a lower level of 
scrutiny in that Nation. So Customs has a very delicate 
balancing act that it accomplishes quite well, and that is the 
movement of trade, the facilitation of trade, as well as 
safeguarding our country from that trade.
    One of the impacts that we could see, if we do not do this 
quite right, is steamship lines and other entities that report 
to Customs reporting to multiple agencies for their 
information. And we do not want to see that. That is a way of 
creating greater work for our customers in terms of reporting 
their information. If we keep Customs in its singular grouping 
with both sides of the house, we can serve those companies that 
generate trade and keep our economy flowing.
    I want to commend Customs on its new programs: the CSI and 
the C-TPAT program. I think those are both strong initiatives, 
creative initiatives, in the direction of securing trade while 
continuing to make it happen. I think it is incumbent upon us 
and Congress to make sure that those programs are properly 
funded.
    So just to summarize, I would like to issue a couple of 
challenges. One is to Customs, and that is to maintain balanced 
application of the regulations that it puts forth to the 
business community; and second, to Congress, to oversee Customs 
to ensure that, again, the focus on security doesn't overshadow 
the commercial functions of Customs, and also to support 
Customs in each of those areas, to make sure that it is 
properly funded to do so.
    So I thank you for the opportunity again. And I am happy to 
take any questions you may have.
    [The prepared statement of Mr. Farrell follows:]
   Statement of Timothy Farrell, Deputy Executive Director, Port of 
                       Tacoma, Tacoma, Washington
    Good afternoon, Chairman Thomas and Members of the committee. My 
name is Tim Farrell and I am here today representing the Port of 
Tacoma. As the Port's Deputy Executive Director, balancing security 
with the efficient flow of cargo across our docks is one of my 
paramount responsibilities and concerns. Though ports have always 
devoted resources to safety and the protection of cargo, the industry 
now shares an especially keen sense of responsibility with Congress and 
other governmental entities in these challenging days since September 
11th, 2001.
    Before I begin my formal remarks, let me first put my comments into 
context by describing some of the Port's key attributes. The Port of 
Tacoma moved more than 1.3 million containers across its docks in 2001 
and, when combined with the Port of Seattle, represents the nation's 
3rd largest intermodal gateway. Each year, the Port of Tacoma handles 
more than 15 million tons of cargo, amounting to more than $20 billion 
in international trade. Seventy percent of these international 
containers--holding products ranging from shoes to machinery--are 
transferred from ships to trains and are headed for markets in the 
Midwest and East Coast. Additionally, the Port of Tacoma handles an 
additional $3 billion worth of trade as the Gateway to Alaska, with 
more than 75 percent of all consumer goods bound for Alaska transported 
through Tacoma on the CSX and TOTE ships.
    Another important distinction Tacoma has is serving as one of the 
U.S. Department of Transportation Maritime Administration's 13 national 
``strategic ports''--a designation based on the load-out capabilities 
the Port of Tacoma provides to Fort Lewis. With nearly 102,000 jobs in 
Washington State related to activities at the Port of Tacoma, the Port 
serves as a major economic engine for the Pacific Northwest.
    The Port of Tacoma appreciates the opportunity today to share its 
perspectives on the proposal to incorporate the U.S. Customs Service 
into a new Department of Homeland Security. The U.S. trade policies are 
built on democratic principles of free and fair trade, and competition. 
The U.S. Customs Service capably faces the daunting responsibility of 
safeguarding this free flow of trade and has embraced the elevated 
challenge of allowing trade to continue to be free and fair in a 
heightened security environment. Ports also recognize the trade 
landscape has been forever altered, and that we must find new ways to 
continue doing business while integrating enhanced security. The Port 
of Tacoma is engaged in several initiatives on this front, including 
development of a ``Operation Safe Commerce'' model program called SMART 
(Secure Maritime Asian Routes for Trade) that would ultimately track 
containers from the point of origin and through the United States.
    Though the need for including U.S. Customs in the proposed Homeland 
Security Department is logical, Congress should not let this enhanced 
focus on security compromise the traditional responsibilities of U.S. 
Customs. It is imperative that Customs' activities such as: tracking 
merchandise entering the country, air and sea surveillance and 
interdiction, and fighting drug smuggling continue to receive ample 
priority and funding. In my brief time with you this afternoon, I would 
like to convey three primary messages:

         U.S. Customs is an integral link in our nation's 
        economic chain of commerce. Ensuring the secure, legal and 
        expedited movement of goods into and out of our country is 
        essential to our economic vitality.
         As U.S. Customs integrates new security standards 
        into its traditional cargo inspection and tracking methods 
        through ports across the country, care must be taken to keep 
        procedures uniform and proportional from one port to another.
         Continued cooperation and coordination with Canadian 
        Customs, in establishing comparable security protocols, is 
        essential in averting the risk of cargo diversion out of U.S. 
        ports.

    Now, let me expand upon these points. As a port in the Pacific 
Northwest, we are especially aware of the vital role U.S. Customs has 
always played in protecting our country's land and sea borders. We 
consider Customs to be a primary partner in safeguarding the flow of 
trade through our port and we work closely with our local agency 
officials. It must be recognized, though, that not only does Customs 
have the power to ensure that cargo is legal and safe, it also has a 
direct impact on a port's ability to be competitive. In these 
challenging times for the world's economy, steamship lines are placing 
even greater emphasis on doing business with ports that can accommodate 
their need to move goods quickly onto and off of ships. If a port 
cannot provide efficient service, our customers (steamship lines and 
shippers), may decide to call elsewhere. In the case of ports along the 
Canadian border, this may mean jobs that would have resulted from ships 
calling at the ports of Seattle, Boston or New York/New Jersey, may 
instead end up going to workers in Vancouver, B.C., Montreal or 
Halifax.
    These competitive and security realities require all ports to focus 
on ensuring each step in the economic trade chain is operating 
efficiently. For example, what we have long heard from our customers--
but even more pronounced since September 11th--is that the procedures 
U.S. Customs is employing in Tacoma are more time-consuming and costly 
than at other West Coast ports. There have been numerous instances 
where steamship lines report cargo to and from Eastern Asia is 
inspected at a much higher proportion in Tacoma than at other West 
Coast ports.
    Another recent concern expressed by our customers is whether 
Customs is requiring a standard percentage for ``devan'' to be 
consistently carried out at all ports. (The term devan refers to the 
physical unloading process of the container's contents for inspection.) 
If U.S. Customs officials devan 100% of a container at one port and 
only 25% per container at another port, this would result in dramatic 
differences in efficiency and the cost of moving cargo through ports. 
For the shipper, this means lost revenue and time associated with 
having the cargo wait a day or more on the docks for the inspection, 
since a 25% devan typically takes 30-60 minutes and a full devan can 
commonly require six or more hours. The shipper also bears the direct 
expenses associated with labor's additional handling of this cargo 
which can range per container from $287 for a 25% devan up to $673 for 
a complete devan. By way of comparison, it is like an airline passenger 
missing a flight because their luggage was searched and then receiving 
a bill afterwards for the service.
    We are working with Congresswoman Jennifer Dunn and other Members 
of our congressional delegation to gather data from U.S. Customs 
quantifying these assertions of disproportionate inspections and non-
uniform methods. I share these examples with you in order to illustrate 
Custom's influence on the efficient handling of cargo through all 
ports. The fine points of policy making in Customs, such as employing 
consistent inspection methods, must not be lost in the much bigger and 
important mission of Homeland Security.
    Coordinating consistent inspection and security protocols with 
Canada must also be a priority. Given our proximity to the Port of 
Vancouver, B.C., the ports of Tacoma and Seattle have long been 
sensitive to the threat of cargo diversion. Onerous policies like the 
Harbor Maintenance Tax, which add extra charges to containers bound for 
U.S. ports, create an incentive for steamship lines to offload their 
cargo in Canada. Congress must be vigilant in making sure that cargoes 
face the same level of scrutiny in Canada, as they would face if those 
goods were shipped directly into our country. Should the perception 
develop that it is easier to move goods into the U.S. through Canada, 
not only would our nation's ports be disadvantaged, but our country 
would face a greater security risk. We recognize the efforts that U.S. 
Customs has taken thus far to work with Canadian Customs on programs 
such as Smart Boarder and the innovative CSI (Container Security 
Initiative) and the C-TPAT (Customs Trade Partnership Against 
Terrorism) effort.
    As Congress explores the inclusion of the U.S. Customs Service into 
a Department of Homeland Security, we believe it is critical to not 
lose sight of the importance of this agency's traditional mission. We 
look forward to working with the Congress, Customs and other critical 
U.S. agencies in integrating the enhanced requirements for security in 
concert with maintaining our nation's efficient flow of trade. On 
behalf of the Port of Tacoma, thank you for this opportunity to share 
these issues before this Committee.

                                 

    Chairman THOMAS. [Presiding.] Thank you, Mr. Farrell.
    And since you were the first Member of the panel, prior to 
going to Mr. Clawson, as we move across the panel, we would 
like to get the horse before the cart, so it is my pleasure to 
call on the gentlewoman from Washington to introduce you.
    [Laughter.]
    Ms. DUNN. Thank you, Mr. Chairman. I appreciate you letting 
me step in here. We had a mixed message going on there, but you 
have already heard from Tim Farrell.
    Tim of course is the Deputy Executive Director for the Port 
of Tacoma. These are two terribly important ports to us, not in 
but near my district, the Port of Tacoma and the Port of 
Seattle. In Washington State, one out of three jobs are related 
to trade, so it is no coincidence that the Port of Tacoma plays 
a vital role in our economic viability and in the 
competitiveness globally of our region.
    The Port of Tacoma, as Mr. Farrell has told you, handles 
more than 15 million tons of cargo, amounting to about $20 
billion a year in trade. Seventy percent of the containers that 
arrive in the port are bound for markets in the Midwest or East 
Coast, so you can see that we are a gateway to the rest of the 
United States. And what is done under the Customs' jurisdiction 
is, therefore, terribly important to us.
    Tim has extensive experience in port management. He is 
responsible for a variety of port departments there in Tacoma, 
including finance, human resources, information technology, 
security, and risk management. Before he came to us at the Port 
of Tacoma, he worked for 7 years at the Massachusetts Port 
Authority. He is a native of Massachusetts. He graduated from 
Middlebury College. However, since he took his master's degree 
at the University of Washington, we do consider him a native of 
the Pacific Northwest.
    Mr. Farrell has already brought out some very important 
points that have to do with competition between our ports and 
ports in other Nations. And I look forward to bringing some 
more points out from him as we go through questioning.
    Thank you, Chairman.
    Chairman THOMAS. Thank the gentlewoman.
    The next panelist, thank you for coming. James Clawson, 
Chief Executive Officer of JBC International, who is here for 
the Joint Industry Group. Your written statement, if you have 
one, will be make a part of the record. You have 5 minutes to 
address us in any way you see fit, Mr. Clawson.

  STATEMENT OF JAMES B. CLAWSON, CHIEF EXECUTIVE OFFICER, JBC 
      INTERNATIONAL, AND SECRETARIAT, JOINT INDUSTRY GROUP

    Mr. CLAWSON. Thank you, Mr. Chairman and Mr. Rangel and 
Members of the Committee. As usual, it is a pleasure to be here 
again.
    Chairman THOMAS. Mr. Clawson, let me tell you, these 
microphones are very unidirectional, so you need to really talk 
directly into the end of it.
    Mr. CLAWSON. Thank you very much. I just wanted to thank 
you and Mr. Rangel and the Members of the Committee.
    In the interests of time, you have my written testimony. I 
thought that since I have been here enough on behalf of the 
Joint Industry Group and others for the last 20-plus years, I 
would like to just tell you some of our thoughts about where we 
are.
    We fully support the proposal. We recognize that there are 
issues about it that are difficult to understand, and we are 
still looking forward to clarification. But we do support it 
for all of the reasons that have been described by the 
Undersecretary.
    We also think that Customs ought to be kept together. There 
was discussion about splitting it. And, again, we support it 
for the reasons that were given, that Customs' dual mission is 
inextricably combined and cannot be separated.
    Let me tell you the two things that I want to recommend to 
this Committee and to Congress that I think are very important. 
We have made the same recommendations to the Administration, 
and we will see where it goes. We totally agree with those who 
are concerned about the disappearance of Customs. We think 
there ought to be created within that chart that has been 
talked about a sixth Undersecretary for Customs Commercial 
Operations, just like the U.S. Department of Commerce has an 
Undersecretary and Commissioner for the Patent and Trademark 
Office. There is absolutely no reason why there cannot be an 
Undersecretary for the commercial work and the commercial side 
of the Homeland Security, giving it the same stature as the 
border security.
    In the early seventies, I worked in Treasury. We tried then 
to get a single border agency. It needs to be there, make no 
mistake, for all the reasons that are described. But I think it 
is critical that the commercial functions and all of the things 
that we talk about, from quotas to intellectual property 
protections, all the things mentioned in the Chairman's opening 
remarks, that they not be subsumed under some Undersecretary 
whose first priority has been given that of the security of our 
Nation's borders from terrorists and other security issues. I 
think that that is the critical nature of the recommendations 
that we make, to have that level of visibility, if you will, 
within the new department, reporting to the Deputy Secretary.
    And then equally as important, we believe this Committee, 
which has had oversight for many years over those issues, ought 
to continue to have jurisdiction and oversight over that 
portion of the work of Homeland Security, which would be the 
Commercial Operations/Customs, if you would call it that.
    And then there are some other suggestions that we are 
concerned about that haven't been addressed in this discussion. 
I am referring to ACE. We have been very active in getting the 
funding for ACE. There are over $600 million that has already 
been appropriated. We are way into it; 8 years after the 
Customs Modernization Act (MODACT) and the trade is still 
waiting for a lot of the implementation to be done. And I think 
there is a real concern that ACE will be put on the back burner 
again, even though all the assurance is to the contrary.
    It is interesting that Customs has had 8 years to do ACE 
and has not done it. But it has deployed and put into place in 
less than 10 months enormous amounts of technology with regard 
to the security of our country. And I think it speaks to our 
concern over the fact that, when there is a priority--and I am 
not arguing that we shouldn't be concerned about the security 
our country. What we are concerned about is providing this 
commercial role sufficient priority with the other functions 
with regard to the economy of our country. And that is quite 
important.
    In closing, I think it is important that, for budget 
discussions within the government in the future, and for the 
whole idea of coordination, there ought to be equal standing 
between the commercial side and the enforcement-security side, 
from that dual role.
    And I am happy to take any questions that you might have.
    [The prepared statement of Mr. Clawson follows:]
      Statement of James B. Clawson, Chief Executive Officer, JBC 
          International, and Secretariat, Joint Industry Group
INTRODUCTION
    Mr. Chairman and distinguished Members of the House Ways & Means 
Committee, my name is James B. Clawson and I am the Chief Executive 
Officer for JBC International. I also serve as the Secretariat for 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 U.S. 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 before this Committee to share with you 
the comments of the Joint Industry Group and its Membership regarding 
President Bush's proposal to create a U.S. Department of Homeland 
Security. More specifically, I will address the transfer of all assets 
and authority of the U.S. Customs Service to the new Department.
    The JIG recognizes the daunting task that lies ahead in the 
creation of the Department of Homeland Security. The architects of the 
reorganization will need to take a careful approach to anticipate the 
future needs of the agencies involved and the people they serve. They 
should fully evaluate the effectiveness of including or excluding the 
enforcement functions of additional agencies. In addition, they should 
not rush to meet any deadline that is essentially chosen for the 
purposes of public relations. It is essential that U.S. Customs and the 
Administration not lose sight of their role to facilitate the flow of 
trade during the reorganization. Customs should continue with their 
efforts to develop and implement smarter tools for facilitation, 
including the Automated Commercial Environment (ACE), and they should 
continue to engage the support of the trade community in building 
better business procedures.
    For years, U.S. Customs has been the agency on the front line, 
serving a dual role to defend our nation's borders and to facilitate 
the flow of trade. Governor Ridge and Commissioner Bonner have taken 
into consideration this dual mission as they look to move Customs out 
of Treasury and into the new Department of Homeland Security. However, 
many Members of the trade community continue to have concerns over how 
this new department will balance Customs' commercial and enforcement 
operations after being placed within a single ``Security Department.'' 
There are those Members of the JIG who feel that certain branches of 
Customs would best remain with the Treasury Department while several 
other agree with the opinion of Commissioner Bonner that Customs' dual 
role is inherently inseparable.
    We recognize that the trade will not make the ultimate decision to 
incorporate Customs into the new agency or to leave it in one piece. 
However, we are in a position to state our concern for the continuation 
of attention to commercial interests, trade facilitation efforts and 
continued funding of those activities.
CONTINUING EFFORTS TO FACILITATE TRADE
    In recognition of the many dangers facing the nation, the U.S. 
Customs Service has relied upon technology to keep pace with the volume 
of trade and the threats posed by transnational criminal organizations. 
The JIG has worked with Congress and the Administration to emphasize 
the importance of the U.S. Customs Service and its efforts to modernize 
its systems. Both Congress and the Administration have shown great 
support for the development of the Automated Commercial Environment 
(ACE). This system is not 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. Commissioner Bonner has repeatedly 
assured the trade that ACE will be fully implemented within an 
appropriate time frame. By arming U.S. Customs officials with 
information, this modern and efficient system will not only facilitate 
trade, but will also strengthen the government's ability to secure our 
nation's borders.
    We applaud the support that the Committee on Ways and Means, 
specifically Chairman Crane and his Subcommittee, has demonstrated for 
understanding that ACE facilitates U.S. exports and imports, while 
enhancing Customs ability to protect America's borders from illicit 
narcotics flows and terrorist activities. In light of the events of 
September 11, the trade is fully assured by Members of this Committee, 
Congress and the Administration that ACE will be successfully 
completed. However, the committee must also recognize the importance 
the trade places on other facilitation initiatives that are currently 
underway at Customs.
    It is the worst fear of many in the trade that trade facilitation 
will be almost entirely neglected in a humongous department devoted 
almost entirely to security and enforcement. Trade facilitation 
includes an initiative to implement fully the Customs Modernization Act 
(Mod Act) and simplify current trade procedures through technology or 
procedural reform. ACE is just a piece of the puzzle. Trade 
facilitation takes into consideration classification, valuation, data 
harmonization and all other technical issues related to trade. While 
not all trade facilitation initiatives fall under the direct 
jurisdiction of Customs, most operate successfully within Treasury. In 
a new Department of Homeland Security, Congress, Customs and Treasury 
should continue to work on projects such as the World Customs 
Organization's (WCO) Trade Data Harmonization initiative and should 
continue current efforts to minimize the backlog of pending cases 
within Customs' Office of Regulations and Rulings. Specifically, the 
JIG acknowledges Commissioner Bonner for his initiative to deliver 
rulings within ninety days. However, without sufficient budgetary 
support, this promise cannot be met.
    Trade facilitation also includes procedural reform to ease the 
regulatory and administrative burdens posed on Customs and the trade. 
For example, Commissioner Bonner has committed to investigate 
mechanisms for duty drawback reform. We are committed to work with the 
Commissioner in his efforts to simplify current drawback procedures. 
The JIG believes that pending legislation will simplify and clarify 
ambiguities and assist the U.S. Customs Service administer a 
complicated program by making drawback procedures consistent with 
continuing congressional changes to trade laws. In addition to drawback 
reform, the new Department provides an additional opportunity to review 
all laws that may be revoked, reworked, or reassigned to other 
agencies. Any organizational changes should be done to simplify the 
Customs administrative responsibilities.
    We appreciate the promises made by Governor Ridge, Commissioner 
Bonner, and other Members of the Administration regarding trade 
facilitation and procedural reform. These gentlemen promise that the 
necessary measures to expedite the legal flow of goods will be taken. 
Unfortunately, the trade continues to patiently wait for the 
fulfillment of commitments made after the passage of the Mod Act in 
1993. While perhaps an unpopular or minority view, this committee 
should continue to investigate mechanisms for insuring that the trade 
facilitation function within Customs and Treasury is preserved and 
receives adequate funding in the future.
CONTINUED SUPPORT FROM THE TRADE
    The Department of Treasury and U.S. Customs continually engage the 
trade in advisory roles and forums. For example, the Treasury 
Department has engaged a smaller group of companies and trade 
associations to participate in an Advisory Committee on the Commercial 
Operations of Customs, more commonly known as the COAC. It is vital 
that the branch that retains jurisdiction over Customs' commercial 
operations maintain a contingent of representatives to provide advice 
on trade facilitation measures and administrative reform. The COAC 
currently provides regular, quarterly review of Customs. This body 
advises Treasury and Customs on the implementation of programs that 
directly affect their ability to do business. This includes partnership 
initiatives such as the Importer Self Assessment (ISA) and Customs 
Trade Partnership Against Terrorism (CTPAT). They also advise Customs 
during implementation of trade agreements and legislative mandates.
    While it is vital that the trade is continually engaged as advisors 
to Customs, the Treasury and the future Department of Homeland 
Security, it is also necessary for those who construct the rules of law 
to evaluate the effectiveness of such industry working groups. Some 
industry working groups are more effective than others, just as some of 
these so-called ``partnership initiatives'' are more effective than 
others. However, it is more important that Congress and the trade are 
guaranteed a continued role in oversight as Customs is moved to the new 
Department of Homeland Security. It is essential that Customs and the 
trade continue to work together to guarantee that public and private 
interests work in cooperation to facilitate global trade.
FUNDING FOR COMMERCIAL OPERATIONS
    The JIG is concerned that money earmarked for Customs' commercial 
operations and trade facilitation activities will be diverted to fund 
enforcement activities. Fees imposed in the name of Customs' commercial 
operations should only be dedicated to the programs that they claim to 
support. This can be illustrated in the current debate over the 
proposed extension of the Merchandise Processing Fee (MPF). Although 
the MPF is not the topic of this hearing, many parallels can be drawn 
from this debate. The MPF is a so-called ``user-fee'' paid by importers 
to cover the cost incurred by Customs to process commercial 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.
    The JIG supports current legislation that provides for revenue 
generated by the Merchandise Processing Fee (MPF) to be used only to 
fund programs related to the work of the commercial operations of the 
U.S. Customs Service. On several separate occasions in the 107th 
Congress, bills have been introduced which attempt to use this fee to 
fund unrelated programs, such as the Patient's Bill of Rights. We 
strongly oppose any extension of the MPF, or any user fee, that does 
not earmark those funds exclusively to offset the costs of Customs 
commercial operations. This also excludes the use of MPF funds for 
Customs' Homeland Security activities.
    In addition, the JIG supports provisions in the Trade Act of 2002 
that require accountability for use of MPF funds. If the Customs 
Service is to continue collecting this user fee in the name of 
commercial operations, it MUST directly fund improvements to Customs 
processing, specifically for ACE and other initiatives that are greatly 
needed to improve the trade process. JIG is greatly optimistic that 
this approach will allow user fees to be applied to the commercial 
operations of the U.S. Customs Service for which they are intended and 
needed.
    Mechanisms should also be developed to guarantee that user fees and 
appropriated funds are not included in legislation where de facto 
justification or revenue neutrality is not used to siphon money away 
from commercial activities into the security and enforcement 
activities. This includes funds dedicated to trade facilitation 
measures. Customs and the new Department of Homeland Security should be 
held to a standard that aims to warn against the misuse of funds.
    Mr. Chairman and Members of the Committee, we believe this 
Committee must continue to have jurisdiction and oversight of the 
commercial operations of the Customs function in the new department. I 
believe one option for continuing the commercial activities in the new 
Department is to establish an Under Secretary for Commercial Operations 
whose office will ensure equal priority within the Department for those 
functions.
    It is also important for Members of this Committee to authorize 
adequate funding for Customs commercial operations as well as their 
trade facilitation activities. For example, Customs needs continued 
funding to staff 301 ports of entry and to build its arsenal of tools 
to aid in border inspections. Customs also needs funding to continue 
development of smart tools, such as ACE, and to develop processes to 
facilitate the flow of trade. This will allow Customs to defend our 
physical and economic well being.
CONCLUSION
    Mr. Chairman and Members of the Committee, the Joint Industry Group 
supports the President's efforts to protect our nation's welfare. The 
trade community views their role as standing side-by-side with U.S. 
Customs officials, working as partners on the front lines to facilitate 
the safe and secure flow of commerce. We ask the Committee to consider 
the importance of the dual role of Customs and their efforts to 
facilitate trade. Again, this 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.
    I agree with Chairman Thomas when he stated, ``Our Nation's long-
term defense rests equally upon the protectors at our borders and the 
engine of our economy.''
    We thank you for your time and consideration of these issues.

                                 

    Chairman THOMAS. Thank you very much, Mr. Clawson.
    Jerry Cook, Vice President, International Trade, Sara Lee, 
looking at trade from both inside the United States and 
outside.
    Mr. Cook, your testimony will be made a part of the record. 
Address us in any way you see fit.

STATEMENT OF JERRY COOK, VICE-PRESIDENT OF INTERNATIONAL TRADE, 
                    SARA LEE BRANDED APPAREL

    Mr. COOK. Thank you, Mr. Chairman, Mr. Rangel, and Members 
of the Committee. I will just summarize my written testimony, 
for time's sake.
    Most importantly, the focus for us with Customs has been 
fairly successful, particularly this past year. Customs managed 
23 million entries and related cargo, both from an enforcement 
and from a commercial facilitation. Important to note, is 
Customs maintain the primary data repository for over 40 other 
government agencies, as well as enforcing 400 laws, ranging 
from public health, safety, social, economic, environmental, 
and transportation, and all in a very timely and sensitive 
manner. The ability to execute these respective activities is 
not only critical for our public safety but also in fostering 
our economic security. With the advancement of the MODACT, the 
essential ingredients of combining trade facilitation along 
with the enforcement were critically linked to improve 
security, compliance, and, for us, a very predictable business 
solution. The successful trade programs that this Committee 
crafted, and the subsequent legislation have created economic 
opportunities in the United States and around our borders. The 
economic development of trade has decreased security threats to 
the United States, and the sustained economic development of 
regions like the Caribbean basin and the Sub-Saharan have 
placed an ongoing development of those regions totally 
dependent on an efficient Customs. To delink the Customs' 
enforcement from the business facilitation, in my mind, would 
likely have unintended consequences to the business community 
and to the respective agencies trying to manage the trade and 
business.
    While the full development and implementation of Homeland 
Security is being contemplated, we need to ensure that the hard 
work and the leadership of this Committee and others ensures 
the timely implementation of ACE. The ACE system envisioned a 
very robust environment that can both facilitate risk 
assessment and reduce the cost burden of paper documents and 
the repetitive reloading of data in our current trading 
systems.
    If the two roles were separated based purely on enforcement 
versus commercial, the definition of what constitutes 
enforcement versus commercial would likely lead to an endless 
level of appeals while trade is idled. By adopting ACE as the 
core platform for Homeland Security, the respective process 
necessary to exchange commercial and enforcement data will be 
incorporated on day one.
    I believe trade advice to the senior management of Homeland 
Security will be vital in assessing what is working and what is 
not working going forward. The Customs receives valued input, 
problem identification and problem-solving via the trade 
support groups like the Commercial Operations Advisory 
Committee and the Trade Support Network. The willingness of 
Customs and the industry to jointly work together to identify 
issues affecting the commercial sides of trade along with 
enforcement and co-develop workable solutions is the 
cornerstone that exemplifies Customs versus other customs' 
services around the world.
    The Customs provides valued input into other countries to 
advance their management of risk to our country. The joint role 
of enforcement and commercial facilitation is crucial to better 
develop models of trade prior to arriving to the United States.
    As me move forward in Homeland Security, we should consider 
making some beneficial changes that would both enable the trade 
and Customs to better achieve border and economic security: 1) 
elimination of reconciliation for all entries that provide only 
statistical updates but no impact on revenue, 2) simplify and 
reduce the size of the harmonized tariff schedule; 3) provide 
total electronic interface for all required data; 4) eliminate 
any paper document requirements; 5) eliminate the releasing of 
confidential and trade-sensitive data to nongovernment 
agencies; 6) operate ports 24 hours, 7 days a week; and 7) 
reduce the required data for exports and imports to a single 
set as conceived under the ITDS model.
    Mr. Chairman, Mr. Rangel, I want to thank you for the 
opportunity and, most importantly, for your leadership on 
fostering trade and fostering a modern trading system. I 
appreciate the opportunity to comment on this transfer of 
Customs to Homeland Security. In closing, the continued 
advancement of Customs' role in Homeland Security can provide a 
valuable baseline. Commercial success is achieved in concert 
with enforcement via an efficient and balanced Customs' 
process.
    Thank you.
    [The prepared statement of Mr. Cook follows:]
 Statement of Jerry Cook, Vice-President of International Trade, Sara 
                          Lee Branded Apparel
Introduction
    Mr. Chairman and honored Members of the Ways and Means Committee, 
my name is Jerry Cook and I am the Vice-President of International 
Trade for Sara Lee Branded Apparel. Some of our better-known apparel 
brands include Hanes, Champion, Bali, Wonderbra, Playtex and Just My 
Size. I am an active member in various trade groups including AAEI, 
JIG, AAFA, BACM and a former member of the Advisory Committee on the 
Commercial Operations of U.S. Customs.
    I am presently a member of the ISAC-15 as well as a member of the 
Trade Support Network. Sara Lee Branded Apparel is a charter member of 
the Customs-Trade Partnership Against Terrorism (C-TPAT) and a member 
of BASC (Business Against Smuggling Coalition.) Thank you for this 
opportunity to testify today on the proposal to create a U.S. 
Department of Homeland Security and the transfer of all assets and 
authority of the U.S. Customs Service to this new Homeland Security 
Department.
    Mr. Chairman, my remarks are based on my experiences working with 
the U.S. Customs Service and the various regulatory agencies that 
manage our exports and imports. It is my belief that the proposed 
transfer of the U.S. Customs Service and consolidation of the border 
security agencies into a new Homeland Security Department can only be 
beneficial if enforcement and commercial operations remain together.
    The U.S. Customs Service is an integral partner in our supply chain 
strategy. In addition to the U.S. Customs mission to manage anti-
terrorism and drug enforcement along our nation's borders, Customs 
successfully managed last year:

         Over 23 million entries
         Over 472 million passengers
         Over 300 ports of operation
         Over 142 million conveyances
         The collection of over $23 billion in duties and fees

    Customs achieved this milestone while seizing over 1.7 million 
pounds of narcotics. Their achievement was accomplished with 19,000+ 
employees and in partnership with the business community. In addition, 
Customs continued to forge ahead with the development of the ACE system 
and to began building a new critical partnership with the business 
community known as C-TPAT (Customs-Trade Partnership Against Trade.)
    Additionally, the U.S. Customs Service maintained the primary data 
repository for over 40 other government agencies and enforced over 400 
laws ranging from public health, safety, social, economic, 
environmental, and transportation in a time sensitive environment. The 
ability to execute these respective activities is not only critical for 
our public safety, but in fostering our economic security.

Critical to the Business Community--The Totality of the U.S. Customs 
Service Must Be Transferred Together

    With the advancement of the MODACT, the essential ingredients of 
combining trade facilitation along with enforcement were critically 
linked to improve security, compliance and predictable business 
execution. The U.S. Customs Service has served for many years in this 
dual role. During their 200+ years of operating, the U.S. Customs 
Service has developed a series of rules, regulations, but most 
importantly a process in which commerce is executed in a transparent 
and predictable environment.
    The successful trade programs that the Ways and Means Committee 
crafted into legislation have created economic opportunities. The 
economic development of trade has decreased security threats to the 
United States beyond our borders. The sustained economic development of 
regions like the Caribbean Basin, Mexico, Sub-Saharan Africa and the 
Mid-East have placed the on-going development of those regions 
dependent on an efficient Customs Service.
    To delink Customs' enforcement from the business facilitation would 
likely have unintended consequences to the business community and the 
respective agencies involved in managing trade and managing 
enforcement.
    In short, the process of enforcing trade laws has advanced a hybrid 
solution that both informs the trade community of the respective 
programs and seeks joint ownership in critical areas. Given the 
``hands-on'' management style required to manage the operational and 
enforcement aspects of trade, I believe it is critical that those 
respective missions stay together to provide the balance, insight and 
agility necessary to work through issues we jointly encounter.

Accelerate and Insure A Robust And Fully Integrated Electronic Exchange 
Solution--ACE (Automated Commercial Environment)

    While the full development and implementation of the Homeland 
Security Department is contemplated, we need to insure the hard work 
and leadership of this Committee and others to develop the ACE system 
in timely achieved. As a member of the Trade Support Network, Customs 
repeatedly seeks insight and inclusion on the development of the new 
Automated Customs Environment. U.S. Customs strives to insure that it 
not only incorporates the trade community's needs, but to also insure 
that ACE is able to facilitate the key roles of enforcement, risk 
assessment, centralized data repository for the U.S. Government and 
Account Management.
    It is important to note that as the blueprints for the Homeland 
Security Department are drafted, resources are provided to insure that 
the vision of ACE is fully achieved and the benefits to trade are 
incorporated. U.S. Customs has fostered a model to gain the voluntary 
support of the trade community for key enforcement iniatives by their 
genuine understanding and interest in assisting valid trade to enter 
efficiently, challenge unknown shipments to determine their validity 
and thwart illegal trade from gaining access to the USA.
    The ability to rapidly move data within the agency begins with 
source data populated once into one repository. The ACE program 
envisioned a robust environment that can both facilitate risk 
assessment and reduce the cost burden of paper documents and re-loading 
data.
    Within the trade role of Customs, the determining factors for 
shipment admissibility are more often commercial related than anti-
narcotic or anti-terrorism. The ability to determine and advise correct 
classification, valuation, country of origin, trade preference program, 
trade mark and status of an entry or release are all aspects that 
affect the same agent/inspector examining a shipment.
     If the two roles were separated based purely on enforcement versus 
commercial, the definition of what constitutes enforcement vs. 
commercial would likely lead to an endless level of appeals while trade 
is idled. The U.S. Customs Service has incorporated not only the 
traditional law enforcement issues, but manages to understand the 
complex commercial issues. The separation of these two roles will 
likely leave trade in an unmanageable environment.
    The advancement of the U.S. Customs systems and the associated 
modernization efforts are critical to the new Homeland Security 
Department. By adopting ACE as the core platform for the Homeland 
Security, the respective process necessary to secure economic exchange 
will be incorporated the first day. I realize that the ultimate 
decisions will be decided jointly between Congress and the 
Administration, but I encourage you to assure the full trade community 
that the intended benefits of ACE are a high priority of the Homeland 
Security Department.

Homeland Security Needs Trade Advisory Input to the Senior Level

    Perhaps the single biggest issue facing Homeland Security would be 
the unintended consequences of separation of the enforcement efforts 
from the commercial role.
    In the development and implementation of the Homeland Security 
Department, input from the trade on trade specific issues and concerns 
is crucial. As a former member of the COAC (Advisory Committee on the 
Commercial Operations of Customs), I believe trade advise to senior 
management of Homeland Security will be vital in assessing what is 
working and what is not.
    The U.S. Customs Service receives valued input, problem 
identification and problem solving via trade support groups like TSN 
(Trade Support Network). The willingness of the U.S. Customs Service 
and industry to jointly work together to identify issues, opportunities 
and co-develop workable solutions is one of the cornerstones that 
exemplifies the U.S. Customs Service advancements versus other nations' 
Customs Service. The ability to interface directly with the trade has 
advanced the joint partnership programs vital to enforcement like BASC 
and C-TPAT.
    Customs has a successful record of engaging the trade community to 
achieve enforcement, trade programs, issue identification and 
development of effective problem solving solutions. The U.S. Customs 
Service has facilitated our joint success in both enforcement and 
commercial advancement.
    The U.S. Customs Service provides valued input to other countries 
to advance their management of risks to the USA. The U.S. Customs 
provides assistance for other nations to develop their trading 
solutions. The joint role of enforcement and commercial facilitation is 
crucial to develop better models prior to trade arriving at the U.S. 
borders.

As We Advance Homeland Security-We Need to Focus Our Efforts

    We are facing this challenge together. Our ability to achieve 
cross-border operational effectiveness will ultimately determine if we 
succeed or fail. As design and functionality are developed, we should 
consider making some beneficial changes that would enable both the 
trade and Customs Service to better achieve border and economic 
security.

        1. LElimination of reconciliation for all entries that provide 
        statistical updates only and have no impact on revenue.
        2. LSimplify and Reduce the Harmonized Tariff Schedule.
        3. LProvide a total electronic interface for all required data 
        to eliminate paper documents.
        4. LEliminate the releasing of confidential and trade sensitive 
        data to non-governmental agencies.
        5. LOperate ports 24 hours/7 days a week.
        6. LReduce the required data for exports and imports to a 
        single set of data to satisfy both transactions as conceived 
        under the ITDS model.

Closing

    Mr. Chairman and Members of the Ways and Means Committee, I want to 
thank you for your continued leadership on trade and fostering a modern 
trading system. I appreciate the opportunity to comment on the transfer 
of all of the U.S. Customs Service to the Homeland Security Department. 
In closing, the continued advancement of the U.S. Customs Service role 
into Homeland Security can provide a valuable baseline. Commercial 
success is achieved in concert with enforcement.
    Thank you.

                                 

    Chairman THOMAS. Thank you very much, Mr. Cook.
    Ms. Kelley, your written statement will be made a part of 
the record. You can address us in any way as you see fit. And 
you are here as the National President of the National Treasury 
Employees Union. I am very interested in what you have to say.

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

    Ms. KELLEY. Thank you very much, Mr. Chairman, Ranking 
Member Rangel, and distinguished Members of the Committee. I 
very much appreciate the opportunity to present NTEU's views on 
the President's proposed Homeland Security and the impact on 
Customs of that proposal.
    As the President of the National Treasury Employees Union, 
I have the honor of leading a union that represents over 12,000 
Customs' employees who provide the front line of defense to our 
country every day and trade facilitation. The Customs' 
inspectors, canine enforcement officers, and import specialists 
make up our Nation's first line of defense in the wars on 
terrorism and drugs, as well as facilitating lawful trade into 
the United States.
    With a fiscal year 2002 budget of approximately $3.1 
billion, Customs facilitates more trade and interdicts more 
drugs than any other agency. The Customs also provides the 
Federal Government with the second largest source of revenue. 
As you noted, Mr. Chairman, Customs deposited over $22 billion 
into Treasury this past year.
    In 2001, Customs' employees seized over 1.7 million pounds 
of cocaine, heroin, marijuana, and other illegal narcotics. 
Customs also processed over 500 million travelers last year, 
including 1 million cars and trucks. Over the last decade, 
trade has increased by 137 percent.
    In addition, there are increased threats of terrorism, 
dramatic increases in trade resulting from the North American 
Free Trade Agreement, and new drug smuggling challenges. And 
yet, Customs has confronted its rapidly increasing trade 
workload and homeland security mission with relatively static 
staffing levels and resources.
    Unfortunately, this situation is not like to change under 
the President's Homeland Security proposal. The President has 
stated that his proposal will not include any additional 
funding that will enable Customs and its personnel to 
successfully accomplish their missions of trade facilitation 
and border security.
    A number of these resource issues were addressed by this 
Committee in H.R. 3129, the Customs Border Security Act of 
2002, which is part of the trade package before Congress. This 
legislation would authorize over $4 billion for a number of 
Customs' priorities such as staffing, commercial and 
noncommercial activities, narcotics detection equipment, child 
pornography prevention, the ACE computer system, and the air 
and marine interdiction units.
    Both the American public and trade community expect the 
borders to be properly defended while at the same time being 
able to efficiently and safely facilitate trade across that 
border. The government must show the public that it is serious 
about protecting the borders and facilitating trade by fully 
funding agencies such as Customs who are tasked with defending 
the borders and enforcing the trade laws of the United States.
    No organizational structure will be successful, no matter 
how good it may look on paper, if the government does not 
provide proper funding for its border agencies.
    The President's Homeland Security proposal seeks to 
consolidate Customs, INS, Border Patrol, Animal and Plant 
Health Inspection Service, the Transportation Security Agency, 
and the Coast Guard into one division entitled Border and 
Transportation Security. Only the Coast Guard would be 
maintained as a distinct entity under the President's proposal.
    Each of these agency's missions are unique. Combining each 
agency's field of expertise will lead to losing that expertise.
    The fact that Customs would not be a distinct entity within 
Homeland Security would deal severe blows to the distinct 
missions in which Customs has world-class expertise: trade 
facilitation, the collection of revenue, and as the first line 
of defense in the wars on terrorism and drugs on our Nation's 
borders.
    In the last 5 years alone, Customs has witnessed a 60-
percent increase in trade entries processed, and this rate is 
expected to grow an average of 8 to 10 percent a year.
    Keeping Customs as a distinct entity within the department, 
as it is proposed in both the Lieberman and the Thornberry 
Homeland Security bills, would help to retain the emphasis on 
the importance of Customs' trade-related duties.
    In closing, the Administration has indicated that it wants 
new flexibility in the legislation that will establish Homeland 
Security. The President's proposal would allow two political 
appointees, the Secretary of Homeland Security and OPM 
Director, to set and to change the rules affecting pay, 
benefits, whistleblower protection, collective bargaining, and 
even merit principles. I urge Congress not to take away the 
rights and the benefits that are currently available to the 
employees who may be merged into this new department.
    Before, during, and after September 11, front line 
employees have acted heroically to protect our freedom. They do 
not deserve to lose theirs.
    Thank you for the opportunity to share NTEU's thoughts on 
these very important issues. And I look forward to working with 
the Committee on this and many other issues related to homeland 
security, trade facilitation, and Customs.
    [The prepared statement of Ms. Kelley follows:]
 Statement of Colleen M. Kelley, National President, National Treasury 
                            Employees Union
    Chairman Thomas, Ranking Member Rangel, distinguished Members of 
the Committee, I would like to thank the Committee for the opportunity 
to comment on the President's proposed Department of Homeland Security 
and its impact on the Customs Service.
    As President of the National Treasury Employees Union (NTEU), I 
have the honor of leading a union which represents over 12,000 Customs 
employees who are stationed at 301 ports of entry across the United 
States. Customs inspectors, canine enforcement officers, and import 
specialists make up our nation's first line of defense in the wars on 
terrorism and drugs as well as the facilitation of lawful trade into 
the United States. In addition, Customs personnel are responsible for 
ensuring compliance with import laws and regulations for over 40 
federal agencies, as well as stemming the flow of illegal contraband 
such as child pornography, illegal arms, weapons of mass destruction 
and laundered money.
    With a FY2002 budget of approximately $3.1 billion, the U.S. 
Customs Service facilitates more trade, and interdicts more drugs than 
any other agency. The Customs Service collects over $20 billion in 
revenue on over 25 million entries involving over $1.3 trillion in 
international trade every year. The Customs Service provides the 
Federal Government with its second largest source of revenue. Last 
year, the Customs Service deposited over $22.1 billion into the U.S. 
Treasury.
    The President's FY2003 budget requests a funding level of $3.18 
billion for the United States Customs Service. This request represents 
a token increase from last year's appropriations. NTEU feels that this 
budget is simply inadequate to meet the needs of Customs personnel, 
especially in light of the incidents surrounding September 11th.
    In addition to appropriations, Customs also receives funds from the 
COBRA account. This user fee account funds all inspectors' and canine 
enforcement officers' overtime pay as well as approximately 1100 
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.
    The COBRA fund will expire on September 30, 2003, unless it is 
reauthorized by Congress before then. However, the President's FY2003 
budget does not call for the reauthorization of COBRA. COBRA must be 
reauthorized or Congress must appropriate additional funds to make up 
for the loss of the user fees.
    In 2001, Customs Service employees seized over 1.7 million pounds 
of cocaine, heroin, marijuana and other illegal narcotics--including 
over 9.5 million tablets of Ecstasy, triple the amount seized in 1999. 
Customs also processed over 500 million travelers last year, including 
1 million cars and trucks. These numbers continue to grow annually. 
Over the last decade trade has increased by 137%.
    Yet, despite the increased threats of terrorism, the dramatic 
increases in trade resulting from NAFTA, and new drug smuggling 
challenges, the Customs Service has confronted its rapidly increasing 
trade workload and homeland security mission with relatively static 
staffing levels and resources. In the last ten years, there simply has 
not been adequate increases in staffing levels for inspectional 
personnel and import specialists, the employees who process legitimate 
trade, to successfully conduct their missions. Unfortunately, this 
situation is not likely to change under the President's Homeland 
Security proposal. The President has stated that his proposal will not 
include any additional funding that will enable the Customs Service and 
its personnel to successfully accomplish their missions of trade 
facilitation and border security.
    For example, traffic volume at U.S. land ports-of-entry has 
steadily increased as our shared borders with Mexico and Canada have 
become more open as a result of the NAFTA and other trade initiatives. 
The steady increase of commercial and non-commercial traffic has led to 
increased wait times at many land ports-of-entry, particularly those 
along the Southwest border. Wait times along the Southwest border often 
extend to 45 minutes or more during peak hours. Such lengthy delays can 
be both irritating and costly to businesses and the traveling public. 
The lack of resources at ports-of-entry is also a problem along the 
Northern Border as well as seaports. The events of September 11 brought 
attention to the fact that the Northern border, the nations' seaports, 
and the Southwest border are still in urgent need of additional 
personnel and resources. In fact, Customs' recent internal review of 
staffing, known as the Resource Allocation Model or R.A.M., shows that 
Customs needed over 14,776 new hires just to fulfill its basic mission 
and that was before September 11.
    For instance, with increased funding, modern technologies, such as 
Vehicle and Cargo Inspection Systems (VACIS), which send gamma rays 
through the aluminum walls of shipping containers and vehicles to 
enable Customs inspectors to check for illegal drugs or weapons of mass 
destruction, as well as decreasing the amount of time shipping 
containers are out of the supply chain, could be acquired. However, 
adequate and consistent funding to purchase, operate and maintain these 
technologies has not been forthcoming. Other technologies, coupled with 
proper personnel funding, such as portable contraband detectors (a.k.a. 
Busters), optical fiber scopes and laser range finders can be 
invaluable to Customs personnel protecting our borders from terrorists 
and illegal drugs.
    Included in the modern technology possibilities for Customs is the 
Automated Commercial Environment or (ACE). ACE could be an integral 
element for trade enforcement and in preventing cargo from becoming an 
instrument of terrorists. The current Automated Commercial System (ACS) 
is a 17 year old, outdated system that is subject to system crashes and 
freezes that wreak havoc on trade facilitation and employees' ability 
to do their jobs. Although a system upgrade is necessary for Customs to 
meet its modernization efforts, NTEU would oppose funding a new system 
that shifts funds away from critically important staffing needs.
    A number of these resource issues were addressed by this Committee 
in HR 3129--The Customs Border Security Act of 2002, which is part of 
the trade package before Congress. This legislation would authorize 
over $4 billion for a number of Customs priorities such as staffing, 
commercial and non-commercial operations, narcotics detection 
equipment, child pornography prevention, the ACE computer system and 
the air and marine interdiction units.
    As for the President's Department of Homeland Security proposal, it 
seeks to consolidate the Customs Service, INS, Border Patrol, the 
Animal and Plant Health Inspection Service (APHIS), the Transportation 
Security Agency (TSA) and the Coast Guard into one division titled, 
Border and Transportation Security under the jurisdiction of a newly 
created Department of Homeland Security. I find this proposal to be 
extremely troubling for a number of reasons, one of which is the fact 
that the Customs Service would not be maintained as a distinct entity 
within the proposed Department of Homeland Security. Each of these 
agency's missions are unique and should remain as distinct entities in 
any new agency. Combining each agency's fields of expertise will lead 
to losing that expertise.
    The fact that Customs would not be a distinct entity within the 
Department of Homeland Security would deal severe blows to three 
distinct missions in which the Customs Service has world class 
expertise, trade facilitation, the collection of duty revenue, and drug 
interdiction at our nation's borders. Each year more than 16 million 
containers arrive in the United States by ship, truck and rail. In the 
last five years alone, Customs has witnessed a 60 percent increase in 
trade entries processed, and this rate is expected to grow an average 
of 8 to 10 percent a year.
    To consolidate the Customs Service with five other agencies, only 
one of which remains a distinct entity, the Coast Guard, would be a 
long-term mistake for Customs. Customs' trade facilitation mission 
would clearly not be the highest priority for the Department of 
Homeland Security. Keeping Customs as a distinct entity within the 
Department as proposed in both the Lieberman and Thornberry Homeland 
Security bills would help retain the emphasis on the importance of 
Customs' trade related duties.
    Other trade issues such as textile transshipment enforcement, trade 
agreement circumvention, and the use of counterfeit visas to enter 
inadmissible goods would simply fall farther down the priority list in 
a newly created Department of Homeland Security. Many of these concerns 
have been voiced by a number of trade groups such as the National 
Foreign Trade Council and the Electric Industries Alliance.
    Both the American public and the trade community expect the borders 
to be properly defended while at the same time being able to 
efficiently and safely facilitate trade across that border. The 
government must show the public that it is serious about protecting the 
borders and facilitating trade by fully funding agencies such as the 
Customs Service who are tasked with defending the borders and enforcing 
the trade laws of the United States. No organizational structure change 
will be successful, no matter how good it may look on paper, if the 
government does not provide proper funding for its border agencies.
    On a final note, the Administration has indicated that it wants new 
``flexibility'' in the legislation that will establish the Department 
of Homeland Security. While it is unclear exactly what is meant by that 
phrase, I urge Congress not to take away the rights and benefits that 
are currently available to the employees who may be merged into this 
new department. Before, during, and after September 11, front line 
employees have acted heroically to protect our freedom. They do not 
deserve to lose theirs.
    I have attached to my statement an article from Newsday that 
features Customs Inspector and NTEU member Diana Dean, who apprehended 
Millenium Bomber, Ahmed Ressam in Port Angeles, Washington. It makes 
the case more eloquently than I could, that she is the kind of person 
we want in a new Department of Homeland Security. But I fear that the 
``flexibilities'' proposed by the President will lead to many fewer 
such dedicated people willing to work for the new Department. That 
would be a shame and I hope Congress will not let that happen.
    Thank you for the opportunity to share NTEU's thoughts on these 
very important issues. I look forward to working with the Committee on 
this and many other issues related to homeland security, trade 
facilitation, and the Customs Service.

                                 

    Chairman THOMAS. Thank you very much, Ms. Kelley.
    If we focus on the language difference that the gentleman 
from New York pointed out, in terms of the Coast Guard being a 
distinct entity, I think most people could kind of rattle off, 
``Well, they're the ones in the uniforms. They've got white 
ships and planes with an orange stripe. And they do X,'' and so 
on. So if you turn then to Customs and you use that same 
yardstick in terms of Customs, if we want a distinct entity in 
there, what would be the cement that would hold that distinct 
entity together?
    When we look at it historically, it was probably obviously 
tied to those historical papers in terms of revenue. They 
collect revenue, but they do so much more. But they do it in 
conjunction with the collecting of the revenue.
    So the line of questioning I would like--and some of you 
will see Customs from only a particular viewpoint.
    And I agree with you completely; if we really want to have 
a secure border, Mr. Clawson, that getting ACE up and running 
and facilitating the smooth across the border, so there are no 
bottlenecks, hiccups, or problems, is significant and important 
in terms of security. So getting ACE up and running is in fact, 
as far as I am concerned, easily made a security argument.
    But if we are going to try to argue that they are a 
distinct entity, the question is, is revenue enough cement? 
Could you actually look at Customs today, and notwithstanding 
some people are virtually wholly revenue associated, others are 
primarily revenue associated, some are somewhat revenue 
associated, and some are not revenue associated at all, if you 
used revenue as the cement, that is probably not a good 
argument because people could go in and show divisions.
    So if we are going to rally around ``keep Customs a 
distinct entity,'' what is it that is tangible that we could 
use to identify them?
    And I guess the primary thrust of the question would go to 
you, Ms. Kelley, because you get see all of them together. 
These folks see pieces of them.
    So that would be, I think, the first thing we would have to 
ask. And then secondly, is the rationale for wanting to keep it 
a distinct entity sufficiently strong to outweigh the 
counterarguments, that if you really want a seamless, 
integrated security approach, there are areas of Customs that 
could be shifted, that make some sense, so that you just don't 
parachute a distinct entity without ever doing some of the 
merging and restructuring.
    And then last, if you look at it, is there a way for us to 
build a distinct entity out of a piece of Customs or most of 
Customs or with slight modifications, which is not attackable, 
because it is tied to revenue? Because this Committee's primary 
concern would be to follow the money.
    Ms. KELLEY. Well, I think that Customs' mission is distinct 
from the other agencies, and I think that each of the pieces of 
those, while maybe it could be argued that the revenue doesn't 
touch each and every one employee, I believe that the mission 
of Customs and the way they have delivered on it over these 
past 200 years puts them in place as a very definable, distinct 
entity. One of the risks, of course, is losing the expertise 
that they have in each of these aspects of their mission.
    And one of the things that concerns NTEU, and as I have 
traveled around the country and watched the Customs' employees 
do their work, is that there are some, I think, who believe 
that Customs and the other agencies that they see working side-
by-side on the borders are interchangeable, and, therefore, 
they can each do each others' jobs. And that just is not the 
case.
    They complement and supplement definitely, but they have 
distinct skills and expertise, which will risk being diluted if 
that distinction is not maintained.
    The Customs as it operates today, with the different facets 
of what it does, have all been linked and successfully linked 
and delivered as a part of Treasury obviously for years, for 
hundreds of years. And I see no reason why that should be 
changed in the future, even in a new department.
    Chairman THOMAS. I understand you don't see a reason. Some 
of us may not see a reason. But that does not mean it is not 
going to happen. And so I appreciate your 100-percent defense 
of keeping it the way it is. We may need to look at how we 
could create a core structure which is undeniably tied to 
revenue, which maintains sufficiently a distinct entity, that 
we could run the tie through Treasury because of the revenue, 
and back to us.
    We would not have had this discussion 2 years ago. We would 
have been arguing about hours and why you pay time and a half 
and that sort of thing, for 1 p.m. in the afternoon. Put that 
behind us. We are under siege right now, in terms of coming up 
with a rationale that keeps Customs, Customs, or most of what 
Customs is Customs, rather than trying to present arguments to 
keep it the way it is.
    I think the momentum is not to keep it the way it is, 
because somebody decided not to write in ``distinct entity.'' 
As my friend from New York was pointing out, they also didn't 
bother to write in Customs on the flow chart. So it tells you 
that some folk are not looking at it the way we think it should 
be looked at. And if we cannot get them to completely, 180 
degrees reverse their argument, we better be coming up with a 
way in which we have a very strong argument that this is 
something that makes sense and works and this is how we would 
want it, and that we can defend it. That is all I am saying.
    Ms. KELLEY. If I could say this, Mr. Chairman, it is not 
clear to me why the Coast Guard was designated as a distinct 
agency, from a policy standpoint. And I have not thought about 
the question as you framed it, of cement running through it. I 
will do that, and I will be glad to share those thoughts with 
you within the next week or so, in writing, if that is 
acceptable.
    Chairman THOMAS. As soon as you can get back to me, because 
to me our strongest argument we make is--that is why I brought 
these documents--it started with money, it follows the money, 
Treasury is money, we are the tax Committee, it is revenue. 
That is, I think, our strongest argument. And let's see what 
Customs looks like if we use that as the cement to build 
whatever the new model is. And I appreciate some help on that, 
because I do think that is an argument that I would very much 
like to make.
    Ms. KELLEY. Okay.
    Chairman THOMAS. But I do not know that we can make: 
``Don't touch a hair on the child's head. It is perfect the way 
it is,'' because some folks have said it may be perfect.
    We have a new problem, and we have to rethink the way we do 
things.
    Ms. KELLEY. I will be glad to provide you with my thoughts. 
I appreciate the opportunity.
    Chairman THOMAS. Thank you very much.
    Anybody else have a reaction to that? You don't have to.
    Mr. CLAWSON. I was going to say, we would like to also 
supply something, because I agree with your analysis that we do 
need--there are parts of Customs that I respectfully disagree, 
that are very similar. There is a degree of interchangeability. 
When you do a land border crossing, you do not see Immigration 
and Customs at the land border crossing; they are doing each 
other's work right now and have been for years.
    So I guess what I am saying is, I agree totally with you. 
We need to figure out a way to craft where we are, and we will 
help you with that.
    Chairman THOMAS. And interestingly, the involvement of 
commerce I think would be, with the revenue collected by that, 
would be one of those aspects. And then take a look at what 
people in terms of enforcement, to what extent, is it primarily 
enforcement, secondarily collection or primarily collection--
some discussion along that line.
    And I will not share your thoughts with anyone, Ms. Kelley. 
Let's see how much is left or not left.
    Ms. KELLEY. Okay.
    Chairman THOMAS. Because I think that is something we need 
to do fairly quickly so this Committee can recommend a firm 
position that we feel very comfortable defending, so that we 
can make sure what all of us want is at least maximized under 
the new structure.
    Ms. KELLEY. Okay.
    Chairman THOMAS. Thank you.
    Mr. COOK. Mr. Chairman, one comment that is worth 
considering. When you look at the composite of international 
trade, a lot of it is component manufacturing moving about. And 
you are looking at duty revenue, but there is a tax revenue on 
the other side. The successful ability of U.S. corporations in 
this country to be engaged in trade, if it stops, it impacts 
our business and has a significant impact on the IRS side.
    So if you are looking at the flow of the money, that 
commercial viability becomes very important, being in this 
country altogether, if you are going to have problems moving 
products in and out. I would think from a policy perspective, 
you would not want to lose vision of that in homeland security, 
because it really is about securing our economic independence.
    Chairman THOMAS. You are absolutely correct. And I think, 
at least in the short run, we have not focused on the fact that 
as fundamental as anything is the economic security and 
viability, to be able to allow for some of the other activities 
as well.
    The gentleman from New York.
    Mr. RANGEL. Mr. Chairman, I do not know if additions of 
Customs over the years, it seems to me that they should be 
protected intact unless there is reason why the flexibility 
that the Secretary would have would require in our national 
defense that it should be changed.
    But if this is the hearing, all it has done is to raise the 
questions. And clearly, the Undersecretary, who just got on 
this job last summer, had indicated in his testimony that the 
bill is the thinking of the President. But we do not know why 
Customs was dropped off. We do not know what changes they 
intend to have with Customs. And if Customs is dismantled, I 
assume somewhere along the line, since we have congressional 
oversight, we are going to have to explain why the changes were 
made. I do not know how you intend to proceed, if this is it.
    I know Ms. Kelley is going to send us a lot of questions, 
but how are we going to have answers to her questions? And what 
do we do? Ask Ms. Kelley to come back and have this exchange?
    That is why I thought, since we have jurisdiction over the 
Secretary of Treasury, that it is so important, one, to have 
the questions raised by those people that believe that they may 
be adversely affected, to lock in, as the other Committees 
have--because I am convinced that is why some of these people 
have their own rectangle and that is why Customs fell off at 
the end, because someone insisted on it.
    And I am not saying, in the final analysis, that whoever 
drafted the legislation did not put a lot of thinking into it, 
but how do we find out why they set it up as they did? How do 
we know that role they intend for Customs to have in the 
future?
    It is one thing to say it is going to be intact. It is 
another thing to say they want maximum flexibility.
    Chairman THOMAS. If I might respond?
    Mr. RANGEL. Yes, sure.
    Chairman THOMAS. If the gentleman is coming to the 
conclusion that this hearing perhaps raises more question than 
it answers, then I think this will be a very valuable hearing, 
because it is very difficult for this Committee to proceed 
unless we get answers to those questions.
    And if the gentleman assumes that those boxes were created 
on that piece of paper with significant interaction by other 
Committees, and the laxity of this Committee's involvement did 
not get us a box, I can assure you, in my conversations with 
other Committee chairmen, they do not believe that is the case. 
I believe there is a significant amount of ``there but for the 
grace of God'' in a number of Committee jurisdictions.
    However that was created, I believe that we need to go 
forward in an orderly fashion, ask the questions. And if we do 
not get answers, then we are either going to have to have 
another hearing or we will craft what we believe to be the 
appropriate response based upon our attempts to answer the 
questions that are created. And we will then move forward with 
what we believe is our solution.
    Frankly, without having Customs in a particular box and 
already determined tells me we have an excellent opportunity to 
offer a solution to the problem, because if they already 
thought they had a solution to the problem, we would have to 
talk them out of their solution into ours. So I do not see it 
quite the same way the gentleman from New York does. I see this 
as an opportunity to shape where and how Customs is placed in 
this new structure far more than if they had told us they made 
up their mind, here's the box, and that's where it is.
    I thank the gentleman for the time.
    Mr. RANGEL. Well, Mr. Chairman, I have the utmost respect 
of the union representative of Customs, but it just seems to me 
that the Customs Commissioner may have a lot of questions as 
well, and as we heard those who use the services of Customs. 
So, yes, we can draft and decide what we want to do, but then 
where do we take it?
    In other words, it just seems to me that you cannot do this 
unless you have those people who work with Customs every day. 
And clearly, the Undersecretary does not. They report to him. 
But Ms. Kelley is on the frontline representing her Members. 
The Customs Commissioner is someplace else. We have to do this 
before the election, or whatever the President wants.
    And so it just seems to me, and you know how reluctant I am 
to get in the back room with you to work this thing out, which 
you are suggesting, but----
    Chairman THOMAS. No, I am not suggesting that. Does the 
gentleman yield further?
    Mr. RANGEL. Yes, but you said that we will have----
    Chairman THOMAS. If the gentleman's concern is that he is 
disappointed that middle management is not here, so they can 
freely criticize upper management in the way in which this 
project is moving forward, he is probably not going to be 
happy.
    One of the reasons that I was pleased that the minority 
asked union representation is that I believe they could be a 
bit freer about looking at the way in which structures could be 
made. And I do believe there is, if the gentleman is serious 
about why someone who is in a middle management position is not 
here so they can criticize the structure under which they are 
supposed to be moving, then we have a great gulf between us.
    Mr. RANGEL. Mr. Chairman----
    Chairman THOMAS. I believe the recommendation----
    Mr. RANGEL. Mr. Chairman----
    Chairman THOMAS. I just want to say this: I believe the 
recommendation of this Committee as to how this is handled will 
carry enormous weight with the leadership as they put the 
package together. We should focus more on the way it ought to 
be than the fact that we do not have somebody here that we can 
embarrass because you know they cannot answer----
    Mr. RANGEL. Mr. Chairman----
    Chairman THOMAS. In a way that either they want to or they 
won't.
    Mr. RANGEL. It was you that brought the person here that 
could not answer the questions.
    Chairman THOMAS. I believe that is upper management, not 
middle management.
    Mr. RANGEL. Well, let me ask, Ms. Kelley, before you 
testified, did you have the opportunity to share your views 
with the Commissioner of Customs?
    Ms. KELLEY. I spoke briefly with him last week on my 
concerns about the fact that Customs is not a district entity, 
does not have appropriate resources, and the risk of losing the 
expertise.
    Mr. RANGEL. I would like to see whether or not--I am going 
to make a recommendation to the Chair that the Customs 
Commissioner and you, Ms. Kelley, would get together, because 
like any family, you can dispute with wages and hours and all 
of those things, but then when you find out that Customs itself 
may be under some type of attack, I am certain that you and the 
Customs Commissioner might have more in common in terms of 
making recommendations as to what would be effective than 
somebody who is just including you in an organization chart.
    If the Chair cannot find a way for that type of a meeting 
to take place, so that we can be helpful to the Customs 
Commissioner, so that we can be helpful to the rank and file, 
then I might be reaching out to you and to the Customs 
Commissioner in asking: what do you think about this idea; how 
do you think it can be improved; what recommendations would you 
make? I am certain that that would be more helpful to me than 
what I have been able to get from this hearing.
    So if there is no other scheduled hearing where I can ask 
these questions, then I would ask, in a very informal way, on 
behalf of the minority, that we can meet and meet with the 
Customs Commissioner and see what we can do to be helpful to 
our Nation, to the new department, and to Customs, that I think 
deserves this type of oversight.
    Ms. KELLEY. I will pleased do whatever I could to help.
    Mr. RANGEL. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the 
gentlewoman wish to inquire?
    Ms. DUNN. Thank you very much, Mr. Chairman.
    I wanted to ask Mr. Farrell to clear up a couple of things 
that have concerned me. In your testimony, Mr. Farrell, you 
refer to concerns being raised by your customers, the folks 
that you do business with at the Port of Tacoma, about the lack 
of uniformity in the process of physically inspecting container 
cargo, and I am assuming that is among the ports in the United 
States. I am wondering if you could give us your thoughts on 
this.
    The concerns that I have heard have to do with the fact 
that there are added costs and there are time delays that are 
being experienced by shippers in dealing with ports where there 
is, for example, 100-percent inspection of containers selected 
out of the numbers that are shipped into the port. I am 
wondering if you can just give us your thoughts on what is 
happening.
    Mr. FARRELL. I can indeed. In the various ports, Customs' 
inspections take place at different levels and different 
volumes. In other words, percentage of the cargo that comes 
through the port and then percentage of the cargo in an 
individual container that actually is inspected. I am given to 
understand, from my conversations with Customs, that these 
numbers are based on their own rules and determinations about 
which cargoes to inspect and to what extent.
    However, what we haven't been able to communicate is the 
basis on which those decisions were made and gather actual data 
from what those impacts are. What I can tell you is that we 
have anecdotal evidence from our customers that there is a 
difference in the intensity of enforcement of regulations 
across the entire West Coast port range, and that when a 
container is detained for an inspection, that container comes 
offline, it may be delayed anywhere from a half day to 3 days, 
and they carry additional costs for the actual physical 
unloading and inspection of the cargo.
    It is as if while getting on an airplane, or attempting to 
get on an airplane, your bag is taken aside for inspection; you 
miss your flight; and for the privilege, you are sent a bill at 
the end.
    The concern that we have, again, I mentioned diversion. 
Tacoma and Seattle, as well as New York-New Jersey, Boston, and 
others, are close enough to international borders to be 
effected by this type of activity. And it is important that we 
be able to communicate with Customs clearly and definitively 
about what actually is happening, what is the data, and how are 
these decisions being made.
    We are the port are in close communication with our local 
Customs' people, and I also have spent time with people here in 
Washington at Customs, and have spent some time with Members of 
our delegation to try to gather that data and try to improve 
those communications in such a way that our anecdotal evidence 
can either be shown to be correct or shown through the data to 
be incorrect and why.
    Ms. DUNN. Well, we are going to have to watch over that. Do 
you feel that you have had adequate opportunity to share that 
with the Customs Commissioner?
    Mr. FARRELL. I have had opportunity to share it with the 
higher levels of Customs, and I am optimistic that we may have 
some results that come from that.
    Ms. DUNN. Wonderful. Let me ask you a last question here, 
and it has to do with your testimony that alluded the 
competitive disadvantage that certain ports have with other 
Nations. Of course, our being close to Canada means that the 
ports in Washington State, but also those on the East Coast, 
and actually along our whole western coast, are disadvantaged 
by a number of things, including the payment of the harbor 
maintenance tax, which affects several of us on this Committee, 
where we believe we get very little out of the payment of that 
tax. It is a tax on a container that does not occur at the Port 
of Vancouver in Canada, for example.
    I am now concerned because I am hearing regularly about the 
threat of cargo diversion to ports in Canada, and I know also 
that they have made major gains over the last few years in 
market share, taking directly away from the ports that we have 
on the West Coast.
    I am wondering if you could quantify for us your view of 
this growth for the Port of Vancouver that detracts from our 
ports on the West Coast and the East Coast, and tell me if 
there is something that we need to be doing about this, and how 
it is exacerbated by the problems we are running into now with 
the time delays.
    Mr. FARRELL. Thank you for your question. I can give you a 
couple of ways of looking at this question. The first and 
clearest is the Port of Vancouver. In 15 years, since the 
institution of the harbor maintenance tax, container volume at 
the Port of Vancouver has increased by 414 percent. Over the 
same period of time, the container growth in the Port of Tacoma 
has been 98 percent, and in Seattle, 55 percent. So it is clear 
to us that as the trade volume grows, we are seeing a share of 
that cargo shifted north across the border as a result of the 
tilting of the playing field by institution of that tax.
    You mentioned earlier that I spent some time at the 
Massachusetts Port Authority. We have the same issue there with 
the Port of Montreal.
    Ms. DUNN. Excuse me, Mr. Chairman, I really would like to 
have us be an audience. This is so important, and I would 
really like to have other Members of the Committee hear it.
    Chairman THOMAS. I'll tell the gentlewoman that there is a 
record being made, and there is a discussion going on, which is 
fundamental to it. I apologize, and I will turn my attention to 
the statements that are being made.
    Mr. FARRELL. The harbor maintenance tax is an issue that 
the Massachusetts Port Authority addressed by asking and 
receiving from the Massachusetts State Legislature a State 
rebate for the harbor maintenance tax to companies based in 
Massachusetts that used Massachusetts ports to ship goods, as a 
way to blunt the impact that the Port of Montreal was having in 
that area due to the harbor maintenance tax.
    So those are the two examples. Now, how does the security 
environment that we currently find ourselves in relate to that 
will certainly, as we look at enhancing security in our ports 
and at our border crossings, and we look to the Customs' CSI to 
partner with foreign ports, the first of which are the Canadian 
ports of Montreal, Halifax, and Vancouver, B.C., it is 
critically important that whatever security procedures we put 
in place at U.S. ports be balanced with ports across our 
borders, so that we do not have again a further slanted field, 
which affects both the commercial aspects of our business, in 
terms of the jobs related to moving of cargo, but also a 
security perspective.
    Again, you are only as safe as your neighbor. You are only 
as secure as your neighbor. And that is why we have worked 
together with the ports of Seattle and Everett to make sure 
that our security initiatives are carried out jointly.
    Ms. DUNN. Thank you very much. Thank you, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from California, Mr. 
Becerra, wish to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman.
    First, thank you to all of you for your testimony. And I 
will try to contain myself to just a couple of questions.
    If I could start with Ms. Kelley, I would like to see if I 
can get you to give me a little more information about section 
730 of the proposal to create this new Homeland Security. I 
know that you have expressed concern that section 730 would not 
carry with it or would allow the department not take with it 
the various civil service protections--whistleblower 
protection, retirement, health benefit protections--that you 
currently receive as employees within Treasury or any 
department of the Federal Government.
    Is there any circumstance in which you think Treasury 
employees or Customs' employees would accept a provision 
similar to section 730, which is the current proposal that 
President Bush has sent over to us?
    Ms. KELLEY. I don't see how, because what the language 
says, as I read it, is that, on the day of the transfer that 
every thing stays intact. But whether it is 1 day, 1 week, or 1 
month thereafter, that authority would lie with the Secretary 
of the department and the OPM Director.
    And I guess at the bottom of all this for me is that 
employees of Customs, the employees of these agencies have done 
the work that they do on the front line for our country for 
decades as union Members, with these rights, and it has never 
ever been an issue of their ability to do their jobs. So why a 
flexibility like this is needed is not understood by me.
    We have asked a lot of questions, and it has never been 
made clear what the intent is to do with this. So the intent is 
unclear, and it is hard to address any specifics that they 
might have in mind.
    Mr. BECERRA. On that point of having asked the questions, 
can you give me a better sense of what type of consultation you 
were afforded or NTEU was afforded with respect to the develop 
or formulation of the proposal that the Administration 
submitted to Congress?
    Ms. KELLEY. Into the formulation, I would say zero. The day 
after the President's announcement, before the language was 
actually shared with anyone, I did have the opportunity to meet 
at the White House with Clay Johnson, Kay Coles James from OPM, 
and Mark Everson from the Office of Management and Budget. And 
they wanted to hear our concerns, and this was one of the 
concerns I clearly articulated.
    So I guess from that standpoint, you could say they at 
least knew. And the response I got ranged from a stare to: ``We 
understand the issue.''
    When the language was then finally made available, it was 
clear that any input we had or any opportunity we had to 
provide information was not included in the language.
    Mr. BECERRA. And when you say you shared your concerns, it 
was beyond just the issue of section 730?
    Ms. KELLEY. Yes. At the time section 730 did not exist, but 
we had a fear that this was going to happen, just from things 
that the President said in his address and from media reports 
later, in the next 48 hours or so, talking about flexibility. 
And so that kind of sent up the signals that we should be 
concerned.
    So I was trying to anticipate what might happen and have a 
conversation that hopefully would stop it from happening. But 
that did not occur.
    Mr. BECERRA. Other than the day before the proposal was 
presented publicly, did you have any other opportunities to 
comment to the Administration?
    Ms. KELLEY. Actually, the conversation I just described was 
the day after the President's announcement. And then the next 
opportunity came the day before the language was made 
available. And it was a meeting held at OPM for a large number; 
employee organizations were invited.
    I described that as a ``Q'' session, because they wanted to 
hear our questions, but there were no answers that were 
provided. But it was clear the next day, when it was published, 
that the language had already been written, and it really 
didn't matter.
    I did reiterate that day everything I had said at the White 
House, but to no avail.
    Mr. BECERRA. Thank you.
    A question about the ACE system, the new automated system 
that hopefully we will have in place, anyone wish to comment 
about how we integrate that new system into this broader or 
larger agency, having to fulfill functions that go beyond what 
we thought it would be used for, and whether or not you think 
that we can accelerate it quickly enough?
    So, can we use it still? Is there something we have to do 
now to retool to make sure that we can use it for more than 
just Customs, since it is going to be under this new Homeland 
Security? And do you believe that we can try to accelerate its 
implementation sufficiently to have a good system that will be 
capable of meeting the needs that we have under this new 
department?
    Mr. CLAWSON. Yes, in answer to your question. I think that 
it is currently structured in such a way with what is called 
the International Trade Data System, ITDS, which is made up of 
12 departments on a board, and that that is intended to provide 
this service across the government as one point, so it is more 
than just Customs. So that type of integration is already 
anticipated and has already somewhat been underway. It will 
have to be tweaked, obviously, in a new department, but I think 
it can be done.
    I think the bigger concern that we have, those of us who 
worked on the coalition for automation funding and whatever 
else, is that it is just taking too long. And I don't know what 
that means, in the sense that I am not a programmer, I don't do 
these kinds of things, but I know that enormous things happen 
in this country, we have great people who are doing wonderful 
things. It seems somehow that the team that is building this 
with Customs, and I do not know all the ins and outs, because 
they do not really tell you that, the behind-the-scenes stuff, 
but I know that they have been at this for an awful long time, 
in terms of concepts and whatever else.
    And I think they are getting, finally, underway a bit. But 
they have to figure out a way to accelerate it. I agree with 
you.
    Mr. BECERRA. But, Mr. Clawson, your sense is that the 
infrastructure, the hardware, software, everything that makes 
up ACE, is still applicable, given its heightened demand?
    Mr. CLAWSON. Yes. The architecture was done initially in 
such a way that it was modular and could be added on to, 
because they did not want to go through what we have done, that 
in 5 years or 10 years, it can be obsolete. So this was a 
growing, viable kind of system, the way it is designed. And 
maybe that is what is taking it so long to get off the ground. 
But I have a comfort level with the architecture; I have a 
discomfort level, very much, with the speed which it is being 
built.
    Mr. BECERRA. Thank you.
    Mr. COOK. Congressman, a couple of comments on that. One, I 
think the ACE design and the platform and the team that is 
doing it is a very capable team. And I think where they are, 
they have rightfully spent a lot of time to step back and 
``let's not automate the paper process; let's really dig in and 
now that we have a great tool that we are designing, let's 
change that.'' I think to your point, it is probably more 
important now to accelerate the development and implementation 
of ACE, because in the absence, we are liable to build a 
parallel system to fill some other need that may be coming up 
because of security, and then we really will have a problem of 
a bifurcated system.
    The second one is that we in the trade community, to the 
government, really need to mandate that the other government 
agencies rely on ACE, because one of the problems we are facing 
is that it is voluntary that other governmental agencies use it 
as their data interface with trade. If it is not mandatory, 
then you stand a great chance of building very redundant 
systems that are very expensive and always trying to 
synchronize those, which does complicate the development and 
implementation of ACE.
    And the third part is that we today in the trade arena 
require an enormous amount of data that really serves very 
little long-term use. A lot of it is for rounding up for 
census, but doesn't really provide the core mission of ``what 
do I need to collect revenue, what do I need for enforcement 
and risk assessment?'' And I think, if we go back and spend 
some more time to ferret out that, we can probably see ACE 
become a much more dynamic--I see ACE as really being the 
underlying system for all of homeland security, because it is 
advanced data, it is arriving data, it is post-data, it is 
identifying who shipped it, who is bringing it, and who is 
receiving it, and what commodities are coming. And that gives 
you the tool to do risk assessment and commercial clearance.
    Mr. BECERRA. Thank you.
    Mr. FARRELL. And I would second what both of these 
gentlemen have to say, and say that regardless of the ultimate 
disposition of Customs, the sooner we get this system in place, 
the better.
    Mr. BECERRA. And it can be done quicker, do you think?
    Mr. FARRELL. I would think so, yes.
    Mr. BECERRA. Thank you.
    Chairman THOMAS. I would tell the gentleman from California 
that it is probably misnamed if we call it ``ACE.'' It is 
probably about a three of clubs.
    [Laughter.]
    Chairman THOMAS. And the problem is, it is well-financed; 
therefore, given the changing technology in the area, as you 
putter along, you are overtaken by new technology. If they 
could simply pick up the SKU system at Home Depot, they would 
really be on the cutting edge.
    It has been underfinanced, and there is no integration in 
the approaches you heard. And I think we have going to have 
simply impose some requirements here to get it done. We have 
this problem with Social Security interfacing with IRS and 
everyone else. Now, that is a trillion dollar problem in other 
parts of the government. This is a distinct area in which, if 
we put mandatory requirements, minimum information, maximum 
flexibility, and speed at getting it done, because a border 
that is clogged up and is not moving is more insecure than a 
border that moves smoothly and you know who is where doing 
what.
    This is a contribution that will come out of these hearings 
as we go forward, because if we have billions of dollars for 
homeland security, we ought to have a little bit for doing this 
particular function, because they raise enough revenue to pay 
for themselves, and that is not always the case in the other 
areas where enormous amounts of money are being spent. Security 
is security, and when you can get a return on your investment, 
you ought to work on this area.
    Mr. BECERRA. I agree, Mr. Chairman.
    Ms. THURMAN. I want to thank all of you. I know some folks 
are a little more frustrated, but I honestly believe that this 
Committee has the ability to tell the executive branch, if we 
are good enough, what the Customs' structure ought to look like 
under the new Homeland Security arrangement. And that is what 
we will attempt to do.
    I look forward to getting the materials back from you. I 
know that we probably raised more questions. That may have been 
the intent of the Chair. Thank you very much.
    [Whereupon, at 7:37 p.m., the hearing was adjourned.]
    [Questions submitted from Chairman Thomas to Secretary 
O'Neill, and his responses follow:]

      QUESTIONS SUBMITTED BY CHAIRMAN THOMAS TO SECRETARY O'NEILL

Question:
    Can Customs perform its functions well if Congress mandates that 
Customs' revenue functions must remain intact and could not be 
reorganized internally or with other Homeland offices until such time 
as the Administration identifies specifically what it proposes?
Answer:
    The President's proposal would move Customs intact to Homeland 
Security in order to minimize any disruptive effects. One of the main 
reasons for creating the new department is to achieve synergies and 
efficiencies among the now disparate agencies and the new Secretary 
would be given broad authority to do so, but any changes would need to 
be made only after further careful study. This is an issue on which the 
Administration would work closely with the Committee to address its 
concerns.
Question:
    The fact that Customs collects revenue creates special 
circumstances and needs for Customs that other Homeland component 
offices will not experience. Do any other government offices or 
agencies being transferred to Homeland Security collect revenue as 
Customs does?
Answer:
    Many agencies collect fees, fines, or penalties. Customs, however, 
also collects tariffs, which total about $20 billion annually.
Question:
    Are there specific parts of Customs whose exclusive or substantial 
function is to collect revenue? Please identify for the Committee those 
roles within Customs such as the Import Specialists and the Office of 
Rulings and Regulations that have a primary role in the collection of 
revenue. What percentage of Customs inspectors perform primarily 
revenue collecting functions?
Answer:
    Certainly, while there are some functions in Customs, such as those 
of the import specialists and the Office of Regulations and Rulings, 
that are more directly focused on tariff collection than others, these 
same people also make decisions regarding the basic admissibility of 
merchandising to the U.S. Inspectors on the border rely on expert 
technical and legal advice to help identify trade fraud and the 
regulation writers rely on their close contact with the field 
inspectors to help them craft trade rules that will both keep trade 
moving and permit effective, efficient enforcement. The regulatory 
audit function is another activity that is focused on tariff revenue 
collection, but the information that auditors develop about businesses 
and trade patterns help to target anomalies and risky shipments for 
enforcement actions. Inspectors are trained to perform trade 
enforcement as well as contraband, drug and security enforcement. We 
wart people examining shipments because of trade enforcement concerns 
to be alert for security risks. It is difficult, if not impossible, to 
separate the percentage of time individual inspectors devote to these 
various functions because they are intertwined.
Question:
    Customs does so many things other than just searching for narcotics 
or preventing terrorists from entering the U.S. How will the 
President's proposed changes in organizational structure change the 
nature of what Customs does?
Answer:
    The President's proposal would move Customs intact. Consequently, 
nothing in the nature of what Customs does would change.
Question:
    Customs collects over $1 billion in user fees from importers. 
According to law, those fees must be used for commercial purposes only. 
How can Congress keep track of how the commercial fees will be spent by 
the Administration?
Answer:
    Unless Congress changes that law, the same restrictions on user 
fees that apply now would apply in the future. Under the President's 
proposal, Customs would be moved intact, and the same process of 
evaluating costs that Customs goes through now could be used in the 
future.
Question:
    If, Congress were to prohibit decreases in staffing and funding for 
Customs trade offices, would this ensure that trade activities are not 
inadvertently strangled?
Answer:
    The President's proposal recognizes the importance of trade 
activities. In addition, Governor Ridge and Customs Commissioner Bonier 
have publicly committed to supporting the trade function as it moves to 
the never Department. We would want to work with Congress to take 
advantage of possible efficiencies that we may be able to realize, for 
instance efficiency gains from further automation and completion of the 
ACE system.
Question:
    Has Customs done arty projections to determine if there will be a 
significant cost to move to a new Department?
Answer:
    There should not be any because Customs would retain its current 
headquarters and other locations. In addition, the consolidation of the 
different border entities under one agency has the potential to create 
additional efficiencies in the future.
Question:
    Have increased security measures affected imports in any way? Can 
you give us specific cases?
Answer:
    Certainly there were border delays in the week following September 
11th. Customs responded quickly to reduce bottlenecks and minimize the 
impact on the economy while maintaining a heightened level of alert. 
Customs has since implemented innovative approaches to reduce the 
impact of the security threat. The Container Security Initiative (CSI), 
with cargo examination at the point of export rather than import, helps 
prevent delays at the border as well as reducing the threat to the 
homeland, The Customs-Trade Partnership Against Terrorism (C-TPAT) 
enlists the private sector in the fight against terror. Both are 
creative alternatives to the traditional border search.
Question:
    What trade authority does Customs have granted directly from 
statute, as opposed to delegated by the Treasury Department?
Answer:
    Most Customs related authority is currently granted statutorily to 
the Secretary and delegated to the Commissioner. We are reviewing the 
trade statutes to identify those authorities granted to the 
Commissioner, and will provide that information to the Committee as 
soon as that effort is completed.
                               __________
    [Questions submitted from Mr. Rangel to Secretary O'Neill, 
and his responses follow:]

         QUESTIONS SUBMITTED BY MR. RANGEL TO SECRETARY O'NEILL

Question:
    Please advise me of any legislative provisions that you would like 
addressed in the bill (1) to ensure proper transfer of Customs to the 
new Department; (2) to preserve the effectiveness of Customs operations 
in protecting our borders and facilitating the commercial flow of 
trade; (3) to ensure retention of Customs employee job responsibilities 
and the employment protections currently under Title V; and (4) to 
maximize Customs' ability to fight our war on terrorism, and other 
important responsibilities currently part of the Customs mission.
Answer:
    The bill proposed by the President addresses these issues in the 
following manner. The legislation includes specific provisions for the 
orderly transition of Customs to the new Department. The bill would 
provide for a 12-month transition period, during which time the 
President would direct when individual components would be transferred. 
The bill also provides other authorities for functions necessary for an 
orderly transition, such as support services, details, interim 
appointments, and the transfer of personnel, assets, and liabilities 
related to the components being transferred.
    The President's proposal seeks to create an efficient structure to 
help ensure that our ports of entry and other critical assets are 
protected, and his proposed combination of key components will help do 
so. To recognize the importance of Customs' trade functions, section 
401 of the proposed legislation includes within the jurisdiction of the 
Under Secretary for Border and Transportation Security a number of 
``primary responsibilities,'' including: ``(1) preventing the entry of 
terrorists and the instruments of terrorism into the United States; (2) 
securing the borders, territorial waters, ports, terminals, waterways, 
and air, land, and sea transportation systems of the United States.--
(4) administering the customs laws of the United States; and (5) in 
carrying out the foregoing responsibilities, ensuring the speedy, 
orderly, and efficient flow of lawful traffic and commerce.''
    Under the bill, Customs would continue to fulfill all of its 
existing functions. The new Department would collect import duties and 
remit these funds to the Department of the Treasury. There would be no 
loss of revenue as a result of this reorganization.
    Customs also strongly believes that any effort to improve our 
border security must include the direct involvement and input of the 
trade community. The success of programs like Customs Container 
Security Initiative (CSI) and the Customs-Trade Partnership Against 
Terrorism (C-TPAT) demonstrates how Customs effectively and efficiently 
balances its dual missions of security enforcement and trade 
facilitation. Under the President's plan, Customs will continue to 
administer and enforce the Customs laws, protect our borders against 
terrorists and terrorist weapons, and facilitate the flow of legitimate 
commerce.
    When an organization becomes a part of the new Department, 
employees will transfer with existing pay and benefits intact. When the 
Department is established, employees represented by unions will 
continue to be represented because their bargaining units will move 
with them to the Department. The proposed legislation does not impair 
employees' collective bargaining rights in any way or change existing 
authorities.
    The President's legislative proposal would unify authority over 
major Federal security operations related to our borders, territorial 
waters, and transportation systems. The new Department of Homeland 
Security would assume responsibility for operational assets of the U.S. 
Customs Service, Coast Guard, Immigration and Naturalization Service 
and Border Patrol, the USDA's Animal and Plant Health Inspection 
Service and the Transportation Security Administration--allowing a 
single government entity to manage the U.S. borders. This is intended 
to improve coordination and communication among border agencies, 
enhance intelligence sharing, and increase operational efficiencies.
Question:
    What is your understanding of why the responsibilities of the 
Bureau of Alcohol, Tobacco and Firearms relating to firearms and 
explosives are not part of the President's plan for transfer to the new 
Department?
Answer:
    As you indicated, the President's proposal does not include moving 
the Bureau of Alcohol, Tobacco and Firearms (ATF) to the new Department 
of Homeland Security. While a number of options were considered, this 
was the final decision based on what needed to be done immediately to 
secure the homeland.
    Under the President's proposal, the new Department would have law 
enforcement responsibilities as they pertain to securing and policing 
our borders, ports, airports, and territorial waters. The U.S. Secret 
Service, also proposed for transfer, would maintain its law enforcement 
functions, as well.
    We recognize that other proposals have been made regarding ATF and 
the reorganization of Federal law enforcement (e.g., Webster 
Commission). The President's proposal is designed to cover the changes 
that need to be made immediately to accomplish the priority goal of 
securing the homeland as quickly as possible. The Treasury Department 
will be pleased to continue to work with the Committee on areas of 
concern as the legislation advances consistent with the President's 
proposal.
                               __________
    [Questions submitted from the Committee to Director Ridge, 
and his responses follow:]

         QUESTIONS SUBMITTED BY THE COMMITTEE TO DIRECTOR RIDGE

    1. Will the Customs Service remain intact within the Department of 
Homeland Security or will portions be merged with other agencies either 
initially or at some time later? 
    ANSWER: The President proposes transferring the entire Customs 
Service--its border security, trade/revenue, and investigative 
missions--into the new Department of Homeland Security. Certainly, the 
new Secretary will likely consider how to best organize the new 
Department in order to maximize efficiencies and synergies and minimize 
redundancies and overlapping missions. The Administration also expects 
the new Department to study the different agencies' management systems 
with a view to attaining efficiencies in personnel management, fiscal 
oversight, procurement, contracting, and other administrative areas.
    2. Under the President's proposal, a number of agencies are keeping 
their identity within the new Homeland Department, such as the Coast 
Guard and the Secret Service. Why is the Customs Service not being 
maintained as a discrete entity?
    ANSWER: The Administration believes that the new Secretary of 
Homeland Security should have the management flexibility to minimize 
operational redundancies and overlapping missions. The Administration 
is also interested in achieving overhead efficiencies within the new 
Department. This may mean that some overlapping functions presently 
performed by some agencies might be consolidated.
    3. The Administration's bill at Sec.  402 identifies the Coast 
Guard, the Transportation Security Administration, the Immigration and 
Naturalization Service, and the Animal and Plant Health Inspection 
Service as being in the new Border Security Office. Who would be in 
charge, and what will these offices do differently once under the 
Homeland Security Department?
    ANSWER: Section 402 of the draft bill prepared by the 
Administration proposes that an Under Secretary for Border and 
Transportation Security be in charge of these agencies. The Under 
Secretary's responsibilities would include: (1) preventing the entry of 
terrorists and the instruments of terrorism into the United States, (2) 
securing the borders, territorial waters, ports, terminals, waterways, 
and air, land, and sea transportation systems of the United States, (3) 
administering the immigration and naturalization laws of the United 
States, including the establishment of rules governing the granting of 
visas and other forms of permission to enter the United States to 
individuals who are not citizens or lawful permanent residents, (4) 
administering the customs laws of the United States, and (5) ensuring 
the speedy, orderly, and efficient flow of lawful traffic and commerce 
in carrying out these responsibilities.
    The agencies being transferred to the new Department--The Coast 
Guard, the Customs Service, the Immigration and Naturalization Service, 
the Animal and Plant Health Inspection Service, and the Transportation 
Security Administration will retain their statutory missions within the 
Department of Homeland Security. The principal advantage of 
transferring these agencies to the new Department is to consolidate 
responsibility for the inter-related tasks of border and transportation 
security within a single department whose primary mission is homeland 
security. The Under Secretary for Border and Transportation Security 
will be able to address problems that have plagued federal border-
control efforts to date--lack of coordination and cooperation among the 
numerous agencies involved in border management; overlap and 
duplication of efforts; fragmented authority and responsibility; and 
interagency rivalry.
    4. The fact that Customs collects revenue creates special 
circumstances and needs for Customs that other Homeland component 
offices will not experience. Do any other offices or agencies being 
transferred to Homeland Security also collect revenue as Customs does?
    ANSWER: Transferring Customs' trade and revenue collection function 
into the Department of Homeland Security will achieve the larger 
objectives of the President's proposal by (1) ensuring the proper 
balance between security and trade facilitation, (2) limiting the size 
of the Federal Government, (3) ensuring accountability and coordinated 
policymaking, and (4) promoting the collection and analysis of all 
information related to homeland security.
    While Customs' trade / revenue function is extremely important--the 
Service provides the nation with its second largest source of revenue, 
returning $22.1 billion to the Treasury in 2001--all of the border-
management agencies the Administration proposes be transferred to the 
new Department collect fees, fines or penalties.
    5. How can the Committee be sure that the trade mission of Customs 
will continue to be funded in the budget of the new Department?
    ANSWER: Should the Customs Service be transferred to the new 
Department of Homeland Security, The Administration will continue to 
develop a proposed budget for all of Customs' statutory functions, and 
will continue to transmit the budget to Congress within the 
Administration's fiscal year budget proposals. The Congress will be 
able to verify the Administration's commitment to Customs' trade 
mission and, should it conclude that budget levels should be changed, 
make adjustments to the proposal during the appropriations process.
    6. Will Customs continue to be the lead office of the collection of 
trade data or will another part of Homeland Security take over this 
function?
    ANSWER: Yes. Customs will retain the mission of collecting trade 
data.
    7. If Congress mandates that Customs' revenue functions will remain 
intact, even within the new Department, and could not be reorganized or 
with other Homeland offices until such time as the Administration 
identifies specifically what it proposes, is there any reason to 
believe that Customs could not perform its functions appropriately?
    ANSWER: The President's proposal would move the Customs Service 
intact to the Department of Homeland Security. He believes that because 
of the interrelated tasks the Service currently performs, moving the 
Service in whole is important. The Administration fully expects that 
Customs will continue to discharge its revenue functions upon its 
transfer to the new Department. Given the Committee's 200 years of 
jurisdiction over the Custom Service, however, we would, of course, 
welcome the Committee's input on this important function.
    The Customs Service's trade and revenue collection mission is an 
operational one that involves both enforcing trade laws (e.g., 
determining and verifying the classification, valuation, and country of 
origin of goods brought into the U.S.) and collecting duties. As part 
of this function, the Customs Service also determines the admissibility 
of goods by enforcing quotas and other trade restrictions.
    This mission involves far more than the mere collection and 
remittance of funds to the Treasury. The process begins with inspectors 
and other frontline personnel who examine goods and paperwork to verify 
some of the critical components of admissibility and duty 
determinations-- classification, valuation, country of origin, and 
quantity, among other things. After a duty is paid, Customs regulatory 
auditors may examine the records of an importer for compliance purposes 
and, depending on the outcome of that audit, may refer the matter to 
Customs Service special agents to open a criminal investigation. The 
criminal investigation, in turn, may lead to recovery of lost duties 
and substantial civil and/or criminal penalties.
    Not only does the trade and revenue collection function cut across 
the entire Customs Service, it is a key part of the Customs Service's 
border security mission for several reasons:
    First, the trade and revenue collection function is carried out by 
the same Customs Service personnel that ensure border security. The 
front line personnel that perform trade enforcement and compliance 
activities at the border, such as physical inspections and paperwork 
verifications, are the same personnel that perform inspections for 
security and other enforcement purposes.
    Second, the trade and revenue function provides the Customs Service 
with the information that it needs to carry out its border security 
mission. For example, a trade compliance examination (i.e., physical 
inspection) of a shipment at the border, or an audit of an importer, 
may reveal that the importer maintains poor controls over its inventory 
and thus should be considered a security risk. As a result of that risk 
determination, the importer would be subjected to more physical 
inspections at the border to ensure that it does not intentionally or 
inadvertently bring contraband into the U.S.
    8. What will happen to the continuing development of the new 
Customs computer system, the Automated Commercial Environment (ACE), 
during the transition to the Department of Homeland Security? What 
steps will be needed to join the Customs computer system with that of 
the other agencies?
    ANSWER: Systems plans for the components, which will enter the new 
department, will be carefully but promptly assessed to make sure they 
are consistent with both enterprise-wide requirements and specific 
statutory functions. There will be consolidation of systems where 
justified, with great care paid to make sure there is no interruption 
of critical functions. It is likely that the rapid development of the 
ACE system will continue as will the interagency community's 
development of an International Trade Data System that creates a 
harmonized system for import-related data. These systems will likely 
become a cornerstone of the Department of Homeland Security's 
enterprise architecture.
    9. Customs collects over $1 billion in user fees from importers. 
According to law, those fees must be used for commercial purposes only. 
How can Congress keep track of how the commercial fees be will spent by 
the Administration?
    ANSWER: Unless Congress changes the laws governing user fees, the 
present restrictions on user fees collected by Customs will apply if 
the Service is transferred to the Department of Homeland Security. The 
draft bill prepared by the Administration does not change Customs' 
congressional reporting requirements. Accordingly, Congress' oversight 
capabilities in regard to collection and expenditure of importers' user 
fees are not reduced in any way by the President's proposal. 
    10. Has the Administration done any projections to determine if 
there will be significant cost to move a new Department?
    ANSWER: Earlier this year, the Office of Management and Budget 
(OMB) examined the costs associated with and the efficiencies that 
would result from the establishment of a single agency comprising the 
Customs Service, the enforcement elements of INS, the Coast Guard, and 
the border inspectors of the Department of Agriculture. OMB estimated 
that combining these components into a single agency would have short-
term costs and the potential for long-term redeployed resources. Short 
term costs associated with personnel buy-outs, relocation costs, and 
facility costs (breaking and entering new leases) would be covered from 
within the existing administrative budgets in these agencies.

                                 

    [Letter submitted from Mr. Rangel to Ms. Kelley, and her 
responses follow:]

                                                      June 27, 2002
Colleen M. Kelley
National President
National Treasury Employees Union
901 E Street, NW
Suite 600
Washington, DC 20004

    Dear Ms. Kelley:
    Thank you for your testimony at the Committee's hearing on June 
26th about the President's plan to create a new Department of Homeland 
Security. I, and the other Committee Democrats, support the President's 
effort and will work, on a bipartisan basis, to ensure development of a 
new federal Cabinet-level Department that effectively protects this 
country from the global threat of terrorism. As you know, the Ways and 
Means Committee is responsible for developing amendments to the 
President's plan as relates to the U.S. Customs Service, and we hope to 
make such recommendations by July 10, 2002.
    In order to move quickly in evaluating the President's plan for 
Customs under the House Leadership's schedule, I request that you 
advise me of any legislative provisions that you would like addressed 
in the bill (1) to ensure proper transfer of Customs to the new 
Department; (2) to preserve the effectiveness of Customs operations in 
protecting our borders and facilitating the commercial flow of trade; 
(3) to ensure retention of Customs employee job responsibilities and 
the employment protections currently under Title V; and (4) to maximize 
Customs' ability to fight our war on terrorism, continue its drug 
interdiction programs, and other important responsibilities currently 
part of the Customs mission.
    Also, as you agreed at the hearing, I ask that you meet with 
Customs Commissioner Bonner to discuss the future of Customs in the new 
Department. I am confident that meaningful dialog between the Customs 
Commissioner and NTEU officials representing Customs will assist you in 
answering the questions listed above and in providing this Committee 
with valuable information and a clear direction on how we should 
proceed.
    Given the short timeframe under which the Committee is working, I 
request a written response to these questions by Tuesday, July 2, 2002. 
Please feel free to contact the Committee Democratic staff at 202-225-
4021. Also, please provide a copy of your response to 1106 Longworth 
House Office Building.
    Thank you for your assistance.
            Sincerely,
                                                  Charles B. Rangel
                                                   Ranking Democrat
                               __________
                                  National Treasury Employees Union
                                          Washington, DC 20004-2037
                                                       July 2, 2002
Honorable Charles B. Rangel
Ranking Member
Committee on Ways and Means
1106 Longworth House Office Building
Washington, DC 20515

    Dear Ranking Member Rangel:
    I again want to thank you for the opportunity to testify before the 
Committee on the President's proposal to create a Department of 
Homeland Security and its effects on the Customs Service missions of 
trade facilitation. I also appreciate the opportunity to offer possible 
legislative provisions for inclusion in legislation creating a new 
Department of Homeland Security.
    I would like to address the issues you raised in the same order as 
in your letter. First, to ensure proper transfer of Customs to a 
Department of Homeland Security, it must be maintained as a distinct 
entity. Congressman Mac Thornberry's Homeland Security legislation, HR 
4660 contains a provision that would achieve this goal. The provision 
is section 102 Part (2) which states,
    TRANSFER OF AUTHORITIES, FUNCTIONS, PERSONNEL, AND ASSETS TO THE 
DEPARTMENT.
    The authorities, functions, personnel, and assets of the following 
entities are transferred to the Department:
    (1) The Federal Emergency Management Agency, the 10 regional 
offices of which shall be maintained and strengthened by the 
Department. (2) The United States Customs Service, which shall be 
maintained as a distinct entity within the Department. (3) The portions 
of the Immigration and Naturalization Service responsible for law 
enforcement and border management, including the Border Patrol and 
Divisions of Inspections, Investigations, and Detention and Removal. 
(4) The United States Coast Guard, which shall be maintained as a 
distinct entity within the Department. (5) The Critical Infrastructure 
Assurance Office. (6) The National Infrastructure Protection Center and 
the National Domestic Preparedness Office of the Federal Bureau of 
Investigation. (7) The Animal Plant Health Inspection Service of the 
Department of Agriculture.
    Second, to preserve the effectiveness of Customs operations in 
protecting our borders and facilitating the commercial flow of trade, 
the government must show the public that it is serious about protecting 
the borders and facilitating trade by full funding agencies such as the 
Customs Service which is tasked with defending the borders and 
enforcing the trade laws of the United States. The President's 
proposal--HR 5005, currently calls for no additional funding for any 
agencies that may be consolidated into a new Department of Homeland 
Security. No organizational structure change will be successful, no 
matter how good it may look on paper, if the government does not 
provide proper funding for its border agencies.
    Third, to ensure retention of Customs employees and to ensure that 
employee protections currently provided under Title 5 are retained, it 
is imperative that the merit system that has evolved for over 100 years 
and has produced the most corruption free civil service in the world be 
maintained.
    To accomplish this goal, section 730 and 732 (bl of the President's 
proposal--HR 5005, must be removed. Section 730 provides that every 
section of Title 5 of them.?7o de, which-sets out 7a of the rules, 
benefits and rights that currently apply to Federal employees, may not 
apply to them once they are transferred to the new Department of 
Homeland Security, unless two political appointees, the Secretary of 
Homeland Security and the Director of OPM so choose.
    A list of the main sections of Title 5 is listed below, but 
included are whistleblower protection, pay and benefits, including 
health care and retirement, antidiscrimination rules, the right to join 
a union and the merit system rules that prohibit political patronage. 
The legislation needs to ensure that employees of the new Department 
will be able to have a union and collectively bargain the same way 
employees who currently hold these jobs in their current agency do.
    Under the President's proposal--HR 5005, the Secretary of Homeland 
Security and the Director of OPM would be allowed to prevent each and 
every one of these sections of law from applying to each and every 
employee of the new Department of Homeland Security. New personnel 
rules, created by these two political appointees, could be changed at 
any time. Every new Homeland Security Secretary and OPM Director would 
have the opportunity to rewrite them as they saw fit.
    Section 732 (b) would allow the Secretary to hire any or all of the 
employees of the new department at any pay level, for any length of 
time. It is my understanding that the only agency that currently has an 
exemption such as this is the CIA.
    The General Accounting Office and others have repeatedly warned 
Congress that the Federal Government faces a human capital crisis. The 
ranks of employees at or near retirement age have swelled to roughly 
half of the work force. How will the Department of Homeland Security be 
able to retain its most experienced employees when they will be faced 
with the possibility of losing the rights and benefits they have 
enjoyed for their entire career? More importantly, how will the 
Department of Homeland Security be able to attract the highly skilled 
employees it needs when employee pay, benefits and rights will be open 
to change at any time by political appointees that change every few 
years?
    The employees that will be moved into a new Department of Homeland 
Security have been fighting the war against terrorism, before, during 
and since September 11th. They have captured potential terrorists, 
seized illegal contraband and prevented financial transactions that 
would provide potential terrorists access to the money they need to 
implement attacks. They have been fighting to protect our freedoms. 
This proposal would take away theirs.

Here is a list of the important sections of Title 5:

    Ch.23--merit system principles; Ch.43--performance standards; 
Ch.53--pay, including FEPCA; Ch.63--leave; Ch.71--labor/management 
relations, including the right to belong to a union; Ch.72--anti-
discrimination, including whistleblower protection; Ch.73--conduct 
standards, including Hatch act; Ch.83--CSRS retirement; Ch.84--FERS 
retirement; Ch.89--FEHBP.
    Fourth, to maximize Customs' ability to fight our war on terrorism, 
continue its drug interdiction programs and other important 
responsibilities currently part of the Customs mission, the Customs 
Service must be fully funded to provide the proper number of personnel 
and resources to carry out their missions. In addition to full funding, 
additional legislative provisions that would be extremely beneficial to 
maximize Customs' employees ability to accomplish their missions 
include:

        Addition of Journeyman 11 status for Customs personnel:

Language should include the following to ensure that the recent 
announcement to increase the Journeyman status of Customs employees by 
the Commissioner of Customs is statutorily provided:

    AUTHORIZATION OF APPROPRIATIONS FOR CUSTOMS STAFFING
    (1) IN GENERAL--There are authorized to be appropriated for the 
Department of Treasury such sums as may be necessary to provide an 
increase in the annual rate of basic pay----
    (A) for all journeyman Customs inspectors and Canine Enforcement 
Officers who have completed at least 1 year's service and are receiving 
an annual rate of basic pay for positions at GS-9 of the General 
Schedule under section 5332 of title 5, United States Code, from the 
annual rate of basic pay payable for positions at GS-9 of the General 
Schedule under such section 5332, to an annual rate of basic pay 
payable for positions at GS-11 of the General Schedule under such 
section 5332;
    (B) for the support staff associated with the personnel described 
in subparagraphs (A), at the appropriate GS level of the General 
Schedule under such section 5332.

    Addition of Journeyman 12 status for Customs Import Specialists:

Language should include the following to increase the Journeyman status 
of Customs Import Specialists to Journeyman 12:

    AUTHORIZATION OF APPROPRIATIONS FOR CUSTOMS STAFFING----
    (1) IN GENERAL--There are authorized to be appropriated for the 
Department of Treasury such sums as may be necessary to provide an 
increase in the annual rate, of basic pay----
    (A) for all import specialists who have completed at least one 
year's service and are receiving an annual rate of basic pay for 
positions at GS-11 of the General Schedule under section 5332 of title 
5, United States Code, from the annual rate of basic pay payable for 
positions at GS-11 of the General Schedule under such section 5332, to 
an annual rate of basic pay payable for positions at GS-12 of the 
General Schedule under such section 5332;
    (B) for the support staff associated with the personnel described 
in subparagraphs (A), at the appropriate GS level of the General 
Schedule under such section 5332.

 Additional language for Law Enforcement Officer Status (6c) coverage 
                         for Customs personnel:

Language should include the following to enable Customs inspectors and 
canine enforcement officers to be recognized as law enforcement 
officers:

    To amend chapters 83 and 84 of title 5, United States Code, to 
include inspectors and canine enforcement officers of the United States 
Customs Service as law enforcement officers.
    SEC. 1. CIVIL SERVICE RETIREMENT SYSTEM.
    Section 8331 of title 5, United States Code, is amended--(1) in 
paragraph (20) by inserting', customs inspector, customs canine 
enforcement officer, after 'administrative position; (2) by striking 
`and' at the end of paragraph (27); (3) by striking the period at the 
end of paragraph (28) and inserting a semicolon; and (4) by adding at 
the end the following: '(29) `customs inspector' means an employee of 
the United States Customs Service, the duties of whose position are 
primarily to--'(A) enforce laws and regulations governing the importing 
and exporting of merchandise; '(B) process and control passengers and 
baggage; '(C) interdict smuggled merchandise and contraband; and '(D) 
apprehend (if warranted) persons involved in violations of customs 
laws, including an employee engaged in this activity who is transferred 
to a supervisory or administrative position; '(30) `customs canine 
enforcement officer' means an employee of the United States Customs 
Service, the duties of whose position are primarily to work directly 
with a dog in an effort to--'(A) enforce laws and regulations governing 
the importing and exporting of merchandise; '(B) process and control 
passengers and baggage; '(C) interdict smuggled merchandise and 
contraband; and ' (D) apprehend (if warranted) persons involved in 
violations of customs laws, including an employee engaged in this 
activity who is transferred to a supervisory or administrative 
position.
    SEC. 2. FEDERAL EMPLOYEES RETIREMENT SYSTEM.
    Section 8401 of title 5, United States Code, is amended----
    (1) in paragraph (17)----
    (A) in subparagraph (C) by striking 'and' at the end;
    (B) in subparagraph (D) by adding 'and' at the end; and
    (C) by adding at the end the following:
    (E) a customs inspector, and customs canine enforcement officer;
    (2) by striking 'and' at the end of paragraph (33);
    (3) by striking the period at the end of paragraph (34) and 
inserting a semicolon; and (4) by adding at the end the following: 
'(35) 'customs inspector' means an employee of the United States 
Customs Service, the duties of whose position are primarily to-'(A) 
enforce laws and regulations governing the importing and exporting of 
merchandise; '(B) process and control passengers and baggage; '(C) 
interdict smuggled merchandise and contraband; and '(D) apprehend (if 
warranted) persons involved in violations of customs laws, including an 
employee engaged in this activity who is transferred to a supervisory 
or administrative position; '(36) 'customs canine enforcement officer' 
means an employee of the United States Customs Service, the duties of 
whose position are primarily to work directly with a dog in an effort 
to-'(A) enforce laws and regulations governing the importing and 
exporting of merchandise; '(B) process and control passengers and 
baggage; '(C) interdict smuggled merchandise and contraband; and '(D) 
apprehend (if warranted) persons involved in violations of customs 
laws, including an employee engaged in this activity who is transferred 
to a supervisory or administrative position; and
    SEC. 3. ADMINISTRATIVE PROVISIONS.
    (a) EMPLOYEE CONTRIBUTIONS--Any individual who has served as a 
customs inspector, and customs canine enforcement officer, before the 
effective date of this Act, shall have such service credited and 
annuities determined in accordance with the amendments made by sections 
2 and 3 of this Act, if such individual makes payment into the Civil 
Service Retirement and Disability Fund of an amount, determined by the 
Office of Personnel Management, which would have been deducted and 
withheld from the basic pay of such individual (including interest 
thereon) under chapters 83 and 84 of title 5, United States Code, as if 
such amendments had been in effect during the periods of such service.
    (b) AGENCY CONTRIBUTIONS--Not later than 90 days after a payment 
made by an individual under subsection (a), the Department of the 
Treasury shall make a payment into the Civil Service Retirement and 
Disability Fund of an amount, determined by the Office of Personnel 
Management, which would have been contributed as a government 
contribution (including interest thereon) under chapters 83 and 84 of 
title 5, United States Code, for the service credited and annuities 
determined for such individual, as if the amendments made by sections 1 
and 2 of the Act had been in effect during the applicable periods of 
service.
    (c) REGULATIONS--The Office of Personnel Management shall determine 
the amount of interest to be paid under this section and may promulgate 
regulations to carry out the provisions of this Act.
    SEC. 4. EFFECTIVE DATE.
    This Act and the amendments made by this Act shall take effect 90 
days after the date of enactment of this Act.

Additional language for raising the overtime cap for Customs Personnel:

Language should include the following to enable Customs employees to 
avoid being subject to arbitrary decisions by Customs management on 
what overtime cap is established nationwide:

    Corrections Relating to Fiscal Year Cap:
    (1.) Amend 5(c)(1) of the Act of February 13, 1911 (19 U.S.C. 
267(c)(1)) to read as follows: Notwithstanding any other provision of 
law, the aggregate of overtime pay under subsection (a) of section 267 
of U.S. Code Title 19 (including commuting compensation under 
subsection (a)(2)(B) of this section and premium pay under subsection 
(b) of this section that a customs officer may be paid in any fiscal 
year may not exceed $35,000, except that the Commissioner of Customs or 
his designee may waive this limitation in individual cases to prevent 
excessive costs or to meet emergency requirements of the Customs 
Service.
    (2.) TREATMENT OF CERTAIN PAY FOR RETIREMENT PURPOSES? Section 
8331(3)(G) of title 5, United States Code, is amended to read as 
follows----
    `with respect to a customs officer (referred to in subsection 
(e)(1) of section 5 of the Act of February 13, 1911), compensation for 
overtime inspectional services provided for under subsection (a) of 
such section 5, but not to exceed 50 percent of any statutory or 
administrative maximum in overtime pay for customs officers which is in 
effect for the year involved;'
    In closing, we believe that retaining all current Title 5 
protections is critical to ensuring that Customs Service employees are 
able to continue to provide world class service and fight the war on 
terrorism. In addition, the proper funding, maintenance of employee 
rights, and legislative changes outlined here will ensure that Customs 
successfully continues its missions of trade facilitation and drug 
interdiction in the new Department of Homeland Security. Should you 
have any additional questions, please do not hesitate to contact me or 
Paul Giuliano or Maureen Gilman in NTEU's Legislative Department at 
(202) 783-4444.
            Sincerely,
                                                  Colleen M. Kelley
                                                 National President

                                 

    [Submissions for the record follows:]

                            American Apparel & Footwear Association
                                          Arlington, Virginia 22209
                                                        8 July 2002
The Hon. Bill Thomas
Chairman
House Ways and Means Committee
Washington, DC 20515

    Dear Mr. Chairman:
    On behalf of the American Apparel & Footwear Association, I am 
pleased to provide comments in connection with your review of the 
creation of the Homeland Security Department.
    The American Apparel & Footwear Association (AAFA) is the national 
trade association representing apparel, footwear and other sewn 
products companies and their suppliers, which compete in the global 
market. AAFA Members make and market their products in the United 
States and throughout the world. AAFA's mission is to promote and 
enhance its Members' competitiveness, productivity and profitability in 
the global market by minimizing regulatory, commercial, political, and 
trade restraints.
    At the outset, we would like to affiliate ourselves with the 
comments and testimony of Jerry Cook from Sara Lee Branded Apparel, one 
of our member companies.
    In particular, we strongly endorse the concept that the enforcement 
and trade facilitation elements of the current mandate of the U.S. 
Customs Service must remain together and must work together. Any 
proposal that separates these two functions would create uncertainty 
and confusion in the operation of the trade.
    Our association recently endorsed a new trade policy that promotes, 
among other things, commonsense Customs practices to facilitate legal 
trade, responsible sourcing from countries that do not support 
terrorism, and continued funding for the ACE program.
    Accordingly, we encourage you to build into this new Department a 
continued and healthy appreciation for the principles that Congress 
endorsed when it passed the Mod Act nearly ten years ago. The concepts 
of shared responsibility that have worked since then can and must 
continue to work, especially as we undertake new responsibilities in 
this new environment. On that point, I would note that the AAFA has for 
several years now heavily promoted customs compliance programs among 
its Members, including the Worldwide Responsible Apparel Production 
(WRAP) program, which provides for factory certification and 
independent monitoring on such issues as labor, customs compliance, 
anti-transshipment, and anti-narcotics.
    Finally, it is absolutely essentially that Customs be mandated to 
complete its work in creating and implementing the ACE computer 
modernization project. We have been pleased that funding for this 
program is moving forward and would encourage you to use your 
leadership to ensure continued funding for this multi-year project.
    If done carefully, a new Departmental entity can smoothly carry out 
the twin mandates to secure our homeland against terrorist attacks 
while promoting and facilitating legal trade. Most of our Members make 
and manufacture products throughout the world and depend upon 
sophisticated supply chains that extend through ports and across 
borders in order to get the right product to the right market at the 
right price and at the right time. We stand behind nobody in our 
commitment to ensure secure supply chains to prevent terrorist attacks 
on either those supply chains or on our homeland itself. At the same 
time, we stress that a Customs operation mired in overly restrictive 
procedures that do not recognize commercial practices can obstruct the 
trade dramatically. It is for this reason that we were pleased to hear 
Commissioner Bonner and Homeland Security Director Ridge recently 
assure the trade that the new Department of Homeland Security will keep 
trade facilitation among one of its top goals.
    Please accept my best regards,
                                                      Stephen Lamar
                                                 Sr. Vice President

                                 

  Statement of Timothy H. Edgar, Legislative Counsel, American Civil 
                            Liberties Union
    On behalf of the American Civil Liberties Union (ACLU) and its 
approximately 300,000 Members, we welcome this opportunity to provide 
this testimony for the record on the President's proposed legislation 
to create a Department of Homeland Security, the Homeland Security Act 
of 2002 (``HSA''). We commend you for examining these issues in today's 
hearing.
    The ACLU is a non-partisan, non-profit organization dedicated to 
preserving civil liberties and the principles of our constitutional 
democracy, including open and accountable government.
    The proposed Department of Homeland Security will be a massive 
Cabinet-level department, containing over 170,000 employees and twenty-
two federal agencies.\1\ It will have substantial powers, and will 
include more armed federal agents with arrest power than any other 
agency. In considering the proposed Department, Congress should ask 
itself not only whether the proposal represents sound public 
management, but also whether the Department will have structural and 
legal safeguards in place that are sufficient to keep the agency open 
and accountable to the public.
---------------------------------------------------------------------------
    \1\ See Bob Williams & David Nather, Homeland Security Debate: 
Balancing Swift and Sure, CQ Weekly, June 22, 2002 at 1642.
---------------------------------------------------------------------------
    Unfortunately, the draft legislation not only fails to provide such 
safeguards, it eviscerates many of the safeguards that are available 
throughout the government and have worked well to safeguard the public 
interest. As proposed, the plan:

         Hobbles FOIA--Any information voluntarily submitted 
        to the department about terrorist threats to the nation's 
        infrastructure are exempt from Freedom of Information Act 
        disclosure, drastically limiting the agency's responsibility to 
        answer public questions about how well it is addressing these 
        threats. (HSA Sec. 204).
         Limits citizen input--Advisory committees to the 
        department, which normally include citizen input, hold open 
        meetings and must be balanced in viewpoint would be immune from 
        these safeguards of the Federal Advisory Committee Act, further 
        undercutting the agency's accountability to the public. (HSA 
        Sec. 731).
         Muzzles whistleblowers--Employees of the new agency 
        could be stripped of the protections contained in the federal 
        Whistleblower Protection Act. This would eliminate guarantees 
        that--were the agency to overreach its mandate or engage in 
        questionable activities--such abuse would be disclosed and the 
        agency held accountable to Congress and the American public. 
        Protection for the bravery like that displayed by FBI Agent 
        Coleen Rowley would not exist in the new agency. (HSA 
        Sec. 731).
         Lacks strong oversight--Given the enormous potential 
        power of the proposed agency, its Inspector General must not be 
        hampered like those in other federal law enforcement agencies. 
        Currently, the cabinet secretary in charge would have veto 
        power over the IG's audits and investigations. (HSA Sec. 710).
         Threatens personal privacy and constitutional 
        freedoms--Many of the information sharing provisions in the HSA 
        are vague and do not provide sufficient guarantees to protect 
        privacy or constitutional freedoms.

    Finally, we firmly reject proposals to include in the Department of 
Homeland Security the intelligence gathering functions of the Central 
Intelligence Agency (CIA), other foreign intelligence agencies, or the 
Federal Bureau of Investigation (FBI). Intelligence gathering 
operations abroad are, as a practical matter, largely immune from 
constitutional constraints. The CIA and other agencies that gather 
foreign intelligence abroad operate in a largely lawless environment. 
To bring these agencies into the same organization as the FBI risks 
further damage to Americans' civil liberties. As a result, Congress 
should resist any attempt to endow the Department of Homeland Security 
with new intelligence gathering powers or to fold the FBI and CIA into 
the new agency. Instead, Congress should put in place clear limits to 
prevent the Department from permanently retaining files on Americans 
that relate to First Amendment activities and have no connection to any 
criminal activity.
I. The Homeland Security Department Must Be Open and Accountable
    The President's plan does not contain sufficient structural 
guarantees to ensure that this vast new Department will be accountable 
to the public, both to ensure it is doing its job and to ensure against 
abuse. Instead, the plan eviscerates many of the existing safeguards 
for government agencies. These provisions should be eliminated, and a 
strong mechanism should be put in place to ensure against abuse.

Freedom of Information Act (FOIA) Exemption

    The ACLU strongly opposes section 204 of the proposed legislation, 
which creates a broad new exemption to the Freedom of Information Act 
(FOIA), 5 U.S.C. Sec. 552. Section 204 provides that information that 
companies or others voluntarily provide to the Department about 
``infrastructure vulnerabilities'' and other information said to be 
relevant to terrorism will be exempt from FOIA. These terms are not 
defined by the proposed legislation and could potentially cover a host 
of information. This is a deeply misguided proposal, and it should be 
rejected.
    The FOIA is the bedrock statute designed to preserve openness and 
accountability in government and new exemptions to its provisions 
should not be created lightly. As the Supreme Court has made clear, 
``Disclosure, not secrecy, is the dominant objective of the Act.'' \2\ 
Open government is a core American value. It should not be set aside 
for reasons other than genuine necessity.
---------------------------------------------------------------------------
    \2\ Department of the Air Force v. Rose, 425 U.S. 352 (1976).
---------------------------------------------------------------------------
    The FOIA already contains a number of common sense exemptions that 
would cover critical infrastructure information the disclosure of which 
could result in harm. The FOIA does not require the disclosure of 
national security information (exemption 1), sensitive law enforcement 
information (exemption 7), or confidential business information 
(exemption 4).
    Courts have carefully weighed the public's need for disclosure 
against the possible harms of disclosure under FOIA's traditional 
exemptions. In deciding whether to disclose technical information 
voluntarily submitted by private industry, courts have given 
substantial--many in the public interest and FOIA requester community 
would say excessive--deference to industry demands for confidentiality 
of business information under exemption 4.
    Generally, information that a business voluntarily submits to the 
government on the basis that it be kept confidential is already exempt 
from disclosure if the company does not customarily release such 
information to the public and preserving confidentiality is necessary 
to ensure that the government will continue to receive industry's 
cooperation. See, e.g., Critical Mass Energy Project v. Nuclear 
Regulatory Commission, 975 F.2d 871 (D.C. Cir. 1992). It is difficult 
to see how any truly sensitive business information that was 
voluntarily submitted by a company concerning the vulnerabilities of 
its critical infrastructure could be released under this standard.
    Indeed, supporters of a new FOIA exemption for critical 
infrastructure information have, when pressed, been forthright in 
admitting that such legislation simply is not needed to protect 
sensitive information from disclosure. For example,

         Senator Bennett, chief sponsor of legislation 
        creating a new critical infrastructure exemption, has admitted 
        that ``[t]he Freedom of Information Act itself'' currently 
        allows sensitive information to be protected. ``That is, there 
        are provisions in the Act that say information need not be 
        shared'' with the public.\3\
---------------------------------------------------------------------------
    \3\ Senate Governmental Affairs Committee Holds Hearing on Private 
and Public Information Sharing and Infrastructure Security (FDCH 
Transcripts), May 8, 2002.
---------------------------------------------------------------------------
         John S. Tritak, Director of the Critical 
        Infrastructure Assurance Office of the U.S. Chamber of 
        Commerce, says ``You could say that [in the] current 
        environment, if you're very careful and you watch out, the old 
        existing exemptions will cover any concerns that may arise 
        under FOIA, not to worry.'' \4\
---------------------------------------------------------------------------
    \4\ Id.
---------------------------------------------------------------------------
         Ronald L. Dick, Director of the National 
        Infrastructure Protection Center of the Federal Bureau of 
        Investigation (FBI), has said ``[M]any legal authorities have 
        agreed that the Federal Government has the ability to protect 
        information from mandatory disclosure under the current 
        statutory framework.'' \5\
---------------------------------------------------------------------------
    \5\ Id.
---------------------------------------------------------------------------
         VeriSign public policy director Michael Aisenberg has 
        said worries about disclosure were overblown because FOIA 
        already protects sensitive information, and new legislation is 
        simply not needed ``substantively.'' \6\
---------------------------------------------------------------------------
    \6\ Washington Internet Daily, April 18, 2002.

    Rather than put forward evidence that some information about 
critical infrastructure exists that is not adequately protected, 
supporters of a new exemption have said ``it doesn't matter'' whether 
current law provides adequate protection. Rather, it is said, a new 
exemption is needed because of a ``perception'' in private industry 
that there is some risk, however remote, that information that is 
voluntarily submitted to the government might be at risk of disclosure 
under FOIA.
    If industry is unwilling to provide information to the government, 
despite adequate legal protection, the solution is not to change the 
law but to change the misperception by issuing legal guidance making 
clear the parameters of the FOIA as it currently exists. If a 
misperception exists that truly sensitive information that is given to 
the government cannot be protected from disclosure, it is hard to see 
how that will change if another exemption is enacted.
    Perhaps most importantly, creating an overbroad exemption for 
``critical infrastructure information'' would undermine, rather than 
enhance, security. Such an exemption would permit private industry and 
the government to shield from the public the actions they are taking--
and, more importantly, the actions they are not taking--to protect the 
public from attacks on critical infrastructures.
    Secrecy can hinder anti-terrorism efforts. Earlier this year in 
Israel, the media obtained a government report that discussed the 
potential vulnerability of a fuel depot to terrorists--exactly the sort 
of information about ``infrastructure vulnerabilities'' that might be 
exempt from FOIA under the proposed legislation. Military censors 
blocked publication of the report, and persuaded the mayor of Tel Aviv 
not to go public with a campaign to fix the problem. Nothing was done. 
Terrorists then attacked the fuel depot. In that case, public debate 
might well have forced action to address the problem.\7\ The United 
States should not make the same mistake.
---------------------------------------------------------------------------
    \7\ See Aviv Lavie, Media: Sensing the Censor, Ha'aretz (Tel Aviv, 
Israel), May 29, 2002.
---------------------------------------------------------------------------
    For the all of the above reasons, ACLU opposes the enactment of a 
new FOIA exemption for critical infrastructure information. At the very 
least, however, any new exemption that Congress enacts should be 
subject to the following responsible limits:
    First, any new exemption must be limited to clearly marked cyber-
security documents, i.e., reports that describe cyber-attacks on a 
company's computer systems that have resulted or could result in some 
harm to its critical infrastructure. It should not apply to information 
about all vulnerabilities in critical infrastructure. Proposals to 
exempt information that is voluntarily shared with the government were 
developed to deal with the discrete and relatively new problem of 
cyber-attacks. To expand the scope of information that is exempted to 
include information about vulnerabilities to traditional physical 
attacks would interfere with a host of environmental and public safety 
regulatory regimes that have been developed over decades.
    Second, any new exemption must be for written documents only, not 
``information'' of all sorts. It would be virtually impossible to 
determine if information possessed by the government was the result of 
some oral conversation with a private sector company, making a FOIA 
exemption that covered such information unworkable and potentially 
devastating to the public's right to know.
    Third, any new exemption must be limited in time, and should last 
for months, not years. A company which controls infrastructure that is 
vital to the public must have an incentive not only to share 
information, but also to do something to make itself less vulnerable to 
such attacks. A time limited exemption will give responsible companies 
and government agencies an incentive to fix their problem with due 
speed. Without a time limit, companies and the government can simply 
sit on the problem without any pressure to act.
    Fourth, a new exemption should be an alternative to existing FOIA 
protections, not a new club to wield against FOIA requesters. Companies 
that wish to take advantage of the new exemption should clearly state 
on the relevant document they are requesting confidentiality under that 
exemption. Companies that fail to fix their vulnerabilities within a 
reasonable time limit, even with the protection of the new exemption, 
should not be allowed to take advantage of FOIA's other potentially 
applicable exemptions to cover up their failure to act after that time 
limit has expired. If companies believe the information they desire to 
share is protected under another FOIA exemption, they should be 
required instead to rely on that other exemption at the time of 
submission.
    Finally, strict reporting requirements and a sunset clause should 
be included in the legislation to determine whether the new regime is 
working.

Federal Advisory Committee Act (FACA) Exemption

    Section 731 of the HSA provides that advisory committees 
established by the Secretary of the Department of Homeland Security are 
exempt from the Federal Advisory Committee Act (FACA), and that Members 
of such advisory committees are not subject to certain restrictions on 
federal employees' conduct.
    The FACA was passed in 1972 to promote the values of openness, 
accountability, and balance of viewpoints, and to ensure administrative 
efficiency and cost reduction. FACA imposes requirements on agencies 
\8\ when they establish or utilize any advisory committee, which is 
defined as a group of individuals, including at least one non-federal 
employee, which provides collective advice or recommendations to the 
agency. 5 U.S.C. App. II, Sec. 3(2). When an agency seeks to obtain 
such advice or recommendations, it must ensure the advisory committee 
is ``in the public interest,'' id. at Sec. 9(2), is ``fairly balanced 
in terms of points of view represented and the function to be 
performed,'' id. at Sec. 5(b)(2), and does not contain Members with 
inappropriate special interests. Id. at Sec. 5(b)(3). If these criteria 
are satisfied, the agency must file a charter for the committee. Id. at 
Sec. 9(c).
---------------------------------------------------------------------------
    \8\ The FACA does not apply to the CIA or the Federal Reserve 
System. 5 U.S.C. App. II Sec. 4(b).
---------------------------------------------------------------------------
    Once an advisory committee is operating, the agency also must 
comply with requirements designed to ensure public access and 
participation. FACA requires an agency to provide adequate public 
notice that it is establishing an advisory committee, id. at 
Sec. 9(a)(2), conduct open meetings, id. at Sec. 10(a), keep minutes of 
those meetings, id. at Sec. 10(c), make available for public inspection 
and purchase all documents prepared for or by advisory committees, id. 
at Sec. Sec. 10(b), 11(a), and permit all interested persons to attend, 
appear before, or file statements with any advisory committee. Id. at 
10(a)(3). These openness requirements ensure public monitoring of 
advisory committees and reduce the likelihood that advisory committees 
can serve as secretive channels for special-interest access to 
government agencies. FACA's right of access to advisory committee 
records is subject to the same nine exemptions that apply to access to 
agency records under the FOIA, which we believe are sufficient to guard 
against any disclosure of truly sensitive information.
    By exempting from FACA requirements any advisory committees 
established by the Secretary of the Department of Homeland Security, 
the HSA severely undermines the openness and public-access goals of 
FACA. Although the HSA provides that the Secretary shall publish notice 
in the Federal Registrar announcing the establishment of an advisory 
committee and identifying its purpose and Membership, the meetings will 
not be open to the public, formal minutes of committee activity during 
those meetings will not be kept, and the public will not have access to 
view or purchase documents prepared for or by those advisory 
committees. Public access to and participation in advisory committees 
are essential to guarding against special-interest access to advisory 
committees and influence upon government decision-making.
    In addition, the HSA exempts Members of advisory committees 
established under the Department of Homeland Security from federal laws 
restricting federal employees and officers (including Members of 
advisory committees) from participating in or advising the government 
upon matters about which there exists a conflict of interest. See 18 
U.S.C. Sec. Sec. 203, 205, 207. Combined with the lack of public access 
to and participation in advisory committee proceedings, exemption from 
these laws threatens to erode FACA's requirement that advisory 
committees' Memberships reflect a balance of viewpoints, and undermines 
the goal of accountability.

Waiver of Whistleblower Protection Act (WPA) and other Title 5 
Protections

    The federal Whistleblower Protection Act (WPA) was enacted to 
ensure that federal employees \9\ who believe that a violation of law, 
mismanagement or other abuse has occurred may come forward and disclose 
that information without fear of summary dismissal or punitive action. 
The WPA protects federal employees from adverse action on the basis of 
a disclosure of information if the employee ``reasonably believes [the 
information] evidences a violation of any law, rule, or regulation or 
gross mismanagement, gross waste of funds, an abuse of authority or a 
substantial and specific danger to public health and safety.'' 5 U.S.C. 
Sec. 2302(b)(8). An employee is not protected if the disclosure 
involves classified information or if the disclosure is specifically 
prohibited by law. Id. The Act contains administrative remedies, 
administered by the Merit System Protections Board, and an employee may 
also seek judicial review in the United States Court of Appeals for the 
Federal Circuit. 5 U.S.C. Sec. Sec. 1221, 7703(b). In this way, the WPA 
guarantees that federal agencies are held accountable to the American 
public if they overreach their mandate or engage in questionable 
activities.
---------------------------------------------------------------------------
    \9\ The WPA does not apply to the CIA, FBI, Defense Intelligence 
Agency (DIA), the National Imagery and Mapping Agency (NIMA), the 
National Security Agency (NSA), and, ``as determined by the President, 
any Executive agency or unit thereof the principal function of which is 
the conduct of foreign intelligence or counterintelligence 
activities.'' 5 U.S.C. 2302(a)(2)(C)(ii). However, employees of the FBI 
are covered by similar whistleblower protections contained at 5 U.S.C. 
Sec. 2303, but must make their disclosures to an official designated by 
the Attorney General.
---------------------------------------------------------------------------
    The HSA permits the Secretary to sweep away the Whistleblower 
Protection Act, and all other protections for federal employees under 
Title 5, for the purpose of establishing a ``Human Resources Management 
System'' (HSA Sec.  730) that is ``flexible, contemporary, and grounded 
in the public employment principles of merit and fitness.'' By allowing 
the Secretary to make these personnel rules ``[n]otwithstanding any 
other provision of this title,'' i.e., Title 5, the HSA does not 
guarantee employees of the Department of Homeland Security the 
protections of the WPA. Without such protection, employees who are in 
the best position to spot problems, violations of the law or dangers to 
the public are effectively silenced.

The Homeland Security Department's Inspector General May Lack Authority

    We are concerned that the Homeland Security Act does not adequately 
provide for a fully functioning Inspector General (IG). Section 103(b) 
provides for the creation of an Inspector General pursuant to the 
Inspector General Act of 1978. However, section 710 of the HSA gives 
the Secretary of Homeland Security authority to override Inspector 
General Investigations in several areas including: (1) intelligence, 
counterintelligence, or counter terrorism matters; (2) ongoing criminal 
investigations or proceedings; (3) undercover operations; (4) the 
identity of confidential sources, including protected witnesses; (5) 
matters that constitute a threat to persons or property protected by 
the United States Secret Service and (6) other matters that constitute 
a serious threat to national security. Given the mission of the 
Homeland Security Agency, it is conceivable that many of the functions 
performed by this new agency could be said to fall under one of these 
exempted categories.
    Other agencies have similar provisions that require the inspector 
general to be under the direct authority of the Department Secretary 
(e.g. Treasury, Department of Justice, Postal Service) when the IG is 
investigating areas of national security. We understand the need to 
protect information that if released could pose a danger to national 
security. However, many of the agencies that are going to become a part 
of the new Homeland Security Act such as FEMA, the INS, the Animal and 
Plant Health Inspection Service of the Department of Agriculture and 
the Coast Guard have functions much broader than dealing with national 
security. We are concerned that transferring these agencies into a 
Department whose primary function is to protect the United States 
against terrorism could erroneously be perceived as elevating their 
regular duties to those of national security, thereby making such 
currently non-exempt activities exempt from Inspector General 
oversight.
    We recommend further study of this issue before legislation is 
approved, regular oversight by Congress and a requirement for the 
Homeland Security Department to report to Congress concerning how often 
the Inspector General is prevented from performing its duties due to 
section 710 exemptions, and the standards by which the Secretary 
exercises such authority.

II. The Homeland Security Department Should Not Invade the Privacy or 
Constitutional Rights of Americans

    Finally, the creation of a new Homeland Security Department 
naturally leads to concerns that such a large government agency could 
abuse its authority by invading the privacy or freedoms that Americans 
hold dear. Common sense protections can ensure against such abuses.
    Because a primary function of the new Department is to receive and 
analyze information, Congress should insist on appropriate safeguards 
to protect the privacy of the information and to make sure that it is 
not used inappropriately. For example, there should be procedures to 
limit the use and disclosure of the collected information; rules that 
require the information to be secure and confidential; procedures to 
remove and destroy old data and remedies for the violation of statutory 
and constitutional rights and penalties for misuse of personal 
information.

The Intelligence Gathering Functions of the CIA and FBI Should Remain 
Separate and Outside the Homeland Security Department

    We commend the Administration for leaving the intelligence 
gathering function out of the new Department. The HSA leaves those 
functions to the Central Intelligence Agency (CIA) and other 
intelligence agencies and to the Federal Bureau of Investigation (FBI). 
While the government must do a better job of analyzing the intelligence 
information it already collects from both foreign and domestic sources, 
the Congress should not approve new intelligence gathering powers, much 
less a new intelligence gathering agency, without a showing that such 
powers are truly needed and do not unnecessarily tread on Americans' 
civil liberties.
    Under our system of government, the CIA and other intelligence 
agencies are tasked with collecting foreign intelligence abroad. As a 
practical matter, these foreign activities have been largely immune 
from constitutional limits and from oversight by the federal courts, 
although they are and must remain subject to oversight by the Congress. 
On the other hand, the FBI collects foreign intelligence in the United 
States, and also investigates and prevents criminal activity. These 
domestic activities are clearly constrained by statute and by the 
Constitution. The FBI's intelligence gathering functions are also 
subject to oversight by the Foreign Intelligence Surveillance Court.
    Blurring of domestic and foreign intelligence gathering functions 
could have a severe impact on civil liberties, potentially leading to 
widespread spying on Americans constitutionally-protected political and 
religious activity. This is already a danger under the relaxed FBI 
guidelines for domestic investigations recently announced by Attorney 
General Ashcroft.\10\ The Congress should resist any attempt to further 
erode these protections by including substantial intelligence gathering 
functions in the new Department of Homeland Security.
---------------------------------------------------------------------------
    \10\ For a memorandum explaining how these changes threaten 
constitutional rights, see Interested Persons Memorandum of Marvin J. 
Johnson, ACLU Legislative Counsel, June 6, 2002, available at .
---------------------------------------------------------------------------
The Homeland Security Department Should be Barred from Political Spying
    Instead of adding to the Homeland Security Department new 
intelligence gathering powers that could tread on civil liberties, 
Congress should consider adding provisions that would prevent the 
Department from maintaining files on Americans that are not linked to 
any criminal activity, but instead relate solely to political beliefs 
and associations. Under the draft legislation, while the Department 
will not gather intelligence information, it will receive such 
information in the course of its efforts to prevent terrorism.
    Without safeguards, these provisions could lead to abuse. No one 
wants a repeat of the J. Edgar Hoover era, when the FBI was used to 
collect information about and disrupt the activities of civil rights 
leaders and others whose ideas Hoover distained.\11\ Moreover, during 
the Clinton Administration, the ``Filegate'' matter involving the 
improper transfer of sensitive information from FBI background checks 
of prominent Republicans to the White House generated enormous public 
concern that private security-related information was being used for 
political purposes. Congress should not provide a future Administration 
with the temptation to use information available in Homeland Security 
Department files to the detriment of its political enemies.
---------------------------------------------------------------------------
    \11\ For a discussion of how the FBI engaged in illegal 
surveillance and harassment of Dr. Martin Luther King, Jr., see Marvin 
J. Johnson, ACLU Legislative Counsel, The Dangers of Domestic Spying by 
Federal Law Enforcement: A Case Study on FBI Surveillance of Dr. Martin 
Luther King (January 2002), available at .
---------------------------------------------------------------------------
    One model the Congress could consider is Oregon Revised Statutes 
Sec. 181.575. It provides that no state law enforcement agency may 
``collect or maintain information about the political, religious or 
social views, associations or activities'' of a person or group unless 
such information ``directly relates to an investigation of criminal 
activities'' and there are ``reasonable grounds to suspect'' the 
subject ``is or may be involved in criminal conduct.'' Such sensible 
limits would ensure that the Department is focused on its mission of 
preventing unlawful terrorist activity, not on keeping tabs on 
unorthodox or unusual, but constitutionally protected, political or 
religious activity.

III. Conclusion

    The creation of a new Homeland Security Department is truly a 
massive undertaking. It requires careful and thoughtful consideration. 
While Congress understandably wants to respond to the Administration's 
initiative without undue delay, caution is needed to ensure that the 
basic principles of our government that ensure public accountability of 
government activity remain intact.
    Instead, the Administration's plan weakens many of the laws that 
are vital to ensuring an open and accountable government, by creating 
unnecessary blanket exemptions to the Freedom of Information Act, the 
Federal Advisory Committees Act, and the Whistleblower Protection Act. 
The plan also fails to provide for an effective review mechanism, 
instead proposing an Inspector General that may lack sufficient power 
to provide an effective check on the powerful new Secretary of Homeland 
Security. Finally, while the plan should be commended for recognizing 
the importance of the distinction between foreign and domestic 
intelligence gathering for the protection of civil liberties, 
safeguards against political spying must be added to avoid a repeat of 
the abuses of the Hoover era.

                                 

                                       American Petroleum Institute
                                          Washington, DC 20005-4070
                                                      July 31, 2002
The Honorable Bill Thomas
Chairman, Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515

    Dear Chairman Thomas:
    The American Petroleum Institute (API) appreciates the opportunity 
to provide the Committee with comments for the hearing on the proposed 
Department of Homeland Security (DHS). The American Petroleum Institute 
(API) represents over 400 companies involved in all aspects of the oil 
and gas industry, including exploration, production, transportation, 
refining, and marketing. Because petroleum products make up a 
significant part of the U.S. domestic and foreign trade, API and its 
Members have extensive dealings with the U.S. Customs Service (Customs) 
on which they rely heavily for information and guidance.
    API strongly supports the President and Congress in their efforts 
to combat terrorism and has actively participated in the development 
and implementation of many of the programs instituted since September 
11th. In particular, we support the concept of a Department of Homeland 
Security.
Support for the Department of Homeland Security
    An integral part of the DHS will be the U.S. Customs Service. 
Today, the U.S. Customs Service has the combined roles of trade 
enforcement and trade facilitation. The continuity and enhancement of 
both of these functions is critical to API's Members. The trade 
enforcement function of Customs is identifiably aligned with the core 
concepts and the DHS mission, principally protecting our homeland from 
terrorist attacks.
    The trade facilitation function of U.S. Customs within this new DHS 
environment is less clear. As currently formulated, DHS will primarily 
be an enforcement agency. API and its Members want to ensure that the 
trade facilitation functions of the U.S. Customs Service continue and 
are expanded during this transition. The trade facilitation function is 
critical to:

         ensure that legitimate trade thrives,
         creation of jobs in America,
         allowing competition in a global economy, and
         fostering a strong American economy.

    The trade facilitation function of Customs has led to innovative 
programs such as the Trade Support Network (TSN) and the Treasury 
Advisory Committee on Commercial Operations of the Customs Service 
(COAC). This function has been critical during the planning and 
implementation phases of programs such as the Customs-Trade Partnership 
Against Terrorism (C-TPAT), the Automated Commercial Environment (ACE), 
and the Importer Self Assessment (ISA) program. All of these efforts 
have freed up constrained Customs resources to focus on other critical 
programs, such as the halting of illegal trade, performing drug 
interdiction, and enforcing import/export restrictions.
Proposed Solution to Ensure Continuing Trade Facilitation
    API and its Members believe that the critical role that trade 
facilitation plays in our economy should be formalized within DHS 
through a Trade Advisory Council (TAC). This council, comprised of 
representatives from the various trade communities, would provide input 
directly to the Under Secretary for Border and Transportation Security. 
The council would be critical to ensuring that views, needs, and 
concerns of the importing and exporting communities are communicated at 
the appropriate level. This council would also play an important role 
in ensuring that trade facilitation does not become a second tier 
priority behind enforcement in the new DHS environment. We believe that 
the TAC structure and responsibilities should be included in the DHS 
authorizing legislation.
    Further, we propose that either through legislative language 
included in the DHS authorizing legislation or through the legislative 
history of the bill, that Congress express its intent that current 
Customs programs that seek input from the trade community must continue 
without disruption in the new DHS environment. These programs include, 
but are not limited to the Trade Support Network (TSN) and the Treasury 
Advisory Committee on Commercial Operations of the Customs Service 
(COAC).
    The establishment of the formal structures outlined above will 
ensure that trade facilitation does not become a lesser priority in a 
department that will be heavily weighted in enforcement activity. The 
current legislation includes five (5) functions that the Under 
Secretary for Borders and Transportation Security ``shall'' perform. 
None of the listed functions specifically identify trade facilitation. 
The enforcement emphasis with DHS, while appropriate, could over time 
lead to a diminish role for trade facilitation. Congress, from the 
point of creation of DHS, must ensure that trade facilitation continues 
to be an important and core responsibility of the department.
Movement of Certain Export Promotion Programs to the Department of 
        Commerce
    API and its Members believe that certain export promotion programs 
that are currently managed by the U.S. Customs Service do not properly 
align with the goals of the DHS and should be transitioned to other 
appropriate government agencies. In particular, the duty drawback 
program is an export promotion program that does not naturally align 
with the DHS stated mission of protecting our homeland. The drawback 
program allows for the recouping of duties paid when an eligible export 
has occurred. Since its inception, the program has been a critical tool 
in developing and supporting American export activity. Congress should 
review the drawback program and other export related programs in order 
to determine a more appropriate department or agency than DHS for these 
programs.
    In particular, the drawback program naturally fits within the 
Department of Commerce's stated mission of ``job creation, economic 
growth, sustainable development and improved living standards for all 
Americans by working in partnership with business, universities, 
communities and workers to build for the future and promote U.S. 
competitiveness in the global marketplace by strengthening and 
safeguarding the nation's economic infrastructure.''
    We appreciate the committee's consideration of these comments and 
concerns. API and its Members are willing to assist the committee in 
whatever means possible during these important times. Should you wish 
to discuss the concepts outlined herein, please contact Michael Platner 
at 202/682-8418.
            Sincerely,
                                                 Charles E. Sandler
                                                     Vice President

                                 

       Statement of the American Textile Manufacturers Institute
    This statement is submitted by the American Textile Manufacturers 
Institute (ATMI). ATMI is the national trade association of the 
domestic textile industry, which employs approximately 435,000 
individuals nationwide.
    First of all, ATMI understands and fully supports President Bush's 
desire to create a U.S. Department of Homeland Security, and we urge 
Congress to ensure that this department is given the resources it will 
need to perform the vital tasks which will be assigned to it.
    At the same time, ATMI would like to caution that, in transferring 
the assets and authority of the U.S. Customs Service to the new 
Department of Homeland Security, great care should be taken to ensure 
that the essential mission of the Customs Service is not in any way 
weakened. Indeed, the various responsibilities already assigned by 
Congress to the Customs Service are absolutely critical to our nation's 
security, and if anything the Customs Service should be given 
additional resources so as to better fulfill this task.
    By way of background, ATMI has had a long relationship with the 
U.S. Customs Service. ATMI and several of its member firms have trained 
scores of Customs agents in textile and apparel manufacturing 
materials, methods and procedures in order to provide them with the 
expertise required to detect fraud in textile and apparel trade. This 
expertise has been used by Customs production verification teams (aka 
``jump teams'') and port personnel to ensure compliance with Customs 
laws and regulations and trade agreements--such as NAFTA--to which the 
United States is party.
    It is a regrettable fact that unscrupulous traders both abroad and 
in the United States have engaged in every kind of fraud known with 
respect to U.S. imports of textiles and apparel. The volume of 
fraudulently entered textiles and apparel is reckoned in the billions 
of dollars annually and, besides cheating the Treasury of significant 
revenue to which it is legally entitled, has had and continues to have 
a damaging effect on domestic producers and their workers.
    Other victims of these ongoing frauds are honest exporters and 
importers.
    Over the years Customs has interdicted large quantities of textile 
and apparel imports that attempted to enter domestic commerce 
illegally. Unpaid duties have been collected, fines and penalties 
assessed and culpable individuals sentenced.
    With respect to transshipment, the practice of falsely declaring 
the country of origin of imported products in order to evade 
quantitative restraints maintained under the World Trade Organization's 
Agreement on Textiles and Clothing, millions of garments and made-up 
textile products have been charged against the quotas of the countries 
of true origin because of transshipment. Yet the illicit practices 
continue on a large scale.
    Therefore, ATMI and its member companies are understandably 
concerned that any redeployment of Customs' assets from the Department 
of the Treasury to a newly created cabinet-level department must not in 
any way diminish or impair Customs' ability to investigate, detect and 
interdict illicit textile and apparel trade.
    In its notice of the June 26 hearing on this subject, the Committee 
noted that one of Customs' many responsibilities is ``Protecting 
American business and labor and intellectual property rights by 
enforcing U.S. laws intended to prevent illegal trade practices . . 
.''. ATMI is pleased that the Committee recognizes the importance of 
this element of Customs' daunting mission.
    Traders who conduct their business legally also have an important 
stake in the operations of the Customs Service and have been quite 
vocal in their calls for greater speed, efficiency and simplicity in 
Customs procedures. To this end, ``trade facilitation'' has become 
their mantra and has garnered considerable attention within the Customs 
Service. The Committee noted in its June 19 Advisory that trade 
facilitation is one of Customs' ``core functions''. ATMI does not 
disagree with this assessment, but does wish to caution that 
enforcement measures must exist so that illicit trade is not 
facilitated.
    In closing, ATMI supports inclusion of the Customs Service in the 
new Department of Homeland Security, and urges the Committee and the 
Congress to provide sufficient resources for the Customs Service to 
better fulfill its enormous responsibilities.

                                 

     Statement of the Border Trade Alliance, San Diego, California
    The Border Trade Alliance (BTA) has been monitoring plans to 
establish a Department of Homeland Security with great interest. Since 
1986, our organization has advocated in favor of the resources needed 
by our land border ports of entry and the federal inspection services 
posted at those ports of entry, which together are critical to 
thwarting illegitimate trade and travel while facilitating the speedy 
passage of legitimate travelers and cargo.
    On April 11, 2002, the BTA Chair, Stephen Gross, testified before 
the Senate Government Relations Committee chaired by Senator Joseph 
Lieberman. In that hearing, Mr. Gross offered our organization's 
support for Senator Lieberman's plan to establish a Department of 
National Homeland Security with a cabinet level secretary to oversee 
it. Then in June, as we all know, President Bush offered a similar plan 
from his Administration to establish a Homeland Security Department.
    We are greatly encouraged by the momentum these proposals are 
gaining and welcome the opportunity to offer our years of our 
experience in cross-border affairs to provide insight as to the role 
that the U.S. Customs Service could play in this new Department of 
Homeland Security.
    The BTA has a long history of working with the Customs Service to 
achieve goals that are in the best interests of both the agency and the 
trade community. Based upon our years of working as an organization 
with U.S. Customs, and the experiences our individual Members have in 
their day-to-day dealings with Customs, we propose the following ideas 
to the Committee:

    1) We remain convinced that good law enforcement equates to speedy 
trade facilitation. Further, we acknowledge that these changing times 
require new and innovative ideas in response to the need for greater 
security. We also ascribe to the principle that security must begin at 
the point of loading and not at the U.S. port of unloading. Therefore, 
as we approach the structure and focus of this new department, we 
cannot lose sight of the need for international accord on such topics 
as the types of security equipment to be used, the qualifications of 
the personnel who will operate it, the standards for the training of 
that personnel and agreed upon standards by which security will be 
measured. We also agree that risk management tools, human and 
artificial, must be employed and maximized in order to distinguish 
between those shipments which should move through the system with 
minimal scrutiny and those which warrant more attention.
    2) In this new era of increased security, we must not lose sight of 
the key role played by international trade. It is the life-blood of our 
economy, even when that economy is teetering, as it is right now. In 
the legislative language proposed by the Bush Administration, we were 
greatly encouraged to read that one of the responsibilities of the 
Under Secretary for Border Transportation Security (Section IV) will be 
to ensure the ``speedy, orderly, and efficient flow of lawful traffic 
and commerce.'' As noted above, the BTA is an organization which 
believes that increased security and more efficient trade facilitation 
can be synonymous. However, if this new department is focused solely on 
securing our physical boundaries, then our economic security will 
suffer. Many of our land border communities are poor and trade is their 
primary industry. We must continue to insure that we do not heighten 
security to the point where it strangles the economic viability of 
these communities or the rest of the country.
    3) With the new responsibilities proposed comes the need for new 
resources. For Congress to expect real results from the Department of 
Homeland Security and a smooth transition by Customs (and the other 
agencies) into the new department, then Congress must meet its 
responsibility to fund U.S. Customs (and the other inspection agencies 
that are part of this transition) at a level that realistically allows 
the agency to be equal to the new tasks it (and the other affected 
agencies) is being expected to tackle. It is no longer satisfactory to 
leave Customs at the same staffing level at which it has operated for 
the last ten (10) years. While it is important to make sure there are 
enough inspectors and agents to conduct proper examinations and follow-
up, we should not lose sight of the fact there are many other positions 
within Customs which are equally important but much less high profile. 
For example, Import Specialists, who often are Customs' first line of 
contact with importers, deal with importers on a daily basis and are 
often in the best position to spot commercial fraud. Similarly, there 
are personnel which process the millions of entries filed each year. 
These and similar positions are just as important to the overall 
ability of Customs to do its jobs as the latest high-tech piece of X-
ray equipment.
    4) We are aware the Committee is focused on Customs' dual mission 
of law enforcement and trade facilitation. The Committee has listed the 
issues about which it wishes to receive information. Mindful of that 
list and our focus on land border trade and transportation, we wish to 
raise an additional issue about which we have felt strongly since our 
inception. Many of our Members cross the border daily (some even 
several times a day). Too often they and others have found long lines, 
even before the events of September 11th. The requirements to enter are 
often interpreted in contradictory manners depending on the agency 
personnel manning a given gate. Often there is a tremendous lack of 
coordination in terms of staffing needs as each inspection agency seeks 
to address its unique role. We have long supported what we have chosen 
to call unified port management (UPM). In its simplest terms, UPM means 
that one agency is put in charge of the staffing and similar 
administrative requirements at the ports of entry. By doing so, there 
can be proper planning for staffing needs, including peak and slow 
times. Therefore, if Homeland Security is properly administered, we can 
see the possibility for a real cost savings, both to taxpayers and to 
business. If legitimate cargo and travelers are able to cross more 
smoothly, their expedited treatment means less time is wasted and so 
the attendant costs are minimized.
    5) While we have never taken a formal position as to which agency 
should be put in charge, many of our Members have long felt that 
Customs is the agency which should be in charge for the simple reason 
that it is the only federal inspection agency which regularly reaches 
out to the trade community in trying to address its mandate. The most 
recent example of Customs good-faith efforts to work with the trade has 
taken the form of the Customs-Trade Partnership Against Terrorism (C-
TPAT). The guidelines Customs published and the methodology it is using 
to roll out the program and administer it are the direct result of 
intense discussions with the trade. Unlike many other federal agencies, 
Customs regularly consults with its constituencies. In the case of C-
TPAT, Customs initially met with the trade under the aegis of the 
Subcommittee on Border Security formed by Treasury's Commercial 
Operations Advisory Committee. While many of the basics of C-TPAT were 
worked out there, Customs did not consult with only that group but has 
been regularly reaching out to the trade community through meetings 
with major trade associations. Customs should be encouraged to continue 
these efforts, as they are vital to making our borders secure. The 
other federal agencies in Homeland Security should be similarly 
encouraged to reach out to the trade community. In the end, we in the 
business community are the best source of solutions which are both 
practical and workable.

    We thank you for this opportunity to comment on this important 
issue and welcome future opportunities where our insights may prove 
relevant. As the Ways and Means Committee continues to monitor the 
important subject of the role of U.S. Customs in the Department of 
Homeland Security, we offer the Border Trade Alliance's 16 years of 
experience in border trade affairs should the Committee require any 
additional information as we all seek to better organize our government 
for homeland and economic security.

                                 

Statement of the National Customs Brokers and Forwarders Association of 
                                America
    The National Customs Brokers and Forwarders Association of America 
(NCBFAA) is pleased to provide its views on the President's proposal to 
create a Department of Homeland Security.
    NCBFAA is the national trade association representing customs 
brokers, ocean freight forwarders, air forwarders, nonvessel operating 
common carriers (NVOCCs) and other intermediaries. Our Members are 
responsible for directing the flow of cargo on behalf of our customers, 
for handling interactions between shippers, carriers and consignees and 
for serving as the interface with regulatory agencies. Specifically, 
customs brokers are licensed professionals who interact directly with 
the Customs Service on behalf of the importing public. We represent 
small, medium and large importers, preparing their entries, collecting 
duties and other revenues, and ensuring that imported merchandise 
complies with U.S. law.
    NCBFAA strongly supports the President's proposal to create a 
Department of Homeland Security. It brings under one roof all the 
disparate agencies tasked with that function, giving coherence and 
focus to the government's homeland security mission. The proposal also 
provides the tools for the Secretary to coordinate the activities of 
these agencies. Previously, competition for mission authority and 
agency standing was counterproductive to the overall effort. 
Implementation of the President's proposal will give the government a 
single, coordinated voice on security issues.
    NCBFAA recognizes the need to include the Customs Service within 
the new Department. After all, Customs has already been tasked by the 
President to assume a major role in protecting the borders from being 
compromised by terrorists. The Customs Service is the one agency with a 
sufficiently robust presence at the borders to perform this mission. 
The agency also has the unique combination of expertise, manpower, and 
infrastructure required to conduct this effort.
    The President's proposal appropriately transfers all of Customs to 
the new Department of Homeland Security, recognizing that it is not 
possible to divide Customs' trade and security responsibilities between 
Treasury and the new Department. Personnel engaged in commercial 
operations are also necessary and integral participants in security 
activities. The agency must remain intact.
    NCBFAA believes it is essential that commercial operations continue 
to have a preeminent role at Customs. In years past, the culture of 
enforcement has threatened to stifle the free flow of trade. Management 
has reduced its emphasis on facilitation and placed a higher premium on 
commercial enforcement.
    As the Customs Service makes a new home in the Department of 
Homeland Security, the significant role of trade cannot be lost to the 
demands of security. Properly structured and implemented, effective 
trade facilitation can actually enhance security, giving the agency the 
ability to better target its enforcement efforts to high risk shipments 
and activity. To ensure a proper balance of its dual roles, NCBFAA 
recommends the following:

         Within the Customs Service itself, security measures 
        should be separated, whenever possible, from commercial 
        measures. For example:

                (1) LCustoms should not blur the line between 
                commercial enforcement and security measures. An 
                importer's record on commercial compliance may have 
                nothing to do with his ability to provide supply chain 
                integrity.
                (2) LA manifest should not become a ``Noah's Ark'' for 
                every form of necessary data element. [To the extent 
                that expanded data requirements are added, however, the 
                manifest data should not be publicly available through 
                the Freedom of Information Act (FOIA).] A manifest 
                should continue to function as a commercial document. 
                Instead, for security purposes, NCBFAA recommends a 
                separate security document.
                (3) LCustoms should not require commercial entry data 
                (such as 6-digit HTS numbers, which may not be valid at 
                earlier points in the entry process) at an inordinately 
                early time when the requirement only encumbers trade 
                and when less intrusive alternatives exist.

         Presently, commercial operations interests are 
        represented at the highest levels of Customs [e.g., Field 
        Operations, Office of Trade Relations, OR&R and the traditional 
        role of the Deputy Commissioner].

    These should not be diminished.

         Advocacy from the private sector has been built into 
        the government structure (e.g., COAC, the Trade Support 
        Network). This important partnership should be retained.
         Resourcing for commercial functions must be generous 
        since the funding source, the merchandise processing fee, more 
        than provides those monies. A negative example this year is the 
        underfunding of import specialists.
         The Commissioner should recommend concrete steps, 
        whether through organizational measures, resourcing or other 
        means, to protect the status of commercial operations.

    This concludes NCBFAA's statement. We look forward to working with 
this Committee on the challenging task ahead.

                                
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