[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 
         CUSTOMS BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 17, 2004

                               __________

                           Serial No. 108-52

                               __________

         Printed for the use of the Committee on Ways and Means




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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               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON TRADE

                  PHILIP M. CRANE, Illinois, Chairman

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

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


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of June 7, 2004, announcing the hearing.................     2

                               WITNESSES

U.S. Department of Homeland Security, U.S. Customs and Border 
  Protection, Hon. Robert C. Bonner, Commissioner................     6
U.S. Department of Homeland Security, Hon. Michael J. Garcia, 
  Assistant Secretary for U.S. Immigration and Customs 
  Enforcement....................................................    20

                                 ______

Retail Industry Leaders Association, and Target Customs Brokers, 
  Inc., Michael D. Laden.........................................    39
General Motors Corp., and Joint Industry Group, Kevin M. Smith...    46
C.H. Powell Co., and National Customs Brokers and Forwarders 
  Association of America, Peter H. Powell, Sr....................    49
National Treasury Employees Union, Colleen M. Kelley.............    54
National Association of Foreign-Trade Zones, and Port Freeport, 
  Phyllis Saathoff...............................................    60
Border Trade Alliance, and Yellow-Roadway Corp., Sandra Scott....    65

                       SUBMISSIONS FOR THE RECORD

American Association of Exporters and Importers, statement.......    69
American Trucking Associations, Inc., Alexandria, VA, statement..    77
Customs and International Trade Bar Association, Melvin S. 
  Schwechter, letter.............................................    81
Grocery Manufacturers of America, statement......................    82
International Freight Forwarders and Customs Brokers Association 
  of New Orleans, Inc., Metairie, LA, John T. Hyatt, statement...    83
National Retail Federation, statement............................    84
U.S. Association of Importers of Textiles and Apparel, Laura 
  Jones, letter..................................................    87
U.S. Business Alliance for Customs Modernization, Timothy Van 
  Oost, letter...................................................    88


         CUSTOMS BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES

                              ----------                              


                        THURSDAY, JUNE 17, 2004

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:09 a.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
Crane (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 07, 2004
TR-5

  Crane Announces Hearing on Customs Budget Authorizations and Other 
                             Customs Issues

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on budget authorizations for fiscal 
year (FY) 2005 and FY 2006 for the Bureau of Customs and Border 
Protection (CBP) of the U.S. Department of Homeland Security (DHS) and 
the Bureau of Immigration and Customs Enforcement (ICE) of DHS, and on 
other Customs issues. The hearing will take place on Thursday, June 17, 
2004 in the main Committee hearing room, 1100 Longworth House Office 
Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be heard from both invited and 
public witnesses. Witnesses are expected to include representatives 
from CBP and ICE. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Subcommittee or for inclusion in the printed record of the 
hearing.
      

BACKGROUND:

      

Budget Authorizations:

    The President's budget proposal provided FY 2005 funding for CBP at 
$6.2 billion and ICE at $4.0 billion. On May 20, 2004, Chairman Crane, 
along with Reps. Rangel (D-NY), Shaw (R-FL), Levin (D-MI), and Ramstad 
(R-MN), introduced H.R. 4418, the ``Customs and Border Security Act of 
2004,'' authorizing appropriations for FY 2005 and FY 2006 for CBP and 
ICE at the level requested in the President's budget proposal.
      
    Other Customs Issues:
      
    Reorganization in DHS: On November 25, 2002, the President signed 
into law legislation (P.L. 107-296) creating a new DHS. On March 1, 
2003, the former U.S. Customs Service was divided into two new agencies 
within DHS. Customs inspectors, canine enforcement officers, and import 
specialists were merged with immigration inspectors, border patrol 
agents, and agriculture inspectors to create the Bureau of CBP. Customs 
investigators and personnel in the air and marine operations were 
merged with immigration investigators, Federal air marshals, and 
members of the Federal protective service to create the Bureau of ICE. 
Issues for the Subcommittee to address involve whether the new agencies 
are functioning effectively, whether trade functions are being given 
sufficient priority now that the agencies are integrated into a 
department whose primary mission is security, and whether adequate 
resources are devoted to customs functions.
      
    Customs-Trade Partnership Against Terrorism (C-TPAT): In November 
2001, CBP initiated C-TPAT, a program in which private companies 
improve the security of their supply chains in return for the reduced 
likelihood that their containers will be inspected for weapons. In the 
first year of the program, Customs enrolled more than 1,700 companies 
in C-TPAT, and interest in the program continues to increase. In July 
2003, the U.S. General Accounting Office (GAO) issued a report 
regarding the expansion of C-TPAT in which it identified a number of 
concerns with the program. First, although C-TPAT expected to hire more 
than 150 additional staff, Customs has not devised human capital plans 
to meet long-term staffing needs. Second, while Customs has established 
performance measures based on the quantity of operational efforts, it 
has not developed any measures of program achievement. Issues for the 
Subcommittee to address involve the effectiveness of this program in 
enhancing security and facilitating trade, whether performance measures 
exist to determine the effectiveness of the program, and whether 
companies are receiving the anticipated trade benefits of the program.
      
    Customs Modernization: The current Customs automation system, the 
Automated Commercial System (ACS), is an aging system that has 
experienced several ``brownouts.'' Customs is in the process of 
replacing ACS with the Automated Commercial Environment (ACE). Some of 
the main differences between ACS and ACE are that ACE will use a single 
integrated system, modern standards, processes, techniques, and 
language, and will be compatible with commercial software. CBP predicts 
that by the end of the 2004, the number of ACE users will reach 20,000 
and the number of ACE accounts will reach 1,100.
      
    In addition, CBP is in the process of integrating the International 
Trade Data System (ITDS) with ACE. ITDS was chartered in 1995 to 
facilitate information processing for businesses by accommodating the 
more than 100 Federal agencies that need access to international trade 
data. Currently, traders are required to provide this information to 
each individual trade agency using a variety of different automated 
systems, a multitude of paper forms, or a combination of systems and 
forms. With ITDS, traders will submit standard electronic data for 
imports or exports only once to ITDS. Then, ITDS will distribute this 
standard data to the pertinent Federal agencies that have an interest 
in the transaction for their selectivity and risk assessment. ITDS will 
provide only the data that is necessary to an agency's mission.
      
    There are several issues for the Subcommittee to consider relating 
to customs modernization: (1) whether ACE's design and architecture 
will meet future requirements, including the requirements of other 
agencies participating in the ITDS program; (2) whether the current 
participation by Federal agencies in the ITDS program is adequate and 
whether additional resources are required to facilitate participation; 
(3) the timing of the expansion of ACE; and (4) the role of the trade 
industry in building ACE.
      

FOCUS OF THE HEARING:

      
    The hearing will focus on budget authorizations for FY 2005 and FY 
2006 for CBP and ICE. In addition, the hearing will address other 
Customs issues, including: the creation of CBP and ICE and the 
integration of the former U.S. Customs Service into DHS, the C-TPAT 
program, Customs automation and modernization efforts and the 
mechanisms needed to fund them, and general Customs oversight issues.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Requests to be heard at the hearing must be made by telephone to 
Michael Morrow or Kevin Herms at (202) 225‑1721 no later than the 
close of business Wednesday, June 9, 2004. The telephone request should 
be followed by a formal written request faxed to Allison Giles, Chief 
of Staff, Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515, at (202) 
225-2610. The staff of the Subcommittee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Subcommittee staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing in lieu of a personal appearance. All persons requesting to be 
heard, whether they are scheduled for oral testimony or not, will be 
notified as soon as possible after the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Subcommittee office, 1104 Longworth 
House Office Building, no later than Tuesday, June 15, 2004. Failure to 
do so may result in the witness being denied the opportunity to testify 
in person. The 200 copies can be delivered to the Subcommittee staff in 
one of two ways: (1) Government agency employees can deliver their 
copies to 1104 Longworth House Office Building in an open and 
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please avoid using mail couriers such as the U.S. Postal Service, UPS, 
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one of the following two time frames: (1) expected or confirmed 
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Capitol Police will refuse all non-governmental courier deliveries to 
all House Office Buildings.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov/, select 
``108th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=16). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
June 24, 2004. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. Those filing written 
statements who wish to have their statements distributed to the press 
and interested public at the hearing can follow the same procedure 
listed above for those who are testifying and making an oral 
presentation. For questions, or if you encounter technical problems, 
please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
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files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
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Committee relies on electronic submissions for printing the official 
hearing record.
      
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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/.
      

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business days notice is requested). Questions with regard to special 
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noted above.

                                 

    Chairman CRANE. The Committee will start our hearing, and I 
would like to welcome Commissioner Bonner and Assistant 
Secretary Garcia this morning. It has been just over a year 
since the former U.S. Customs Service was incorporated into the 
U.S. Department of Homeland Security (DHS) and we are at a 
critical juncture in the evolution of the agencies that were 
created in that transfer, U.S. Customs and Border Protection 
(CBP) and U.S. Immigration and Customs Enforcement (ICE).
    The Customs Service has a long and distinguished history. 
It was the first agency of the Federal Government to be created 
over 220 years ago 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 the 
years, Customs has taken on many other functions because of its 
unique border presence. Fighting against illegal drugs, 
transshipped tee-shirts and Rolex knock-offs are just a few of 
these other functions.
    In the wake of the terrorist attacks on the United States, 
the role of Customs in guarding our borders against chemical, 
biological, and conventional weapons has become more prominent. 
While I supported the creation of the new department, I shared 
the concern of many of my colleagues on the Committee that this 
move could damage the critical trade function of Customs.
    To address that concern, the Committee on Ways and Means 
made recommendations that were accepted in the legislation to 
prohibit consolidation, discontinuation, or diminution of 
Customs functions, resources, or staffing. The Committee noted 
in a letter transmitting its views and recommendations on the 
legislation that the primary function of the Customs Service 
has always been revenue collection and trade facilitation.
    By contrast, in its fiscal year 2003 performance and annual 
report, CBP states that CBP's priority mission is to prevent 
terrorists and terrorist weapons from entering the United 
States. The trade mission has slipped down. The CBP notes 
further that CBP also continues to perform its traditional 
missions, including seizing illegal drugs and other contraband, 
apprehending people who attempt to enter the United States 
illegally, protecting our agricultural interests from harmful 
pests and diseases, collecting duties, and enforcing our trade 
and immigration laws at our borders.
    The ICE lists its mission as follows, quote, ``To prevent 
acts of terrorism by targeting the people, money, and materials 
that support terrorist and criminal activities.'' Obviously, 
preventing terrorism is an enormously essential mission and it 
is only natural that when a department's central mission is 
homeland security, the agencies of that department will be 
judged on their ability to support that central mission and 
will shift their focus accordingly. However, with international 
trade comprising nearly 25 percent of our gross domestic 
product, CBP's mission to move goods across the border in a 
smooth, efficient, and predictable manner cannot be relegated 
to a mere supporting role. Instead, it is a vital part of our 
economic strength and viability.
    On May 20, 2004, I introduced legislation along with 
Congressmen Rangel, Shaw, Levin, and Ramstad authorizing 
appropriations for fiscal year 2005 and fiscal year 2006 for 
CBP and ICE. This legislation is a regular part of this 
Committee's authorization process, necessitated by the 
expiration at the end of this fiscal year for the existing 
authorization for the former U.S. Customs Service. It is also a 
part of our ongoing process of exercising oversight and 
focusing on the critical importance of the efficient flow of 
trade across our borders. I hope during this hearing the 
Subcommittee can address some of the challenges faced by CBP 
and ICE and I look forward to hearing the testimony. Now I 
yield to our Ranking Minority Member, Mr. Levin.
    Mr. LEVIN. Thank you, Chairman Crane. As mentioned, this is 
a hearing relating to an authorization bill that was introduced 
by a number of us on a bipartisan basis. The hearing this 
morning relates to some of the entities, but not all, that are 
subject to the authorization bill. When we worked on this some 
time ago, there were concerns about the reorganization and what 
it would mean for the Customs Service and for their traditional 
functions, including those that relate to Customs enforcement. 
So, some of our issues today, no doubt, will relate to how is 
it working out. What is the impact of the security emphasis, 
and we fully understand that, within this new department and 
the other traditional activities of the Customs Service 
relating to the movement of people, goods, and cargo across our 
borders. So, we will have a number of questions and we look 
forward to the testimony. Thank you.
    Chairman CRANE. I thank you, and now we yield to Mr. Bonner 
and Mr. Garcia for their presentations.

STATEMENT OF THE HONORABLE ROBERT C. BONNER, COMMISSIONER, U.S. 
  CUSTOMS AND BORDER PROTECTION, U.S. DEPARTMENT OF HOMELAND 
                            SECURITY

    Mr. BONNER. Thank you, Mr. Chairman, Mr. Levin, Ms. Dunn, 
and Mr. Becerra. I am pleased to appear before you today to 
discuss CBP, perhaps then very briefly the President's 2005 
budget request for CBP. One of the most important ideas of the 
reorganization that led to DHS was, as Secretary Ridge has put 
it, to create ``one face at the border,'' or one agency for the 
borders, and that started on March 1, 2003, just over 15 months 
ago, when all immigration inspectors of the former U.S. 
Immigration and Naturalization Service (INS), all of the 
agriculture border inspectors of the Animal Plant Health 
Inspection Service, the entire Border Patrol merged with the 
bulk of U.S. Customs, the former U.S. Customs Service, to form 
CBP, an agency within DHS responsible for managing and securing 
our Nation's borders.
    The CBP is the largest actual honest-to-goodness merger of 
people and functions taking place in DHS, and with 
approximately 42,000 employees, that is about one-fourth of all 
the personnel of DHS, which I would submit to you is not 
surprising when one considers how important the security of our 
borders is to the security of our homeland. By unifying the 
border agencies, a good government reform that has been 
advocated by many independent studies over the years, we are 
and will be more effective and more efficient than we were when 
border responsibilities were fragmented literally into four 
different entities in three different departments of the 
government, as they were before March 1, 2003, before the 
creation of DHS.
    I want to tell you, Mr. Chairman, we are well on our way to 
successfully completing this historic merger. In the last year 
alone, we have done everything from designating 1 port director 
for each of the 300-plus ports of entry into the United 
States--land ports, seaports, airports--whereas before March 1, 
2003, there had been 2 port directors or 3 port directors 
reporting in to different departments of the government. We 
have rolled out 1 CBP officer uniform for all CBP inspectors at 
our ports of entry, and nearly all 19,000, more or less, of the 
frontline inspectors, CBP inspectors, will be in the 1 uniform 
by July, by next month, and most already are.
    The priority mission, as you indicated, Mr. Chairman, of 
CBP is, and I think has to be, preventing terrorists and 
terrorist weapons from entering the United States. However, we 
recognize that we need to carry out that mission without 
stifling or choking off the flow of legitimate trade or travel 
that is so vital to our country's economy. I have often said 
that part of our mission is a twin mission or twin goals, and 
that is increasing security but also the facilitation of trade. 
I might say in that regard that that facilitation of trade 
remains an important, a very important part of the traditional 
mission of CBP.
    At CBP, we recognized actually--you know, the priority 
mission of U.S. Customs became anti-terrorism security before 
the creation of DHS. I can tell you, as Commissioner of 
Customs, it became the priority mission of U.S. Customs on the 
morning of 9/11. It wasn't just the creation of DHS. We also 
have seen that the goals of security and facilitation are not 
mutually exclusive, or they don't have to be. At CBP, we are 
and we continue to pursue smart border initiatives that do 
both. For example, rather than inspecting every container 
shipment that is arriving in the United States, which would 
have the effect, in my judgment, of virtually shutting down our 
economy, we have taken actions to ensure that we identify all 
of the high-risk containers and we inspect all of them rapidly 
using state-of-the-art technology.
    In this regard, we are obtaining advance electronic data on 
nearly all shipments coming to the United States. We are using 
our automated targeting system to identify all high-risk 
shipments. We are inspecting all high-risk shipments for 
terrorist weapons using non-intrusive inspection technology and 
radiation detection technology.
    We are also employing a layered defense or extended border 
strategy. For example, through the Container Security 
Initiative (CSI), we are pushing our zone of security beyond 
our physical borders by placing CBP personnel to work with 
other governments to target, identify, and inspect high-risk 
containers destined for the United States before they are 
loaded on board vessels at foreign seaports heading for our 
country.
    Under the Customs-Trade Partnership Against Terrorism (C-
TPAT), we have partnered with the private sector, with Members 
of the trade, and they have, our partners have increased their 
security, their supply chain security from foreign loading 
docks to our ports of entry, and those C-TPAT partners who have 
partnered with us have and will receive expedited processing at 
and through our ports of entry.
    The development of Automated Commercial Environment (ACE), 
by the way, Mr. Chairman, remains a priority of CBP and it is 
at full throttle. The year 2004 is a pivotal year for ACE. The 
program will experience its greatest amount of growth to date 
and increase functionality, providing significantly improved 
capabilities to both the government and to the trade community. 
There are nearly 150 trade accounts participating in ACE 
representing more than 29 percent of the value of annual 
imports into the United States.
    Just briefly, our total budget increase request for 2005 is 
$190 million. This funding would provide CBP about $25 million 
for CSI, about $15 million to expand C-TPAT, $50 million for 
radiation detection equipment at our entry points to detect 
against radiological and nuclear weapons, $20.6 million in 
enhancements to the Automated Targeting System to improve our 
capabilities to identify high-risk goods and high-risk 
travelers for inspection and greater scrutiny, approximately 
$64 million for Border Patrol surveillance and sensor 
technology, and $10 million for unmanned aerial vehicles 
(UAVs), to deploy and operate UAVs to detect illegal border 
crossing.
    I want to thank you, Mr. Chairman and Members of this 
Committee, for the strong support of CBP and DHS. Working 
together, I am confident that CBP and DHS will succeed both in 
our efforts to better secure our border against a terrorist 
threat and at the same time facilitate the movement of 
legitimate trade across our borders. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Bonner follows:]

Statement of The Honorable Robert C. Bonner, Commissioner, U.S. Customs 
      and Border Protection, U.S. Department of Homeland Security

I. Introduction and Overview

    Chairman Crane, Ranking Member Levin, Members of the Subcommittee, 
it is a privilege and an honor to appear before you today to discuss 
Customs and Border Protection's (CBP) FY 2005 budget request.
    I want to begin by expressing my gratitude to the Committee on Ways 
and Means for the support it provided for important initiatives 
implemented by CBP last year. That support enabled CBP to make 
significant progress in protecting our country against the terrorist 
threat, as well as to facilitate safe and secure legal trade. I also 
want to thank Congress for the support it provided in creating the new 
Department of Homeland Security, and the new U.S. Customs and Border 
Protection within that Department. As the head of CBP, I look forward 
to working with you to build on these successes.
    The priority mission of CBP is to prevent terrorists and terrorist 
weapons from entering the United States, while at the same time 
allowing the expeditious flow of legitimate trade. That extraordinarily 
important priority mission means improving security at our physical 
borders and ports of entry, but it also means extending our zone of 
security beyond our physical borders--so that American borders are not 
the first line of defense.
    We must do this while continuing to perform our traditional 
missions well. These missions include apprehending individuals 
attempting to enter the United States illegally, stemming the flow of 
illegal drugs and other contraband, protecting our agricultural and 
economic interests from harmful pests and diseases, protecting American 
businesses from theft of their intellectual property, regulating and 
facilitating international trade, collecting import duties, and 
enforcing U.S. trade laws. In FY 2003, CBP processed 26.1 million trade 
entries, collected $24.7 billion in import duties, seized 2.2 million 
pounds of narcotics, and processed 412.8 million pedestrians and 
passengers and 132.2 million conveyances.
    We must perform all of this important security and border-related 
work without stifling the flow of legitimate trade and travel that is 
so important to our nation's economy. In other words, we have ``twin 
goals'': Building more secure and more efficient borders.
    Our total program increase request for FY '05 is $223 million. 
These funds will help CBP fulfill its priority mission of preventing 
terrorists and terrorist weapons from entering the United States. As 
Commissioner, I will also devote needed funds to support the automation 
and information technology programs that will improve overall 
operations of the agency, and I will devote funds to support the 
traditional missions for which CBP is responsible.
    Mr. Chairman, although I will touch on each of these areas in my 
statement, and outline the actions CBP has taken or is planning to take 
in each, I want to point out that in many cases, funds spent in one 
area have a direct and positive impact on other areas. For example, 
funds spent on automation and information technology provide invaluable 
assistance to our priority mission of preventing terrorists and 
terrorist weapons from entering the United States. Also, funds spent on 
our priority mission often result in improvements in our effectiveness 
and efficiency in carrying out our traditional missions, such as 
interdicting narcotics, and vice versa.
    By way of summary of the FY '05 budget for CBP, I can tell you that 
the program increases we are requesting include:

      $25 million for the Container Security Initiative, which 
will support the continued expansion of the program, including the 
stationing of CBP personnel in additional key international seaports to 
examine high-risk cargo before it is placed on ships bound for the 
U.S.;
      $15 million for the Customs-Trade Partnership Against 
Terrorism to increase supply chain security and expedite the clearance 
of legitimate trade;
      $50 million for Radiation Detection and Non-Intrusive 
Inspection Technology to detect weapons of mass destruction;
      $21 million for Targeting Systems Enhancements to 
identify high-risk travelers and goods for inspection while allowing 
the vast majority of law abiding travelers and commerce to continue 
unimpeded;
      $64 million for Border Patrol Surveillance and Sensor 
Technology for the expansion of the remote video system along the 
southern and northern borders to detect illegal crossings and to 
increase the effectiveness of agents responding to such crossings;
      $10 million for Unmanned Aerial Vehicles to develop, 
procure, deploy, and operate a system of unmanned aerial vehicles to 
support the Border Patrol by detecting and monitoring illegal border 
crossings; and
      $5 million to support the International Trade Data System 
(ITDS) to revolutionize the way international trade data is collected, 
disseminated, and used.

    In my statement, I will discuss these programs and others that CBP 
has been working on during the past year. I would like to begin, 
though, with a brief update for the Subcommittee on the status of CBP 
after one year.
II. Customs and Border Protection at One Year

    On March 1st, the Department of Homeland Security celebrated its 
one year anniversary as a Department. The anniversary marked the 
successful transfer of approximately 42,000 employees from the U.S. 
Customs Service, the Immigration and Naturalization Service, and the 
Animal and Plant Health Inspection Service (APHIS) to the new Customs 
and Border Protection agency in the Department of Homeland Security. 
CBP is the largest actual merger of people and functions within the 
Department of Homeland Security. Indeed, about one-fourth of the 
personnel of DHS are housed within CBP. That is not surprising 
considering how important the security of our borders is to the 
security of our homeland.
A. One Face at the Border
    To create CBP, on March 1, we took a substantial portion of U.S. 
Customs and merged that with all of the immigration inspectors and 
Border Patrol from the former INS, and inspectors from the Department 
of Agriculture's APHIS. This means that for the first time in our 
country's history, all agencies of the United States Government with 
significant border responsibilities have been integrated and unified 
into a single federal agency responsible for managing, controlling and 
securing our Nation's borders.
    At CBP, we are creating, as Secretary Ridge has called it, ``One 
Face at the Border''--one border agency for our country. In the year 
following its creation, CBP has made significant strides toward 
unification. And America is safer and its border are more secure than 
they were when border responsibilities were fragmented in three 
different departments of government, as they were before March 1, 
2003--before the creation of the Department of Homeland Security.
    On March 1, 2003, CBP designated one Port Director at each port of 
entry and put in place a single, unified chain of command. This was the 
first time there has ever been one person at each of our nation's ports 
of entry in charge of all Federal Inspection Services. And in terms of 
an immediate increase in antiterrorism security, on Day One, all 
frontline, primary inspectors at all ports of entry into the United 
States were equipped with radiation detection devices. Since March 1, 
2003, all inspectors have also received antiterrorism training.
    Last year, we began rolling out unified CBP primary inspections at 
international airports around the country, starting with U.S. citizens 
and Lawful Permanent Residents. Unified primary means that the CBP 
inspector in the booth will conduct the primary inspection for all 
purposes--immigration, customs, and agriculture. Launched at Dulles, 
Houston, JFK, Newark, LAX, Atlanta, Miami, San Francisco, unified 
primary is now operational at all major international airports. This is 
a major step forward in eliminating the process of travelers 
potentially having to ``run the gauntlet'' through three separate 
inspection agencies. Although legacy customs and immigration inspectors 
have assumed interchangeable roles at the land border ports of entry 
for years, this is the first time unified primary has been done on a 
national scale at our country's airports.
    Along with unified primary, we have also developed and are 
implementing combined anti-terrorism secondary which leverages the 
expertise and authorities of both legacy customs and immigration to 
conduct a joint secondary inspection of passengers deemed high-risk for 
terrorism. CBP has also begun to coordinate and consolidate our 
passenger analytical units--the units that identify potential high-risk 
travelers for inspection. Again, this brings together the customs and 
immigration experience and authority to more effectively and 
efficiently identify and interdict individuals who pose a possible 
terrorist risk.

B. Unifying Symbols and the CBP Officer Position
    Since July 2003, we have begun rolling out a new CBP uniform and 
patch for all CBP inspectors at our Nation's ports of entry. It will 
replace the three different customs, agriculture, and immigration 
inspectional uniforms and patches. The new uniform and patch represent 
our most visible unifying symbols to the American public. The new 
uniform is being implemented in four phases. In the first phase, 
completed as of October 1, 2003, all CBP managers and supervisors 
converted to the new uniform. Other CBP uniformed personnel will be 
phased in at various points with implementation scheduled to be 
complete by July of this year.
    All of these actions are helping us unify and become more effective 
as an agency. Perhaps our most significant step toward achieving ``One 
Face at the Border,'' though, was announced by Secretary Ridge on 
September 2, 2003: the rollout of the new ``CBP Officer'' position. As 
of October, 2003, we stopped hiring and training legacy ``immigration'' 
or ``customs'' inspectors and began hiring and training a new group of 
``CBP Officers,'' who will be equipped to handle all CBP primary and 
many of the secondary inspection functions, in both the passenger and 
cargo environments. We are also deploying CBP Agriculture Specialists 
to perform more specialized agricultural inspection functions in both 
these environments.

C. Integrated Training
    Training is a very important component to the roll out of the CBP 
Officer. We have created a new 14 week, 71-day basic course that 
provides the training necessary to conduct primary processing and to be 
familiar with secondary processing of passengers, merchandise, and 
conveyances in all modes of transport--air, sea, and land. The new CBP 
Officer course was built from the 53-day basic Customs inspector course 
and the 57-day basic Immigration inspector course, with redundancies 
removed, and with additions to address anti-terrorism and CBP's role in 
agriculture inspection. The training also supports the traditional 
missions of the legacy agencies integrated in CBP. Our first CBP 
Officers were hired on September 22, 2003, and they immediately started 
training at the Federal Law Enforcement Training Center (FLETC).

D. Enhanced Security Between Ports of Entry
    We have also worked very hard to improve the security of our 
country between the ports of entry. We have revised and refocused the 
Border Patrol's National Strategy, which had previously been focused on 
preventing the flow of illegal aliens and drugs between ports of entry 
on our border with Mexico. It now includes an aggressive strategy for 
protecting against terrorist penetration, at both our northern and 
southern borders.
    We have started implementing this Strategy. On 9-11, there were 368 
authorized positions for Border Patrol agents for the entire northern 
border. In the last year, we have added almost 500 agents to the 
northern border, giving us more than 1,000 total--exceeding the goal I 
set soon after March 1, 2003. This staffing increase will better secure 
our border against terrorist penetration.
    We are doing more than just adding staffing. We are adding sensors 
and other technology that assist in detecting illegal crossings along 
both our northern and southern borders, including Remote Video 
Surveillance (RVS) systems. These RVS systems are real-time remotely 
controlled force enhancement camera systems, which provide coverage 
along the northern and southern land borders of the United States, 24 
hours per day, 7 days a week. The RVS system significantly enhances the 
Border Patrol's ability to detect, identify, and respond to border 
intrusions, and it has a deterrent value as well.
    We have seen gains in security by the creation of CBP. For example, 
the Office of Field Operations and the Office of the Border Patrol are 
now able to quickly and easily share equipment and information to 
support one another, and have done so on many occasions, whether it be 
the use of radiation detection equipment at higher threat conditions, 
or the use of truck imaging equipment to detect and deter human 
smuggling.

III. Meeting Our Twin Goals: Building More Secure and More Efficient 
        Borders
    As the single, unified border agency of the United States, CBP's 
mission is vitally important to the protection of America and the 
American people. In the aftermath of the terrorist attacks of September 
11th, we have developed numerous initiatives to meet our twin goals of 
improving security and facilitating the flow of legitimate trade and 
travel. Funds from the FY '05 budget will help us expand those 
initiatives and to begin new ones to ensure further protection of both 
the American people and the American economy. Our strategy in 
implementing these initiatives involves a number of factors, including: 
(A) constantly improving and expanding our targeting systems to better 
screen more people and goods entering and departing the U.S.; (B) 
pushing our ``zone of security outward'' by partnering with other 
countries; (C) pushing our ``zone of security outward'' by partnering 
with the private sector; (D) deploying advanced inspection technology 
and equipment at our ports of entry to detect weapons of mass 
destruction; and (E) deploying advanced detection and monitoring 
equipment between our ports of entry to detect illegal crossings.

A. Enhancing our ability to identify high-risk people and cargoQ02
    Information is one of the most important keys to our ability to 
increase security without stifling legitimate trade and travel. Good 
information enables us to more accurately identify--or target--what is 
``high risk,'' defined as a potential threat, and what is low risk or 
absolutely no risk whatsoever. The separation of high risk from no risk 
is critical because searching 100 percent of the cargo and people that 
enter the United States would unnecessarily cripple the flow of 
legitimate trade and travel to the United States. What is necessary and 
advisable is searching 100 percent of the high-risk cargo and people 
that enter our country. To do this, we need to be able to identify what 
is high risk, and do so as early in the process as possible. CBP has 
several programs and initiatives that help us accomplish that task.

Advance Electronic Information
    Since September 11th, CBP has taken numerous steps to ensure that 
it has the information it needs, at the right time, to identify all 
high-risk people and shipments destined for the U.S. As a result of 
these efforts, and the strong support of the Congress, CBP now has, 
among other authorities, the statutory authority to require Advance 
Passenger Information and Passenger Name Record data on all people 
flying into and out of the United States, as well as advanced, 
electronic manifest data on cargo destined for or departing the United 
States. CBP has worked aggressively to promulgate and implement 
regulations pursuant to these enabling statutes. For example, we are 
currently implementing regulations requiring advance, electronic 
manifest (or similar) data on virtually all cargo coming into the U.S. 
by any mode (rail, truck, aircraft, vessel), whereas this data was 
previously provided on a voluntary, and very limited basis. These 
requirements should be fully implemented by early FY '05.

National Targeting Center (NTC)
    The NTC began around the clock operations on November 10, 2001, 
with a priority mission of providing tactical targeting and analytical 
research support for Customs' anti-terrorism efforts. As personnel from 
Customs, the INS, and the USDA came together on March 1, 2003, under 
the umbrella of CBP, the NTC mission broadened commensurately with the 
CBP role in support of Homeland Security.
    The NTC is primarily staffed by CBP Officers and analysts that are 
experts in passenger and cargo targeting for air, sea, and land 
operations in the inbound and outbound environments. The NTC develops 
tactical targets--potentially high-risk people and shipments that 
should be subject to a CBP inspection--from raw intelligence, trade, 
travel, and law enforcement data. NTC also supports CBP field elements, 
including CSI personnel stationed in countries throughout the world, 
with additional research assets for passenger and cargo examinations.
    In January 2003, the NTC staff relocated to a state-of-the-art 
facility. The new facility is designed to accommodate representatives 
from all CBP disciplines, including representatives from the Office of 
Border Patrol, the Office of Intelligence, and the Office of 
Information and Technology, as well as liaison staff from the law 
enforcement and intelligence communities. The NTC has developed 
relationships with the Office of Naval Intelligence and the U.S. Coast 
Guard via an exchange of personnel with the National Marine 
Intelligence Center. NTC has also exchanged personnel with the 
Transportation Security Administration, the Department of Energy, and 
provided targeting expertise to the DHS Operations Center.
    The funding sought in FY '05 will enable the NTC to continue to 
expand its infrastructure and personnel to meet the needs of CBP as we 
see continued increases in passengers and commercial shipments coming 
to the U.S. It will also enable the NTC to continue to play a central 
role in interagency activities related to identifying high-risk people 
and cargo.

Automated Targeting System
    The Automated Targeting System (ATS), which is used by NTC and 
field targeting units in the United States and overseas, is essential 
to our ability to target high-risk cargo and passengers entering the 
United States. ATS is the system through which we process advance 
manifest and passenger information to pick up anomalies and ``red 
flags'' and determine what cargo is ``high risk,'' and therefore will 
be scrutinized at the port of entry or, in some cases, overseas.
    The funding increases sought for ATS in the FY '05 budget will 
allow for the continued improvement of the system as well as provide it 
with the capacity to process the electronic data related to the ever-
increasing number of people and goods entering the United States. For 
example, the funding will allow us to develop and implement a version 
of ATS that, for the first time, will be able to identify potentially 
high-risk travelers in passenger vehicles. It will also be used to 
upgrade our passenger targeting system by improving the amount of 
government data that the system can access and analyze as well as 
provide us with the capacity to train more people on the use of the 
system. On the cargo side, the funding will permit ATS to increase its 
capacity and upgrade its capabilities by utilizing cutting edge 
information analysis technologies developed by CBP and the private 
sector.

B. Pushing our Zone of Security Outward--Partnering with Other 
        Countries

Container Security Initiative (CSI)
    To meet our priority mission of preventing terrorists and terrorist 
weapons from entering the United States, I believe CBP must ``push our 
zone of security outward''--so that our borders are not the first line 
of defense to keep terrorists and terrorist weapons out of the U.S. We 
have done this by partnering with other countries on our Container 
Security Initiative (CSI), one of the most significant and successful 
homeland security initiatives developed and implemented after 9-11.
    Almost 9 million cargo containers arrive at U.S. seaports annually. 
Under CSI, which is the first program of its kind, we are partnering 
with foreign governments to identify and inspect high-risk cargo 
containers at foreign ports, before they are shipped to our ports and 
pose a threat to the U.S. and to global trade.
    The four core elements of CSI are:

      First, identifying ``high-risk'' containers, using ATS 
and the 24-hour rule, before they set sail for the U.S.
      Second, pre-screening the ``high-risk'' containers at the 
foreign CSI port before they are shipped to the U.S.
      Third, using technology to pre-screen the high-risk 
containers, including both radiation detectors and large-scale imaging 
machines to detect potential terrorist weapons.
      Fourth, using smarter, ``tamper-evident'' containers--
containers that indicate to CBP officers at the port of arrival whether 
they have been tampered with after the security screening.

    CSI continues to generate exceptional participation and support. 
The goal for the first phase of CSI was to implement the program at as 
many of the top 20 foreign container ports--in terms of volume of cargo 
containers shipped to United States seaports--as possible. Those ports 
account for nearly 70 percent of all cargo containers arriving at U.S. 
seaports. Today, the governments representing 19 of the top 20 ports 
have agreed to implement CSI, and I am confident that we will reach 
agreement with the 20th port very soon.
    We announced the second phase of CSI in June 2003. Under CSI Phase 
II, we will implement CSI at other foreign ports that ship a 
significant volume of cargo to the United States, and that have the 
infrastructure and technology in place to support the program. We have 
already signed CSI agreements with Malaysia, Sweden, South Africa, and 
Sri Lanka. Once we have Phase II implemented, we anticipate that CSI 
will cover approximately 80 percent of the containers coming to the 
U.S.
    Right now, CSI is operational in those foreign ports from which a 
majority of all cargo containers destined for the United States are 
shipped.
    I want to express my gratitude to the Committee members for their 
support of CSI in FY'04. With the $25 million increase in funding that 
we are requesting for CSI in FY '05, we will have CSI in place and 
operational at as many as 40 seaports around the world.

             Immigration Security Initiative Officers (ISI)

    Recently, we have started applying the concept underlying the 
Container Security Initiative (CSI), i.e., pushing our zone of security 
beyond our borders, to the movement of people traveling to the United 
States. This effort originated with the legacy INS and its Immigration 
Control Officer (ICO) program. Through CBP, this continuing effort is 
being cultivated to better address the worldwide threat of terrorism.
    The responsibility of the ISI program is to: 1) prevent the onward 
movement of people identified as presenting a security threat to the 
carrier or passengers on international flights destined to the U.S.; 2) 
disrupt and deter the smuggling of special interest aliens, 
fraudulently documented aliens and/or otherwise inadmissible aliens 
destined to the U.S.; 3) provide advance notice of passengers to 
authorities at onward destinations whose true identity and purposes 
warrant a closer inspection; 4) collect law enforcement intelligence on 
known or suspected criminal aliens and smugglers; 5) apprehend and 
prosecute these individuals, through cooperation with host governments 
and other U.S. law enforcement agencies; and 6) provide training in 
fraudulent document detection, migration trends, passenger assessment 
and related topics to host governments and carrier personnel. The ISI 
will fulfill its responsibilities in accordance with the code of 
conduct for Immigration Liaison Officers (ILO) of the International Air 
Transport Association/Control Authority Working Group (IATA/CAWG).
    Canada, Australia, the United Kingdom and the Netherlands have 
existing ILO programs stationed around the world. In concert with our 
international partners, the INS launched Operation Global Shield in 
October of 2002, deploying officers to numerous locations within major 
transit hubs in Central and South America, Europe, and the Far East. 
Operation Global Shield was a considerable success, resulting in 2,971 
interceptions within a five-month period.
    CBP is now building upon the lessons learned from Operation Global 
Shield as well as the experiences of our international partners to 
improve the ISI concept to better respond to the threat of 
international terrorism. The U.S. currently has over 70 legacy 
immigration personnel overseas; many of who are engaged in ISI related 
activities on a part time basis. CBP will work with these personnel to 
hone their skills to aid in the effort in preventing potential 
terrorists from boarding aircraft destined for the U.S.

C. Pushing our Zone of Security Outward--Partnering with the Trade
Customs-Trade Partnership Against Terrorism (C-TPAT)
    The Customs-Trade Partnership Against Terrorism (C-TPAT) is a 
voluntary partnership between CBP and industry to secure international 
supply chains from end-to-end. Through C-TPAT, participants develop and 
maintain secure supply chains from the foreign factory floor to the 
ultimate destination in the U.S. CBP, in return, offers C-TPAT 
shipments expedited processing and provides C-TPAT participants with 
other benefits.
    The program is rigorous. In order to join C-TPAT, a company must 
conduct a self-assessment of its current supply chain security 
procedures using C-TPAT security guidelines developed in partnership 
with logistics and security experts from the trade. A participant must 
also commit to increasing its supply chain security by addressing any 
vulnerabilities that exist. Perhaps most importantly, participants also 
make a commitment to work with their business partners and customers 
throughout their supply chains to ensure that those businesses also 
increase their supply chain security. By leveraging the influence of 
importers and others on different participants in the supply chain, C-
TPAT is able to increase security of U.S. bound goods at the time of 
container stuffing. This reach--to the foreign loading dock--is 
critical to the goal of increasing supply chain security.
    Although C-TPAT is a partnership, we are not simply taking the 
participants at their word when it comes to their supply chain 
security. As a former President once said: ``Trust, but verify.'' 
Applying this lesson, we have created a cadre of specially trained 
supply chain security specialists to validate the commitments made by 
C-TPAT participants--to ensure that they are increasing supply chain 
security as they have promised CBP. These specialists meet with 
personnel from C-TPAT participants and their business partners and 
observe the security of their supply chains, including security at 
overseas loading docks and manufacturing plants. Through this process, 
we work with C-TPAT participants to identify ways that they can further 
increase their supply chain security and we ensure that companies that 
are not honoring their commitments lose their C-TPAT privileges.
    C-TPAT is currently open to all importers, cross-border air, sea, 
truck, and rail carriers, brokers, freight forwarders, consolidators, 
non-vessel operating common carriers (NVOCCs), and U.S. Marine and 
Terminal operators. We are currently enrolling certain foreign 
manufacturers in the C-TPAT program as well, and we will continue to 
develop ways to include this important element of the supply chain in 
the program. The intent is to construct a supply chain characterized by 
active C-TPAT links at each point in the logistics process.
    As of March 12,2004, the C-TPAT participation and validation 
numbers are as follows:

[GRAPHIC] [TIFF OMITTED] T3795A.001

Free and Secure Trade (FAST)
    Building on C-TPAT, we have created the Free and Secure Trade 
(FAST) program with Canada and Mexico. This program increases the 
supply chain security of goods moving across our land borders and also 
facilitates the movement of legitimate commerce by aligning customs 
processes on both sides of the border and offering the most expedited 
customs processing available on the land border. To be eligible for 
FAST processing, importers, carriers, and manufacturers (on the 
southern border) must participate in C-TPAT and must use a FAST-
registered driver. Because each participant must meet C-TPAT supply 
chain criteria and the driver must be vetted by CBP (including 
exhaustive database checks and a personal interview), the FAST program 
substantially increases the security of supply chains across our 
northern and southern borders. And because FAST relies on advanced 
electronic data transmissions and transponder technology, CBP can offer 
FAST shipments the most expedited clearance procedures available today. 
With these procedures in place, CBP can focus its security efforts and 
inspections where they are needed most--on high-risk commerce.
    FAST is currently operational at 11 major northern border crossings 
and 2 major southern border crossings. The program will expand to 
additional locations in FY '05.
    I would like to thank the Committee for its consistently strong 
support for C-TPAT and FAST. The $15 million funding increase we have 
sought for C-TPAT in FY' 05 will enable us to continue to expand both 
programs by enrolling additional participants. It will also allow us to 
add a substantial number of supply chain security specialists to our 
ranks, thereby ensuring that as the program grows, we will be able to 
conduct an appropriate number of validations. As a result, we will 
substantially increase the security of our international supply chains.

D. Using Technology to Detect Weapons of Mass Destruction at our Ports 
        of Entry
    As trade increases, CBP's reliance on Non-Intrusive Inspection 
(NII) technology to secure the borders becomes more and more critical. 
Only by using NII technology to speed the inspections process for 
weapons of mass destruction and contraband can CBP meet its twin goals 
of increasing security and at the same time facilitating trade.
    CBP uses various technologies in different combinations to 
substantially increase the likelihood that a nuclear or radiological 
weapon or weapons grade material will be detected. In addition, CBP 
uses NII technology to detect and interdict narcotics, currency and 
other contraband secreted in large containers and commercial shipments. 
Technologies deployed to our nation's land, sea and air ports of entry 
include large-scale X-ray and gamma-imaging systems--systems that can 
image the contents of an entire container in seconds. These systems 
include the Vehicle and Cargo Inspection System (VACIS), Mobile VACIS, 
Truck X-ray, Mobile Truck X-ray, Rail VACIS, Mobile Sea Container 
Examinations Systems and the Pallet Gamma-ray System. In September 
1996, our first large-scale NII system, a Truck X-ray, became 
operational in Otay Mesa, California. Today, we have 145 large-scale 
NII systems deployed.
    In addition, we have developed and begun implementing a national 
radiation detection strategy. Pursuant to that Strategy, we are 
deploying nuclear and radiological detection equipment to include 
personal radiation detectors (PRDs), radiation portal monitors (RPMs) 
and next generation radiation isotope identifier devices (RIIDs). In 
combination with our layered enforcement strategy--working overseas to 
prevent the proliferation of nuclear materials and to detect them 
before they are shipped to the U.S.--and our use of multiple inspection 
technologies, these tools currently provide CBP with significant 
capacity to detect nuclear or radiological materials. Our FY '05 
request for $50 million would provide CBP with the funding to continue 
to purchase and deploy the technologies needed to implement its 
national radiation detection strategy.

E. Using Technology to Detect and Monitor Illegal Crossings Between our 
        Ports of Entry

Integrated Surveillance Intelligence System (ISIS)
    ISIS is a critical part of CBP's strategy to build smarter borders. 
By using remotely monitored night-day camera and sensing systems, the 
Border Patrol can better detect, monitor, and respond to illegal 
crossings. This, in turn, is critical to the Border Patrol's ability to 
increase its apprehension capabilities, particularly along our northern 
border. As a result, the deployment of ISIS is a critical component of 
the Border Patrol's revised National Strategy to prevent terrorists 
from entering the U.S. and to gain control of our nation's borders.
    ISIS consists of three independent components: 1) the remote video 
surveillance (RVS) camera system; 2) sensors; 3) the Integrated 
Computer Assisted Detection (ICAD) database. The RVS system integrates 
multiple color, thermal and infrared cameras, which are mounted on 
various structures, into a single remote controlled system. The network 
of sensors consists of seismic, magnetic and thermal devices used to 
detect and track intrusions. ICAD software components assist in the 
coordination and data collection of agent deployment in response to 
sensor alarms.
    The $64.1 million in ISIS funding sought in '05 would enable CBP to 
broaden substantially its ISIS coverage of the northern and southern 
borders--to deploy the system where no ISIS coverage currently exists. 
This is important because Border Patrol experience has shown that in 
locations where ISIS is deployed, fewer agents can do a better job of 
securing the border. ISIS acts as an important force-multiplier that 
allows Border Patrol agents to remotely monitor the border and respond 
to specific illegal border crossings rather than having to exhaustively 
patrol an area adjacent to the border. By contrast, Border Patrol 
operations without ISIS support are not only less effective, they are 
more resource-intensive and less safe for Agents.

Unmanned Aerial Vehicles (UAVs)
    Like ISIS, Unmanned Aerial Vehicles (UAVs) are both an important 
part of the smarter border strategy and an essential element of the 
Border Patrol's revised National Strategy. UAVs equipped with 
sophisticated on-board sensors have the potential to provide 
unparalleled surveillance capability. UAVs provide long-range 
surveillance. As a result, they are especially effective force-
multipliers because they have the capacity to remain on station much 
longer than other airborne assets, and are particularly useful for 
monitoring remote land border areas where patrols cannot easily travel 
and infrastructure is difficult or impossible to build.
    UAVs will perform missions involving gathering intelligence on 
border activities was well as conducting surveillance over open water 
along the Gulf Coast, the Florida peninsula and the Great Lakes region 
on the northern border. The high endurance of the larger classes of 
UAVs permits uninterrupted overnight or around-the-clock coverage, and 
the size and operating altitudes can make UAVs effectively undetectable 
by unaided human senses. UAVs will also contribute to enforcement 
effectiveness and officer safety by providing communications links for 
coordinating multiple units on the ground is important in remote border 
operating areas.
    The $10 million in funding sought for UAVs will enable CBP to 
capitalize more fully on the UAV research that has taken place in a 
military context, and to apply UAVs in support of the Homeland Security 
mission. The funding would allow CBP to deploy and operate a system of 
unmanned aerial vehicles in support of the Border Patrol and other 
components of Customs and Border Protection. The use of UAVs will 
complement the other intrusion detection and intelligence gathering 
components of the border surveillance network to meet the mission of 
stopping the illegal entry of terrorists, smugglers and others into the 
United States.

IV. Automation / Information Technology

    Mr. Chairman, no discussion of a successful strategy to protect the 
American people and the American economy in the 21st century would be 
complete without consideration of the central importance of automation 
and information technology to CBP's mission.
A. Automated Commercial Environment
    The Automated Commercial Environment (ACE) is an important project 
for CBP, for the business community, for our country, and for the 
future of global trade. If done properly, it will reform the way we do 
business with the trade community. It will also greatly assist CBP in 
the advance collection of information for targeting high-risk cargo to 
better address the terrorist threat. And in doing so, it will help us 
expedite the vast majority of low-risk trade.
    The successful implementation of ACE has been and continues to be 
one of my top priorities as Commissioner. Increasing support from 
Congress and the Administration for ACE has been essential to the 
development of the new system. Funding of $319 million in FY '04 has 
enabled us to continue development and begin to deliver on the first 
installment of ACE benefits to the trade community. Indeed, since my 
testimony last year, I can tell you that the development of ACE and the 
efforts to put its capabilities to work on America's borders have 
continued full throttle while CBP works with the Homeland Security 
Investment Review Group to analyze the existing IT systems being used 
by DHS agencies, identify redundant technology investments, and plan 
for the DHS's IT architecture. Among many other accomplishments, this 
past year brought ACE release 2 to the public for the first time. 
Currently, 50 importer accounts and related CBP personnel have access 
to the ACE Secure Data Portal to conduct their CBP business 
transactions on-line. This portal provides reliable, secure, high-speed 
access to critical information. When fully deployed, this will be the 
basic tool by which all users within the trade community and government 
access ACE.
    I want to thank Congress again for its past support of ACE. The 
continued support of ACE with $322 million in funding for FY '05 will 
enable us to keep pace with our schedule for ACE releases in 2004 and 
2005. Those include:

      Summer 2004--Release 3 (Account Revenue: Periodic 
Statements and Payments): Initial account revenue will be enabled, 
allowing accounts to centralize payment processing and utilize periodic 
statement and payment capabilities as well as ACH Credit and Debit.
      Winter 2005--Release 4 (Truck Manifest and e-Release): 
Cargo Processing will be introduced with the implementation of 
Automated Truck Manifest and Preferred & e-Release for trucks. This 
will allow for quicker entry for pre-filed and pre-approved cargo.

B. International Trade Data System (ITDS)
    One important, fully integrated component of ACE is the 
International Trade Data System (ITDS). The ITDS initiative is an e-
Government strategy being designed developed, and deployed jointly with 
ACE that will implement an integrated, government-wide system for the 
electronic collection, use, and dissemination of the international 
trade transaction data required by the various trade-related federal 
agencies.
    ITDS will simplify and streamline the regulation, promotion, and 
analysis of international trade. It will also assist importers, 
exporters, carriers, and brokers in complying with federal trade, 
transportation, and other regulations by streamlining business 
processes. ITDS is customer focused and will serve as the government's 
``single window'' into international trade data collection and 
distribution.
    In conjunction with ACE, ITDS will also improve risk assessment. By 
centralizing and integrating the collection and analysis of 
information, ACE will enhance CBP's ability to target cargo, persons, 
and conveyances. The trade data will allow for advanced inter-agency 
assessment of risks and threats to determine which goods and people 
must be scrutinized. In addition, Through ACE, the ITDS will be capable 
of linking the government's law enforcement and other databases into 
one large-scale relational database that tracks all commerce crossing 
our borders. ITDS thus extends the functionality of ACE by bringing 
together critical security, public health, public safety, and 
environmental protection agencies under a common platform.
    The $5 million increase we are requesting in the FY '05 budget for 
ITDS will allow us to ensure integration of ITDS with key federal 
agencies, and keep us on schedule to have full functionality rolled out 
by winter 2006-2007.

V. Other Traditional Missions

    Although CBP's priority mission is preventing terrorists and 
terrorist weapons from entering the United States, we know that we 
must--and will--accomplish that priority mission while continuing to 
perform our traditional missions well. Included among those missions 
are our responsibilities for interdicting drugs, apprehending 
individuals who enter the United States illegally, regulating and 
facilitating international trade, and protecting U.S. agricultural and 
economic interests from harmful pests and diseases.

A. Drug Interdiction
    Our counterterrorism and counternarcotics missions are not mutually 
exclusive, and one does not necessarily come at the expense of the 
other. The initiatives we have put in place to prevent terrorists and 
terrorist weapons from entering the United States have enabled us to be 
more effective in seizing other illegal contraband, including illegal 
drugs. Indeed, one of the first results we saw after implementing ATS 
for commercial trucks on the land border was a large narcotics seizure 
from a targeted shipment. And, it is worth noting that the lessons we 
have learned in our battle against international drug trafficking will 
help us in the fight against international terrorism.
    It would be a grave mistake for drug traffickers and other 
criminals to misinterpret our focus on terrorism as a weakening of 
resolve on other fronts. If anything, we have made life even more 
miserable for drug smugglers as we have intensified our overall 
presence along America's borders. Our heightened state of security 
along America's borders has strengthened, not weakened, our 
counternarcotics mission. As we have added staffing for both inspectors 
at the ports of entry and Border Patrol Agents between the ports of 
entry, acquired more inspection technology, conducted more questioning 
of travelers, and carried out more inspections of passengers and goods 
in response to the terrorist threat, we have seized greater amounts of 
narcotics. In FY '03, for example, we seized more than 2.2 million 
pounds of illegal drugs, and made some of the largest individual 
seizures ever recorded by officers safeguarding our borders.
    Effective coordination between inspectors at the ports of entry and 
agents who carry out investigative activities is essential to the 
success of our counternarcotics mission. For that reason, CBP will 
continue to cooperate closely with special agents from U.S. Immigration 
and Customs Enforcement to carry out this mission.

B. Apprehending individuals entering illegally between the ports of 
        entry
    The Office of the Border Patrol is specifically responsible for 
patrolling the 6,000 miles of Mexican and Canadian international land 
borders and 2,000 miles of coastal waters surrounding the Florida 
Peninsula and the island of Puerto Rico. Its primary task is securing 
America's borders between official ports of entry by preventing the 
illegal entry of people, goods, and contraband across our borders.
    The Border Patrol relies on agents, enforcement equipment (such as 
a fleet of specialized aircraft and vehicles of various types), 
technology (such as sensors and night vision cameras), tactical 
infrastructure (such as roads and vehicle barriers), and intelligence 
to carry out its mission. Applied in the correct combination, these 
resources can effectively deter, detect, monitor, and respond to 
illegal border crossings, as we have seen in locations such as the San 
Diego Sector and during operations such as Desert Safeguard.
    In FY '03, the Border Patrol played a key role in safeguarding the 
United States from the entry of terrorists, criminals, and illegal 
immigrants. Among the 931,557 people apprehended by the Border Patrol 
in FY '03 were:

      Two Indian aliens illegally in the United States who were 
wanted in Canada for attempted murder after they allegedly tied-up, 
tortured, doused in gasoline, and lit a person on fire;
      One of the ten most wanted criminals in Texas;
      An Iranian citizen illegally in the United States with an 
extensive criminal history and who may have been involved in bomb 
making and other serious illegal activity at the time of his arrest at 
the San Clemente checkpoint;
      A Turkish citizen illegally in the United States who may 
have been involved in serious illegal activity at the time of his 
arrest at McAllen International Airport; and
      An alleged resident of the United Arab Emirates illegally 
in the United States who may have been involved in serious illegal 
activity at the time of his arrest in Louisiana.

    Building on these gains, and drawing on the lessons we learned 
during Desert Safeguard, CBP is working with other agencies and the 
Mexican Government to implement the Arizona Border Control Initiative 
this year. Under this initiative, CBP will substantially reduce the 
number of illegal entries that occur in Arizona this year and, as a 
result, will reduce the number of deaths that occur as aliens try to 
cross the Arizona desert during the warmest months of the year.

C. Preventing individuals from entering illegally at the ports of entry
    With respect to preventing individuals from entering the country 
illegally at the ports of entry, CBP continues to stop hundreds of 
thousands of people a year who are inadmissible into the U.S. for a 
variety of reasons, including prior immigration violations, criminal 
history, or the possession of false or fraudulent documents.
    We are helped in this effort by our close work with the Department 
of State to ensure CBP inspectors have the tools they need to verify 
the identity of visa holders and the authenticity of visas issued by 
the Department of State. Data on holders of immigrant visas is 
transferred electronically to ports of entry. When the electronic 
record is updated to reflect an immigrant's admission at a port of 
entry, that data is transferred electronically to the Bureau of 
Citizenship and Immigration Services (CIS) for production of a 
permanent resident card and creation of the immigrant file.
    More importantly, with the successful implementation of US VISIT at 
our international airports earlier this year, CBP officers now have 
access to photographs and data transmitted electronically by the 
Department of State relating to holders of nonimmigrant visas. This 
permits officers on the primary line to review visa application data 
and verify the identity of the holder. This has virtually eliminated 
the possibility that a traveler could use a false or fraudulent visa to 
enter the U.S..

D. Regulating and facilitating international trade
    CBP maintains responsibility for regulating and facilitating 
legitimate international trade. As I mentioned earlier, many of the 
initiatives CBP implements serve the twin goals of increasing security 
and facilitating trade. With the right level of industry partnership 
and the right combination of resources, we can succeed not only in 
protecting legitimate trade from being used by terrorists, we can 
actually build a better, faster, more productive system of trade 
facilitation for the U.S. economy.
    We have continued to work with the trade on these matters over the 
past year, and we will continue to do so in the year ahead. For 
example, we worked with all segments of the maritime trade to make 
changes to the 24-hour rule and our computer systems to better 
facilitate the movement of sea containers in our domestic seaports and 
to inland destinations. We also worked very closely with the trade to 
craft and implement our Trade Act regulations, and we will continue 
this process during the rest of this year. Finally, we have partnered 
with the trade and technology companies to design and test a smarter, 
more secure sea container. More importantly, members of the trade are 
using this container. Through C-TPAT, we have partnered with several 
large importers to begin using these containers, and we expect to see 
their use rise substantially in the months ahead.

E. Protecting U.S. agricultural and economic interests and the food 
        supply
    CBP now overseas the enforcement of the laws and regulations 
pertaining to the safe importation and entry of agricultural food 
commodities into the U.S. The traditional goals of the Agriculture 
Inspections (AI) program have been to reduce the risk of introduction 
of invasive species into the U.S., protect U.S. agricultural resources, 
maintain the marketability of agricultural products, and facilitate the 
movement of law-abiding people and commodities across the borders. 
Accordingly, inspecting potentially high-risk travelers and cargo is 
critical to keeping the prohibited items out of the U.S., monitoring 
for significant agricultural health threats, encouraging compliance 
with regulations, and educating the public and importers about 
agricultural quarantine regulations.
    With the creation of CBP, the AI program has expanded its focus to 
include a new priority mission of preventing potential terrorist 
threats involving agriculture. Indeed, the threat of intentional 
introductions of pests or pathogens as a means of biological warfare or 
terrorism is an emerging concern. To address this threat and to enhance 
its traditional AI missions, CBP has already begun using the Automated 
Targeting System, and its collective expertise regarding terrorism and 
agriculture, to strengthen our ability to identify shipments that may 
pose a potential risk to our agricultural interests.
    In addition, CBP has worked closely with the Food and Drug 
Administration (FDA) to implement the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002 to guard against 
threats to the food supply. In the last several months, we have 
modified our electronic data collection systems to collect data from 
the trade required under the Bioterrorism Act, implemented a joint 
risk-management system for food shipments with FDA that builds off or 
Automated Targeting System, and commissioned CBP officers to utilize 
FDA authorities in certain circumstances at the ports of entry. These 
efforts have built on our priority and traditional missions to make the 
food supply more secure, and will be supported in part by the targeting 
funding sought in the FY '05 budget.

VI. Conclusion

    Mr. Chairman, Members of the Subcommittee, I have outlined a broad 
array of initiatives today that, with your assistance, will help CBP 
continue to protect America from the terrorist threat while fulfilling 
our other traditional missions. Because of your support, and because of 
the creation of DHS and CBP, we are far safer today than we were on 
September 11th. But our work is not complete. With the continued 
support of the President, DHS, and the Congress, CBP will succeed in 
meeting the challenges posed by the ongoing terrorist threat and the 
need to facilitate ever-increasing numbers of legitimate shipments and 
travelers.
    Thank you again for this opportunity to testify. I would be happy 
to answer any of your questions.

                                 

    Chairman CRANE. Thank you, Commissioner. Now, Secretary 
Garcia.

    STATEMENT OF THE HONORABLE MICHAEL J. GARCIA, ASSISTANT 
 SECRETARY FOR U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. GARCIA. Thank you, Mr. Chairman. Good morning. Good 
morning, Mr. Levin, distinguished Members of the Subcommittee. 
It is a pleasure to be with you today to discuss the 
integration of the former U.S. Customs Service into ICE within 
DHS, as well as to discuss the resources required to carry out 
our mission. At the Committee's request, my remarks today will 
focus on how ICE has integrated the legacy Customs mission into 
our agency as well as address how we are prioritizing and 
funding that Customs mission.
    Within ICE, the Office of Investigations continues the 
legacy Customs mission through investigations of criminal 
violations that involve national security; financial and 
smuggling crimes, including commercial fraud; intellectual 
property rights violations; illegal arms exports; narcotics and 
other forms of smuggling; cyber crimes; child pornography; and 
child exploitation.
    We understand that after September 11, keeping sensitive 
U.S. technology and weapons out of the hands of terrorists and 
world regimes has never been more important. The ICE helps 
protect national security by preventing the illegal 
importation, exportation, and transfer of weapons of mass 
destruction, arms munitions, and critical technology. In fiscal 
year 2003, ICE launched hundreds of cases, investigations, into 
the illegal export of arms and strategic technology.
    The ICE also protects the integrity of the U.S. trade 
system through enforcement of trade laws. One way we do that is 
through identification, disruption, and dismantling of 
organizations that smuggle contraband and people into the 
United States, including targeting organizations that commit 
commercial fraud. In fiscal years 2003 and 2004, ICE special 
agents were responsible for the seizure of approximately $238 
million in fraud-related merchandise, 280 arrests, 210 
indictments, and 135 convictions for fraud violations.
    Identifying and eliminating vulnerabilities in U.S. 
financial and trade systems is the goal of ICE's Cornerstone 
operation. Cornerstone is an excellent example of how we are 
integrating those Customs authorities within ICE, and as a 
result, we are more effective in identifying vulnerabilities in 
the financial and trade sectors, vulnerabilities that 
terrorists and other criminals might exploit to earn more, or 
store illicit proceeds to finance their other operations.
    Terrorists can earn money through intellectual property 
violations and other commercial fraud, such as cigarette 
smuggling, export violations, and cyber crime; move illicit 
proceeds through unlicensed money brokers, insurance fraud, and 
bulk currency smuggling; and store their money through the 
purchase of gold and other precious medals.
    Through Cornerstone, we have made tremendous progress in 
the fight against financial crime and money laundering. In just 
over 1 year, ICE has seized nearly $309 million in suspect 
currency and we have affected nearly 1,700 arrests. I would 
like to tell you just a few stories behind these numbers, 
stories that show the potential for terrorists and other 
criminals to earn, move, and store proceeds through this type 
of criminal activity.
    In Operation Meltdown, ICE worked with the Internal Revenue 
Service to uncover a scheme in which jewelers were converting 
proceeds of drug sales into the equivalent value in gold. They 
then melted the gold and fashioned it into things like hammers 
and wrenches and shipped the items to Colombia, where it was 
sold and converted back to cash. This investigation resulted in 
23 arrests.
    In another recent case, ICE investigations uncovered a 
scheme in which an Egyptian-born investor was allegedly routing 
cash from the militant terrorist group Hamas through the New 
Jersey investment firm into various business charities and real 
estate ventures in the United States. It is believed that he 
then diverted millions of dollars in proceeds from these 
investments to Hamas and other terrorist organizations. Since 
the statute of limitations had expired on most of his financial 
transactions, he was in prison on immigration charges after we 
discovered that he made false statements on his immigration 
applications. This case is an excellent example of how ICE is 
using every tool at our disposal, including our authorities 
under the immigration law, to shut down money laundering 
networks.
    Before turning briefly to the budget request, I would like 
to mention another ICE division that continues another 
important legacy Customs division, and that is the Air Marine 
Operations (AMO) Division. Within ICE, AMO is a stand-alone 
division that provides air space security, law enforcement 
support, and an interdiction capability, and has become an 
integral part of the ICE and DHS mission.
    The Customs mission within investigations and AMO are well 
represented in the President's 2005 budget, which will continue 
to strengthen ICE's efforts to protect the homeland as well as 
continue its traditional enforcement missions. The President's 
2005 budget request seeks slightly more than $4 billion for 
ICE, $302 million more than in fiscal year 2004, which 
represents an increase of 8 percent for the integrated customs 
and immigration enforcement mission.
    I am confident that the ICE request for fiscal year 2005 
will enable ICE to continue its aggressive enforcement of 
customs laws. By cross-training all of our approximately 5,500 
special agents, we increase the resources available to enforce 
our broad authorities, including those authorities exercised 
under Cornerstone and our other legacy Customs programs and 
priorities.
    The President's 2005 budget also seeks $373 million in AMO 
appropriations and seeks $40 million in enhancements. While 
many challenges lie ahead for ICE, we continue to build a 
premier law enforcement agency from the powerful tools and 
authorities we have been given. I look forward to working with 
the Subcommittee as it completes the budget process for fiscal 
year 2005. Mr. Chairman and Members of the Subcommittee, this 
concludes my prepared statement, and of course we would be 
happy to answer any questions you have.
    [The prepared statement of Mr. Garcia follows:]

 Statement of The Honorable Michael J. Garcia, Assistant Secretary for 
 U.S. Immigration and Customs Enforcement, U.S. Department of Homeland 
                                Security

I. Introduction

    Good morning, Chairman Crane, Mr. Levin, and distinguished Members 
of the Subcommittee. It is a pleasure to be with you today to discuss 
the integration of the former U.S. Customs Service into Immigration and 
Customs Enforcement (ICE) within the Department of Homeland Security 
(DHS), as well as discuss the resources required to carry out our 
mission.
    ICE is comprised of some of our Nation's oldest and most 
recognizable law enforcement agencies. Even though we are a new agency, 
ICE remains committed to enforcing and enhancing the traditional law 
enforcement mandates of our legacy agencies while at the same time 
using all of our resources and authorities in the fight for homeland 
security.
    The mission of homeland security is to address vulnerabilities--
vulnerabilities that expose our borders to infiltration, our financial 
systems to exploitation and that weaken our national security. The ICE 
mission is to implement pro-active initiatives aimed at closing 
vulnerabilities and strengthening national security.
    At the committee's request, my remarks today will focus on how ICE 
has integrated the legacy Customs mission into our agency, as well as 
address how we are prioritizing and funding the Customs mission. I will 
focus on the two key divisions within ICE, which received legacy 
Customs missions: the Office of Investigations and the Office of Air 
and Marine Operations.

II. Office of Investigations (OI)

    OI investigates criminal violations that involve national security, 
financial and smuggling crimes including commercial fraud, intellectual 
property rights, illegal arms exports, narcotics and alien smuggling, 
human trafficking, cyber crimes and child pornography and child 
exploitation. OI has 27 principal field offices throughout the United 
States and approximately 50 international offices throughout the world.
    In the post 9/11 world keeping sensitive U.S. technology and 
weapons out of the hands of terrorists and rogue regimes has never been 
more important. The National Security Investigations Division oversees 
investigative programs designed to protect our national security by 
preventing the illegal importation, exportation, and transfer of 
weapons of mass destruction, arms munitions and critical technology. In 
FY 2003, ICE launched roughly 3,000 investigations into the illegal 
export or arms and strategic technology. ICE agents have had some 
incredible successes. To cite but one example, last year our agents 
uncovered the sale of missile and fighter jet components to an Iranian 
front company. Among the items allegedly exported were components for 
Hawk missiles, F-14 fighter jets, F-5 fighter jets, F-4 fighter jets, 
C-130 military aircraft, military radars, and other equipment.
    Another way ICE protects the integrity of the U.S. trade system is 
through enforcement of trade laws under the Smuggling and Public Safety 
Division, which oversees programs designed to identify, disrupt, and 
dismantle organizations that smuggle contraband and people into the 
United States, including targeting the organizations that commit 
commercial fraud. The Commercial Fraud Unit investigates violations of 
trade laws involving: (1) in-bond diversion; (2) forced child/prison 
labor; (3) health and safety concerns; (4) textiles; (5) environmental 
crimes; (6) tobacco smuggling; (7) anti-dumping/countervailing duties; 
and (8) North American Free Trade Agreement (NAFTA) enforcement.
    In FY 2003 and FY 2004, ICE Special Agents were responsible for the 
seizure of approximately $238 million dollars in merchandise, 280 
arrests, 210 indictments, and 135 convictions for fraud violations.
    Identifying and eliminating vulnerabilities in our financial and 
other parts of our trade system is the responsibility of the Financial 
Investigations Division. This division leads the ICE initiative known 
as ``Cornerstone,'' a comprehensive law enforcement initiative that 
partners with the private sector to identify vulnerabilities in both 
the trade and financial sectors. I would like to spend a few extra 
minutes to discuss Cornerstone and give you some examples of the 
successes we have had in shutting down homeland security 
vulnerabilities.

Cornerstone

    As I mentioned at the opening of my remarks, the ICE mission is to 
close vulnerabilities that could be exploited by criminals or 
terrorists. These vulnerabilities could be in the trade system, the 
financial system or the Immigration system. By enforcing the law and 
maintaining the integrity of these systems, we help close these 
vulnerabilities. Cornerstone is an excellent example of how we are 
integrating customs and immigration authorities and, as a result, we 
are more effective in identifying vulnerabilities in the financial and 
trade sectors--vulnerabilities that terrorists and other criminal 
organizations might exploit to earn, move or store illicit proceeds to 
finance their operations.
    Terrorists can earn money through intellectual property violations 
and other commercial fraud such as cigarette smuggling, export 
violations, and cyber crimes; move illicit proceeds through unlicensed 
money brokers, insurance fraud and bulk currency smuggling; and store 
their money through the purchase of gold and other precious metals.
    Through Cornerstone we have made tremendous progress in the fight 
against financial crime and money laundering. In just over one year, 
ICE has seized nearly $309 million in suspect currency, and we have 
effectedmade nearly 1,700 arrests.
    I'd like to tell you a few stories behind these numbers: stories 
that show the potential for terrorists to earn, move and store their 
proceeds through this criminal activity. In Operation Meltdown, ICE 
agents worked with the IRS to uncover a scheme in which jewelers were 
converting the proceeds of drug sales into the equivalent value in 
gold. They then melted the gold and fashioned it into things like 
hammers or wrenches, and then shipped the items to Colombia where it 
was sold and converted back to cash. Our investigation of this case 
resulted in 23 arrests.
    Last summer ICE agents investigated a case in which a Brooklyn 
jeweler was arrested for illegally transferring $30,000 that was 
intended as a down payment on a shoulder-fired anti-aircraft missile. 
ICE agents also shut down a business in Manhattan that had illegally 
funneled $33 million to Pakistan, in addition to selling fake passports 
and travel documents.
    In another recent case, ICE investigators uncovered a scheme in 
which an Egyptian-born investor was allegedly routing cash from the 
militant terrorist group Hamas through his New Jersey investment firm 
into various businesses, charities, and real estate ventures in the 
United States. It is believed that he then diverted several million 
dollars in proceeds from these investments to Hamas and other terrorist 
organizations. Since the statute of limitations had expired on most of 
his financial transactions, he was imprisoned on immigration charges 
after we discovered that he had made false statements when he applied 
to become a naturalized U.S. citizen.
    This case is an excellent example of how ICE is using every tool at 
our disposal--including our authority to enforce immigration law--to 
shut down money laundering networks and put their operators out of 
business. In fact, it is interesting to note that in 122 of our 
financial cases and in 119 of our drug smuggling cases we were able to 
add immigration violations to those financial or drug-related 
investigations.
    Traditionally, criminals engaged in the manufacture, distribution 
or sale of counterfeit and pirated products reap large profits with a 
relatively low risk of prosecution. As a result, IPR crimes are 
vulnerable to exploitation by terrorists and other criminal 
organizations. Cornerstone aims to change that equation through 
aggressive enforcement of IPR law. In FY 2003 ICE IPR investigations 
resulted in 132 arrests and 60 convictions. Working with U.S. Customs 
and Border Protection (CBP), our enforcement efforts resulted in 6,500 
seizures of counterfeit merchandise, with a Manufacturers Suggested 
Retail Price (MSRP) of $94,019,227. In the first six months of FY 2004, 
ICE agents executed 272 seizures of counterfeit merchandise, with an 
MSRP of $18,967,325 and effected 123 arrests for IPR violations.
    A recent IPR investigation conducted by ICE New York, ``Operation 
Executive,'' identified individuals and organizations that were 
responsible for the large-scale smuggling of counterfeit trademark 
merchandise into the United States from the People's Republic of China. 
The deals were brokered through middlemen in Lebanon. This organization 
is suspected of being responsible for the importation of 100 containers 
of counterfeit goods with an MSRP of $400 million dollars. ICE agents 
arrested 14 subjects, seized containers valued at approximately $24 
million dollars, and seized nearly $100,000 in currency.
    Tobacco smuggling also provides a lucrative source of funding for 
terrorists and other criminal organizations. In January of this year, 
ICE dismantled the largest nationwide tobacco smuggling organization to 
date and arrested 15 defendants. The 92-count indictment charged the 
defendants with tobacco smuggling and money laundering, among other 
offenses. The organization was responsible for the movement of more 
than 10,000 cases of counterfeit and contraband cigarettes and over 100 
cases of liquor worth approximately $20 million dollars.

Child Pornography/Child Exploitation

    Before ending my discussion of Investigations, I want to highlight 
another area where ICE has been particularly successful. ICE has 
aggressively pursued its customs mission of protecting children against 
exploitation--either through the trade in child pornography or through 
the child sex tourism. In July 2003 ICE launched Operation Predator to 
protect children from human traffickers, child pornographers and other 
predatory criminals. This operation combines the immigration 
authorities to arrest and deport felons with convictions for sex 
offenses with the customs child pornography authorities. In less than 
one year, we have arrested 3,023 predators. As part of Operation 
Predator, ICE has an ongoing investigation into subscribers of 
commercial child pornography websites. This investigation has yielded 
344 domestic investigations and 108 arrests, as well as 384 foreign 
arrests during FY 2004. ICE has prioritized arrests in these 
investigations by targeting first those who have access to children 
such as pediatricians, camp counselors, and others in positions of 
trust in the community. ICE has also targeted predators who travel 
abroad to have sex with minors. Through enforcement of the Protect Act, 
ICE made the first five arrests under this year-old statute that 
prohibits travel from the United States for child sex purposes.

III. Office of Air and Marine Operations (AMO)

    Under the former U.S. Customs Service (USCS), AMO was a support 
component within USCS Investigations that focused mainly on drug 
interdiction. In ICE, AMO is a stand-alone division that provides 
airspace security, law enforcement support, and interdiction 
capabilities and has become an integral part of the ICE mission. AMO 
has over 1,000 employees with just over half of that number serving as 
pilots, marine enforcement officers and aviation enforcement officers. 
AMO maintains a fleet of 133 aircraft and 82 vessels to protect the 
Nation and the American people against the terrorist threat and the 
smuggling of narcotics and other contraband.
    An essential element of these deployments is the work carried out 
by the Air and Marine Operation Center (AMOC), located in Riverside, 
California. This state-of-the-art center is linked to a wide array of 
civilian and military radar sites, aerostats, airborne reconnaissance 
aircraft and other detection assets, which provide 24-hour, seamless 
radar surveillance throughout the continental United States, Puerto 
Rico, the Caribbean, and beyond. AMOC allows ICE to identify, track, 
and support the interdiction and apprehension of those who attempt to 
enter U.S. airspace with illegal drugs or terrorist objectives.
    AMO has also provided airspace security for a variety of events 
including the 2002 Winter Olympics, the 2003 and 2004 Super Bowls and 
is supporting airspace security efforts in the National Capital Region. 
In addition, AMO augments Coast Guard port security patrols and 
provides transportation and surveillance support for the FBI, ATF and 
Secret Service. AMO also provides enhanced airspace security during 
periods of high alert.

IV. Budget Request for FY 2005 

    The President's FY 2005 budget will continue to strengthen ICE's 
efforts to protect the homeland, as well as continue its traditional 
enforcement missions. The President's FY 2005 Budget request seeks 
$4.011 billion for ICE, $302 million more than FY 2004, which 
represents an increase of 8 percent. This request for ICE includes 
resources to support border, air and economic security activities. I 
would like to specifically discuss with you the FY 2005 requests for 
the Office of Investigations and Air and Marine Operations.
    The OI budget request for FY 2005 includes $1.046 billion for 
investigations and intelligence programs. I am confident that the 
request for FY 2005 will enable ICE to continue its aggressive 
enforcement of customs laws. By cross training all of our approximately 
5,500 special agents, we increase the resources available to enforce 
our broad authorities, including Cornerstone and other priorities.
    The FY 2005 President's budget seeks $374 million in Air and Marine 
Operations (AMO) appropriations and seeks $40.5 million in total 
enhancements, including:

      $28 million for Increased P-3 Flight Hours. P-3 aircraft 
are critical to interdiction operations in the source and transit zones 
as they provide vital radar coverage in regions where mountainous 
terrain, expansive jungles and large bodies of water limit the 
effectiveness of ground-based radar. This request will increase P-3 
flight hours from 200 to 600 per month.
      $12.5 million for Long Range Radar. Primary Long Range 
Radar provides position information (geographic/altitude) of airborne 
objects and flight data information to civil aviation, defense, and law 
enforcement agencies. ICE uses the radar to receive data for drug 
interdiction efforts along the southern border.

V. Conclusion

    The FY 2005 budget request for ICE supports the President's 
National Strategy for Homeland Security, the framework for 
accomplishing our complex mission to protect the homeland, and ICE's 
mission to enforce customs and immigration laws.
    While many challenges lie ahead, we continue to build a 
professional law enforcement agency from the powerful tools and 
authorities we have been given. I look forward to working with the 
Committee as it completes the budget process for FY 2005.
    Mr. Chairman and Members of the Subcommittee, this concludes my 
prepared statement. I would be happy to answer any questions you may 
have at this time.

                                 

    Chairman CRANE. Thank you, Mr. Secretary. Commissioner 
Bonner, at a recent briefing, CBP presented us with its mission 
statement. The first three bullet points were entirely devoted 
to security. Trade concerns were not mentioned until the fourth 
point, and even there, the focus was on enforcing laws rather 
than facilitating trade, stating, quote, ``We steadfastly 
enforce the laws of the United States while fostering our 
Nation's economic security through lawful international trade 
and travel,'' close quote. What assurances can you give this 
Committee that CBP is sufficiently prioritizing trade 
facilitation?
    Mr. BONNER. Well, first of all, Mr. Chairman, I would say 
that that mission statement, of course, is the mission 
statement that is put out to the frontline employees. I think 
correctly understood, I have stated it many times that not only 
am I personally committed to trade facilitation and the trade 
issue and the trade side of Customs, but Customs and now CBP is 
strongly committed to its trade facilitation role.
    I think I have made that very abundantly clear, both in my 
conversations with the trade community, and I have many--I was 
just actually up yesterday to the American Association of 
Exporters and Importers convention in New York. I think every 
manager in CBP understands that an important part of our 
mission is not just security but it is trade facilitation and 
that those things don't have to be mutually exclusive. We also 
have, by the way, Mr. Chairman, I think a very good outreach 
program through our Office of Trade Relations at CBP.
    Last, I would just say that the issues of security and 
trade facilitation are interrelated issues. We look at them as 
it is not that it is either one or the other, that we have to 
perform our security mission at the border, and that is prevent 
terrorists or terrorist weapons from entering. At the same 
time, we have to do it in a way that maintains the movement, 
the free flow of movement of trade and people into the United 
States. So, these are interrelated issues and that is the way 
we have viewed them. That is the way we have approached them 
with our initiatives since 9/11, and that is the way we will 
continue to approach them, and that is that there is a strong 
focus not just on the security side, but also on how we 
facilitate the movement of goods and trade into the United 
States.
    Chairman CRANE. Thank you, Commissioner. Secretary Garcia, 
in the ICE fiscal year 2005 budget brief, it appears that every 
new initiative being pursued by ICE is in the area of 
immigration. There are no new Customs initiatives planned for 
fiscal year 2005. Is the current level of resources dedicated 
to customs enforcement sufficient given the dramatic increase 
in trade volume?
    Mr. GARCIA. Thank you, Mr. Chairman. To go to the budget, 
several points. One, there are increases for Air and Marine, 
traditional Customs mission. You are correct that there is no 
enhancement directly targeted to any particular Customs 
program. If you step back from the budget numbers and you look 
at what we are trying to accomplish under the President's 
fiscal year 2005 budget, you see that resources are being given 
to Detention and Removal Division within ICE in order to free 
up agents and agent hours that are now performing things like 
institutional removal in prisons.
    Look back and see our 5,500 agents cross-trained, our Title 
VIII authority being used to leverage some of our Customs 
programs, and you will see, I believe, a dramatic increase in 
the ability of ICE to dedicate agent hours to all our programs 
as a result of that shift in responsibilities to Detention and 
Removal. You also see an enhancement for International Affairs. 
I know, Mr. Chairman, that you are well aware of the important 
work that our international offices do in terms of the 
traditional Customs enforcement mission.
    I would like to give one example of this force multiplier 
leveraging idea with Title VIII and it is in the inbound 
diversion area. Traditionally, Customs has looked at the 
materials involved in inbound diversions. We are now going 
forward with a program to look at the bonded warehouses, the 
foreign trade zones, looking at the people who have access to 
this material, looking at immigration violations that can be 
used to leverage our cases in this area and make us more 
effective. That is just one example of how we are using this 
force multiplier concept, the Title VIII concept, in our 
Customs authorities, and I think a very successful program will 
follow from that and that effort.
    Chairman CRANE. Thank you, and my last question is for both 
of you. The Trade Act of 2002 (P.L. 107-210) required the 
former U.S. Customs Service to implement a cost accounting 
system to identify expenses incurred in commercial and non-
commercial operations by September 30, 2003. The Committee 
noted in its accompanying report that the Customs Service is 
currently unable to answer fundamental questions about how it 
spends money. It is my understanding that this cost accounting 
system has not been implemented. Do CBP and ICE plan to 
implement the accounting system required by law, and what is 
your anticipated timing for implementing this system?
    Mr. BONNER. Let me take a stab at that, because first of 
all, several years ago, U.S. Customs, now CBP, implemented a 
Cost Management Information System. That system is in place and 
that is a system that is--whereby it is capable to determine 
how money is spent and what activities it is spent on. I have 
that capability right now, and we have certainly had it before 
September 30, 2003.
    There may be a question here, and I want to get back to 
you, Mr. Chairman, on this, but there may be a question here as 
to how you fully account for, let us say, frontline inspector 
time in terms of what it is devoted to, and this gets into the 
issue, by the way, of the interrelationship between the 
commercial or non-commercial, between security and trade 
facilitation. If you have inspectors and you are extending more 
overtime to staff, more lanes to keep them open so that you can 
do your security but at the same time keep commercial trucks 
rolling across the border from Canada into the United States, 
it is serving both functions.
    So, there may be an issue of cost accounting here, how you 
allocate the cost, let us say, of that inspector time. However, 
we do have a cost accounting system, and I can assure you, we 
can break down our costs and expenditures by types of activity. 
So, what I would like to do is to, if I could, get back to you 
in writing on your question just to make sure that I am 
accurate in terms of my response and that my response is 
complete.
    [The information was not received at the time of printing.]
    Chairman CRANE. Very good. Do you have any comments, Mr. 
Garcia?
    Mr. GARCIA. Certainly, Mr. Chairman, we continue to work 
with Commissioner Bonner and CBP to put that system in place 
and would be happy to join with Mr. Bonner in his written 
submission to the Committee.
    Chairman CRANE. Very good. Thank you. Mr. Levin?
    Mr. LEVIN. Thank you. Let me mention, the schedule on the 
floor today is somewhat changed and a bill that came through 
this Committee just a couple days ago is coming up not tomorrow 
but today, and I think the debate on the rule on it perhaps has 
already started. So, if we move in and out of the hearing, it 
will be more than we expected to occur.
    Commissioner, let me ask you about the problem of 
collecting duties, anti-dumping duties. Your report, I think it 
was in March, the report that came from Customs indicated that 
over $100 million of duties were uncollected last year from or 
relating to imports from China. You laid out a number of 
problems relating to it, and then you took some steps 
internally, within your agency. Let me ask you, as a result of 
that, how is it different today than it was before when these 
duties were uncollected?
    Mr. BONNER. Well, you are correct, Mr. Levin, that we have 
set in motion a number of steps to identify why there has been 
the collecting shortfall, and it is substantial, with respect 
to anti-dumping duties, and these are mainly on products 
originating in China and they are mainly agricultural products. 
There are a lot of things about the system that resulted in 
that shortfall and they were everything from, by the way, a 
default of a surety bond company, and so that is an issue I am 
addressing with the U.S. Department of Treasury to make sure 
that surety bond companies are adequately capitalized, but 
there was a large surety company that defaulted on bonds that 
related to anti-dumping duties.
    Probably, the more central problem is the fact that there 
is a wide difference in terms of the preliminary anti-dumping 
duty assessment of the U.S. Department of Commerce and its 
final anti-dumping duty, and by the time it assesses this much 
larger final anti-dumping duty at the end of the line, it 
becomes very difficult to collect. So, we are taking some 
measures to address it.
    I don't have--this is something in process. I think we will 
be able to do better. By the way, we are never going to totally 
close this gap for a number of reasons. I don't think you could 
ever get close to 100 percent collections here because of the 
system, but we can do better and I believe we will do better. 
However, I think you are going to have to give us a little bit 
more time and see how we do throughout the remainder of this 
fiscal year and into next fiscal year.
    Mr. LEVIN. Aren't there some steps that could have been 
taken immediately, for example, relating to the sureties? The 
agency, the government does set the standards and does have the 
ability to implement them. Aren't there some steps that could 
have been taken promptly?
    Mr. BONNER. Well, I think the main step that we are looking 
at taking would be to make sure that there are individual 
surety bonds at the time of the preliminary assessment and they 
are more adequate to cover the likely anti-dumping duty 
assessment that would be made.
    Mr. LEVIN. You could do that right now, though----
    Mr. BONNER. Well, I need--I have to coordinate that with 
Commerce, Mr. Levin, and that is what we are doing, so that 
is----
    Mr. LEVIN. How long is that going to take?
    Mr. BONNER. I don't think long. I think we are----
    Mr. LEVIN. The report was in March and it is now mid-June. 
These moneys don't go into the government. Under the law, they 
go to American entities that have been hurt. So, essentially, 
the moneys that are being lost are moneys being lost by 
citizens, either individual or corporate citizens. Let me just 
ask you, there is legislation introduced to move over to a cash 
system. What is the position of the government on that?
    Mr. BONNER. I think you always have the opportunity to move 
to a cash bond. I don't see any reason to do that if you do 
have an adequate surety bond and you have a surety company that 
can stand behind the bond if there is a default. There may be 
circumstances where you need to have a cash bond. I guess I 
would say right now, and I am speaking, I will tell you, off 
the cuff, that I do not believe that we would need to go to a 
cash bond requirement if we were satisfied that there was a 
surety that was standing behind the potential liability for the 
anti-dumping duties that was viable and adequately capitalized.
    Mr. LEVIN. Let me finish. My time is up. There is an 
urgency here and I don't think the excuse will be useful much 
longer to say, ``We need more time.'' Steps need to be taken--
--
    Mr. BONNER. We are taking steps, Mr. Levin, and I----
    Mr. LEVIN. What is your goal to resolve this issue the 
best----
    Mr. BONNER. Well, I am hopeful that we will resolve part of 
the issue in a few weeks. We have discussed the surety bond 
issue with Treasury. We are also discussing with Commerce, the 
issue of once an anti-dumping duty is imposed, that new 
entities are formed, new Chinese companies that ship the same 
product and that sort of thing, so that we are moving faster 
and more quickly to take action against essentially the evasion 
of the anti-dumping duties.
    By the way, we have had a working group at CBP that has 
been hitting this issue hard. We have engaged Commerce on this 
issue. I think some of the things that we are going to do will 
materialize in the very near term, and within not months, but 
sooner than that.
    Mr. LEVIN. We will be looking.
    Chairman CRANE. Ms. Dunn?
    Ms. DUNN. Thank you very much, Mr. Chairman. Welcome, 
gentlemen. I wanted to first of all make a request, and you are 
certainly free to comment on it if you would like, and then I 
have a couple of questions.
    Commissioner Bonner, you talked about the need to make 
security adjustments, make them more effective without 
interrupting trade or tourism. In my area of the country, 
Seattle, the cruise business is growing rapidly. More ships are 
sailing from Seattle to Alaska and that is very important for 
our economy, because otherwise they would be sailing from 
Vancouver, B.C., to Alaska.
    Most cruise ships depart Seattle and make a very quick 
stop, sometimes as little as for 4 hours, in Vancouver or 
Victoria before heading up to Alaska. Most foreign passengers 
go through the United States Visitor and Immigrant Status 
Indicator Technology (U.S. VISIT) program prior to arrival in 
Washington State. Since the cruise ship stopped in Vancouver or 
Victoria, foreign passengers must once again go through the 
U.S. VISIT program before they arrive in Seattle. Our sense is 
that this is duplicative.
    We certainly appreciate the need to balance protecting our 
security with allowing for the flow of people between 
countries, but I would ask that you take a look at this and see 
if the U.S. VISIT program, see how it affects the cruise 
industry and get back to me on this. You are certainly welcome 
to make comment now if you would wish.
    Mr. BONNER. I would be happy to get back to you because I 
want to make sure I fully understand the fact that there is 
another U.S. VISIT requirement for foreign passengers that, let 
us say, embark at Seattle and you are going up to Alaska via 
Canada. It may be that there is another requirement when they 
re-enter the United States in Alaska, but let me look into this 
issue for you and then we will get back to you. If there is 
something that we can do, consistent with the objectives of the 
U.S. VISIT program, with respect to ameliorating its impact on 
the cruise industry, we will. I will get back to you one way or 
the other.
    [The information was not received at the time of printing.
    Ms. DUNN. I appreciate that, because it is taking away from 
passengers' time to do a little shopping, whatever they enjoy 
doing. Particularly, it is another hassle factor that could, we 
think, be a competitive problem for us.
    Could you also, you talked a bit about the ACE program in 
your testimony. Could you tell us where that stands? What 
changes are being undertaken to accommodate new cargo security 
requirements that would allow Customs to monitor security 
compliance more effectively?
    Mr. BONNER. The ACE program, we are actually into the third 
release of its functionality, and that is, by the way, a 
release that permits us for the first time ever to go to 
account-based processing with the trade community, and so this 
is actually one of the promises of ACE and we are actually in 
the training and testing phase of that right now with about 41 
different importers. Beyond that, the next release of ACE will 
be the Electronic Truck Manifest, Commercial Truck Manifest 
system that we hope to roll out in November.
    Beyond that, we do see a very significant role for ACE with 
respect to improving our essentially selectivity and targeting 
for risk purposes those shipments that pose a potential risk 
for security or for enforcement purposes as opposed to the vast 
majority which don't pose a risk. So, this actually allows us 
to focus on the relatively few shipments that pose a security 
risk and to expedite the processing of the vast majority that 
don't. That is, again, how security and facilitation actually 
interrelate.
    We are already doing that with our somewhat antiquated 
Automated Commercial System (ACS), our old system, but ACE will 
permit us to, I believe, to vastly improve our targeting of 
potential commercial shipments that pose a risk for the 
terrorist threat and potentially other threats to our country. 
We are in the process of developing that as part of ACE and the 
rollout there will begin--it probably is not going to begin 
this year for ACE. It will begin sometime next year.
    Ms. DUNN. One last question. Our ports play an important 
role in the Pacific Northwest. Very close to my district, there 
are two major ports, the Port of Seattle and the Port of 
Tacoma. They are very involved with our trade with Asian ports 
and would be very important to our economy if--critical to our 
National economy, as we discovered last year when there was a 
terrible problem on the West Coast that didn't allow goods to 
come into our ports.
    In the event that a terrorist incident results in the 
closure of one or more ports, how is Customs working with other 
agencies both within and outside DHS to develop a plan to 
divert cargo to other ports and reopen the ports affected as 
quickly as possible?
    Mr. BONNER. We are working--first of all, of course, the 
action that we would take, DHS would, of course, be related to 
a specific terrorist incident or potentially some intelligence 
with respect to a potential terrorist incident. The CBP is 
working very closely within DHS and particularly with the U.S. 
Coast Guard in terms of essentially the contingency planning, 
if you will, for what we would do based upon certain kinds of 
scenarios, both--This would include, by the way, potentially 
keeping the flow of container shipments coming to all of our 
seaports, including the Ports of Seattle and Tacoma, 
notwithstanding some terrorist incident, if, for example, we 
had the opportunity to, as we have in many cases now, to screen 
those containers for security purposes before they are on-
loaded in vessels in Singapore and Hong Kong moving to the 
Ports of Seattle or Tacoma or Los Angeles. So, we have some 
contingency planning that is being built into CSI that even in 
times of stress with respect to the terrorist threat, that we 
could keep the flow of trade going, and that would be very 
important to our economy and, frankly, to the world economy 
that we be able to do that.
    We also are able to, as a contingency plan, because we are 
building in security through the private sector through our 
partners in the C-TPAT, we are in a position to--we may well be 
in a position to permit C-TPAT shipments into the United States 
where a C-TPAT partner has elevated the security, the supply 
chain security, at its foreign supplier or vendor and we have 
been able to verify or validate that that has happened.
    So, we want to--essentially, we are building a security 
system that can allow trade to continue, notwithstanding a 
terrorist incident, even a terrorist incident that might 
involve a seaport of the United States. Coast Guard and CBP are 
probably the main players here with DHS apparatus and we are 
working on those issues, I can assure you, Ms. Dunn.
    Chairman CRANE. Mr. Becerra?
    Mr. BECERRA. Gentlemen, thank you for your testimony and 
for being here with us. Congratulations on the work that you 
have been able to accomplish. Let me ask a number of questions. 
Let me start first with port security and our shipping cargo 
issues that we still confront with our containers. In the Los 
Angeles area that I represent, we have some 12 million shipping 
containers that go through the ports of Long Beach and Los 
Angeles in 1 year. It is the busiest port in the Nation, third 
busiest in the world. My understanding is that we are still 
trying to deal with or grapple with the issue of how we inspect 
these massive containers, but when you consider that there are 
some 12 million coming through those 2 ports in 1 year, it 
becomes an overwhelming scenario to consider.
    My understanding is that at one point, as recently as 
perhaps last year, we were inspecting at most about 1 to 2 
percent of all those shipping containers that were coming 
through our ports in this Nation. I believe the number is 
somewhat higher but still far less than 10 percent of all those 
millions and millions of containers that are coming into this 
country.
    The issue I want to raise is one relating to the incident 
that occurred in Israel, in the Ashdod Port in Israel, where 
individuals concealed themselves in a container, thereafter 
were able to escape from the container and, in essence, they 
killed several people and caused quite a bit of damage and 
violence in Israel.
    What is to stop that from happening here, and what are we 
doing with regard to empty containers, because my understanding 
is that the only containers we inspect are loaded containers 
and there are issues about the chain of custody of those 
containers from the point that they are supposedly loaded to 
the point that they are unloaded in our docks. My first 
question would be, what are we doing about empty containers? My 
understanding is, right now, there is no requirement under law 
and not necessarily any particular policy on the part of 
shippers to inspect empty containers among the millions of 
containers that are coming into this country.
    Mr. BONNER. Well, first of all, we have full authority and 
do inspect empty containers. All the containers we look at, Mr. 
Becerra, are essentially the containers that we think pose a 
potential risk for the terrorist threat. Just to start off 
with, you know, the question to me isn't whether it is 1 or 2 
percent. I am not sure it was ever that low. It really doesn't 
matter. The question is, are we searching the containers that 
pose a potential risk, particularly for the terrorist threat?
    We have, since 9/11, we have mandated that we receive 
advance manifest information with respect to every oceangoing 
cargo container that arrives at every seaport of the United 
States. That is a 24-hour role. We get that information not 24 
hours before arrival at a U.S. seaport, but 24 hours before 
that container is even loaded on board a vessel outbound to the 
Port of Los Angeles or the Port of Long Beach or any other U.S. 
seaport.
    We screen every container based upon our automated 
targeting rules, which are based upon the strategic 
intelligence that we have with respect to the areas of threat 
for potential concealment of terrorist weapons or terrorists 
themselves. We also use some anomaly analysis, as well, to 
identify those containers that we think pose a potential risk. 
We inspect, at least through x-ray screening and radiation 
detection, 100 percent of those, every one of those. You are 
right----
    Mr. BECERRA. A 100 percent of those that you suspect----
    Mr. BONNER. That we have identified as, based upon risk 
analysis, potentially posing a threat for terrorism, terrorist 
risk.
    Mr. BECERRA. What percentage of the total number of 
containers does that represent?
    Mr. BONNER. I can say that the total number of containers 
that we are inspecting right now through security inspection or 
otherwise, but some kind of an inspection or examination, is 
close to about 6 percent of all of the sea containers arriving 
in the United States.
    Again, the question is not whether it is 6 percent or what 
the percentage is. Are we inspecting the right ones? I think we 
have a system to identify the at-risk containers, including 
potentially empties, and here is the point. As good as the 
Israelis are, and the Israelis are as good at security as any 
country in the world, if not the best, but the Israelis, that 
container that came into the Port of Ashdod actually came in, I 
believe, initially from Italy, went into the Gaza, was unloaded 
in the Gaza, came back into the Port of Ashdod as an empty from 
Gaza.
    Now, I can tell you that our targeting system would say, we 
are going to x-ray it. We are going to inspect that container 
because it is coming from a very high-risk area. It is going to 
get a risk targeting score that is going to require an 
inspection. So, we are doing something beyond what even the 
Israelis are doing, at least with ocean-going cargo containers, 
to identify those containers that pose a security risk.
    I think this is the right approach. As I say, I know some 
people say, well, let us inspect all 12 million of those 
containers that come into the Port of Los Angeles or the Port 
of Long Beach or the Port of Seattle or Tacoma, but the reality 
is we ought to be smart about this using strategic 
intelligence, knowing something about where a container is 
coming from, who is shipping it, who the importer is and that 
sort of thing, make an assessment of those containers that pose 
a potential risk and then inspect all of those, and that is 
what we are doing upon arrival in the United States and through 
CSI we are extending our border out now to 18 foreign seaports 
where we are able to target and do that before those containers 
are loaded outbound on vessels to the United States.
    Mr. BECERRA. Thank you.
    Chairman CRANE. Mr. Shaw?
    Mr. SHAW. Thank you, Mr. Chairman. I would like to pose a 
continuing problem which Customs is well aware of that we have 
down in south Florida with people taking their boats over to 
the Bahamas. A little known portion of the law has recently, 
since
9/11, been enforced, the enforcement of which really makes no 
sense at all, and that is that returning vessels from offshore 
not only have to call in and report back in, that they are back 
in the United States, but within so many hours they have to 
present themselves in person to the Customs folks, or is it 
Immigration? Anyway, they have got to present themselves.
    Your people have been very helpful in trying to accommodate 
particularly fishing tournaments and things of this nature over 
time, which I really appreciate, but I don't think we have hit 
upon a satisfactory solution to the problem. It is perfectly 
obvious that if somebody is up to no good, that they are not 
going to call in and tell us that they are back, whether it be 
smuggling drugs or whether it be some type of terrorist 
activity.
    We have been trying to seek a solution. We have been trying 
to do it in concert with the Customs and Immigration people. 
What exactly has transpired on that? Can we look for some 
legislation? The problem is actually in the legislation. It is 
not in the bureau, and I want to make that very clear, but the 
legislation makes absolutely no sense in its application.
    Now, I know that up on the Canadian border, which Ms. Dunn 
was talking about just a few minutes ago, particularly on the 
East Coast, perhaps on the West Coast too, that there is some 
accommodation for people. People will go on their boat and get 
in their boat and go up to Canada to have dinner or vice-versa 
or visit friends and nothing is made of it. However, when you 
go to the Bahamas, you seem to have a problem coming back and I 
would like to just inquire as to what suggestions you might 
have, what progress we have made on this point. Mr. Bonner?
    Mr. BONNER. One thing that may be progress, and that is 
that for purposes of both Customs and Immigration, it is just 
one agency you have to deal with now, CBP. You don't have to 
deal with two different agencies. That said, there may be this 
legal requirement that if it is a non-U.S. citizen, non-lawful 
permanent resident, they may have to present themselves to 
Immigration when they----
    Mr. SHAW. No, I am speaking of U.S. citizens at this point. 
I don't want to complicate it with non-citizens.
    Mr. BONNER. Okay. That does uncomplicate it. I will say 
this. One of the issues that we are looking at is how we could 
institute essentially a trusted and vetted, let us say, 
pleasure boater or small boat program that would----
    Mr. SHAW. Something like we are going to do at the 
airports?
    Mr. BONNER. Well, it is something like we are doing right 
now with Canada with respect to--and Mexico with respect to 
people that are in vehicles, automobiles. We have what is 
called the NEXUS program in Canada in which Canadian citizens 
and U.S. citizens are eligible to apply, give some personal 
data about themselves. We run them both against terrorist and 
criminal indices and we also personally interview them for 20 
to 30 minutes to make sure that there is no issue with respect 
to terrorism, there is no issue with respect to smuggling of 
goods, and then they get essentially a NEXUS card.
    It is called NEXUS Marine, basically, but taking that 
concept and applying it to the small, the pleasure boat 
situation, and this would be both south Florida and it would be 
also, by the way, the Great Lakes, Puget Sound, every place 
where we have small boats, that we pre-identify a group of 
people that have been essentially enrolled into a trusted or a 
vetted, if you will, passenger program so that they could do 
probably a call-in rather than a personal actually contact with 
Customs and Immigration, which is now a CBP officer.
    We are not there yet. We are trying to work out some of the 
details of how we would do that, but that is something that we 
are looking at as, I think, a potential kind of smart solution 
to the kind of issue that you are raising here, because then 
you have got boaters who, again, how do we identify them? Is 
there some sort of an radio frequency or something we can read? 
Then you have the group of boaters that we know we are not 
concerned about for terrorism purposes or for smuggling of 
drugs, which has been a problem historically in South Florida--
--
    Mr. SHAW. You have the problem--you may have the people 
that frequently frequent the Bahamas and go back and forth, but 
perhaps the buddies that they took fishing with them didn't fit 
that profile. The point that I am making, and I compliment you. 
That is certainly progress. However, the problem that I see is 
that if there is a terrorist threat on this or if there is a 
drug threat on this, then we should be at the ports that these 
people come back into. It used to be that inside--speaking of 
Fort Lauderdale and Port Everglades, you used to have a place 
you could check in with Customs just as you came into the port 
so it didn't inconvenience anybody more than just a few 
minutes. Then it went to just phone in and let us know you are 
back and have a nice day. Now it is, by the way, you have got 
to come down to Miami, which is not a very pleasant thing to 
have to do, particularly if you work, and check yourself in.
    It seems to be that the system is providing a nuisance 
without really providing also a solution to terrorism. So, we 
either have the threat, and if we do, you ought to be there at 
the port. If we don't, we ought to change the law.
    Mr. BONNER. So, there may be a staffing issue with respect 
to ports. I can certainly take a look at this----
    Mr. SHAW. This could be a big deal.
    Mr. BONNER. I will take a look at this.
    Mr. SHAW. It could be a big deal, and again, that wouldn't 
be a perfect solution, but it is something that I would hope 
that you could vet through the agency and within a reasonable 
time--we have been talking about this for a long time--within a 
reasonable time, come up with a solution. Either there is a 
problem or there is not a problem. If there is a problem, we 
ought to be right there where those boats come in.
    Mr. BONNER. As I say, we are looking at the overall issue, 
but I will take a look at the specific issue with respect to 
the Bahamas.
    Mr. SHAW. You have been cooperative, but we haven't come up 
with a solution. Thank you.
    Chairman CRANE. Thank you. Mr. Jefferson?
    Mr. JEFFERSON. Thank you, Mr. Chairman. I want to ask a 
question about what is called the narrow interpretation of the 
existing laws and certain preference programs, particularly the 
African Growth and Opportunity Act (AGOA) and the Caribbean 
Basin Initiative (CBI) (Trade and Development Act of 2000, P.L. 
106-200) program. We heard a lot of testimony at the hearing on 
AGOA III that apparel that is made wholly in Africa using 
appropriate fabric is in--if you might say, added to that would 
be some adornment, some small rope belt or some press-on label, 
and the products would come to the United States and be turned 
back because they weren't made completely of the appropriate 
material.
    We have passed in this AGOA legislation a sense of the 
Congress urging a broad interpretation. It says that provisions 
relating to preferential treatment of textile and apparel 
articles be interpreted broadly in order to expand trade by 
maximizing opportunity imports. Are you aware of this problem, 
and how do you plan to interpret this provision that the 
Congress has just passed?
    Mr. BONNER. First of all, no, I wasn't aware that this was 
a problem. I am certainly generally familiar with AGOA and the 
Caribbean Basin Trade Partnership Act (P.L. 106-200) of a 
couple of years ago. So, I am not aware of the problem, so I 
will have to look into it in terms of whether or not there is 
an appropriate interpretation of it.
    The interpretation, though, of AGOA and related trade acts 
is done through our Office of Rulings and Regulations. It is 
important and I believe that there is every effort made to do a 
principled interpretation to determine--you know, of the 
language of the statute and, of course, if the ordinary rules 
of statutory construction apply in terms of interpreting 
statutes. So, we look to the language. If the language is 
unclear, obviously the next thing you do look to is legislative 
intent.
    So, the attempt here is, with respect to any kind of an 
issue, including this kind of an issue, is to have our Office 
of Rulings and Regulations make a principled interpretation of 
these statutes and apply it as issues arise before it, but I 
don't know the specific issue. Obviously, there is a well-
understood--you have to look at the statute and there is some--
there is a general body of trade law in terms of----
    Mr. JEFFERSON. I don't want to bog you down with that. 
There are a number of complaints that were registered with the 
Committee and we tried to address it with this new language. I 
just wanted to bring it to your attention and urge you to 
please--the normal rules, this is an attempt to move beyond 
what might be the more rigid ways of looking at this, because 
in the preference program, the notion is to bring products in 
from Africa and there is a short timeline to do this.
    There is a huge set of competitors over there, mostly 
Chinese competitors that are very, very aggressive in the 
marketplace and they are making it very difficult for this 
program to work appropriately. So, I just bring it to your 
attention and urge you--let me talk about another couple of 
things because I know the time is short.
    Back home at our port, the Trade Partnership Against 
Terrorism, we have about 400 importers that can be involved in 
the C-TPAT and only about 7,200 of them are involved in this 
program and they usually involve large importers, not the 
smaller periodic importers. This is the reality, it seems. So, 
the question is, is it feasible that the C-TPAT would be able 
to provide a sufficient container security coverage given that 
you are going to have this low volume of inspections, and then 
largely of the big importers when the smaller ones make up the 
bulk of the trade?
    Mr. BONNER. Well, first of all, there is no restriction on 
smaller importers joining C-TPAT. They would have to develop 
the security plan, which would be submitted to us. We would 
review it to make sure that the supply chain security best 
practices are being met and that sort of thing. So, they are 
not excluded, as you know, from C-TPAT. That said----
    Mr. JEFFERSON. It just is a manpower issue?
    Mr. BONNER. Yes, it could be, and I understand that. That 
is--even C-TPAT has potentially some benefits for all 
importers, and the reason is that as we can get--and this is 
the objective, to get more and more U.S. importers into C-TPAT, 
including some of the middle-size and even smaller importers to 
get more and more into it so that we have increased supply 
chain security. The more we have done that and the more we have 
verified that supply chain security is increased, the more we 
are able to devote our inspectional resources to those 
shipments that pose a potential threat because of our targeting 
system or that are unknown.
    The reality is, this is a system that ultimately benefits 
or has the potential to benefit and facilitate trade into the 
United States for everybody, including even small importers, 
even if they are not in C-TPAT, because we have--the more you 
can rule out because you are satisfied that shipments don't 
pose a security threat, particularly for the terrorism issue, 
the more quickly we can devote our resources to those shipments 
that are not C-TPAT shipments, if you will.
    So, we welcome everybody into this. I realize there 
sometimes--you know, an importer that doesn't import 
frequently, probably there is an investment of some funds here 
and the use of some leverage in the supply chain to make the 
security improvements. I realize that there are going to be 
some companies that, for a variety of reasons, don't want to 
make that investment, particularly perhaps their size just 
doesn't justify it. There still, as I say, there are benefits 
to everybody that imports into the United States to have C-
TPAT, at least in my judgment.
    Mr. JEFFERSON. Mr. Chairman, may I ask one last thing? I 
want to ask one last question.
    Chairman CRANE. All right.
    Mr. JEFFERSON. The folks in my port, the freight 
forwarders, have a few complaints. Customs established a point 
system that was supposed to promise fewer enforcing exams as 
carriers, importers, and brokers became C-TPAT certified. 
However, the anecdotes they bring to us indicates that the 
number of enforcement exams haven't really been reduced and 
that the bureaucracy is still there. Is this kind of a plan in 
the works and down the line they can see more relief, or is 
it----
    Mr. BONNER. No--well, I don't known whether the freight 
forwarders are or representing C-TPAT importers, but I can tell 
you, no, it is not--we give--essentially in the terrorist risk 
scoring, there are three purposes for which exams or 
inspections might be conducted. One is anti-terrorism, and that 
is one that all of us are, I think, rightly concerned about. 
Second is enforcement exams, and this could be for illegal 
drugs or other kind of contraband, including, for example, 
knock-off products and the like. The third category is freight 
compliance exams.
    Let me just say that if you are enrolled in C-TPAT and you 
have taken the steps to improve the security of the supply 
chain--this goes back to the vendors that are shipping goods to 
you from overseas--you will get increased--essentially, it will 
result in a decreased risk score for the purposes of an anti-
terrorism security inspection exam and there are fewer exams. I 
am not saying none, but there are fewer exams if you are in C-
TPAT for security purposes and there are fewer enforcement and 
trade compliance examinations if you are in C-TPAT. That is a 
fact. So, there are benefits right now for companies that 
enroll and join in and take those steps to become C-TPAT 
partners.
    Chairman CRANE. Thank you. Commissioner, I agree with Mr. 
Jefferson about the problem he has raised about interpreting 
AGOA and I agree that the provision the House passed Monday 
indicates eligibility should be interpreted broadly and I 
encourage you to do so. Now, Mr. English?
    Mr. ENGLISH. Thank you, Mr. Chairman. Commissioner Bonner, 
following up on Mr. Levin's questioning on the issue of 
uncollected duties, largely from Chinese imports, one 
particular issue you raised was with regard to new shippers. I 
believe you cite in a letter to Senator Byrd on May 28 that 
particular attention needs to be paid to new shippers and 
single-entry bonds. Also in that letter, you stated that CBP 
would not oppose legislation to assist you in remedying this 
problem. Has that position changed?
    Mr. BONNER. No, it hasn't. We would not oppose legislation 
that would assist us in this issue. We do think, as I indicated 
to Mr. Levin, there are some steps that can be taken and that 
we are taking in conjunction with Commerce to address the issue 
of essentially the evasion of anti-dumping duties. However, our 
position has not changed. We certainly do not oppose 
legislation that would help us take some action that would give 
us a higher rate of collection of anti-dumping duties.
    Mr. ENGLISH. Thank you. Also, as we are both aware, Customs 
has received funds for training agents on specific steel 
products in recent years. Many of these products are similar 
and only minute technical differences separate them from other 
steel products. Do you feel this type of interaction with 
industry officials and Customs agents for the purpose of 
training helps agents correctly identify products at the 
borders, and also, do you feel this type of training will also 
assist in determining certain circumvention techniques, for 
example, certain pipe or tube products currently not 
manufactured in Canada but attempting to enter the United 
States under North American Free Trade Agreement (P.L. 103-182) 
treatment?
    Mr. BONNER. I think it can, I think it does, and I think it 
is important to have the kind of advice and expertise that 
allows us to better identify the kinds of products that, for 
example, are subject to anti-dumping duties, and there are, as 
you know, some very technical issues in terms of trying to 
appropriately categorize and characterize types of products. 
They may be, by the way, misidentified in the entry data and so 
forth. So, this has been and would continue to be something 
that we welcome and value.
    Mr. ENGLISH. I also understand that a project is underway 
at Customs South Florida Strategic Trade Center to improve 
communication between Customs and Commerce, the goal of this 
project being, as I understand it, to enhance anti-dumping 
communication between the agencies to better enforce orders.
    I strongly encourage you to move fully ahead with this 
project and other initiatives to improve enforcement. We 
obviously are here in Congress trying to set policy, to provide 
a better level playingfield for American companies and American 
workers for products. However, without Customs being on the 
cutting edge of this, and I know that is certainly your 
objective, it becomes very difficult for us to address some of 
the occasions of unfair trade that we are seeing popping up 
around our border. I guess beyond that, is there anything else 
you can provide us with as an update with what the 
Administration sees as the top priority opportunities for 
circumvention that you are addressing?
    Mr. BONNER. I need to give a little bit of thought to that. 
I would say, though, your point that through the Strategic 
Trade Center and otherwise, my sense is we are doing a better 
job across the board of engaging with Commerce because of the 
interrelationship of collectability and the actions taken by 
Commerce with respect to anti-dumping and countervailing 
duties. I would have to give a little thought, if I could, and 
maybe get back to you on trying to prioritize the most 
important issues, let us say, with respect to products or 
countries.
    Mr. ENGLISH. That would be extremely helpful for us to 
have, and Commissioner, without adding to your workload, if you 
could provide us something at your convenience in writing on 
that point, I think it would be most helpful to the 
Subcommittee.
    Mr. BONNER. I would be happy to do that.
    [The information was not received at the time of printing.]
    Mr. ENGLISH. Thank you, Commissioner, and thank you, Mr. 
Chairman.
    Chairman CRANE. Thank you. I want to thank you both for 
your participation this morning and we look forward to 
continuing to work with you. With that, I would like to call 
our second panel, then, and that is Michael Laden, President, 
Target Customs Brokers, Inc., on behalf of the Retail Industry 
Leaders Association (RILA); Kevin Smith, Chairman, Joint 
Industry Group, and the Director of Customs, General Motors 
(GM) Corporation; Peter Powell, Senior, Chief Executive 
Officer, C.H. Powell Company; Colleen Kelley, National 
President, National Treasury Employees Union (NTEU); Phyllis 
Saathoff, President, National Association of Foreign-Trade 
Zones (NAFTZ) and Managing Director of Port Freeport, Freeport, 
Texas; and Sandra Scott, Vice Chair, Border Trade Alliance 
(BTA), and Director of International Affairs for Yellow-Roadway 
Corporation.
    If you folks will please take seats at the panel, we will 
start. Try and keep your eyes on the little lights there on the 
panel, and when that light turns red, try and wrap up as 
quickly as possible. All printed statements will be made a part 
of the permanent record, however. So, anything above and beyond 
your presentations will be made part of the record. With that, 
we will start off with Michael Laden.

   STATEMENT OF MICHAEL D. LADEN, PRESIDENT, TARGET CUSTOMS 
BROKERS, INC., MINNEAPOLIS, MINNESOTA, ON BEHALF OF THE RETAIL 
                  INDUSTRY LEADERS ASSOCIATION

    Mr. LADEN. Chairman Crane, Ranking Member Levin, and 
Members of the Committee, thank you for allowing me to testify 
today. My name is Michael Laden and I am currently the 
President of Target Customs Brokers, Inc., a division of Target 
Corporation. I am here today on behalf of Target Corporation 
and the RILA to discuss important issues surrounding the 
reauthorization of CBP. A longer statement has been submitted 
for the record.
    Target Corporation, along with RILA, has been actively 
working with Customs on issues surrounding commercial 
operations and security. I currently serve on DHS Advisory 
Committee on Commercial Operations of the U.S. Customs Service 
(COAC). I also, along with RILA, played a key role in the 
development of the C-TPAT program, and Target was one of seven 
C-TPAT charter Members. Target is also participating in 
programs such as Operation Safe Commerce and the Customs Smart 
Box program, which are testing end-to-end supply chain 
security.
    In the post-9/11 world, Customs, the trade community, and 
the United States as a whole have faced a new and difficult 
reality. How do you maintain a balance between homeland 
security and the free-flowing movement of legitimate 
international commerce? This is a monumental task that cannot 
be rushed into without serious consideration of the potential 
impact that regulations could have on the international supply 
chain. There are currently a number of ongoing government and 
private sector initiatives looking into this.
    With that being said, Congress and the trade community must 
make sure that Customs does not lose its focus on issues 
surrounding commercial operations and focus solely on homeland 
security. There are still a number of major issues surrounding 
commercial operations that Customs needs to address. I plan on 
discussing three such issues today, the end of global quotas 
and the impact to the trade, the broad interpretation of 
preference programs and trade agreements, and the 
regionalization of DHS.
    Let me start with the end of global quotas this year. On 
December 31, 2004, global quotas on textiles and apparel 
products will be removed for Members of the World Trade 
Organization under the agreement on textiles and clothing. 
Retailers have long been looking forward to this date since 
Congress passed the Uruguay Round Agreements Act (P.L. 103-465) 
back in 1994. While Target is extremely excited about the 
possibilities in a quota-free world, there are many questions 
that we have as to what the process will be on January 1, 2005.
    We, along with many other RILA Members, are in the process 
of placing orders for the first quarter of 2005 and beyond. 
There are a number of outstanding issues that Customs, along 
with the Committee for the Implementation of Textile Agreements 
(CITA) need to address so that retailers will have the 
appropriate measures in place beginning on January 1, 2005.
    There are some necessary programming changes needed for the 
Automated Broker Interface program to be able to handle quota-
free entries. We need to know from Customs when the changes for 
the current requirements will be made. This is critically 
important for those importers who pre-file their entries, as 
many of us do. There are also issues surrounding the future use 
of textile visas. Will Customs still require visas for 
shipments arriving after January 1, 2005?
    We are pleased that Customs has created a website to 
address these issues. However, at this point, there is no 
current information or guidance to the trade on what is to be 
expected. It is critical that Customs populate this web page 
with relevant information and alert the trade community of its 
existence. This will not only help the trade ensure they are 
compliant, but will help Customs in the end, as well.
    Let me move on to the broad interpretation of preference 
programs. Representing a company that has run into numerous 
problems with the narrow interpretation by Customs of certain 
preference programs, I am glad to the sense of Congress 
language in the bill that would require Customs to broadly 
interpret AGOA, the Andean Trade Preference Act (P.L. 102-182), 
and CBI preference programs. We, along with many other RILA 
Members, have run into too many situations where Customs has 
taken a narrow interpretation of the existing laws and have 
disqualified products from receiving the benefits as intended 
by Congress.
    As a result, a great deal of business has been lost from 
those countries, especially from the nations of the Sub-Saharan 
Africa. We strongly encourage Members of this Committee to 
ensure Customs use as broad an interpretation as possible with 
regards to these future preference programs. Finally, let me 
discuss the concept of regionalization. As part of the 
President's fiscal year 2004 budget for DHS, there was a 
provision that called for DHS to create a powerful and logical 
regional structure. While we do not oppose the creation of a 
regional structure, we do have some concerns about the 
potential impact on day-to-day Customs operations. We need to 
make sure that uniformity and consistency in the application of 
Customs laws, policies, and procedures are maintained.
    We have communicated this concern to Secretary Ridge and 
Under Secretary Asa Hutchinson on numerous occasions. At the 
COAC meeting in February, the Under Secretary described the 
department's view of a regional structure. According to the 
Under Secretary, there will be between 7 and 10 regions and the 
Regional Director will have 3 areas of responsibility; act as a 
liaison between the Secretary and local officials; act as the 
on-site commander for incident management, coordinating 
multiple agencies; and handle day-to-day coordination. The 
Under Secretary stated that the Regional Director would not be 
responsible for day-to-day Customs operations and that all 
normal Customs operations--entries, rulings, and other 
administrative and operational matters--would, in fact, be 
handled by Customs headquarters.
    While we appreciated this briefing, we have not heard 
anything since. At the meeting, the Under Secretary stated that 
the trade, especially COAC, would have an opportunity to review 
and comment on this plan. Our biggest concern has been that the 
regionalization plan has been crafted in complete secrecy. The 
critical stakeholders have had no input or opportunity to vet 
the proposed structure.
    In the post-9/11 world, Customs faces many challenges, as 
witnessed by the name change to CBP. Customs has always had a 
difficult mission of facilitating legitimate trade while 
enforcing very complex and arcane sets of rules. This is now 
further complicated by a new focus on security. Target 
Corporation, RILA, and its Members stand ready to work with 
Customs, Members of this Committee, and the rest of Congress 
and the Administration to help ensure the security and safety 
of cargo arriving at U.S. ports. Thank you for allowing me to 
testify today.
    [The prepared statement of Mr. Laden follows:]

 Statement of Michael Laden, President, Target Customs Brokers, Inc., 
   Minneapolis, Minnesota, on behalf of the Retail Industry Leaders 
                              Association

    Chairman Crane, Ranking Member Levin and members of the Committee, 
thank you for allowing me to testify today. My name is Michael Laden 
and I am currently the President of Target Customs Brokers, Inc. a 
division of Target Corporation. I am here today on behalf of Target 
Corporation and the Retail Industry Leaders Association (RILA) to 
discuss the important issues surrounding the reauthorization of U.S. 
Customs and Border Protection.
    With annual sales of approximately $50 billion Target Corporation 
is the third largest U.S. retailer and the second largest importer of 
containerized cargo. Target Corporation operates approximately 1,500 
retail stores in 47 states and employs about 285,000 team members. As 
an importer, Target files more than 110,000 entries annually with 
Customs and Border Protection for a variety of retail merchandise that 
touches almost every chapter of the harmonized tariff.
    By way of background, the Retail Industry Leaders Association 
(RILA) is an alliance of the world's most successful and innovative 
retailer and supplier companies--the leaders of the retail industry. 
RILA members represent more than $1 trillion in sales annually and 
operate more than 100,000 stores, manufacturing facilities and 
distribution centers nationwide. Its member retailers and suppliers 
have facilities in all 50 states, as well as internationally, and 
employ millions of workers domestically and worldwide. Through RILA, 
leaders in the critical disciplines of the retail industry work 
together to improve their businesses and the industry as a whole.
    Target Corporation, along with RILA, has been actively working with 
Customs on issues surrounding commercial operations as well as 
security. I am currently serving on the DHS Advisory Committee on 
Commercial Operations of the U.S. Customs Service (COAC). I also, along 
with RILA, played a key role in the development of the Customs-Trade 
Partnership Against Terrorism (C-TPAT) program; Target was one of seven 
C-TPAT charter members. Target is also participating in programs such 
as Operation Safe Commerce (OSC) and the Customs Smart Box, which are 
testing end-to-end supply chain security efforts. I will discuss these 
issues later in my testimony. I am also the Chairman Emeritus of the 
American Association of Importers and Exporters (AAEI), and was a 
founding and charter member of the Business Alliance for Customs 
Modernization (BACM).
    In the post 9/11 world Customs, the trade community and the United 
States as a whole have faced a new and difficult reality. How do you 
maintain the balance between homeland security and the free flowing 
movement of legitimate international commerce? While a difficult task, 
we believe that Customs and the other agencies have done a good job 
thus far. This is a monumental task that cannot be rushed into without 
serious consideration of the potential impact that regulations could 
have on the international supply chain. There are currently a number 
ongoing government and private sector initiatives looking into this. I 
will discuss security issues later in this testimony.
    With that being said, Congress and the trade community must make 
sure that Customs does not lose its focus on issues surrounding 
commercial operations and focus solely on homeland security. There are 
still a number of major issues surrounding commercial operations that 
Customs needs to address. I will discuss one such issue this morning 
dealing with the expiration of global textile and apparel quotas at the 
end of the year. This is an issue that Customs, as well as other 
agencies, need to address right now so that retailers, such as Target, 
are prepared for the beginning of 2005.

Commercial Operations
Removal of Global Quotas
    On December 31, 2004, global quotas on textile and apparel products 
will be removed for members of the World Trade Organization (WTO) under 
the Agreement on Textiles and Clothing. Retailers have long been 
looking forward to this date since Congress passed the Uruguay Round 
Agreements Act back in 1994.
    While Target is extremely excited about the possibilities in a 
quota free world, there are many questions that we have as to what the 
process will be on January 1, 2005. We, along with many other RILA 
member retailers, are in the process of placing orders for the first 
quarter of 2005. There are a number of outstanding issues that Customs, 
along with the Committee for the Implementation of Textile Agreements 
(CITA), need to address now so that retailers will have the appropriate 
measures in place beginning on January 1, 2005.
    It is fully expected that merchandise entered on January 1, 2005 
will no longer be subject to quota at the time of entry. But there are 
a number of questions that we have about the filing process.
    There are some necessary programming changes needed for the 
Automated Broker Interface (ABI) to be able to handle quota-free 
entries on January 1, 2005. We need to know from Customs as to when the 
changes for the current requirements will be made. This is critically 
important for those importers who pre-file their entries, as many do. 
Will the ABI system be able to recognize that a pre-filed entry on 
December 29, 2004 for merchandise arriving in the US on January 2, 2005 
will not be subject to quota requirements? It is critically important 
that the ABI system be able to recognize this difference and recognize 
the new quota-free environment.
    There are also a number of issues surrounding the future use of 
textile visas. Will Customs still require a visa for shipments arriving 
after January 1, 2005? Customs requires visa control numbers for their 
textile quota shipments to match the year of export from the last port 
in the shipment's country of origin. The U.S. Code of Federal 
Regulations, Title 19, Part 12.130 (i): defines the date of exportation 
for quota, visa or export license requirements, and statistical 
purposes, as ``. . . the date the vessel or carrier leaves the last 
port in the country of origin, as defined by this section. Contingency 
of diversion in another foreign territory or country shall not change 
the date of exportation for quota, visa or export license requirements 
or for statistical purposes.'' (See also Administrative Message 94-
0366, dated April 12, 1994). Will Customs still require this for 
exports after January 1, 2005? If so, will this be for exports from all 
nations or just those countries subject to trade restraints?
    In addition, we also have some concerns about what is being 
communicated to Customs officers at U.S. ports. When will Customs issue 
a directive to the ports regarding full integration of all quota 
categories for WTO member countries? This is actually a situation where 
Customs is waiting for guidance from CITA. We also encourage Customs to 
ensure that the types of required documents for entry for textile and 
apparel goods remains consistent at every port. As an example, the Port 
of Los Angeles requires that goods imported from Russia have a 
Certificate of Origin even though this is not a standard required 
document for entry.
    Because of the quota regime, importers of textile and apparel 
products have not been able to take advantage of many of the modern 
entry procedures available to importers of other types of merchandise. 
This creates additional work for importers and it certainly creates 
additional work for Customs, which has been required to operate 
parallel entry systems, one for textiles and apparel and another for 
most other merchandise. We are more than happy to work with Customs and 
CITA on all of these issues.
    We are pleased that Customs has created a website to address these 
issues. However, at this point, there is no current information or 
guidance to the trade on what is to be expected. It is critical that 
Customs populate this webpage with relevant information and alert the 
trade community of its existence. This will not only help the trade 
ensure they are compliant, but will help Customs in the end as well.
    We urge at this point in time that Customs and CITA get together to 
work with each other, as well as the trade, to resolve all of the 
outstanding issues. These decisions are going to affect sourcing 
decisions that U.S. retailers are making right now.

Anti-Transshipment Efforts
    Another area that continues to concern us is Customs' enforcement 
of illegal transshipments. We want to work with Customs to help fight 
illegal transshipments, but we continuously feel as if Customs thinks 
that importers of textiles and apparel routinely look for and conspire 
with foreign manufacturers to circumvent the quota system. This could 
not be further from the truth. Target, as well as others in the trade 
would like to work with Customs in partnership, as we have done on 
security measures, to address issues of illegal transshipments. We 
encourage Customs to work with the importing community on these efforts 
and refrain from treating every import as being an illegal 
transshipment.

Broad Interpretation of Preference Programs
    Representing a company which has run into numerous problems with a 
narrow interpretation by Customs of certain preference programs, I am 
glad to the Sense of the Congress in Section 125 of H.R. 4418 that 
would require Customs to ``interpret, implement, and enforce the 
provisions of section 112 of the African Growth and Opportunity Act (19 
U.S.C. 3721), section 204 of the Andean Trade Preference Act (19 U.S.C. 
3203), and section 213 of the Caribbean Basin Economic Recovery Act (19 
U.S.C. 2703), relating to preferential treatment of textile and apparel 
articles, broadly in order to expand trade by maximizing opportunities 
for imports of such articles from eligible beneficiary countries.'' We, 
along with many other RILA members, have run into too many situations 
where Customs has taken a narrow interpretation of the existing laws 
and disqualified products from receiving benefits that Congress had 
intended to receive. As a result, a great deal of business has been 
lost from those countries, especially from the nations of sub-Saharan 
Africa. We strongly encourage members of this committee to ensure that 
Customs use as broad an interpretation as possible with regards to 
these and future preference programs.
    This is critical not only for enforcement of preference programs, 
but as it relates to enforcement of free trade agreements as well. Over 
the past several years, the United States has significantly increased 
the number of free trade agreements that have been negotiated or are in 
the process of being negotiated. The problem is that each comes with a 
different set of rules of origin that are extremely complex, not only 
for the trade, but for Customs as well.

User Fees
    I would also like to state our support for the language in Section 
103 of the bill that would require a study on the current user fees 
collected by Customs. As a major contributor to the user fees, Target 
strongly supports directly tying the funds collected through the 
Merchandise Processing Fee (MPF) directly to Customs commercial 
operations. As it stands now, the money goes into the general revenue 
and we are unable to conclude whether or not the funds go directly to 
Customs. We strongly support the language that was included in the FSC/
ETI bill that tied the money directly to Customs commercial operations.

Security Efforts

    Target, RILA and its members remain committed to working with 
Customs, the Department of Homeland Security and the other agencies 
involved in supply chain security. Target has worked very close with a 
number of the agencies and is involved in several private sector 
projects, as well as government projects, looking at ways to address 
supply chain security from the factory to the store floor. Target not 
only helped to write the Customs-Trade Partnership Against Terrorism 
(C-TPAT), but also was one of the original seven charter members. As 
well, we are also participating in several trade lanes under Operation 
Safe Commerce, which is testing supply chain security from the factory 
all the way through the supply chain, as well as the Customs Smart Box 
program. Target is also very active on the international level as well. 
We are working with both the World Customs Organization and 
International Maritime Organization on their efforts on supply chain 
security.
    Members of Congress should recognize that there is a great deal of 
work being done on supply chain security. Major regulations, including 
the Maritime Transportation Security Act, the Bioterrorism Act and the 
Trade Act of 2002 have all addressed aspects of supply chain security. 
In addition, enforcement of the International Maritime Organization's 
International Ship and Port Facility Security (ISPS) Code will begin on 
July 1. While this will be enforced by the U.S. Coast Guard, members of 
this committee need to recognize that this could have an impact on the 
free flow of legitimate commerce.
    I urge this committee to continue to maintain oversight and 
jurisdiction over any future legislation that could impact global 
commerce. As well, we strongly urge that all of the agencies involved 
in homeland security continue to work with each other, as well as the 
business community, to ensure the effectiveness of any new regulations.
    There are some specific issues that I would like to address 
specifically dealing with Customs and security.

Communications to the Trade
    The Customs-Trade Partnership Against Terrorism (C-TPAT) is a great 
example of a true government-private sector program that addresses 
supply chain security. While the program is voluntary, over 6,000 
companies have signed up for the program. As a charter member, we 
strongly believe in the program. However, we do have some concerns.
    One of the biggest problems that we see is a lack of education 
among Customs agents in the field about C-TPAT and its benefits. As a 
trusted and verified C-TPAT partner, we are supposed to qualify for 
``green lane'' benefits, expedited clearance. Unfortunately, we have 
not seen this occur. In addition, when Customs agents find an anomaly 
with a container belonging to Target, we believe that they should 
contact us to find out whether or not the anomaly is one that can be 
explained or not. We have information about the container and the 
vendor, starting from the purchase order, that Customs might not have 
access to from either the vessel manifest or the Customs entry. We can 
offer insight on the chain of custody of the container that Customs 
might not be aware of. As well, we have critical information about both 
the products and the vendors that Customs might not be able to identify 
from the vessel manifest.
    In the true sense of public-private partnership, this type of 
communication is critical. This not only helps Customs to identify 
suspicious cargo, but helps keep legitimate cargo moving through the 
supply chain.

VACIS Inspections
    As Customs seeks to increase the number of non-intrusive 
inspections by using the Vehicle and Cargo Inspection System (VACIS), 
we continue to experience long delays at a number of ports. In some 
ports, a VACIS examination can take upwards of seven days. Such long 
delays can cause havoc for a retailer's supply chain. Customs has 
identified this as a problem and is currently studying the situation. 
We urge them to correct the situation as soon as possible. Customs 
needs to make sure that the appropriate resources are available to 
correct the situation. Long delays not only impact a retailer's supply 
chain, but also lead to increased congestion problems at U.S. ports.
    In addition, as Customs installs radiation portal monitors at the 
major U.S. ports, they need to ensure that the use of the monitors do 
not lead to increased congestion. While Customs says that it will only 
take a couple of minutes for a container to go through the portal, this 
could cause major delays. Congress, as well as Customs, needs to make 
sure that this does not cause further strain on already congested 
ports.

Shipper Definition
    When Customs issued final regulations under the Advanced Electronic 
Cargo Manifest Requirements under the Trade Act of 2002, Customs had 
originally defined the term ``shipper'' on the manifest as the vendor/
manufacturer as opposed to traditional definition of the party who 
makes the contract of carriage. While we understand the need for 
Customs to have information about what happens early in the supply 
chain, redefining the term ``shipper'' on the manifest would not help 
to solve the problem. Using the new definition would have caused major 
problems for the maritime industry as well as others.
    We are pleased that Customs has agreed to return to the traditional 
definition of ``shipper'' on the manifest and remain committed to 
working with Customs to identify other ways to collect additional trade 
data. We urge Customs to continue to work with the trade on these 
issues as future regulations are developed.

Regionalization
    As part of the president's fiscal year 2004 budget for the 
Department of Homeland, there was a provision that called for the 
Department to ``create a powerful and logical regional structure.'' 
While the trade does not oppose the creation of a regional structure 
for the Department, we do have some concerns about the impact a 
regional structure would have on day-to-day Customs operations. We need 
to make sure that uniformity and consistency in the application of 
Customs laws, policies and procedures are maintained. We have 
communicated this concern to Secretary Tom Ridge, Under Secretary Asa 
Hutchinson and Customs Commissioner Robert Bonner on numerous 
occasions.
    Under Secretary Hutchinson addressed the COAC meeting earlier this 
year to describe the Department's view of the regional structure. 
According to Under Secretary Hutchinson there will be between seven and 
ten regions. The regional director will have three areas of 
responsibility: 1) act as a liaison between the Secretary and local 
officials; 2) act as the onsite commander for incident management 
coordinating the multiple agencies involved; and 3) handle day-to-day 
coordination. The regional director will not be responsible for day-to-
day Customs operations. All normal Customs operations (entry, rulings, 
etc.) will be handled by Customs headquarters. National level policies 
on trade will be determined on the national level.
    While we appreciated the briefing, we have not heard anything 
since. At the meeting the Under Secretary stated that the trade, and 
especially the COAC, would have an opportunity to review and comment on 
the regionalization plan. Our biggest concern has been that the 
regionalization plan was crafted in complete secrecy. While we 
understand the need for some things to be done this way, this effort 
should not have been. The critical stakeholders had no input or 
opportunity to vet the proposed structure.
    To this date, we have not seen any additional information besides 
what was provided verbally at the COAC meeting in February. This is a 
critical issue that the trade, as well as this committee, needs to be 
involved in.

Automated Commercial Environment
    The retail industry played a critical role in helping secure 
funding for Customs' Automated Commercial Environment (ACE). We still 
believe that this system will help Customs in their future endeavors, 
not only with commercial entries but also as another tool for homeland 
security. With that being said, we are not sure of where the ACE system 
is at this point in development. While the funding and architecture 
were developed before September 11th, we are not aware as to whether or 
not the new security requirements (advanced manifest, etc.) are being 
considered as the system is being built. While these issues are 
hopefully being discussed in the Trade Support Network (TSN), we fully 
believe that Customs needs to communicate to the entire trade community 
on the status of the program. This system was promised under the 
Customs Modernization Act, which passed Congress in 1994. Almost 10 
years later and we do not have a modern system. The current system, the 
Automated Commercial System (ACS), is over 20-years old and is need of 
replacement.

Operation Safe Commerce/Customs Smart Box
    As I stated earlier, Target is participating in both Operation Safe 
Commerce and the Customs Smart Box program. While we believe it is 
critical to participate in these efforts, we are concerned about the 
number of agencies who are running different programs looking at the 
same thing--supply chain security. It is important that both agencies 
share their learnings from these programs with the trade. This will 
only help to shape future regulations as well as best practices.

Disaster Recovery Program
    While a great deal of work has been done to prevent weapons of mass 
destruction from entering the United States, we are concerned about 
what happens if something does occur at a port. If something does 
occur, will all of the U.S. ports shut down as the airline industry did 
on September 11th? If not, what are the procedures? Are the Captains of 
the Port ultimately in charge?
    As an example, if something were to happen in the Port of Los 
Angeles, what would the impact on the Port of Seattle be? Would the 
port remain open and ships be allowed to enter? Have there been 
discussions about how to divert ships to alternate ports? Using the 
above example, if something happens how much extra cargo would the Port 
of Seattle be able to handle? What about Tacoma and some of the other 
ports?
    We know that the individual ports have their Area Maritime Security 
Committees and are working on the ``what if'' situations for their 
individual ports, but what is the impact on the ports in other areas?
    We are not aware that this has been discussed. One only needs to 
look at the situation caused by the lockout on the West Coast in 2002 
to see the potential impact of a port closing. In the span of 10 days, 
there were hundreds of ships lined up outside of the ports and it took 
months for the system to recover at the cost of several billion 
dollars. We would be very interested in participating with the 
Department and any other agencies involved in disaster recovery 
planning.

Conclusion

    In the post September 11th world, Customs faces many new 
challenges, witnessed by the name change to Customs and Border 
Protection. Customs has always had a difficult mission of facilitating 
legitimate trade while enforcing a very complex and arcane set of 
rules. This is now further complicated by a new focus on security.
    We are encouraged by the progress that Customs has made and the 
increased partnership with the trade community on new efforts on 
security, but we would like to see more on some of the traditional 
Customs enforcement programs. We are also pleased to see Customs 
working with other agencies, such as the Food and Drug Administration, 
on ensuring that the trade does not have a duplication of security 
efforts. We strongly urge Customs not to lose sight of its commercial 
operations responsibilities. There must be a continued balance of 
legitimate trade and security by the Department of Homeland Security.
    Target Corporation, RILA and its members stand ready to work with 
Customs, members of this Committee and the rest of Congress and the 
Administration to help ensure the security and safety of our cargo 
arriving at U.S. ports.
    Thank you for the opportunity to testify today. I'd be happy to 
take any questions that you might have.

                                 

    Chairman CRANE. Thank you, Mr. Laden. Mr. Smith?

STATEMENT OF KEVIN M. SMITH, DIRECTOR, CUSTOMS ADMINISTRATION, 
GENERAL MOTORS CORPORATION, DETROIT, MICHIGAN, ON BEHALF OF THE 
                      JOINT INDUSTRY GROUP

    Mr. SMITH. Mr. Chairman, Members of the Committee, my name 
is Kevin Smith. I am the Director of Customs Administration for 
General Motors Corporation. It is a privilege to appear before 
you today at this hearing on authorization legislation for CBP.
    The Committee on Ways and Means has consistently been 
responsive to the trade community in seeking to balance the 
sometimes competing interest of commercial facilitation and 
homeland security. Achieving a balance between these roles is 
critical to our ability to conduct international business. Due 
to its importance, the Joint Industry Group and its Members 
have a strong interest in the development of new Customs 
automation tools and Customs operations on the Northern border. 
My remarks today will focus on these areas, although clearly, 
we have many other interests related to trade and CBP.
    The international movement of goods through U.S. ports of 
entry is a critical issue for companies such as GM because of 
the high degree of integration required in our North American 
operations. Motor vehicle production is a highly capital-
intensive business that is also highly competitive on a global 
scale. It means we must make every effort to use lean and 
flexible production methods, such as order to delivery, part 
sequencing, and just-in-time inventory methods. These practices 
go to the very heart of our cost reduction programs and require 
a high degree of coordination with our suppliers in North 
America.
    As the Committee is keenly aware, ACE will replace ACS, the 
present system for processing Customs transactions. The ACE, as 
envisioned by the Committee and the private sector in 1993 when 
Congress--ACE was envisioned by the Committee and the private 
sector in 1993 when Congress passed the Customs Modernization 
Act (P.L. 103-182). The act provided for a national Customs 
automation program that was intended to modernize many of 
Customs' processes and bring them into harmony with the manner 
in which the private sector conducts its business.
    As you know from your continuous oversight activities, much 
of what the New Car Assessment Program promised has not been 
implemented, pending the development of the ACE system. Now, 11 
years later, construction of ACE is underway. However, the 
promises of processes compatible with our business still appear 
to be years away.
    In its fiscal year 2005 budget submission, the 
Administration requested funding comparable to last year and 
didn't ask for additional funds necessary to complete the 
project as originally planned. Instead, ACE is now projected 
for completion beyond 2010.
    It is important to note at this point that ACE has attained 
considerable more importance since 9/11, reflecting the 
security considerations that have transformed CBP and its 
mission. While it remains principally a means of processing 
commercial transactions, ACE has acquired security dimensions 
of critical importance to the bureau. Building transaction data 
into cargo selectivity enhances the ability of CBP to assess 
risk for specific shipments.
    While the implementation of Advanced Information Reporting 
as required by the Trade Act of 2002, CBP is now requiring 
commercial data hours in advance of arrival. The obvious is 
becoming increasingly clear. The need to improve the processing 
of commercial data and the need for security-oriented 
information are not mutually exclusive and it becomes incumbent 
on Congress to see that the funding is available, bringing the 
conclusion of ACE closer rather than permitting it to drift 
further into the future. Thus, we ask the Committee on Ways and 
Means to ensure that its authorization reflects both its own 
vision from 1993 and the demands of homeland security.
    On the Northern border of the United States, we are also 
witnessing the transformation of programs to a risk-based 
approach. We are strong supporters of these initiatives and 
cite the Free and Secure Trade Program and the Pre-Arrival 
Approval System, as examples of how security need not impede 
the movement of trade. In fact, by working with businesses 
attaining highly secure and compliant internal processes that 
can provide required information in advance of arrival, time at 
the border can be reduced while security improved.
    Programs such as these are a long ways from full 
implementation and need the support of the Committee. We 
believe that CBP should stay the course on these programs and 
ask for your support of them, also. In conclusion, I would like 
to thank the Committee for the opportunity of appearing here 
today and I would be happy to answer any questions.
    [The prepared statement of Mr. Smith follows:]

Statement of Kevin Smith, Chairman, Joint Industry Group, and Director 
       of Customs, General Motors Corporation, Detroit, Michigan

    Mr. Chairman, Members of the Committee: My name is Kevin Smith and 
I am the Director of Customs Administration for General Motors 
Corporation (GM).
    It is a privilege to appear before you today at this hearing on 
FY2005-FY2006 authorization legislation for the Bureau of Customs and 
Border Protection (CBP). The House Ways and Means Committee has 
consistently been responsive to the trade community in seeking to 
balance the sometimes competing interests of commercial facilitation 
and homeland security. Achieving a balance between these roles is 
critical to our ability to conduct international business. We recognize 
that this hearing affords us yet another opportunity to provide input, 
as you exercise your jurisdiction over customs revenue and trade policy 
functions.
    Due to its importance, the Joint Industry Group and its members 
have a strong interest in the development of new customs automation 
tools and in the operation of commercial trade along the northern U.S. 
border. My remarks today will focus on these areas, although clearly we 
have a great many other interests related to trade and CBP.
    The international movement of goods through U.S. ports of entry is 
a critical issue for companies such as GM because of the high degree of 
integration required in our North American operations. Motor vehicle 
production is a highly capital intensive business that is also highly 
competitive on a global scale. Economies of scale are very important in 
our business, which creates incentives to limit the total number of 
production locations while at the same time increasing the level of 
shipping between countries to expand product availability. It also 
means we must make every effort to use lean and flexible production 
methods, such as order-to-delivery, parts sequencing and just-in-time 
inventory control methods. These practices go to the very heart of our 
cost reduction programs and require a high degree of coordination with 
our suppliers in North America. As an example our Detroit-Hamtramck 
assembly plant relies on seats from a supplier in Windsor, Ontario. 
These seats are built and sequenced in Windsor to specific color and 
function specifications while the vehicle is being built in the 
assembly plant. In the cost competitive environment that we operate, 
the assembly plant has only 4 hours of inventory in the plant. As a 
result, a border delay of only a few hours can stop production.
    As the committee is keenly aware, the Automated Commercial 
Environment (ACE) will replace the Automated Commercial System (ACS), 
the present system for processing customs transactions. ACE was 
envisioned by the Committee and the private sector in 1993 when 
Congress passed the Customs Modernization Act. The Act provided for the 
National Customs Automation Program (NCAP) that was intended to 
modernize many of Custom's processes and bring them more into harmony 
with the manner with which the private sector conducts its business. As 
you know from your continuous oversight activities, much of what NCAP 
promised has not been implemented, pending the development of the ACE 
system. Now, eleven years later, construction of ACE is underway; 
however, the promise of processes compatible with our business still 
appears to be years away. In its FY2005 budget submission, the 
Administration requested funding comparable to last year and did not 
ask for the additional funds necessary to complete the project in the 
seven years originally planned. Instead, ACE is now projected for 
completion beyond 2010. Recently, the House Appropriations Subcommittee 
on Homeland Security reported funding at $305 million, thereby 
maintaining the previous year's funding level.
    It is important to note at this point that ACE has attained 
considerably more importance since 9/11, reflecting the security 
considerations that have transformed CBP and its mission. While it 
remains principally a means of processing commercial transactions, ACE 
has acquired security dimensions of critical importance to the Bureau. 
Building transaction data into cargo selectivity and targeting enhances 
the ability of CBP to assess security risk and identify anomalies for 
specific shipments. With the implementation of advance information 
reporting as required by the Trade Act of 2002, CBP is now requiring 
commercial data up to 24 hours in advance of arrival. The obvious is 
becoming increasingly clear: the need to improve and facilitate the 
processing of commercial data and the need for security-oriented 
information are not mutually exclusive. And, it becomes incumbent on 
the Congress to see that funding is available, bringing the conclusion 
of ACE development closer rather than permitting it to drift further 
into the future. Thus, we ask the Ways and Means Committee to ensure 
that its authorization reflects both its own vision from 1993 and the 
more recent demands of homeland security. Further, we ask your strong 
advocacy within the Congress and before the Administration to ensure 
that funding momentum is regained.
    We also take this opportunity to commend CBP and the Department of 
Homeland Security for its attentiveness to the trade community's 
concerns as ACE is implemented. Through the format of the Trade Support 
Network (TSN), the private sector and federal regulators together are 
collaborating on a system that will achieve the objectives of both. The 
TSN has proven to be a highly effective forum where listening to each 
other's perspective promises to pay enormous dividends, through the 
creation of an effective automated system that serves us both.
    On the northern border of the United States, we are also witnessing 
the transformation of programs to more security and risk-based 
processes. We are strong supporters of these initiatives and cite FAST 
(Fast and Secure Trade) and PAPS (Pre-Arrival Process System) as 
examples of how homeland security need not impede movement of trade. In 
fact, by working with business attaining highly secure and compliant 
internal processes, that can provide required information in advance of 
arrival, time at the border can be reduced while security is improved. 
Programs such as these are a long way from full implementation and need 
the support of the Committee. We believe that CBP should stay the 
course in the development of programs such as these and ask for your 
support of them also.
    Mr. Chairman, the House Ways and Means Committee has been a 
powerful ally in preserving the appropriate balance between commercial 
operations and homeland security. We look forward to our continued work 
with the committee and stand ready to assist wherever possible.
    Again, I would like to thank the committee for the opportunity of 
appearing here today and I would be happy to answer any questions.

                                 

    Chairman CRANE. Thank you, Mr. Smith. Mr. Powell?

  STATEMENT OF PETER H. POWELL, SR., CHIEF EXECUTIVE OFFICER, 
 C.H. POWELL COMPANY, WESTWOOD, MASSACHUSETTS, AND CHAIRMAN OF 
THE BOARD, NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION 
                           OF AMERICA

    Mr. POWELL. Mr. Chairman and distinguished Members of this 
Subcommittee, I am Peter Powell of the C.H. Powell Company in 
Westwood, Massachusetts. I am also Chairman of the Board of 
Directors of the National Customs Brokers and Forwarders 
Association of America. It is a privilege to testify before 
your Committee today on the Customs Authorization Act.
    First, let me thank the Committee for its years of fine 
service to the international trade community. We especially 
commend you for your insistence that CBP maintain a balance 
between its duties to protect the revenue, facilitate 
commercial operations, and its new mandate to safeguard our 
Nation's homeland security.
    Let me first observe that every change in commercial 
operations has its consequences, often at a very basic and 
technical level. It is incumbent on CBP to understand those 
nuances and then make balanced decisions. I can state 
categorically that Customs has gone to extraordinary lengths to 
understand our business processes. In the months after 9/11, 
CBP has met continuously with the private sector and bent over 
backward to solve difficult problems and logistics. Yet having 
the right intentions and giving the trade community an 
opportunity for effective input are only part of the equation.
    The CBP is suffering from a crisis in resources. First, at 
the very top of the agency, it is dramatically losing its best 
management. Customs officials who fully understand the complex 
world of international trade and transportation logistics, who 
walk the docks and know the interlocking role that a multitude 
of functions play in the successful clearance of merchandise, 
are vanishing and this institutional wisdom is not being 
replaced. Furthermore, CBP's allocation of manpower at the 
ports now is focused preferentially on security, not commercial 
operations. This loss of commercial orientation is symptomatic 
of a shift that is proving very harmful to the smooth flow of 
trade.
    At this point, let me address CBP's program on security. 
The agency has been very aggressive at instituting programs for 
the private sector. The C-TPAT program is illustrative. Customs 
saw that blending an amalgam of patriotism, good will, self-
interest, and influence into a partnership would more rapidly 
achieve its security goals than any government mandate.
    By creating best standards for supply chain security for 
itself, the private sector set the bar so that it was 
simultaneously demanding, yet realistic. It has been used 
deftly by CBP as a carrot that cannot be ignored and must be 
embraced, and it has avoided the appearance of being the stick 
that would undermine the good faith features of its 
participants' compliance. The program must remain voluntary.
    It must also be recognized that only 7,200 trade entities 
out of approximately 400,000 are involved with C-TPAT. Small, 
periodic importers cannot be realistically included. Therefore, 
this requires the involvement of intermediaries such as 
ourselves in order that they are not disadvantaged merely 
because of their size and limited transactions. Security will 
depend on more programs in C-TPAT.
    A relationship that has proven to be particularly 
problematic falls beyond DHS's reach. It is the joint 
implementation of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002 (P.L. 107-188) by CBP and 
the U.S. Food and Drug Administration (FDA). For its part, CBP 
have gone above and beyond. They have gone beyond the necessary 
to ensure that BTA implementation would succeed. At the same 
time, the act mandated a new role for the FDA which required 
mission identification and implementation in perhaps an 
unrealistic timeframe. The FDA has not, however, combined its 
lack of experience with the appropriate willingness to work 
with the trade to ensure the effective movement of 
international commerce.
    Yet the most forbidding challenge for reaching a balance 
between the achievable and the necessary in homeland security 
is the Congress itself. In the clamor for immediate results and 
in the throes of a partisan election year, there is an 
inclination in the Congress to establish requirements without 
consultation, to demand action without concern for its effects 
on trade, and to expect that somehow a silver bullet can be 
found.
    I believe that often achieving the right answers requires a 
good faith discourse between the government and the private 
sector and an evolution toward alternatives. Overly directive 
congressional language mandating particular steps in the 
commercial and regulatory process can be counterproductive. We 
ask that your Committee, Mr. Chairman, take a lead advocacy 
role in tempering the instinct of the others to legislate. Mr. 
Chairman, this concludes my remarks. I would be more than happy 
to answer any questions.
    [The prepared statement of Mr. Powell follows:]

Statement of Peter H. Powell, Sr., Chief Executive Officer, C.H. Powell 
                    Company, Westwood, Massachusetts

    Mr. Chairman. I am Peter H. Powell, Sr. of the C.H. Powell Company 
of Westwood, Massachusetts. I am also Chairman of the Board of 
Directors of the National Customs Brokers and Forwarders Association of 
America (NCBFAA). It is a privilege to testify before your committee 
today on the subject of the FY2005-2006 Bureau of Customs and Border 
Protection (CBP) Authorization Act.
    First, let me thank the committee for its years of fine service to 
the international trade community. We are pleased that you are holding 
this hearing because it indicates your continuing and immediate role in 
customs operations at CBP. We believe that, with the creation of the 
Department of Homeland Security and the realignment of committee 
jurisdictions in the Congress, there has been confusion and 
apprehension within the private sector that the Ways and Means 
Committee would have a reduced role in overseeing the agency. NCBFAA 
strongly supports your continued and aggressive oversight. We commend 
you for your insistence that CBP maintain a balance between its duties 
to protect the revenue and facilitate commercial operations and its new 
mandate to safeguard our nation's homeland security.
The Balance Between Security and Trade Facilitation

    In fact, it is this balance that is the focus of my testimony 
today. Together with my colleagues in the customs brokerage, freight 
forwarding and NVOCC industries, I witness on a daily basis how well 
the balance is drawn. Let me say from the start that we are fully 
committed to doing everything that is necessary to protect the 
homeland. Brokers, forwarders and NVOs signed up on Day One, for 
example, to formulate the concept of C-TPAT (Customs-Trade Partnership 
Against Terrorism) to enable the advance notification of inbound and 
outbound shipments, and to provide our expertise as transportation 
experts to government security efforts.
    C.H. Powell Company is a full-fledged participant in Operation Safe 
Commerce (OSC), a program which provides the foundation for testing 
supply chain security, ``smart box'' containers, and uncovering the 
gaps that undercut our commitment to defeat terrorism. As Chairman of 
the Board of NCBFAA, I have served on two working subcommittees of the 
government's Commercial Operations Advisory Committee (COAC), refining 
the implementation of the 24-hour rule for maritime transportation and 
developing standards for cargo container security.
    Our industry has committed its time and resources to protecting 
America from terrorism. At the same time, the cost of these measures 
need not be to sacrifice time of movement and to create cost burdens on 
shippers and consumers that they cannot afford. Every change in 
commercial operations has its consequences, often at a very basic and 
technical level. It is incumbent on CBP to understand those nuances and 
then make balanced decisions.

A Crisis in Resources at CBP

    I can state categorically that Customs has gone to extraordinary 
lengths to understand our business processes. From the days immediately 
following 9/11, this committee and others were instrumental in 
legislating a balanced approach: protect the homeland but establish 
clear principles for private sector input and consideration of the 
demands of trade. The Trade Act of 2001 was an extraordinary 
achievement in recognizing the tension that exists between security and 
maintaining the engine of an economy that has made America the most 
powerful economic force in the world. In the months after 9/11, CBP has 
met with the private sector and bent over backward to solve difficult 
problems in logistics. Recently, a group of four associations--the 
World Shipping Council, the National Industrial Transportation League, 
the Retail Industry Leaders Association, and the National Customs 
Brokers and Forwarders Association--petitioned CBP to reverse its 
position on the ``definition of a shipper'' and the information 
required in advance of the arrival of maritime shipments. Our rationale 
was compelling; CBP's answer was immediate and responsive.
    Yet, having the right intentions and giving the trade community the 
opportunity for effective input are only part of the equation. The 
Bureau of Customs and Border Protection is suffering from a crisis in 
resourcing. First, at the very top of the agency, it is dramatically 
losing its best management. Years of experience in management at the 
agency are retiring from CBP in droves, leaving temporary, transitional 
and inexperienced executives in charge. Customs officials who fully 
understand the complex world of international trade and transportation 
logistics -- who walked the docks and know the interlocking role that a 
multitude of functions play in the successful clearance of merchandise 
-- are vanishing and this institutional wisdom is not being replaced. 
Customs must again be the place that its employees treat as a career, 
not as the first few items on a resume. Customs must rebuild its top-
level infrastructure.
    Furthermore, the technical means to accomplish the tasks of 
security and facilitation are not in place at the nation's ports. The 
tools on the dock (such as the ``VACIS'' machines used for non-
intrusive inspections) are not available. One authority has said that a 
container designated for inspection may wait in place for as long as 
seven days before that inspection is conducted.
    And, CBP's allocation of manpower at the ports now is focused 
preferentially on security, not commercial operations. Personnel are 
simply not available as commodity specialists for reviewing the 
classification of merchandise. The term ``inspection'' now refers to 
reviewing security, not ensuring the validity of entry data for the 
collection of revenue. Inadequate resources and a lack of adequately 
knowledgeable manpower have led to extremely poor communications in the 
field. When anomalies are discovered, CBP staff cannot, or will not, 
call the shipper or his broker to obtain the additional detail or more 
complex data to effectively resolve the matter so that the cargo can be 
cleared. This loss of commercial orientation is symptomatic of a shift 
that is proving very harmful to the smooth flow of trade.

CBP's Security Programs

    Let me also address CBP's programs on security. The agency has been 
very aggressive at initiating positive programs for the private sector. 
The Customs-Trade Partnership Against Terrorism (C-TPAT) is 
illustrative. Approximately sixty days after 9/11, Customs convened a 
gathering of approximately 100 leaders from the private sector to 
evolve a voluntary program to reinforce the security of the supply 
chain. Premised on the recognition that U.S. federal law had 
limitations in reaching a supply chain that is substantially located 
overseas, Customs saw that blending an amalgam of patriotism, goodwill, 
self-interest and influence into a partnership would more rapidly 
achieve its security goals than any government mandate. By creating 
``best standards'' for supply chain security for itself, the private 
sector set the bar so that it was simultaneously demanding yet 
realistic.
    The trade community signed on to C-TPAT in overwhelming numbers and 
it has become the ``gold standard'' for international trade. Simply 
put, if CBP targeting systems positively recognize C-TPAT membership, 
everyone in the supply chain values doing business with those similarly 
recognized. But, let there be no mistake. C-TPAT cannot become the 
judas goat for a government regulatory program. It has succeeded 
because it is a voluntary, self-imposed discipline on the supply chain. 
It has both commercial and security advantages. It has been used deftly 
by CBP as a ``carrot'' that cannot be ignored and must be embraced. 
And, with CBP assessment program, it has avoided the appearance of 
being the ``stick'' that would undermine the good faith features of its 
participants' compliance.
    At the same time, it must be recognized that only 7,200 importers 
out of approximately 400,000 can be involved in C-TPAT. Small, periodic 
importers cannot be realistically included; therefore coverage of these 
entities requires the involvement of intermediaries such as those 
within NCBFAA in order that they are not disadvantaged merely because 
of their size and limited transactions. Yet, it is the single, sporadic 
container that poses a greater threat than that of a high-volume C-TPAT 
member. Security will depend on more programs than C-TPAT, programs 
that complement each other as they reduce risk and increase the 
government's ability to intercept the one container that could 
devastate our country.
    Accompanying programs like C-TPAT are also other Department of 
Homeland Security agency programs that often prove duplicative, 
overreaching or at cross-purposes. Container security initiatives, for 
example, have emerged from multiple DHS agencies, often with CBP 
leading the way to the consternation of its fellow agencies. Presently, 
CBP is fielding its ``smart box'' initiative, a full year after its on-
again, off-again disinterest and then involvement with DOT/TSA's 
Container Security Group. The private sector has quite appropriately 
asked itself if all of these separate initiatives would ever be 
reconciled. Of late however, DHS has responded to its role as 
integrator of cargo security programs and done an extremely effective 
job. Recently, in creating its MTSA (Maritime Transportation Security 
Act) subcommittee of the COAC, in bringing together resources at the 
departmental and agency levels, and in convening broad representation 
from the commercial community, DHS has proven itself to be on-track for 
resolving our misgivings.

CBP and the FDA: Implementing the Bioterrorism Act 

    A relationship that has proven to be particularly problematic falls 
beyond DHS' reach: it is the joint implementation of the Bioterrorism 
Act by CBP and the Food and Drug Administration (FDA). For its part, 
the Bureau of Customs and Border Protection have gone ``above and 
beyond'' the necessary to ensure that BTA implementation would succeed. 
At the same time, BTA mandated a new mission for FDA which required 
mission identification and implementation in perhaps an unrealistic 
timeframe. It has not however combined this lack of experience with the 
appropriate willingness to work to ensure the effective movement of 
international commerce.
    An example of late has been a crisis at the Northern Border. 
Customs antiquated Automated Commercial System (ACS) went ``down'' for 
several days, which in turn meant that the BTA's prior notice 
requirements were not processed, even though they had been filed by 
shippers. FDA's answer was not to take extraordinary steps to solve the 
problem created by 5-mile border backups involving often perishable 
merchandise, but instead to take a doctrinaire enforcement approach 
that required a second, duplicate filing of prior notices, at 
substantial cost in time and resources to an already beleaguered 
industry.
    The relationship between CBP, the agency more experienced in the 
details of border processing, and the FDA appears to be at best 
``tentative'' to trade community observers.

Congress and Homeland Security

    Yet, the most forbidding challenge for reaching a balance between 
the achievable and the necessary in homeland security is the Congress 
itself. In the clamor for immediate results and in the throes of a 
partisan election year, there is an inclination in the Congress to 
establish requirements without consultation, to demand action without 
concern for its effects on trade, and to expect that somehow a ``silver 
bullet'' can be found.
    A recent report issued by the Los Alamos National Laboratory 
illustrates the folly of this approach. For every measure there is a 
countermeasure that can defeat a security technology. As the security 
agencies jump through hoops to meet demands for a fool-proof security 
device--no matter what the cost to the shipping public, the Los Alamos 
reports shows how the most sophisticated measures can be defeated by a 
well-financed, technologically-educated terrorist organization.
    It is my view that a successful approach to homeland security will 
be years in development and that we have to be prepared to move 
incrementally towards solutions. To some extent, this will of necessity 
be trial-and-error. It will depend on a highly focused, problem-solving 
approach by government and the private sector, acting in partnership. 
It will depend on each relying on the good faith of the other in order 
to solve problems and reach objectives.
    Examples of late to Congressional demands for immediate solutions 
are port security legislative provisions introduced in both Houses of 
the Congress. One such provision would create a $5000 fine for a 
shipper's failure to move uncleared merchandise from the dock after 5 
days (presently the requirement is 15 days). The provision further 
provides that this merchandise must be inspected and entered into 
general order warehousing if it remains on the dock after that time. 
The provision ignores such facts as: goods ordered inspected by CBP 
cannot be moved; inspections often take 7 days to occur; a work 
stoppage can exceed this timeframe; movement to GO by truck can take 
another 7 days to occur; and there already exist enormous financial 
disincentives (e.g., demurrage) to leaving merchandise in place. It is 
merely a simplistic approach to reducing congestion and learning about 
the contents of a container. It would come at the expense of a party 
not in a position to provide a solution. Legislation such as this must 
be resisted at all costs by those most familiar with the operation of 
trade and its value to the nation.
    An example of the opposite phenomenon has been CBP's evolution in 
understanding the data that is necessary for effective security risk 
assessment. When this committee passed the Trade Act of 2001, Congress 
met the demands of CBP for using manifest data in order to conduct its 
targeting. While the trade community has always believed that effective 
targeting required more extensive information than could be provided by 
the manifest and that this document (a long-standing commercial 
document) should not be expanded exclusively for this purpose, Customs 
deemed the manifest a convenient. means to acquire data that was 
available immediately. Since then the private sector has continued to 
press this point and Customs now agrees that alternate means need to be 
developed to provide more extensive security data. NCBFAA is pleased 
with CBP's latest proposal. Entry data would now be submitted 24-hours 
prior to arrival of the merchandise in exchange for acknowledgement of 
this cooperation through the Automated Targeting System (ATS). Customs 
will also explore the means to acquire commercial data even earlier. 
For its part, NCBFAA has proposed a ``chain of security'' data flow 
that would provide data at the point of container stuffing overseas. We 
have suggested the submission of purchase order data evolving to a 
``custody data set.''
    I believe that, often, achieving the right answers requires this 
discourse and an evolution towards alternatives. Overly directive 
Congressional language mandating particular steps in the commercial and 
regulatory process can be counterproductive. We ask that your 
committee, Mr. Chairman, take a lead advocacy role in tempering the 
instinct of others to legislate.
    * * *
    Mr. Chairman, this concludes my remarks. As I said at the onset, we 
are grateful for this opportunity to share our views.

                                 

    Chairman CRANE. Thank you, Mr. Powell. Ms. Kelley?

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

    Ms. KELLEY. Thank you, Chairman Crane, Mr. Jefferson, and 
Mr. Becerra. On behalf of the more than 150,000 Federal 
employees represented by NTEU, more than 15,000 of whom work in 
CBP, I thank you very much for the opportunity to share our 
views with you on H.R. 4418, the Customs and Border Security 
Act.
    This act authorizes appropriations for 2005 and 2006 for 
CBP at the level requested in the President's budget proposal, 
$6.2 billion for 2005 and $6.4 billion for 2006. While these 
figures are more than the CBP budget for 2004, these funding 
levels include the bare minimum for long-term CBP commitments 
such as ACE, C-TPAT, CSI, and the U.S. VISIT program, as well 
as for additional hiring.
    For the current fiscal year, three important issues 
affecting CBP personnel have come to the forefront. They are 
the reduction in the overtime cap for legacy Customs personnel, 
and for new CBP officers, the current hiring freeze announced 
by DHS and the lack of pay for employees who are working a 
sixth day when they are training at Federal Law Enforcement 
Training Center (FLETC).
    For the past several years, the annual appropriations bills 
have specifically amended the Customs Officer Pay Reform Act 
(COPRA) (1911, 36 Stat, 901) to provide for a $30,000 overtime 
cap for legacy Customs employees. Unfortunately, the fiscal 
year 2004 appropriation, while stating that all CBP officers 
will have a $30,000 overtime cap, does not contain the specific 
amendment to COPRA and, therefore, it has had the unintended 
effect of reinstituting a $25,000 cap for only those employees 
who are currently covered by COPRA, who are legacy Customs 
employees and the new CBP officers. The NTEU hopes that 
Commissioner Bonner, working closely with NTEU and the Members 
of this Subcommittee, can fix this situation before the end of 
fiscal year 2004.
    A second issue of concern for CBP personnel is DHS's 
announcement of a hiring freeze for the remainder of fiscal 
year 2004 because the agency says they are fully staffed. While 
NTEU acknowledges the recent increase in hiring at CBP, we are 
also aware of the unfulfilled promises of the USA PATRIOT Act 
(P.L. 107-56) that called for a tripling of staffing on the 
Northern border. As of October 2003, there were 1,589 legacy 
Customs inspectors on the Northern border, only half of the 
3,177 required by the PATRIOT Act.
    The third personnel issue is the lack of pay for FLETC 
training. On January 1, 2002, at the request of FLETC, the 
legacy U.S. Customs Service implemented a 6-day-a-week training 
program for all Customs officers. Unfortunately, the legacy 
U.S. Customs Service and now CBP have refused to compensate 
legacy Customs officers for the sixth day of the week that they 
are in training at FLETC, while employees from INS, the Border 
Patrol, and other bureaus receive overtime pay for that sixth 
day. Legacy Customs officers and the new CBP officers receive 
no pay, neither straight time nor overtime, for their work on 
the sixth day of the training week. I ask the Committee to work 
with DHS and with CBP to immediately correct this.
    With respect to the Committee's ongoing questions about 
whether trade functions are being given sufficient priority 
within CBP, NTEU shares the Committee's concerns. The Homeland 
Security Act of 2002 (P.L. 107-296) included provisions to 
ensure that the trade functions of the legacy Customs Service 
remain a priority within DHS.
    Unfortunately, the number of import specialists around the 
country who enforce the statutory, regulatory, and treaty 
requirements of CBP and other Federal and State agencies by 
determining admissibility of merchandise and other goods into 
the United States continues to decrease, from approximately 
1,086 full-time positions in 1999 to only 892 positions as of 
September of 2003, and that is according to a U.S. government 
Accountability Office report.
    Because of the rapidly growing volume of trade coming into 
the United States and the limited resources for trade 
facilitation and enforcement, CBP has been relying more on 
targeting processes than actual physical inspections by 
inspectors or import specialists to detect trade violations for 
shipments, thereby increasing the chance for potential trade 
violations on imported products.
    The ``One Face at the Border'' initiative that was recently 
announced by Secretary Tom Ridge is of great concern to 
employees, also. The NTEU believes that combining the border 
protection responsibilities that were previously held by three 
highly skilled specialists into one super-inspector position 
raises serious concerns. Each of the job responsibilities from 
the three legacy inspector agencies is highly specialized and 
distinct, including trade facilitation and enforcement.
    Prior to the creation of the CBP officer position, legacy 
Customs inspectors received between 9 and 12 weeks of training 
just on the Customs Service rules and regulations. Now, the new 
CBP officer will receive about 14 weeks of training on all port 
and border agency regulations, and they will be responsible for 
knowing the specialized work of Customs, INS, and the U.S. 
Department of Agriculture.
    Currently, Customs and INS inspectors are cross-trained to 
the most basic, primary inspection work for entry into the 
United States. However, today, if a U.S. Customs legacy 
inspector is faced with a complicated INS visa at a primary 
inspection station, they have the ability to send the passenger 
to a more intensive secondary inspection where an experienced 
legacy INS inspector can make a determination as to the 
validity of a visa.
    It is unclear whether experts in INS issues or Customs 
issues will continue to be readily available for these 
secondary inspection once the ``One Face at the Border'' and 
the super-inspector position, or the CBP officer position, as 
it is called, is fully put in place, and that will take about a 
year to a year and a half to happen. The NTEU feels strongly 
that if the border initiatives such as U.S. VISIT are to be 
successful, specific expertise must be maintained among the CBP 
officers' ranks as it relates to Customs and INS regulations.
    The more than 15,000 Customs employees represented by NTEU 
are committed to the varied missions of DHS and CBP, from 
protecting our country's ports and borders to drug 
interdiction, to trade facilitation in and out of the United 
States, and on their behalf, I thank you very much for the 
opportunity to appear before you today.
    [The prepared statement of Ms. Kelley follows:]

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

    Chairman Crane, Ranking Member Levin and Members of the 
Subcommittee, my name is Colleen M. Kelley, and I am the National 
President of the National Treasury Employees Union (NTEU). On behalf of 
more than 150,000 federal employees represented by NTEU, almost 13,000 
of whom work for Bureau of Customs and Border Protection (CBP) 
stationed at 317 ports of entry across the United States, I would like 
to thank you for this opportunity to present our Union's views on H.R. 
4418, ``The Customs and Border Security Act of 2004''. This legislation 
would authorize appropriations for CBP for FY 2005 and FY 2006 at the 
level's requested by the President's budget. NTEU is particularly 
interested in provisions of the legislation which would affect legacy 
customs inspectors, canine enforcement officers and import specialists, 
who 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.
    In 2003, legacy CBP employees seized over 2.2 million pounds of 
cocaine, heroin, marijuana and other illegal narcotics. Customs and 
Border Protection Officers also processed over 412 million travelers 
last year, including over 1 million cars and trucks. These numbers 
continue to grow annually. Over the last decade trade has increased by 
137%. Legacy U.S. Customs Service personnel facilitate more trade, and 
interdict more drugs than any other agency within the Customs and 
Border Protection Bureau. The legacy Customs Service collects over $23 
billion in revenue on over 26 million entries involving over $1.2 
trillion in international trade every year. The CBP also provides the 
federal government with its second largest source of revenue. Last 
year, the CBP deposited over $24.7 billion into the U.S. Treasury. 

FY 2005 Customs and Border Protection (CBP) Budget:

    The Administration has requested a funding level for the CBP of 
$6.2 billion for fiscal year 2005. While this figure is $171 million 
more than the budget for Fiscal Year 2004 it only includes the bare 
minimum for long-term CBP commitments such as the Automated Commercial 
Environment, new and more aggressive trade and border security 
enforcement efforts and additional hiring.
    While NTEU fully supports increased authorization of funds for the 
Customs Service, no increase in funds will actually be available to 
Customs without increased appropriations. The discretionary spending 
caps in the House Budget Resolution will make increased appropriations 
extremely difficult, if not impossible, to achieve as was made clear 
during the recent House Appropriations Committee mark up the FY 2005 
Homeland Security Appropriations bill. The mark included $6.6 billion 
for CBP in FY2005, a $422 million increase over the President's 
request, again this is a good first step for FY 2005, unfortunately, 
the President's request for the CBP represents a token increase from 
last year's appropriations for all of the agencies transferred into the 
CBP. NTEU believes that this recommendation is simply inadequate to 
meet the needs of Customs and other border security personnel, 
especially in light of their additional homeland security missions such 
as the Customs Trade Partnership Against Terrorism (C-TPAT), the 
Container Security Initiative (CSI), U.S. VISIT and the 24-Hour Rule 
that requires advanced transmission of accurate cargo manifest 
information to the CBP.
    Three important issues for DHS personnel in FY 2004 are the current 
``hiring freeze'' being instituted by DHS, the reduction in the 
overtime cap for legacy Customs personnel and new CBP officers and the 
non payment for working a sixth day of training at FLETC.

Overtime Cap:

    With the consolidation of legacy Customs, INS and APHIS inspectors 
into a single front-line border security position, an issue that needs 
to be addressed immediately by this subcommittee is the correction of 
the overtime cap language for all CBP employees. When legacy Customs 
employees joined together last March to form the Bureau of Customs and 
Border Protection, the Department and Congress realized the differences 
in overtime systems between the various border agencies. Unfortunately, 
the FY 2004 DHS Appropriations bill included a provision that, while 
intending to provide greater consistency in overtime earnings among the 
front line CBP workforce, has instead created additional problems for 
the CBP workforce, more specifically, legacy Customs personnel and the 
new CBP officers.
    Specifically, the FY 2004 DHS Appropriations bill states that all 
CBP employees are subject to a $30,000 annual overtime cap However, for 
the past several years, the annual appropriations bills specifically 
amended COPRA to provide for an increase to $30,000 as an overtime cap. 
Unfortunately, this year's (FY 2004) appropriation does not contain 
this amendment and has had the unintended effect of re-instituting a 
$25,000 cap for only those employees currently covered by COPRA (legacy 
Customs personnel and the new CBP officers).
    Commissioner Bonner is well aware of this problem, as he indicated 
in a November 2003 Commissioner's message to all CBP employees stating 
that, ``we believe that this disparity was not intentional and we have 
begun to take all necessary steps to correct it through the proper 
channels. At my direction, the CBP Office of Congressional Affairs is 
now working with the Department to address this inconsistency through a 
legislative correction.'' NTEU hopes that the Commissioner, working 
closely with NTEU and the members of this subcommittee, can fix this 
situation for legacy Customs employees and new CBP officers before the 
end of FY 2004.
    This situation has become even more acute due to the fact that CBP 
has proposed regulations to make COPRA the sole overtime and premium 
pay system for all CBP officers and Agriculture Specialists. It is 
anticipated that the entire CBP inspectional workforce will be 
transferred under COPRA by July 25, 2004, thereby putting the entire 
CBP inspectional workforce under the $25,000 cap mandated by the FY 
2004 Homeland Security Appropriations bill.

Hiring Freeze:

    An additional issue that has come to the forefront this year is the 
fact that in March 2004, DHS put a hold on hiring any additional CBP 
personnel because an accounting review showed that CBP and ICE might 
possibly exceed their FY 2004 budgets by more than $1 billion. 
Fortunately, the funding deficit was a result of combining the various 
border security budgets and no huge funding deficits will materialize.
    However, DHS has announced that despite the budget clarification, 
it will not be hiring any additional CBP personnel for the remainder of 
FY 2004 because the agencies involved with border security are ``fully 
staffed.'' While NTEU acknowledges the recent increase in hiring at 
CBP, NTEU also is aware of the unfulfilled provisions of the Patriot 
Act that called for a tripling of staffing on the Northern Border. 
Figures provided by DHS show that as of October 2003 there were 1,589 
legacy Customs inspectors on the Northern Border, only half of the 
required 3,177 required by the Patriot Act. NTEU would strongly 
encourage the committee to provide full authorization to hire the 
additional 1,588 Northern Border security personnel required by the 
Patriot Act and currently missing from the Northern Border.

Pay for FLETC Training:

    On January 1, 2002, at the request of the Federal Law Enforcement 
Training Center (FLETC), the legacy U.S. Customs Service implemented a 
six-day a week training schedule for all basic training courses for 
Customs officers in order to accommodate the higher volume of employees 
being sent to FLETC as a result of the events of September 11.
    Unfortunately, as a result of the six-day a week basic training 
schedule, the legacy U.S Customs Service, and now the Bureau of Customs 
and Border Protection (CBP) have refused to compensate legacy customs 
officers and the new CBP officers for their sixth day of basic training 
at FLETC. Legacy Customs officers and the new CBP officers receive no 
pay, either ``straight time'' or overtime pay for their work on the 
sixth day of basic training. While there may be disagreement as to what 
overtime system may be appropriate, it is outrageous that these 
employees are required to work one day a week for no pay at all.
    This inequity has become even more egregious for legacy Customs 
inspectors due to a recent decision of the Bureau of Immigration and 
Customs Enforcement (BICE), that authorized the retroactive payment of 
FLSA overtime to legacy immigration inspectors who, like legacy Customs 
officers had been assigned to a six-day workweek while attending their 
basic training at FLETC since January 1, 2002. Again, by forcing 
hundreds of newly trained legacy Customs inspectors and new CBP 
officers to work a sixth day without any compensation while their 
legacy INS counterparts receive FLSA overtime is certain to hinder the 
esprit-de-corps and development of the Department of Homeland 
Security's ``One Face at the Border Initiative'' which has merged the 
legacy Customs and INS inspectional workforces into one border security 
position within DHS. The committee needs to work closely with DHS and 
the CBP bureau to immediately correct this training pay inequity for 
legacy Customs employees and the new CBP officers.

CBP Trade Personnel:

    The Homeland Security Act (HSA) of 2002 included provisions to 
ensure that the trade functions of the legacy Customs Service remain a 
priority within DHS whose primary mission has now become homeland 
security. Section 412 of the HSA clearly states that, ``the Secretary 
of Homeland Security may not consolidate, discontinue, or diminish, 
reduce the staffing level, or reduce the resources attributable,'' to 
customs revenue (trade) functions performed by employees such import 
specialists, entry specialists, drawback specialists to name a few.
    Unfortunately, the number of import specialists around the country 
continues to decrease from approximately 1086 full time positions in 
1999 to approximately 892 positions as of September 2003 according to a 
GAO report (GAO-04-345). The decrease in the number of import 
specialists has had an adverse impact on a number of legacy Customs 
trade compliance areas such as textile transshipments. Illegal textile 
transshipment is one form of illegal import activity that occurs when 
false ``country-of-origin'' information is provided for imported goods 
in order to evade U.S. textile quotas and customs duties.
    As CBP has shifted its resources and mission priorities to the 
anti-terrorism and drug interdiction, import specialists' ability to 
properly enforce the trade regulations for goods, such as textile 
imports, has markedly decreased. Because of the rapidly growing volume 
of trade coming into the United States and the limited resources for 
enforcement and additional staffing, CBP has been relying more on 
targeting processes than actual physical inspections by inspectors or 
import specialists to detect trade violations for shipments such as 
textiles, thereby increasing the chance for potential trade violations 
on products such as textiles.
    Another issue involving CBP trade personnel, such as import 
specialists, is the fact the journeyman grade of import specialists has 
remained at a GS-11. This, despite the fact that most import 
specialists across the country regularly do higher graded work in the 
course of their daily duties as their position has evolved from one 
that was more transaction-based to one that is account-based which 
requires more specialized knowledge and experience of particular 
industries such as agriculture, automotive, communications, textile and 
steel to properly enforce the complex trade rules accompanying each 
industry.
    It is unfortunate that CBP continues to refuse to properly 
compensate import specialists for their invaluable work on behalf of 
the Department and the trade community. NTEU strongly urges the 
committee to increase the journeyman grade for CBP import specialists 
to GS-12. The upgrade has been long overdue and would show the trade 
personnel within CBP that Congress recognizes the high level of 
expertise that all import specialists possess.

One Face at the Border:

    As the subcommittee is aware, on September 2, 2003, Secretary Tom 
Ridge announced the creation of a new CBP officer position and the 
``One Face at the Border'' initiative. Under this plan, a new position, 
the Customs and Border Protection Officer (CBPO) would combine the 
duties of legacy inspectors from Customs, INS and APHIS into a single 
front-line border security position at the 317 official ports-of-entry 
across the United States.
    NTEU believes that combining the border protection responsibilities 
that were held by three highly-skilled specialists into a ``super 
inspector'' raises some serious concerns. Each of the job 
responsibilities from the three legacy inspection agencies is highly 
specialized and distinct. By utilizing one employee to perform all 
three primary and secondary inspection functions, will the agency lose 
the expertise that has made the United States border inspection 
personnel second to none?
    NTEU believes that the CBP officer position was created with the 
assumption that the basic skill sets for legacy Customs and INS 
inspectors are similar and NTEU would have to agree with this statement 
as far as primary inspection is concerned. However, it is in secondary 
inspections where expertise is needed. It is in secondary inspections 
where legacy Customs and INS experts ``drill down'' to seek the facts 
they have been trained to find.

CBP Officer Training under the One Face at the Border initiative:

    Prior to the creation of the CBP officer position, legacy Customs 
inspectors received 9 to 12 weeks of intensive basic training on 
Customs Service rules and regulations alone. Now, the new CBP officer 
will receive only 14 weeks of training for all Customs, INS, and APHIS 
rules and regulations. Under the new CBP officer training guidelines, 
legacy inspectors currently on the border will be transitioning into 
the new position in the summer of this year by way of classroom 
training, CD-ROM computer teaching and on-the-job training. While the 
new training will lead to a broader knowledge of the INS, Customs and 
APHIS rules and regulations of entry for passengers and goods entering 
the United States, there is a concern as to whether it will provide the 
specialized expertise necessary to ensure the successful accomplishment 
of the critical missions of the Department of Homeland Security.
    Another aspect of the ``One Face at the Border'' initiative that 
needs more thorough scrutiny is the lack of details with regard to the 
secondary inspection process at ports of entry. Currently, legacy 
Customs and INS inspectors are ``cross-trained'' as to the most basic 
Customs and INS procedures for entry into the U.S. for passengers and 
goods. However, if a legacy Customs inspector is faced with a 
complicated visa entry situation at an airport or land border primary 
inspection station they have the ability to send the passenger to a 
more intensive secondary inspection where an experienced legacy INS 
inspector can make a determination as to the validity of a particular 
visa. It is unclear whether experts in visa issues or other specific 
Customs and INS border protection matters will continue to be readily 
available for secondary inspection. This issue is even more urgent in 
light of the fact that on January 5, 2004, DHS rolled out its new 
entry/exit visa processing system known as U.S. VISIT. Operating at 115 
airports and 14 seaports across the country, and eventually expanding 
to the 50 largest land border ports of entry by the end of 2004, U.S. 
VISIT is currently being manned by only legacy INS inspectors because 
legacy Customs inspectors do not have the on the job experience to 
thoroughly determine the validity of a particular visa or passport. 
NTEU feels strongly that if border initiatives such as U.S. VISIT are 
to be successful, specific expertise must be maintained among the CBP 
officer ranks as it relates to Customs and INS regulations.

COBRA:

    As this committee is well aware, in addition to annual 
appropriations, the legacy Customs Service also receives funds from a 
user fee account known as the COBRA account. This user fee account 
funds all inspectors' and canine enforcement officers' overtime pay as 
well as approximately 1300 legacy Customs positions across the country. 
The COBRA account is funded with user fees collected from air and sea 
passengers entering the United States (except from the Caribbean and 
Mexico), commercial vehicles, commercial vessels/barges and rail cars. 
The COBRA account's reauthorization was included as part of HR 2896, 
marked up by this committee in 2003, and most recently as part of HR 
4520, that would extend the COBRA user fees until September 30, 2014. 
The COBRA fund must continue to be reauthorized or Congress must 
appropriate additional funds to make up for the loss of the user fees 
in the future. NTEU strongly urges the committee's reauthorization of 
COBRA to ensure that COBRA fees used to pay for legacy Customs 
inspectors and inspectors overtime remain available to CBP.

Law Enforcement Officer Status:

    Legislative action that would help to ensure the retention of 
legacy Customs and other CBP personnel would include granting law 
enforcement status for legacy Customs Inspectors, Canine Enforcement 
Officers and other border security personnel in the CBP. For example, 
legacy Customs Service Inspectors and Canine Enforcement Officers 
continue to be the nation's first line of defense against terrorism and 
the smuggling of illegal drugs and contraband at our borders and in our 
ports. Legacy Customs Service Inspectors have the authority to 
apprehend and detain those engaged in terrorism, drug smuggling and 
violations of other civil and criminal laws. Canine Enforcement 
Officers and Inspectors carry weapons, and at least three times a year 
they must qualify and maintain proficiency on a firearm range. Yet, 
they do not have law enforcement officer status. They are being denied 
the benefits given to other federal employees who they have been 
working beside to keep our country safe. Legacy Customs employees face 
real dangers on a daily basis, granting them law enforcement officer 
status would be an appropriate and long overdue step in recognizing and 
retaining the Customs personnel who continue to protect our borders 
from terrorism and drugs. There currently is a bill before the House, 
HR 2442, which would grant law enforcement status to CBP personnel. 
Representative Filner introduced this bill and it currently has 156 
cosponsors. I would ask the members of this subcommittee to cosponsor 
this very important legislation.

Conclusion:

    Each year, with trade and travel increasing at astounding rates, 
CBP personnel have been asked to do more work with fewer personnel and 
resources. The more than 13,000 Customs employees represented by the 
NTEU are capable and committed to the varied missions of DHS from 
border control to the facilitation of trade into and out of the United 
States. They are proud of their part in keeping our country free from 
terrorism, our neighborhoods safe from drugs and our economy safe from 
illegal trade. These men and women are deserving of more resources and 
technology to perform their jobs better and more efficiently.
    I applaud this Subcommittee for recognizing the twenty-first 
century needs of the Bureau of Customs and Border Protection and I urge 
each of you to visit the CBP ports in your home districts. Talk to the 
inspectors, canine officers, and import specialists there to fully 
comprehend the jobs they do and what their work lives are like. Thank 
you for the opportunity to be here today on behalf of the Customs and 
Border Protection employees to discuss these very important issues.

                                 

    Chairman CRANE. Thank you, Ms. Kelley. Ms. Saathoff?

STATEMENT OF PHYLLIS SAATHOFF, PRESIDENT, NATIONAL ASSOCIATION 
 OF FOREIGN-TRADE ZONES, AND MANAGING DIRECTOR, PORT FREEPORT, 
                        FREEPORT, TEXAS

    Ms. SAATHOFF. Thank you, Chairman Crane and Members of the 
Committee, for holding this important hearing and for inviting 
me to testify before the Subcommittee on Trade. My name is 
Phyllis Saathoff. I am Managing Director for Port Freeport in 
Freeport, Texas, and President of NAFTZ.
    I appreciate the opportunity to discuss budget 
authorizations for Customs for fiscal years 2005 and 2006 and 
related trade issues and how these issues affect the Members of 
NAFTZ and the U.S. Foreign-Trade Zones program. The NAFTZ is a 
nonprofit association representing more than 800 Members, 
comprised of State and local government agencies, public 
entities, individuals, and corporations involved in the 
Foreign-Trade Zones program. The Foreign-Trade Zones program 
encourages domestic warehousing, manufacturing, and processing 
activity.
    Today, there are 260 approved general purpose zones and 534 
sub-zones located in all 50 States and Puerto Rico. The total 
value of merchandise received at Foreign-Trade Zones annually 
exceeds $200 billion. Over 2,200 firms utilize the Foreign-
Trade Zones program, employing more than 300,000 people.
    The Foreign-Trade Zone program creates an interdependent 
relationship or partnership between CBP in zones. The Foreign-
Trade Zones program facilitates the use of Customs services and 
simplifies the process, while at the same time providing the 
opportunity for Customs to exercise a higher degree of 
oversight than occurs with normal imports.
    There are several clear examples of the partnership. In 
1980, the Customs headquarters and NAFTZ published the first 
detailed explanatory manual on Customs matters for Foreign-
Trade Zones, which has since been updated through periodic 
mutual consultations. This successful collaboration on the 
Customs manual led to joint NAFTZ-Customs training programs for 
Customs officers. Unfortunately, these joint training sessions 
are currently suspended because of limited resources within 
CBP. We urge funding be restored for this important training. 
In fact, in the next few years, we see the need for an expanded 
program, since many senior Customs officials are eligible for 
retirement and new individuals will be hired.
    The NAFTZ believes that the budget authorizations for 
Customs for fiscal year 2005 and 2006 need to be approved at 
the level requested in the President's budget proposal. 
Adequate funding is critical to maintaining the balance between 
the trade and security functions of CBP. We are concerned about 
possible budget shortfalls this year, as we have been disturbed 
by the recent cutback in nonessential costs and the freeze in 
hiring. It is most important that the more than 300 Customs 
ports of entry have necessary staffing to support the rapidly 
increasing levels of imports.
    The security of our borders and ports, their local 
communities, the personnel employed there, and the immense 
volume of trade and economic activity that flows through them 
is of critical interest to NAFTZ. The NAFTZ believes that 
existing Foreign-Trade Zones security requirements complement 
the requirements of C-TPAT and supports the continued 
development and expanded access of the C-TPAT program for 
Foreign-Trade Zones, which already require strict security 
standards enforced by Customs.
    While the program attracted a large number of applicants, 
we realize that the validation process has been slow and that 
the promised security as well as trade benefits of C-TPAT have 
been retarded by the budget freeze. The $15.2 million requested 
in the CBP budget for additional supply chain security officers 
should bring C-TPAT participants closer to receiving the full 
benefits of the program. The NAFTZ has worked closely with 
Customs efforts on the ACE design and implementation process. 
The success of ACE is a high priority for NAFTZ. The automation 
of the Foreign-Trade Zone interface with Customs has been a 
longstanding shared goal for both of us, but it has never 
materialized.
    From a security standpoint, our Member companies typically 
have long-established and documented relationships with Customs 
and their record of behavior is well known and predictable and 
carry a lower risk profile than lesser-known importers and 
exporters. The reduced documentation and automation burden 
provides Customs the ability to shift time and energy from 
Foreign-Trade Zone activity to other standard import and export 
firms. We have been told that the ACE implementation schedule 
Release 6 will include necessary functionality for Foreign-
Trade Zones. The NAFTZ actively supports this timely 
development.
    The NAFTZ has worked closely with Customs headquarters on a 
wide variety of outstanding Customs zone management issues. We 
are currently working with Customs headquarters on certain 
limited updates and clarifications to the operating procedures 
and regulations concerning origin declarations on estimated 
entries, filing of multiple weekly entries, as well as issues 
related to weekly entry zone-to-zone transfers and exports 
authorized by the Trade and Development Act of 2000. 
Significant progress has been made in working through these 
regulatory issues.
    In summary, NAFTZ is deeply concerned about the possibility 
of long-term hiring freezes and staff shortages and delay in 
important Customs programs, such as the scheduled 
implementation of ACE and C-TPAT, if adequate budgets are not 
provided. We urge that the budget authorizations for CBP meet 
or exceed the President's budget for fiscal year 2005. We must 
have safe and secure borders and we must have efficient, cost 
effective, predictable movement of commerce in and out of the 
United States. Thank you for the opportunity to testify.
    [The prepared statement of Ms. Saathoff follows:]

   Statement of Phyllis Saathoff, President, National Association of 
Foreign-Trade Zones, and Managing Director of Port Freeport, Freeport, 
                                 Texas

    Thank you, Chairman Crane, and Members of the Committee for holding 
this important hearing and for inviting me to testify before the 
Subcommittee on Trade. My name is Phyllis Saathoff. I am the Managing 
Director of Port Freeport (Foreign Trade Zone No. 149) in Freeport, 
Texas and President of the National Association of Foreign-Trade Zones 
(NAFTZ). I welcome the opportunity to discuss budget authorizations for 
Customs for FY 2005 and FY 2006 and related trade issues, and how these 
issues affect NAFTZ members and the U.S. Foreign Trade Zones program.
    The NAFTZ is a non-profit trade association representing over 800 
members comprised of State and local government agencies, public 
entities, individuals and corporations involved in the Foreign-Trade 
Zones program. The NAFTZ plays an important role in facilitating 
international trade and US competitiveness through the promotion and 
support of the Foreign Trade Zones program
    The Foreign-Trade Zones program was created by an act of Congress 
in 1934. Its purpose is to encourage domestic warehousing, 
manufacturing and processing activity. States and local governments use 
foreign-trade zones as part of their overall economic development 
strategy and to improve the international business sector in their 
communities. In this way, FTZs contribute to the enhancement of the 
U.S. investment climate for commerce and industry. The FTZ program 
encourages capital investment in the U.S. rather than abroad and 
secures American jobs. The benefit occurs only if the activity takes 
place in the U.S. It substitutes U.S. produced merchandise and labor 
for foreign imports. Today there are 260 approved general-purpose zones 
and 534 subzones located in all 50 states and Puerto Rico. According to 
the latest available annual report of the Foreign-Trade Zones Board, 
the total value of merchandise received at foreign-trade zones annually 
exceeds $200 billion. Over 2,200 firms in the U.S. utilize foreign-
trade zones and employment at these facilities exceeds 300,000.
    It is not generally understood that the FTZ program creates an 
interdependent relationship, or partnership, between CBP and zones. The 
Foreign-Trade Zone program facilitates the use of Customs services and 
simplifies the process, while at the same time providing the 
opportunity for Customs to exercise a higher degree of oversight than 
normal imports. This partnership has grown naturally, and connects 
zones with not only Customs Headquarters, but with the former Regions 
and Districts, as well as the Ports nationwide.
    There are several clear examples of the partnership. In 1980, 
Customs Headquarters and the NAFTZ published the first detailed 
explanatory Manual on Customs matters on any topic for foreign-trade 
zones. The Manual has been updated through periodic mutual 
consultations since then, and is now available in an on-line version. 
It is a very good example of the public and private cooperation, of 
Customs and the NAFTZ developing an important reference work that can 
be used both by the import and export community and by Customs.
    This successful collaboration on the Customs Manual led to a joint 
NAFTZ-Customs effort to develop a joint training program for Customs 
officers. Initially, training occurred at NAFTZ Seminars and 
Conventions. Eventually, the training moved to the Customs Training 
Center in Glynco, Georgia. Literally thousands of Customs employees 
have been trained jointly by Customs and the NAFTZ in the intricacies 
of the Foreign-Trade Zone program. Unfortunately, these joint training 
sessions are currently suspended because of limited resources within 
CBP. It is hoped that we will be able to restore funding for this 
important training. In the next few years, in fact, we see the need for 
an expanded program since many senior Customs officials are eligible 
for retirement and new individuals hired by Customs to replace them are 
likely to have little knowledge of the intricacies of the Foreign-Trade 
Zone program.
    There is also a long history of regulatory cooperation between FTZs 
and Customs, which I will briefly discuss later in the testimony

Customs Budget Authorization
    The NAFTZ believes that the budget authorizations for Customs for 
FY 2005 and FY 2006 need to be approved at the level requested in the 
President's budget proposal. Adequate funding is critical to 
maintaining the balance between the trade and security functions of 
CBP. We are concerned about possible budget shortfalls this year, as we 
have been disturbed by the recent cutback in nonessential costs and the 
freeze in hiring. It is most important that the more than 300 Customs 
Ports have necessary staffing to support the rapidly increasing levels 
of imports.
    Our members are also beginning to focus on proposals for FY 2006. A 
recent article in the Washington Post, (2006 Cuts In Domestic Spending 
On Table, The Washington Post, May 27, 2004) highlighted budget 
guidance issued by the Office of Management and Budget detailing cuts 
in several domestic programs, including the Department of Homeland 
Security. Of course, any cuts to Homeland Security potentially impact 
Customs and Border Protection. Consequently, the NAFTZ is deeply 
concerned about the possibility of long term hiring freezes and staff 
shortages and delay in important Customs' programs such as the 
scheduled implementation of Automated Commercial Environment (ACE) if 
adequate budgets are not provided.
    The NAFTZ supports the enhancement of Customs resources for 
training, automation, and commercial operations. It is most important 
that Customs be funded at a level that will provide the necessary 
controls and structure to implement a safe and secure import and export 
process.

Reorganization in Department of Homeland Security
    The NAFTZ has followed the reorganization in the Department of 
Homeland Security and worked closely with Customs, the Department of 
Homeland Security, and the Department of Treasury, on the delegation of 
authority from Treasury to Customs. The NAFTZ has insisted in this 
delegation that there be no diminution of the trade functions in their 
transfer from Treasury and that Customs ensures these functions receive 
sufficient priority. We know this has been a priority of this Committee 
and our members appreciate your strong support.
    For FTZs, the delegation problem had to clearly establish the exact 
interface among the Foreign-Trade Zones Board, the Department of the 
Treasury, the Department of Commerce, Customs Headquarters, and 
Homeland Security. After considerable effort, an arrangement was worked 
out that retained the legal structure of the Foreign-Trade Zones Board 
with the two members being the Secretary of the Treasury and Secretary 
of Commerce, while accommodating the interests of Customs and Homeland 
Security. Just as it is with every group whose central concern is the 
unobstructed flow of trade, we remain alert to any changes in this new 
equation. However, the new arrangement seems to be functioning 
effectively. Customs continues to work with zones in facilitating trade 
and we see no slack in the necessary support, activity or oversight.

Customs-Trade Partnership Against Terrorism (C-TPAT)
    The security of our borders and ports, their local communities, the 
personnel employed there, and the immense volume of trade and economic 
activity that flows through them is a critical interest to the NAFTZ. 
The NAFTZ believes that existing FTZ security requirements complement 
the requirements of Customs-Trade Partnership against Terrorism (C-TAT) 
and supports the continued development and expanded access of the C-
TPAT program for foreign trade zones.
    Foreign-trade zones require strict security standards enforced by 
Customs. All foreign-trade zones have undergone a physical security 
review, background investigations of key employees of foreign-trade 
zone operating firms, and their activities are subject to unannounced 
``spot checks'' at any time, as well as audits.. In addition, foreign-
trade zone operations are required to be under a special Foreign-Trade 
Zone Operators Bond that can be accessed by Customs to financially 
enforce the security responsibilities. The background investigation and 
physical review of facilities exceeds current C-TPAT requirements. The 
NAFTZ has been working with Customs Headquarters for several years to 
secure the involvement of foreign-trade zone operations in C-TPAT 
general-purpose zones. A large percentage of all foreign-trade subzone 
users are already under the C-TPAT program, because subzone operators 
qualify as importers under the current membership criteria.
    While the program attracted a large number of applicants, we 
realize that the validation process has been slow and that the promised 
security as well as trade benefits of C-TPAT have been retarded by the 
budget freeze and a consequent shortage of personnel. The $15.2 million 
requested in the CBP budget for additional supply chain security 
officers should bring C-TPAT participants closer to receiving the full 
benefits of the program.

Customs Modernization
    The NAFTZ has worked closely with Customs' efforts on the ACE 
design and implementation process, committed significant time and 
resources, so success of ACE is a high priority for the NAFTZ.
    At the request of Customs, the NAFTZ developed, and funded, a task 
force to work on the ACE program as it applies to FTZs. Representatives 
of a broad industry cross section from our membership have spent 
literally hundreds of hours working on the development of the totally 
automated FTZ methodology. This is an especially important process to 
the NAFTZ, since it will be key in supporting our country's security 
and trade goals. Also, the automation of the foreign-trade zone 
interface with Customs, as the committee knows, has been a longstanding 
shared goal for both of us, but it has never materialized. Even after 
the Miscellaneous Trade and Technical Corrections Act of 1999 (Public 
Law 106-36) that was passed in 1999 by Congress mandating the 
automation of the FTZ admission process, no automation has occurred. 
However, our ACE task force under ACE has worked diligently. It has 
been a very great success. In Customs' own words, ``the NAFTZ ACE FTZ 
Task Force requirements document ENT-043 detail and format is a model 
for all other ACE requirements industry submissions It is our view that 
foreign-trade zones generally provide the ability for Customs to view 
our members on an account basis with full automation of individual 
transactional reporting and authorizations, which is a long-term goal 
of ACE. From a security standpoint, our member companies typically have 
long-established and documented relationships with Customs, and their 
record of behavior is well-known and predictable, and carry a lower 
risk profile than lesser known importers and exporters. By reducing the 
amount of documentation and paperwork for receipts at zones and Customs 
entries for shipment imports, zone-to-zone transfers, and exports, both 
Customs and trade benefit. The reduced documentation and automation 
burden provides Customs the ability to shift time and energy from 
foreign-trade zone activity to other standard import and export firms.

Other Customs Issues
    The NAFTZ is also very interested in the smooth administration of 
Weekly Entry procedures and automation of the zone admission process.
    The NAFTZ has worked closely with Customs Headquarters on a wide 
variety of outstanding Customs zone management issues. Over the years, 
we have worked cooperatively with Customs in the updating of the 
Customs FTZ Regulations. In 1986, a significant revision to the 
Regulations was produced. We are currently working with Customs 
Headquarters on certain limited updates and clarifications to the 
operating procedures and Regulations concerning origin declarations on 
estimated entries, use of total zone value, misunderstandings on FDA 
weekly entries, and filing of multiple weekly entries.. Very 
significant progress has been made in working through these regulatory 
issues and we hope to be able to report total satisfactory resolution 
of expressed concerns back to the Committee in the near future.
    Weekly Entry In 2000, Congress passed the Trade and Development Act 
of 2000 (Public Law 106-200) that extended weekly entry to all types of 
FTZ operations, because the Committee fully understood that this action 
would greatly facilitate the movement of trade and reduce paperwork 
Subsequently, Customs Headquarters has raised certain concerns with 
respect to zone-to-zone transfers and exports that are currently being 
addressed by Customs and the NAFTZ. We continue to believe that the 
statute as written is legally sound. If technical corrections to the 
statute are necessary, we will be in contact with the Committee.
    Automation of Zone Admission Process. In 1999, the Miscellaneous 
Trade and Technical Corrections Act (Public Law 106-36)directed the 
Commissioner of Customs to automate the FTZ admission process by 2000. 
While no action has specifically been taken by Customs Headquarters in 
this regard, we have been told that the ACE implementation schedule, 
Release 6, will include necessary functionality. The NAFTZ has been 
actively supporting this development.
    SUMMARY
    In sum, NAFTZ works with CBP in a mutually beneficial partnership, 
but this relationship could erode without sufficient federal funding 
and human resources. We urge that the budget authorizations for the CBP 
meet or exceed the President's budget for fiscal year 2005, in order to 
adequately fund important programs such as C-TPAT and ACE as well as 
Customs training, personnel and commercial operations. The NAFTZ looks 
forward to working with Customs to improve Weekly Entry and automation 
of critical zone management tools, such as the automation of the zone 
admission process.
    We appreciate the opportunity to testify today and look forward to 
working with Customs and the Committee in the enhancement of FTZ 
processes and the further development of the Foreign-Trade Zones 
program.

                                 

    Chairman CRANE. Thank you, Ms. Saathoff. Now, Ms. Scott.

STATEMENT OF SANDRA SCOTT, DIRECTOR OF INTERNATIONAL RELATIONS, 
  YELLOW-ROADWAY CORPORATION, OVERLAND PARK, KANSAS, AND VICE 
         CHAIR, BORDER TRADE ALLIANCE, PHOENIX, ARIZONA

    Ms. SCOTT. Good morning, Chairman Crane, Members. My name 
is Sandra Scott and I am the Director of International 
Relations for Yellow-Roadway Corporation. It is the largest 
North American truckload carrier and we employ more than 50,000 
men and women.
    However, what brings me here today is my position as Vice 
Chair of the Border Trade Alliance. The Border Trade Alliance, 
founded in 1986, has been a consistent advocate on behalf of 
the cross-border trade community for border and trade agency 
funding levels that will allow the United States to remain 
competitive in an increasingly global economy.
    The BTA has also been a vocal advocate for innovative 
programs that expedite the flow of legitimate trade and travel 
while increasing our Nation's security. In particular, we were 
strong supporters of the Customs Modernization Act that played 
a significant role in the subjects we will discuss here today.
    Thank you for holding this hearing today and taking the 
opportunity to hear from those of us on the frontlines of 
international trade. On behalf of the BTA, I am submitting 
written testimony that touches on the host of issues that this 
Committee is reviewing at today's hearing. In my limited time 
here, however, I would like to stick to the issues of Customs 
modernization, specifically the importance of the ACE and the 
International Trade Data System (ITDS).
    The BTA has taken great interest in this issue of late, 
going so far as to play a leadership role in establishing a 
coalition of key trade community stakeholders, calling 
attention to the importance of ACE/ITDS. In the past several 
weeks, I have enjoyed meeting with many of you and your staffs 
to discuss the importance of this issue.
    Why are ACE and ITDS so important? The ITDS offers a single 
window for commercial data to be provided by the private sector 
for processing by the ACE and distribution to Federal agencies 
with enforcement, security, statistical, and revenue collection 
responsibilities for commercial cargo crossing America's 
borders. Originally an information technology initiative of the 
National Performance Review in 1994, its goal was to provide a 
government-wide system for the electronic, paperless, 
collection, use, and dissemination of international trade data.
    Now being designed as a fundamental part of the ACE 
development, ITDS encourages inter-agency information sharing, 
thus providing much greater efficiencies in data collection and 
intelligence gathering. This will result in more effective 
enforcement, security targeting processes, and risk analysis of 
trade flows. For the trade and for the legitimate cargo, the 
streamlined sharing of information will accelerate border 
clearance times, reduce costs, and cut down on inefficient 
paper-based systems.
    The recent legislative action of the Congress in passage of 
the Bioterrorism Act would have been more easily implemented 
had the early 1990 start on an ITDS system been provided more 
structure and attention within the Administration. Currently, 
participation in ACE/ITDS is voluntary for government agencies. 
Right now, only 8 agencies are participating in ACE/ITDS, with 
an additional 10 showing interest in 2004. These are among 79 
agencies identified as candidates. For the full benefits to 
accrue, all these agencies need to join in.
    Non-participation in ACE/ITDS by a Federal agency deprives 
the government's homeland security and cargo facilitation 
efforts of valuable information. Furthermore, it isolates that 
agency from data helpful to its own mission. The ITDS, fully 
supported, would provide a seamless automated approach to our 
Federal regulatory presence at all borders. The record of non-
participation by Federal agencies, whether by design or through 
oversight, is very disappointing as ITDS is now being developed 
and implemented as an integral piece of ACE that is managed by 
CBP and DHS. They cannot require agencies from other 
departments to participate.
    The needed interagency cooperation and collaboration is 
something that requires the attention and involvement of the 
highest levels of the Federal Government. That leadership and 
direction must come from the White House, where there is 
sufficient span of authority to bring 79 distinct Federal 
agencies together. Thus, an Executive Order can provide the 
government-wide operational guidance necessary to place 
essential agencies under the umbrella of ITDS, ensuring budget 
and policy decisions needed for the continued growth and 
success of ITDS.
    The BTA suggests that the Customs Border Security and Trade 
Agencies Authorization Act of 2004 (H.R. 4418) we are 
discussing here today, may provide a good platform to express a 
sense of the Congress that full interagency participation in 
ITDS should be ensured via Presidential Executive Order.
    [The prepared statement of Ms. Scott follows:]

Statement of Sandra Scott, Vice-Chair, Border Trade Alliance, Phoenix, 
   Arizona, and Director of International Affairs for Yellow-Roadway 
                   Corporation, Overland Park, Kansas

    The Border Trade Alliance (BTA) appreciates this opportunity to 
submit testimony on the subject of Customs budget authorizations and 
other Customs issues. Since 1986, our organization has consistently 
advocated on behalf of the cross-border trade community for agency 
funding levels that will allow the United States to remain competitive 
in an increasingly global economy. The BTA has also been a vocal 
advocate for innovative programs that expedite the flow of legitimate 
trade and travel while increasing our nation's security.

H.R. 4418, Customs budget authorization bill
    Regarding H.R. 4418, the Bureau of Customs and Border Protection 
(CBP) budget authorization bill, the BTA agrees with Subtitle C, Sec. 
122, calling for the establishment of ``Integrated Border Inspection 
Areas at the United States-Canada border.''
    In today's unique environment of increasing trade levels as well as 
increasing threats, the governments of the U.S. and Canada should be 
seeking innovative ways to partner to maintain each country's security, 
as well as their competitive edge in the global marketplace. The 
establishment of Integrated Border Inspection Areas (IBIAs) between CBP 
and the Canadian Customs and Revenue Agency (CCRA) would go far in 
increasing security while reducing redundancies.
    Waiting to inspect a cargo load until it arrives into the U.S. from 
Canada is too late. When a fully loaded truck leaves the Canadian 
mainland and enters on to one of the bridges connecting our two 
countries, such as the Ambassador Bridge in Detroit, MI and Windsor, 
ON, or the Peace Bridge in Buffalo, NY and Ft. Erie, ON, our countries' 
critical infrastructure is put at unnecessary risk. Without knowing 
what that truck is carrying, we run the risk each day of allowing 
passage of someone or something with the potential to do us harm. IBIAs 
allow each country's respective inspection services to carry out any 
necessary security applications long before a cargo load arrives at its 
intended country of destination.
    Security is not the only consideration to be made when studying the 
issue of IBIAs. Too often, drivers cross into the U.S. without proper 
documentation ready to enter their loads into the flow of U.S. 
commerce, thus creating unnecessary delays as the various paperwork 
requirements are worked through with CBP officials. Canada and the U.S. 
should work together to prevent these bureaucratic inefficiencies 
before the improperly documented loads arrive at their country of 
destination.
    The BTA is especially hopeful that successful IBIAs will establish 
a best practice for the establishment of similar facilities on the 
U.S.-Mexico border, which like our border to the north, processes an 
ever-growing amount of trade.
    In going forward with the IBIA concept, the committee should bear 
in mind the need to properly staff these facilities during peak 
periods, as well as the need to develop some expedited processing 
option for carriers so as to keep the IBIAs from turning into nothing 
more than parking lots.
    The BTA is aware of past wrangling between the U.S. and Canada over 
the general issue of sovereignty and, more specifically, the question 
as to whether CBP personnel should be permitted to wear their side arms 
while on Canadian soil. While not passing judgment on that issue in 
this space, we are confident that this issue can be effectively 
resolved between the two governments. There is too much at stake to 
allow this issue to be the barrier to a better trading environment 
between our two countries.

Customs modernization: ACE/ITDS

    The BTA was pleased to see that the committee has raised questions 
on the Automated Commercial Environment (ACE) and its relation to the 
International Trade Data System (ITDS). Our organization has taken 
great interest in this issue of late, going so far as to play a 
leadership role in establishing a coalition of key trade community 
stakeholders calling attention to the importance of ACE/ITDS.
    ITDS offers a single window for commercial data to be provided by 
the private sector for processing by the ACE and distribution to 
Federal agencies with enforcement, security, statistical and duty 
collection responsibilities for commercial cargo crossing America's 
borders. Originally an information technology initiative of the 
National Performance Review in 1994, its goal was to provide a 
government-wide system for the electronic (paperless) collection, use 
and dissemination of international trade data.
    Now being designed as a fundamental part of ACE development, ITDS 
encourages interagency information sharing, thus providing much greater 
efficiencies in data collection and intelligence gathering. This will 
result in more effective enforcement, security targeting processes, and 
risk analysis of trade flows. For the trade and for legitimate cargo, 
this streamlined sharing of information will accelerate border 
clearance times, reduce costs, and cut down on inefficient paper-based 
systems.
    Non-participation in ACE/ITDS by a federal agency deprives the 
government's homeland security and cargo facilitation efforts of 
valuable information; furthermore, it isolates that agency from data 
helpful to its own mission. ITDS, fully supported, would provide a 
seamless automated approach to our federal regulatory presence at all 
borders.
    The record of non-participation by Federal agencies, whether by 
design or through oversight, is disappointing. As ITDS' operators, CBP 
and the Department of Homeland Security (DHS) cannot require agencies 
from other departments to participate. That leadership and direction 
must come from the White House where there is sufficient span of 
authority to bring 79 distinct Federal agencies together. Thus, an 
Executive Order can provide the government-wide mandate necessary to 
place essential agencies under the umbrella of ITDS.
    The BTA suggests that H.R. 4418, the Customs budget authorization 
bill, may provide a good platform to express a sense of the Congress 
that full-interagency participation in ITDS should be ensured via 
presidential Executive Order.
    Also, it would be of great benefit to designate an ``owner'' of 
ITDS. As we cited above, while CBP and, by extension, DHS operate ITDS, 
their power is limited in directing other agencies to buy into and 
participate in ITDS. We recommend designating a department or agency 
with ultimate say in the direction ITDS takes.

DHS organization

    It is worth noting here that the BTA was and is supportive of the 
creation of DHS. While the transition to this new department has not 
been without its hiccups, we are convinced that DHS and its ``One Face 
at the Border'' strategy has and will continue to result in more 
effective border management than the legacy structure of numerous 
agencies with overlapping jurisdictions competing over the same turf.
    Coordination between DHS and those agencies outside DHS can always 
be improved, and Congress has a role to play in ensuring that cross-
agency communication is improved. Case in point, the Trade Act of 2002 
and the Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, otherwise known as the Bioterrorism Act, 
illustrate the potential disruption that results from competing legal 
mandates.
    Both of those laws called for the submittal of advance cargo 
manifest information to the proper U.S. enforcement authorities, 
depending on whether the load contained foodstuffs, prior to that 
load's arrival at the U.S. border. The timeframes for submittal of this 
manifest information outlined in these two laws, however, were 
different and contradictory.
    A common lament in the trade community is the lack of uniformity in 
processing cargo depending on port of entry and commodity. Congress 
could do much to promote uniformity by crafting legislation cognizant 
of the unique structure of DHS and the fact that some of the agencies 
that play a role in international trade are not part of the DHS 
structure.

C-TPAT

    The BTA is supportive of the Customs Trade Partnership Against 
Terrorism (C-TPAT). Like others in the trade community committed to C-
TPAT, however, we believe that there must be an assurance from CBP of 
tangible benefits to participants in the program. One such benefit is 
access for carriers to border FAST lanes, or Free And Secure Trade 
lanes.
    While it is our understanding that CBP has undertaken a significant 
hiring effort in order to assemble a staff trained to validate C-TPAT 
companies and facilities, we still have some concern about CBP's 
ability to ensure C-TPAT compliance, especially with so many companies 
seeking FAST access. The committee is well advised to monitor this 
evolving issue.
    We are also concerned with the paltry number of small and medium 
sized businesses who have gotten C-TPAT certification. We recommended a 
concerted marketing campaign by CBP to ensure that the small and medium 
sized carriers and importers that make up the bulk of international 
traders are aware of C-TPAT and ultimately take the steps necessary for 
certification. Certification ensures they receive the benefits possible 
under the program while CBP ensures an increasingly secure 
international supply chain. We must guard against creating a system of 
the ``haves'' and ``have nots'' of international trade, characterized 
by large trusted shippers whose shipments receive expedited service, 
and small to medium sized shippers whose security apparatus remains in 
question and whose shipments do not reach their destination in a timely 
fashion.
    The failure to bring small and medium sized companies into the C-
TPAT fold also has a direct effect on less-than-truckload (LTL) 
carriers--the bulk of whose customers are small and medium sized--and 
their C-TPAT-certified customers. According to C-TPAT criteria, 
carriers cannot access the FAST lanes at land border ports of entry 
with loads that are not C-TPAT certified. Thus, a carrier with loads 
from both C-TPAT and non-C-TPAT customers cannot access the FAST lane, 
which results in a penalty to the C-TPAT-certified business.
    We are also concerned with the C-TPAT Status Verification 
Interface, or SVI. SVI is touted by CBP as a mechanism for C-TPAT 
members to query a CBP system electronically with a secure 
identification number which other companies are also part of C-TPAT. 
However, in its current design SVI is flawed in that the user must have 
access to another company's identification number in order to verify C-
TPAT participation. We recommend altering SVI to permit querying by 
company name.
    Finally, the BTA and others in the trade community would like to 
see statistics from CBP indicating whether FAST lane access is indeed 
faster than using a regular cargo lane. There is anecdotal evidence 
suggesting that FAST does not offer carriers the speedy access 
advertised by CBP. If CBP's statistics indicate that FAST is not 
resulting in faster crossing times, then we in the trade are happy to 
work with CBP to fix the problems with FAST. We also recommend posting 
FAST lane crossing times on CBP's Web site along with the data for non-
FAST lane crossing times. This would result in an easy one-stop source 
for border crossing data.
    Once again, the BTA appreciates the opportunity to submit testimony 
to the committee on these issues of great importance to the cross-
border trade community. We offer our organization's years of collective 
knowledge on border trade issues as the committee continues to consider 
these important topics.

                                 

    Chairman CRANE. Ms. Scott, excuse me for interrupting, but 
we are down to just 5 minutes on the recorded vote on the 
floor. Let me reassure all of you, any printed statements you 
have will be made a part of the permanent record and we thank 
you for your participation, and we look forward to working with 
you on a continuing basis. With that, the hearing stands 
adjourned.
    [Whereupon, at 11:56 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]

      Statement of American Association of Exporters and Importers

    The American Association of Exporters and Importers (``AAEI'') 
appreciates the opportunity to offer its comments on budget 
authorizations for U.S. Customs and Border Protection (``CBP'') and the 
Bureau of Immigration and Customs Enforcement (``ICE'') for fiscal year 
(``FY'') 2005 and FY 2006, as well as both current and prospective CBP 
trade security and trade facilitation measures.
    As the Subcommittee knows, AAEI is a trade association comprised of 
U.S. and multinational manufacturers, distributors, retailers, and 
service providers engaged in the import and export of merchandise to 
and from the United States. It has represented the scope of America's 
trade community in regulatory, legislative, and public policy arenas 
since 1921. AAEI's primary focus is the promotion of fair and open 
trade policies and practices through education and advocacy. It has 
long been a strong supporter of supply chain integrity and security as 
well as the full-range of trade community issues affecting customs and 
international commerce.
    AAEI commends Chairman Crane and members of the Subcommittee on 
Trade of the Committee on Ways and Means in their effort to guide and 
support the critical trade functions of CBP through the introduction of 
H.R. 4418 and conduct of these hearings, in which connection we are 
privileged to submit this testimony. It has long been this 
Subcommittee's role, under the auspices of Ways and Means jurisdiction, 
to provide leadership in shaping federal government programs essential 
to America's commercial operations. We appreciate and applaud your 
continued vigilance. The Subcommittee's understanding of the supply 
chain, commercial valuation, and a myriad of related issues impacting 
the trade community has proven invaluable over the years. Indeed, the 
Subcommittee's role has been integral to ensuring major substantive 
advances over the years, including development and consideration of the 
Customs Modernization Act (``Mod Act'') more than ten years ago. AAEI 
appreciates these efforts and thanks both the Subcommittee and the full 
Committee for their efforts.

1. Balancing Vital National Priorities
    We would also like to thank the Subcommittee for the opportunity to 
present our views on CBP's efforts to maintain a balance between trade 
security and trade facilitation. AAEI supports CBP's national security 
mission as part of the U.S. Department of Homeland Security (``DHS'' or 
the ``Department''), and recognizes that, in creating DHS, Congress was 
mindful not to impede legitimate trade. AAEI believes that Congress 
should monitor the trade-related activities of CBP to ensure that DHS 
maintains a balance between national security and global trade.
    As CBP Commissioner Bonner has recognized, CBP is striving ``to 
increase security while simultaneously preserving and, when possible, 
even improving the more efficient movement of legitimate trade and 
travel.'' While AAEI has consistently supported CBP's efforts to strike 
a balance between increasing America's security while improving trade, 
we are increasingly concerned that trade facilitation, and in some 
instances the trade community itself, are not viewed by some within our 
national security leadership as an equal partner. We share the 
Subcommittee's concern that priorities be balanced. We, for instance, 
are particularly concerned that interested parties including much of 
the trade community and even Congressional committees have, on more 
than one occasion, been unable to initiate constructive dialogue with 
CBP and DHS on vital facilitation issues. In examining this state of 
affairs, we suggest that a significant part of the problem results from 
the security community's perception of its role. We frequently hear a 
mantra of guns, gates, and guards when the focus needs to be equally 
attuned to overall national interest, risk management, and operations 
facilitation.
     A second significant factor is the lack of resources, both dollars 
and manpower, devoted to the facilitation and operations aspects of 
CPB's functions. Here we acknowledge the huge brain drain that is 
occurring across federal government agencies as senior government 
employees retire in record numbers, but the situation the trade 
community confronts goes well beyond that. The experienced customs 
professionals at all levels who long have made the system work are 
leaving or have left or, as we so often hear, are so discouraged that 
they are resigned to frustration. The solution to these and related 
problems will require long-term dedication on the part of DHS and clear 
oversight by the Subcommittee.

2. CBP Regionalization
    AAEI has strongly supported Administration efforts to create and 
administer DHS and commends the extraordinary work necessary to do so 
over the last three years. It is clear that DHS continues to evolve to 
meet the challenges before it. Based on information derived from the 
FY'04 budget plan as well as meetings with government officials, AAEI 
understands that the Department has proposed a plan to regionalize core 
Department functions. As conveyed to the trade community, the concept 
of ``regionalization'' entails the designation of a single DHS official 
as responsible for a specific geographic area of the nation. That 
individual would be charged with coordinating government resources in 
response to a terrorist ``incident.'' Although DHS has not issued a 
formal notice seeking comments on any specific proposal, Department 
officials have indicated to members of government advisory committees 
that such a reorganization plan is currently under review at the White 
House.
    Importantly, unlike other recent CBP trade security initiatives 
such as the Customs-Trade Partnership Against Terrorism (``C-TPAT''), 
the regionalization plan has, to date, been created without the benefit 
of substantive trade community input. We are, therefore, concerned that 
ongoing plans to regionalize CBP, without coordinated and cooperative 
substantive input from the trade, could amount to a step backward for 
trade facilitation. As AAEI has expressed to the Administration on 
previous occasions, we have several specific concerns regarding the 
regionalization of CBP including: (1) CBP's failure to utilize 
available private sector expertise and liaison, leading potentially to 
inefficient or impractical regulatory outcomes and a potentially 
negative impact on trade; (2) the strong likelihood that disorder and 
confusion may again detrimentally impact commercial decisions regarding 
product import and export; and (3) implementation of regionalization 
and the potentially enormous drain on available DHS resources may 
directly impact CBP's ability fully to implement badly needed 
modernization, personnel, and training upgrades.\1\
---------------------------------------------------------------------------
    \1\ See, April 14, 2004 letter from AAEI President Hallock 
Northcott to the Honorable Josh B. Bolton, Director, Office of 
Management and Budget.
---------------------------------------------------------------------------
    The trade community recognizes strong DHS efforts to ensure vital 
uniformity in policies and programs among the nation's ports but 
reminds the Subcommittee that even today, we are still too far from 
meeting this goal. We, in all facets of the industry, see this lack of 
uniformity by commodity, by port, and even by time of the month. We 
also see a lack of uniformity of purpose and procedures mushrooming as 
seemingly uncoordinated agency action is initiated by those 
traditionally interested in product integrity or enforcement issues 
rather than trade facilitation.
    In order to address these concerns, AAEI submits four points 
concerning the regionalization concept. First, AAEI supports the 
government's efforts to provide critical first responder and crisis 
management structure to DHS. In particular, AAEI supports the 
government's initiative to vary the color-coded threat level advisory 
system according to local conditions so as to cordon a region of the 
country based on specific intelligence.
    Second, AAEI reminds the Subcommittee about the inefficiencies that 
resulted from the U.S. Customs Service's regional structure prior to 
passage of the Mod Act in 1993. The inconsistent treatment of identical 
or similar merchandise and the lack of uniformity in trade compliance 
procedures at various ports of entry created ``port shopping'' by 
frustrated importers. The concepts of ``informed compliance'' and 
``reasonable care,'' as well as the headquarters and port structure 
embodied in the Mod Act, were designed to provide greater 
predictability and uniformity in the administration of customs laws and 
to facilitate trade. Many multinational companies have integrated these 
trade compliance principles into their global operations and are 
seeking uniformity in the treatment of their goods on a worldwide 
basis. AAEI believes that CBP's functionality has, with significant 
trade community cooperation and guidance from this Subcommittee, 
progressed substantially over the past 11 years. The trade community 
is, therefore, reluctant to support any efforts that may nullify the 
efficiencies gained over the past several years.
    Third, AAEI is concerned that, without continued vigilance, certain 
``onerous'' aspects of any regional structure activated in response to 
a national security incident will become a permanent layer of DHS 
organization beyond the immediate aftermath of such an incident. Over 
time, the regional structure could diminish the important role that CBP 
Headquarters plays in the uniform administration of the customs laws 
and in overseeing trade facilitation. As noted below concerning section 
102 of H.R. 4418, AAEI believes that maintaining adequate funding for 
CBP's commercial activities is crucial to striking a balance between 
national security and facilitating trade.
    Fourth, because no proposal has been shared with the trade 
community, AAEI is unsure what type of event or activity would be 
considered an ``incident'' for the purpose of activating the regional 
structure contemplated by DHS. Therefore, on behalf of the trade 
community, AAEI is seeking further information and, perhaps more 
importantly, the opportunity for meaningful input on the DHS proposal. 
That input must incorporate those diverse aspects of the community that 
would potentially be dramatically impacted by the proposal and should 
be both coordinated and truly cooperative. In the absence of such 
coordination and cooperation, it would be unreasonable to expect the 
trade to lend its full support to CBP Regionalization.

3. Customs-Trade Partnership Against Terrorism (``C-TPAT'')
    Turning to C-TPAT, we observe that this program was initially 
launched by CBP as a voluntary program designed to be flexible and 
adaptable to the needs of each importer while meeting the government's 
objective of securing corporate supply chains quickly. To date, C-TPAT 
has indeed endeavored to serve as a government-private sector 
partnership program that addresses supply chain security. The trade 
community was involved in the design and creation of the program, and 
continues to advise CBP on its implementation. We note, however, that 
in the experience of a significant number of AAEI members, C-TPAT has 
failed to yield measurable trade facilitation benefits even as the 
program has increased compliance costs.
    Accordingly, AAEI recommends that Congress require CBP or the 
General Accounting Office to conduct a study in order to calculate the 
costs incurred by the trade community in implementing C-TPAT as well as 
other current programs. This study should also have as its objective 
the measurement of the benefits to border security resulting from the 
trade community's adoption of C-TPAT's security recommendations. AAEI 
notes that the Mod Act shifted responsibility for trade compliance 
(i.e., the proper classification, valuation, and marking of imported 
merchandise) to importers utilizing the principles of ``informed 
compliance'' and ``reasonable care,'' and envisioned that CBP would 
expand the number of agency personnel responsible for trade 
facilitation and compliance. However, many of those resources have been 
shifted to trade security. AAEI is also concerned that CBP's inspectors 
and operations personnel do not have uniform standard operating 
procedures for contacting C-TPAT certified importers to resolve 
security issues arising during the clearance of shipments. Currently, 
security related anomalies or incidents may result in a differing 
response from CBP officials depending upon port of entry. AAEI 
recommends that CBP implement uniform procedures establishing how 
security issues involving C-TPAT certified importers will be resolved. 
This should be followed by training on such procedures for operational 
personnel at all ports. As with all of AAEI's recommendations, the 
Subcommittee should bring its expertise to bear in determining the 
funding levels CBP would need to support such efforts.
    One other area of concern relates to the maintenance of 
confidential business information. AAEI members who have joined C-TPAT 
would like reassurance that their confidential information is not being 
shared with other government agencies, both domestic and foreign, 
without their consent. Such prohibitions would include lawful 
disclosure requests made under the Freedom of Information Act. See, 5 
U.S.C.  552 and 19 C.F.R.  103.5.
    We understand that CBP has seriously debated altering the 
fundamental nature of C-TPAT from a voluntary program to a mandatory 
trade security requirement. We are concerned that if this occurs, 
compliance costs would continue to grow in the absence of improvements 
in trade facilitation. We note also that it would be important to 
understand the overall impact upon the flow of goods and services of a 
mandatory C-TPAT program. AAEI does not support making C-TPAT a 
mandatory program. Rather, AAEI recommends that CBP implement uniform 
procedures for handling security issues involving C-TPAT certified 
importers and conduct further training of its personnel on C-TPAT. The 
trade would not support any trade security program that dictates 
inflexible standards and, in addition, does not provide a sufficient 
return on its investment in supply chain security measures without 
commensurate trade facilitation by CBP.
    In the Subcommittee's efforts to explore the larger issues, it is 
worth noting that AAEI strongly encourages the Subcommittee to continue 
its oversight of related World Customs Organization and International 
Maritime efforts. We believe that integration and, where appropriate, 
coordination can provide significant benefits for U.S. commercial 
operations interests.

4. Automated Commercial Environment and the International Trade Data 
        System
    We next address the state of the Automated Commercial Environment 
(``ACE'') and integration of the International Trade Data System 
(``ITDS''). First and foremost, AAEI considers ACE to be a crucial part 
of customs modernization and necessary for the government to keep up 
with the volume of transactions and merchandise. It is an essential 
component of our nation's trade environment. As such, it is essential 
that significant effort be devoted to ACE. In this regard, AAEI is 
prepared to contribute to the Subcommittee's continued inquiries.
    Since the formal launch of ACE and its Trade Support Network 
(``TSN''), AAEI believes that important issues have been well explored, 
many sectors of the industry have significantly contributed, and 
overall, significant progress has been made. Many of our members are 
extremely pleased with progress to date. ACE's ongoing implementation 
and solid growth are very encouraging to those of us whose 
organizations have waited many years for progress on this front. We 
congratulate both the responsible government officials and the private 
sector TSN representatives for their efforts to bring this project to 
fruition.
    Industry recognizes that ACE will be central to the way in which 
the trade interfaces with the government. It is going to be at the 
heart of CBP's entry, revenue collection, security, and compliance risk 
management functions, among others. Its future is being resolutely 
shaped in daily meetings and conferences both here in Washington and 
elsewhere. But while ACE implementation has always seemed far off into 
the future, this is no longer the case. ACE is happening now. We are on 
the cusp of critical decision-making, programming, and implementation 
that will significantly affect the trade for years to come. Anticipated 
ACE releases will:

      Open ACE account status with web portal access to over 
1,000 new participants;
      Enable monthly payment of duties;
      Integrate partner government agency requirements (e.g., 
APHIS, FDA); and
      Implement entry and entry summary processing.

    It may also be useful for the Committee to recognize that this is a 
critical juncture for the programming into ACE of key Mod Act 
functionalities, including monthly summary filing (IASS) and 
Reconciliation.
    Frankly, though we are highly supportive of ACE efforts and the ACE 
Trade Support Network process, we have a number of serious concerns. 
For instance, in reviewing member involvement we are keenly aware that 
a number of company/firm members of the TSN already feel overwhelmed 
with ACE information, sometimes making it difficult to distinguish and 
absorb the most important developments. As development and 
implementation move forward, the situation promises to become even more 
challenging. Imagine, if you will, the many affected organizations 
across the country that are perhaps only dimly aware of progress to 
date.
    But beyond these significant concerns with communication and 
education, we fear that ACE, already behind schedule, will be 
significantly delayed by resource shortages and changing priorities. We 
are concerned that, over the next three years, the next phases of ACE 
will focus predominately on law enforcement and security rather than on 
trade facilitation. We are also concerned that the original intention 
of many provisions under working group review may have been 
significantly modified over time and have not been fully vetted by the 
larger trade community. Finally, we are very concerned that it is a 10-
year-old system, replacing another 20 plus year-old system, which, 
optimistically, won't be in place for another five to seven years. 
Thus, we encourage the Subcommittee's interest in ACE's progress and 
will be happy to assist wherever possible.
    As the Subcommittee has emphasized over many years, information and 
data sharing are vital to the modern customs system. ACE will enable 
importers to meet not only ``reasonable care'' requirements for CBP, 
but also mandates imposed by other government agencies by allowing 
access to one set of trade data in ``real time.'' Integration of ITDS 
as a single window for the maintenance of trade data collected by the 
federal government furthers the Congressional intent of the Mod Act and 
these other goals (i.e., compliance with multiple agency requirements) 
of the trade community. See, H.R. Rep. No. 103-361(I), at 128 (1993), 
reprinted in 1993 U.S.C.A.N.N. 2678.
    The trade community has a long-standing interest in working with 
the government to build a single data standard for federal agencies 
involved in regulating trade. While the trade community recognizes the 
government's need for trade data in order to secure the nation, 
importers are now subject to different and sometimes conflicting 
information and transmission requirements by various federal agencies. 
For example, Congress has mandated that both CBP and the Food and Drug 
Administration (``FDA'') collect advance cargo manifest information 
prior to the shipment of imported products. See, Trade Act of 2002, 
P.L. 102-210, 116 Stat. 933, as amended by section 108 of the Maritime 
Transportation Security Act of 2002, P.L. 107-295, 116 Stat. 2064; 
Public Health Security and Bioterrorism Preparedness and Response Act 
of 2002, P.L. 107-188. Unfortunately, because these agencies issued 
their ``prior notice'' regulations pursuant to two different statutes, 
the agencies promulgated regulations with different requirements (i.e., 
different time periods for submitting the same data, utilizing 
different online systems). Such inconsistencies significantly increase 
the administrative burden of compliance on the part of importers.
    Based on a recent report by CBP concerning the status of ITDS and 
ACE, several government agencies will begin integrating their 
operations into the ACE/ITDS design. See, ITDS On Track to Help Create 
``One Screen at the Border,'' 3 Modernization Monitor at 3 (Spring 
2004), at http://www.cbp.gov/xp/toolbox/about/modernization/. Many of 
these agencies (i.e., Federal Communications Commission, Animal and 
Plant Health Inspection Service, Food and Drug Administration, U.S. 
International Trade Commission, and Census Bureau) are involved in 
regulating trade or transportation. In particular, Census collects and 
maintains data utilized in U.S. trade statistics. The report indicates 
that another 15 federal agencies will begin working in ITDS in 2004. 
Since over 100 agencies are involved in international trade and a 
significant number have trade security responsibilities, the ITDS 
initiative remains vital. In implementing this effort, the Association 
strongly encourages the Subcommittee to maintain vigilance over 
proprietary data protection and to install strong ``firewalls'' 
prohibiting inappropriate data distribution within and among U.S. 
Government agencies, international organization, foreign government 
entities, and private sector organizations.
    AAEI believes that by strongly encouraging all federal agencies to 
utilize ACE for trade data transmission requirements, Congress will 
give these agencies a stake in the successful development and 
implementation of ACE. Moreover, using ACE as the primary portal 
through which trade data is submitted to the federal government, 
Congress will be saving both the government and the private sector time 
and money in focusing limited resources toward a single, universal 
system. Frankly, however, unless the Congress and senior Administration 
officials provide serious incentives we suspect that this system may 
simply limp along without meeting its true potential. Failure to fully 
employ this system would be a shame.
    Modernization of CBP's trade compliance tools and procedures is key 
to ensuring that CBP is able to achieve its dual role as a national 
security and trade enforcement agency. However, trade facilitation 
should not be separate from trade security and enforcement. The 
movement towards an account-based compliance system can only occur if 
Congress makes ACE the centerpiece of such a system. This, in turn, 
requires Congress to enact the necessary statutory changes to arcane 
U.S. customs laws. Therefore, AAEI supports the Subcommittee's efforts 
to make certain statutory revisions designed to provide CBP with the 
necessary tools to complete the legal framework for development of ACE 
(i.e., allowing the filing of reconfigured entries, expansion of the 
protest period, and changing the official liquidation notice) as 
described more fully below in Section VI of this Statement.

5. Additional Trade Facilitation Concerns
    In its essential role within DHS, CBP has continued to serve as the 
nation's lead agency in trade enforcement. Nevertheless, AAEI believes 
that, with its post 9/11 focus on security and law enforcement 
concerns, Customs, and now CBP, have not been able to provide the trade 
with the necessary guidance for compliance in certain areas. There are 
many examples ─ one which involves a subject long of direct 
interest to the Subcommittee is the elimination of quotas on textile 
and apparel products as a result of the Uruguay Round Agreement on 
Textiles and Clothing.
    Although CBP has posted information on its website concerning the 
integration of textiles and apparel made in WTO member countries, CBP 
has not issued rules for the transition to a quota-free environment. 
Many importers are currently ordering merchandise for importation at 
the end of 2004. However, CBP has not indicated how it will treat 
textile and apparel items which may be shut out of the 2004 quota 
limits.
    In previous years, importers had the option of delivering the 
merchandise to a bonded warehouse until the quota category reopened. 
Importers are purchasing visas for merchandise that is not guaranteed 
entry in 2004 and may be worthless because the quotas will be 
eliminated in 2005. This scenario imposes a significant economic cost 
to the trade, but it is not the only hazard facing importers in this 
area. Other potential issues relating to merchandise subject to quota 
are:

      What is the timeline and status of the programming 
changes that will be needed to remove current requirements in the 
Automated Broker Interface (``ABI'') for those categories that will be 
fully integrated on December 31, 2004?
      Can importers/brokers pre-file entries prior to December 
31, 2004?
      Will ``live'' entries be eliminated for those products 
(and countries) that are fully integrated at the end of 2004?
      Will visas still be required for shipments arriving after 
January 1, 2005?

    AAEI will continue to work with CBP and other government agencies 
to ensure the smooth transition to a quota-free environment, but the 
trade needs more guidance from the government concerning how this 
transition will proceed.

6. Specific Provisions of H.R. 4418
    As stated above, we are supportive of H.R. 4418 and, in particular, 
those provisions that promote trade facilitation. Nonetheless, for the 
benefit of the Subcommittee, we provide the following selected comments 
regarding provisions not addressed above.

A. Establishment of Cost Accounting System
    Section 102 of H.R. 4418 requires CBP to establish and implement a 
cost accounting system in order to track expenses incurred for both 
commercial and noncommercial operations.
    AAEI supports this provision because it will provide both Congress 
and the trade community with metrics by which they can gauge whether 
CBP's trade operations and functions have sufficient priority and 
budget resources. Moreover, AAEI supports Congress requiring all 
federal agencies with trade-related functions to implement a cost 
accounting system in order to aid in Congressional oversight and 
budgeting for trade operations. An example of the usefulness of a cost 
accounting system would be to measure the administrative cost of the 
antidumping program, including the annual distributions made under the 
Continued Dumping and Subsidy Offset Act of 2000 (``CDSOA'' or the 
``Byrd Amendment''). Since the government currently does not have a 
cost accounting system for CBP, the International Trade Administration 
of the U.S. Department of Commerce, or the U.S. International Trade 
Commission, the domestic industry receives all the antidumping and 
countervailing duties collected by the government. A cost accounting 
system for such agencies would provide the Congress and the trade with 
the administrative costs for all trade programs so that user fees can 
be quantified and tailored to specific services provided by the 
government.

B. Study and Report Relating to Customs User Fees
    The proposed bill also includes a requirement that the Controller 
General conduct a study analyzing whether each user fee levied by CBP 
approximates the cost of the services that CBP provides to the trade.
    Since the new trade security environment requires new revenue 
sources in order to secure the nation's ports and global supply chain, 
AAEI supports the study of user fees. Previous user fees levied on the 
trade community have been highly problematic due in part to the nature 
of the assessment (i.e., Harbor Maintenance Fee assessed on the value 
of the merchandise) and certain constitutional infirmities (i.e., the 
U.S. Supreme Court invalidated the Harbor Maintenance Fee as an 
unconstitutional tax on exports). As the Subcommittee is aware, AAEI 
has devoted considerable time and energy to policy reform affecting 
both problem areas. Also, we have repeatedly noted that user fees have 
provided huge surpluses to the government's general revenue fund 
instead of being dedicated to funding the fees' legislative purpose. 
Regrettably, general revenue allocation has not provided equitable 
return to the trade community or the national interest.
    AAEI notes that several bills introduced in Congress have provided 
for a fee assessed on carriers or imports in order to fund port 
security plans. Such a user fee has been stripped from the final 
legislation previously passed by or currently pending in Congress 
(e.g., amended version of ``Maritime Transportation Security Act of 
2004'' (S. 2279) reported in the U.S. Senate on May 20, 2004). 
Moreover, other bills have included user fees which are not dedicated 
to CBP's commercial operations or divert funds from existing user fees 
to support other (i.e., non-trade-related) government programs. AAEI 
requests that Congress carefully calibrate any user fees to the actual 
cost of services provided by the government so that no segment of the 
trade community is unduly burdened with the costs of government 
operations that benefit the nation as a whole. We suggest that 
consideration be given to tying this directly to the merchandise 
purchasing fee or other appropriate vehicle.

C. Entry of Merchandise
    The legislation pending before this Subcommittee amends the customs 
statute to permit the filing of reconfigured entries and extends the 
period to reconcile such entries to 21 months. See, section 111 of H.R. 
4418. AAEI supports this provision as a step towards realizing 
Congress' stated policy of an account-based system for import 
transactions. It is one step in accomplishing the Association's overall 
effort of which the Subcommittee is well aware. See, H.R. Rep. No. 103-
361(I), at 127, 136 (1993), reprinted in 1993 U.S.C.A.N.N. 2677, 2686.

D. Limitation on Liquidations
    In addition to changes relating to reconfigured entries filed under 
an import activity summary statement, Section 112 would amend Section 
504 of the Tariff Act of 1930 (19 U.S.C. 1504) to replace the phrase 
``amount of duty asserted at the time of entry by the importer'' with 
the phrase ``amount of duty asserted by the importer.'' AAEI does not 
oppose this change in the statute.

E. Protests
    Section 113 of H.R. 4418 permits a protest to be filed within 180 
days instead of the current 90-day deadline. Section 113 also expands 
the list of items that may be protested to include those items 
previously covered by 19 U.S.C. Sec. 1520(c), which would be repealed 
by Section 115. AAEI supports this provision to foster the fair 
administration of the customs laws and to complement the movement to an 
account-based system to reconcile import transactions by providing more 
time to contest the tariff classification, valuation, or origin of 
merchandise.
    However, neither the current 90-day period nor the proposed 180-day 
period for protests is sufficient to permit importers and their 
representatives enough time to fully research certain issues (e.g., 
issues not the subject of a Request for Information or Notice of 
Action, issues discovered as part of an internal review, as well as 
clerical errors or mistakes of fact, which are generally less apparent 
after liquidation of an entry), and to present to CBP legal arguments 
supported by sufficient underlying facts and circumstances. On a number 
of occasions, importers and their representatives have had their 
protests denied because they filed their protests in a timely fashion, 
but were unable to submit what CBP believed were sufficient reasons for 
allowing the protests within the current 90-day window. In some 
instances, the U.S. Court of International Trade has upheld CBP's 
denial of protests on jurisdictional grounds because sufficient 
underlying reasons for allowing a protest were not submitted within the 
90-day protest period. See, e.g., XL Specialty Ins. Co. v. United 
States, Slip Op. 04-61 (CIT June 8, 2004). Therefore, while AAEI 
supports an extended protest period, it also recommends maintaining 19 
U.S.C.  1520(c) in its current state, primarily because without 
it, importers would be left with no remedy in correcting clerical 
errors or mistakes of fact outside the protest period.
    Finally, AAEI notes that there are many questions and issue areas 
where simple ``updating'' can make a substantial difference in the 
conduct of daily business. In particular, we would like to call to the 
Subcommittee's attention an arcane area of customs law that should be 
addressed as part of trade modernization and facilitation review. 
Currently, Bulletin Notices of Liquidation, which consist of thousands 
of entries listed in computer generated printouts and available for 
review only at customhouses throughout the United States, are 
considered the official notification of liquidation. See, 19 C.F.R. 
Sec. 159.9. As it is impractical to expect importers to travel to a 
local customhouse to check liquidation status, they should be permitted 
to rely on the ``Courtesy Notice of Liquidation,'' which is typically 
mailed by CBP to an importer, as the official liquidation notice. 
Ultimately, however, once ACE is fully operational, mailed ``Courtesy 
Notices of Liquidation'' should be replaced by electronic notification.
    Returning to current practice, on many occasions the Courtesy 
Notices of Liquidation and the Bulletin Notices of Liquidation reflect 
different liquidation dates for various reasons (e.g., CBP ``red-
lines'' or cancels liquidations on the Bulletin Notice without 
importers being aware of such action, CBP mistakenly liquidates entries 
which are the subject of litigation and the liquidation of which is 
legally suspended by operation of law). Because these differences 
between Courtesy Notices and Bulletin Notices of Liquidation occur far 
too often and are directly related to the changes sought to be made by 
Sections 113 through 115 of H.R. 4418, AAEI recommends that Congress 
change the statute to provide that the Courtesy Notice of Liquidation 
serves as the official Notice of Liquidation and that CBP be required 
to maintain permanent records of the date that such notices are mailed 
to importers. Finally, AAEI notes that CBP considered, but did not 
adopt, interpreting 19 U.S.C. Sec. 1514 in a way that would preclude 
importers from protesting ``no change'' liquidations (i.e., where CBP 
liquidates an entry based on the classification and declared value 
contained in the entry). AAEI requests that the Subcommittee note in 
its Report accompanying H.R. 4418 that CBP should not interpret 
Sec. 1514 to preclude protests on ``no change'' liquidations and 
entries deemed liquidated by operation of law.

F. Review of Protests
    Section 114 amends Section 515(b) of the Tariff Act of 1930 (19 
U.S.C. 1515(b)) to provide that importers may request accelerated 
disposition of a protest at the time the protest is filed, rather than 
having to wait 90 days as is currently required. AAEI has been involved 
in this effort and supports the provision, as it will allow importers 
flexibility in obtaining a decision quickly from CBP in order to appeal 
a decision to CBP Headquarters or file a summons with the Court of 
International Trade, particularly when a large number of entries are 
involved in a single legal issue.

G. Establishment of Integrated Border Inspection Areas at U.S.-Canadian 
        Border
    Section 122 of the legislation authorizes the establishment of an 
integrated border area at the U.S.-Canada border, and would foster a 
high degree of cooperation between the customs agencies of the two 
countries in order to inspect vehicles before accessing bridges and 
tunnels traversing the nation's northern border. Because the United 
States and Canada currently cooperate closely in both trade 
facilitation (i.e., Free And Secure Trade or ``FAST'') and trade 
security (i.e., Partnership in Protection or ``PIP''), AAEI supports 
legislative efforts to authorize customs officials to operate in each 
country in order to maintain a seamless, but secure border. Indeed, our 
members have been active in forging private sector cooperation and 
coordination. AAEI would, however, very much welcome the opportunity to 
work with Congress and CBP to ensure that appropriate limitations are 
placed on the legal authority exercised by such Canadian officials 
while stationed in the United States. AAEI suggests that the agreements 
forged between foreign governments and CBP for the Container Security 
Initiative may serve as a useful model for this program.

H. Interpretation of Textile and Apparel Provisions
    Section 125 of the proposed legislation directs CBP to interpret 
preferential treatment of textiles in various trade agreements (i.e., 
the African Growth and Opportunity Act, the Andean Trade Preference 
Act, and the Caribbean Basin Economic Recovery Act) broadly in order to 
maximize the benefits to eligible beneficial countries. AAEI supports 
Congressional efforts to ensure that the potential of these agreements 
is fully realized by their intended beneficiaries.

VII. Summary
    AAEI greatly appreciates the Subcommittee's efforts to ensure that 
trade facilitation is recognized as an equal partner to trade security, 
a goal that is evident in many of the provisions of H.R. 4418, and we 
are generally supportive of the proposed legislation. We also 
appreciate the opportunity to comment on important issues beyond the 
specific provisions of H.R. 4418, such as whether CBP's programs and 
policies similarly recognize the importance of a relationship of 
equals. We believe that the Subcommittee's continued oversight and 
active promotion of conjoined security and facilitation priority 
programs can make an enormous difference.
    While CBP has put forth an extraordinary effort in improving trade 
security, it is quite clear that there is a growing belief among AAEI 
members that the agency views trade facilitation as of secondary 
importance. We therefore support all efforts by Congress to promote the 
twin goals of trade security and trade facilitation, which are 
complementary administrative and enforcement functions. Clearly, we 
look forward both to supporting this Subcommittee's active involvement 
and to continuing our partnership with CBP in pursuit of these goals.

                                 

Statement of American Trucking Associations, Inc., Alexandria, Virginia

Introduction
    Mr. Chairman and members of the Subcommittee, thank you for 
providing this opportunity to comment on the FY 2005 and 2006 budget 
authorizations for the Bureau of Customs and Border Protection and the 
Bureau of Immigration and Customs Enforcement. Both of these agencies 
are important to cross-border trucking security and facilitation.
    We would like to take the opportunity to address several issues 
relevant to these agencies and their efforts at protecting our borders 
and facilitating the movement of goods and people. Specifically, we 
will discuss the creation of the Department of Homeland Security's 
creation and organization and its effect on the Bureau of Customs and 
Border Protection, the Free and Secure Trade/Customs-Trade Partnership 
Against Terrorism program, customs modernization issues, US-VISIT, and 
several other programs of interest.
    American Trucking Associations (ATA), Inc., with offices located at 
2200 Mill Road, Alexandria, Virginia22314-4677, is the national trade 
association of the trucking industry. Through our affiliated trucking 
associations, and their over 30,000 motor carrier members, affiliated 
conferences, and other organizations, ATA represents every type and 
class of motor carrier.
    The trucking industry plays a critical link in the economic 
interdependency among the United States, Canada and Mexico, moving 
about 74 percent of the value of freight between the United States and 
Canada, and about 83 percent of the value of U.S.-Mexico freight.\1\ 
The increasing trade volumes that have been generated among the three 
North American Free Trade Agreement (NAFTA) partners have not only been 
good for the economic well being of our countries, but have also 
allowed our customers throughout North America to diversify, expand and 
improve their asset utilization and access new markets for their 
products. According to U.S. government data, in 2002, 6.8 million 
trucks entered the U.S. from Canada, while 4.4 million entered from 
Mexico, resulting in more than 13 million truck crossings a year on the 
northern border, and more than 8 million crossings on the U.S. southern 
border.
---------------------------------------------------------------------------
    \1\ Bureau of Transportation Statistics, U.S. Department of 
Transportation
---------------------------------------------------------------------------
Creation of DHS-DHS, CBP and Trade Functions
    ATA supported the concept of a unified agency within the U.S. 
government to deal with national security in the wake of the events of 
September 11, 2001. In addition, we strongly support the ``One Face at 
the Border'' concept. Of course, a massive government departmental 
reorganization, such as that experienced by the Department of Homeland 
Security (DHS), which blended 22 agencies, would be expected to produce 
some growing pains. This has been true of the creation of DHS, and the 
integration of CBP.
    Prior to the terrorist attacks in 2001 and prior to its integration 
into DHS, CBP, as the U.S. Customs Service, had already begun work to 
make the international trade environment more secure and compliant with 
a new automated import-export system, the Automated Commercial 
Environment. In addition, after the terrorist attacks in 2001, the 
agency worked with the trade community and the Commercial Operational 
Advisory Committee (COAC) to create the Customs-Trade Partnership 
Against Terrorism (C-TPAT), a voluntary security program for, among 
others, all international transportation providers. The trade community 
felt confident in working with CBP and that programs like C-TPAT and 
the Automated Commercial Environment (ACE), discussed below, would 
fairly balance the agency's two primary missions--security and trade 
facilitation.
    ATA supports coordination of CBP policies under the DHS's Bureau of 
Transportation Security, which has provided strong and consistent 
guidance. The confusion over policy direction and authority that marred 
the first months of the creation of DHS has, fortunately, abated under 
the direction of BTS. However, the CBP dual missions of trade 
facilitation coupled with national security considerations must be 
constantly and zealously balanced. For that reason, ATA also strongly 
supports CBP's province over operations, regulations, and issues 
pertaining to international trade at our borders and ports. This is 
important to continuing the kind of consistency, expertise and 
institutional knowledge that will benefit both trade and national 
security. ATA also supports CBP's continuing efforts to communicate in 
an open forum with the trade community through its Trade Support 
Network and other venues, and its willingness to consider the 
operational realities of international trade when promulgating new 
security or trade regulations.
    In reality, since the terrorist attacks in 2001, the DHS agencies 
have struggled with balancing national security with trade 
facilitation. The US-VISIT program, discussed below, exemplifies a 
program that over-emphasizes national security to the expense of trade 
facilitation. We encourage both Congress and the agencies to work 
closely with the trade community in order to avoid further congestion 
at our borders that negatively affects our national economy.

Customs and Border Protection Programs
    ATA believes that CBP's success with providing security at the 
borders must be examined in the context of several programs that the 
agency either created or administers. These programs are discussed 
below.

Free and Secure Trade/Customs-Trade Partnership Against Terrorism (C-
        TPAT)
    ATA supports the FAST/C-TPAT program as an important voluntary 
trade-government security program, and has encouraged its cross-border 
members to enroll. C-TPAT was originally created and developed within 
the COAC, with CBP consulting with trade for feedback prior to 
finalizing the program. For the motor carrier industry, the program at 
our borders is Free and Security Trade/C-TPAT. The program requires a 
certain level of security measures to be taken by motor carriers in 
their hiring practices, their operations, and in securing their 
facilities. The FAST portion of the program serves two functions: 1) to 
certify the drivers, by doing extensive background checks in both the 
U.S. and Canada; and 2) to promote electronic transmission of driver, 
freight and equipment information to CBP, as required under the Trade 
Act.
    Unfortunately, for cross-border less-than-truckload motor carriers, 
the promise of this excellent program cannot be fully realized. Unless 
all the freight on a trailer is from a C-TPAT enrolled importer, the 
benefits of the program for LTL carriers are relatively few. This, in 
turn, mitigates the effectiveness and intent of the FAST/C-TPAT program 
for these carriers, who, according to CBP, haul about 20 percent of 
cross-border freight.
    ATA strongly supports the concept of FAST lanes, which were 
originally promised to carriers at the ports of entry but slowly became 
``desired results'' rather than reality, further diminishing the return 
on investment for the enrolled carriers. ATA supports more investment 
in better border infrastructure that would make FAST lanes a reality, 
fulfilling the promise of better security and trade facilitation for 
our member carriers. Because truck traffic at the border will only 
increase over time, it makes good sense to pay attention to this issue 
now, rather than later, in order to avoid threatening the economic 
health of the U.S.
    As to the effectiveness of the FAST/C-TPAT program, we can safely 
say that to date there have been no major terrorist incidents stemming 
from cross-border freight entering into the United States. We would 
call this a 100 percent effectiveness rate. But because the program is 
still in its infancy in many ways, our expectation is that it will grow 
and change over time to meet the needs of CBP and of the trade 
community. ATA believes CBP is headed in the right direction with this 
kind of strong voluntary partnership security program. We support 
periodic audits of FAST/C-TPAT motor carriers to ensure the integrity 
of the program, provided the audits do not become overly burdensome.
    When the ACE automated truck manifest is finally activated, along 
with the implementation of the Trade Ade regulations, both discussed 
below, we will be more able to fully evaluate the effectiveness of all 
of the border programs created to facilitate trade and provide for 
national security.

Customs Modernization (Automated Commercial Environment/International 
        Trade Data System) (ACE/ITDS)
    ATA has supported the concept and creation of the ACE system since 
it was first proposed. However, building the system has faced a series 
of challenges in the areas of funding and design. We continue to 
support ACE as a critical program that will facilitate trade and 
provide security at our nation's borders.
    ACE began its life in the mid-1990's as a trade facilitation tool 
for CBP, but quickly added national security to its intended use after 
the terrorist attacks in 2001. ATA and some of its members worked for 
several years prior to the terrorist attacks on the ACE Multi-Modal 
Manifest (MMM), which was intended to serve as a manifest information 
collection tool for CBP so the agency could screen freight, people and 
equipment entering the U.S. Work on the MMM continued after September 
2001, accelerated by an infusion of money from Congress, and continues 
to this day. In tandem with this development, CBP has beefed up its 
Automated Targeting System in order to more effectively screen freight, 
personnel and equipment data for informational anomalies.
    Unfortunately, for the motor carrier industry, the truck portion of 
the MMM, which would provide an automated truck manifest is not yet a 
reality. Originally slated to become fully functional in September of 
2002, we are still waiting for our electronic truck manifest, which is 
most likely to be up and running in the Spring of 2005. This delay is 
the result of a number of small setbacks in the previous foundations 
built in the ACE system. We hope to see no further delays.
    Judging from CBP's experience with the air, ocean and rail 
Automated Manifest Systems, we can safely say that these systems are in 
a constant state of flux, with constant changes demanded to refine the 
system, and we expect a similar experience with the ACE MMM. We are 
aware that the ACE MMM may require adjustments and changes ranging over 
a number of years.
    The one remaining fly in the ointment for ACE is the ITDS, the 
front-end data collection system for a number of government agencies 
with an interest in international trade. Despite the fact that the 
concept of ITDS has been around since the mid-1990's, progress has been 
slow in getting government agencies with an interest in collecting 
information or data on international trade committed to built into ACE. 
At this point, ATA believes some sort of mandate--either from Congress, 
DHS or the President--is necessary to speed this process along. An 
infusion of money into the ITDS Board of Directors and the individual 
agencies that have an interest in international trade would certainly 
help in the effort to promote ITDS participation, which in turn would 
enhance national security and trade facilitation.
    To ensure the success of ACE/ITDS, ATA supports adequate funding 
levels from Congress. ATA belies that both ACE and ITDS are examples of 
successful government-industry partnerships. We believe these projects 
should serve as a model for other government agencies dealing with 
cargo and security issues, both domestically and internationally. This 
kind of cooperative effort allows agencies regulating our industry to 
know about our businesses, just as we learn about the business of 
government.

Trade Act of 2002
    The Trade Act ties the FAST/C-TPAT program to a time-definite 
prenotification requirement for motor carriers. The Act requires motor 
carriers (and other transportation providers in other modes) to send 
information on freight, drivers and equipment electronically to CBP 
prior to arrival at the border. For motor carriers that are C-TPAT 
certified, with FAST-certified drivers, carrying freight from a C-TPAT 
importer of record, the prenotification time is one-half hour. For 
either non-C-TPAT carriers or freight that is not from a C-TPAT 
certified importer of record, the prenotification time is one hour 
prior to the truck's arrival at the border. This time gives CBP the 
opportunity to run the data on freight, driver and equipment through 
its Automated Targeting System in order to spot anomalies and identify 
the need for a security or compliance inspection.
    When the ACE truck manifest is completed, motor carriers will be 
able to use it to transmit the required freight, driver and equipment 
information to CBP. Until that system
    development is completed, the trucking industry will use either a 
FAST/NCAP electronic manifest, which is currently used by only a few 
importers at the northern border, or the Pre-Arrival Processing System 
(PAPS), a bar-coded system. Both of these systems serve to provide the 
required pre-arrival information so that CBP can target shipments for 
security and compliance.

Other Programs That Affect CBP
    Because CBP is the lead agency at the border, it takes on the 
responsibility for a administering regulations for other agencies. Some 
of these programs are discussed below.

US-VISIT
    ATA has some concerns about the practicality of requiring a 
separate entry-exit system for truck drivers at our northern and 
southern borders, as would be required by the US-VISIT program. The 
trucking industry is concerned about how US-VISIT will impact or 
interact with technologies to facilitate enforcement efforts while also 
expediting the movement of cargo and people across our borders. If the 
implementation of US-VISIT results in increased delays in getting 
commercial and regular vehicles through our ports of entry, the 
increased congestion and traffic could have a negative environmental 
impact in and around border towns and cities impacting border 
communities and have a serious effect on the U.S. economy.
    The task of enforcing DHS's US-VISIT program at our borders will 
fall to CBP. ATA recognizes that the implementation of the US-VISIT 
program is mandated by various statutes, including sections of the Data 
Management Improvement Act (DMIA), the USA PATRIOT Act, and the 
Enhanced Border Security and Visa Entry Reform Act of 2002. We 
anticipate implementation of US-VISIT at the 50 busiest land border 
ports of entry (POE) by the end of 2004 as stipulated in the DMIA. 
These US-VISIT requirements would have a tremendous impact on the U.S. 
economy, if we consider that 400 million individual transactions take 
place at land border ports of entry on a yearly basis, and more than 20 
million total truck crossings take place every year at our northern and 
southern borders.
    ATA supports government agency sponsored programs that allow 
trucking companies to provide secure, efficient, effective and safe 
cross-border operations. We believe the end goals of security and 
efficiency are not mutually exclusive, but we must be careful to design 
systems that do not impede our economic security and growth.
    The FAST/C-TPAT program for carriers and drivers has already 
established a high level of security for known entities, and this 
should satisfy the requirements of the US-VISIT program. ATA believes 
that drivers and carriers in this program should qualify to transport 
international commercial shipments without having to provide both 
biometric identifiers and have a digital picture taken every time upon 
entry, and then to provide the biometric identifiers again upon exit.

Food and Drug Administration--Bioterrorism Act of 2002
    ATA has worked with both the FDA and CBP to make the provisions of 
the Bioterrorism Act practical for our industry while not sacrificing 
national security. The task of enforcing the BTA regulations at our 
borders will also fall to CBP.
    The BTA requires importers of record to submit information on food 
shipments carried by truck two hours prior to reaching the border. This 
timing does not match the CBP timing under the Trade Act, and we 
foresee a great degree of unnecessary confusion if this discrepancy is 
not corrected. CBP has been working with FDA to establish an adequate 
targeting program so that the FDA's BTA prior notice time requirements 
can be coordinated with transportation providers' prenotification time 
requirements under the Trade Act.
    ATA is concerned about the effect of the BTA on cross-border trade 
facilitation. On August 12, 2004, the FDA enter into the full 
compliance for its prior notice requirements under the BTA, and trucks 
that arrive at the border without prior notice having been filed or 
with inadequately filed prior notice will be stopped, held or turned 
around. The BTA requirements have added a tremendous burden to an 
agency (CBP) that already carries a great deal of responsibility at our 
borders. ATA supports additional funding to allow the CBP to carry out 
its enhanced mission at our nation's borders and ports.

Hazardous Materials Background Checks
    ATA supports the use of the driver's FAST card to meet any needed 
security requirements at the border. An additional background check for 
drivers carrying hazardous materials has been proposed. If DHS requires 
an additional layer of security at the border by adding this background 
check requirement for drivers carrying hazardous materials, this 
extends the monitoring responsibilities of CBP even further. The 
requirement is duplicative, and is a perfect example of the need to 
coordinate requirements within the DHS agencies. Cross-border truckers 
that enroll in the FAST program do not need this additional security 
measure, and the requirement, for them, is not only duplicative but 
also costly and unnecessary.

Conclusion
    The tasks of ensuring both the security of our country and the 
integrity of our economy are daunting. ATA commends DHS and CBP for 
their efforts at integrating these two tasks, and hopes the agencies 
will continue to work with industry to achieve them. To achieve this, 
we offer the following:

      ATA supports BTS's efforts to better coordinate and 
provide policy consistency for customs' functions and guard against 
duplicative requirements.
      ATA supports CBP as the lead agency in dealing with 
border and port security and trade facilitation.
      ATA supports a strong balance between trade facilitation 
and national security.
      ATA supports CBP's FAST/C-TPAT program as an important 
facet of Trade Act compliance and national security.
      ATA supports the ACE/ITDS project as supporting the dual 
missions of national security and trade facilitation.
      ATA supports the continued importance of trade 
facilitation and national security with CBP and other agency programs 
at our ports and borders.
      ATA supports additional funding from Congress in order to 
build needed infrastructure at our land border ports of entry.
      ATA supports adequate funding from Congress to empower 
CBP's efforts at protecting the homeland and ensuring the health of our 
economy.
      ATA supports the use of the FAST card for border 
security.

    Thank you for allowing us to comment on these issues of great 
importance to cross-border motor carriers. If you have any questions 
about any of the information in this statement, please call Martin 
Rojas, Executive Director of Safety, Security and Operations at (703) 
838-7950 or Margaret Irwin, Director of Customs, Immigration and Cross-
Border Operations at (703) 838-1745.

                                 

                    Customs and International Trade Bar Association
                                             Washington, D.C. 20009
                                                      June 25, 2004
Congressman Philip M. Crane, Chairman
Subcommittee on Trade
Committee on Ways and Means
1104 Longworth House Office Building
Washington, DC 20515

Dear Chairman Crane:

    The Customs and International Trade Bar Association (``CITBA'') 
welcomes the opportunity to submit these comments for the hearing 
record in lieu of a personal appearance. CITBA is an association of 
attorneys practicing primarily in the area of customs and international 
trade law. These comments are in response to the Advisory from the 
Committee on Ways and Means, Subcommittee on Trade, of June 7, 2004 
(No. TR-5), announcing the above-captioned hearing on budget 
authorizations and another Customs issues, such as reorganization of 
the Department of Homeland Security (``DHS''), security and trade 
facilitation, and customs modernization.

User Fees
    CITBA supports the language in Section 103 of the bill that would 
require a study and report on the collection and use of Merchandise 
Processing Fees imposed under the Consolidated Omnibus Budget 
Reconciliation Act of 1985. For too long, it has been impossible to 
determine whether the amount of such user fees approximates the cost of 
the services provided by the Bureau of Customs and Border Protection 
(``CBP'' or ``Customs''). Moreover, the revenues collected have gone 
into the general revenue without any method of ascertaining whether 
they have gone to funding that agency's commercial operations. CITBA 
strongly supports tying the user fee collections directly to Customs 
operations. Enacting Section 103 would also help blunt any criticism or 
complaint by our trading partners that these user fees may be 
inconsistent with U.S. obligations under international trade 
agreements.

Technical Amendments on Entry and Protest

    Subtitle B of the bill provides for various amendments to the laws 
governing entry procedures and administrative review of Customs 
decisions. CITBA strongly supports these amendments, which reflect a 
consensus among private sector and government experts as to the minimum 
level of statutory changes required to implement upcoming developments 
in the customs modernization plan. As the Subcommittee is well aware, 
initial releases under the Automated Commercial Environment are 
underway. The Trade Support Network, a joint government-industry 
partnership designed to ensure that ACE fulfills both sectors' 
requirements, has identified technical amendments, now embodied in 
Subtitle B of H.R. 4418, needed to permit the realization of the new 
system's benefits. For example, Subtitle B would authorize line item 
liquidation when data is aggregated for periodic reporting, would 
improve on the periodic payment procedures, and would simplify the 
administrative review process. While all of the amendments may be 
``technical'' in nature, they are critically important to providing the 
proper framework to capture the benefits of the modernization effort, 
and CITBA urges that Subtitle B be enacted in this, or in any other, 
appropriate legislative vehicle as soon as practicable.

Homeland Security Regionalization Plans

    As the legal representatives of countless importers, exporters and 
related service providers, we are keenly interested in ensuring that 
the laws, policies, procedures and practices of CBP are uniform and 
consistent throughout the United States. While generally that is now 
the case, this was not always so. The Subcommittee on Trade was 
instrumental in the last decade in encouraging the Administration to 
achieve uniformity in the wake of the Customs Modernization Act of 
1993. Eventually the Treasury Department did away with the old Customs 
regions system, under which some regions occasionally had acted 
autonomously and inconsistent with national policies or procedures.
    Like our colleagues in other professional or trade organizations, 
we recognize the need for the Department of Homeland Security to create 
a regional structure to better organize the legacy disparate agencies 
and to provide for appropriate incident response management. However, 
we do have concerns about the impact a new regional structure might 
have on day-to-day CBP operations. We understand that DHS officials 
have acknowledged these concerns and have pledged to address them in 
the regionalization plan roll-out. To date, however, no details have 
emerged and the trade community continues to be apprehensive about the 
matter. CITBA urges the Subcommittee to stay involved in development of 
the DHS regional structure planning, and to help ensure that we do not 
revert inadvertently to the days when traders received inconsistent 
treatment in different U.S. ports of entry.

Conclusion

    CITBA expresses its appreciation to the Subcommittee for inviting 
discussion of these and other important issues concerning Customs 
commercial operations and homeland security. We stand ready to continue 
to work with the Congress and the Administration in seeking 
modernization of customs processes and enhancement of our border 
security.
            Respectfully submitted,
                                               Melvin S. Schwechter
                                                          President

                                 

             Statement of Grocery Manufacturers of America

    The Grocery Manufacturers of America (GMA) appreciates the 
opportunity to present our views on Customs budget authorization and 
other issues. Of particular concern to our member companies is the 
efficient operation of inspection services at the Canadian border. For 
the last several months, GMA member companies have reported significant 
delays at the border as well as inconsistent enforcement policies on 
regulated products coming into the United States. GMA respectfully 
requests that there be increased attention and sufficient resources 
allocated to ensure the proper balance between border security and 
trade efficiency at the Canadian border.

Agricultural Quarantine Inspections and Border Delays
    Earlier this year, GMA wrote to Assistant Commissioner of Customs, 
Jayson Ahern, regarding our concerns with the reduction of the hours 
available for agricultural quarantine inspections at the port of 
Buffalo and the equally inefficient hours in Detroit. A twenty-eight 
hour weekly reduction had imposed significant costs on some of our 
member companies that import regulated commodities through these ports. 
As a result of the decrease in hours, companies experienced border 
delays, significantly increased inventory costs and increased carrier 
costs. A copy of this letter and Mr. Ahern's response is attached.
    To address our concerns, the hours available for AQI inspections at 
the Port of Buffalo Peace Bridge were improved to seventy-five hours 
per week (8:00 AM to 11:00 PM Monday through Friday). We are concerned, 
however, that wait times significantly in excess of two hours still 
persist at the border and our companies continue to need to pay 
considerable border clearance waiting fees to carriers. As recently as 
a few weeks ago, one of our companies reported having to wait in excess 
of two days for an AQI inspection at the Canadian border. The US driver 
of the truck would have been better off to have returned to the United 
States empty than to wait for proper clearance with his load. 
Incidences like these have lead to increased reluctance of carriers to 
transport regulated commodities, which in turn forces companies to turn 
to less experienced and potentially less secure providers. In addition, 
carrier costs have increased from fifteen to twenty percent for 
regulated commodities and additional fees are incurred for each hour a 
truck must wait at the border. We believe that Customs must work to 
reconcile the clear demand for services with sufficient personnel to 
alleviate significant wait times and other impediments to trade at the 
border.
    Our companies have suggested that the use of intermodal rail 
transport for the movement of ``regulated'' products into the United 
States could reduce traffic and ease the burden on the northern ports. 
Last February, GMA companies, rail carriers and customs brokers met 
with an inter-agency team of officials to discuss such a proposal. We 
understand that as of yet no decision has been taken on this proposal.
    We believe that our detailed and comprehensive plan will ensure 
that the movement of regulated products is properly controlled. 
Unfortunately, this effort may be undermined by the USDA's insistence 
that they will not forgo the right to stop a train at any time even if 
an agreed movement of regulated product procedure is implemented. Rail 
carriers have indicated that the uncertainty of schedules under the 
USDA approach may preclude their carrying regulated products. They 
argue that since automotive parts and equipment use the same rail 
routes and rely on just in time delivery, they cannot afford to have 
trains stopped and inspected on a random basis. Rail carriers are 
simply not willing to put auto industry business at risk. We hope that 
Customs will work to reconcile these conflicting concerns in order to 
proceed with this new approach to ease the burden at our borders.

Inspections and Cargo Security
    Another difficulty we have encountered is with the inconsistent 
enforcement of policies with respect to the replacement of seals on 
vehicles that are broken upon inspection. In some cases, the seals are 
replaced and the new seal number recorded on the bills of lading. 
However, in other instances, inspectors will record that they will not 
replace the seal. In other cases, drivers are told bluntly that the 
inspectors simply will not replace the seals. Sometimes product is 
removed from the vehicle for purposes of inspection or analysis and not 
returned to the vehicle. The removal is not being documented on the 
bills of lading.
    This presents a major food safety and security issue for companies, 
since many retail and foodservice customers will not accept shipments 
of product from vehicles with no seals, or broken ones. The lack of 
seals and omission of notating when product has been removed from a 
vehicle, for purposes of examination or analysis, which are not 
properly returned results in undocumented receipt shortages. This is 
not conducive to the various security programs importers have 
implemented nor is it conducive to government sponsored security 
initiatives importers participate in such as the Customs-Trade 
Partnership Against Terrorism (C-TPAT).
    We believe that inspectors should be directed to replace broken 
seals on vehicles following inspections; notate on the bills of lading, 
or in some other form, the new seal number, what product and quantity 
has been removed from the vehicle (and not returned), where the 
shipment has been cleared for entry.

Conclusion
    Thank you for the opportunity to present our views today. We are 
hopeful that US Customs will work to increase the hours of operation of 
agricultural quarantine inspectors, adopt a workable intermodal 
transportation system for regulated products and ensure the consistent 
enforcement of policies with regard to replacement of broken seals and 
documented removal of product. We look forward to working with the 
Committee and US Customs to ensure that there is an appropriate balance 
between border security and trade efficiency at our northern ports.

                                 

   Statement of John T. Hyatt, International Freight Forwarders and 
 Customs Brokers Association of New Orleans, Inc., Metairie, Louisiana

    We appreciate the opportunity to address certain issues, which are 
the purview of your Subcommittee on Trade, and also of concern to our 
membership. Our organization consists of 43 member firms which operate 
in the Service Port of New Orleans and process entries (in addition to 
New Orleans,) at Baton Rouge, Birmingham, Chattanooga, Gramercy, 
Gulfport, Huntsville, Jackson, Knoxville, Lake Charles, Little Rock, 
Memphis, Mobile, Morgan City, Nashville, Pascagoula, Shreveport and 
Blountville (Tri-Cities.)
    In the post 9/11 era we have seen a number of initiatives rolled 
out by legacy U.S. Customs designed to secure the supply chain and 
thwart terrorist infiltration of cargo transport. We applaud these 
efforts, but at the same time feel as if we are working at cross-
purposes. Local Customs officials have been most helpful when we seem 
to hit bureaucratic walls. We were advised that a ``point'' system was 
established at the ATC (Automated Targeting Center) and promised less 
enforcement exams as each element of the supply chain became C-TPAT 
certified (carrier, importer, broker.) From anecdotal evidence we don't 
really see a diminution of these types of examinations. More troubling, 
it appears that in some cases, carriers and terminal operators may be 
using the excuse of ``security'' to create new profit centers. There 
should be some oversight (perhaps from the FMC,) requiring these 
entities to justify such charges based on cost analysis.
    We realize that there were some ``growing pains'' with the merger 
of legacy agencies into the Bureau of Customs and Border Protection and 
it may be too early to judge its success. Only recently has legacy 
Customs and USDA/APHIS standardized manning levels and work rules which 
should now allow 24/7 coverage for cargo inspection purposes, 
permitting more expeditious examinations within carrier free time 
periods. In the past, carriers had allowed additional free time due to 
government ``holds.'' That no longer obtains. Additionally, container 
demurrage charges have increased dramatically from $20/day to between 
$75 and $100/day. Thus, manning levels to ensure speedy releases are 
crucial to the trade.
    It is unfortunate that the U.S. Coast Guard was not also included 
in BCBP as its efforts seem to be duplicative and increasing the 
overall cost to the trade, i.e., opening sealed containers on vessels 
at sea, not resealing with any CG ``seal,'' causing BCP shore side to 
assume that container integrity had been compromised.
    Within the past generation U.S. international trade has grown from 
just 5% of GNP to over 25%. International trade is a vital part of our 
economy. Being mindful of this, we must ensure that at the same time we 
seek to secure our borders we do not jeopardize our economic well 
being.

                                 

                Statement of National Retail Federation

    On behalf of the U.S. retail industry, the National Retail 
Federation (NRF) submits these comments to the House Ways and Means 
Subcommittee on Trade for its hearing on U.S. Customs authorization and 
other customs issues. NRF is the world's largest retail trade 
association, with membership that comprises all retail formats and 
channels of distribution including department, specialty, discount, 
catalog, Internet and independent stores as well as the industry's key 
trading partners of retail goods and services. NRF represents an 
industry with more than 1.4 million U.S. retail establishments, more 
than 20 million employees--about one in five American workers--and 2003 
sales of $3.8 trillion. As the industry umbrella group, NRF also 
represents more than 100 state, national and international retail 
associations.
    Most of NRF's members import products into the United States or 
rely upon imported products to fill out their merchandise assortments. 
Many of our members are also participants in the Customs-Trade 
Partnership Against Terrorism (C-TPAT), and a very significant number 
are regarded by U.S. Customs as significant importers. For this reason, 
NRF has a strong interest in making sure that there are adequate 
resources to support the activities of the newly formed Department of 
Homeland Security (DHS), and its Bureau of Customs and Border 
Protection (CBP).
    NRF and the retail industry would like to impress upon this 
committee that while homeland security is an important national 
priority, there are still key trade compliance functions within CBP 
that must be adequately supported and monitored. We continue to be 
concerned about the balance between the agency's twin missions of 
security and trade facilitation, and urge the Committee to continue 
oversight of the agency to ensure that tariff collection and trade 
compliance do not become secondary considerations.
    We have several issues that we would like to address as part of 
these hearings: 1) Transition issues surrounding the removal of textile 
and apparel quotas at the end of this year; 2) The plans to regionalize 
CBP and its potential impact on trade compliance programs; 3) Issues 
relating to non-intrusive cargo exams; 4) Contingency plans in the 
event of a security ``event'' at one or more of our blue water 
seaports; and 5) Government funding for security.
Transition Issues for Textile and Apparel Imports

    Under the terms of the World Trade Organization Agreement on 
Textiles and Clothing (ATC), U.S. quotas on imports of textiles and 
apparel from most WTO members will be lifted on January 1, 2005, and 
trade in these industrial products will revert to the basic rules under 
the WTO that apply to all other industrial goods. There are only a 
handful of exceptions--China, which has special rules negotiated as 
part of it accession agreement to the WTO, and those nations that are 
not WTO members.
    Under the decades-old quota regime, importers are required to 
provide a paper ``textile declaration,'' which provides details on the 
origin of the goods and a ``visa,'' which is usually not electronic and 
is issued by the exporting country. Without these documents, no textile 
or apparel shipment can be entered into the commerce of the United 
States. These documents are provided to support the quota system, which 
limits imports by country and by textile category (a three-digit 
category system that is separate and distinct from the Harmonized 
Tariff System used to determine duty rates).
    These documentation requirements exist solely for the purpose of 
administering quotas, and, therefore, there is no overriding reason to 
continue them past January 1, 2005, for freely traded goods. No other 
industrial good, subject to the regular NTR rules, requires a visa 
provided by the exporting country. No other industrial good, subject to 
regular tariffs, requires a detailed origin declaration. NRF believes 
these requirements for textile and apparel imports should be dropped by 
U.S. Customs as of January 1, 2005.
    Eliminating these requirements would clear the way to automate 
trade in these product categories. Indeed, integrating these products 
into the normal way of conducting import transactions would free up 
needed resources to devote to security or other, more pressing, trade 
compliance issues. There is no reason to waste precious government 
resources on import documentation necessary to support a quota regime 
that has expired. Dropping these requirements will not reduce the 
statistical information obtained by Customs or Census, nor will it lead 
to greater trade fraud.
    Nevertheless, U.S. Customs has yet to provide any guidance to the 
trade on how documentation requirements will be modified or what 
transition mechanisms they plan to put in place leading up to the end 
of the quota system on January 1, 2005. Given the fact that we have 
known for ten years that these quotas will expire at the end of this 
year, it is curious that less than six months before the event, U.S. 
Customs has yet to issue any guidance at all.
    NRF strongly urges the Committee to exert oversight and direction 
over this process to ensure that the import procedures applicable to 
textiles and apparel, come January 1, 2005, are the same procedures 
that apply to all other normally traded industrial products.

Regionalization of CBP

    Many years ago NRF and other import groups worked with Congress to 
ensure that certain trade compliance aspects of U.S. Customs--rulings, 
regulations, and import specialists in particular--were centralized. At 
the time, there were concerns that trade compliance issues were being 
unevenly applied at different ports of entry, touching off so-called 
``port shopping'' to find the port with the easiest compliance 
requirements.
    NRF strongly believes that certain aspects of trade compliance--
especially those involved with helping importers classify merchandise 
for duty compliance--should remain centralized. More important, the 
application of trade compliance laws and regulations should be even-
handed and guided on a national basis.
    For these reasons, we have been deeply concerned over reports 
coming out of DHS that the department is preparing to implement a major 
decentralization plan for CBP. Details of this decentralization are 
unknown to us, but we continue to hear from U.S. Customs officials that 
the agency believes it must decentralize to meet its new security 
objectives. We urge this committee to ensure that such a 
decentralization will not apply to trade compliance activities of CBP.

Vehicle & Cargo Inspection Systems (VACIS) Issues

    In the wake of the events of September 11, 2001, Customs has 
significantly increased the number of cargo inspections it undertakes. 
The vast majority of these inspections are non-intrusive and use 
Vehicle & Cargo Inspection System (VACIS) technology, which scans 
containers through the use of gamma ray imaging.
    The use of VACIS exams is preferable to full physical cargo 
examination. However, it is clear that many seaports do not have a 
sufficient number of these systems. More important, the use of these 
systems has raised important health and safety concerns among long 
shore workers that call into question their efficacy and long-term 
viability as an inspection tool.
    It may be possible to move a VACIS system from one place to another 
as it is currently being employed. However, the system is designed to 
operate as a stationary piece of equipment. The system is set up at a 
location and trucks drive through it during which an x-ray is taken of 
the international shipping container. When used in this fashion, a 
VACIS system can process a container in a very short time, and 
significantly improve the ability of the United States to inspect 
cargo.
    However, most VACIS systems are not being used this way. Longshore 
workers have raised concerns about the long-term health effects on 
drivers who must drive a truck through this system. Consequently, most 
VACIS systems are now being used in a mobile mode where trucks are 
lined up and the VACIS machine is moved over the truck. This 
significantly slows the rate of inspection, results in many system 
failures and breakdowns, and is adding to congestion and air-pollution 
at the nation's ports.
    Congress should conduct further oversight with respect to the use 
of these systems. They must be certified as safe for the workers who 
must use them. If they are safe, then the government ought to take 
steps either to compel port workers to cooperate with these exams, or 
devote enough resources to employ its own truck drivers. Congress 
cannot hope to increase the number of non-intrusive exams without 
having significant supply-chain impacts if the technology is not well-
accepted by the workers who must use it, or if there are significant 
health or safety concerns about its use.

Emergency Seaport Contingency Plans

    Most of NRF's members who are large importers have fully embraced 
the C-TPAT program. They, more than anyone, understand the need to 
secure the supply chain from factory to store in an effort to avoid any 
kind of security problem related to international transportation. Our 
hope is to avoid any security ``event'' related to international cargo, 
because such an event would have catastrophic impact, not only on the 
nation's retailers, but also the entire U.S. economy. For this reason, 
we believe we need more than just preventive measures, we also need 
contingency plans relating to our nation's seaports.
    Our members have been told many times by officials at DHS and the 
Department of Transportation that a single incident in one of our 
seaports could result in every seaport in America being closed to trade 
for a period of time.
    We have only to look back on the events of 2002, when a labor 
dispute resulted in a ten-day closure of every port on the West Coast, 
to understand just how costly and devastating such a closure might be. 
Within one or two days, trains bearing export cargo stopped rolling. 
Grain elevators filled. U.S. freezers reached their capacity by the 
third day as fresh products were diverted to frozen. Exporters lost 
foreign sales as perishables rotted on the docks. By day five, 
manufacturers were shutting down factories and sending workers home. 
Even after the ports were reopened, it took months to sort out the 
backlog. And during the initial phases of the reopening, cargo was 
literally stranded at ports of call and forced to sit there for weeks 
on end because of government red tape.
    We know what would happen if another terrorist incident were to 
occur. But DHS appears to have no national contingency plan for 
actually dealing with the commerce of the United States should an event 
occur. Nor do we have a clear understanding of the conditions that have 
to be in place in order to reopen our ports after an incident. Finally, 
we need some attention to emergency rules, such as emergency suspension 
of the Jones Act, that will allow the diversion of cargo from one port 
of call to another in an instance where a single port is shut for an 
indeterminate period of time, but other seaports remain open.
    We call on Congress to insist that DHS and DOT collaboratively 
develop contingency plans for reopening ports after an incident, and 
for handling cargo diversion in emergency situations.

``Paying'' for Cargo Security

    From time to time it has been suggested that the trade community 
ought to ``pay for'' security in some way, usually through some kind of 
tax on import or export containers. The argument is often made that 
airport security is funded through passenger taxes. It has even been 
suggested by a few people that such a tax be used to support the 
funding needs of DHS itself.
    NRF strongly opposes any taxes or user fees that are applied to 
seaport containers. The trade community already makes a significant 
contribution to the U.S. treasury though Customs Merchandise Processing 
Fees and import tariffs. In fact, the trade-related revenues generated 
by trade activities are in excess of $20 billion each year. NRF 
strongly feels that the proceeds of the MPF should be specifically 
earmarked for U.S. Customs trade compliance and trade facilitation 
programs since those fees are collected directly from the trade 
ostensibly for those purposes. We understand that the most recent 
reauthorization of the MPF includes such an earmark, and we would urge 
the Committee to continue its support for such an earmark.
    We do not support specific earmarks for tariff collections; 
however, we urge Congress to keep these revenues in mind as we move 
forward with budget authorizations, and, more important, 
appropriations. Ensuring that DHS and CBP have sufficient resources to 
facilitate trade and meet security concerns ought to be a high federal 
priority. The fact that significant revenue is generated by 
international trade should be an important factor in setting spending 
priorities.
    In closing, NRF thanks the committee for holding these hearings and 
urges it to continue its oversight activities of DHS and CBP trade 
compliance activities. If you have questions about NRF or its positions 
on these issues, please contact Erik Autor, Vice President and 
International Trade Counsel at (202) 626-8104.

                                 

              U.S. Association of Importers of Textiles and Apparel
                                             Washington, D.C. 20037
                                                      June 14, 2004
Honorable Philip Crane, Chairman
Subcommittee on Trade
House Committee on Ways and Means
Washington, D.C. 20515

Dear Mr. Chairman:

    The upcoming hearing to consider the Fiscal Year 2005 budget for 
the Bureau of Customs and Border Protection (CBP) and H.R. 4418, the 
Customs and Border Security Act of 2004 provides an important 
opportunity for the Subcommittee to address significant issues related 
to the elimination of quota restrictions on January 1, 2005.
    One effect of the elimination of quotas under the World Trade 
Organization should be to guarantee that textiles and apparel are 
treated the same as other manufactured products, which are traded free 
of admissibility restrictions and/or additional paperwork requirements. 
This development will mean significant changes in the way that textile 
and apparel imports are handled at the point of entry into the United 
States. If the transition from strict control to a more efficient 
system is to work smoothly, a great deal must be accomplished before 
the end of the year by both CBP and the inter-agency Committee for the 
Implementation of Textile Agreements.
    We respectfully urge the Subcommittee to use the hearing next week 
to press CBP officials to move forward with promptly addressing the 
necessary changes in customs entry procedures.
    Because of the quota regime, importers of textiles and apparel have 
not been able to take advantage of many of the improved entry 
procedures available to importers of other types of merchandise. This 
creates additional work for importers and it certainly creates 
additional work for CBP, which has been required to operate parallel 
entry systems, one for textiles and apparel and another for most other 
merchandise. The end of quotas in 2005 will change all of that.
    USA-ITA has opened a dialogue with CBP on these issues. These 
discussions have centered on the following:

      Elimination of the ``live'' entry requirement;
      Elimination of the extended conditional release period
      Paperless entries made available to all textile and 
apparel imports;
      Elimination of the quota charge statement; and
      Elimination of the textile declaration.

    CBP has indicated that it will eliminate the quota charge 
statement, but is not able to make additional changes without CITA's 
approval. We respectfully urge the Subcommittee to question the extent 
to which CBP is compelled to await CITA approval, and to require CBP to 
initiate steps to modify its regulations.

1. Live entry
    Currently, textile and apparel products are subject to a so-called 
``live entry'' requirements, which means that the entry must be 
reviewed and duties paid before the goods may be released. While this 
may be justifiable where quotas apply, so that a determination of the 
availability of quota may be made before entry, it makes no sense once 
quotas are eliminated. The Subcommittee should require that CBP make 
the necessary changes to implement an elimination of the live entry for 
non-quota textile and apparel products as of January 1, 2005.

2. Conditional Release Period
    For all goods entering the United States, the initial release by 
CBP is conditional, subject to a demand for redelivery to CBP within 30 
days should CBP determine that entry requirements were not met. 
However, for textile and apparel products, CBP's regulations, at 19 CFR 
section 141.113(b), the conditional release period is extended another 
180 days--six months--during which CBP may demand redelivery of 
merchandise or, in the event of a failure to redeliver, assess 
liquidated damages. Clearly, this exceptional treatment of textile and 
apparel products can no longer be justified once the quotas no longer 
apply. Thus, the Subcommittee should instruct CBP to modify its 
regulations to eliminate the extended conditional release period for 
textile and apparel products not subject to quota.

3. Availability of Paperless Entry
    Today, textile and apparel products must be accompanied by a 
variety of piece of paper. These include a quota charge statement and a 
textile declaration. With the requirement of a presentation of these 
piece of paper, it is impossible for apparel importers to participate 
in the paperless entry process available to all other importers of 
consumer goods.
    It would seem to go without saying that once products are not 
subject to quotas, importers of such goods should not have to present a 
statement asserting whether they paid for any quota applicable to those 
goods. However, in the absence of a definitive statement from 
U.S.Government officials, uncertainty dictates that importers continue 
to obtain that statement from suppliers and include it with their entry 
package. CBP should be required to state with certainty that this 
document is not required for products no longer subject to quota.
    The various textile declarations are a particular concern. These 
are declarations that state that a textile product is a product of a 
single country (single country declaration) or of production in 
multiple countries (multiple country declaration) or that a textile 
product is not subject to quota restrictions at all (a negative 
declaration). If these pieces of paper continue to be required for 
release, none of the improvements in the clearance of textile 
products--or the treatment like all other goods--will be realized. The 
regulation requiring textile declarations, 19 CFR section 12.130(f), 
was created in the context of the quota regime and was intended to 
ensure that quota admissibility requirements were satisfied. These 
admissibility requirements will be eliminated on January 1, 2005. The 
Congress should therefore direct CBP to eliminate the textile 
declaration requirements from its regulations concurrent with the end 
of the quota system.
    If the textile declarations are not eliminated, CBP will have to 
continue to operate a separate entry system for textiles and apparel. 
The added expense and loss of efficiency that this caused might have 
been justified while quotas were in place; however, the end of the 
quota regime cancels any justification.
            Sincerely,
                                                        Laura Jones

                                 

                   U.S. Business Alliance for Customs Modernization
                                             Washington, D.C. 20005
                                                      June 17, 2004
Congressman Philip M. Crane, Chairman
Subcommittee on Trade
Committee on Ways and Means
1104 Longworth House Office Building
Washington, DC 20515

Dear Chairman Crane:

    The U.S. Business Alliance for Customs Modernization (BACM) 
welcomes the opportunity to provide this statement in lieu of a 
personal appearance at the June 17 hearing of the Subcommittee on 
Trade, Committee on Ways and Means, concerning budget authorizations 
for U.S. Department of Homeland Security (DHS) agencies and other 
customs issues. BACM is a coalition of two dozen of the largest U.S. 
importers and exporters. Our members file over two million customs 
entries valued at over $130 billion per year. BACM is dedicated to 
modernization of U.S. Customs laws, regulations and policies and is 
committed to the facilitation of trade to the greatest extent possible 
consistent with homeland security and trade compliance. A full list of 
the BACM member companies appears at the end of this statement.

Balancing Security and Trade Facilitation

    BACM fully supports the Bureau of Customs and Border Protection 
(CBP or Customs) in its critical new mission of securing our borders. 
Our member companies were among the first partners with the agency in 
its supply chain security initiatives. In fact, several BACM companies 
were among the charter members of the Customs-Trade Partnership Against 
Terrorism (C-TPAT), and we have worked closely with CBP on 
implementation of the advance notice requirements on inbound and 
outbound shipments.
    But these programs and measures are not without cost. Every change 
in commercial operations has its consequences. It is incumbent upon CBP 
to understand these nuances and to make balanced decisions. We commend 
the Subcommittee for your insistence that trade facilitation and 
protecting the revenue remain at the forefront of CBP's mission, along 
with its new mandate to safeguard our homeland security.
    With respect to the C-TPAT program, every single BACM company is a 
participant. As part of the government's ``layered'' border security 
system, it has effectively and dramatically enhanced the security of 
the global supply chain. We have no doubt that the success of this 
program is due to the fact that it is voluntary, and without a ``one-
size-fits-all'' template. It is critical that C-TPAT remain the 
voluntary partnership that it is, with guidelines rather than 
unrealistic standards, and that CBP be provided adequate funding for 
the program.

Department of Homeland Security Regional Management Structure

    As large importers utilizing many ports of entry throughout the 
U.S., BACM members are keenly interested in ensuring that the laws, 
policies, procedures and practices of CBP are uniform and consistent 
throughout the United States. While generally that is now the case, 
this was not always so. The Subcommittee on Trade was instrumental in 
the last decade in encouraging the Administration to achieve uniformity 
in the wake of the Customs Modernization Act of 1993. Eventually the 
Treasury Department did away with the old Customs regions system, under 
which some regions occasionally had acted autonomously and inconsistent 
with national policies or procedures.
    As we have clearly stated to the Administration, we recognize the 
need for the Department of Homeland Security (DHS) to create a regional 
structure to better organize the legacy disparate agencies for incident 
response management. However, we do have concerns about the impact a 
new regional structure might have on day-to-day CBP operations. We 
understand that DHS officials have acknowledged these concerns and have 
pledged to address them in the regionalization plan roll-out. To date, 
however, our offers to provide input into the planning process have not 
been accepted, no details have emerged, and we and the trade community 
as a whole continue to be apprehensive about the matter. BACM urges the 
Subcommittee to stay involved in the development of the DHS regional 
structure planning, and to help ensure that we do not revert 
inadvertently to the days when our companies received inconsistent 
treatment in different U.S. ports of entry.
Section 103: User Fees`

    Section 103 of H.R. 4418 would require a study on the extent to 
which the amounts of user fees imposed under the Consolidated Omnibus 
Budget Reconciliation Act of 1985 approximate the cost of the services 
provided by the Bureau of Customs and Border Protection. BACM supports 
this provision, because it is currently impossible to realistically 
align the level of the fees with the costs to provide services. 
Moreover, the fees collected have gone into the general revenue without 
any method to ascertain whether they have gone to funding CBP's 
commercial operations. BACM strongly supports tying the user fee 
collections directly to Customs operations.

Subtitle B: Technical Amendment

    Subtitle B of the bill provides for various amendments to the laws 
governing entry procedures and administrative review of Customs 
decisions. BACM strongly supports these amendments, which reflect a 
consensus among private sector and government experts as to the minimum 
level of statutory changes required to implement upcoming developments 
in the customs modernization plan. As the Subcommittee is well aware, 
initial releases under the Automated Commercial Environment are 
underway. The Trade Support Network, a joint government-industry 
partnership designed to ensure that ACE fulfills both sectors' 
requirements, has identified technical amendments needed to permit the 
realization of the new system's benefits. For example, Subtitle B would 
authorize line item liquidation when data is aggregated for periodic 
reporting, would improve on the periodic payment procedures, and would 
simplify the administrative review process. While all of the amendments 
may be ``technical'' in nature, they are critically important to 
providing the framework to capture the benefits of the modernization 
effort, and BACM urges that Subtitle B be enacted in this or any other 
vehicle as soon as practicable.

Conclusion

    BACM wishes to extend its appreciation to the Subcommittee for 
providing this opportunity to address the commercial operations aspect 
of CBP's mission. As some of the first private sector participants to 
partner with CBP to secure the supply chain after 9/11, our actions 
have shown our commitment to the new security paradigm. At the same 
time, we must continue with customs modernization and trade 
facilitation efforts, and CBP must continue its revenue protection 
function. BACM believes that with government-industry partnerships and 
the use of ``smart'' technology and programs, our nation can achieve 
both security of our borders and efficiency of customs commercial 
operations. We are committed to working with you and the Administration 
to achieve these goals.
            Sincerely,
                                                   Timothy Van Oost
                                                              Chair

                                 
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