[House Hearing, 109 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 NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 25, 2006

                               __________

                           Serial No. 109-85

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida                  MIKE THOMPSON, California
KEVIN BRADY, Texas                   JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York         RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON TRADE

                  E. CLAY SHAW, JR., Florida, Chairman

WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
PHIL ENGLISH, Pennsylvania           SANDER M. LEVIN, Michigan
JIM NUSSLE, Iowa                     JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               JOHN B. LARSON, Connecticut
RON LEWIS, Kentucky                  JIM MCDERMOTT, Washington
MARK FOLEY, Florida
KEVIN BRADY, Texas
THOMAS M. REYNOLDS, New York

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 announcing the hearing..................................     2

                               WITNESSES

U.S. Department of Homeland Security, Hon. W. Ralph Basham, 
  Commissioner, U.S. Customs and Border Protection...............     8
U.S. Department of Homeland Security, Hon. Julie Myers, Assistant 
  Secretary, U.S. Immigration and Customs Enforcement............    15

                                 ______

Barthco Trade Consultants, on behalf of National Customs Brokers 
  and Forwarders Association of America, Mary Joe Muoio..........    41
International Council of Cruise Lines, Michael Crye..............    46
Procter and Gamble Company on behalf of American Association of 
  Exporters and Importers, Charlene Stocker......................    52
FedEx Express, Brian Gill........................................    68
National Treasury Employees Union, Colleen Kelley................    74
Fresca Farms on behalf of Association of Floral Importers of 
  Florida, Mario Vicente.........................................    71

                       SUBMISSIONS FOR THE RECORD

Autor, Erik, National Retail Federation, letter..................   105
Carter, Hon. John R., a Representative in Congress from the State 
  of Texas, statement............................................   108
Hyman, Elizabeth, Consumer Electronics Association, Arlington, 
  VA, letter.....................................................   109
U.S. Citizenship and Immigration Services, U.S. Department of 
  Homeland Security, statement...................................   115
Weeks, Ann, Underwriters Laboratories Inc., statement and 
  attachment.....................................................   118


                     CUSTOMS BUDGET AUTHORIZATIONS
                        AND OTHER CUSTOMS ISSUES

                              ----------                              


                         TUESDAY, JULY 25, 2006

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 1100, Longworth House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
July 18, 2006
TR-4

                   Shaw Announces Hearing on Customs

             Budget Authorizations and Other Customs Issues

    Congressman E. Clay Shaw, Jr. (R-FL), 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) 2007 and FY2008 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 Tuesday, July 25, 
2006, 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 and for inclusion in the printed record of the 
hearing.
      

BACKGROUND:

      
    Budget Authorizations:
      
    Customs functions were last authorized in the Trade Act of 2002 
(P.L. 107-210). For FY2007 the Administration requested $6.574 billion 
for CBP and $4.444 billion for ICE. On June 6, 2006, the House passed 
H.R. 5441, which would provide $6.434 billion in funding for CBP and 
$3.876 billion for ICE for FY2007. On July 13, 2006, the Senate passed 
an amended version of H.R. 5441, which would provide $6.683 billion for 
CBP and $3.920 for ICE.
      
    Other Customs Issues:
      
    Reorganization in DHS: On November 25, 2002, the President signed 
into law legislation (P.L. 107-296) creating DHS. Among other 
provisions, this legislation required that the customs revenue 
functions that existed prior to the creation of DHS not be diminished. 
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 
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 ICE. 
In July 2005, DHS reorganized, eliminating the Under Secretary for 
Border and Transportation Security, which had overseen CBP and ICE, and 
creating an Assistant Secretary for Policy to, among other duties, 
coordinate trade policy.
      
    Issues for the Subcommittee to address involve whether the new 
agencies are operating effectively, whether trade functions are being 
given sufficient priority now that the agencies are integrated into a 
department focused on security, whether trade concerns are adequately 
vetted before new DHS policies and programs are implemented, and 
whether adequate resources are devoted to customs functions.
      
    Trade and Security: In November 2001, CBP initiated the Customs-
Trade Partnership Against Terrorism (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. More than 6,000 businesses participate in C-TPAT and more than 
10,000 have applied, according to CBP. The U.S. General Accounting 
Office (GAO) issued a report regarding C-TPAT in March of 2005 in which 
it found C-TPAT to be a promising program but also identified a number 
of areas that needed to be addressed. In particular GAO cited concerns 
about whether CBP's validation process is rigorous enough to ensure the 
reliability of member's security profiles, the sufficiency of CBP's 
human capital to plan for the program; the need for a comprehensive set 
of performance measures and indicators to monitor program goals; and 
the need for an effective records management system for C-TPAT. Because 
C-TPAT also has yet to validate many of its members, some Members of 
Congress advocate that private sector firms be used for this purpose. 
In addition to C-TPAT, DHS has implemented several other new programs 
to increase screening of imports, such as requiring of advance data on 
shipments, and there have been several recent proposals to expand or 
enhance these efforts.
      
    Finally, the enhanced security requirements related to individuals 
entering the United States has impacted the ability of U.S. companies 
to arrange for visits by potential customers and business partners to 
increase U.S. trade opportunities. U.S. companies rely on the ability 
of individuals to obtain visas to enter the United States to engage in 
trade and to work with their foreign counterparts in order to compete 
in the global market place. In addition, U.S. companies that rely on 
moving customers, passengers, and officials in and out of the United 
States have had to adjust due to enhanced and sometimes repeated 
screening of individuals. The DHS is exploring potential programs that 
will help facilitate such business travel and address other concerns 
while maintaining security.
      
    Issues for the Subcommittee to address involve the effectiveness of 
these programs in enhancing security and facilitating trade, whether 
performance measures exist to determine the effectiveness of these 
programs, whether companies are receiving the anticipated trade 
benefits from programs such as C-TPAT, how confidential business 
information will be protected under these programs, and how the 
programs are being applied to and impact both large and small 
businesses.
      
    Customs Modernization: The current Customs automation system, the 
Automated Commercial System (ACS), is an aging system that has in the 
past 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. As of 
December 2005, the number of ACE portal accounts topped 1,000.
      
    In addition, CBP is in the process of integrating the International 
Trade Data System (ITDS) with ACE. The 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. The ITDS 
will provide only the data necessary to an agency's mission. As of 
November 2005, 20 Federal agencies utilize the ITDS and ACE systems.
      
    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 
business community in building ACE.
      
    In announcing the hearing, Chairman Shaw stated, ``One of the 
highest priorities of our government is ensuring the security of our 
borders, while facilitating the legitimate trade that is the lifeblood 
of our economy. The efforts of the Department of Homeland Security in 
this area are vitally important to protecting both the safety and 
economic security of America's citizens. I look forward to the 
opportunity to see how the Subcommittee can make sure that the 
Department has the resources it needs and to examine the systems that 
the Department has in place.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on budget authorizations for FY2007 and 
FY2008 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 SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Matthew Turkstra or Cooper Smith at (202) 225-1721 no later than noon, 
Thursday, July 20, 2006. 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 Committee 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 
Committee staff at (202) 225-1721.
      
    In view of the limited time available to hear witnesses, the 
Committee 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 Committee are required to submit 100 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 close of business on Friday, July 
21, 2006. The 100 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 
searchable box, but must carry with them their respective government 
issued identification to show the U.S. Capitol Police, or (2) for non-
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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 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
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submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Tuesday, 
August 8, 2006. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
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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 
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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 
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    1. All submissions and supplementary materials must be provided in 
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noted above.

                                 

    Chairman SHAW. Good morning. In the wake of September 11, 
2001 (9/11), few Americans would question the importance of 
securing our borders. At the same time, the free flow of 
international trade is the lifeblood of our Nation's economy 
and vital to the economic prosperity of our citizens. Today, we 
are exercising a critically important responsibility of the 
House Committee on Ways and Means Subcommittee on Trade, that 
is to examine how these goals are balanced by our government.
    In recent years, there have been dramatic changes in how we 
address these issues. One of the largest government agencies 
ever created, the Department of Homeland Security (DHS), was 
established by Congress and given jurisdiction over these 
critical missions. The former Customs Bureau saw its function 
divided into two DHS entities--the Bureau of Customs and Border 
Protection (CBP), and the Bureau of Immigration and Customs 
Enforcement (ICE), and the heads of these bureaus are here 
before us today. In creating DHS, the Committee on Ways and 
Means and the Congress insisted that the trade and customs 
revenue function that existed prior to its creation not be 
diminished. This is an important oversight issue that we will 
be reviewing today, and particularly whether more needs to be 
done to ensure that CBP and ICE have the resources, authority, 
and organizational capacity to both guard our Nation and 
facilitate trade. In order for these efforts to be successful, 
they must be done in partnership with the Congress and 
committed U.S. companies who have the experience and 
information to secure the supply chain against threats. The 
Customs Trade Partnership Against Terrorism (C-TPAT) and the 
similar programs reflect this important partnership. Today, we 
will be looking at ways to strengthen such partnerships and to 
ensure that congressional and private sector concerns are fully 
factored into important DHS decisions that impact trade.
    I am glad that we have a strong and wide representation of 
private sector witnesses with us today to help us examine these 
issues. Both U.S. competitiveness and security also depend on 
our ability to make our customs process modern and efficient 
while obtaining and protecting appropriate information. Efforts 
such as automated customs environment (ACE) and integrated 
trade data systems have been in the works for years but must be 
moved rapidly to completion. In addition, the Committee on Ways 
and Means has placed a great deal of emphasis on enforcing our 
trade agreements, and CBP and ICE are on the frontlines of 
efforts to combat fraud in areas such as textile transshipment 
and defend against intellectual property rights theft, costing 
the United States billions of dollars each year. We look 
forward to thoughts on how these efforts can be strengthened.
    Let me say now for the record, defending this country is 
our Nation's number one priority. I believe this. I have no 
doubt the Ranking Member believes this, and I feel safe in 
assuming that everyone else in this room right now feels this 
to be the case. However, our economy depends upon the free flow 
of international trade. CBP and ICE do not have an easy 
challenge before them. Every day they must not only do what is 
necessary to protect our citizens, but, at the same time, they 
must ensure the greatest and largest economy in the world, our 
economy, continues to run smoothly. I look forward to hearing 
our witnesses today, and I now recognize the gentleman from 
Michigan, Mr. Levin, for any comments he might have, and for 
the record, any other Members that wish to put an opening 
statement in the record, it will remain open for that purpose. 
Mr. Levin.
    Mr. LEVIN. Thank you. Thank you, Mr. Shaw, and I am glad we 
are holding the hearing today and that we have these two 
panels. The trade facilitation and trade enforcement functions 
performed by CBP and ICE are of critical importance to all 
American companies that import and export more than a trillion 
dollars of goods across the borders each year. You are right, 
Mr. Chairman, we very much share the absolute essential nature 
of providing border security. We also need to pay attention to 
the trillion dollars of goods that come across our borders. So, 
it is particularly important that this Committee take the time 
to review the trade-related operations of CBP and ICE.
    Homeland Security Committee has taken a look at the efforts 
relating to the security of this country, but of course, as 
mentioned, there are the trade functions, and it is our 
mission; ensuring the flow of legitimate trade and enforcing 
U.S. trade laws, that falls under the jurisdiction of our 
Committee. As we have looked at the data, it unfortunately 
appears that, under this administration, there has been 
inefficient attention to the trade functions of CBP and ICE. 
One concrete example of this is, the staffing for CBP and ICE's 
trade functions has fallen in recent years despite the 
increased flow in trade across our borders and the increased 
complexity of our trade laws. As we understand it, the number 
of import specialists employed by CBP at U.S. ports has dropped 
from 984 positions in March of 2003 to 892 positions 3 years 
later.
    Similarly, as we understand it, the number of personnel 
dedicated to trade enforcement at ICE has dropped from 276 in 
2004 to 228 today. What does this mean in practice? Fewer 
import specialists to review shipments entering our ports. More 
imports entering the U.S. market in violation of U.S. rules. It 
means fewer trade enforcement officers at ICE to investigate 
customs violations, contraband smuggling operations and 
Intellectual Property Rights (IPR) violations. I think what is 
even more disturbing has been the decline in staffing for trade 
functions and that this decline violates section 412(b) of the 
Homeland Security Act of 2002, (P.L. 107-296). It was placed in 
the law as follows: that the Secretary may not reduce, and I 
quote, ``the staffing level or the resources attributed,'' end 
of quote, to the functions performed by the former customs 
service. It was placed in the act at the behest of this 
Committee out of concern that the trade functions might be 
receiving less attention.
    In November, the Inspector General at the Department of 
Homeland Security released a report stating that a lack of 
cooperation--this is another factor--between CBP and ICE has 
created, and I quote, ``an environment of uncertainty and 
mistrust between CBP and ICE personnel.'' If CBP and ICE are to 
function as two separate agencies, communication between the 
two agencies must be seamless.
    So, I hope both of you will address these issues. Let me 
raise two other issues. One relates to the inspection of cargo 
containers coming to the United States. Five years after 9/11, 
as we understand it, only 6 percent of these containers are now 
being physically inspected, and that seems clearly 
unacceptable.
    Secondly, and I want to raise this quickly, an issue of 
special concern to Michigan but also to other States, and that 
relates to the issue as to identification of persons who pass 
between United States and Canada. The Western Hemisphere Travel 
Initiative, WHTI, will require that all entrants to the United 
States provide a passport or combination of documents denoting 
both citizenship and identity when entering into the United 
States starting January 2008. Protecting our citizens and 
ensuring their safety and security is, as stated, of the utmost 
importance, but there remains a great deal of concern that 
WHTI's requirement could lead to significant problems at 
Detroit-Windsor and other land borders, including delays that 
will stifle trade and commerce across the northern border. We 
are talking about 174,000 Michigan jobs supported by trade 
between the United States and Canada. Given what is at stake 
for our northern border States, I would urge DHS and the State 
Department to carefully review and map out all possible options 
before undertaking actions that are not necessary for 
security--that comes first--but may harm the flow of trade 
between our two countries. Thank you, Mr. Chairman.
    Chairman SHAW. We have our first panel of witnesses. We are 
pleased to welcome the Honorable Ralph Basham, who is the 
Commissioner of the U.S. Customs and Border Protection, the 
U.S. Department of Homeland Security. Hon. Julie Myers, 
Assistant Secretary for U.S. Immigration and Customs 
Enforcement, the U.S. Department of Homeland Security. We have 
your written statements, or I know we have Ms. Myers' written 
statements, which will be made a part of the record, and we 
invite you to proceed or summarize as you see fit. Mr. Basham.

STATEMENT OF THE HONORABLE W. RALPH BASHAM, COMMISSIONER, U.S. 
  CUSTOMS AND BORDER PROTECTION, U.S. DEPARTMENT OF HOMELAND 
                            SECURITY

    Mr. BASHAM. Thank you, Mr. Chairman, and the Members of the 
Subcommittee. I want to thank this Subcommittee for your 
continued support to ensure that CBP has the necessary funding 
and resources to carry out our dual missions of protecting our 
borders and ensuring the free flow of legitimate trade and 
travel. CBP's mission is a constant balancing act of protection 
and facilitation. For the sake of both our National security 
and our National economy, it is imperative that we strike the 
appropriate balance. It is imperative, too, that we understand 
that these dual missions are not necessarily mutually 
exclusive. They are, in fact, complementary.
    The programs we have instituted to secure legitimate trade 
and travel also make us vastly more efficient at processing 
legitimate commerce and passengers. As you know, after 9/11, 
CBP developed a smart border strategy to accomplish our twin 
goals of security and facilitation. It is a strategy built on 
five interrelated initiatives: getting advanced information; 
using that information to target for terrorist risks; detection 
technology; and partnerships--partnerships with other countries 
through our Container Security Initiative (CSI); and 
partnerships with our private sector through the C-TPAT. These 
initiatives work together to secure America's ports and borders 
while also contributing to a safer, more efficient trade and 
travel.
    While securing our borders is our first priority, I want to 
reassure the Subcommittee that we have taken steps to ensure 
that facilitating international trade, collecting revenue for 
the U.S. Treasury and protecting the American economy remain 
priorities for CBP. Last year, CBP processed almost 29 million 
entry summaries; that is a record high. Ninety-five percent 
were compliant with trade laws. This year, we expect to collect 
$30 billion in duties, fees and taxes. At the same time, the 
value of the U.S. imports grew to $1.7 trillion, and with this 
growth comes concern about violations of our trade laws.
    To address the trade risk, CBP has implemented a national 
trade strategy that complements our strategy for securing and 
facilitating trade. The strategy is organized around priority 
trade issues and brings together the skills of many CBP 
employees, from international trade specialists and import 
specialists to attorneys and fines and penalty specialists, to 
protect American business from theft of intellectual property 
and unfair trade practices, enforce trade laws related to 
admissibility, including textiles, regulate trade practices to 
collect the appropriate revenue and protect American 
agriculture and the public from health and safety threats. In 
the area of intellectual property rights, for example, seizures 
of counterfeit goods have increased 125 percent from 2001. So, 
far this year, IPR seizures are up 72 percent over the same 
time last year. I recognize your concerns about the staffing 
levels dedicated to our revenue functions. I recognize, too, 
that CBP has not yet made the staffing mandates of the Homeland 
Security Act of 2002. Currently, of the 984 positions required, 
we have 897 onboard and another 40 are in the pipeline. Mr. 
Chairman, we will meet those mandate numbers and do so 
hopefully in a reasonable time. Once we meet those numbers, 
however, I would ask that we begin a dialog about what improved 
technology like ACE means to our staffing requirements and 
where some of the staffing needs might move in the future. In 
this new more automated environment, human resources are not 
the only way to measure success. We must also factor in 
advances in technology and infrastructure.
    Nonetheless, this year CBP will spend over $212 million on 
trade compliance staffing, this is $36 million more than last 
year. Now, let me turn to the issue of data. Both our cargo 
security strategy and trade enforcement initiatives depend on 
the collection of commercial data. We are working closely with 
the private sector to determine the best way to approach the 
vast amount of data associated with the international trade and 
how that data can be used to improve supply chain security and 
trade enforcement. Our goal is to combine into a single set of 
data requirements that the trade reports to the U.S. 
Government. We have received tremendous support from the 
international trade community in the development of the 
automated commercial environment. We are already seeing the 
benefits of ACE through the collection of over $5 billion of 
duties and fees using a new periodic monthly statement process.
    Mr. Chairman, I assure you that while we work to secure our 
country against terrorist attacks, we have not forgotten our 
trade responsibilities. For the health of our economy and the 
security of our Nation, we must do both. We appreciate the 
support of this Committee for our dual missions, and again, I 
thank you for the opportunity to testify. Thank you, Mr. 
Chairman.
    Chairman SHAW. Thank you, Mr. Basham. For the record, we do 
have your full statement. Ms. Myers.

    [The prepared statement of Mr. Basham follows:]

Statement of The Honorable W. Ralph Basham, Commissioner, U.S. Customs 
      and Border Protection, U.S. Department of Homeland Security

    Chairman Shaw, Ranking Member Cardin, and Members of the 
Subcommittee, it is a privilege and an honor to appear before you today 
to discuss the trade functions and enforcement efforts of U.S. Customs 
and Border Protection (CBP) of the Department of Homeland Security.
    Let me begin by thanking this Committee for the interest and 
support you continue to provide to CBP as we pursue our ``twin 
goals''--performing our important security and trade enforcement work 
without stifling the flow of legitimate trade and travel that is so 
important to our nation's economy.
    Your support has enabled CBP to make significant progress in 
securing our borders and protecting our country against transnational 
threats, and we look forward to working with you to build on our 
success.
    In our three years of existence, CBP has made great strides toward 
securing America's borders, protecting trade and travel, and ensuring 
the vitality of our economy. CBP keeps our nation strong by guarding 
our borders, securing trade and our economy, protecting American 
businesses from theft of their intellectual property, regulating and 
facilitating international trade, collecting import duties, enforcing 
United States trade laws, protecting our food supply, and preventing 
illegal drugs from reaching our streets.
    In Fiscal Year (FY) 2005, CBP processed almost 29 million trade 
entries, collected revenue exceeding $28 billion, seized 2 million 
pounds of narcotics, processed 431 million pedestrians and passengers, 
121 million privately owned vehicles, and processed and cleared 25.3 
million sea, rail, and truck containers.
A Balancing Act
    CBP's job is a constant balancing act of protection and 
facilitation. And, it is a mission that depends on our partnerships 
with others.
    The challenges CBP faces are not unlike what the Secret Service 
encounters in protecting the President and the White House on a daily 
basis. Both CBP and the Secret Service must deal with the constant 
tension of maintaining a balance between security and facilitation. If 
the Secret Service let security become its one and only concern, then 
the President and his staff would not be able to do their jobs. 
Likewise, if CBP focuses solely on securing trade and travel at the 
expense of free movement, our liberty and economy will suffer.
    For both our national security and our national economy, it is 
imperative that we find that appropriate balance.

Strategy for Securing and Facilitating Trade
    Ensuring safety at our Nation's borders and efficiently and 
effectively processing international trade are inextricably linked.
    CBP's priority mission is to protect the American public from 
terrorists and terrorist weapons. At the same time, CBP retains the 
traditional customs mission of protecting the revenue and facilitating 
the movement of legitimate trade. While these two missions may at first 
seem to be unrelated, they actually represent two sides of the same 
coin. Both CBP and U.S. Immigration and Enforcement (ICE) seek balance 
enforcement and facilitation with protecting national security and 
facilitating legitimate trade and travel.
    Given the growth in trade, and the continued terrorist threat, 
CBP's challenge is clear: we must facilitate legitimate international 
trade, which is part of our economic lifeblood, while we protect the 
country from terrorists and their weapons. CBP has worked to develop--
and implement--a ``smart border'' strategy to accomplish both 
objectives; a strategy that better secures the cross border movement of 
trade and people, but does so in ways that makes that movement more 
efficient; a strategy that accomplishes the ``twin goals'' of security 
and facilitation.
    These twin goals, and CBP's strategy to achieve them, are built on 
five interrelated ``pillars.'' Both the security and trade missions use 
the five pillars as the key components to achieving our mission goals:

      Advance information about what is heading to the U.S. 
from abroad
      Automated targeting
      Sophisticated detection technology
      Partnering with other countries
      Partnering with the private sector

Pillar One: Advance Information
    CBP requires advance electronic information on all cargo being 
shipped to the U.S. before it arrives at our ports of entry. For 
oceangoing cargo containers being shipped to the U.S, that means 
advance manifest data 24 hours before they are loaded at overseas 
seaports on board vessels headed for the U.S. That is the 24-Hour Rule, 
which has been in effect since 2002. The Trade Act rules extended the 
advance electronic information requirement to all modes of 
transportation, including truck, rail, and air.
    This security approach also supports the CBP trade mission. 
Receiving this information in advance helps CBP determine whether goods 
being shipped to the United States are admissible for entry into the 
country, and also helps prioritize the agency's trade workload. 
Additional data, which is currently captured later in the import 
process, could also be provided in advance. This would enable the 
agency to make many trade determinations before goods arrive, 
facilitating the low risk shipments and allowing CBP to focus trade 
resources on high-risk shipments.

Pillar Two: Automated Targeting
    The second pillar is evaluating that advance information for risk 
of terrorism. To do this, CBP built the National Targeting Center 
(NTC), which stood up in October 2001. Using the Automated Targeting 
System (ATS), CBP has built in targeting or risk assessment rules and 
algorithms based upon strategic intelligence about the terrorist 
threat.
    ATS and other targeting systems are used to target trade risks, as 
well. As it has been developed, new capabilities have been added in ATS 
that allow CBP personnel to identify anomalies relevant to the trade 
mission. For example, ATS is now being used to target shipments that 
may violate pharmaceutical and Intellectual Property Rights (IPR) 
import laws. Coupled with the receipt of advance information, automated 
targeting will enhance our ability to focus on priority trade issues.

Pillar Three: Technology
    The third pillar is detection technology. CBP requires all high-
risk containers arriving at U.S. ports of entry to be given security 
inspections, using NII and radiation detection devices. Non-intrusive 
inspection equipment has enabled CBP to do this, as has automated risk 
targeting for the terrorist threat.
    Technology also helps advance our trade mission. By speeding the 
security review process and eliminating the need to physically examine 
high-security-risk containers, CBP's trade resources can focus their 
time on examining cargo for compliance with U.S. trade laws. And next-
generation targeting tools, such as statistical risk modeling 
techniques, are also being developed in the Automated Commercial 
Environment (ACE) to provide greater depth to our modernization 
efforts.

Pillar Four: Partnering with other Countries
    The fourth pillar, partnering with other countries, is best 
exemplified by the Container Security Initiative (CSI), a program which 
ICE participates in as well. Under CSI, high-risk containers receive a 
security inspection before being loaded onto a vessel destined for the 
U.S. Once high-risk containers are inspected at CSI ports, using the 
same ATS targeting rules used at U.S. ports, they are not ordinarily 
inspected again upon arrival in the U.S. This means that the containers 
inspected at CSI ports actually move faster and more predictably 
through U.S. seaports.
    CBP also has a program for commercial trucks--FAST--Fast and Secure 
Trade--where importers, trucking companies, and truck drivers are 
vetted and pre-cleared to move through dedicated ``FAST'' lanes across 
the Canadian and/or Mexican border.
    CBP and ICE have long partnered with other nations to enhance trade 
enforcement. These agencies have Customs Mutual Assistance Agreements 
with many countries. Their original intent was to enhance international 
cooperation in enforcing trade laws. CBP also participates in the 
negotiation of free trade agreements to assure adequate trade 
enforcement provisions. CBP and ICE conduct foreign factory visits to 
ensure compliance with textile import laws, and cooperate on joint 
initiatives to address mutual trade risks, such as in Intellectual 
Property protection.

Pillar Five: Partnering with Private Sector
    Partnering with the private sector is the fifth pillar. For cargo 
security, that is C-TPAT, the Customs-Trade Partnership Against 
Terrorism, which began in November 2001 with just 7 companies. Today, 
more than 10,000 companies have applied to become C-TPAT members, and 
more than 6,000 companies have been certified as having implemented C-
TPAT security criteria. Through its C-TPAT partnership with the private 
sector owners and operators of the supply chain, CBP has dramatically 
increased the security of the supply chain, from the foreign loading 
docks all the way to U.S. ports.
    CBP's validation process confirms the effectiveness, efficiency and 
accuracy of a C-TPAT certified member's supply chain security. At 
present, the C-TPAT program has completed validations on 50 percent 
(3,039 validations completed) of the certified membership, up from 8 
percent (403 validations) completed in January of 2005. Validations are 
underway on another 15 percent of certified members, and these 
validations will be completed by the end of this year, bringing the 
total percentage of validated certified members to 65 percent. The goal 
is to validate 100 percent of certified members by the end of 2007, and 
we will reach this goal.
    C-TPAT is only one of the ways CBP has partnered with the private 
sector. The Commercial Operations Advisory Committee (COAC) is CBP's 
private sector advisory body that helps provide insight into our 
commercial operations. The Trade Support Network (TSN) is another body 
that ensures private sector needs are taken into account as CBP builds 
the Automated Commercial Environment. Participants in the Importer Self 
Assessment (ISA) program, once they have demonstrated a high-level of 
compliance, are allowed to be largely self-policing, which enables the 
agency to focus on higher-risk traders.
    All of these initiatives help to extend the zone of security beyond 
our nation's actual borders--and they help CBP meet its ``twin goals'' 
of securing our Nation while maintaining the flow of legitimate trade. 
As they have been since the birth of the Nation, border security and 
trade facilitation are inextricably linked. must maintain and 
strengthen the programs developed since September 11 to meet these twin 
goals for the safety and economic security of the Nation and its 
citizens.

Trade Security and Trade Compliance Programs with Facilitation Benefits
    Through its trade security programs, CBP works with the trade 
community and foreign governments to ensure secure borders and the 
Nation's physical security. And with over $1.7 trillion in imported 
goods brought in by 823,000 consignees, maintaining a high level of 
compliance with trade laws and protecting the Nation's economic 
security requires strong cooperation with the trade community. 
Virtually all of our key trade security and compliance programs use 
facilitation benefits as a critical tool in the fight against terrorism 
while ensuring the free flow of legitimate trade.
    Some of the key programs that use facilitation as a benefit to the 
trade community include:

Advance Electronic Manifest Information (``24-Hour Rule'')
    CBP requires carriers to submit advance electronic cargo manifest 
information. Screening of this information enhances CBP's ability to 
identify and intercept high-risk cargo before it enters the U.S. or 
departs the U.S. and is unrecoverable. Early identification of high-
risk cargo results in the faster movement of low-risk imports and 
exports. Advance electronic cargo manifest information must be 
transmitted to CBP within specific time frames that vary by mode of 
transportation.

Customs-Trade Partnership Against Terrorism (C-TPAT)
    The largest public-private industry partnership to emerge after 9/
11, C-TPAT is a voluntary, incentives-based partnership between CBP and 
industry that works to:

    1) secure the international supply chain and prevent/deter 
introduction of a weapon of mass destruction, or illegal contraband or 
aliens, into a shipment destined for the United States, and
    2) facilitate the movement of low-risk cargo through expedited 
processing, ``Front of Line'' inspections, and reduced examinations.

    C-TPAT membership is open to all importers, cross-border air, sea, 
truck, and rail carriers, brokers, freight forwarders, consolidators, 
non-vessel operating common carriers, and U.S. marine and terminal 
operators. Certain foreign manufacturers are being enrolled in the C-
TPAT program while CBP continues to develop ways to include this 
important element of the supply chain in the program.
    Companies participating in C-TPAT leverage their corporate strength 
and influence to push security enhancements throughout the 
international supply chain, beyond the regulatory reach of the U.S. 
government. The intent is to increase point of origin to point of 
arrival security into the supply chain. C-TPAT importers secure supply 
chains from the foreign factory loading docks of their vendors to the 
port of arrival in the U.S. CBP's validation process confirms the 
effectiveness, efficiency and accuracy of a C-TPAT certified member's 
supply chain security. Companies that fail to honor C-TPAT commitments 
may be suspended or removed from the program, and lose program 
benefits.

Free and Secure Trade (FAST)
    FAST is an initiative between the United States, Mexico, and Canada 
designed to ensure security and safety while enhancing the economic 
prosperity of each country. FAST promotes free and secure trade by 
using common risk management principles, supply chain security, 
industry partnership, and advanced technology to screen and clear 
commercial traffic at our shared borders more efficiently. The 
initiative enables CBP to direct security efforts and inspections where 
they are most needed while providing for expedited movement of 
legitimate, low-risk commerce.

Binding Rulings
    One of the keys to facilitation of trade is providing timely 
information to the trade community. CBP is a leader among the world's 
customs services in providing such information to enable the trade 
community to meet its legal obligations. This is done through a variety 
of tools that we make available to the public. Principal among these is 
CBP's binding rulings system in which we provide advance decisions on 
tariff classification, valuation, marking, and eligibility under 
various Free Trade Agreements. These rulings are seen as vital for 
traders to plan their import transactions. CBP publishes dozens of 
Informed Compliance Publications on subjects ranging from reasonable 
care to classification and value, providing, in basic language, the 
legal requirements in a specific area of customs law and practice.

Importer Self-Assessment
    The Importer Self-Assessment program (ISA) is a trade facilitation 
partnership program that recruits trade compliant companies in order to 
reduce both CBP and company resources required at the border and after 
the goods have been released. ISA candidates are selected only from C-
TPAT participants and add a trade compliance component for importers 
that have demonstrated supply chain security. The program provides 
significant trade-related benefits that facilitate the movement of 
legitimate trade while improving compliance. ISA participants have a 
97.4 percent compliance rate, higher than any other group in the 
importing community. Additionally, ICE is a voting member of the ISA 
membership board.

Automated Commercial Environment (ACE)
    The five aforementioned pillars are embodied in one of my top 
priorities--ACE. ACE is the information technology that will help us 
accomplish our twin goals, providing the information to decide, before 
a shipment reaches U.S. borders, what cargo should be targeted because 
it poses a potential risk, and what cargo should be expedited because 
it complies with U.S. laws. ACE will consolidate or integrate seven 
different current systems--including ATS and FAST--and will serve as 
the single Government window for trade data that supports both cargo 
security and our trade enforcement and facilitation efforts.
    Using the improved technologies inherent in ACE, CBP will have a 
significantly improved ability to obtain advance electronic trade data, 
including information on cargo, conveyance, and crew. This information 
will enable us to more effectively support risk-based targeting, and to 
better share and analyze information with other federal agencies that 
have border security responsibilities. When combined with C-TPAT and 
CSI and the international aspects of those programs, ACE is part of a 
formidable triad against terrorism, and an enabling technology to make 
the global supply chain more efficient and secure.
    In coordination with our partners in the Trade Support Network, and 
with other federal agencies, we are identifying the capabilities that 
are being built into ACE, and enhancing the business processes that ACE 
will support. Today, 28 agencies are participating in ACE development 
and implementation, and more than half of those agencies are currently 
accessing real-time information through the ACE Secure Data Portal. 
Today, ACE is being used for national trade account management and 
monthly periodic payment of duties and fees. In addition, we have 
initial ACE cargo release capabilities operating at 44 land border 
ports.

National Trade Strategy
    Along with its priority antiterrorism mission, CBP is responsible 
for traditional trade missions, including border enforcement of trade 
laws, regulations and agreements, and collecting revenues in the form 
of import duties, taxes and fees. To address trade risks and priority 
issues, CBP has implemented a multi-disciplinary National Trade 
Strategy that complements the agency's strategy for securing and 
facilitating trade.
    The National Trade Strategy is designed to:

      Sharpen the Focus on Risk--Focus actions and resources 
around trade issues that pose a significant risk to our physical 
security, economic stability or the agency's ability to enforce trade 
laws and regulations.
      Leverage Facilitation--Optimize use of facilitation 
programs and processes, reduce unnecessary delays on legitimate 
shipments and ensure other Customs compliance and enforcement 
activities are not having an unintended impact on lawful importers.
      Ensure Revenue Collection--Ensure effective controls for 
revenue collection, continue to calculate the ``revenue gap'' through 
statistical sampling, and address revenue risks through analysis, 
appropriate action and monitoring.
      Strong National Oversight and Multi-Office Cooperation--
Provide direction at the national level to ensure strategic goals are 
addressed, appropriate actions are taken, results are measured, and 
contributions from all relevant offices are primarily directed to 
priority trade issues.
      Prepare for Modernization--Consolidate technologies and 
systems, begin transfer of accountability for compliance to the trade 
community, and prepare for a broad organizational transformation.

    By directing agency resources to trade issues posing significant 
risks, CBP's National Trade Strategy provides solutions to both trade 
enforcement and facilitation challenges. The strategy is organized 
around Priority Trade Issues (PTIs), which were developed using a 
consistent risk-based analytical approach with a clear emphasis on 
integrating and balancing the goals of trade facilitation and trade 
enforcement. The PTIs integrate key trade risks from political, 
economic and resource perspectives while balancing the goals of trade 
facilitation and trade enforcement. Current PTIs include intellectual 
property rights, antidumping and countervailing duties, textiles and 
wearing apparel, revenue, and agriculture.
    With a strategic approach to addressing trade risks, and with the 
appropriate level of resources, CBP can successfully facilitate 
legitimate trade while effectively protecting the American public and 
economy. The National Trade Strategy and its Priority Trade Issues 
bring together the skills of many CBP employees, including 
international trade specialists, import specialists, attorneys, and 
fines and penalties specialists in a coordinated, risk-driven strategy 
for enforcing trade laws while facilitating legitimate trade. This 
includes protecting American business from theft of intellectual 
property and unfair trade practices, enforcing trade laws related to 
admissibility, regulating trade practices to collect the appropriate 
revenue, and shielding the American public from harmful pests in 
agricultural products and other health and public safety threats.

Compliance Measurement (CM)
    CBP conducts a Compliance Measurement (CM) annually to collect 
objective statistical data to determine the compliance of commercial 
imports with U.S. trade laws, regulations and agreements and with 
supply chain security issues, and to estimate the revenue gap, a 
statistically calculated estimate of potential revenue loss from 
noncompliance.
    The success of CBP's integrated approach to trade security, 
facilitation and enforcement is evidenced by increasing rates of trade 
compliance. In FY 2005, the trade compliance rate, as measured by CM, 
was 95 percent, compared to 94 percent in FY 2004 and 93 percent in FY 
2003. Trade compliance rates for CBP partnership programs are even 
higher than the overall rate, with a 97 percent trade compliance rate 
for both ISA and C-TPAT participants.
    With overall compliance at a high level, CBP is able to focus on 
issues of significant trade risk. The FY 2005 revenue gap estimate is 
$410 million or 1.8 percent of total actual collections, the highest 
gap since 1998. Compliance Measurement provides CBP with information on 
emerging trade issues, such as an increasing revenue gap, which the 
agency then addresses in the National Trade Strategy.

Homeland Security Act and CBP Revenue Functions
    Under Sec. 412-417 of the Homeland Security Act of 2002 (HSA), 
authority related to customs revenue functions, while retained by the 
Treasury Department under the HSA, has been delegated to DHS from the 
Department of Treasury.DHS is instructed to maintain legacy customs 
revenue functions, which includes the assessment and collection of 
duties, enforcement of reciprocal trade agreements and trade 
restrictions, and the detection of fraudulent trade practices.
    CBP performs the customs revenue functions required by the Homeland 
Security Act of 2002, as well as trade law enforcement through a 
variety of tools, techniques and enforcement remedies. The revenue 
functions include collecting revenues, determining compliance of 
imports with U.S. laws and regulations, determining admissibility of 
goods into the commerce of the United States, collecting data for trade 
statistics and enforcing trade agreements. These functions are 
integrated into the work of offices throughout CBP, and their 
accomplishment requires diverse employee skill sets and coordination 
among the various disciplines. Reviews and analysis of electronically 
filed import information and other documentation by CBP account 
managers, import specialists, auditors, fines and penalties 
specialists, international trade specialists and attorneys, along with 
physical examination of cargo, enables CBP to assess compliance with 
customs laws and regulations, and to assist in ensuring compliance with 
laws administered by other federal agencies.

Conclusion
    Mr. Chairman, today I have briefly addressed CBP's critical 
initiatives that help us maintain a balance between our need to secure 
our nation against terrorist and terrorist weapons, with our need to 
facilitate legitimate trade and travel.
    We appreciate the support of this Committee for CBP's mission, and 
I thank you for this opportunity to come before you today to discuss 
these issues that are so vital to both our security and our economy. I 
would now be happy to answer any questions you may have.

                                 

STATEMENT OF THE HONORABLE JULIE MYERS, ASSISTANT SECRETARY FOR 
 U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. DEPARTMENT OF 
                       HOMELAND SECURITY

    Ms. MYERS. Thank you, Chairman Shaw, and distinguished 
members of the Subcommittee, I appreciate the opportunity to be 
here today with my colleague, Commissioner Basham, and to have 
the opportunity to share with you how Immigration and Custom 
Enforcement (ICE) is applying our expertise and authorities to 
protect the American people from economic, criminal and 
terrorist threats that arise from our borders. The lawful 
movement of goods across our border is critical to 
strengthening and ensuring the integrity of our economy, yet 
the growth of international trade is increasing the risk of 
border security vulnerabilities and transnational economic 
crimes. ICE continues to aggressively identify and combat these 
threats to the U.S. homeland and our economy without impeding 
legitimate international trade. We are very grateful for all 
the help that we have had from Congress to this end. For 
example, the reauthorization of the PATRIOT Act this year (P.L. 
109-178) added a necessary statute that criminalizes smuggling 
from the United States. In addition, the potential sentence for 
smuggling into the United States was increased from 5 years to 
20 years. As a result, Congress's act has strengthened ICE's 
ability to combat violent, criminal and terrorist 
organizations.
    Let me summarize a few investigative areas that we are 
prioritizing. First, intellectual property: ICE diligently 
investigates violations of our Nation's commercial fraud and 
intellectual property rights laws. Our investigations really 
focus on dismantling the criminal organizations that initiate, 
support and sustain the illegal production and cross-border 
movement of counterfeit products. It is estimated that American 
businesses lose as much as $250 billion annually to 
counterfeiting and piracy. This illegal trade presents a 
dangerous threat to our Nation's public health and safety, 
especially when unapproved counterfeit pharmaceuticals, tainted 
food stuffs, auto parts, hazardous materials and other items 
are illegally imported. Another investigative area we focus on 
involves fraudulent schemes and textile enforcement. Our 
investigators are targeting false invoicing, labeling and 
claims of origin as well as misclassification and smuggling. 
For example, this spring, ICE special agents in Los Angeles 
seized the equivalent of 45 cargo containers full of smuggled 
Chinese apparel. Through efforts likes these, ICE and our 
partner agency, U.S. Customs and Border Protection, work to 
ensure that inadmissible goods are denied entry into the United 
States, the proper duties are paid, and that the trade complies 
with the free trade agreements and legislative initiatives.
    We also really look at the nation's in-bond infrastructure. 
While the in-bond system allows merchandise not intended for 
entry into the United States, into U.S. commerce to transit the 
United States, we are finding it is often exploited for the 
purposes of smuggling restricted high duty and quota visa 
merchandise into the United States. Again, together working 
with CBP, we are aggressively investigating such criminal 
activity.
    Cigarette smuggling is also another serious problem. In 
many cases, we are finding that traditional smuggling 
conspiracies are often linked, usually as a funding mechanism, 
to other more serious global criminal enterprises. The 
reauthorization of the U.S. PATRIOT Act (P.L. 109-177) and the 
lowering of the threshold of contraband cigarettes from 60,000 
cigarettes to 10,000 cigarettes allows ICE to present more 
tobacco smuggling cases for prosecution.
    In addition to stopping the smuggling of cigarettes, we 
vigorously enforce anti-dumping regulations. Some criminals 
engage in the predatory practice of evading anti-dumping duties 
through transshipment, re-marking, undervaluation, and false 
description. ICE is helping domestic producers to compete 
against these foreign suppliers engaged in or benefiting from 
the unfair trade practices of dumping and export subsidies. 
Finally, ICE has always been at the forefront of money 
laundering and bulk cash smuggling investigations. This 
includes the illegal smuggling of currency out of the United 
States, a preferred method of moving proceeds across our 
borders. We are really seeing criminal organizations turning to 
these non-traditional and riskier methods to gather and move 
their proceeds, such as bulk cash smuggling. One of the things 
that we have done recently to address these trends is establish 
a Trade Transparency Unit (TTU). Through the Data Analysis and 
Research For Trade Transparency System (DARTTS) system, it 
helps our special agents analyze foreign and domestic trade 
data and Bank Secrecy Act (International Money Laundering 
Abatement and Anti-Terrorist Financing Act of 2001, Title III, 
P.L. 107-56) information. Through that, we can identify 
anomalies related to cross-border trade that are indicative of 
money laundering and trade fraud and foreign investigative 
leads to the field.
    While ICE is focused on a wide array of criminal and other 
threats to our Nation that arise in the border environment, our 
mission is to safeguard the integrity of our nation's trade, 
commerce and customs system and infrastructure continues. On 
behalf of the men and women of ICE, I thank the Committee for 
your continued support of our important work, and I look 
forward to your questions.

    [The prepared statement of Ms. Myers follows:]

  Statement of The Honorable Julie Myers, Assistant Secretary for U.S.
    Immigration and Customs Enforcement, U.S. Department of Homeland
                                Security

INTRODUCTION
    Chairman Shaw, Ranking Member Cardin and distinguished Members of 
the Ways and Means Trade Subcommittee, my name is Julie Myers and I am 
the Assistant Secretary, U.S. Immigration and Customs Enforcement 
(ICE). I appreciate the opportunity to share with you today how ICE is 
applying its expertise and authorities to protect the American people 
from economic, criminal and terrorist threats that arise from our 
borders.

THE ICE MISSION
    Within the Department of Homeland Security (DHS), ICE holds the 
most expansive investigative authorities and the largest number of 
investigators. ICE is the nation's principal investigative agency for 
violations of the law with a nexus to our borders, including violations 
of the laws governing trade and commerce.
    Our mission is to protect the American people and our economy by 
combating those who seek to exploit our borders for criminal or 
terrorist purposes. ICE special agents and officers use ICE's unified 
immigration and customs authorities to identify, investigate, apprehend 
and remove transnational criminal groups and others who violate our 
laws. ICE disrupts and dismantles organizations that smuggle drugs, 
persons, money and contraband into and out of the United States. 
Through these efforts, ICE continues to make a strong contribution to 
our economic, border, homeland and national security.

PROTECTING THE NATION'S GLOBAL COMMERCE
    The efficient and lawful movement of goods across our border is a 
foundational prerequisite for the continuing strength and integrity of 
our economy. This country seeks to create the conditions for maximum 
employment and economic prosperity through lawful international trade 
and the opening of new consumer markets to U.S. goods. At the same 
time, the growth of international trade and open border policies 
invites the increased risk of border security vulnerabilities and 
transnational economic crimes. ICE continues to aggressively apply its 
complete set of investigative authorities and capabilities to identify 
and defeat an array of threats to the U.S. homeland and our economy.
    One of the most powerful new tools in the ICE arsenal of border 
security authorities, including those related to cross-border 
commercial fraud, was included in the recently passed reauthorization 
of the USA PATRIOT Act. The potential sentence for a violation of 18 
U.S.C. 545--Smuggling into the United States, was increased from five 
years to twenty years. That legislation also added, for the first time, 
an entirely new criminal charge for smuggling from the United States.
    By providing ICE with the additional tools necessary to more 
effectively investigate and combat smuggling and other commercial fraud 
violations, Congress has simultaneously strengthened ICE's ability to 
combat violent criminal and terrorist organizations. On behalf of our 
special agents who work these important economic, border, homeland and 
national security cases, I thank the Members of Congress for this 
important enhancement in 18 U.S.C. 545 and for your continuing support 
of the men and women of ICE--and our critical missions.
    At ICE, trade enforcement investigations fall under the purview of 
the Office of Investigations, Financial and Trade Investigations (FTI) 
Division. Because most financial and trade violations that ICE 
investigates are motivated by profit, these crimes often are interlaced 
with conspiracies to earn, move and store illegal proceeds. ICE's 
Commercial Fraud and Intellectual Property Rights (IPR) Investigations 
Unit, within the FTI Division, oversees these important investigations. 
ICE also has a cadre of dedicated and trained special agents assigned 
to the 26 ICE Special Agent in Charge offices across the nation, who 
specialize in investigating these violations. ICE also draws heavily 
upon our relationships with law enforcement partners around the world. 
We are able to do that because of ICE's global presence. Our special 
agents are deployed to 56 overseas Attache offices. This global reach 
and our preexisting relationships with foreign law enforcement make it 
possible for ICE to effectively investigate commercial fraud 
investigations around the world.
    A key to our investigative efforts at ICE is the strong support 
provided by our partners at U.S. Customs and Border Protection (CBP). 
By virtue of its interdiction and regulatory mission on the nation's 
physical borders, CBP provides many of the investigative referrals that 
launch ICE commercial fraud and IPR investigations. ICE and CBP also 
have a shared role in the process of identifying, investigating and 
issuing penalties that may accrue to violators under U.S. customs laws. 
While ICE and CBP work closely together in a number of areas, nowhere 
is that synchronization greater than in our cooperative effort to 
combat commercial fraud.
    This close relationship is demonstrated by the decision in February 
2004 to launch the joint ICE-CBP Commercial Enforcement Analysis and 
Response (CEAR) process to better ensure that commercial fraud 
violations were properly reviewed by both agencies, and that both 
agencies selected and coordinated the best response to these 
violations. The CEAR process includes both Headquarters and field 
working groups that make an early determination of the nature, extent 
and impact of the violation. These working groups are composed of both 
ICE and CBP personnel who are chosen as representatives of the various 
stakeholders within the agencies. The CEAR process ensures that 
significant commercial fraud violations receive priority. It further 
ensures that significant violations will be processed according to a 
clearly established set of national guidelines that have been agreed 
upon by both agencies. The CEAR process is an excellent example of the 
cooperation between ICE and CBP in carrying out our cooperative trade 
enforcement mission.
    ICE Commercial Fraud and IPR investigative priorities are aimed at 
stopping predatory and unfair trade practices that threaten our 
economic stability, restrict the competitiveness of U.S. industry in 
world markets, and place the public health and safety of the American 
people at risk. These priorities include intellectual property rights, 
public health and safety, textiles enforcement, in-bond diversion, 
tobacco smuggling, anti-dumping, general revenue fraud violations, and 
international trade agreements such as the North American Free Trade 
Agreement (NAFTA). I will address each in turn:

INTELLECTUAL PROPERTY RIGHTS ENFORCEMENT
    As the largest investigative arm of the Department of Homeland 
Security, ICE plays a leading role in targeting criminal organizations 
responsible for producing, smuggling, and distributing counterfeit 
products. ICE investigations focus not only on keeping counterfeit 
products off of U.S. streets, but also on dismantling the criminal 
organizations that initiate, support and sustain this activity. IPR 
violations are direct threats to the engines of creativity and 
innovation that drive so much of the highly competitive, modern U.S. 
economy.
    Estimates by industry and trade associations indicate that U.S. 
businesses lose as much as $250 billion annually to counterfeiting and 
piracy. Some estimates indicate that five to eight percent of all the 
goods and merchandise sold worldwide is counterfeit. But as great as 
the monetary loss is, the loss of technology and trade competitiveness 
suffered by U.S. trademark and copyright owners is immeasurable. The 
impact, however, affects more than just the business community. 
Counterfeit goods also pose a direct threat to the nation's public 
health and safety with, for example, the illegal importation of 
unapproved, counterfeit pharmaceuticals.
    The nature of the IPR criminal has also changed. The number of 
criminal organizations involved in IPR crimes is growing because of the 
tremendous profits associated with the sale of counterfeit goods, and 
because these organizations already have access to pre-existing 
smuggling infrastructures and routes. In some cases, these 
international organized crime groups take the enormous profits realized 
from the sale of counterfeit goods and use those profits to bankroll 
other criminal activities, such as the trafficking of illegal drugs, 
weapons and other contraband.
    ICE agents use a variety of agency assets and resources to combat 
the counterfeiting problem. First, the National Intellectual Property 
Rights Coordination Center (IPR Center) was created in 2000 and is 
staffed with agents and analysts from ICE and the Federal Bureau of 
Investigation. The IPR Center, which is hosted by ICE, coordinates the 
U.S. government's domestic and international law enforcement attack on 
IPR violations. The IPR Center serves as the primary liaison between 
private industry and law enforcement in targeting IPR crimes.
    ``ICE also supports the Administration's ``Strategy Targeting 
Organized Piracy (STOP!)'' initiative by investigating, disrupting and 
dismantling the transnational organizations that smuggle and distribute 
goods that violate our IPR laws. ICE Attaches coordinate these actions 
with host governments to target the foreign manufacturers and 
distributors of these illegal goods. ICE also provides training to 
foreign law enforcement agencies, in conjunction with the Department of 
State.''
    ICE agents in the United States and abroad also work closely with 
the ICE Cyber Crimes Center to combat the problem of piracy and related 
IPR violations over the Internet. The Cyber Crimes Center is ICE's 
state-of-the-art center for computer-based investigations, providing 
expertise and tools to help agents target Internet piracy. The Cyber 
Crimes Center coordinates its anti-counterfeiting efforts closely with 
the National IPR Center.

      A case example of ICE's coordinated efforts in this area 
began in September 2003. ICE Gulfport, Mississippi, began an 
investigation, known as ``Operation Spring,'' which grew to include the 
ICE Attache in China, the ICE Office of Investigations in Houston, the 
IPR Center and the Internal Revenue Service. Chinese law enforcement 
soon joined the investigation, turning the case into the first 
undercover investigation conducted jointly by ICE and Chinese 
authorities. In July 2004, with the assistance of ICE agents, Chinese 
officials arrested Randolph GUTHRIE and several co-conspirators in 
China. GUTHRIE was considered by the Motion Picture Association of 
America to be the largest distributor of pirated DVD movies in the 
world, with sales over $2 million annually. At the time of GUTHRIE's 
arrest, Chinese officials seized approximately 160,000 counterfeit DVDs 
valued at approximately $3.5 million (U.S.) and the equivalent of 
approximately $200,000 in U.S. and Chinese currency. In April 2005, 
Guthrie was convicted in a Shanghai court on criminal charges. He was 
sentenced to a jail term of 30 months in China, issued a fine of 
500,000 Chinese Renminbi (equivalent to $62,500 U.S.), and ordered 
deported from the country upon completion of his sentence. In late 
September 2005, Chinese authorities expelled GUTHRIE to the United 
States whereupon ICE arrested him. He pled guilty in January 2006 and 
forfeited more than $800,000. In March 2006, GUTHRIE was sentenced to 
60 months in prison and three years of supervised release, and was 
fined $15,000.
      Another example arose in February 2005, when ICE Attache 
Beijing received information that Richard COWLEY of Shelton, 
Washington, was linked to groups of individuals involved in the sale of 
pharmaceuticals in the United States, the United Kingdom and other 
locations throughout Europe. This information led to the initiation of 
Operation Ocean Crossing, the second joint undercover enforcement 
operation with the Chinese. This operation targeted counterfeit 
pharmaceuticals being distributed via the Internet. In September 2005, 
Chinese authorities took action against the largest counterfeit 
pharmaceutical operation in China and 12 Chinese nationals were 
arrested. Three illicit pharmaceuticals facilities were shut down. 
COWLEY was arrested in September 2005, and in February 2006, he pled 
guilty to importing counterfeit drugs and is awaiting sentencing.

PUBLIC HEALTH AND SAFETY
    In addition to ICE's efforts to protect the health of the U.S. 
economy, many of our investigative cases have a direct impact on the 
physical health and safety of millions of Americans. By enforcing our 
trade laws governing the importation of pharmaceuticals and other goods 
destined for critical elements of our economy, ICE special agents help 
to guarantee the integrity of our medical, transportation and other 
critical infrastructure.
    ICE Public Health and Safety investigations include multiple 
targeted investigative areas, including the illegal importation of 
commercial quantities of adulterated, counterfeit, diverted and/or 
unapproved pharmaceuticals; protected, endangered and non-native 
detrimental species; unapproved or non-compliant autos, automobile 
parts, aircraft parts and machinery; environmentally hazardous 
materials and chemicals; and, tainted foodstuffs. These violations, if 
left unchecked, pose a dangerous risk to the health and safety of all 
Americans.

      For example, in January 2004, the ICE SAC/San Diego 
initiated a multi-agency investigation incorporating assets from ICE, 
the Food and Drug Administration, U.S. Postal Inspection Service, IRS 
and FBI, targeting various websites, Internet payment networks and 
pharmaceutical supply chains. The targets, WorldExpressRx.comand 
MyRxForLess.com, had in excess of 650 affiliated websites responsible 
for the illegal distribution via the Internet of more than $25 million 
in counterfeit or unapproved pharmaceuticals in a three year period. To 
date, this investigation has resulted in 20 indictments and 18 
convictions for various federal criminal charges, and more than $1.4 
million has been seized. The primary violator, Mark KOLOWICH, was 
sentenced in January 2005 to 51 months imprisonment. Another violator, 
who was a manager of an affiliated website, was arrested in October 
2005 and pled guilty the next month. This individual is currently 
awaiting sentencing. Prosecution of other violators related to this 
investigation continues.

TEXTILE ENFORCEMENT
    Within ICE, textile enforcement focuses on investigations of 
criminal and civil violations of customs laws through a variety of 
fraudulent schemes and practices, including false invoicing, false 
marking/labeling, false claims of origin, misclassification, false 
descriptions, and smuggling. Together ICE and CBP work to ensure that 
inadmissible goods are denied entry into the United States, that proper 
duties are paid, and that the trade complies with free trade agreements 
and other laws. While CBP is responsible for enforcing the legal 
requirements of these agreements, and of other U.S. laws applicable to 
the textile industry, ICE investigates the criminal business 
enterprises and conspiracies that initiate, support and sustain the 
movement of goods in violation of our textile trade laws.
    ICE also participates in Textile Production Verification Teams 
(TPVT) along with CBP. Since 1987, these teams have been deployed to 
foreign textile factories that claim to produce textiles that have been 
exported to the United States. The teams include both ICE special 
agents and CBP import specialists who are trained to verify production 
and manufacturing capabilities of the factories visited. In 2005, these 
teams visited a little over 400 factories in 11 foreign countries. 
Suspected violations were noted in a number of these factories. So far 
in 2006, these teams have made 10 out of 13 planned country visits.

      A representative case example involved the SAC/Miami 
investigation of TEX GROUP OF COMPANIES, INC., for conspiracy to 
divert/smuggle quota/visa restricted Chinese-manufactured wearing 
apparel into the United States via an in-bond diversion scheme. Win Yu 
LEE, President of TEX GROUP, conspired to smuggle over 300 containers 
of quota/visa restricted textile goods without payments of duties or 
having obtained quotas/visas. The diverted textile goods were valued at 
approximately $43 million. In November 2005, LEE and TEX GROUP pled 
guilty to Conspiracy. In January 2006, LEE was sentenced to four years 
of unsupervised probation, and ordered to pay a criminal forfeiture in 
the amount of $5,393,579. The TEX GROUP was sentenced to four years 
probation, and was issued a court fine of $50,000.

IN-BOND DIVERSION
    In-bond movements of merchandise are authorized by federal statute. 
The in-bond system allows merchandise not intended for entry into U.S. 
commerce to transit the United States or allows foreign merchandise to 
be entered at a port other than the port of importation. When conducted 
legally, in-bond transactions facilitate trade by allowing the use of 
U.S. infrastructure for the transportation of goods to foreign markets. 
However, the in-bond system has been exploited for the purposes of 
smuggling restricted, high duty and quota/visa merchandise into the 
United States.
    In response to the vulnerabilities ICE and CBP have identified in 
the in-bond system, ICE and CBP have jointly implemented special 
enforcement operations, such as Operation Security Bond, which targets 
the illegal use of the in-bond system to smuggle merchandise. ICE and 
CBP also field Fraud Investigation Strike Teams (FIST) that target 
fraud within foreign trade zones and customs bonded warehouses. During 
these operations, ICE's enforcement of customs and immigration statutes 
has resulted in an increased detection of commercial fraud violations 
and the identification and removal of undocumented aliens with 
unauthorized access to secure areas.

      For example, in November 2004, ICE ASAC/ Laredo initiated 
an in-bond diversion investigation. ICE agents determined that Customs 
Broker Rosa E. GARCIA was involved in the smuggling of Chinese-made 
clothing by diverting it from the in-bond system. GARCIA, a retired 
Fines, Penalties & Forfeitures Director for the Port of Laredo, 
arranged for the filing of false in-bond documents, and unlawfully 
diverted two shipments of wearing apparel to Los Angeles, California, 
instead of exporting them to Mexico. GARCIA and a co-conspirator were 
indicted for smuggling. In March 2006, GARCIA was sentenced to a term 
of 18 months in prison and 3 years probation.

TOBACCO SMUGGLING
    International cigarette smuggling has become a lucrative criminal 
enterprise, resulting in the annual loss of billions of dollars in tax 
revenue and customs duties around the world. While the extent of 
cigarette smuggling in the United States is unknown, it is ICE's formal 
assessment that the volume of this illegal trade is significant. 
Cigarette smuggling activities attract international and domestic 
criminal groups with the lure of high profits and relatively low risk 
for prosecution.

      Tobacco smuggling often involves false statements 
regarding shipments from foreign countries, the illegal manipulation of 
the in-bond system, and the improper storage of imported cigarettes. 
Smugglers under-report shipment weights, undercount and undervalue 
shipments, and sometimes improperly mark the country of origin. ICE 
works closely with CBP and foreign and domestic counterparts to 
investigate tobacco violations, and I would like to highlight a few ICE 
successes in this area. ICE SAC Baltimore and SAC Seattle initiated 
investigations of money laundering through the purchase of contraband 
cigarettes. Stormy PAUL conspired with Rubens CARDOSO and others to 
smuggle cigarettes from Paraguay, and separately conspired with others 
to smuggle cigarettes from China. The investigations resulted in the 
indictment of 11 individuals, and ten have been arrested and convicted, 
while the eleventh is a fugitive.
      The ICE SAC/El Paso investigated INTERNATIONAL TRADERS OF 
EL PASO (ITEP), the intended recipient of a large quantity of 
counterfeit cigarettes. Jorge ABRAHAM was identified as the leader of 
the organization and Dean MILLER was his partner. The investigation 
revealed that this organization was willing to smuggle any type of 
merchandise, goods, or commodities for a profit. The SAC/El Paso 
established that ABRAHAM was receiving counterfeit and contraband 
cigarettes from various companies in Miami, Florida, and El Paso, 
Texas, as well as from manufacturers in Taiwan and China. In total, 
10,726 cases of counterfeit and contraband cigarettes and 101 cases of 
liquor worth approximately $20 million were diverted or intended to be 
diverted into the commerce of the United States for illegal sale. The 
total loss of revenue to the Federal Government and various state 
governments is approximately $8 million. MILLER and 14 co-defendants 
were arrested, and approximately $75,000 was seized. To date, a total 
of 13 defendants in this case have pled guilty. Plea negotiations and 
trial preparations are ongoing for one remaining defendant. ICE is also 
seeking forfeiture of property and assets derived from the proceeds of 
the alleged illegal activities, valued at over $6 million.

    The reauthorization of the USA PATRIOT Act included a lowering of 
the threshold quantity of contraband cigarettes from 60,000 to 10,000. 
This change allows ICE to present more tobacco smuggling cases for 
prosecution. In case after case, ICE special agents have witnessed how 
traditional smuggling conspiracies, such as those centered on 
cigarettes, are often linked--usually as a funding mechanism--to other 
more serious, global criminal enterprises.

ANTI-DUMPING AND COUNTERVAILING DUTIES
    The United States may impose anti-dumping and/or countervailing 
(subsidy) duties (AD/CVD duties) on certain imports as a means to 
address dumping and subsidies that result in injury to U.S. industry. 
CBP is responsible for collecting AD/CVD duties at the rate determined 
by the Department of Commerce for each import. Attempts to circumvent 
payment of AD/CVD duties by importers may be investigated by ICE based 
on the multidisciplinary Commercial Enforcement Analysis and Response 
(CEAR) evaluation. The methods often used to evade antidumping duties 
include transshipment, re-marking, under-valuation, and false 
description.

      One such investigation occurred in September 2003, SAC 
Los Angeles investigated an anti-dumping scheme involving crawfish tail 
meat from the People's Republic of China (PRC). Extensive documentary 
evidence found by ICE indicated that Young Sen LIN, the head of 
logistics of the U.S. importer and a Vice President of the BAOLONG 
GROUP, a PRC-based crawfish tail meat producer and another person 
conspired with the BAOLONG GROUP to import falsely invoiced PRC-
produced crawfish meat in order to avoid anti-dumping duties of 
approximately 224 percent. The loss of revenue was estimated to be 
approximately $3 million. In May 2004, LIN was convicted for 
conspiracy.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)
    A major objective of NAFTA is the elimination of barriers to trade 
for cross-border movement of goods and services among the United 
States, Canada and Mexico. Under NAFTA, tariffs on most goods 
originating in the three countries are eliminated. Merchandise that 
enters the United States under NAFTA does so under favorable duty 
rates. To ensure the validity of NAFTA claims, CBP has an aggressive, 
multi-disciplinary verification process in place. ICE works jointly 
with CBP to conduct criminal and civil fraud investigations when 
potential violations are detected. Thus, ICE investigations are 
important tools used to insure NAFTA compliance.

      For example, in November 2002, ICE ASAC/El Centro agents 
investigated TRIUNFO-MEX for allegedly submitting altered and false 
invoices for food products that it imported into the United States. 
Under NAFTA, these food products could be imported without duty until 
the quota was met. The investigation revealed that TRIUNFO-MEX 
significantly undervalued these imported food products after the quota 
ceilings were reached, thereby avoiding the payment of higher tariffs. 
A CBP review revealed a potential loss of revenue in excess of $3.5 
million. The corporate president and two employees were convicted for 
falsely classifying goods. In February 2006, the president was 
sentenced to 12 months incarceration and six months in a halfway house, 
and was fined $7,500. He was ordered to pay $3.5 million in 
restitution. TRIUNFO-MEX, the corporation, was sentenced to five years 
probation and fined $2.1 million.

BULK CASH SMUGGLING
    A number of the money laundering trends we have observed have 
developed in response to the robust anti-money laundering programs 
instituted by the U.S. financial industry in response to federal 
legislation and regulation. As the opportunity to exploit our 
traditional domestic financial institutions diminishes, criminal 
organizations are turning to non-traditional and riskier methods to 
gather and move their proceeds, such as bulk cash smuggling. The 
ability of criminal business enterprises to advance their business 
model rests directly upon their ability to take possession of the money 
they have earned through their criminal activities.
    The smuggling of bulk currency out of the United States has become 
a preferred method of moving illicit proceeds across our borders, 
forcing criminal organizations to devise methods for avoiding detection 
during the movement of this bulk cash across our borders. In response 
to this trend, Congress criminalized the act of smuggling large amounts 
of cash into or out of the United States in the USA PATRIOT Act. 
Specifically, Title 31 U.S.C. 5332--Bulk Cash Smuggling--makes it a 
crime to smuggle or attempt to smuggle over $10,000 in currency or 
monetary instruments into or out of the United States, with the 
specific intent to evade the U.S. currency-reporting requirements 
codified at 31 U.S.C. 5316. ICE Special Agents have used the Bulk Cash 
Smuggling statute with great effect, arresting over 400 individuals for 
Bulk Cash Smuggling violations. In addition to these arrests, ICE and 
CBP have worked together to seize over $227 million in funds involved 
in these bulk cash smuggling violations. Whenever possible, these cases 
are developed into larger conspiracy cases to reach the highest levels 
of the smuggling organizations.
    ICE's enforcement of the Bulk Cash Smuggling law does not end at 
our Nation's borders. In August 2005, ICE partnered with CBP and the 
State Department to initiate a joint training program for our Mexican 
counterparts on the methods used to smuggle bulk currency. As a direct 
result of this hands-on training, our Mexican counterparts seized over 
$34 million in cash and negotiable instruments in violation of the 
Mexican currency--reporting laws, during operations conducted over a 
nine-month period. The day after this highly successful joint 
operation, known as Operation Firewall, was launched in August 2005, 
the single largest bulk cash seizure in Mexico--$7.8 million--was 
successfully carried out. ICE has worked with our Mexican counterparts 
to tie these seizures to larger investigations conducted in Mexico, the 
United States, and other South American countries. In March 2006, 
building on the proven success of this initiative in Mexico, operations 
commenced again, resulting in two seizures totaling over $7 million 
dollars within the first few days of the operation. The State 
Department continues to fund these international efforts and we are 
grateful for its support.

TRADE-BASED MONEY LAUNDERING
    Because of ICE's experience and continuing expertise in customs 
matters, our special agents are highly effective in investigating and 
combating trade and trade-based money laundering. Criminal enterprises 
have long misused international trade mechanisms to avoid taxes, 
tariffs, and customs duties. Alternative remittance systems, such as 
hawalas, have also long utilized trade to balance payments between 
hawaladars. As both the formal international financial system and money 
services businesses become increasingly regulated, scrutinized, and 
transparent, criminal money launderers and potentially terrorist 
financiers are more likely to use fraudulent trade-based practices in 
international commerce to launder, earn, move, and integrate funds and 
assets.
    Trade-based money laundering is defined as: the use of trade to 
legitimize, conceal, transfer, and convert large quantities of illicit 
cash into less conspicuous assets or commodities. In turn, the tangible 
assets or value are transferred worldwide in an effort to avoid 
financial transparency laws and regulations. The ICE Trade Transparency 
Unit (TTU) identifies anomalies related to cross-border trade that 
present indications of international trade-based money laundering. The 
TTU generates, initiates and supports investigations and prosecutions 
related to trade-based money laundering, the illegal movement of 
criminal proceeds across international borders, alternative money 
remittance systems, and other financial crimes. By sharing trade data 
with foreign governments, ICE and participating governments are able to 
see both the import and export side of commodities entering or leaving 
their countries. This truly makes trade transparent and will assist in 
the identification and investigation of international money launderers 
and money laundering organizations. Other benefits of trade 
transparency include: assisting developing nations in the potential 
identification of smuggling routes or public corruption, and the 
reduction of smuggling that feeds the Black Market Peso Exchange (BMPE) 
laundering system.
    The Data Analysis and Research for Trade Transparency System 
(DARTTS) is a proprietary ICE system that helps our special agents 
analyze foreign and domestic trade data and Bank Secrecy Act 
information. ICE special agents employ DARTTS to identify discrepancies 
in trade and financial data that may indicate money laundering, customs 
fraud and other transnational crimes. The TTU develops investigative 
leads from analysis through DARTTS and facilitates the dissemination of 
investigative referrals to field entities.
    ICE launched the first TTU in Colombia to share information, better 
assess risks, and conduct intelligence-based investigations. Using 
State Department funding from Plan Colombia, ICE provided support to 
Colombian authorities and initiated trade based data exchanges. Under 
this program, U.S. investigative leads are vetted by the TTU and 
disseminated to ICE SAC offices for investigation. Colombian leads are 
disseminated to our Columbian counterparts for investigation. Recently, 
with funding from the State Department, ICE provided 215 computers and 
other equipment to Colombia's Customs Service to increase trade 
transparency and combat trade-based money laundering, drug trafficking, 
contraband smuggling, tax evasion and other crimes between Colombia and 
the United States.
    Using the joint resources of ICE and Colombian TTUs, ICE 
implemented a BMPE initiative, involving the analysis of companies and/
or subjects involved in BMPE schemes. This initiative allows U.S. and 
Colombian authorities to exchange information and data for ultimate 
criminal or civil action, and to target Colombian peso brokers, U.S. 
exporters, Colombian importers and financial accounts facilitating BMPE 
activity.
    As part of U.S. efforts in the Tri-border area (TBA) of Paraguay, 
Brazil and Argentina, ICE is working with the U.S. Departments of State 
and Treasury and the governments of Argentina, Brazil and Paraguay to 
establish TTUs in those three countries. These initiatives are at 
various stages of development.

CONCLUSION
    As the Department of Homeland Security's largest investigative 
agency with unified customs and immigration authorities, ICE is 
demonstrating its ability to aggressively combat threats to the 
American people and our economy that arise from our borders. By virtue 
of the integrity, determination, and commitment to excellence embraced 
by the men and women of ICE, we are continuing to strengthen this 
nation's ability to investigate and defeat threats to our nation that 
arise from our borders. The net result of ICE's efforts in this arena 
is a strong and growing contribution to our economic integrity and the 
protection of our border, homeland and national security.
    On behalf of the men and women of ICE, I thank the distinguished 
members of the Ways and Means Committee--and the Trade Subcommittee--
for your continued support of our work.
    I would be pleased to answer your questions.

                                 

    Chairman SHAW. Thank you. I have a question that was just 
brought to my attention yesterday, Mr. Basham. It has recently 
come to my attention that your agency issued a binding ruling 
which would change the process by which human tissue enters the 
United States for lifesaving transplants. I have heard concerns 
that this ruling could lead to delays upon entry and endanger 
the success of these transplants. Knowing that this is a very 
new issue, I would like to submit to you--and I will in the 
future--some questions for the record and ask you to respond to 
the Subcommittee with your answers. With new transplant 
schedules at issue, it is obviously time-sensitive so I would 
ask you make your answers available as soon as possible. I also 
will leave the record open for submitting additional questions 
to any of our witnesses today.
    Do you have any information you could give us on that at 
this time?
    Mr. BASHAM. Mr. Chairman, I have to say that I am not 
familiar with that particular issue, but we will respond very 
quickly to your questions, and I apologize for not having----
    Chairman SHAW. It just came to my attention. I would like 
to see this followed up. Mr. Levin?
    Mr. LEVIN. Thanks very much. Thank you very much for being 
here. This is sometimes thought as kind of technical. It isn't 
the most publicized function, set of functions, but it is 
really clearly important. So, if you would, talk about this 
issue of personnel levels. There is a law mandating levels. 
They aren't there. You mention, Mr. Basham, you refer to 
technology. I am not sure if the implication of what you say is 
that the failure to meet the required personnel levels is not 
very important because technology has replaced it. You come 
before a Committee which acted to set in place certain levels 
that aren't being met. So, tell us about that, both of you.
    Mr. BASHAM. Mr. Levin, I recognize that CBP has not met the 
mandates of the Homeland Security Act (P.L 107-296) section 
412(b) requires that specific staffing those levels be 
maintained for customs trade personnel. Since coming on board 
in June, I recognized that the failure to comply is 
unacceptable, and that we must meet the requirements of the 
Homeland Security Act. We are working toward meeting those 
numbers by the end of this calendar year or at least having the 
people in the queue to be hired back to those levels, the 984 
that were onboard under the import specialists and on down the 
list. I recognize it is important, and I will work very hard to 
make sure that we meet those numbers.
    Mr. LEVIN. Let me then ask you, so it isn't a matter of a 
lack of resources? So, I know this may--it goes back before 
your time, but what is the answer? Why was there the failure 
these years to meet a legislative requirement?
    Mr. BASHAM. I can't respond to what the former 
commissioner's thoughts were on that issue. I do recognize that 
that is a requirement of the law, and I will work very hard to 
make sure we meet those, and why those numbers were not met in 
the past, I really can't address that. What I would like to do 
is to discuss with this Committee some of the benefits we are 
now seeing through technology, through the ACE and other 
technologies that I believe may very well be a better system to 
actually identify and target some of these violations. I am not 
suggesting that we have the complete answer right now, but I 
would like to have a discussion with you at some point about, 
once we reach those numbers, once we have met those 
requirements--we have actually had great improvements, and we 
are actually meeting the--in terms of the numbers of 
apprehension--not apprehensions, but stopping the flow of some 
of these illegal contraband, that we can certainly work with 
you hopefully in the future to come up with a better strategy.
    Mr. LEVIN. Ms. Myers, your turn.
    Ms. MYERS. Thank you, Congressman Levin. First, let me just 
say that ICE is fully committed to carrying out our 
responsibilities in the commercial fraud area. As a prosecutor, 
those are some of the cases that I enjoyed the most, and I look 
forward to increasing our work in this area. As a technical 
matter, then, I will go to the numbers. As a technical matter, 
it is my understanding that special agents are not covered 
under the preservation clause of the Homeland Security Act. I 
realize that doesn't answer your question of whether or not we 
are doing enough customs-related work. So, let me get to that. 
When I came into the agency and I was informed about the 
differences in the FTEs or hours equivalent, I asked my folks 
to kind of go back and look at that and see what they would 
find. We looked at not only 2003, 2004 and 2005, but we also 
looked at 2001 and 2002. In 2001 and 2002, we have the 
equivalent of 255 special agents who work on customs matters, 
and then there was a spike-up in 2004 and 2005--excuse me 2003 
and 2004, and then, in 2005, it was back to 255 agents again.
    Then 2006, of course, is a partial year. So, I asked them 
to look at that spike and find out why that was there, and it 
is our belief that in part that was there because there were 
new agents who were coming in who didn't understand the coding 
system so in part there was some kind of document fraud that 
was improperly classified in 2003 and 2004 as commercial fraud, 
but it really wasn't, and that is confirmed to me by the fact 
that 2005--the 2005 staffing level actually matched 2001 and 
2002. With respect to 2006, it is very important that we make 
sure that we are continuing on in a positive manner. So, I have 
taken several steps to address this. One step that I have taken 
is we have had advanced commercial fraud training at the 
Federal Law Enforcement Training Center (FLETC) for the first 
time since ICE became an agency in both June and agency August. 
Some of these cases are difficult to do, and, so, we want to 
make sure that the agents who are assigned in this area know 
how to do them and know how to bring them successfully to the 
U.S. attorneys. Another thing I have done is I met with 
Commissioner Basham as recently as yesterday and talked with 
how we could partner together to get more referrals and work 
together on more joint initiatives, including initiatives using 
the automated targeted system.
    Mr. LEVIN. So, let me just ask you--my time is up.
    Ms. MYERS. Sorry.
    Mr. LEVIN. You are saying that, in terms of the law, that 
your staffing levels are at the same point as they were as 
required by the Homeland Security Act of 2002?
    Ms. MYERS. Congressman, I am saying, in 2005, our staffing 
level was that. We are evaluating. We are at the third quarter 
point in 2006. This is a concern to me. I am addressing this to 
make sure that we are going to do sufficient customs 
investigations. One good measure that we have is, we already 
have 235 arrests as of June 30 for this fiscal year. That was 
more than we had in 2001, where we had 167; or in 2002, where 
we only had 188.
    Mr. LEVIN. Okay, but the law talks about staffing levels.
    Ms. MYERS. Congressman, it is my understanding that, as a 
technical matter, that our special agents are not covered under 
that provision, but I realize that doesn't answer your concern 
or the Committee's concern about making sure we do that work. I 
am committed to ensuring that we have the equivalent agent 
hours as we had in 2001 and 2002, and I am taking steps to make 
sure that we are moving up toward that.
    Chairman SHAW. I would like to follow up just very briefly 
on Mr. Levin's question with regard, you say staffing hours. 
How much of that is overtime?
    Ms. MYERS. For the special agents, it is not overtime 
hours. So, they are--they are subject--they get regular pay 
plus the Law Enforcement Available Pay (LEAP) which they 
receive. So, this is not overtime hours. In 2001, 2002, we 
averaged 433,000 hours. Then, in 2005, we actually also had 
433,000 hours worked by our agents on these cases. That does 
not include time that we spend doing training overseas and 
working with our foreign counterparts to help them avoid IPR 
violations, customs violations and the like.
    Chairman SHAW. Okay. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman, Madam Secretary and 
Mr. Commissioner, welcome. Good to have you here. Commissioner, 
if the Department of Commerce imposes anti-dumping duties, is 
your agency responsible for collecting those?
    Mr. BASHAM. Yes.
    Mr. WELLER. Let me begin by being parochial here. I have a 
company in my district, Carus Chemical, which is in the 
LaSalle/Peru area. It is a long-time employer in my district, 
and they have had several occasions since 2001 with problems 
due to Chinese dumping of potassium permanganate on the U.S. 
market and fraudulent conduct by Chinese firms involving 
dumping, including mislabeling shipments of this potentially 
hazardous chemical so as to deceive U.S. inspectors. My 
constituent company was pleased that the Department of Commerce 
responded by imposing anti-dumping duties on the Chinese 
companies that dump this product in the U.S. market. I would 
note that the Department of Commerce noted that it was 
inconsistent, inaccurate, incomplete information; and they are 
reviewing the information withheld from the department. The 
concern that Carus Chemical, which is a constituent of mine, 
has is that there are $634,000 in uncollected duties from this 
2004 Department of Commerce order on permanganate based on 
records that they have obtained from your agency. Carus has 
made several additional attempts to inquire about the status of 
this collection and without getting any response. I was 
wondering if you can tell me what the status of this particular 
collection is and if there are any problems in collecting it. 
Are you familiar with this particular case?
    Mr. BASHAM. I am not familiar with--Harris Chemicals, is 
that----
    Mr. WELLER. Carus, C-A-R-U-S, Chemical.
    Mr. BASHAM. We will look into this matter, and we will get 
back to you, and if you wish, get back to the company and give 
the current status on the matter.
    Mr. WELLER. I would appreciate a status report of the 
collection and also if you can share with us perhaps a person 
on your staff that my office is going to work with directly to 
ensure that we look out for the interests of my constituent. 
Obviously, I am a free trader, but I also believe that we need 
to enforce our trade agreements, and clearly, here is a case 
where the U.S. Department of Commerce imposed duties, and I 
want to make sure they are collected as they should be in the 
interest of my constituents.
    Separately, can you share with me, Commissioner, how 
customs identifies and eliminates illegal activities that 
undermine anti-dumping countervailing duty orders, such as 
fraud, product misclassifications, undervaluation and bogus 
bonds? What initiatives do you have in your agency to identify 
and eliminate those illegal activities?
    Mr. BASHAM. In terms of the anti-dumping?
    Mr. WELLER. Yes.
    Mr. BASHAM. Well, just through our process of reviewing 
through manifests that are submitted to CBP to review what 
kinds of products and materials are coming in, to ensure that 
those products and materials do in fact meet trade agreements 
and regulations, and that is reviewed prior to those products 
actually entering the United States.
    Mr. WELLER. Do you have any examples of where you have 
successfully identified fraud? I gave you an example affecting 
a company that I represent as a constituent with potassium 
permanganate.
    Mr. BASHAM. I know that we are currently in the process and 
the World Trade Organization is looking at a case that involves 
Thailand and dumping shrimp, and we are imposing anti-dumping 
duties on Thailand.
    Mr. WELLER. Can you share with the Subcommittee a listing 
of the--what you would consider to be the positive success 
stories where you have identified these sort of illegal 
activities and how you have responded in the way of what we 
consider enforcement, which is an important part of the 
responsibility of your agency?
    One of the initiatives I know in 2004, you put forward an 
entry bond policy on some agricultural products, in response to 
this effort. Our Committee has had some concerns about the 
administration of this program. Despite some clarifications to 
the bond policy that was worked out last year, your agency 
admitted that the burdensome bonding requirement has not been 
reduced for established and recognized importers that can show 
that they are not at risk for non-collections. Many of us feel 
it is important that the bonding rate requirements be fair and 
targeted at that risk. How are you looking at modifying the 
bonding burden for legitimate U.S. companies that demonstrate 
that they are paying their bills?
    Mr. BASHAM. Well, I know you are familiar with some of the 
difficulties in collecting some of these bonds once they have 
been liquidated by the Department of Commerce, and sometimes 
that can be years in the process. What we are looking at, at 
this point, is putting a process in place where we are able to 
identify companies, importers that will, in fact, be in 
existence in the next, in 2 or 3 years, to which sometimes that 
is how long it takes. One of the problems is that, when we try 
to collect the bonds, the money, the company is out of 
existence. I think we are something in the neighborhood of $100 
million in losses just because we have not been able to get in 
touch with that company. We are looking at a way of determining 
whether there is stability within that company, so that we know 
when we come back to collect the money, that the company is 
going to be there. We know that it can be onerous at times on 
smaller businesses, and so we are looking to see--looking at 
the stability and then setting that bond, at the beginning to 
better cover the final liquidation.
    Mr. WELLER. Thank you. I realize my time has expired, and 
Mr. Commissioner, I am looking forward to your report on the 
enforcement action affecting my constituent, Carus Chemical.
    Chairman SHAW. Mr. Pomeroy?
    Mr. POMEROY. Mr. Chairman, thank you for the courtesy of 
being allowed to ask a question at this hearing, and I very 
much appreciate my colleagues for letting me get my question 
before my conflicting 11:00. Representing a border State, the 
cross-border traffic is not just economically important to us; 
it is really a way of life up our way. We have--North Dakota 
and 39 other States have Canada as its leading export market. 
In 2005, Canadians made 37.8 million trips to the United 
States, including 22.3 million same-day auto trips. We are 
seeing, with the realignment of the dollar versus the Canadian 
dollar, a significant uptick in same-day cross-border shopping 
traffic. This has been something that is very beneficial to the 
economy in my State and something we have long hoped for, but 
what we are scared to death about is this Western Hemisphere 
Travel Initiative (WHTI) really slamming the door effectively 
on a lot of this same-day casual traffic, Winnipeg/Grand Forks, 
just as is replicated across communities all across the border. 
The General Accountability Office (GAO) has indicated an 
economic analysis of WHTI is vital to fully understanding what 
we are going into as well as evaluating the various alternative 
cards that may achieve the security dimension needed without 
unduly disrupting the economic integration of our countries. 
Yet, I am informed that an economic analysis has effectively 
not even begun, and I am wondering what the status of that is. 
How can we possibly get the technology right without looking at 
the consequential impact of it on the economies of the 
northern-tier States?
    Mr. BASHAM. I know that the Department of Homeland Security 
and State Department have been working together. I am not at 
this point familiar with exactly where the economic analysis is 
in the process, and I will have to, if I could, get back to you 
on that in short order.
    Mr. POMEROY. I am informed it hasn't even started. I am 
really alarmed maybe because we have got this 2008 
implementation date, and as of yet, not an informed analysis on 
the likely economic impact that we will see. We have found it 
doesn't go over very well when you go stomping into an area 
without fully anticipating the consequences that may result, 
and I can just see this whole thing coming into tremendous 
public uproar in early 2008 without really this economic 
analysis to guide our decisions between now and that time. Did 
you receive information? Has this started?
    Mr. BASHAM. I am not familiar with an economic analysis 
that is currently underway, but I will look into that. As you 
know, we are trying to meet the congressional requirement that 
we have, WHTI, in place, you know. In January 2008--and I know 
all of these factors are being looked into. I just cannot 
address the economic analysis, whether it has started or what 
the plans are to get an analysis underway.
    Mr. POMEROY. I would say--and I yield back the balance of 
my time. I am frankly alarmed by that. I don't hold you 
personally responsible, but I do think it is a system failure 
to be moving at such a dramatic new requirement for cross-
border traffic along the northern border without fully 
understanding what might result by way of economic impact to 
the northern-tier communities, a small wonder in the initial 
visit with the Canadian Prime Minister, and he was concerned 
about this and raised this with the President. I believe the 
United States owes much more to the citizens along the northern 
tier as well as, for that matter, our friends to the north to 
fully understand what we are getting into from an economic 
standpoint.
    Mr. BASHAM. I believe the thinking is, if we simplify the 
type of identification required, that it will facilitate the 
flow of the traffic, cross-border traffic due to the number of 
types of documents--that is the goal.
    Mr. POMEROY. I have been in a number of discussions where, 
the various--we are all thinking, we are guessing. We need this 
economic analysis so we have a better handle on what is likely 
to be the consequence of our movement here. I yield back, Mr. 
Chairman.
    Chairman SHAW. Okay. Mr. Basham, the concern expressed by 
Mr. Pomeroy is also shared by Members on this side of the aisle 
also. So, we would like to see that become as smooth a 
transition as possible. Mr. Brady?
    Mr. BRADY. Thank you, Mr. Chairman. I appreciate the 
Commissioner and the Assistant Secretary being with us today. 
Sort of following the same theme, more comment than question, I 
think it is difficult for customs to be able to follow the--
play that dual role of security and commerce. I don't think 
your resources have increased enough. I don't think technology 
has moved fast enough, and I believe that, in that balance, 
that, rightly, we are putting priority on security. I think the 
commercial trade side of this is falling far short. My worry, 
too, is that, obviously, it is easier to tackle as we deal with 
trade and security needs in solutions for the top 50 because it 
is easier to getting your hand around the larger exporters. 
Texas is the largest exporting State in America. It is 
important throughout the country that we have, as Mr. Pomeroy 
pointed out, that seamless flow of commerce.
    I worry that as we focus on that, that the little guys are 
getting lost in the shuffle, that they don't have the resources 
to do some of the programs, the third-party verification, some 
of those programs that customs has put in place, and my only 
comment to you is please place more--I urge you to place more 
emphasis on the commercial side and on the smaller businesses 
who--who create jobs, are doing more and more exports and 
imports, probably have fewer resources to handle the paperwork, 
the verifications and those issues. I don't know if you have 
someone in your agency who does direct liaison with those small 
exporters/importers, but I would just like to hear, both of 
you, your comments on that.
    Mr. BASHAM. Well, first off, Congressman, we work very 
closely with the trade community, via the Commercial Operators 
Advisory Council as well as the Trade Support Network. To make 
sure--and we understand that one size does not fit all--that 
there are capabilities of some of the larger organizations that 
cannot be met by the smaller organizations, and so we are 
trying to put a strategy together that does exactly what you 
suggest. By that I mean that we look at them as individual 
organizations and not just in totality and try to make one of 
those formulas fit every one of them. I hope that you will hear 
with the next panel that we are working very closely with them 
to try to come up with a strategy using our ACE to ensure that 
that is being utilized to its maximum capacity, making sure it 
is accessible to every company regardless of their size.
    So, we are very aware of the need to do that, and I assure 
you that that is our goal, to continue to try to balance this 
strategy of facilitation and security. We know that they are 
both equally important.
    Mr. BRADY. Thank you, Commissioner.
    Ms. MYERS. Certainly, this is an area where CBP kind of 
plays the primary role in serving as a conduit to trade, but as 
the enforcement arm, what we are trying to do is make sure we 
put as much information out there for small and large companies 
who want to do the right thing, but need more information and, 
frankly, often need to be able to get it cheaply, to be able to 
go on the Web and learn and look on it themselves. So, we have 
several programs, such as a cornerstone where we work with the 
trade community and helping them avoid violations in the area 
of financial fraud, and Project Shield America, where we do 
education and outreach to the export community, and we have 
other sorts of kind of tips and best practices on our Website 
where we try to provide them information so the business 
community can avoid doing the wrong thing when they don't want 
to.
    Mr. BRADY. Thank you, Ms. Myers. Mr. Chairman, yield back.
    Chairman SHAW. Thank you, Mr. Brady. Mr. Tanner?
    Mr. TANNER. Thank you very much, Mr. Chairman, and I want 
to thank you for calling this hearing. For far too long it 
seems, we haven't had the kind of oversight, that I believe is 
necessary for this government to function, at least in a semi-
efficient way, and for this chance to bring to light some of 
the problems that we have in this area is a very welcome, and I 
think a service to our country. I want to thank you very much 
for having this hearing.
    Commissioner, I am going to follow up on what Mr. Levin 
said. Most of us on this Committee believe that trade and 
engagement with the rest of the world is a good thing, and we 
think that the more competent and the more efficient we can 
make that interchange occur, both in and out of our country, 
the better off everybody is, including the people who engage in 
international trade, which we try to foster and promote in 
terms of our exports every day here with our public policy. Do 
you have any plausible explanation as to why this department 
has been unable to comply with the law in Homeland Security, 
section 412? Why can't you comply with what--do you have an 
explanation as to why it hasn't been complied with?
    Mr. BASHAM. Mr. Congressman, I don't have a plausible 
explanation as to why it has not been met. I can assure you, it 
can be met, and it will be met. I will assure this Committee 
that, by the end of this calendar year, we will either have 
onboard or in the process of bringing onboard the numbers of 
specialists that are identified in section 412(b) of the 
Homeland Security Act to meet those numbers by the end of this 
calendar year. I can't answer your question as to why in the 
past they have not been met. I can only give you my assurances 
they will be met.
    Mr. TANNER. Do you have any comment, Ms. Myers?
    Ms. MYERS. Well, in terms of our full time equivalents 
(FTE), they are all kind of equivalent based on the hours 
worked. I am concerned that that we keep our hours up. This is 
something we are monitoring, and we are taking a number of 
steps to aggressively increase them. I will tell you that, for 
fiscal year 2005, we had the equivalent number of FTEs as we 
did in 2001 and 2002 in terms of hours worked by the agents. 
That is my goal. That is where I think we should be. We are 
continuing to monitor through 2006, and I am taking some 
corrective to make sure--for example, some of the initiatives 
that we have done, frankly, weren't producing results. So, 
maybe we were spending time and doing things which weren't 
producing results in the commercial fraud area. We need to do 
some things, partner up better with CBP and Department of 
Commerce. We are finding success in some areas. For example, in 
anti-dumping investigations, we initiated 107 in fiscal year 
2005. That was a 184 percent increase over fiscal year 2004. 
So, there are some pockets where we are really showing some 
increase, but I agree we need to continue to monitor it and 
step it up.
    Mr. TANNER. Well, this affects the citizens of this country 
who are trying to help our country with respect to exporting 
goods and, for that matter, importing as well. When you say you 
don't have a plausible explanation, can you find out? Is the 
problem with funding? Is the problem with--what is it? Just to 
say, I have no plausible explanation, it is a little hard for 
us to understand.
    Mr. BASHAM. If you will permit me to get back to you on 
that point, Mr. Congressman, to give, to the best of our 
ability your, an answer to your question.
    Mr. TANNER. Or if you would, respond to the Committee 
because when you have a law, and you have--people come up and 
say, well, we just haven't been able to get around to that yet, 
that is a little bit hard, particularly in some areas----
    On another point very quickly, does that staffing level 
lead to the lag time in the program, the C-TPAT program, where 
you partner basically with the private enterprise to facilitate 
these matters? I am told that you have validated or expect to 
validate 65 percent of the companies that are required by 2006, 
but to date, you have only validated about 30 percent of them. 
Why is that?
    Mr. BASHAM. Well, first of all, Mr. Congressman, those 
positions that you referred to do not have interaction with the 
customs and trade partnership against----
    Mr. TANNER. No. I didn't mean the link in them. I am asking 
you about a different program. What is going on with it?
    Mr. BASHAM. Well, I believe, right now, we have validated 
49--I think there are 6,000-plus companies participating right 
now in the C-TPAT program, and 49 percent--actually 50 percent 
of the validations have been completed. We are projecting 52 
percent by September and 65 percent completed by the end of 
2006 with the remaining 35 percent completed in 2007. After 
2007 and then we will start the revalidation process.
    Mr. TANNER. Are there any problems going on? Is there 
anything we can help you with in that regard? Because I think 
this is an important program to reach all of our desired goals.
    Mr. BASHAM. I would agree. It is a very important program. 
It is a wonderful partnership between government and the 
private sector. We and they are working very closely to better 
define the types of data that would be needed to strengthen the 
security, plus to strengthen the facilitation. At this point, I 
don't know that there are any particular requests that I would 
have of this Committee with respect to the C-TPAT initiative.
    Mr. TANNER. Thank you very much, Mr. Chairman.
    Chairman SHAW. Thank you. Mr. Basham, I will follow up 
with, actually both of you, with the line of questioning that 
was started by Mr. Levin and continued by Mr. Tanner; 412 is, I 
think, is a pretty unique section in the Code. I can't think of 
any other place where we would have that restriction as to 
providing or mandating certain levels of employees. In your 
statement, you mention technology and how that was closing the 
gap up for us. I would invite you, either of you or both of 
you, to request a workshop with this Committee if you make a 
determination that there is a more efficient way to go because 
we would like to hear from you, and we would like to make good 
legislation where perhaps we have made errors, and anything we 
can do to update the Code to recognize technology and the value 
of the productivity of your workers, we would be glad to 
participate, participate with you in that, and perhaps out of 
that could come some some new legislation that would be 
corrected in nature. Mr. Foley?
    Mr. FOLEY. Thank you, Mr. Chairman. If I could ask, 
following the two recent decisions of the Court of 
International Trade (CIT) against the Continued Dumping and 
Subsidy Offset Act or the Byrd Amendment (P.L. 106-387), 
particularly the decision that the Byrd amendment is 
unconstitutional because it is a governmental restriction on 
free speech, does Customs and Border Protection plan to suspend 
all future disbursements pending court appeals? Also, what 
happens to the money sitting in special accounts?
    Mr. BASHAM. I am familiar with the issue, and as you said, 
the World Trade Organization (WTO) is in the process right now 
of reviewing the bonding issue, if that is what we are 
discussing, sir, and pending the results of that. Review CBP 
will react accordingly. In terms of what is happening to the 
current money that--we are holding, what is going to happen to 
that dispersal of those funds, I am not totally conversant on 
exactly how those funds are going to be dispersed. I would have 
to ask if I could get back to you and to answer that question 
to the Committee.
    Mr. FOLEY. If you would, please. Should Floridians feel 
vulnerable based on our borders and our shorelines? All of the 
emphasis recently, the political dynamic has shifted to the 
southwest border. We have talked about building fences, 
enhanced technology. We have talked about putting more agents 
there. We seem preoccupied with the southwest sector. Knowing 
drug smugglers, human smugglers and others, they are not going 
to continue to persist as we fortify those strategic borders. 
My concern is the coast of Florida. Obviously, we are a source 
of a large influx of illegal immigration, yet I don't see much 
emphasis on adding to personnel, conversations about 
technology; how are we going to protect Floridians based on the 
new potential patterns of displacement that occur because of 
our emphasis on the southwest border?
    Mr. BASHAM. Well, I would say that I think we all would 
consider not only Florida but other parts of the country to be 
vulnerable, and that is why we are looking at the Secure Border 
Initiative (SBI). Please note that SBI is not just going to 
focus on the southwest border. It is going to focus on the 
entire border of the United States. I can tell you we are 
working very closely with ICE; we are working very closely with 
the Coast Guard, with other State and local officials there in 
Florida to come up with the proper balance of security there to 
protect Florida and the rest of the United States.
    So, once the SBI is phased in, once we have the proper 
balance of technology, infrastructure and staffing, those 
components will be applied to Florida as well as Texas, and New 
Mexico, and Arizona. We have a request out right now for 
information. We hope to award an integrator program in the fall 
to take a look at all of these challenges and to come up with a 
strategy to protect not just Florida but the whole United 
States
    Mr. FOLEY. What is the agency doing to more rapidly put in 
place detention facilities? One of the great concerns we have, 
people are stopped they find to be illegal, there is no place 
to put them, so we give them a hearing notice--which they 
seldom appear for--and they disappear quietly into the night. 
Can you give me a status report on detention facilities and 
other means of processing these individuals?
    Ms. MYERS. Absolutely. Congressman, what we are doing is 
really a three-part strategy. First, in the President's budget 
we have been seeking more beds; but second, we have been 
seeking to use those beds more efficiently. Through things like 
the Secretary's SBI, we have reduced the average amount of time 
that an individual spends in a bed from 90 days down to 19 
days. So, that really facilitates our end game, which is 
removing individuals from this country as soon as possible. 
With respect to the interior where ICE plays a large role, the 
interior of central Florida as well as the rest of the United 
States, we have been aggressively seeking to consolidate and 
find beds throughout the country, so that there is not a bed 
that is open if there is an individual that needs to be 
detained.
    Just in the last 2 weeks we set up a detention operation 
coordination center which allows our special agent in charge 
(SAC) in a particular area. If they have too many individuals 
who would properly be detained but there are not local beds, he 
or she can call up to Washington and we can see if we make some 
movements how we can make sure that this individual is 
detained. Of course, we will always have limitations placed, 
for example, by immigration judges who might decide in some 
instances that individuals should not be detained while they 
are going through their 240 proceedings, but it is a very high 
priority of our agency to make sure that as many individuals as 
we find, we can remove those individuals. I think we are making 
some great steps. With respect to your first point, what we are 
doing to protect Florida, we do have under the SBI, interior 
enforcement strategy. A core part of that is dismantling the 
infrastructure that supports illegal aliens, such as the 
smuggling groups and others that come up from south Florida and 
other areas.
    Mr. FOLEY. Thank you.
    Chairman SHAW. Mr. Larson.
    Mr. LARSON. Thank you, Mr. Chairman. Let me join with my 
colleagues in giving you appropriate applause for holding these 
hearings and getting to the important oversight and review that 
the Committee needs to have done. I just wanted to follow up on 
a point that both Mr. Levin and Mr. Tanner have made and just 
point out to Mr. Basham--Are you familiar with the letter sent 
by Mr. Rangel and Mr. Thomas to you with respect to the same--
well, sent to Mr. Bonner with regard to the same compliance 
issues that Mr. Tanner raised?
    Mr. BASHAM. With respect to section 412(b) of the Homeland 
Security Act?
    Mr. LARSON. Right.
    Mr. BASHAM. I am not familiar with that particular letter, 
but I am certainly familiar with the issue. I intend to comply 
with the requirements of the Homeland Security Act, and we are 
in the process of getting those levels of staffing back to the 
pre-reorganization levels. As I have said, CBP, by the end of 
the calendar year of 2006, will either have on board or in 
process those new hires to bring CBP into compliance with those 
original levels.
    Mr. LARSON. So, with regard to the specifics of this 
letter--and the reason I point it out is a matter of 
timeliness. This was issued on March 17, 2006 and obviously, we 
haven't had a response to date. So, my question would be, in 
lieu of getting the information back to us, as both Mr. Tanner 
and the Chairman have requested, when can we expect to receive 
a response to his query and the letter of March the 17th, 2006?
    Mr. BASHAM. Today, I will look into this matter and I will 
have an answer for you, where it is, and when--the expectation 
of you receiving it by the end of the day.
    Mr. LARSON. Receiving a response by the end of the day.
    Mr. BASHAM. No. I am saying that I will have an answer as 
to where the response is and when you can expect to get you 
that response. I don't know whether the letter is with the CBP 
or whether it is at DHS for clearance, so I can't answer you 
specifically, but I will try my best to make sure that that 
answer is forthcoming.
    Mr. LARSON. Is 48 hours, 72 hours too much to expect? Or is 
it----
    Mr. BASHAM. I don't believe that is too much to expect and 
I will work very hard with the Department to get that letter 
out and up to the Committee, as requested.
    Mr. LARSON. Are you familiar with the inspector general of 
the Department of Homeland Security's report with regard to the 
lack of cooperation between CBP and ICE?
    Mr. BASHAM. I am familiar with it, Mr. Congressman, and I 
don't agree with all of the inspector general's findings. I 
think the Assistant Secretary and I have been working very hard 
to better collaborate, perhaps there are some areas that we can 
do a better job, but I believe that we are working together. As 
the Assistant Secretary mentioned just a few minutes ago, we 
met as late as yesterday, and we meet regularly to talk about 
the coordination, cooperation between our two agencies.
    Mr. LARSON. Can you give us any specific examples where you 
are improving these efforts? I think a number of questions have 
been raised by other Committee Members with regard to that. It 
is alarming to see that the left hand doesn't know what the 
right hand is doing; that we are not sharing information, 
specifically as it relates to intelligence with respect to our 
ports, which makes the questions that were raised by other 
Members that much more pointed. Is there any specific area that 
you can cite?
    Mr. BASHAM. Well, I can refer back to the Assistant 
Secretary, but in terms of the policies of catch and release 
versus the policy of catch and remove, I think has been one 
very good example of how we have worked very closely together 
on the southwest border to deal with illegal immigration.
    Ms. MYERS. Congressman, I think we have made substantial 
steps in addressing the 14 recommendations in the inspector 
general's report, including better sharing of intelligence, 
daily interaction on the intelligence briefing, the Secretary's 
SBI, where the Secretary gathers together the leadership each 
week to discuss border strategy, an ICE-CBP coordination 
council.
    In the area of commercial fraud, we have been working 
particularly well together. We have developed a process called 
the Commercial Enforcement and Analysis Response Process, which 
allows us to make sure that cases are passed and that we get 
CBP's view. We have joined textile verification teams that 
travel countries around the world--last year we went to 11, 
this year we went to 13--ICE and CBP teams working jointly 
together to inspect factories around the world.
    Also, in the in-bond warehouse problem, we have the FIST, 
or the Fraud Investigative Strike Teams, where we go together 
to in-bonded warehouses in various cities, work together on 
joint vulnerabilities. One thing that we have just developed in 
the last couple of weeks is looking at some of the 
vulnerabilities of things that are being sent via mail, and so 
we are working very closely with CBP, who is passing on the 
information to our fraudulent--forensic document laboratory and 
ensuring that we get fraudulent documents and other sorts of 
things. So, from my point of view the relationship has never 
been better, and I am very pleased to be working with 
Commissioner Basham.
    Mr. LARSON. Do you believe that all of the statements by 
the inspector general (IG)--Mr. Basham says he disagrees with 
some of their assessments. Do you believe some of those 
assessments to be true, and do you see an effort coming forth 
to say this is how we responded to those? When can we expect to 
hear from both of you about that?
    Ms. MYERS. Well, certainly, Congressman, we have responded 
within the Department to the status of each and every one of 
the IG's recommendations. As Commissioner Basham said, some we 
agree with, some we don't. We do agree with the general 
principle that we should be working very closely, not only with 
our partner agency, CBP, but also with our partner immigration 
agency, Citizenship and Immigration Services, as well as Coast 
Guard that has a big role, and migrant smuggling in south 
Florida and the like. With respect to any public dissemination, 
that is something that we will have to check with the 
Department on that, but it is certainly our view that----
    Mr. LARSON. It would be nice to know where you disagree 
with the inspector general and why.
    Ms. MYERS. Well, Congressman, we certainly disagree that 
the agencies should be merged. The Secretary, through Second 
Stage Review (2SR), had a comprehensive review of the two 
agencies, how they could be most effective, and determined they 
could be most effective as is. I think that is our core area of 
disagreement with the report.
    Mr. BASHAM. I would agree, I think we can work very 
effectively together without being merged. We are working more 
closely, as the Assistant Secretary pointed out, in many, many 
areas. We are looking for more opportunities to work more 
closely together and coordinate our efforts because we know it 
is important what ICE brings to CBP's mission and what CBP 
brings to ICE's mission, and that is something that we are 
committed to doing.
    Mr. LARSON. The lack of sharing intelligence is very 
troubling inasmuch as that kind of stove-piping led to a number 
of the problematic concerns that have been put forth by the 9/
11 Commission and others. I sincerely hope that we anxiously 
await your response and how you are going to rectify that. 
Thank you.
    Chairman SHAW. Mr. English.
    Mr. ENGLISH. Thank you, Mr. Chairman. Mr. Chairman, 
following up on a line of inquiry by Mr. Weller, I would like 
to further explore the issue of the abuses relative to new 
shippers. As the Commissioner is well aware, this past July the 
House of Representatives passed legislation that I had authored 
with the Chairman of the full Committee that, among other 
things, would have directly addressed the ongoing and 
unacceptable problem of collecting duties from new shippers. 
Our provision suspended for 3 years the availability of bonds 
for new shippers in antidumping cases, and instead required 
cash deposits so as to avoid situations where such shippers 
default on their obligations. Could you very briefly update the 
Committee on Customs's efforts to halt this practice, ensure 
that the duties are collected, and does a collection problem 
still exist? On that point, Customs in the past has indicated, 
in hearings similar to this, that Customs would not be opposed 
to legislation altering and streamlining the law relative to 
new shippers; and is that your position currently, Mr. 
Commissioner?
    Mr. BASHAM. That is my position currently. Collection of 
these duties continues to be a challenge. Trying to develop a 
process by which we can better identify legitimate shippers--
are we talking about import, Mr.----
    Mr. ENGLISH. Yes.
    Mr. BASHAM. --where we can better identify those individual 
companies that are legitimate and will be around at the time 
that, once the final determinations are made, that we are able 
to collect those duties that are actually identified at the 
time of liquidation. We also are developing a process by which 
we are trying to give some credit to those companies that have 
demonstrated their reliability. We are looking at a process 
right now to be able to identify the kinds of information we 
need to verify that.
    Mr. ENGLISH. Very good. On an entirely different matter, 
Commissioner, in January 2004, Congress passed the Emergency 
Protection for Iraqi Cultural Antiquities Act of 2004 (P.L. 
108-429), providing President Bush the authority to include 
Iraq as a covered nation under the Convention on Cultural 
Property Implementation Act ( P.L. 97-446). Nevertheless, I 
noticed that in the most recent Customs advisory on works of 
art, collection pieces, antiques and other cultural property, 
dated May of 2006, Iraq is not listed as a covered nation.
    It is also my understanding that Afghanistan ratified the 
1970 the United Nations Educational, Scientific and Cultural 
Organization (UNESCO) Convention last year with the clear 
expectation of gaining protection for their cultural artifacts, 
and yet Afghanistan is also not listed among the nations 
covered under the Cultural Property Implementation Act. On that 
point, Commissioner, why are neither of these nations listed? 
Can you describe for us the process within the Administration 
for initiating a request for the President to exercise his 
authority under section 304 of the Convention on Cultural 
Property Implementation Act?
    Mr. BASHAM. Mr. Congressman, I have to admit that in my 
limited time here at CBP, I am not familiar with this 
particular issue and I am not familiar with that particular 
rule, so I am going to ask if I can get back to you with a 
written response.
    Mr. ENGLISH. I would like a written response. I also want 
the Commissioner and the Department to know that on this 
Committee there is at least one Member who follows this very 
closely and is very concerned about how we handle antiquities 
coming across our border, how we crack down on the black market 
for cultural antiquities and artifacts. I will be back to you 
on a regular basis until we get this right. Thank you, 
Commissioner. I yield back the balance of my time.
    Chairman SHAW. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I am sorry that I 
was not here for your testimony, I was on the floor. So, I want 
to ask a question I hope that you have not answered already. 
That is, when we put the Customs operation into the Homeland 
Security, there were some of us very concerned that we would 
wind up with it becoming a law enforcement agency and lose its 
sort of expertise and value as a part of the commerce of this 
country; that the indication might be that all the effort was 
going into security and very little into the facilitating 
trade.
    I have heard anecdotal things from Seattle, being the 
second largest port on the west coast with plenty of stuff 
going through there, we have got 4 million containers a year. I 
wonder if you could tell me, who is in charge of facilitating 
things for businesses? If we have a complaint, to whom do we 
call in your agency to help facilitate some problem among the 
Customs brokers and those who are always trying to move stuff 
through the port?
    Mr. BASHAM. Well, we have several--we can provide you with 
a list of those--but primarily Office of Strategic Trade, and 
the Office of International Trade Relations. I believe that it 
is fairly well known among the trade industry--and I think you 
are going to have an opportunity to have comments from the 
panel--we work very, very hard to make sure that what we are 
doing and how we are doing it has been communicated and 
coordinated with the trade community. We have great assistance 
from the Commercial Operators Advisory Committee. There is the 
trade support network. Within our agency we have the Office of 
Trade Relations, which has been an ombudsman function.
    So, there are a number of avenues that can be pursued by 
the trade community to ask questions, and not only to ask 
questions, but we welcome their input and their advice and 
their counsel as we move forward to better balance the 
facilitation of trade and the need for security.
    Mr. MCDERMOTT. The reason I asked the question, in reading 
the testimony of people who will follow you, one of the 
problems with these hearings is that sometimes we can't get a 
back-and-forth going, so I would like to try one. The Customs 
brokers say, despite its promise, the truth is that the CBP is 
not balancing its true responsibilities for security and 
commercial operations. Resourcing for trade facilitation has 
dramatically diminished as the Agency has scrambled to meet the 
criticisms of its performance in the security realm.
    If you are a business that is having trouble getting 
something out of Customs or whatever, who do you call? What do 
you look for? I mean, is there someone who advocates for the 
business interests against the security interests?
    Mr. BASHAM. Yes. As I say, the Office of Trade Relations, 
that is their primary focus, to make sure that there is a 
vehicle, there is an avenue for the trade community to express 
their concerns, to ask their questions, to provide advice, 
provide information. Certainly that is on our website, which is 
accessible by the trade community. If we are not doing a good 
enough job in terms of making sure that the trade community 
knows where to go and we need to revisit that, and this 
conversation----
    Mr. MCDERMOTT. Does each port have a point person that 
people know about and can find?
    Mr. BASHAM. I am sorry, sir?
    Mr. MCDERMOTT. Does each port have a point person? If I 
have a Customs problem, who do--I don't just go down to the 
Customs office and say, I have got a problem; who do I talk to? 
Who do I look for?
    Mr. BASHAM. The port director----
    Mr. MCDERMOTT. Will direct you to somebody who will deal 
with the Customs issue, not the security issue?
    Mr. BASHAM. The port director. If the port director cannot 
address the issue, then the port director certainly knows who 
to refer that individual or company to to get their questions 
addressed. If they are not at the port, then the best approach 
would be to come directly to CBP headquarters and ask for that 
particular department, which is the Office of Trade Relations. 
I would have to go back and review what is said on the web in 
terms of how people get these addressed, but I do believe it is 
made fairly clear where to go on whatever issues the trade 
community may have.
    Mr. MCDERMOTT. I hope those people who are on the second 
panel sitting behind you will give me examples that we can work 
with you on. Thank you.
    Mr. BASHAM. I would very much look forward to working with 
the Committee to improve that process.
    Chairman SHAW. Is the gentleman complete? I want to thank 
this panel. I have just a couple questions or a couple comments 
I want to make before you leave. The next panel is going to 
include the President of the International Council of Cruise 
Lines, Mr. Crye, and he is going to talk to us about certain 
delays that the cruise industry is experiencing with regard to 
the passengers. They have raised these concerns about delays 
caused by multiple screenings of U.S. citizens on short 
cruises. What specifically can you do to ensure that the 
screening of passengers is done efficiently and preserves our 
National security while reducing the delays that can harm 
legitimate travelers and business?
    Mr. BASHAM. Mr. Chairman, our Office of Field Operations is 
aware of the concerns of the cruise industry with respect to 
delays, and we are looking at ways of streamlining that process 
and using automation and other tools and, again, looking at 
using the SBI to make sure that that is taken into 
consideration when whatever strategy is put together that we 
are trying to deal with these delays and those concerns with 
the cruise line.
    Chairman SHAW. Who has prime responsibility for that? Do 
you or does Ms. Myers?
    Mr. BASHAM. Well, we would have responsibility for 
clearances. We also work closely with the Coast Guard and the 
port operators there in Florida and in the Caribbean areas. So, 
we will be working together working with the cruise lines to 
come up with ways of streamlining that process and improving 
the time.
    Chairman SHAW. Can that be combined with immigration in 
some way that--it seems that you go through, and then they say 
go to this desk, go to that desk.
    Mr. BASHAM. Well, by the merger of CBP--when merging of 
Legacy Customs, Legacy Immigration and Agriculture, the idea 
was to make that a more streamlined one-stop type of approach. 
We feel that it is starting to have an effect, it is starting 
to improve the processing of incoming passengers.
    Chairman SHAW. The personnel that stamps your passport when 
you come back into the United States, who do they work for?
    Mr. BASHAM. That would be Customs and Border Protection.
    Chairman SHAW. So, that is you.
    Mr. BASHAM. Yes.
    Chairman SHAW. Just a suggestion. Some of them, you come in 
and you think that you feel like a criminal, and others will 
smile at you and say, welcome home. I would suggest that the 
latter is a much better way, and it would certainly, I think, 
reflect very well on your Bureau, your Customs people, to do 
that and include that in the job training. I think that would 
be, I think, quite helpful. I think all of us that have left 
the country and come back have found that sometimes that 
courtesy is missing, and it certainly would be appreciated. One 
further thing. Mr. Levin, in his opening comments, was talking 
about only 6 percent of screening on these containers coming 
into the United States--or physical inspection, I should say. 
As I understand, there is 100 percent screening. Can you 
describe that process to us?
    Mr. BASHAM. Well, with respect to the 100 percent 
screening, what that refers to is the review of electronic 
manifests that are provided to our National Targeting Center, 
and then there is a score applied to that particular shipment.
    Chairman SHAW. Is that initial screening before the 
container is even loaded on the ship?
    Mr. BASHAM. Twenty-four hours prior to the container being 
loaded on the ship, that manifest is provided to our national 
Targeting Center, and then depending on where that shipment is 
coming from, the shipper, the location, or the type of material 
that is supposed to be in that container, that is all reviewed, 
and then there is a score applied to that particular container. 
A decision is then made as to whether or not we are going to 
ask the host country to do an inspection, whether it is the 
non-intrusive inspection, which is the x-ray machines, to 
determine whether or not there are anomalies in that particular 
container. If it is determined that there is, then there would 
be a physical inspection of the container. If that happens, 
then there is a notice sent that that container is not to be 
loaded until such time as the anomaly has been cleared.
    Chairman SHAW. The physical inspection, would you describe 
that to us? How long does it take?
    Mr. BASHAM. It depends on the type of shipment it is, it 
depends on the type of material it is. Some are more difficult 
to physically inspect if it has to be unloaded and opened and 
literally viewed. One of the issues--and I know Mr. Levin 
suggested the 6 percent is unacceptable--I think that is what 
your feeling is, but actually, we are trying to reduce the 
number of physical inspections because it does in fact impede 
the flow. So, the more information, the more data that we can 
gather, and the more inspections that we can do without the 
physical inspection, we feel that that is going to improve the 
flow of trade versus having to actually stop those shipments 
and physically inspect them. So, a lesser number of physical 
inspections would be the target.
    Chairman SHAW. Of the official or the actual physical 
inspections that you make, what percentage of them show some 
type of violation?
    Mr. BASHAM. We will have to get back to you on that. I 
don't have that number.
    Chairman SHAW. I would like the statistics to include in 
the hearing. Again, I want to restate my invitation to both of 
you that this Committee is anxious to work with you in a 
workshop pattern--not us sitting up here and you sitting down 
there, but I mean sitting around a table--if we can effect 
legislation that would create better efficiency, and do it in a 
very bipartisan way, I might add.
    Mr. LEVIN. Mr. Chairman, as they leave--I hope you don't 
leave with the implication that today we have a fully adequate 
system for the inspection of goods that are coming into the 
United States. I hope that isn't the implication of what you 
have just said.
    Mr. BASHAM. I did not mean to infer that we are at a point 
where we can put our flag in the ground and declare victory. We 
do have a lot of work to do. We still are working very closely 
with the trade community, the international trade community, 
other host governments and countries. We know there is a lot of 
improvement that needs to be made and can continue to be made, 
and we are working every day to try to improve trade 
facilitation. We are expanding the container security 
initiatives around the world, we are working with other 
countries on capacity-building to assist them in making this a 
more secure, more efficient process. So, no, we are not at a 
point where I feel that we can sit back and cross our arms and 
say we have been successful. I agree with you.
    Chairman SHAW. Thank you very much. You are excused. We 
appreciate your testimony, and we look forward to working with 
you on any efficiencies we can help facilitate next year. Our 
next panel, we have Mary Joe Muoio, who is President of Barco 
Trade Consultants in Boonton, New Jersey. She is here on behalf 
of the National Customs Brokers and Forwarders Association of 
America. Michael Crye who is President, International Council 
of Cruise Lines. Charlene Stocker, who is a Senior 
International Services Manager, Procter and Gamble Company, in 
Cincinnati, Ohio. She is here on behalf of the American 
Association of Exporters and Importers. Brian Gill, who is a 
senior Regulatory Affairs Advisor of FedEx Express from 
Memphis, Tennessee. We have Colleen Kelley, who is the National 
President of the National Treasury Employees Union. Mario 
Vicente, who is the President of Fresca Farms in Miami, 
Florida; on behalf of the Association of Floral Importers of 
Florida. Welcome to all of you. We have a copy of your full 
testimony, which will be made a part of the record. We would 
invite you to proceed or summarize as you feel comfortable.
    Chairman SHAW. Ms. Muoio, you may proceed, please.

STATEMENT OF MARY JOE MUOIO, PRESIDENT, BARTHCO INTERNATIONAL, 
   INC., A DIVISION OF OZBURN HESSEY, NEWARK, NEW JERSEY; ON 
 BEHALF OF NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION 
                           OF AMERICA

    Ms. MUOIO. Thank you. Good morning, Mr. Chairman. I am Mary 
Joe Muoio of Barthco International, and President of the 
National Customs Brokers and Forwarders Association of America. 
I appreciate the opportunity to testify before you and comment 
on Customs authorization legislation. First, let me say that we 
are grateful for the support that Ways and Means has provided 
to the international trade community over many years. Your 
special focus on trade and revenue gives you a unique 
appreciation for the commercial operations responsibilities of 
Customs and Border Protection.
    As security issues have dominated the agenda and generated 
issues of jurisdiction in the House, we have consistently 
supported the Committee's primacy over Customs commercial 
functions, and we support your continued jurisdiction over 
these matters. You have shown that you are willing to hold CBP 
into strict account when the Bureau vows to balance commercial 
and security operations. CBP's promise must be taken literally. 
When you consider the dramatic growth in world trade, we are 
rapidly becoming a global economic community, and international 
commerce is indeed our life's blood. Despite its promise, the 
truth is that CBP is not balancing its twin responsibilities of 
security and commercial operations. Resources for trade 
facilitation have dramatically diminished as the Agency has 
scrambled to meet criticisms of its performance in the security 
realm.
    When the GAO pointed to disappointing output in C-TPAT 
validations, CBP quickly moved import specialists into these 
areas of responsibility, leaving a skeleton crew to serve the 
needs of U.S. trade. We experience a wholesale diversion of 
personnel as Customs robs Peter to pay Paul. The attention of 
CBP to its trade mission has rapidly diminished as it gives 
priority to security programs. The answer: Congress must insist 
that CBP dedicate sufficient personnel to conduct its 
commercial trade mission. Congress should set a floor for 
import specialists and other commercial operations personnel, 
fencing off these assets from diversion elsewhere within 
Customs.
    Small- and medium-sized businesses encounter an uneven 
playingfield when CBP focuses almost exclusively on the needs 
of the top 50 largest importers. We constantly hear that the 
top 50 represent approximately 50 percent of imports by value; 
however, CBP ignores the fact that small enterprises account 
for the vast majority of all transactions. There are hundreds 
of thousands of small business importers, a large percentage 
with limited experience and resources. It is they who need the 
availability of import specialists and client representatives 
the most, and in many circumstance it only takes one 
inefficient shipment to back up the entire flow of goods.
    Customs demands and incentives are geared to the largest of 
companies. Companies must require their overseas suppliers to 
meet best practices. Who but the largest companies has the 
economic clout to exert this leverage? Companies must often 
take resource-intensive steps to meet CBP's standards. Who but 
the largest have the in-house expertise and finances needed to 
comply? Companies are incentivized with promises of expedited 
clearance. Who but the largest can avail themselves of this 
competitive advantage? Companies are expected to require C-TPAT 
membership of their supply chain partners. Who but those 
admitted to the program, the very largest, can qualify for this 
business opportunity? The latest challenge to small business 
has been the concept of third-party validations. At the start, 
we questioned who exactly can provide this function reasonably 
at low cost. We fear that this expanded resourcing provided by 
third-party validators will come at the expense of the C-TPAT 
participants who must pay the tab.
    The weight of this will surely fall on small businesses, 
the least able to afford this added cost. Our answer, Mr. 
Chairman, is for Congress to insist that Customs develop 
separate and independent strategies for incorporating small- 
and medium-sized businesses into its programs. Finally, I must 
address the International Trade Data System (ITDS). Customs has 
promised the reward for low-risk C-TPAT members to be expedited 
processing. This carrot for enhanced supply chain security is 
meaningless if Federal agencies other than CBP do not 
cooperate. In other words, even if CBP clears products quickly 
for C-TPAT members, the entire shipment can be brought to a 
dead stop if it is not cleared by Food and Drug Administration 
(FDA) or United State Department of Agriculture (USDA), for 
example.
    The ITDS is to become the front end of ACE, routing data to 
all the affected regulatory agencies at the very beginning of 
entry processing. One essential element is that all appropriate 
agencies agree to participate, which they have not. The problem 
lies in one fundamental defect. CBP has no authority over 
agencies and other departments. How can this impasse be solved? 
National Customs Brokers and Forwarders Association of America 
(NCBFAA) believes that the OMB, which has previously had a 
significant role in Federal data management, has the capability 
to overcome this stovepipe problem.
    We believe that Congress should designate OMB as chair of 
the multi-agency board that directs the ITDS project. In 
consultation with other departments, OMB should evaluate what 
agencies are necessary to the success of ACE and direct, on a 
phased-in basis, the participation of those still uninvolved in 
ITDS. This should be completed concurrent with the completion 
of ACE in 2010. Finally, we must ensure that these agencies 
have the wherewithal to pay for connecting to ACE. Mr. 
Chairman, this concludes my remarks.

    [The prepared statement of Ms. Muoio follows:]

 Statement of Mary Joe Muoio, President, Barthco International, Inc., 
    Boonton, New Jersey, on behalf of National Customs Brokers and 
                   Forwarders Association of America

    Mr. Chairman, I am Mary Jo Muoio. Senior Vice President of Barthco 
International, Inc. and President of the National Customs Brokers and 
Forwarders Association of America. I appreciate the opportunity to 
testify before you and comment on customs authorization legislation.
    First, let me say that we are grateful for the support that the 
Committee on Ways and Means has provided to the international trade 
community over many years. Your special focus on trade and revenue 
gives you a unique appreciation for the commercial operations 
responsibilities of Customs and Border Protection. As security issues 
have dominated the agenda and generated issues of jurisdiction in the 
House, we have consistently supported the Committee's primacy over 
Customs' commercial functions and we support your continued 
jurisdiction over these matters. You have shown that you are willing to 
hold CBP into strict account when the Bureau vows to balance commercial 
and security operations. CBP's promise must be taken literally when you 
consider the dramatic growth in world trade. We are rapidly becoming a 
global economic community and international commerce is indeed our 
life's blood.

1. CBP's attention to commercial operations is greatly reduced and 
        resourcing is inadequate.
    Despite its promise, the truth is that CBP is not balancing its 
twin responsibilities of security and commercial operations. Resourcing 
for trade facilitation has dramatically diminished as the agency has 
scrambled to meet criticisms of its performance in the security realm. 
When the Government Accountability Office (GAO) pointed to 
disappointing output in Customs-Trade Partnership Against Terrorism (C-
TPAT) validations, CBP quickly moved import specialists into these 
areas of responsibility, leaving a skeleton crew to serve the needs of 
U.S. trade. In the Port of New York and New Jersey, for example, trade 
inspectors numbered forty before 9/11 but were reduced to eight at a 
recent count. Similarly, in-bond inspectors at the Port of LA/Long 
Beach numbered twelve, but are now zero, as CBP shifts personnel to 
operate VACCIS equipment, which screens for security purposes.
    These examples are representative of a wholesale diversion of 
personnel, as Customs robs Peter to pay Paul. The attention of CBP to 
its trade mission has rapidly diminished as it gives priority to 
security programs. Rank-and-file know this and fully understand that a 
successful career path at the agency calls for making their mark in C-
TPAT, the Container Security Initiative, or other high-profile 
programs. The answer? Congress must insist that CBP keep its promise to 
dedicate sufficient personnel to conduct its commercial trade mission. 
Congress should set a floor for import specialists and other commercial 
operations personnel, fencing off these assets from diversion elsewhere 
within Customs.

2. CBP's approach to security and commercial operations disadvantages 
        small and medium-sized businesses.
    Similarly, Customs is not dedicating sufficient energy or attention 
to the needs of small and medium-sized enterprises. I must say that 
customs brokers and forwarders have a unique vantage in this regard--
the vast majority of those on our client lists are small businesses. We 
must therefore be their advocates.
    It is common knowledge that small firms represent 99.7 percent of 
all employers; they employ half of all private sector employees; and, 
they pay 45 percent of America's private sector payroll. It is these 
small firms--those with limited internal resources and expertise--that 
are short-changed when there are reductions in import specialists, or 
when they are denied access to client representatives. But they also 
encounter an uneven playing field when CBP focuses almost exclusively 
on the needs of the 50 largest importers. We constantly hear that the 
Top 50 represent approximately 50% of imports by value; however, CBP 
ignores the fact that small enterprises account for the vast majority 
of all transactions. There are hundreds of thousands of small business 
importers, a large percentage with limited experience and resources. It 
is they who need the availability of import specialists and client 
representatives most. And, in many circumstances, it takes only one 
inefficient shipment to back up the entire flow of goods.
    As another compelling example, while CBP constructs C-TPAT and its 
three tiers, it is single-mindedly looking to big companies as the 
mainstay of that program. Its demands and incentives are geared to the 
largest of companies. Companies must require their overseas suppliers 
to meet best practices--who but the largest of companies has the 
economic clout to exert this leverage? Companies must often take 
resource-intensive steps to meet CBP's standards--who but the largest 
have the in-house expertise and finances needed to comply? Companies 
are incentivized with promises of expedited clearance--who but the 
largest can avail themselves of this competitive advantage? Companies 
are expected to require C-TPAT membership of their supply chain 
partners--who but those admitted to the program, the very largest, can 
qualify for this business?
    The latest challenge to small businesses has been the concept of 
3rd party validation. Criticism has been leveled at Customs for failing 
to conduct sufficient C-TPAT validations at a fast enough pace. This in 
turn has generated the proposed solution of turning to private sector 
companies, a solution that has appealed to those who want the 
validations to be far more exhaustive. Rather than spot-checking 
various points along multiple supply chains, the critics want a 
complete audit of every supply chain. First, we question who exactly 
can provide this function reliably, at low cost. We know that this 
expanded resourcing, provided by 3rd party validation, will come at the 
expense of the C-TPAT participants who must pay the tab. The weight of 
this requirement will surely fall on small and medium-sized companies 
who can least afford this added cost, yet must be forever agile in 
seeking new and different sources of supply to reduce their margins.
    Our answer, Mr. Chairman, is for Congress to insist that Customs 
develop separate and independent strategies for incorporating small and 
medium-sized businesses into its programs. How, for instance, can these 
smaller enterprises successfully participate in C-TPAT? When they 
control almost 70% of our imports, smaller firms must become part of 
the equation.

3. Customs has demonstrated outstanding leadership and vision in the 
        development of security programs, but there is room for 
        improvement.
    CBP has, since 9/11, displayed exceptional leadership in developing 
programs of homeland security with a global reach. Accepting the 
mandate to protect our borders, its focus has been on the terrorist 
threat generated from outside the United States. CBP has recognized, 
quite correctly, that America's borders need to be pushed outward to 
the overseas ports where the vessels are laden. After all, examination 
at the port of origin reduces the danger to America and permits 
expedited clearance at our domestic ports, which are already deluged 
with cargo and opportunities for delay.
    C-TPAT: Of specific interest to the Committee, CBP has established 
C-TPAT as a primary tool for securing the supply chain. Recognizing the 
limits of extraterritoriality, the program nonetheless permits our 
government to use the economic leverage of our importers to induce 
their overseas suppliers to meet standards of security. Putting aside 
for the moment our comments about diverting resources and the need to 
incorporate small and medium-sized business in C-TPAT, the program is 
an inspired concept serving as one layer in a multi-layered approach to 
security. It will succeed because it has been voluntary. From soon 
after 9/11, fundamental to the program is the partnership of the 
private sector with Customs. C-TPAT recognizes that ``one size does not 
fit all'' and allows for flexibility in its implementation. In fact, 
through the overwhelming response of U.S. industry, membership in C-
TPAT has become an obligatory element of doing international business. 
Now we see that its critics would turn this concept on its head and 
make it subject to notice-and-comment regulation. We believe that such 
a direction is counterproductive and ill advised. Our view? Congress 
should resist efforts to put C-TPAT in the straightjacket of federal 
regulation.
    Automated Targeting System: CBP is also on the right track in 
utilizing risk analysis and targeting to determine which containers 
require further scrutiny. By marshalling a variety of key data--well 
beyond the manifest data presently required by the Trade Act of 2002--
and introducing it to a sophisticated, robust and real-time automated 
targeting system, decisions can be made to apply inspectional resources 
only to high-risk containers rather than spreading those resources 
thinly through an overwhelming volume of imports. But GAO has 
criticized the present system--the Automated Targeting System (ATS)--
for its deficiencies, and those shortcomings do indeed need to be 
addressed. Furthermore, CBP and some others have exhibited the 
inclination to require vast amounts of data, without rhyme or reason, 
without regard for the costs to its providers from the private sector, 
and without any guarantee of confidentiality for competition-sensitive 
information. One emerging concept, termed ``Secure Freight,'' would 
establish a private sector intermediary, which would draw unlimited 
amounts of data from importers and then manipulate that information, on 
demand, as CBP revises ATS ad infinitum. This comes at a huge price and 
exposes importers to the risk of exposing its most competition-
sensitive data. Instead, CBP must be held into account to determine 
exactly what information it needs for ATS and provide a reliable, 
secure path for its transmission.
    Export data: Finally, CBP recently informed the Bureau of the 
Census that they were withholding approval of their long-awaited 
Automated Export System regulations until Census relented on an 
unrelated matter--its opposition to providing sensitive export data to 
overseas governments. Customs views its commitment to a multi-nation 
security agreement at the World Customs Organization as requiring the 
United States to make export data available, while Census feels bound 
by statutory constraints requiring it to protect the export information 
that it collects for statistical purposes. For its part, American 
exporters are opposed to providing information to overseas governments 
that might filter through to their competitors. Our view? NCBFAA feels 
strongly that the wholesale delivery of export information to foreign 
nations runs counter to our international trade interests. At a time 
when we are struggling with trade deficits, the United States should 
not be undermining the competitive standing of the very exporters that 
must bring these statistics more into balance.

4. CBP is successfully working with the trade community to develop the 
        Automated Commercial Environment (ACE).
    Through its Trade Support Network (TSN), CBP has actively worked 
with the trade community in partnership to field the automated program 
that will conduct the day-to-day transactions for commercial 
operations. ACE will revolutionize the processing of commercial 
entries, adding such features as periodic payment and periodic entry, 
moving processing into a totally paperless environment, and adding the 
other federal regulatory agencies to the data pipeline.
    It is this last feature--the International Trade Data System 
(ITDS)--that has attracted so much attention recently. While Customs 
has promised the reward for the high-tiered C-TPAT members to be 
expedited processing, this carrot for enhanced supply chain security is 
meaningless if federal agencies other than CBP do not cooperate. In 
other words, CBP can clear products quickly for C-TPAT members, but the 
entire shipment can be brought to a dead stop if it is not cleared by 
FDA or USDA, for example.
    There is however much that must be done if ITDS is to become the 
``front end'' of ACE, with data being input through one window and 
routed to all of the affected regulatory agencies at the very beginning 
of entry processing. One essential element is that all appropriate 
agencies agree to participate, which they have not. The problem lies in 
one fundamental defect: CBP (and, therefore, the Department of Homeland 
Security) has no authority over agencies in other departments. DHS and 
the Department of the Treasury (DHS' predecessor in directing Customs) 
have successfully marshaled a significant number of key agencies--but 
not all.
    How can this be solved? NCBFAA believes that the Office of 
Management and Budget, which has previously had a significant role in 
federal data management, has the capability to overcome this 
``stovepipe'' problem. We believe that Congress should designate OMB as 
chair of the multi-agency board that directs the ITDS project. And, in 
consultation with other departments, OMB should evaluate what agencies 
are necessary to the success of ACE and direct, on a phased-in basis, 
the participation of those still uninvolved in ITDS. Adequate 
resourcing must be made available to these agencies to absorb the costs 
of ``connecting'' to ACE, and all agencies that are involved in the 
cargo clearance process must be ready to participate in time for the 
completion of ACE in 2010. ITDS has profound security and commercial 
benefits for America. It needs the Ways and Means Committee's support 
if these benefits are to be fully realized.
    A final element of completing ACE is bringing technical customs law 
into conformance with new procedures introduced by this automation 
system. In concert with CBP, the trade community through the CBP's 
Trade Support Network has developed a number of technical changes to 
customs law that we would like to see included in this year's 
authorization bill.

5. Customs has joined with the trade community in modernizing drawback. 
        A compromise between the two parties is now ready to be 
        considered by Congress.
    Those who are conversant with the technical features of customs law 
know that duty drawback is an important incentive to exports. 
Acknowledging that goods are often imported for use as components of 
American manufacturing or as other valuable products, and then exported 
from the United States, the law has long provided for a return of 
duties paid on those products brought temporarily within our borders 
and then subsequently shipped overseas. Current law is however very 
cumbersome, recordkeeping--intensive, and demanding on Customs, which 
must administer the law and ensure that revenues are protected. Customs 
and a diverse range of national, private sector drawback specialists 
have worked over the past several years to modernize and streamline its 
processing. In what has been a highly interactive and even sometimes 
contentious process, agreement has been reached and a compromise 
struck.
    Modernization of drawback will save the government and the private 
sector millions of dollars. At CBP, for example, personnel can be 
shifted to other commercial areas since the intensive management and 
accounting of drawback claims will be substantially reduced. NCBFAA 
asks the Committee to make the technical changes to customs law 
necessitated by drawback modernization through this year's customs 
authorization legislation.
    Mr. Chairman, NCBFAA is grateful for this opportunity to share its 
views and will gladly respond to your questions.

                                 

    Chairman SHAW. Thank you. Mr. Crye.

STATEMENT OF MICHAEL CRYE, PRESIDENT, INTERNATIONAL COUNCIL OF 
               CRUISE LINES, ARLINGTON, VIRGINIA

    Mr. CRYE. Good morning, Mr. Chairman. My name is Michael 
Crye. I am the President of the International Council of Cruise 
Lines (ICCL). Thank you for the opportunity to appear today and 
present our testimony. The ICCL represents 16 leading cruise 
lines and 100 companies who provide goods and services to the 
cruise industry. ICCL members carry approximately 90 percent of 
the passengers in the North American market. Leisure cruises 
are an extremely popular vacation enjoyed by over 11 million 
worldwide guests in 2005, and over 9 million of these were 
North Americans.
    Over the past 20 years, the cruise industry has grown at a 
rate of approximately 8 percent per year while continuing to be 
rated as one of the highest vacation options with outstanding 
guest approval ratings. The industry is a significant economic 
engine in the United States. In 2005, the industry generated 
$32.4 billion to the U.S. economy, an increase of 8 percent 
from the previous year, and this benefit reached into every 
State economy. Our passengers came from every State and 
supported nearly 330,000 jobs nationwide and paid a total of 
more than 13.5 billion in wages and salaries.
    Florida is the center of cruising in the United States, 
with 61 percent of cruise embarkations representing over 5 
million passengers. Our mission is to participate in the 
regulatory and policy development process and promote all 
measures that foster a safe, secure and healthy cruise ship 
environment. We have had longstanding working relationships 
with CBP, the Coast Guard, Immigration and Naturalization 
Service (INS), and other legacy agencies of the Department of 
Homeland Security. We hold four meetings a year with the CBP 
Office of Field Operations, which includes attendance from CBP 
port directors from cruise ship home ports around the country. 
This forum is an excellent example of the successful 
government/industry partnership that works to find practical 
solutions to today's security challenges.
    Contrary to what may be publicly perceived, the operation 
and itineraries of cruise vacations are very different from the 
airline industry. In the majority of cases in the United 
States, cruise itineraries begin and end at the same port and 
do not pick up enroute passengers. So, the same passengers who 
began their cruise in a U.S. port will return 7 days later to 
the same port. There are two categories. There are foreign port 
of origin cruises, wherein it is very similar to an airline 
scenario where you are starting foreign and arriving in the 
United States. Then there is the round-trip voyages that begin 
in the United States and end in the United States, and there 
may be multiple U.S. port calls.
    The cruise lines currently submit a multitude of 
information to the government and must file passenger and crew 
manifests electronically prior to departure and before arrival 
at a U.S. port. Before arrival, it is generally filed 96 hours 
in advance with the Coast Guard and CBP. These manifests 
provide detailed information on the passenger, including their 
name, their date of birth, nationality, passport or other 
identification (ID) number, point of embarkation and the 
position or duties for each passenger or crew member. When CBP 
receives the manifest, they check the information against 
numerous law enforcement databases to ensure that all 
passengers are cleared for departure or arrival to the United 
States. The advance transmission of passenger manifests 
provides the CBP ample opportunity to review and identify those 
persons requiring the face-to-face interview. While underway, 
cruise ships follow comprehensive security measures designed to 
ensure that all passengers and crew are accounted for at all 
times while at sea. No one may embark or disembark until they 
pass through security. Each person is issued a security 
identification card that includes biometric data that they must 
show when entering or leaving a ship, and every time it is 
recorded electronically on the ship's computer system.
    Once the ship is underway, access is limited strictly to 
documented employees and passengers. Cruise lines guard very 
vigorously against any unauthorized person boarding the vessel. 
Despite these comprehensive security procedures, cruise 
passengers are significantly delayed from leaving a vessel at 
the end of a cruise, as the CBP is required by law to inspect 
each and every passenger face to face. This antiquated law does 
not recognize today's automated security procedures, and it 
unnecessarily burdens CBP with an inflexible requirement, 
particularly when passengers have already been screened for 
departure and possibly already screened for arrival into the 
United States.
    The ICCL recommends that Congress amend the law to provide 
an electronic equivalency as an alternative for the CBP instead 
of an in-person interview. This simple change would allow CBP 
inspectors the flexibility to determine, based upon risk 
assessments, which passenger or crew would require an 
inspection upon entering the country. CBP could reduce the 
number of resources according to their determination of the 
threat. For in-transit ports of call, the ICCL recommends that 
CBP grant a waiver of inspection for U.S. in-transit ports to 
alleviate the unnecessary and redundant inspection process. The 
ICCL commends the CBP for its willingness to leverage its 
limited assets by partnering with this industry. There is a 
huge workload at CBP due to the many additional security 
requirements put in effect post 9/11. The CBP should have the 
flexibility to focus its resources on high-threat environments 
and delegate duties in lower-threat environments to its 
industry partners who share precisely the same goal. The cruise 
industry stands ready to work with CBP in furthering our common 
goal of secure borders, while at the same time facilitating 
trade and commerce. Thank you, sir.

    [The prepared statement of Mr. Crye follows:]

 Statement of Michael Crye, President, International Council of Cruise 
                       Lines, Arlington, Virginia

INTRODUCTION
    Good morning Mr. Chairman and members of the Subcommittee. My name 
is Michael Crye; I am the President of the International Council of 
Cruise Lines. Thank you for the opportunity to present testimony on 
behalf of the cruise industry.
    The ICCL is the cruise industry trade association representing 16 
leading cruise lines and approximately 100 companies who provide goods 
and services to the member cruise lines. ICCL members carry 
approximately 90% of the passengers in the North American vacation 
market. Leisure cruises are an extremely popular vacation choice 
enjoyed by over 11 million worldwide guests in 2005, and over 9 million 
of these were North Americans. Over the past 20 years, the cruise 
industry has grown at a rate of approximately 8 percent per year while 
continuing to be rated as one of the highest vacation options with 
outstanding guest approval ratings. An estimated 9.7 million of these 
guests originate from the U.S and Canada.
    The cruise industry is a significant contributor to the U.S. 
economy. Through direct and indirect spending from the cruise lines, in 
2005, the industry generated $32.4 billion to the U.S. economy, an 
increase of 8% from the previous year. In addition, Business Research 
and Economic Advisors (BREA) found that the cruise industry supported 
nearly 330,000 jobs nationwide and paid a total of more than $13.5 in 
wages and salaries in 2005. The economic impact reached into every 
state economy. Cruise passengers originated from every state and the 
cruise lines made purchases in support of their operations. The biggest 
economic impact occurs in the State of Florida with the industry 
contributing $5.5 billion in direct spending; creating 128,042 jobs 
that paid $4.8 billion in wages. Florida is also the home for several 
of the cruise line corporate and administrative offices.
    The strength of the industry also benefited U.S. ports through the 
increase in cruise passengers and continued trend of home porting. 
Florida remains the center of cruising in the United States, accounting 
for over 4.7 million passengers and 61% of all U.S. embarkations, with 
most of the travelers departing out of the Ports of Miami, Everglades 
and Canaveral.
    The mission of the ICCL is to participate in the regulatory and 
policy development process and promote all measures that foster a safe, 
secure and healthy cruise ship environment. The ICCL advocates industry 
positions, actively monitors international shipping policy, and helps 
to formulate, review and update best industry practices for and among 
its membership on a wide variety of issues. ICCL regularly attends 
meetings at the International Maritime Organization (IMO) where we have 
a seat as a non-governmental consultative organization, and we 
represent our membership at the International Labor Organization. ICCL 
vessels operate around the globe and call at more than 800 ports 
worldwide.
    The ICCL has a long standing and very positive working relationship 
with agencies at the Department of Homeland Security, which include 
Customs and Border Protection (CBP) and the U.S. Coast Guard (USCG). 
ICCL regularly participates in federal committees or working groups 
such as the Data Management Improvement Act (DMIA) Task Force, the U.S. 
Customs and Border Protection Airport and Seaport Inspections User Fee 
Advisory Committee, and the Department of State Shipping Coordinating 
Committee. ICCL has a formal partnership with the USCG, holding 
meetings every 60 day to share security information. Further, quarterly 
meetings are held with the CBP Office of Field Operations which 
includes attendance from the CBP Port Directors from cruise ship home 
ports around the country. This forum is an excellent example of a 
successful government/industry partnership that works to find practical 
solutions to today's security challenges.
    In 2000, Congress created a temporary government/industry body 
known as the Data Management Improvement Act (DMIA) Task Force, whose 
purpose was to evaluate and make recommendations on how the flow of 
traffic at U.S. airports, seaports and land border Ports-of-Entry (POE) 
could be improved, while enhancing security. DMIA's primary focus was 
to:

      streamline the inspection process of both U.S. and non-
U.S. citizens entering and exiting the United States,
      integrate new security measures, and
      facilitate commerce and promote collaboration between 
several federal agencies.

    As the cruise industry representative of DMIA, I was intimately 
involved with developing the evaluations and recommendations on:

      an electronic entry/exit system;
      enhancing information technology (IT) systems and data 
collection/sharing;
      facilities and infrastructure issues; and,
      how to increase cooperation between public and private 
sectors, among federal and state/local agencies and with affected 
foreign governments.

    There is a huge workload at CBP, due to the many additional 
security requirements put in effect post 9/11. The potential security 
threats presented by cruise passengers who are well established U.S. 
citizens are much less than at virtually any other port of entry. The 
CBP should have the flexibility to focus its resources on high threat 
environments and delegate duties in lower threat environments to its 
industry partners who share the government's goal of strong border 
security. The CBP must utilize its human resources effectively to meet 
this challenge and use technology to facilitate its work.
    According to the Travel Industry Association of America, 
international tourism is one of the bright spots in this country's 
balance of payments deficit, and travel is the largest service export 
sector in the U.S. This positive impact is threatened. As a result of 
difficult and cumbersome border crossing policies, the U.S. share of 
international tourism declined 36 percent between 1992 and 2004 while 
world tourism was growing by 52 percent. In 1992, the U.S. received 
9.4. percent of worldwide travelers, today the U.S. receives 6 
percent.\1\
---------------------------------------------------------------------------
    \1\ Travel Industry Association (TIA), The Power of Travel 2006.
---------------------------------------------------------------------------
CURRENT CRUISE OPERATIONS
    The categories of cruise ship itineraries are classified as 
follows:

    1. Foreign port of origin cruise
    2. Domestic port of origin-to-noncontiguous territory cruise
    3. Domestic port of origin-to-contiguous territory cruise
Foreign Port of Origin Cruise
    This type of cruise itinerary represents the most basic conditions 
for a foreign ship arrival to the United States. Cruises depart from a 
foreign seaport and arrive at a U.S. seaport. Cruises in this scenario 
may come from Europe, Asia, Canada or the Caribbean islands.
Domestic Port of Origin-to-Noncontiguous (Adjacent Islands) or 
        Contiguous Territory Cruise (Mexico or Canada)
    These cruises occur within the Western Hemisphere, and account for 
75% of all cruise ship visits and itineraries. In 2005, there were 
4,455 cruise ship visits to the entire region with a total of 8.36 
million passengers. For the noncontiguous cruise itinerary, passengers 
and crew undergo an inspection each time the ship returns to a U.S. 
port from a foreign port. Typically, cruises begin in the U.S., go to a 
foreign island, return to a U.S. port (such as Puerto Rico), go to 
another foreign port, and return again to a U.S. port. Cruises of this 
type occur most often in the Caribbean region and involve the U.S. 
seaports of Miami, Port Everglades, San Juan, and St. Thomas.
    For the contiguous cruise itinerary, passengers who take a cruise 
from the United States to contiguous territory most likely have been 
inspected recently at an international airport or a land border POE 
when they originally entered the United States.
    Cruise Itinerary Schematic--Domestic Port of Origin-to-
Noncontiguous Territory

[GRAPHIC] [TIFF OMITTED] T1494A.001

ICCL RECOMMENDATIONS
Cruise Passenger Processing
    Cruise lines currently submit a multitude of information with the 
U.S. government and must file electronically passenger and crew 
manifests prior to departure and before arrival at a U.S. port. Before 
arrival, it is filed 96 hours in advance with the USCG and CBP. 
Additionally, on July 14, 2006, CBP published a proposed rulemaking 
that would require the submission of passenger and crew manifests 60 
minutes prior to departure of the vessel from a U.S. port.
    These manifests provide detailed information including the 
passenger's name, date of birth, nationality, passport or other ID 
number, point of embarkation, and the position or duties for each 
passenger or crew member. Upon receipt of the manifests, CBP checks the 
information against numerous law enforcement databases to ensure that 
all passengers are cleared for departure and return to the U.S. The 
advance transmission of passenger manifests provides the CBP ample 
opportunity to review and identify those persons requiring a face-to-
face interview.
    While outside the U.S., cruise ships follow comprehensive security 
measures designed to ensure that all passengers and crew are accounted 
for at all times while at sea. Passengers and crew may embark or 
disembark only after passing through security. For example, each 
passenger is issued a security identification card that includes 
biometric datathat he/she must show when entering or leaving the ship. 
Each time a passenger leaves or enters the vessel, it is recorded 
electronically on the ship's computer system. Once the ship is 
underway, access is limited strictly to documented employees and fare-
paying passengers. The cruise lines vigorously guard against any 
authorized persons boarding the vessel.
    Despite these very comprehensive security procedures, cruise 
passengers are significantly delayed from leaving the vessel at the end 
of a cruise as the CBP/ICE is required by law to inspect each and every 
passenger face-to-face. Under the Immigration and Nationality Act, each 
person's application to enter the United States ``shall be made in 
person to an immigration officer at a U.S. port-of-entry,'' 8 U.S.C. 
Sec. 235.1. This inspection usually is conducted in a one-on-one 
interview with each individual passenger, regardless of their 
nationality, age or gender. This antiquated requirement does not 
recognize the modern security practices in place and unnecessarily 
burdens CBP with an inflexible requirement, particularly when 
passengers have already been screened for departure and possibly also 
recently screened for arrival into the U.S.
ICCL Recommendation:
    Congress should amend 8 U.S.C. Sec. 235.1 to provide an 
``electronic equivalency'' as an alternative to an ``in person'' 
interview, that would be applicable to submissions under 8 CFR.\2\ This 
simple change would allow CBP inspectors the flexibility to determine, 
based upon risk assessments, which passengers or crew would require an 
inspection upon entering the country.
---------------------------------------------------------------------------
    \2\ 8 CFR Parts 217, 231 and 251, and 19 CFR Parts 4, 122 and 178 
require each foreign or domestic vessel to provide an electronic 
transmission of passenger and crew member manifest information to a CBP 
officer in advance of an aircraft or vessel arrival to, or departure 
from the United States.
---------------------------------------------------------------------------
U.S. In-transit Port of Calls
    Currently, all cruise ship passengers and crew must be re-inspected 
at all U.S., in-transit ports. Depending on the cruise itinerary, this 
re-inspection can occur several times on a single cruise and is a waste 
of vital CBP time and resources. Consider a ship traveling on the 
following itinerary: Miami to Nassau (Bahamas), then to St. Thomas 
(U.S. Virgin Islands), then St. Maarten and back to Miami. On this 
scenario, a non-U.S. passenger will have already passed through a CBP 
immigration inspection at the airport of entry to the United States 
before they embarked on a cruise. All passengers will be re-inspected 
when the ship arrives at St. Thomas, even though each passenger was 
inspected only days earlier in the United States. Moreover, all U.S. 
citizens also have to be inspected at St. Thomas and all other U.S., 
in-transit ports, which significantly delays the vessel clearance and 
the enjoyment of the port visit by the guests. This inspection reduces 
the guests' already brief visit, thus limiting touring and the ability 
to boost the local economy. Finally, upon arrival back in Miami, all 
the passengers must be inspected once again. Requiring passengers to be 
inspected multiple times in a short voyage is a waste of CBP resources 
when we know they are the same persons who were previously inspected.
ICCL Recommendation:
    A waiver for U.S., in-transit ports is needed to alleviate this 
unnecessary and redundant inspection and should be granted for all 
cruise ship passengers arriving at a U.S. in-transit port. Inspections 
for U.S., in-transit ports should not be automatically required.

NSEERS
    The National Security Entry Exit Registration System (NSEERS) was 
introduced at all ports of entry on October 1, 2002. NSEERS requires 
all males born on or before November 15, 1986, who are nationals of 
specially designated countries, to register at the U.S. port of entry. 
The process includes an interview by a CBP inspector and the collection 
of fingerprints and photograph. The list of countries required to 
register include Indonesia, the country of origin for a large number of 
cruise ship crew members. Although it appears that NSEERS was 
introduced to address the Indonesian traveler arriving in the United 
States for either business or vacation reasons, the procedure has been 
applied more broadly where it can affect the vast majority of crew 
members on a cruise ship.
    Most cruise lines have 3, 4, 5 or 7 day cruise itineraries, which 
mean Indonesian passengers and crew have to register with NSEERS each 
and every time they enter or leave the United States. The process of 
registration can take up to several hours depending on the port of 
call. CBP has initiated a process which allows a waiver of this 
requirement, but depending on the port of entry, the process of 
obtaining the waiver varies. This additional registration creates a 
major inconvenience for crew members and the companies that employ 
them. Recently, CBP has streamlined the process, which has reduced the 
total number of inspections, but CBP still requires the registration 
and the waiver process.
    Moreover, the broad application of NSEERS to Indonesian crew 
members is an unnecessary use of CBP resources given the additional 
security measures in place. The existing State Department visa 
application process is comprehensive. Each person must first visit the 
embassy in his/her home country with an employment letter that he/she 
has received from the cruise line. The process of obtaining the visa 
takes some time, and the visa section of the U.S. Consulate screens 
each crew member before the visa is issued. Once the crew member 
receives the visa, he/she then enters through an airport in the United 
States, where, again, he/she is automatically sent to a secondary 
inspection and is again screened by CBP. Once onboard the ship, if he/
she is on a three or four day cruise itinerary, he/she is inspected 
twice a week for up to two months, in some cases, until he/she is 
approved for a waiver.
ICCL Recommendation:
    An NSEERS exemption should be granted for all seafarers with U.S. 
visas. All passenger vessel crew members, regardless of their 
nationality and who possess valid visas, should be exempt from having 
to re-register each time they enter or leave the United States because 
there is already an inherent checks and balances in place when crew 
members enter and exit the country.

Duty Collection by Third Parties
    Currently, as many as six CBP officers are responsible for 
collecting Customs duties from the passengers onboard the cruise ship 
upon arrival. Even though the total amount of duties collected is 
small, the process of querying passengers can take up to two hours. In 
comparison, when an aircraft lands in the U.S., there is no such 
process. Aviation passengers undergo CBP processing by choosing whether 
or not to declare inside the terminal and not aboard the aircraft. As a 
solution, the ICCL recommends centralizing and delegating Customs duty 
collection to the onboard Pursers' office, so that the CBP would not be 
burdened with questioning each cruise passenger and could rely upon the 
representations of the purser based on the information the purser 
collected from the passengers.
ICCL Recommendation:
    CBP should delegate Customs duty collection to the cruise lines' 
Pursers' Office.

En-Route Inspections
    Today, passenger and crew manifests are transmitted to the USCG and 
CBP through the Electronic Notice of Arrival/Departure program (E-NOA/
D). Currently, the cruise industry utilizes E-NOA/D to provide all 
available data from the vessel to the port of call 96 hours before the 
vessel arrives in port, at which time a traditional CBP inspection 
occurs of all passengers. In many instances, an en-route inspection by 
the CBP prior to the ship's arrival would be a more viable and better 
use of resources. En-route inspections occur when a CBP inspector 
travels with the ship from the last foreign port of call and completes 
an on board inspection prior to the ship arriving in the United States. 
Although this alternative would be a better use of CBP time and 
resources, these en-route inspections are seldom granted, despite there 
being no prohibition against them.
ICCL Recommendation:
    CBP should utilize en-route inspections for cruise ships.

CONCLUSION
    In conclusion, the ICCL commends the CBP for its willingness to 
leverage its limited assets by partnering with the cruise industry. It 
should further do so by fullfing utilizing electronic tools and focus 
its human resources on higher security risks. The cruise industry 
stands ready to apply its resources in furthering our common goal of 
secure borders while facilitating commerce.

      CBP should consider impact of decisions on U.S. commerce.

    The cruise line industry has indicated that they would contemplate 
arranging cruise itineraries to include more U.S. ports if the 
inspections process is streamlined.

      Uniformly applied inspection policy that is consistent in 
its application of inspection procedures at every U.S. port.
      CBP should invest in technology to ensure they have 
access to the data they require during the course of inspection. With 
the accessibility and affordability of portable communications, 
including wireless database access, delays in processing should be kept 
to an absolute minimum.

                                 

 STATEMENT OF CHARLENE STOCKER, SENIOR INTERNATIONAL SERVICES 
   MANAGER, PROCTER AND GAMBLE COMPANY, CINCINNATI, OHIO; ON 
   BEHALF OF AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS

    Ms. Stocker. Good morning, Chairman Shaw, Mr. Levin, 
Members of the Committee. I am Charlene Stocker, Senior 
International Service Manager for Procter and Gamble. I am 
honored to be here today representing the American Association 
of Exporters and Importers and as Chair of the Board of 
Governors.
    With our longstanding history of working with your 
Committee on multiple trade industry concerns, AAEI greatly 
appreciates the opportunity to offer these comments on budget 
authorizations for CBP and ICE, as well as other Customs 
issues.
    In this statement we will touch upon five principle points, 
but underlying all of our comments is one fundamental belief; 
and that is, the time is now for CBP to reestablish a 
productive balance between trade security and trade 
facilitation. In arguing for the balance between security and 
facilitation, we do not suggest that the security efforts 
should or even can be reduced. Indeed, we are all working hard 
on multiple fronts to increase homeland security nationwide and 
worldwide. However, we firmly believe that without an equal and 
parallel focus on increased facilitation and trade operations, 
the impact upon the U.S. economy would become a more serious 
problem.
    The five areas which we wish to comment on are, first, the 
development and evolution of C-TPAT; second, the U.S. business 
data confidentiality; third, ITDSs; fourth, improving 
coordination between the Federal agencies; and fifth, paying 
for trade security and trade facilitation.
    In looking at the first of these, the development of the C-
TPAT program, we recognize that businesses are not yet required 
to participate in C-TPAT, but that it is a virtual requirement 
for much of the industry already. We have been outspoken in our 
appreciation of CBP's extraordinary sense of commitment in 
attempting to incorporate multiple commercial realities, 
retaining the program's voluntary nature, and avoiding the 
fundamental error in posing a ``one-size-fits-all'' mandate on 
the supply chain of U.S. industry. In this we believe that the 
Committee can explore ways of ensuring that C-TPAT membership 
will provide U.S. businesses with a measurable return on 
investment. Otherwise, U.S. businesses may be reluctant to take 
on additional expenses to exceed CBP's minimum security 
standards.
    Now, our second point is the issue of U.S. business data 
confidentiality. Here our concerns are driven by both the 
private sector competitive issues and international business 
and ownership management. We would ask that the Committee 
carefully examine the concerns we raise today and support 
further study.
    The expanded use of proprietary cost data does not increase 
CBP's ability to target shipments with certain anomalies and 
characteristics. In short, the collection and storage of more 
detailed trade data is alarming to the U.S. trade community 
when such data may be exchanged without adequate protection 
with other Federal agencies as well as foreign governments. 
Moreover, apparent lack of controls and restrictions upon these 
foreign governments underscores AAEI's concerns.
    United States businesses must have a better assurance that 
information supplied to foreign governments for security 
purposes would not be used against them in a competitive 
business context. At present, AAEI member companies are not 
sufficiently convinced that their propriety trade data is 
secure. AAEI is very concerned about the idea of ``secure 
freight'' where a central nonprofit agency may collect data and 
supply it to government agencies.
    Our third concern is the ITDS which the AAEI strongly 
supports to improve ACE. We believe that participation with 
full funding is necessary for all of the approximately 79 
Federal agencies that depend upon electronic data for 
international commerce. ACE-ITDS window promotes information-
sharing within a single system between all levels of government 
which will accelerate border clearance times will reduce costs 
and cut down on inefficient paper-based systems. By eliminating 
redundancies and increasing efficiencies, ACE-ITDS is taxpayer 
friendly.
    AAEI believes that Federal agencies will have a much better 
time--easier to spot anomalies in trends in an electronic 
environment than it is ever possible to do in a paper-based 
approach. ACE-ITDS will also ensure that the United States 
remains a leader and maintains its worldwide competitive 
advantage in global trade.
    Our fourth point is improvement of the coordination between 
the Federal agencies. As our member companies have been at the 
forefront of cooperating with CBP by joining its trade security 
and trade facilitation partnership initiatives such as C-TPAT, 
Importer Self-Assessment Program and others. Our member 
companies tell us that they do not receive full benefit from 
these programs and partnerships because they are regulated by 
Federal agencies that neither recognize nor accept the risk-
based programs of CBP. This is the kind of problem which is 
truly unacceptable at the Federal level. We urge you to help 
the agencies find a better way to work together for the 
Nation's benefit.
    Finally, our fifth area of substantial interest is the 
development of a financial policy initiative which would 
provide tax incentives to the privacy sector for investments in 
security. Our initiative is twofold: first, to bring to the 
Committee's attention the type of expenses that the companies 
are incurring for homeland security. Among these are additional 
personnel and outside resources to conduct security assessments 
as well as security systems purchased to fortify both physical 
and systems security.
    The second initiative is to bring to your attention the 
variety of options for your review. Neither I nor AAEI are 
considered tax experts, but we are asking the Committee to 
study this issue and determine whether temporary amendments of 
chapter 99 of the Tariff Code, accelerated depreciation, or tax 
credits are the most appropriate method to help the private 
sector make badly needed investments in homeland security.
    Finally, I want to thank the Committee for this 
opportunity, and we very much look forward to a dialog on 
future inquiries. Thank you.

    [The prepared statement of Ms. Stocker follows:]

 Statement of Charlene Stocker, Senior International Services Manager, 
  Procter and Gamble Company, Cincinnati, Ohio, on behalf of American 
                 Association of Exporters and Importers

A. Introduction and Overview:
    Chairman Shaw, Ranking Member Cardin and Members of the Committee, 
my name is Charlene Stocker and I am Senior International Services 
Manager for The Procter and Gamble Company. I am here today 
representing the American Association of Exporters and Importers (AAEI) 
as Chair of its Board of Governors. AAEI appreciates the opportunity to 
offer its comments on budget authorizations 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.
    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 broad 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, outreach 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 believes that it is vital for CBP and ICE 
to work closely together and coordinate both their security and trade 
functions for the United States to reestablish that critical balance 
between the free flow of legitimate trade and robust supply chain 
security.
    It is a privilege to appear before you today at this hearing. AAEI 
greatly appreciates the Committee's invitation to provide our 
observations, comments, and suggestions about CBP and ICE trade 
security related matters, as well as trade facilitation and operational 
issues. Today's testimony echoes many of the themes which your 
distinguished Committee and AAEI have jointly considered for a number 
of years. In fact we have been honored that this committee has chosen 
to address a number of these in legislative proposals which regrettably 
did not or at least have not yet become law. We hope that we can assist 
you in your efforts to advance trade operations and improve vital 
public/private sector security and facilitation efforts through today's 
testimony.
    We know that the Committee is keenly aware that when the Department 
of Homeland Security (DHS) was created almost four years ago, this 
Committee thoroughly examined and considered the implications of 
transferring all of those functions that were the domain of the U.S. 
Customs Service (Customs) to the new Department of Homeland Security.
    The long-held bipartisan view of Customs, strongly enunciated in 
the Customs Modernization Act of 1993, has been as an agency charged 
with the dual missions of facilitating trade and the national economy 
in addition to law enforcement and security responsibilities. With this 
knowledge in hand, the transfer of vital national economic matters to 
an agency whose primary mission was to be national security concerned a 
number of Members of Congress and multiple organizations within the 
private sector. Regrettably this concern has proven well founded.
    Yet, to be frank, during the transition of legacy agencies, like 
Customs to DHS, AAEI and the U.S. business community recognized that 
many important trade facilitation functions would be initially 
relegated to secondary status following the trade security imperatives 
of a post-September 11 environment. We believe, however, that after 
four years the time has come to revisit this approach. AAEI recognizes 
and strongly supports the trade security efforts and initiatives 
undertaken by CBP as part of the vital DHS mission. Nevertheless, AAEI 
believes that CBP must now be given resources and direction necessary 
to re-establish balance between its trade security and trade 
facilitation functions and responsibilities.
    AAEI's member companies appreciate that the House Ways and Means 
Committee retained oversight over the revenue, commercial and trade 
facilitation functions of CBP. The Committee has consistently been 
responsive to the concerns of the U.S. trade community. Furthermore, we 
deeply appreciate that this Committee has consistently asserted the 
Congressional interests of trade as well as advocating the leadership 
of both DHS and CBP to recognize and fully appreciate the importance of 
balancing the interests between trade security and trade facilitation, 
which was evidenced most recently during the consideration of H.R. 
4954--The SAFE Port Act of 2006. Frankly, despite the continued 
vigilance of your Committee and your colleagues in the other body, a 
great deal needs to be done to achieve a more productive balance. 
Achieving this productive balance between these roles is a vital 
national interest and it is critically important for the United States 
to remain competitive in the global marketplace.
    Although balancing the interests of trade security and trade 
facilitation is unquestionably a difficult task, we believe that many 
within CBP have worked very hard to do so thus far. We are confident 
that our testimony can assist the Committee in its endeavor to 
reauthorize CBP and ICE and re-establish a productive balance between 
trade security and trade facilitation.

B. Trade Security Related Matters
    AAEI's testimony on Trade Security Related Matters touches upon the 
following six topics: 1. C-TPAT Development and Evolution; 2. 
Importance of Progress in the World Customs Organization; 3. U.S. 
Business Data Confidentiality; 4. Consensus for Regulating U.S. 
Exports; 5. U.S. Security Preparedness and Trade Continuity Plans; and 
6. CBP & DHS Communication with U.S. Trade Community Regarding Data 
Anomalies.

1. C-TPAT Development and Evolution
    The Customs and Trade Partnership Against Terrorism (C-TPAT) is a 
voluntary government-business initiative to strengthen and improve 
overall international supply chain and U.S. border security. It grows 
from the rich history of private public cooperation which this 
Committee has strongly supported. As in past efforts, businesses are 
not required to participate in C-TPAT. However, those businesses that 
choose to apply are making a commitment to work toward the goal of 
creating a more secure and efficient supply chain in partnership with 
CBP. However, for most U.S. companies with global supply chains, C-TPAT 
membership is a requirement in today's business environment.
    Upon satisfactory completion of the C-TPAT application and supply 
chain security profile, CBP assigns U.S. businesses a Supply Chain 
Security Specialist (SCSS), who initiates an intensive validation 
process. There are approximately 11,000 participants in C-TPAT and over 
6,092 have been certified. Approximately, 2,959 validations have been 
completed as of July 2006 and another 1,700 are underway. CBP currently 
employs 125 Supply Chain Security Specialists, but expects to have 156 
hired by late summer or early fall 2006. AAEI has significant concerns 
regarding the use of third parties to validate supply chain security 
practices of C-TPAT participants both because of serious cost benefit 
concerns as the program grows ever more extensive and first and 
foremost because we believe that the validation of appropriate security 
protocols is a federal responsibility.
    To ensure the success of C-TPAT, CBP has established no single 
security criteria or set of standards that members must meet or exceed. 
In today's evolving environment, CBP has concluded that security 
criteria or standards ``must remain robust, dynamic and within a 
flexible security framework.'' AAEI agrees with this conclusion and we 
have submitted several letters to CBP commenting on C-TPAT security 
criteria and standards, as well as the C-TPAT validation process. We 
have been outspoken in our appreciation of the CBP's extraordinary 
sense of commitment in attempting to incorporate a multiplicity of 
commercial realities, retaining the program's voluntary nature, and 
avoiding the fundamental error of imposing a ``one size fits all'' 
mandate--like the C-TPAT Internet and Communications Portal.
    AAEI greatly appreciates the improvements that have been made to 
the C-TPAT program, such as the move to a three-tiered benefit 
structure. Furthermore, we want to acknowledge and express our 
appreciation to CBP's Office of Field Operations, which undertook a 
tremendous effort to prepare and produce the Supply Chain Security Best 
Practices Catalog. However, to encourage companies to join or continue 
their membership in C-TPAT, CBP must clarify and expand upon the 
benefits, especially for Tier 3 participants. C-TPAT membership must 
provide U.S. businesses with a measurable return on investment (ROI). 
Otherwise U.S. businesses will be reluctant to undertake additional 
expenses to exceed CBP's minimum security criteria and standards.
    It may also be useful for the Committee to further review the 
enormous investment in security made to date in regulatory and mandated 
programs by the trade community. The passage of the Trade Act and the 
Bioterrorism Act alone imposed significant capital costs on the trade 
which our members have largely assumed as part of their 
responsibilities as good corporate citizens in homeland security 
protections. The cost of such programs, well beyond the extent of CTPAT 
industry coverage, has been substantial and with multiple future 
initiatives needed to achieve homeland security objectives are not 
likely to decrease We would suggest to the Committee that these often 
substantive costs borne by individual corporations as well as entire 
industries appear are indeed likely to expand if efforts to provide 
supply chain security and end-to-end transparency are not managed with 
extensive consultation and coordination among all the principle Federal 
players. And, if this is the case, the Committee could well examine 
necessary future coordination.
    While C-TPAT is an important initiative, AAEI believes CBP must be 
actively engaged in a dialogue with other countries about ways to 
improve the global supply chain as well as to champion the goal of 
improving global trade facilitation. One vital step is the WCO Security 
Framework which we referred to in previous discussion with the 
Committee as ``A successful American experiment going global''.

2. Importance of Progress in the World Customs Organization
    Although this matter may not be entirely within the context of 
today's hearing, we would be remiss not to focus attention on the vital 
efforts underway at the World Customs Organization regarding 
implementation of its Security and Facilitation Framework. We encourage 
you to monitor these efforts closely for promotion of the free flow of 
trade and internationalization of what we regard to be basic commercial 
and international trade concepts. We would urge that sufficient 
resources be devoted by DHS through CBP to advance and implement this 
vital program.
    Multiple international and multinational efforts impacting trade 
flows continue in both the private sector, through the ISO among 
others, and public sector forums. These public sector efforts include 
the ratification of the Kyoto Convention, the Doha Round of WTO 
deliberations, and bilateral Free Trade Agreement (FTA) negotiations as 
well as others involving maritime and transportation related matters of 
vital national trade policy import. We urge the Committee to continue 
monitoring progress and coordination of efforts devoted to achieving 
the central missions of trade and security policy.
    As global trade has expanded and become more interconnected, we are 
convinced that the United States is just one piece, albeit a very 
substantial piece, of the 166 puzzle pieces that are needed to fit into 
the right place to complete a picture of an effective global supply 
chain security system.
    CBP, under the direction and leadership of former Commissioner 
Bonner, recognized that the only effective means of assembling this 
puzzle correctly was by working with other countries. In June 2005, CBP 
provided the initiative as well as the framework policies that resulted 
in the World Customs Organization's (WCO) adoption of the ``Framework 
of Standards to Secure and Facilitate Global Trade'' (the Framework of 
Standards)--a strategy to secure the movement of global trade in a 
manner that does not impede it but, instead, facilitates the movement 
of global trade. The WCO also established a Private Sector Consultative 
Group, for the purposes of informing and advising the WCO with ``real 
world'' experiences and perspectives regarding the implementation of 
the Framework of Standards. AAEI members, however, are concerned about 
the sustainability of CBP's effort and its commitment to a multilateral 
approach.
    AAEI recognizes and understands that among the countries whose 
Customs authorities participate in the WCO, none matches both CBP's 
level of sophistication of operations and its level of collaboration 
with private industry. Therefore, we hope that CBP continues to 
demonstrate leadership and a willingness to work tirelessly and 
diligently at bringing together diverse viewpoints. Most importantly, 
CBP needs to foster consensus and focus on policies that promote global 
harmonization or mutual recognition, while maintaining CBP's own high 
level of standards.
    AAEI believes that CBP should meet with the trade at regular 
intervals to report on the progress being made on implementation of the 
WCO's Framework of Standards and to consult with U.S. businesses about 
what its priority global needs are and how the trade can facilitate 
CBP's work within the WCO. We strongly urge the Committee to monitor 
and review the ongoing developments in the WCO and to consider having 
CBP regularly report to the Committee about its continued engagement in 
WCO activities and processes to create a global supply chain security 
system.

3. U.S. Business Data Confidentiality
    Among the emotionally charged issues that the U.S. trade community 
and AAEI's member companies have confronted in today's evolving 
environment are extensive and substantial concerns regarding the 
confidentiality of proprietary business data. These concerns are driven 
both by private sector competitiveness issues and international 
business ownership and management. From discussions with your House 
colleagues, you know that DHS has what is reported to be a dismal 
record of compliance with the Federal Information Security Management 
Act (FISMA). We would ask that the Committee carefully examine the 
concerns we convey today and support further study of this area.
    One primary concern of AAEI's member companies regarding the 
expanded use of proprietary cost data, among others, is that it does 
not provide CBP with enhanced ``situational awareness'' for targeting 
shipments with certain anomalies and characteristics. In short, the 
collection and storage of increasingly detailed trade data may become 
alarming to the U.S. trade community when such data is exchanged 
without adequate protections with other federal agencies as well as 
foreign governments. The concern is that this may well occur in ways 
which are not designed to guarantee the confidentiality that U.S. 
businesses expect to be provided and have come to rely upon from 
federal agencies in this increasingly competitive global marketplace.
    The immediate issues which we ask you to consider exploring are 
driven by several ``real world'' competitiveness concerns. Among 
business community concerns are: 1) the increasing range, depth and 
amount of data that is being requested by multiple DHS units; 2) the 
sharing of such information with a wider range of domestic and 
international trade bodies and individuals within these organizations 
where a tradition/record of confidentiality and or advanced training 
programs are not apparent to the private sector; and 3) the federal 
government's increasing reliance on electronic systems to manage 
information. In addition we would suggest that the Committee may wish 
to be fully informed
    In today's environment, we are, as has been the committee, quite 
concerned with development of policies within international bodies 
where multiple data streams could merge and commingle. Sharing of data 
regarding ``risk analysis'' must be done in such a fashion so as to 
avoid commercial implication as far as is humanly possible. We 
particularly encourage the Committee to explore development of policies 
to address the sharing of sensitive information with other governments, 
in particular foreign Customs agencies.
    Notably, it is the practice of some foreign governments that are 
U.S. trade partners to subsidize certain industries which compete 
directly with U.S. counterparts. As the Committee is well aware, many 
foreign governments have substantially invested finances and 
``perception'' in business enterprises that compete directly with the 
U.S. private sector. However, the apparent lack of controls or 
restrictions upon these foreign governments, which may have a financial 
interest in such a competitor to a U.S. company or which lack important 
legal safeguards restricting the use and dissemination of trade data 
belonging to U.S. companies necessitate AAEI's concern. To be candid, 
U.S. businesses must have better assurances that information supplied 
to foreign governments for security purposes would not be used against 
them in a competitive business context. At present, AAEI member 
companies are not sufficiently convinced that their proprietary trade 
data is secure.
    Although the development of new technologies which enable 
collection and dissemination of cargo data is being particularly 
diligently pursued here by DHS and CBP and may have dramatic practical 
implications for U.S. trade operations and logistics, their 
international application may be particularly problematic and require 
Committee monitoring. Whether we are discussing high end Container 
Security Device CSD methodologies or proactive monitoring technologies, 
of which the ICIS program is but one, the cost benefit and data 
security/competitiveness concerns are very much in need of careful 
review.

4. Consensus for Regulating U.S. Exports
    AAEI represents many global companies that both import and export 
goods. CBP enforces the laws of over 40 other federal agencies that 
affect the importation of merchandise. We believe that the Committee 
may wish to carefully examine the overall pattern of interaction and 
assist CBP in continuing and its badly needed efforts to streamline the 
import process by working with other federal agencies and the U.S. 
trade community to realize greater efficiencies in this process.
    As a result of the Trade Act of 2002, CBP is now more involved in 
the regulation of export shipments through implementation of the 
advance cargo manifest rules requiring submission of trade data before 
shipments are loaded and cleared for export. Unlike the imports cleared 
primarily through CBP, exports are regulated by several different 
federal departments and agencies: the Department of Commerce's Bureau 
of Industry and Security, the Treasury Department's Office of Foreign 
Assets Control, the Department of State, and the Department of Defense.
    AAEI is concerned that the current export process is a patchwork of 
regulatory regimes, which are not coordinated by one single federal 
department or agency. Moreover, as the U.S. trade community is asked to 
provide more detailed trade data to multiple federal agencies to 
fulfill various regulatory requirements, we are distressed that the 
lack of coordination results in U.S. companies supplying ever 
increasing amounts of trade data multiple times, which affects the 
competitiveness of U.S. exporters who must satisfy all compulsory 
federal export regulations and requirements, while getting goods to 
market quickly in an increasingly competitive global marketplace. AAEI 
realizes that various Congressional committees have oversight 
jurisdiction over trade matters and we hope that the Committee 
considers our strong recommendation that it study how the export 
process can be made as efficient as the import process for seamless 
global trade as it is a vital enterprise encompassing concerns ranging 
from tax policy to international transportation requirements.

5. U.S. Security Preparedness and Trade Continuity Plans
    As the Committee knows, significant amounts of resources have been 
allocated for security prevention purposes, which are intended to keep 
terrorists and terrorist action from ever reaching U.S. soil again. 
AAEI strongly supports these efforts to prevent terrorists from using a 
U.S. maritime port or land border crossing for a terrorist incident. 
Nevertheless, we believe that the Committee would be remiss in its 
oversight responsibility if it did not also study the Nation's security 
preparedness and trade continuity plans. This must, of necessity, reach 
well beyond CBP or even DHS to include the DOT and DOD among other 
agencies vital to its success. Is the U.S. adequately prepared to 
quickly respond to the challenges to our Nation's security and are we 
sufficiently able to ensure our Nation's trade continuity so as not to 
inflict far greater damage to the economic vitality of the U.S. in the 
aftermath of either a terrorist incident or a catastrophic natural 
disaster? Furthermore, AAEI recommends that the Committee allocate an 
appropriate amount of resources for the dual purposes of national 
security preparedness and national trade continuity.
    Last year 11 million containers came into the United States and 
this year that figure is expected to grow by ten percent. It took 
nearly 100 days to clear the backlog of containers caused by an eleven 
day strike at the Port of Long Beach a few years ago. Since trade now 
accounts for one quarter of our economic growth, the Committee must be 
satisfied with CBP's/DHS's security preparedness and trade continuity 
plans. These must be incorporated into the National Infrastructure 
Protection Program (NIPP) recently announced by DHS.

6. CBP & DHS Communication with U.S. Trade Community Regarding Data 
        Anomalies
    AAEI supports ongoing dialogue and partnership with CBP and DHS to 
achieve a productive balance between trade security and trade 
facilitation. However, many AAEI members are concerned that in some 
areas, such as data anomalies, we do not have a dialogue with the 
agency. The U.S. trade community provides CBP with large amounts of 
trade data, either required through the advance cargo manifest 
regulations or on a voluntary basis through C-TPAT. Although C-TPAT 
membership reduces the number of examinations, it does not eliminate 
them. As a result, when a C-TPAT member's shipment is subject to an 
examination, the company does not know whether it is the result of a 
random sample or whether an anomaly in the company's trade data was 
captured in the Automated Targeting System (ATS) because CBP generally 
does not communicate with companies if it is the latter.
    To be clear, AAEI supports CBP's screening of all high-risk cargo 
through ATS and the enhancement of ATS in business friendly initiatives 
but believes that the collection of data simply to have same without 
foreknowledge of its utility places upon commerce burdens which must be 
avoided in our highly competitive international environment. We suggest 
that in the current multilayer system, CBP's limited resources for 
examinations should be devoted to those companies which truly pose a 
high risk to the Nation. We propose that CBP develop a protocol to 
communicate with U.S. companies that are C-TPAT members with strong 
records of compliance in order to discern between those shipments that 
actually pose a high risk versus those which exhibit a data anomaly, so 
that the company can provide CBP with a satisfactory explanation 
concerning the anomaly instead of CBP devoting resources to an 
examination. AAEI is confident that such a protocol would increase 
dialogue between CBP and the U.S. trade community.

C. Trade Facilitation and Operations Issues
    AAEI's testimony on Trade Facilitation and Operations Issues 
touches upon the following eight topics: 1. Automated Commercial 
Environment (ACE)/Trade Support Network (TSN)/International Trade Data 
System (ITDS); 2. Improving Coordination between Federal Agencies and a 
recommendation to Study 24/7 Operation of U.S. Ports; 3. Additional 
Allocation for CBP's Trade Facilitation and Operations; 4. Revision of 
the Drawback Statue; 5. Paying for Trade Security and Trade 
Facilitation--A Study of Customs Fees, as well as AAEI's Tax Policy 
Initiative; 6. Implementation of Bilateral Free Trade Agreements; 7. 
Importer Self-Assessment (ISA) Program and Quick Response Audits (QRA); 
and 8. Commercial Operations Advisory Committee (COAC): A Key Forum for 
Public and Private Sector Interaction.

1. Automated Commercial Environment (ACE)/Trade Support Network (TSN)/
        International Trade Data System (ITDS)
    A high priority for AAEI members is the design and staged 
implementation of the Automated Commercial Environment (ACE) as CBP 
enters into the critical stage of its operational design and 
implementation. The new system will be the cornerstone of secure, 
efficient and effective operations of government and business at our 
Nation's borders and points of entry.
    In keeping with the spirit of the Customs Modernization Act of 
1993, AAEI and industry leadership have been extremely supportive of 
ACE and overall modernization. Since adoption of the Modernization Act 
in 1994, Customs and CBP have engaged in a constructive and productive 
dialogue with the trade community on the design and implementation of 
that Act and its automated system (ACE). AAEI members have been invited 
to participate in a variety of public and private sector initiatives, 
including Modernization Act workshops, the Entry Revision Project 
(``ERP''), the Trade Support Network (``TSN'') and the Trade Ambassador 
process. In many regards, these outreach efforts have succeeded. The 
trade communities' needs and requirements have surfaced, beenmade 
compatible with government processes and priorities and published as 
specific User Requirements; the timing of the actual programming and 
implementation of those requirements has been established, reviewed, 
modified and monitored as CBP and its contractors begin the actual 
programming, testing and implementation of ACE. The year 2004 was the 
first in which ACE designs were implemented; 2005 was the first full 
year of making certain the lessons learned in early implementation are 
timely, recognized and addressed.
    To date, the Trade Ambassadors Program and the TSN have been the 
primary methods for offering input into ACE development. Participants 
are required to balance the demands of their company obligations and 
TSN work. Moreover, since September 2001, a large number of importers/
exporters have, of necessity, been more focused on the high-priority 
CBP supply chain security initiatives rather than the TSN process and 
the facilitation improvements that might be possible when ACE is rolled 
out. Also, while we are highly supportive of the AAEI company TSN 
members who have devoted such time and energy, we need to also 
recognize that multiple perspectives on matters which may be sensitive 
competitively may not be represented on the TSN due to the inability of 
various industry participants to volunteer such substantial resources. 
We would also ask that the Committee maintain its traditional focus of 
encouraging the creation of new and expanded trade4 consultation 
opportunities.
    AAEI particularly strongly supports the creation of the 
International Trade Data System (ITDS). The goal of this initiative is 
to implement an integrated government-wide system for the electronic 
collection, use, and dissemination of international trade data. 
Unfortunately, while many federal agencies have indicated their intent 
to participate in the ITDS project, too many have not. Participation is 
necessary by all of the approximately 79 federal agencies that depend 
on electronic data for international commerce.
    Within the ITDS concept, traders will submit standard electronic 
data for imports or exports only once via the ACE. ACE/ITDS will 
distribute this standard data to the pertinent federal agencies that 
have an interest in the transaction for their review, analysis and risk 
assessment. ACE/ITDS will provide each federal agency only that 
information which is directly relevant to that federal agency's 
mission. Thus, the ACE/ITDS system will serve as the federal government 
data collection and distribution portal; a ``single window'' system 
through which information necessary for trade transactions can flow 
efficiently from traders to federal agencies and back to traders.
    The ACE/ITDS window promotes information sharing within a single 
system between all levels of government, which will accelerate border 
clearance times, reduce costs, and cut down on inefficient paper-based 
systems. By eliminating redundancies and increasing efficiency, ACE/
ITDS is taxpayer friendly, to be sure. However, it also helps all the 
federal agencies involved to perform risk assessment and thereby to 
advance national security, as each participating federal agency will 
develop its own internal risk management plan. Similarly, it will allow 
federal agencies to spend money more wisely and improved targeting of 
high-risk shipments as well as travelers, thereby facilitating the flow 
of legitimate cargo and people.
    We urge the Committee to carefully explore the most effective 
method of guaranteeing full support and resources government wide. In 
particular the financial and personnel resources required by multiplier 
agencies in implementation may require vigilance. In this, AAEI 
strongly recommends that the Committee consider a clarion call to the 
Administration, which could in turn direct OMB to mandate participation 
in ITDS from all of the federal agencies that depend on electronic data 
for international commerce, as well as set a deadline when the ITDS 
portal will be fully implemented. Otherwise, redundancies 
inefficiencies and undercommittment of badly needed resources can 
persist and our Nation's competitive edge in the global marketplace 
could diminish.
    ACE/ITDS will also help in efforts to ensure that the U.S. remains 
a leader in the increasingly competitive world of global trade. As our 
trade partners make the move to developing all-electronic trade data 
systems, it is important that the U.S. does the same.

2. Improving Coordination Between Federal Agencies
    The Committee should be aware of the enormous complexities, as well 
as the difficulties that AAEI members have encountered in dealing with 
other federal agencies whose regulatory jurisdiction and oversight for 
certain imported goods overlap with other federal agencies. Our member 
companies have been at the forefront of cooperating with CBP by joining 
its trade security and trade facilitation partnership initiatives, such 
as C-TPAT and the Importer Self-Assessment (ISA) Program. We believe 
that these programs hold the promise of realizing a productive balance 
between trade security and trade facilitation, which AAEI believes will 
be achieved on regulatory issues only when federal agencies work in 
close partnership with one another and the U.S. trade community.
    Yet many AAEI member companies tell us that they do not receive the 
full benefit of these partnership programs because they are regulated 
by federal agencies that neither recognize nor accept the risk-based 
methodologies of CBP's partnership programs. Such reluctance affects 
nearly 36% of the entries for imported goods that are subject to the 
``release and hold'' authority of the U.S. Food and Drug Administration 
(FDA), the U.S. Department of Agriculture (USDA), and the U.S. Fish and 
Wildlife Service (FWS), which are the primary federal agencies that 
impact most of our members.
    As a result, AAEI has worked closely with this Committee and has 
spearheaded private sector efforts to initiate and develop a dialogue 
and working relationship with these other federal agencies. AAEI is 
particularly pleased that industry dialogue with FDA has resulted in 
some recent initial successes. Most notably, AAEI has provided comments 
to FDA on its Secure Distribution Chain Pilot Program which builds upon 
the investment U.S. companies have made in C-TPAT since FDA's program 
requires applicants to be C-TPAT certified at Tier 2 or higher.
    In the same vein, as we discussed with the Committee in earlier 
testimony, we are also working with FDA concerning possible adoption of 
risk-based methodologies. One which we believe is worthy b of 
consideration is ISA where the foundation of the ISA program is CBP's 
finding that U.S. companies which have good internal controls are 
highly compliant with U.S. customs laws. AAEI believes that ISA member 
companies are pro-active in meeting their compliance responsibilities 
for all federal regulatory agencies, not just customs. AAEI believes 
that its work with FDA and CBP is the first step toward encouraging 
coordination and integration of other federal regulatory agencies in an 
efficient import process and making ISAs mandatory for CBP or OGA 
program participation is unwise.

a. Study on 24/7 Operation of U.S. Ports
    In today's global economy spanning every continent and time zone, 
companies that import and export goods are truly ``24/7'' operations. 
With the increased volume and velocity of goods crossing borders, AAEI 
recommends that the Committee study the impact of U.S. ports operating 
7 days a week instead of the current 5 days per week. In addition to 
studying how many days a week the ports should operate, AAEI believes 
that the study should examine the feasibility of ports operating 24 
hours per day. Our country's ability to process and clear both imports 
and exports quickly on a continuous basis is a vital issue that cuts to 
the very core of the United States' competitiveness in comparison to 
our trading partners.
    Neither AAEI nor any of our members, to the best of our knowledge, 
have conducted analysis on the current status of U.S. port operations 
or the possible expansion of such operations. Additionally, neither 
AAEI nor any of our members have developed such study to the operations 
at our Nation's northern or southern land border crossings. We 
acknowledge that such an expansion of port operations would involve a 
multitude of issues and impacts, both pro and con, which affect local 
communities adjacent to U.S. maritime ports, as well as northern and 
southern land border crossings. This Committee has consistently 
emphasized the tremendous importance that U.S. port operations and land 
border crossings have to the Nation's economic strength and global 
competitiveness. The increased volume and velocity of goods entering 
U.S. ports and crossing this Nation's northern and southern borders 
necessitates that the Committee undertake a thorough examination 
regarding the current status of U.S. maritime ports and land border 
crossing operations. Such a study, we argue, should consider the impact 
of expanding U.S. ports operating 7 days a week instead of the current 
5 days per week. AAEI also believes that such a study should examine 
the feasibility of U.S. ports operating 24 hours per day.
    Furthermore, we suggest that the Committee strongly consider 
utilizing pilot programs to study the impact to important U.S. 
industries. AAEI purposes that the Committee develops three pilot 
programs. One pilot would examine issues at a U.S. maritime port. The 
remaining two pilots programs would study issues at land border 
crossings, specifically along the northern border, such as the Peace 
Bridge, and along the southern border that impact an important American 
industry like consumer electronics.
    AAEI has been concerned about the increased congestion at our 
Nation's ports and many local communities have sought to reduce the 
impact of port operations on the environment and their community. Ports 
are national assets benefiting the entire country. Therefore, we 
believe this issue requires a coordinated and well-considered national 
response starting with a study on extending port operations and very 
carefully taking into account both the positive and negative impact to 
local communities.

3. Additional Allocation for CBP's Trade Facilitation and Operations
    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. AAEI is concerned with 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 throughout 
federal agencies as senior government employees retire in record 
numbers. 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 this Committee. 
AAEI believes that additional training funds and private sector 
coordination funding would be helpful and we strongly encourage the 
Committee to further explore both. Although AAEI encourages the 
coordination and integration of trade facilitation among federal 
agencies, we believe that mandating participation in ISA either through 
CBP or other government agency programs is counter productive to either 
increasing compliance or reducing risk.

4. Revision of the Drawback Statue
    This Committee is aware that AAEI is helping to lead efforts to 
revise the Drawback Statute, which was originally established by the 
Continental Congress in 1789. As the Committee knows, drawback is the 
refund of certain customs duties, taxes and fees, which are collected 
during importation after the exportation or destruction of imported 
product or article. Drawback was initiated for the purpose of creating 
jobs, encouraging manufacturing, and encouraging exports. Drawback is 
recognized as the most complex commercial program administered by 
Customs and now CBP.
    AAEI recognizes that CBP cannot realistically maintain the drawback 
program as it is today. Furthermore, AAEI knows that drawback without 
revision and simplification will not be the status quo. Without 
simplification, CBP will be required to change their drawback 
processing procedures. CBP will complete more drawback claim reviews 
and these reviews will be more comprehensive. As a result, drawback 
claim processing will become more stringent. And as deemed liquidation 
compresses the time for CBP to complete such reviews, CBP will be 
forced to issue more 1593a penalties after liquidation.
    As the Committee is well aware, AAEI's members have worked as part 
of an exemplary TSN effort in partnership with CBP to draft new 
statutory language that would simplify the process of applying for 
drawback, which in turn could expand U.S. businesses use of drawback. 
CBP has three goals that are paramount to its drawback simplification 
efforts:

    1)  Must be easy to administer;
    2)  Must protect the revenue of the United States; and
    3)  Must support complete automation.

    The product which has emerged and been submitted to this Committee 
for consideration meets these requirements It, proposes the following:

    1.  Substitution would be based on the Harmonized Tariff Schedule 
of the United States (HTSUS) to eight digits.
    2.  The drawback claimant could be any party in the chain from 
import to export as long as the required permissions were obtained from 
the responsible parties.
    3.  The time frame for drawback would be simplified to five years 
from date of import to date of filing the claim.
    4.  Drawback would be paid based upon the average duty per quantity 
for the designated line item on an import entry
    5.  Proof of export for drawback would be based on an automated 
export system.
    6.  Drawback on items that are destroyed instead of exported would 
be limited to direct identification only.
    7.  NAFTA drawback would remain the same since it is part of the 
NAFTA treaty.

    With the above as core elements, the revised proposed drawback 
statute seeks to alleviate this pressure on CBP while preserving an 
important benefit for the U.S. trade community. Recognizing our 
members' cooperative efforts with CBP in this endeavor, AAEI strongly 
endorses this much needed revision of the Drawback Statute. If enacted, 
we know it will benefit U.S. exports, as well as U.S. competitiveness 
in the global marketplace. We are fully prepared to assist this 
Committee's legislative efforts to revise the Drawback Statute.

5. Paying for Trade Security and Trade Facilitation--A Study of Customs 
        Fees
    As the owners and operators of roughly 85% of the Nation's trade 
infrastructure and employing an even higher percentage of the people 
and trade services therein: the private sector has made enormous 
security process and program investments since 9/11. We know that each 
of the distinguished Committee members have heard from your 
constituencies of the type and value of security related expenditures 
made voluntarily through C-TPAT participation or the multiple other 
cooperative efforts underway. You have heard of the exemplary work many 
of our fellow trade associations have done within their industries to 
support member company efforts and successful program development. In 
short, much has been done by both the federal government and private 
sector industry to benefit the Nation's economic and security 
interests.
    We would suggest to the Committee that fair and equitable 
collection of revenues for that which has been and will be done is an 
area of great concern to us and, as you have long demonstrated, to this 
Committee. We believe that a lot of smoke has been generated in regard 
to two primary questions and some visibility would be helpful. These 
questions focus on the collection and distribution of customs user fees 
and methods of incentivizing important private sector security and 
related process expenditures.
    We, like you, are very aware of the multiple proposals for 
utilization of some form of additional customs fees which are currently 
promoted to support a great variety of proposed programs. We do not 
reject the possibility that a well-conceived and designed plan, could 
provide a valuable new source of revenue to accomplish important 
national trade and security policy goals. In fact, as we have testified 
previously, we would and do support and encourage you to launch a high 
priority study of this matter. Such a study should include multiple 
aspects of collection and utilization, while specifically including the 
issues generated by the collection and use of Merchandise Processing 
Fees imposed under the Consolidated Omnibus Resolution Act of 1985.
    In formulating such a study, we encourage you to help future 
Congress' better understand and avoid the multiple problems generated 
by earlier efforts to levy such fees upon the U.S. trade community. 
Prominent among these have been both the nature of the assessment (tax 
on value) and constitutional limitations (tax on exports). Frankly, 
from our preliminary review, it appears that each of the methods 
commonly discussed does appear to require extensive review so as to 
avoid unanticipated economic and trade repercussions. However, to 
assist in this effort, we suggest that an annual report of all such 
revenue collected from the spectrum of Federal Customs related fees and 
their allocation in the Budget would be of value to the Committee.
    We would also encourage exploring ways to ensure that the proposed 
solution, i.e. method of revenue collection, is directly related to the 
problems or opportunities which required such a solution. Frankly, 
determining the relationship, for example, between current Merchandise 
Processing Fees and monies allocated for CBP services is currently very 
difficult. However one thing is safe to say, these fees have clearly 
generated substantial surpluses utilized in general revenue 
expenditures. Allocation of the revenue actually collected to general 
revenue expenditures simply rolls along without relation to the use of 
such funds for the Agency's commercial operations. We suggest that 
current evidence seems to demonstrate that such general revenue 
allocation has not and perhaps cannot provide equitable return either 
between sectors of the trade community nor to U.S. trade interests 
overall.

a) AAEI's Tax Policy Initiative
    We have long observed the efforts of this Committee to assist in 
the achievement of important societal goals through a variety of the 
methods available to you. A traditional federal method of encouraging 
business/economic behavior beneficial to the society has been the 
provision of financial rewards for that behavior. As you are well 
aware, the scope of such ongoing efforts ranges from environmental and 
energy conservation to achievement of ``social policy'' like compliance 
with the Americans with Disabilities Act. We would like to suggest that 
the time has come for a serious examination and study of such 
initiatives in this vital sector of the economy.
    Since 9/11 and the advent of the Department of Homeland Security, 
expenditures made by the private sector to enhance homeland security 
have escalated dramatically and show no sign of lessening. These 
expenditures have been undertaken by U.S. companies engaged in all 
aspects of the global supply chain. Substantial expenditures have been 
documented from manufacturing to retail to the ports and well beyond. 
Many of these expenditures, while potentially beneficial to the conduct 
of business, have had little direct or demonstrable ROI and would not 
otherwise have been prudent in the normal course of business. Many of 
these expenditures while valuable in pursuing societal interests have 
been, perhaps unfairly, classified as a particularly unacknowledged and 
unfunded federal mandate.
    We would encourage the Committee to examine the variety of methods 
of providing such encouragement for the private sector to improve its 
own properties, processes and training. Among those principal methods 
we would include tax credits, deductions and exemptions with potential 
focus upon accelerated cost recovery and depreciation schedules. Each 
of these deserves thorough exploration. However, in light of the 
urgency of the task and particular complexions of the industries 
investing, two particularly interesting approaches might be: 1) 
development of an offset for certifiable C-TPAT and related program 
expenditures by U.S. corporations voluntarily participating in this 
important effort; and 2) exploration of Chapter 99 ``Temporary'' 
amendments to the Harmonized Tariff Schedules, which could have a wider 
impact. However, AAEI would welcome the opportunity to support the 
Committee's efforts in framing this effort and we are agreeable to 
multiple approaches.
    In exploring how to provide tax incentives, AAEI has begun reach 
out to its members to understand what kinds of security-related 
expenditures companies spend money on. During our preliminary 
discussions, AAEI has discovered that companies do indeed spend 
substantial sums of money on discrete security systems and measures. 
These items range from high quality camera systems, additional security 
guards, lighting systems, to access control systems. Many companies 
which are critical to the surety of the supply chain may not be covered 
by CBP's partnership programs or face security risks unique to the 
nature of their business. AAEI's purpose in providing this information 
in our testimony is to make the Committee aware of a wide range of 
security-related costs that it may want to consider as part of an 
effort to craft tax incentives meaningful to the private sector.
    In the years since 9/11, the U.S. trade community has responded 
energetically to a wide variety of homeland security driven needs and 
requirements. Multiple sectors have undertaken significant expenditures 
despite limited prospects of direct business benefit/ROI. Clearly, the 
funds invested in homeland security driven initiatives would otherwise 
be available for direct product or service improvement.
    What has become clear is that ``securitization'' is a process which 
may have great benefits to society and meet the company's corporate 
responsibilities, but often has little real-world ROI. Multiple 
homeland security initiatives are underway and some have been 
considered within DHS--we will address CTPAT as just one as an example. 
C-TPAT is a process-oriented program that is, broadly stated designed 
to encourage companies to adopt good security practices throughout the 
global supply chain.
    In CTPAT companies perform an initial security assessment of their 
companies' policies and procedures utilizing both internal and external 
personnel and processes. Among the largest and often quite substantial 
expenditures that companies incur in implementing C-TPAT are the 
entity-wide dedication of internal personnel and resources to implement 
good security practices, which typically involve: conducting the 
security assessment (including travel to multiple facilities), 
adjusting current security practices, communicating security policies 
and procedures to suppliers and service providers, and preparing the 
company's security profile (covering multiple business units and supply 
chains) for the C-TPAT application submitted to CBP, and security 
awareness training for employees. Other internal resources that 
companies often redirect toward security are technology related, such 
as reprogramming existing computer systems to improve access control 
(both to the physical locations of the company and its IT systems) and 
increased trade data communications with suppliers and service 
providers. These expenditures are difficult for most companies to 
individually quantify because these tasks are often necessarily 
undertaken by existing company personnel.
    It is critical for the Committee to understand that when a company 
decides to join C-TPAT, it undertakes a long-term commitment and views 
C-TPAT as a ``sustaining program'' requiring company resources for the 
foreseeable future. ``Sustaining programs'' are expensive for companies 
to administer because they require ongoing review, assessment, 
staffing, and management commitment. For example, the time between 
becoming a certified C-TPAT member and validation could be years, 
requiring periodic review and making adjustments to the company's 
security practices. In today's competitive international environment, 
conforming to new C-TPAT requirements (i.e., filing updated security 
profile through CBP's internet-based C-TPAT Portal), make it difficult 
for companies to support ``sustaining programs'' like C-TPAT without a 
return on investment--which could be realized through tax incentives.

i) Incentives
    In looking at how Congress could structure such financial 
incentives, AAEI has done a preliminary review of the types of costs 
that could be covered. We would suggest to the Committee that there are 
at least three methods you may wish explore by which Congress could 
incentivize homeland security expenditures made by companies: 1) 
Chapter 99 temporary amendments to the Harmonized Tariff Schedule; 2) 
accelerated tax depreciation; and 3) targeted tax credits. We note 
that, from the trade community's perspective, there are benefits and 
downsides to each of these methods.

a) HTS Chapter 99 Temporary Amendments
    As the Committee is well aware, Chapter 99 of Section XXII of the 
Harmonized Tariff Schedule of the United States (2006) (Revision 2) 
(HTSUS) provides for temporary duty modifications of several varieties. 
It incorporates both simple temporary modifications in the schedule as 
well as import restrictions and modifications pursuant to other trade 
legislation.
    Chapter 99 is a traditional legislative vehicle for trade law 
changes intended to impact targeted societal behavior. For instance, 
the Miscellaneous Tariff Act of 2004 incorporated over 200 individual 
Chapter 99 provisions. In addition, the administration of Chapter 99 
provisions is well understood and easily managed by CBP. There are 
currently 15 subchapters incorporated in Chapter 99.
    AAEI proposes that, for a limited period of time, in response to 
pressing national requirements, the Committee should consider a plan 
studying items which are not being fulfilled sufficiently under current 
laws and programs. We suggest that the Congress incentivize qualified 
homeland security initiatives which fall beyond normal business related 
expenditures. To accomplish this most simply, the HTSUS code would be 
modified to permit duty relief for U.S. importers based specifically 
upon the degree to which they are actively participating in efforts to 
invest in U.S. homeland security.
    One option would be that the triggering act for offering incentives 
for homeland security initiatives would be participation and validation 
in the C-TPAT program. Duty reductions could be granted for articles 
imported by or for the account of participants in the program. These 
could be granted for permissible articles against a schedule based upon 
level of current validation, at the time of article import. The duty 
relief could occur on a quarterly basis (requiring post-entry claim) so 
as to permit confirmation of C-TPAT validation level claimed throughout 
the covered period.
    In general, any and all items imported by those companies 
demonstrating the extraordinary commitment required to reach C-TPAT 
validation could then receive reduced tariff duties. However those 
which are clearly inappropriate, such as those under a dumping order, 
quota and/or subject to safeguard measures would be excluded.
    The level of reduction required to stimulate innovation beyond 
otherwise ROI-driven business expenditures is believed to be 
substantial. AAEI proposes that the Committee may wish to consider the 
following schedule: 0.1% for C-TPAT Tier 1 participants, 0.2% for Tier 
2 participants, and 0.3% for Tier 3 participants. If this should prove 
cumbersome, the Committee could consider reduction of the total duty to 
be reduced by a dollar figure per entry.
    The level of equity or economic fairplay garnered by such a system 
could be a prime benefit. First, the duty relief would be both based 
upon the level of security validation and proportional to the number of 
entries filed and value of those entries. Thus the cost of protecting 
those very actions which create risk to homeland security (i.e. the 
import of the goods) and relief are directly linked. Secondly, no 
direct cash or grant payment is required as the compensation for 
significant expenditures required to reach validation are simply 
offsets of the amount to be contributed.
    In addition to the initial advantages of a simple HTSUS Chapter 99 
modification, which requires no appropriations or other authorization 
efforts, the actual administration of such a program is relatively 
simple. In short, it would not require special claims filings, 
additional audit practices, additional accounting records or the 
creation and administration of complicated legal formulas. Best of all, 
it falls directly, through existing importer of record identification 
numbers, within the operations of CBP's current ACS as well as the 
emerging ACE and can be tracked and monitored in real time 
electronically.

b) Accelerated Tax Depreciation
    As the Committee knows well, prior to 9/11, American companies 
engaged in international trade primarily had security systems in place 
to minimize risk of loss, damage and theft of their product. Such 
devices generally related to packaging and safe transport of goods. 
Since C-TPAT was launched in November 2001, importers, carriers and 
customs brokers have joined C-TPAT in order to strengthen supply chain 
security from a terrorism risk perspective.
    Companies typically already have the ``building blocks'' to 
implement business systems for a supply chain security program, but the 
risk assessment process reorients how those systems may be used to 
enhance security. For example, most companies have employee databases, 
but may need to reprogram the database to add information, such as 
security codes for card key access system to enter a secure loading/
unloading area. As noted above, items that could be depreciated do not 
include the largest cost that many company companies incur--the cost of 
company personnel or outside resources to implement the business 
process and systems to enhance security in the supply chain.
    AAEI has conferred with its members and have identified a number of 
items, which are discrete security systems highlighted in CBP's Supply 
Chain Security Best Practices Catalog. They are items that many 
companies would not normally have invested in them as part of their 
corporate systems. In particular, the majority of these security 
enhancements would be purchased by carriers for driver monitoring or 
cargo tracking, but not importers or exporters.
    The benefit of accelerated depreciation is that the tax benefits 
are targeted to clearly identifiable (and quantifiable) security-
related expenditures. The downside of this approach is that it does not 
cover the biggest costs associated with supply chain security--outside 
resources and internal corporate personnel and resources. Additionally, 
this method does not provide ROI for companies constantly improving 
their security beyond the initial purchase of equipment.

iii) Tax Credits
    AAEI encourages this Committee to consider structuring tax credits 
specifically targeted to provide companies with ROI on internal 
resources redirected and dedicated homeland security. As noted above, 
the largest costs for many companies is deploying the human capital to 
implement good supply chain security practices, and we believe such a 
tax credit could be fashioned to sufficiently quantify such costs to 
ensure that the tax credit only benefits security-related expenditures 
while at the same time providing an appropriate level of tax incentive 
for companies to continue to improve their supply chain security as a 
``sustaining program.''

6. Implementation of Bilateral Free Trade Agreements
    As a matter of philosophy, AAEI believes in the promotion of fair 
and open trade policies, and supports the negotiation and adoption of 
free trade agreements. Over the past five years, we have witnessed a 
proliferation of free trade agreements with dozens of other nations, 
who are now our special trading partners. We commend this Committee for 
its extraordinary efforts during last week's consideration of the Oman 
Free Trade Agreement. We are concerned, however, that as these free 
trade agreements come into force, CBP may have neither the time nor the 
resources to fully implement them administratively and as part of its 
regulatory regime. Among the difficulties encountered by the trade 
community is the slow pace of CBP issuing regulations implementing free 
trade agreements. Additionally, CBP has not done the necessary 
programming for its online systems to accept entries with claims for 
preferential duty treatment made under recent free trade agreements. We 
would suggest that the Committee mentor CBP and USTR and monitor the 
progress, which is needed to resolve this situation.

7. Importer Self-Assessment (ISAs) Program and Quick Response Audits 
        (QRAs)
    AAEI is pleased to note that it is continuing to work with CBP and 
other trade associations on developing industry coalitions to negotiate 
enhanced benefits for the ISA program. Currently, AAEI has two industry 
ISA coalitions--the chemicals industry, and the pharmaceutical/
biotechnology industry. AAEI commends CBP's willingness to work with 
the trade to use the ISA program to enhance trade compliance and 
provide benefits to importers reducing regulatory burdens imposed by 
current requirements.
    Many AAEI members are concerned about CBP's use of Quick Response 
Audits (QRAs), which are single-issue audits with a narrow focus. We 
understand that CBP intends to use QRAs on specific risk areas, such as 
transshipments or intellectual property rights. However, CBP has stated 
that companies who have applied for or are current members of the ISA 
program are not exempt from QRAs.
    As noted previously, CBP has found a correlation between companies 
with good internal controls as being highly compliant with U.S. customs 
laws. It is this correlation which forms the foundation of ISA. 
Companies join ISA in order to be removed from the annual Focused 
Assessment audit pool so that they can devote the resources necessary 
(e.g., compliance personnel) to conduct the periodic self-audits 
required by ISA. ISA requires companies to document these periodic 
audits. As a result, many AAEI members are now asking ``Why did our 
company spend the time and resources to join ISA if we are still 
subject to audits?'' AAEI supports ISA's risk-based analysis of 
companies' business processes, and is concerned that CBP's use of QRAs 
will undermine the risk management principles that are the foundation 
of the ISA partnership forged between the agency and trade in 
continuing to develop the program.

8. Commercial Operations Advisory Committee (COAC): A Key Mechanism to 
        Foster and Encourage Public and Private Sector Interaction
    During our 85 year history, AAEI has a long record of working 
together with those federal departments and agencies, which have had 
jurisdiction over customs, trade policy, ports, transportation, tax, 
security, and immigration regarding the variety of other issues that 
impact the import and export of goods and services to and from the 
United States. We actively participate in multiple forums and functions 
in support of excellence in this arena. We believe and hope that AAEI 
has been a good partner and unfailingly objective in our evaluations of 
federal policies and programs.
    During the past two decades, a key mechanism to foster and 
encourage public and private sector interaction on matters affecting 
importing and exporting has been the Commercial Operations Advisory 
Committee (COAC). Although significant aspects have evolved, COAC 
remains extremely useful and its mission is vital.
    As the Committee will recall, your legislative efforts resulted in 
Public Law 100-203 of 12/22/87 which established the Advisory Committee 
on Commercial Operations of the U.S. Customs Service. COAC had two 
principal duties: 1) to provide advice to the Secretary [Treasury] on 
matters relating to the commercial operations of Customs; and 2) to 
submit an annual report to the Senate Committee on Finance and the 
House Committee on Ways and Means concerning Advisory Committee 
operations and recommendations regarding Customs commercial operations. 
Thus, Congress created the means for those who deal directly with 
Customs, now CBP, to provide direct input both to the Congress and to 
the Secretary having oversight and direct responsibility for the 
commercial operations.
    The COAC's operations began in 1988 and have continued at a rate of 
a minimum of four meetings a year. Twenty members, representing a broad 
cross section of the U.S. trade industry, rotate in two year terms. 
With a clear initial focus on the free flow of trade, important 
contributions have been made in both Customs management and 
Congressional participation in the processes.
    Following 9/11 COAC embraced the dual role of trade facilitation 
and security issues. It was very active in the development of many of 
the post 9/11 programs including C-TPAT, the 24-hour rule and MTSA 
requirements. As you would imagine, when DHS was formed, COAC focused 
on multiple issues to help ensure that the issues and perspectives of 
the U.S. trade community were taken into consideration and, very 
importantly, that the expertise residing in the U.S. trade community 
was appropriately utilized when new trade security and trade 
facilitation programs and initiatives were being considered and 
developed. Furthermore, COAC continued its work reporting to both the 
Department of Treasury, and to DHS.
    Over the last several years, many have believed that COAC's focus 
has been diluted and its effectiveness diminished. There are multiple 
theories as to what has taken place and how it might be repaired. We do 
not have the final answer. However, most recently DHS delegated the 
full responsibility for management of COAC and its mission to CBP. 
Frankly, as a surprise move, this did not appear to us to have been 
well thought out. Among several other concerns, one stands out and it 
is that that this vital authority and responsibility should not have 
been delegated in clear conflict with the primary reporting purposes 
envisioned at the time that it was legislated: Reporting to the 
managing agencies (now DHS and Treasury) to ensure that trade input 
continued to flow to the highest levels of government and providing 
input to Congress regarding activities and concerns generated there.
    AAEI is a long time supporter of the customs function and has a 
strong working relationship with both CBP and DHS yet, in terms of the 
transfer of responsibility, we would suggest to you that 1) while 
working with CBP is critical to the roll of COAC, it is much different 
than reporting to them and 2) the proper Congressional access and role 
has not been given priority. In sum many describe this as one more loss 
of the fabric of checks and balances so fundamental to our way of 
government.
    We do not claim to have all the answers and are sympathetic with 
those who suggest that, at minimum, COAC needs resources and direction. 
Yet we can assure you that, to our knowledge, the entire trade 
community is unified behind the call to both: 1) reinstate the 
reporting role of COAC to both the Secretary of Treasury for the 
economic impact of CBP's commercial operations as well as DHS's 
security needs that are so apparent lately; and 2) significantly 
enhance communications with Congress.
    AAEI suggests that, among the multiple channels of communications 
between the public and private sector regarding vital trade security 
and trade facilitation issues for both U.S. importer and exporters, 
COAC is unique in its scope and badly needed. We would ask the 
Committee to examine options and act to reinforce utilization of COAC 
in the development of vital Executive and Legislative branch 
coordination and direction regarding our Nation's critical import, 
export and security policies and programs.

D. Conclusion
    In conclusion, we wish to thank the House Ways and Means 
Subcommittee on Trade for its invitation to provide our observations, 
comments, and suggestions about CBP's trade security related matters, 
as well as its trade facilitation and operational issues. We greatly 
appreciate the Committee's efforts to ensure that trade facilitation is 
a balanced partner to trade security. We strongly believe that the 
Committee's continued oversight and active promotion of conjoined trade 
security and trade facilitation programs and initiatives can make an 
enormous difference. We hope that our testimony will prove useful as 
the Committee endeavors to reauthorize CBP and re-establish a 
productive balance between trade security and trade facilitation. AAEI 
looks forward to both supporting this Committee's active involvement 
and to continuing our partnership with CBP in pursuit of these goals.

                                 

    Chairman SHAW. Thank you. Mr. Gill.

  STATEMENT OF BRIAN GILL, SENIOR REGULATORY AFFAIRS ADVISOR, 
               FEDEX EXPRESS, MEMPHIS, TENNESSEE

    Mr. GILL. Mr. Chairman, Mr. Levin, Members of the 
Committee, good morning. By name is Brian Gill, and I am a 
Senior Regulatory Affairs Advisor for FedEx Express and 
Chairman of the Express Delivery and Logistics Association, 
XLA, the government Affairs Committee. XLA is the trade 
association representing the U.S. express industry.
    FedEx and XLA are pleased that the Committee is holding 
this Customs budget authorization hearing today to address 
important Customs issues. Customs and the industry have some 
very long-term issues to grapple with, such as the need to 
balance trade facilitation and security and the development of 
automated programs to handle all of these needs. However, there 
are also issues that we believe are somewhat simpler that can 
and should be addressed quickly and would result in savings for 
the industry, shipping public, and for Customs.
    In today's reality, Customs faces difficult challenges in 
balancing the needs of security and trade facilitation. 
However, we must not tip the scales too far in either direction 
without recognizing the direct impact on trade or our economy. 
Further, we believe it is critical to the country that Customs 
develop detailed plans for restoring trade flow for each 
transportation mode in the event of a terrorism incident or 
natural disaster.
    FedEx and XLA fully support Customs development of its 
next-generation automated system, ACE. In creating the system, 
Customs should adhere to the following principle: one, create a 
single window for processing all government requirements for 
trade data; two, require all government agencies to work 
through ACE, ensuring that the entire trading process is 
automated; three, work closely with industry and provide 
sufficient lead time for industry to make necessary programming 
changes. Such changes result in significant cost, time and 
rework for companies such as FedEx and other members of XLA.
    Turning to the Customs Trade Partnership Against Terrorism, 
known as C-TPAT, we applaud Customs for developing the program. 
We urge Customs and Congress to ensure that the program remains 
voluntarily. We also urge Customs to work more closely with XLA 
and other industry groups to ensure fair and effective 
guidelines that take into account the needs, issues and 
recommendations of industry as true partners with Customs 
against the real enemy, terrorism.
    To date, the express transportation industry has received 
limited benefit from C-TPAT. We would encourage Customs to 
enhance benefits to our C-TPAT members in line with the 
significant cost and commitment made by our industry.
    I will now speak to a few issues that Customs and this 
Committee could easily address that would result in real 
savings to both Customs and the industry.
    Customs must update the Formal Entry List and remove from 
it textiles and wearing apparel, no longer subject to visa/
quotas. Today, formal entry is still required for commodities 
on this list 18 months after elimination of quota and visa 
requirements for WTO countries, and even for items valued as 
low as $5. This is a waste of Customs resources and effort.
    In 1994, as part of the Customs Modernization Act (Mod Act) 
Congress authorized Customs to raise the informal entry limit 
from $1,250 to $2,500. Customs did not act on this authority 
until 1998, when it increased the informal entry limit to 
$2,000, where it remains today.
    Customs should certainly increase informal entry to 2,500, 
as authorized under current law. This Mod Act provision was 
part of the effort to streamline Customs operations and improve 
productivity. Fewer shipments would be subject to the more 
laborious and time-consuming processes of formal entry. In 
addition, the Bureau of Labor Statistics inflation calculator 
shows that $2,000 in 1994 is valued at $2,738 today.
    We believe, however, that this Committee and Congress 
should go even further than requiring Customs to increase the 
informal entry to 2,500 and should pass legislation increasing 
the informal industry ceiling to $5,000.
    As global trade and U.S. imports continue to grow, a new 
higher limit will provide flexibility to allow entry and 
release of imported merchandise through simpler entry 
processes, thereby allowing Customs to devote valuable 
resources to supply chain security and post-entry trade 
compliance.
    Increasing the section 321 limit from its current $200 to 
$500 would again streamline the entry process and free Customs 
resources to focus on more important security-related issues. 
This section 321 limit was raised by the Mod Act in 1994 from 
$100 to $200 as recognition of the need to adjust for 
inflation. I would like to point out that $200 is the minimum 
value of the current statutory provision. Increasing the amount 
again would allow for more flexibility as well as providing 
appropriate inflation relief.
    In conclusion, Customs has a difficult and challenging job 
before it. We believe that by following the recommendations we 
have outlined today, Customs can achieve significant savings 
and can improve its ability to accomplish both its security and 
its trade facilitation missions.
    FedEx and XLA look forward to working in partnership with 
CBP to achieve these goals. Thank you. I will be pleased to 
answer any questions you may have.

    [The prepared statement of Mr. Gill follows:]

   Statement of Brian Gill, Senior Regulatory Affairs Advisor, FedEx 
                      Express, Memphis, Tennessee

    Mr. Chairman, Mr. Cardin, Members of the Committee,
    Good Morning. My name is Brian Gill and I am the Senior Regulatory 
Affairs Advisor for FedEx Express and Chairman of the Express Delivery 
and Logistics Association (XLA), Government Affairs Committee.
    Both FedEx and XLA are pleased that the Committee is holding this 
Customs Budget authorization hearing today to address important Customs 
issues. Customs and the industry have some very long-term, difficult 
issues to grapple with, such as the need to balance trade and security, 
and the development of automated programs to handle all of these needs, 
which I will briefly address. However, I would like to focus most of my 
comments today on issues that we believe are somewhat simpler, that can 
and should be addressed quickly, and that would result in savings for 
the industry, the shipping public and for Customs. I would first like 
to speak to the need for Customs and this Committee to consider raising 
the informal entry value, increasing the value limit of the 
administrative exemptions best known as ``Section 321,'' and updating 
the requirements for low value formal entries.

Raise the Informal Entry Value
    In 1994, as part of the Customs Modernization Act, Congress 
Authorized Customs to raise the informal entry value from $1,250 to 
$2,500. Customs did not act on this authority until 1998 when it 
increased the informal entry limit to $2,000, where it remains today.
    Customs should certainly increase the informal entry to $2,500 as 
authorized under current law. The increase to $2,500 as part of the Mod 
Act was part of the effort to streamline Customs operations and improve 
productivity. Fewer shipments would be subject to the more laborious 
and time consuming processes of formal entry. In addition, the Bureau 
of Labor Statistics Inflation Calculator shows that $2,000 in 1994 is 
valued at $2,738 today. As a result, in many cases, imported goods 
which in 1994 would have been entered and released under less stringent 
informal entry process are today subject to formal entry merely because 
Customs has not increased the informal entry ceiling in pace with 
inflation.
    We believe, however, that this Committee and Congress should go 
even further than requiring Customs to increase the informal entry to 
$2,500 and should pass legislation increasing the informal entry 
ceiling to $5,000. As global trade and U.S. imports continue to grow, a 
new, higher limit will provide flexibility to allow entry and release 
of imported merchandise through simpler entry processes, thereby 
allowing Customs to divert valuable resources to supply chain security 
and post-entry trade compliance.

Increase the Section 321 Limit
    Increasing the Section 321 limit from its current $200 to $500 
would again streamline the entry process and free needed Customs 
resources to focus on more important, security related issues. The 
Section 321 limit was raised by the Mod Act in 1994 from $100 to $200 
as recognition of the need to adjust for inflation. I would point out 
that $200 is the minimum value of the current statutory provision and 
that the Secretary of the Treasury may increase the amount by 
regulation. Increasing the amount would avoid expenses and 
inconvenience to Customs, provide additional flexibility, and ensure 
relief from inflationary pressures.

Update the Formal Entry List (Harmonized Fact Sheet 30)
    The Formal Entry List, originally issued in its current form in 
1989, is rooted in concerns regarding textile and wearing apparel visa/
quotas. Formal entry is required for commodities on this list even when 
valued as low as $5. These provisions include commodities that may have 
textile components such as footwear, luggage, and flat goods. And yet, 
when WTO trading rules covering textile and apparel commodities became 
effective on January 1, 2005, eliminating quota limitations and visa 
requirements for U.S. imports from WTO countries except China, the 
requirement for formal entry remained.
    The Formal Entry List remains unchanged more than 18 months after 
elimination of quota and visa requirements for WTO countries. We ask 
the Committee to help us work with Customs to eliminate the unnecessary 
formal entry requirements that add time, cost and burden on both 
Customs and importers. This can be done in such a manner that would not 
prevent data collection important to Customs' continued monitoring of 
transshipment concerns or other legitimate enforcement needs.
    Further, Free Trade Agreements implemented in the past several 
years include broad provisions for duty-free entry based on country of 
origin (e.g., Singapore, Chile, DR-CAFTA). With duty-free status 
granted on such a simple basis, regardless of high or low value, there 
is no longer a broad need for formal entry for low value shipments of 
those commodities.

Longer-term Issues
    Regarding some of the longer-term issues, we applaud Customs for 
developing the Customs and Border Protection's Customs-Trade 
Partnership Against Terrorism, known as C-TPAT, to improve security 
within the supply chain. We would, however, continue to emphasize the 
need for Customs to work more closely with XLA and other industry 
groups to ensure fair and effective regulations that take into account 
the needs, issues and recommendations of industry as true partners with 
Customs against the true enemy, terrorism.
    We have submitted our comments to Customs on its most recent 
criteria for air carriers which we believe fails to establish a proper 
balance between trade and security and does not include proper 
perspective on Customs' mandate for facilitation. We want to continue 
our partnership with Customs on this issue and hopefully Customs will 
understand that a one size fits all approach is not appropriate in an 
express environment. For instance, we do not believe that it is 
appropriate or possible for all of the many retail customers of XLA 
members to be subject to the same rules and screening that would apply 
to a company providing services to a C-TPAT company, but that is the 
effect of the Customs criteria as currently stated.
    Regarding the Automated Commercial Environment or ACE, we encourage 
Customs to again work more closely with industry as it continues to 
develop and expand ACE. Changes in programming systems can result in 
significant costs and time on companies such as FedEx and other members 
of XLA. When Customs then makes additional changes, companies such as 
ours must reallocate valuable programmer time away from business needs 
and towards new or revised government requirements. This is in essence 
a new tax that cannot be paid overnight.
    More and better coordination and cooperation between Customs and 
industry will help to limit these costly changes and rework.
Conclusion
    Customs has a difficult and challenging job before it. Increasing 
the informal dollar limit, especially for C-TPAT compliant companies is 
one way to improve productivity and redirect Customs resources to 
higher risk areas. Further, by having Customs work more closely with 
the trade, significant savings and reduced rework can be achieved.

                                 

    Chairman SHAW. Mr. Vicente.

  STATEMENT OF MARIO VICENTE, PRESIDENT, FRESCA FARMS, MIAMI, 
 FLORIDA; ON BEHALF OF THE ASSOCIATION OF FLORAL IMPORTERS OF 
                    FLORIDA, MIAMI, FLORIDA

    Mr. VINCENTE. Good morning, Chairman Shaw and distinguished 
Members of the Subcommittee. Thank you for allowing me to speak 
to you today. My name is Mario Vicente and I am President of 
Fresca Farms and elected President of the Association of Floral 
Importers of Florida. My business is located about 2 miles from 
Miami International Airport in which 86 percent of all fresh-
cut flowers are imported. The Association of Floral Importers 
was formed 25 years ago to give the Miami flower-importing 
business one voice to ensure the free flow of flowers and help 
us expedite the processing of our perishable product.
    Due to the tremendous volume of products that enter through 
Miami, about 40,000 boxes per day, which daily require 
thousands of boxes to be inspected, we continue to negotiate 
ways to help expedite our product through the inspection 
process with the USDA and Customs and Border Protection. The 
Association meets regularly with CBP officers, supervisors and 
the assistant port director to voice our concerns. So, what we 
are discussing today are things that we have talked about in 
our local CBP context. Since the formation of the Department of 
Homeland Security and the changes that occurred between the 
USDA and CBP, it seems that the process of inspecting our 
flowers has declined. We are fully aware that our borders need 
to be protected, but CBP does not have enough resources to keep 
up with our increasing volumes. Due to the full plane loads of 
flowers that arrive daily, the airlines are responsible for 
calling CBP to initiate the inspection process, but because 
there are not enough inspectors on staff of all types, we are 
waiting longer and longer to receive our flowers.
    We have a few comments for this Committee to consider. One, 
in order for us to continue and increase the volume of flowers 
that we are importing into the United States we need to ensure 
the industry that CBP will have enough officers to inspect our 
product in a timely manner. In the past, we were able to pick 
up our flowers from the airlines in about 4 to 6 hours after 
the plane lands, but now the average is more like 8 to 12 
hours. We need more inspectors available 7 days per week to cut 
down the time it takes the officers to respond to calls and 
complete the inspections.
    Two, after 9/11, the Department of Homeland Security 
required all import information be entered into the Automated 
Manifest System (AMS) prior to leaving the country of origin so 
CBP has a notification of our products arrival, how much is 
coming, where it is coming from, and so forth. The information 
is required by CBP to allow the entry to be cleared. Why cannot 
the Agriculture inspectors have access to this information so 
they can preview the paperwork to cut down on the inspection 
time and officers needed in the field? We then wouldn't have to 
wait hours for officers to review the paperwork before they 
even start physical inspection. Aren't we in the age of 
technology? Then why cannot the government agencies use 
technology to make the process more efficient?
    Third, prior to 2005, each Agriculture officer had an 
inspection stamp that was unique to that officer. Once an 
inspection was concluded, the officer stamped the papers of the 
entry, releasing the product, and he just had to initial and/or 
sign under the stamp. In 2005, all officers were given a new 
stamp which is generic, and now the officers have to fill out 
several blanks on each sheet that they stamp, including their 
name, badge number, and so forth. It can now take an officer up 
to 45 minutes to stamp and fill out the stamp areas. This seems 
counterproductive. Isn't it better to have stamps that are 
specific to officers instead of a generic stamp?
    Fourth, in the past, the Agriculture inspectors worked for 
USDA, and now they work for CBP and DHS. Since the crossover, 
there seems to be problems with communications between the 
Agency with some systems. CBP officers are responsible for 
conducting the inspections of our products, but if there is a 
pest or disease found, then it is turned over to USDA for a 
determination of what could happen to those flowers.
    Because there are two agencies involved in the process, it 
takes longer than with one. We are supposed to receive a pest 
ID report five times per day from CBP. They have realtime 
information, but if there is a problem with the software, then 
we have to wait for USDA to correct the problem. Why is there 
an issue with agencies having total access to systems they both 
use? Our industry suffers if there is a delay in getting 
information to clear the flowers. Fifth, there needs to be a 
way for CBP to have meetings at multiple times of the day 
instead of pulling all officers, inspectors and supervisors out 
of the field at the same time. When morning meetings occur, it 
can make the inspections back up, up to 5 hours. Most 
businesses that have a large staff have meetings more than one 
time to accommodate the different shifts and do not disrupt the 
jobs that need to be done. We would just ask for some thought 
in having times for meetings so there is no disruption in the 
business environment. Once again, thank you for allowing me to 
speak about issues affecting the flower industry on a daily 
basis. Thank you.

    [The prepared statement of Mr. Vicente follows:]

Statement of Mario Vicente, President, Fresca Farms, Miami, Florida, on 
  behalf of Association of Floral Importers of Florida, Miami, Florida

    Hello, thank you for allowing me to speak to you today. My name is 
Mario Vicente and I am president of Fresca Farms and President of the 
Association of Floral Importers of Florida. My business is located 
about 2 miles from the Miami International Airport in which 86% of all 
fresh cut flowers are imported.
    The Association of Floral Importers was formed 25 years ago to give 
the Miami importing business one voice to ensure the free flow of 
flowers and help us expedite the processing of our perishable product. 
Through the years, due to the tremendous volume of flowers that enter 
through Miami, about 40,000 boxes per day with some days having 
thousands of boxes that are required to be inspected, we continue to 
negotiate ways to help expedite our product through the inspection 
process with USDA and Customs and Border Protection. The Association 
staff meets regularly with CBP Officers, Supervisors and Assistant Port 
Directors to voice our problems and concerns about the inspection 
processes so what we are discussing today are things that we discuss 
monthly with our local CBP contacts.
    Since the formation of the Department of Homeland Security and the 
changes that occurred with USDA and CBP it seems that the process of 
inspecting our perishable products has declined. We are fully aware 
that our borders need to be protected, but CBP does not have enough 
resources to continue with the current system that we are relying on 
for our businesses. We already have the airlines calling for the Plant 
and Protection Quarantine (PPQ) inspections that are now conducted by 
CBP inspectors because of the full plane loads of products that they 
receive to cut down on the number of ``individual'' inspections needed, 
but because there are not enough inspectors on staff at all times, we 
are waiting longer and longer to receive our products.
    We have a few comments for this committee to consider:
    One, in order for us to continue bringing in the volumes of flowers 
that we are, and we would like to increase volumes, including flowers 
from other countries like Australia, New Zealand and Africa we need to 
assure the industry that CBP will have the officers available to 
inspect our products in a timely manner. In this industry we used to be 
able to pick up our flowers, on average, about 8 hours after the plane 
lands, but now the average is more like 12 hours. We need more 
inspectors available 7 days per week to cut down on the time the 
inspectors take to respond to the calls and complete the inspections. 
The officers that conduct the inspections are always stating that they 
do not have enough staff to have the inspectors come any quicker.
    Two, after 9/11 Department of Homeland Security required all import 
information to be input into the AMS system prior to it leaving the 
country of origin, therefore, CBP should have notification of our 
product, how much is coming, where it's coming from, etc. This 
information is required for CBP to allow the ``entry to be cleared''. 
Why can't the agricultural inspectors have access to this information 
and have notification so that they can ``preview'' the manifests so 
that the inspection process time and number of officers needed can be 
decreased? We then wouldn't have to wait sometimes hours and hours for 
the officers to review all of the paperwork before they even start the 
physical inspection. Aren't we in the age of technology? Then why can't 
the government agencies use technology to make processes quicker?
    Three, prior to 2005 each agricultural officer had an ``inspection 
stamp'' that was unique to that officer. The stamp had the officer's 
information including his badge number. Once an inspection was 
concluded, the officer stamps all pages of the entry that the 
agricultural product is released, and the inspector just had to initial 
and/or sign under the stamp. In 2005, all officers were given a ``new 
stamp'' which is ``generic'' and now the officers have to fill out 
several ``blanks'' on each sheet that they stamp including their names, 
badge numbers, date, etc. Now it can take an officer up to 45 minutes 
to stamp and ``fill out the stamp area''. This seems to be 
counterproductive--isn't it better to have stamps that are specific and 
only that officer has it in their possession and only that officer can 
use it instead of a ``generic'' stamp?
    Fourth, because the USDA used to be the agency that the PPQ 
inspectors worked for and now work for CBP and DHS there seems to be 
problems with communication between the agencies because they cannot 
both have access to some systems. CBP officers are responsible for 
conducting the inspections of our products, but if a pest or disease is 
found, then it is turned over to USDA for determination of what should 
happen with that product. So, now we have to wait for the CBP 
inspectors to turn the paperwork over to USDA, then USDA needs to make 
a determination (that can be in hours or days) of what should happen 
with that product. We are supposed to be able to receive a Pest ID 
report 5 times per day so that we can have real time information, that 
is, unless there is a problem with the system. The system belongs to 
USDA, the CBP inspectors enter the information and send out the emails, 
but if something goes wrong CBP cannot do anything it has t be turned 
over to USDA. Why is there such a problem with agencies having access 
to systems that they both use? Our industry is the one who suffers, 
because now we cannot get the information we need to conduct our jobs.
    Fifth, there needs to be a way for CBP to have meetings at multiple 
times instead of pulling ALL officers, inspectors and supervisors out 
of the field to have a meeting. When meetings occur on a Thursday 
morning it can back up inspections as much as 5 or more hours. Most 
``companies'' that have large staffs have and have businesses that 
cannot be ``shut down,'' have more than one time for meetings to occur 
so that the ``public'' is not affected by internal meetings, why should 
this be different in the government? Why should our business have to 
suffer because there's only one time that they want to have a staff 
meeting and everyone has to attend? We would just ask for some courtesy 
in having a meeting in the morning for the staff who is leaving and 
have another at the end of the day for the daytime staff that is 
leaving, then there is no disruption in the ``business environment''.
    Again, thank you for letting me speak about an issues that affects 
my company's business on a daily basis.

                                 

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

    Ms. KELLEY. Good afternoon. Thank you, Mr. Chairman Shaw, 
Mr. Levin, for the opportunity to testify today. As the 
President of the National Treasury Employees Union (NTEU), I 
have the honor of representing over 150,000 Federal employees, 
15,000 of whom are Customs and Border Protection employees at 
Homeland Security. I had intended to read section 412(b) of the 
Homeland Security Act into the record, but based on all of the 
questions given to the prior panel, it is clear to me that 
412(b) is on the record. It is also clear to me that CBP 
recognizes their failure to maintain the staffing levels as 
required under the Homeland Security Act.
    I was very pleased to hear Commissioner Basham's 
recognition of the problem and his commitment to restore the 
trade staffing levels, and I look forward to CBP's expedited 
implementation of that commitment. Now, the problem will be 
what positions and at what staffing levels. For example, former 
CBP Commissioner Robert Bonner stated in a letter to Congress 
that CBP employed 1,080 non-supervisory import specialists in 
fiscal year 2001 and 1,011 in fiscal year 2002. CBP's most 
recent data shows there are only 870 import specialists 
employed. Now, these same staffing shortages exist for other 
trade occupations, eight of them, in fact, that are specified 
in section 412(b) of the Homeland Security Act. DHS is clearly 
not in compliance with the section that mandated no reductions 
in trade functions and staffing levels. This highlights the 
overall problem with CBP staffing.
    The former U.S. Customs Service last did an internal review 
of their staffing for fiscal years 2000 and 2002. This report 
was dated February 25, 2000, and is known as RAM, Resource 
Allocation Model. This RAM shows that the Custom Service at 
that time needed over 14,776 new hires just to fulfill its 
basic mission, and that was before September 11. According to 
the GAO, CBP has not increased staffing levels since June of 
2003.
    In addition to the significant reduction in trade function 
staff in violation of section 412(b), there is also a current 
staffing shortage of frontline, armed, uniformed Customs and 
Border Protection Officers (CBPOs) at the 317 ports of entry. 
It is my understanding that an import specialist redesign model 
that is currently being considered by CBP proposes to 
officially change the day-to-day operations of import 
specialists by migrating the physical examination of cargo from 
Customs and Border Protection Officers to the import 
specialists. NTEU opposes CBP's plan to transfer CBPOs' cargo 
exam duties to the import specialists as proposed without a 
thorough review of CBP's staffing needs. Additional CBPOs and 
trade compliance specialists are needed at the 317 ports of 
entry to meet CBP's mission at Homeland Security.
    C-TPAT has also been discussed this morning, which of 
course offers an established, trade-related businesses' 
expedited review of imported cargo and, of course, of the large 
backlog that there is. The only way to speed up the validation 
process for the C-TPAT program is to commit more financial and 
human resources to it. In several pieces of port security 
legislation before Congress, however, provisions have been 
added that would allow expanding the validation effort through 
the use of third parties that are funded by current and already 
insufficient CBP appropriations. NTEU believes that C-TPAT 
validations should be done by CBP employees. If Congress, 
however, decides to allow third-party validations, the 
applicants, not CBP, should pay the costs; but CBP must 
maintain final review and approval of the validation, which is 
an inherently governmental function.
    In light of the huge consolidation of agencies into the 
Department of Homeland Security and the continuing concern of 
the Department's commitment to regulating and facilitating 
international trade, collecting import duties and enforcing 
U.S. trade laws, NTEU believes it may be time to reestablish 
the Office of the Assistant Commissioner of Commercial 
Operations within CBP. It is vitally important to put someone 
in charge of this area with a substantive trade background and 
to ensure that the focus on trade, as required by the Homeland 
Security Act, is enforced. Now all of the commercial operations 
personnel report through the Office of Field Operations that 
also oversees 15,000 armed, uniformed CBPOs.
    It is clear that support for an emphasis on CBP's trade 
function has diminished since the creation of the Department of 
Homeland Security. To have a separate trade chain of command 
directly reporting to Commissioner Basham would help correct 
this deficiency. Thank you for the opportunity to testify on 
behalf of the dedicated men and women who safeguard the 
integrity of trade and travel throughout the 317 U.S. ports of 
entry, and I look forward to answering any questions you might 
have.

    [The prepared statement of Ms. Kelley follows:]

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

    Chairman Shaw, Ranking Member Cardin, distinguished members of the 
Committee: I would like to thank the Committee for the opportunity to 
provide this testimony. As President of the National Treasury Employees 
Union (NTEU), I have the honor of leading a union that represents over 
15,000 Customs and Border Protection Officers (CBPOs) and trade 
enforcement specialists who are stationed at 317 land, sea and air 
ports of entry (POEs) across the United States. CBPOs make up our 
nation's first line of defense in the wars on terrorism and drugs.
    In addition, Customs and Border Protection (CBP) entry specialists, 
import specialist and trade compliance personnel enforce over 400 U.S. 
trade and tariff laws and regulations in order to ensure a fair and 
competitive trade environment pursuant to existing international 
agreements and treaties, as well as stemming the flow of illegal 
contraband such as child pornography, illegal arms, weapons of mass 
destruction and laundered money. CBP is also a revenue collection 
agency. In 2005, CBP commercial operations personnel collected an 
estimated $31.4 billion in revenue on over 29 million trade entries.

Commercial Operations Staffing Shortages
    When CBP was created, it was given a dual mission of not only 
safeguarding our nation's borders and ports from terrorist attacks, but 
also the mission of regulating and facilitating international trade; 
collecting import duties; and enforcing U.S. trade laws.
    NTEU is deeply concerned with the lack of resources, both in 
dollars and manpower, devoted to the facilitation and operations 
aspects of CBP's trade functions. Because of continuing staffing 
shortages in commercial operations personnel, experienced commercial 
operations professionals at all levels, who long have made the system 
work, are leaving or have left or are so discouraged that they are 
resigned to frustration. In addition, 25% of import specialists will 
retire or are eligible to retire within the next few years.
    When Congress created the Department of Homeland Security, the 
House Ways and Means and Senate Finance Committees included Section 
412(b) in the Homeland Security Act of 2002 (P.L. 107-296). This 
section mandates that ``the Secretary [of Homeland Security] may not 
consolidate, discontinue, or diminish those functions . . . performed 
by the United States Customs Service . . . on or after the effective 
date of this Act, reduce the staffing level, or reduce the resources 
attributable to such functions, and the Secretary shall ensure that an 
appropriate management structure is implemented to carry out such 
functions.''
    When questioned about DHS compliance with Sec. 412 (b), then-CBP 
Commissioner Bonner stated in a June 16, 2005 letter to Ways and Means 
ranking member Representative Charles Rangel that ``While overall 
spending has increased, budget constraints and competing priorities 
have caused overall personnel levels to decline.''
    The bottom line is that DHS is non-compliant with Section 412(b) of 
the law. As stated in the June 16, 2005 letter, ``CBP employed 1,080 
non-supervisory import specialists in FY 2001 and 948 as of March 
2005.'' CBP's most recent data shows 892 full-time, plus 21 part-time 
Import Specialists--a total of only 913 import specialists. This is a 
clear reduction in staffing and violation of the law
    On March 30, 2006, legislation was introduced in the House and 
Senate, H.R. 5069 and S. 2481, to require the Department of Homeland 
Security to comply with Section 412(b) of the Homeland Security Act 
(P.L. 107-296).
    Customs revenues are the second largest source of federal revenues 
collected by the U.S. Government next to tax revenues. The Committee 
uses this revenue source to fund other federal priority programs. The 
Committee should be concerned as to how much DHS non--compliance with 
Section 412(b) of the Homeland Security Act costs in terms of revenue 
loss to the U.S. Treasury.
    I would urge the Committee to inquire about CBP's plans to become 
compliant with Section 412(b) and ask for a timeline demonstrating 
compliance.

CBP's Lack of Optimal Staffing Model
    According to the Government Accountability Office (GAO), ``as of 
June 2003, CBP has not increased staffing levels [at the POEs]'' (see 
GAO-05-663 page 19) and ``CBP does not systematically assess the number 
of staff required to accomplish its mission at ports and airports 
nationwide. . . .''
    Further, GAO observes that ``not identifying optimal staffing 
levels prevents CBP from performing workforce gap analyses, which could 
be used to justify budget and staffing requests.'' However, CBP states 
that ``absent additional resources, the only way to address these gaps 
would be to relocate officers--this is not a viable solution because of 
the costs associated with relocating CBP officers. The report goes on 
to say that, ``CBP officials stated that they have not assessed overall 
staffing needs across ports or airports and do not plan to do so with 
the proposed model because they do not expect to receive any additional 
resources given the current budget climate.'' (pages 28-29)
    It is instructive to note that the former U.S. Customs Service's 
last internal review of staffing for Fiscal Years 2000-2002 dated 
February 25, 2000, known as the Resource Allocation Model (RAM), shows 
that the Customs Service needed over 14,776 new hires just to fulfill 
its basic mission--and that was before September 11. Since then the 
Department of Homeland Security was created and the U.S. Customs 
Service was merged with the Immigration and Nationalization Service and 
parts of the Agriculture Plant Health Inspection Service to create 
Customs and Border Protection (CBP). CBP was given an expanded mission 
of providing for both the first line of defense against domestic 
terrorism and to make sure trade laws are enforced and trade revenue 
collected.
    The RAM also notes that in 1998 the base total of import specialist 
positions was 1,249 and the import specialist optimal staffing level 
for 2002 is 1,489--an addition of 240 positions. It is NTEU's 
understanding that the current number of full-time import specialists 
is 892. This is 357 less than the 1998 base total, and 597 less than 
the projected 2002 optimal staffing level. (See page 2 of U.S. Customs 
Service Optimal Staffing Levels Fiscal Years 200-2002 attached.)
    The original deadline for completing CBP's proposed, but extremely 
flawed, staffing model was April 2005. NTEU asks the Committee to 
direct CBP to design and complete a new staffing model that includes 
overall staffing needs and to assess optimal staff levels at the 317 
Ports of Entry to fulfill their dual security-commercial mission. 
Congress must have information from CBP that justifies its budget and 
staffing request while enabling Congress to adequately address its 
authorization, oversight and appropriations responsibilities.

Import Specialist Redesign Model
    It has come to NTEU's attention that Customs is in the process of 
reviewing the Import Specialist Redesign Model. It is our understanding 
this Import Specialist Redesign Model proposes to change the day-to-day 
operations of Import Specialists by migrating the physical verification 
of cargo from CBPOs to import specialists. Import Specialists have an 
interest in performing the trade examinations that their investigations 
generate; however, they do not have the resources or training to do the 
physical cargo inspections that are currently tasked to CBPOs.
    The Committee should be concerned that CBP is contemplating the 
transfer of some of the CBPO's inspection duties to their unarmed 
commercial trade enforcement and duty collection specialists. Will this 
further dilute the trade and revenue functions at CBP? Will it dilute 
the security functions at the POEs?
    What is the timeline for CBP's development of its Import Specialist 
Redesign Model? How will CBP ensure that this redesign plan is in 
compliance with Section 412(b) of the HSA that prohibits the Secretary 
from consolidating, discontinuing or diminishing trade functions or 
reducing the staffing level, or resources attributable to such 
functions?
    In Section 412(b), Congress has set a floor for import specialists 
and other commercial operations personnel. Congress must also make sure 
that these personnel assets are fenced off from being diverted to other 
locations within CBP.

One Face at the Border Initiative
    On September 2, 2003, CBP announced the misguided One Face at the 
Border (OFAB) initiative. The initiative was designed to eliminate the 
pre-9/11 separation of immigration, customs, and agriculture functions 
at U.S. land, sea and air ports of entry. In practice the OFAB 
initiative has resulted in diluting customs, immigration and 
agriculture inspection specialization and quality of passenger and 
cargo inspections. Under OFAB, former INS agents that are experts in 
identifying counterfeit foreign visas are now at seaports reviewing 
bills of lading from foreign container ships, while expert seaport 
Customs inspectors are now reviewing passports at airports. The 
processes, procedures and skills are very different at land, sea and 
air ports, as are the training and skill sets needed for passenger 
processing and cargo inspection.
    It is apparent that CBP sees its One Face at the Border initiative 
as a means to ``increase management flexibility'' without increasing 
staffing levels. For this reason, Congress, in the Immigration and 
Border Security bill passed by the House last year, HR 4437, section 
105, requires the Secretary of Homeland Security to submit a report to 
Congress ``describing the tangible and quantifiable benefits of the One 
Face at the Border Initiative--outlining the steps taken by the 
Department to ensure that expertise is retained with respect to 
customs, immigration, and agriculture inspection functions--'' NTEU 
urges the Committee to add similar OFAB study language to the Customs 
Authorization legislation.
    In the same vein as the One Face at the Border initiative, it has 
come to NTEU's attention that increasingly CBP is ``detailing'' import 
specialists and other commercial operations personnel to backfill CBPO 
vacancies. The stresses of commercial operations staffing shortages are 
being compounded by CBP assigning new inspection duties to commercial 
operations personnel. NTEU has heard that OPM may be in the process of 
rewriting commercial operations position descriptions to reclassify job 
duties previously assigned to CBPOs to import specialists and/or entry 
specialists. NTEU urges the Committee to look into any reclassification 
of these commercial operations jobs that supply a valuable U.S. 
Government funding source.

Customs-Trade Partnership Against Terrorism (C-TPAT)
    C-TPAT is a voluntary program whereby importers, brokers, air, sea, 
land carriers, and other entities in the international supply chain and 
intermodal transportation system to enter into partnerships with DHS. 
C-TPAT allows DHS to validate the entities' security procedures and 
supply chains in exchange for speedier entry and clearance into U.S. 
ports. Currently, CBP employs only 80 Supply Chain Specialist to 
validate over 10,000 C-TPAT applicants. NTEU strongly endorses the 
hiring of additional staff by CBP to validate C-TPAT applicants.
    NTEU recognizes that the only way to speed up the validation 
process for the voluntary C-TPAT program is to commit more financial 
and human resources to the validation process. In several pieces of 
port security legislation before Congress, however, provisions have 
been added that would allow expanding the validation effort through the 
use of third parties. In order to speed up the C-TPAT validation 
process, whether done by CBP employees or through private sector 
contracts, it will cost additional money. A key question remains, where 
does this money come from?
    NTEU is concerned that legislative language in proposed port 
security legislation would allow CBP to spend their limited budget to 
hire private contractors to perform these third party validations.
    As stated before, NTEU believes that C-TPAT validations should be 
done by CBP employees paid for by a customs fee. We also recognize that 
CBP's resources are extremely limited and not likely to be 
significantly increased. If Congress decides to allow third part 
validations, the applicants, not CBP, should pay the costs of these 
third party contracts. CBP should not to be a party to the third party 
validation contract, nor responsible for the cost of third party 
validations. The applicant must pay all costs associated with the third 
party validation.
    NTEU also strongly believes that CBP must have final say in 
reviewing and approving these certified third party validations, before 
the designation is final. C-TPAT participants should only be allowed to 
contract with independent third parties to conduct validations and 
assessments if these validations are submitted to the Secretary for 
approval. It is CBP that must have the ultimate responsibility to 
review the validation submitted by the third party entity hired by the 
C-TPAT applicant, and it is CBP, not the third party entity, that 
should make the final determination as to eligibility.
    Finally, in order to eliminate conflicts of interest and possible 
collusion, third party validators must be independent of the C-TPAT 
participants they are validating. C-TPAT applicants, under the third 
party validation program, should not be policing themselves by paying 
another company to validate them, with no federal requirements, review 
and approval.
    This third party validation process would be similar to the 
independent third party accounting audits required under the landmark 
Sarbanes-Oxley Act of 2002.

Study of Dedicated Funding
    In 2006, 25 million containers came into the United States, 
including 11 million through our seaports. This year that figure is 
expected to grow by ten percent. Additional commercial operations 
staffing and training funds are needed to address this growth in trade. 
In addition, as evidenced by the C-TPAT program, private sector 
coordination funding is also needed. Multiple proposals for utilization 
of some form of additional customs fees are currently being promoted to 
support a great variety of proposed programs. The new security needs 
along with important national trade policy goals require additional 
financial resources.
    NTEU encourages the Committee to examine the question of collection 
and utilization of fees. This study should determine the relationship 
between current fees and monies allocated for CBP services and assess 
the need for additional fees.

Increase Trade Personnel Pay Grades
    One final issue tied to CBP funding of commercial operations 
personnel 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 perform higher graded work in 
the course of their daily duties since their position has evolved from 
one that was more transaction-based to one that is account-based. This 
transition 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.
    In addition to not adequately staffing trade function jobs as 
required by Section 412(b), CBP continues to refuse to properly 
compensate import specialists for their invaluable work on behalf of 
the trade community and the American people. 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 CBP trade 
personnel that Congress recognizes the high level of expertise that all 
import specialists possess.

Reestablish an Office of Assistant Commissioner of Commercial 
        Operations with Direct Report to CBP Commissioner
    The former U.S. Customs Service chain of command had separate 
offices for Inspection and Control and Commercial Operations. With the 
move to the Department of Homeland Security and the dual mission of not 
only safeguarding our nation's borders and ports from terrorist 
attacks, but also one of regulating and facilitating international 
trade; collecting import duties; and enforcing U.S. trade laws, it may 
be time to reestablish the office of Assistant Commissioner of 
Commercial Operations within CBP. It is vitally important to put 
someone in charge of this area who has a substantive trade background.
    Now all Commercial Operations personnel report through the Office 
of Field Operations that oversees 15,000 armed, uniformed Customs and 
Border Protection Officers and a small cadre of non-uniformed entry, 
import and related trade specialists. It is clear that support and 
emphasis on CBP's trade function has diminished since creation of DHS. 
To have separate trade chain of command and reporting to Commissioner 
Basham would help correct this deficiency.

Reestablish a Meaningful Customs Presence In New York City
    Shortly, the nation will mark the 5th anniversary of the September 
11, terrorist attack on the World Trade Center. NTEU believes it is 
time for the Committee to reestablish a full Custom and Border 
Protection presence in Lower Manhattan. Since September 11, 2001, an 
overwhelming share of the work has been transferred to Newark, New 
Jersey.
    NTEU believes, however, that moving the New York area Customs and 
Border Protection operations to Newark is contrary to the spirit of the 
national response to 9/11, contrary to good business practices, and 
unfair to the dozens of CBP employees.
    Clearly, it is the intent of the Federal government to support the 
revitalization of Lower Manhattan. Customs has been located in Lower 
Manhattan for 213 years. It is tragically ironic that the greatest 
attack on the integrity of the mainland of the nation should result in 
the need of this tradition that is almost as old as the nation.
    It is our understanding that the move out of Manhattan has actually 
reduced the efficiency of the commercial operations and trade 
enforcement processes for many of those who must interact with the CBP. 
Many of the customs brokers and importers located in Manhattan have 
found it very difficult to serve their clients because they now must go 
to Newark to complete paperwork that before September 11 required just 
a subway ride or inexpensive message service to complete. Albeit, there 
may be some CBP employees formerly located in Manhattan who must do 
most of their work at the ports in Elizabeth and Newark and it is 
probably more efficient to locate these people in Newark, as they 
represent a minority of those previously in Manhattan.
    The splintering of the World Trade Center employees to the three 
locations in New York and New Jersey has been difficult to CBP 
personnel. It has been particularly difficult for those personnel who 
are New York residents now temporarily working in New Jersey. They face 
increased taxes, daycare and commuting costs.
    For all these reasons, NTEU asks CBP not to end its two centuries 
of effective presence in Manhattan.

Conclusion
    Each year, with trade and travel increasing at astounding rates, 
CBP personnel have been asked to do more work with fewer personnel, 
training and resources. The more than 15,000 CBP 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 so that they can perform their jobs better and more 
efficiently.
    In reauthorizing CBP, the Committee should endeavor to reestablish 
a productive balance between trade security and trade facilitation. The 
American public expects its borders and ports be properly defended. 
Congress must show the public that it is serious about protecting the 
homeland by fully funding CBPOs and commercial operations personnel at 
our 317 POEs. To maintain its commercial-security balance, Congress 
must ensure CBP compliance with Section 412 of the Homeland Security 
Act.
    Finally, to better understand the challenges that CBP employees 
face everyday, I urge each of you to visit the land, sea and air ports 
of entry in your home districts. Talk to the CBPOs, canine officers, 
and trade entry and import specialists there to fully comprehend the 
jobs they do and what their work lives are like. Thank you for the 
opportunity to submit this testimony to the Committee on their behalf.

                                 

    Chairman SHAW. Thank you, Ms. Kelley. Mr. Levin?
    Mr. LEVIN. Thank you very much, and thank you for your 
testimony. I think Mr. Shaw, maybe something was accomplished 
at this hearing. I do. I think some issues have been brought 
out that clearly need to be addressed. The hour is late. Let me 
just say one thing about the testimony. I do think we need to, 
as we look at these functions, determine the impact on small- 
and middle-sized businesses. We have been talking about this 
for a number of years on this Subcommittee and on the full 
Committee. I mention this because, as we look at trade 
expansion, for years one of the issues has been, how do we 
stimulate a broad array of entities that get involved in these 
efforts? This takes me back many years when--after I left the 
foreign aid agency, became involved in just that issue.
    So, I think, in addition to the discussion of 412 and other 
issues, that as we look at how these agencies function, we do 
need to figure out how our regulations and our structures can 
make it easier for the full array of businesses to participate, 
always keeping in mind the basic security functions. So, I 
would like to thank all of you, and some of your testimony has 
a lot of detail. Ms. Stocker, it will take us I think some time 
to digest all this, but we will try. As Mr. Shaw has mentioned, 
we look forward to more and more interaction between all of you 
and all of us.
    Again I want to say, I hope this hearing has lit some fire 
under the agencies. There is clearly a lack of adequate 
resources, and I think that is also true regarding our 
security. It is true as to how we respond to expanding trade 
and we make sure that it works out the way it was designed in 
terms of its outflow, but watching over the inflow to be 
certain that that inflow meets the tests and the requirements 
that we established in law. So, thank you very much for all of 
your participation.
    Chairman SHAW. Thank you. I do have a few questions. Ms. 
Kelley, you have heard one of the--I don't know where it came 
up here, or from one of the witnesses, but the talk of, I think 
it was the inspector general's report of the merger of the 
agencies, of CBP and ICE. What was your thought with regard to 
that?
    Ms. KELLEY. From the very beginning when Homeland Security 
was created by merging the 22 agencies, we had serious concerns 
about what would be fixed by doing that, and whether or not 
more problems would be caused. When it comes specifically to 
the question of CBP and ICE, what--everything we see cited is a 
communication issue, and we have not seen communication issues 
resolved by reorganization, so I think there are issues to be 
dealt with between them. We have not seen anything in working 
with all of the employees who I represent that would lean to 
the side of a merger. I think they have problems from the 
creation of the Department that still need to be addressed, 
whether it is the reorganization they are trying to do just 
within CBP on this one phase of the border initiative. This is 
an initiative that employees will tell you is not working, and 
it has to do with the merger of legacy Customs, legacy 
Agriculture and legacy Immigration employees. It is really 
diluting the expertise that these employees brought to those 
specific jobs and to the body of law that each of them is 
required to know to be able to implement to do their jobs.
    So, I guess that is a long explanation to say that I think 
the problems between CBP and ICE are communication issues, and 
they will not be solved by a reorganization. I think they need 
to focus on the structures as they exist to support the 
employees who are trying to do their frontline jobs every day, 
and move obstacles out of the way of those employees and not 
create initiatives like One Face At the Border that doesn't 
help the taxpayers and surely is an obstacle to employees doing 
the job they are trying to do.
    Chairman SHAW. You mention the Department of Agriculture. 
Mr. Vicente has a problem with that. I have long wondered why 
you have to have this many people creating that many stamps on 
that many pieces of paper. The Department of Agriculture, of 
course, performs a very important service, but it appears that 
they just kind of show up, and whenever they show up, they put 
the stamp on this thing and move on. Obviously, with some of 
these various exotic species that come into the country, we 
want to stop that; and we have to be sure to keep an eye on 
this, but it seems--it seems to me that Customs should be able 
to have a waiver in some of these regards where it is very 
obvious that the carnations you are bringing in from Colombia 
are not going to in any way jeopardize the environment here in 
the United States.
    It wasn't too long ago, back about 23, 25 years ago when I 
first came to Congress, the big problem was no refrigeration at 
the Miami Airport, and the flowers would lie on the tarmac 
sometimes; and of course with the problem of drugs coming in 
from Colombia, we had to have inspections, but we were able to 
get refrigeration at least, which certainly--certainly helped 
out. I think this is--this calls attention to the fact that 
we--I think the Congress needs to get more involved in rolling 
up its sleeves and actually listening to the folks and trying 
to put together greater efficiencies whether it be through 
mergers, whether it be through waivers or whatever it is. There 
is a lot of work that I think Congress needs to do, and they 
need to do it in a workshop setting. This setting, we talk at 
each other, not with each other, and I think we need a less 
formal setting in order to work our way through much of this.
    Mr. Crye, I have a question for you. Let's set up a 
situation where we use Port Everglades this time, where a 
cruise ship leaves Port Everglades in Fort Lauderdale, it goes 
over to the Bahamas, then it goes down to the Virgin Islands 
and then it comes back to the United States. At what point 
would you see the screening as necessary and at what points 
would it not be necessary?
    Mr. CRYE. Sir, upon departure, the people are, in fact, 
screened. There is a department manifest filed with the CBP. 
So, ostensibly, all of those people are cleared to depart--to 
travel from the United States and possibly to arrive back in 
the United States. Those people are exactly the same people who 
get off in Nassau and get back on in Nassau; they are all 
completely screened in Nassau by the ship's personnel, as well 
as possibly in the terminal, to get back on the vessel through 
biometric identification cards. We know who they are; we know 
they are the same people. So, therefore, the subsequent port 
call in St. Thomas does not seem to be a necessary face-to-face 
interview requirement. We have provided them with a notice of 
arrival as well as the manifest. They are the same people who 
departed and got cleared to go on board. Then, the next foreign 
port call, they are again screened properly. They are the same 
people who got off and got on. Then, when they arrive in the 
United States, they are again the same people who were 
screened. The electronic information is verified throughout 
that chain.
    Chairman SHAW. Let me--let me slow you down there and get a 
little explanation here. Now, when they depart in the Bahamas 
or in Nassau, we could be talking about the Bahamas, we could 
be talking about Jamaica, Haiti, Dominican Republic, any of 
those foreign entities down there, they go through whatever 
type of customs is required by those particular countries. They 
go in, they shop, they do various other things, they all get 
some kind of strange types of rum, which they finally throw out 
20 years later. then they go on and they have to be screened 
again when they get down to St. Thomas by American Customs. Is 
that a whole, full-blown procedure just as they would get when 
they return to port in Fort Lauderdale?
    Mr. CRYE. Yes, it is. With the exception it is an in-
transit port. So, the full-blown Customs examination of their 
luggage is not done because their luggage doesn't depart the 
ship. It is essentially what is an immigration interview, but 
they do the legacy Immigration check in St. Thomas.
    Chairman SHAW. Now, your position is that the screening 
that was made by the employees of the cruise line should be 
accepted by the Customs people in St. Thomas as being correct?
    Mr. CRYE. That, plus the electronic manifests, all of that 
information; they are, indeed, the same people.
    Chairman SHAW. Customs would be dependent on your employees 
to have done an adequate job?
    Mr. CRYE. They would be dependent on our employees for the 
person-to-person check, for the going through the metal 
detectors and going through the systems whereby the cards are 
validated. Yes, they would be, just as they are today.
    Chairman SHAW. We are talking about the cards. These are 
the cards the cruise line issues to the passengers that they 
use anytime when they depart or come back to the ship; is that 
correct?
    Mr. CRYE. Yes, sir.
    Chairman SHAW. It is your thought--what happens when they 
get back to Fort Lauderdale?
    Mr. CRYE. When they arrive back in Fort Lauderdale, we have 
also provided an electronic manifest that is supplemented by 
24-hour electronic manifest that, again, validates that those 
people are exactly the same people who departed the United 
States.
    Chairman SHAW. Now, under the laws--that is, today--they 
have to fill out the Customs forms, declare whatever they have 
over so many dollars, depending on wherever they have been. 
Then their luggage and all is subject to screening; I guess it 
departs the ship and is put in a particular area for them to go 
back and claim it.
    Mr. CRYE. Yes, sir.
    Chairman SHAW. Now, when this is done, they would have to 
go through some type of Customs procedure in order to turn in 
their immigration forms that they have filled out; is that 
correct?
    Mr. CRYE. That is the case, that is the case today. We also 
believe that because there is so little revenue generated from 
this particular process, that the Customs could delegate to the 
purser's office the ability to collect that money, and could 
save a certain amount of personnel and resources that are 
stationed at the port of entry to collect very little revenue.
    Chairman SHAW. Well, the money that is collected is 
primarily to defray the expense of going through the process 
that you are complaining about?
    Mr. CRYE. Yes, sir.
    Chairman SHAW. So, you are suggesting we get the money and 
not go through the process?
    Mr. CRYE. I am suggesting they could save resources by 
focusing them on higher----
    Chairman SHAW. Now, wouldn't it be fair to say, though, 
that these people should go through some type of Customs 
process with regard to making their declarations?
    Mr. CRYE. Yes, sir.
    Chairman SHAW. How could that be expedited without 
interfering with the security that we are charging the Customs 
with, protecting us?
    Mr. CRYE. The CBP would still have the ability, the 
reasons--they would still have the ability to inspect those 
people that they consider to be people that need a face-to-face 
interview, and only those people that they consider to be no 
threat or very low threat would they delegate to us the ability 
to perform some of these functions. Those people that they have 
identified as somebody they want to see, they would still have 
the resources there to see those people.
    Chairman SHAW. Sort of a watch list, somebody who tried to 
sneak something into the country before and got caught?
    Mr. CRYE. Or somebody that has an outstanding warrant or 
somebody who has a questionable name; those people can be 
singled out for physical face-to-face interviews.
    Chairman SHAW. That is an interesting concept. Thank you 
all for being with us today. We very much appreciate it. There 
are a lot of things going on here in the Capitol today, which 
the other members of this panel up here, the members of the 
Congress, are busy at; we always have to split our time between 
our various responsibilities. Your testimony will be made a 
part of the record of this meeting, and thank you, and we are 
now concluded.

    [Whereupon, at 12:24 p.m., the hearing was adjourned.]

    [Questions submitted from Members to Witnesses, and their 
responses follow.]

               Questions from Chairman Shaw to Mr. Basham

    Question: As I stated in the July 25 Ways and Means Trade 
Subcommittee hearing, it has recently come to my attention that in late 
May your agency issued a binding ruling which placed a valuation on 
human tissue and required the tissue to pass through formal entry. I 
have heard concerns that this ruling could lead to entry delays and 
endanger the success of these transplants. As such, I submit the 
following questions for your review and look forward to your response.
    It is my understanding that prior to a May 18th ruling, the 
National Marrow Program (NMDP) had never interpreted the Harmonization 
Tariff Act to apply to cord blood and bone marrow for transplant. The 
Transplants amendment Act prohibits any person to ``knowingly acquire, 
receive, or otherwise transfer any human organ specifically bone marrow 
and other human tissue for valuable consideration for use in human 
transplantation if the transfer affects interstate commerce.''
    Given this situation, why has Customs interpreted that the human 
tissue being carried by couriers does in fact have value?

    Answer: While the Transplants amendment Act prohibits the transfer 
of human organs and tissue for valuable consideration, it does not 
except such articles from the application of the Customs laws with 
regard to entry, classification and appraisement of imported goods. 
Under General Note 1 of the Harmonized Tariff Schedule of the United 
States (HTSUS), all, ``goods provided for in [the HTSUS] and imported 
into the customs territory of the United States . . . are subject to 
duty or exempt there from as prescribed in general notes 3 through 18, 
inclusive.''
    Although certain enumerated products are not subject to the 
provisions of the tariff schedule under General Note 3(e), HTSUS, human 
tissue is not among the listed products. Therefore when it is imported 
it must be entered, classified and appraised. Appraisement is made 
under the value law, 19 U.S.C. 1401a.
    Goods that are not the subject of a sales transaction are still 
subject to appraisement. In fact, the value law provides several 
alternative bases of appraisement for merchandise when there is no 
sales transaction. Using this analysis, U.S. Customs and Border 
Protection (CBP) ruled that the appraised value of the tissue should be 
determined on the basis of the fee paid by the foreign medical facility 
for the cost of the extraction procedure, which was over $200. 
According to CBP regulations, only goods imported by one person valued 
not over $200 are eligible for the informal entry procedures.
    I have also been informed that, in order to ensure timely delivery, 
NMDP utilizes trained volunteer couriers using the most time-effective 
commercial flights at all hours of the day and night, every day of the 
week. These products typically need to be delivered to the transplant 
center within 24 hours of collection and infused within 48 hours. 
Because of this ruling, these products will need to pass through formal 
entry, and it has been estimated that this process could result in up 
to 10-20% of the products not getting to the patients on time.

    Question: I have also been informed that, in order to ensure timely 
delivery, NMDP utilizes trained volunteer couriers using the most time-
effective commercial flights at all hours of the day and night, every 
day of the week. These products typically need to be delivered to the 
transplant center within 24 hours of collection and infused within 48 
hours. Because of this ruling, these products will need to pass through 
formal entry, and it has been estimated that this process could result 
in up to 10-20% of the products not getting to the patients on time.
    Is it possible to amend the existing regulatory system to exempt 
these products from the Customs entry requirements, or is a statutory 
change required?

    Answer: Given the specific and limited language of the tariff, it 
is not possible to exempt these products through existing 
administrative procedures. Therefore, a statutory change will be 
required to ensure human tissue products are not subject to the 
provisions of the tariff schedule.

    Question: If this change cannot be made administratively, can 
Customs expedite the entry of these goods to ensure the continuation of 
successful transplants?

    Answer: In order to expedite the formal entry process for these 
shipments, CBP would need specific arrival information along with entry 
information in advance of the arrival. Additionally, these shipments 
are subject to Centers of Disease Control (CDC) and Food and Drug 
Administration (FDA) screening. FDA and CBP have been working with NMDP 
to help NMDP understand how FDA-regulated imports are handled by CBP 
and FDA. Both FDA and CPB understand the critical need for these 
products to reach the recipient quickly.

    Question: It is important that personnel entering the United States 
be appropriately screened to protect our National security. However, 
many businesses, including the cruise industry, have raised concerns 
about delays caused by multiple screening of U.S. citizens on short 
cruises. What specifically can you do to ensure that screening of 
passengers is done efficiently and preserves our national security 
while reducing the delays that can harm legitimate travelers and 
businesses?

    Answer: The Advance Passenger Information System (APIS) Final Rule 
(AFR) was published on April 7, 2005 and took effect on June 6, 2005. 
The AFR was promulgated to implement the legislative requirements set 
forth by the Enhanced Border Security and Visa Entry Reform Act 
(EBSVERA) of 2002. The AFR consolidated the inbound vessel passenger 
information requirements for both CBP and the U.S. Coast Guard, 
allowing vessel carriers to meet the requirements of both agencies with 
one electronic manifest submission. This unification of requirements 
was intended to help alleviate instances of duplicative screening.
    The AFR requires all commercial carriers, regardless of size, to 
electronically transmit an advance passenger manifest to CBP at pre-
determined times. In general, commercial vessels are required to 
transmit a Notice of Arrival (NOA) and a complete APIS manifest as 
early as 96 hours, and not later than 24 hours, prior to the vessel's 
arrival at the first port (or place) within the United States. 
Commercial vessels departing from the United States are required to 
transmit a Notice of Departure (NOD) no later than fifteen minutes 
prior to departure from the United States.
    CBP uses APIS data to facilitate the entry and flow of legitimate 
travelers into and out of the United States. APIS data are screened 
against the Treasury Enforcement Communications System (TECS) 
databases, including the Terrorist Screening Center watch list.
    Immediately after the regulation took effect, CBP realized a need 
to provide an exception for the small, commercial service, charter and 
cruise boat industries that operate `short-turn' voyages within and 
around the Gulf of Mexico, Great Lakes, Southern Florida, Puget Sound 
and the U.S. Virgin Islands.
    On August 26, 2005, CBP authorized its Field Offices to exercise 
discretionary authority to waive the twenty-four-hour NOA period to 
allow this industry to electronically transmit a complete passenger and 
crew APIS message no later than sixty minutes prior to a vessel's 
departure from any foreign location. The sixty-minute time frame is the 
minimum amount of time necessary to screen passenger and crew manifests 
for high-risk travelers.
    While this exception does not fully exempt this industry from 
transmitting a full and complete manifest, it does significantly lessen 
the economic impact and burden on the industry. In order for CBP to 
fulfill its primary mission of safeguarding the American homeland at 
and beyond our Nation's borders, continuation of this requirement is 
necessary. Additionally, the APIS regulation applies only to commercial 
vessels, and 19 CFR 4.7b defines that term to include any civilian 
vessel being used to transport persons or property for hire. A private 
yacht that employs its own captain and staff is not deemed to be `for 
hire' and is therefore exempt from the APIS requirement.

    Question: In what percentage of the cargo that CBP physically 
inspects does CBP find security problems or violations of U.S. law?

    Answer: In the past few years, CBP has had a tremendous amount of 
success with partnership programs that strive to achieve high levels of 
compliance with security standards and compliance with trade laws. 
During FY 2006 through June, CBP has performed over 2.3 million 
physical cargo exams. On average, we find security problems or trade 
law violations at a rate of 1.2 percent.

    Question: What is your current estimated deadline for the full 
implementation of the Automated Commercial Environment (ACE) system? Is 
the current funding level adequate to stay on schedule?

    Answer: U.S. Customs and Border Protection continues to manage to 
the approved Acquisition Program Baseline (APB), which reflects a $3.3 
billion program that will attain full operational capability by August 
2011. The current funding level ($316.8 million as released by Congress 
on April 4, 2006, through approval of the Fiscal Year 2006 
Modernization Expenditure Plan) is enabling CBP to maintain the 
schedule set forth in the APB. Continued funding of ACE/International 
Trade Data System (ITDS) efforts (via the President's Fiscal Year 2007 
budget request of $316.8 million for ACE/ITDS) will enable CBP to 
continue maintaining the ACE/ITDS program within the APB.

    Question: While the International Trade Data System (ITDS) has been 
in development for several years, several key agencies are still not 
participating in the program. Do you think that it is important for 
this system to incorporate all the major U.S. agencies involved in 
collecting trade data, and what can be done to ensure that key agencies 
participate? Is there appropriate funding to ensure the deployment of 
the ITDS system and should centralized funding for this goal be 
authorized?

    Answer: Rather than an information technology system, the 
International Trade Data System (ITDS) is an e-Government initiative 
that provides the mechanism for coordinating interagency participation 
in the Automated Commercial Environment (ACE), the new computer system 
that is being developed by CBP. In a recent survey of the trade 
community, respondents confirmed that ITDS already includes most of the 
primary Federal agencies whose participation will facilitate 
international trade. As many as fifty-six other agencies may have an 
interest in data from border transactions or have a border regulation 
role and could be considered potential candidates for ITDS. However, 
many--if not most--of these agencies may most effectively meet their 
requirements as customers of the Census Bureau or other data agencies, 
rather than as recipients of raw data from CBP. Two formerly identified 
potential ITDS participants--the Internal Revenue Service and the 
National Oceanographic and Atmospheric Administration, National Marine 
Fisheries, Office for Law Enforcement--recently joined ITDS as 
Participating government Agencies (PGAs). The State Department's Office 
of Foreign Missions is another recent addition to the list of PGAs.
    Future ACE capabilities, including Entry Summary, Accounts, and 
Revenue (Release 5) and e-Manifests: All Modes and Cargo Release 
(Release 6) will effectively increase ITDS capabilities. Efforts of 
existing PGAs to take full operational advantage of these new ACE/ITDS 
capabilities will make even more transparent the benefits of ITDS 
participation, which should, in turn, provide an additional incentive 
for more Federal agencies to join ITDS.
    Congress most recently provided centralized funding in the amount 
of $15.8 million for ITDS integration efforts via approval of the 
Fiscal Year 2006 CBP Modernization Expenditure Plan on April 4, 2006. 
Continued support and funding by Congress for ITDS integration efforts 
has enabled CBP and the ITDS Board of Directors to add twenty-one 
Federal agencies to the original roster of eight ITDS PGAs during the 
past two and a half years, continue efforts to integrate PGA 
requirements within ACE releases, and continue developing an ITDS 
standard data set that is aligned with World Customs Organization 
standards. ITDS outreach and integration efforts have also facilitated 
efforts by PGAs to consider what Information Technology (IT) projects 
might be required to maximize the benefits of their integration with 
ACE. As CBP and the ITDS Board of Directors assist PGAs in assessing 
the scope and costs of such PGA-specific IT projects, CBP anticipates 
that PGAs will include funding requests, as appropriate, in future 
budget requests of their respective agencies.

    Question: The U.S.-China Business Council estimated that U.S. 
companies suffered $30.7 billion in financial impact between July 2002 
and March 2004 due to denials or delays in processing business visas. 
What programs or proposals is the Administration considering to improve 
the facilitation of legitimate business travel to the United States?

    Answer: The U.S. Citizenship and Immigration Services (USCIS) 
suspects that the delays referenced in this question may be primarily 
related to the Department of State's responsibility for processing visa 
applications and issuing visas for business purposes. USCIS defers to 
the Department of State for answers regarding any delays which result 
after such time as an employment-based immigrant or nonimmigrant 
petition is approved by USCIS, or for information relating to business 
visa processing (in particular, all ``B'' nonimmigrant business 
visitors) that does not involve any petition filed with USCIS. With 
regard to processing times for employment-based nonimmigrant visa 
petitions, USCIS notes that the agency has reduced the processing time 
for Form I-129, Petition for Nonimmigrant Worker, from an average 
processing time of 2.55 months in October 2003 to an average processing 
time of 1.38 months in April 2006.
    Furthermore, USCIS is in the process of expanding the availability 
of its Premium Processing Service to include additional forms (e.g. 
Form I-140, Immigrant Petition for Alien Worker) to help facilitate 
efforts by American businesses to obtain foreign labor quickly. When an 
entity pays the required fee for Premium Processing Service, USCIS will 
process the petition or application within 15 calendar days. See 8 
C.F.R. Sec. 103.2(f). The Premium Processing Service is beneficial to 
American businesses by providing these businesses with the opportunity 
to obtain faster processing of petitions and applications to meet their 
need for foreign workers.

                                 
       Question from Chairman Shaw and Mr. Pomeroy to Mr. Basham

    Question: Please provide information on the status of the economic 
analysis of the impact of the proposed Western Hemisphere Travel 
Initiative, which was recommended in the May 25, 2006 GAO report #GAO-
06-741R, including a summary of information that the economic 
assessment will include and the issues that will be addressed. 
Specifically, please provide information on whether the analysis will 
address the effect of WHTI implementation on tourism, trade, and 
commerce for border states and the United States as a whole, whether 
the analysis will address the costs and benefits of alternative 
identification cards considered or decided upon by State and DHS, and 
the specific anticipated timelines for the both the air and sea, and 
land border economic analyses--including start and completion dates. 
Please also provide these analyses when they are completed.

    Answer: The Notice of Proposed Rulemaking (NPRM) for air and sea 
was published on August 11, 2006 (71 FR 46155). As stated in this NPRM, 
the proposed effective date for the final rule is January 2007. The 
economic analysis for the NPRM that addresses the air and sea portion 
of WHTI is complete and available for public review and comment in the 
public docket for this rulemaking (USCBP-2006-0097). This analysis, 
which was reviewed by OMB and met the requirements of Executive Order 
12886 and Circular A-4 for rulemakings that have a significant economic 
impact, contained the following: an estimate of the costs for 
individuals to obtain passports to travel by air and sea in the Western 
Hemisphere; an estimate of the number of travelers that may modify 
their behavior as a result of the passport requirement; a summary of 
results from a preliminary Monte Carlo simulation designed to more 
formally test assumptions and sensitivities; a short discussion of the 
reduction in consumer surplus that is expected as a result of this 
rule; and an overview of the industries that may be indirectly affected 
by the rule. A copy of this document is provided.
    CBP is presently not able to provide specific information regarding 
the economic analysis of the WHTI land rule because this analysis--
which is being prepared pursuant to Executive Order 12866, which gives 
OMB the authority to review and approve economic analysis--is still 
ongoing and therefore not yet complete. After the analysis is drafted, 
it will be considered pre-decisional until cleared by OMB. However, 
DHS, CBP, and DOS will ensure that the economic analysis conducted for 
the land portion of WHTI will meet the requirements for economic 
analysis set forth in EO 12866 and OMB Circular A-4. The Departments 
intend to complete the rulemaking process for the land portion by the 
statutory deadline of January 2008.

                                 
                Questions from Mr. Weller to Mr. Basham

    Question: Carus Chemical Company, a small chemical producer in 
Peru, Illinois, has faced problems regarding the collection of 
antidumping duties (ADDs) imposed pursuant to the ADD order in 
Potassium Permanganate from China (Case No. A-570-001). Carus estimates 
that CBP must still collect in excess of $600,000 in duties under this 
ADD order. Despite numerous inquiries and FOIA requests, Carus still 
does not have a clear idea of the status of CBP's efforts to collect 
these duties. Please provide a full report on CBP's efforts to collect 
outstanding ADDs under the ADD order in Potassium Permanganate from 
China, including the status and expected schedule of any proceedings, 
the amounts involved, any defenses raised in opposition to collection 
efforts and any other reasons for delays in collections. (To the extent 
that CBP is precluded from identifying the parties involved, please 
describe these issues without reference to the parties.) In addition, 
please identify a CBP official who may be contacted for further 
inquiries regarding these matters.

    Answer: There are two underlying causes for the uncollected duties 
on Potassium Permanganate from China (Case No. A-570-001). The first is 
a rate fluctuation from 39.63 percent to 128.94 percent. CBP issued 
bills to collect the difference between the estimated AD duty deposited 
(39.63%) and the actual AD duty owed (128.94%) as a result of a review 
conducted by the Department of Commerce. One of the importers filed for 
bankruptcy and is no longer active. The other is a Canadian importer 
who halted operations as an importer of record, so there is little 
recourse for CBP to collect the AD duties owed. The second issue is 
importations by a new shipper. This case involves a U.S. subsidiary of 
a Chinese corporation who failed to file a Single Entry Bond (SEB) and 
who went out of business once bills were issued for the collection of 
lawfully owed AD duties. CBP has since instituted a monitoring program 
to ensure that a SEB is filed on all applicable entries.
    The importers in these cases are in sanction status and are 
therefore required to pay all estimated duties before release of future 
entries, and under review by our Counsel office. Counsel is pursuing 
further collection action, including the evaluation of litigation risks 
against the importers and any sureties.

    Question: This Committee has several times expressed concern about 
CBP's continuous entry bond policy announced in July 2004. Despite the 
clarifications to the bond policy worked out last year, CBP admits that 
the burdensome bonding requirement has not been reduced for established 
importers that can show they are not a risk for noncollections. It is 
important that the bonding requirements are fair and targeted at the 
risk. How is Customs modifying the bonding burden for legitimate U.S. 
companies that demonstrate they can pay their bills?

    Answer: CBP's continuous bond guidelines contain provisions to 
determine the appropriateness of bonding requirements as well as to 
ensure that honest importers with a good record of paying duties are 
not unfairly burdened. These provisions include an appeal process for 
companies who believe they should not be subject to the revised 
continuous bond guidelines, with particular attention given to 
companies who have a history of making timely payment of duties, taxes 
and charges and of honoring bond commitments. CBP is developing a 
process to identify low-risk importers, such as those that have a 
history of compliance with Customs laws and regulations and a 
demonstrated ability to pay financial liabilities, in order to reduce 
the burden on legitimate companies.

    Question: In response to a question regarding CBP's efforts to 
reduce the burden of its continuous entry bond policy on legitimate 
importers, Commissioner Basham said CBP is trying to develop criteria 
to identify whether companies will be in existence in 2-3 years. What 
criteria is CBP considering?

    Answer: CBP is considering a number of criteria to identify whether 
an importer will be in existence in two to 3 years, including the 
length of time the importer have been in operation, the length of time 
the importer has been importing the subject merchandise, and the 
ability of the importer to pay financial liabilities.

    Question: Separately, how does Customs identify and eliminate 
illegal activities that undermine antidumping and countervailing duty 
orders such as fraud, product misclassifications, undervaluation, and 
bogus bonds?

    Answer: CBP continually analyzes import trends and data to detect 
illegal import activity. CBP investigates allegations from the 
importing community, domestic companies and the Department of Commerce. 
Using the results of the investigations, CBP will conduct both cargo 
examinations and document review to identify goods subject to ADD/CVD. 
CBP verifies both bond data and bond sufficiency.
    CBP further monitors importations subject to AD/CVD orders in order 
to identify possible circumvention issues such as transshipment of 
products through third countries and the willful misclassification of 
product to avoid the full payment of AD duties. CBP also monitors the 
valuation of imports subject to AD/CVD orders to identify potential 
undervaluation issues. When suspicious activity is identified CBP takes 
steps such as targeted reviews and on-site audits to eliminate the 
illegal activity.
    To detect bogus bonds, single entry bonds are verified for proper 
signatory parties such as the authorizing surety. While there have been 
issues with bogus single entry bonds in the past, CBP has since changed 
its field policy to prevent the acceptance of potentially bogus single 
entry bonds.

                                 
                Questions from Mr. English to Mr. Basham

    Question: In January 2004, Congress passed the ``Emergency 
Protection for Iraqi Cultural Antiquities Act of 2004'' providing 
President Bush the authority to include Iraq as a covered nation under 
the Convention on Cultural Property Implementation Act. Nevertheless, I 
notice the most recent Customs advisory on ``Works of Art, Collector's 
Pieces, Antiques, and other Cultural Property'' (May 2006) does not 
list Iraq as a covered nation. It is also my understanding that 
Afghanistan ratified the 1970 UNESCO Convention last year with the 
clear expectation of gaining protection for their cultural artifacts. 
Yet it is also not listed among nations covered by Cultural Property 
Implementation Act.
    Why is neither of these nations listed in the Customs advisory?

    Answer: The CBP advisory ``Works of Art, Collector's Pieces, 
Antiques, and other Cultural Property (May 2006)'' is an Informed 
Compliance Publication (ICP). This ICP is produced by CBP's Office of 
Regulations and Rulings pursuant to Title VI of the North American Free 
Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), 
also known as the Customs Modernization Act. By their terms, ICP's are 
published for guidance, for informational purposes only, and do not 
replace or supplant the regulations and statutes that comprise the 
customs laws.
    Iraq and Afghanistan are not listed in the ICP because the list 
provided contains the names of countries with which the United States 
has entered into bilateral agreements concerning cultural property, not 
countries which are subject of emergency legislation. The ICP list is 
taken from 19 CFR 12.104g. No reference is made to Iraq or Afghanistan 
because no bilateral agreement exists between the United States and 
those countries. That is, there are no current bilateral agreements 
between the U.S. and Iraq or between the U.S. and Afghanistan imposing 
import restrictions on cultural property from these countries pursuant 
to the Convention on Cultural Property at 19 U.S.C. 2601 et seq. 
Therefore, neither country is listed at 19 CFR 12.104g, or in the 
``Works of Art, Collector's Pieces, Antiques, and other Cultural 
Property (May 2006)'' ICP. However, the State Department has informed 
CBP that a bilateral agreement is currently being negotiated with Iraq. 
Therefore, Iraq will be included in 19 CFR 12.104g when the Department 
of State notifies CBP to amend the regulations. Although Afghanistan is 
a signatory to the 1970 UNESCO Convention, Afghanistan has not 
requested, pursuant to the Convention of Cultural Property (19 U.S.C. 
2601 et seq.) to enter into a bilateral agreement imposing import 
restrictions on its cultural property. As such 19 CFR 12.104g is 
accurate.
    We note that while the cultural property of Iraq and Afghanistan 
are not included at 19 CFR 12.104g, the importation of stolen cultural 
property from Iraq is covered by the National Stolen Property Act which 
is enforced by DHS and laws enforced by the Office of Foreign Assets 
Control.

    Question: What is the process within the administration for 
initiating a request for the President to exercise his authority under 
section 304 of the Convention on Cultural Property Implementation Act?

    Answer: Generally, a State Party may seek action concerning 
cultural property by making a request to the Secretary of State. The 
State Department can provide further information on the process for 
determining the particular cultural property on which import 
restrictions may be imposed.

                                 
                 Questions from Mr. Foley to Mr. Basham

    Question: Following the two recent decisions in the Court of 
International Trade against the Continued Dumping and Subsidy Offset 
Act (CDSOA), or Byrd Amendment-particularly the decision that the Byrd 
amendment is unconstitutional because it is a governmental restriction 
on free speech-does CBP plan to suspend all future disbursements 
pending court appeals, and what happens to the money sitting in special 
accounts?

    Answer: CBP intends to withhold, pending resolution of any appeals, 
distribution of all funds derived from goods involving NAFTA countries 
based on the Court of International Trade's declaration that all such 
distributions are illegal. CBP anticipates that any such undistributed 
funds will remain in the special accounts pending resolution of any 
appeals.

    Question: If CBP plans to continue disbursements, please provide 
the rationale for this decision. In addition, the Committee has raised 
several oversight questions regarding the program. You may recall, the 
GAO issued a report last September on the operation of the CDSOA, and 
the report made several recommendations. To follow up on those 
recommendations, please provide the status and substance of:
    Draft regulations that were supposed to be finished in June
    The audit of one company that was overpaid $22 million and the 
ruling on the case by CBP's Office of Regulations and Rulings
    CBP's verifications of recipients: When can the Committee expect to 
see the results of those verifications?

    Answer: Following GAO's audit of the program, CBP began the process 
of considering amendments to the regulations for the administration of 
the CDSOA. When the CDSOA was repealed earlier in the year, CBP 
initially anticipated that the amendments to the regulations could be 
unnecessary. Upon further consideration, however, it has been 
determined that, despite the statutory termination of the program, 
amendments to the regulations would facilitate winding down of the 
program until all disbursements are made of duties which were assessed 
and collected in accordance with the effective date provisions of the 
statute. Unless it is determined that the court decisions on the 
constitutionality of the program militate against proceeding with 
regulations, CBP has preliminary draft of regulations in review since 
the beginning of October. The regulations, recommended by the GAO, will 
provide for electronic filing to facilitate verification and will 
provide for a standard format, which will facilitate comparison of 
data.
    The audit was completed and an audit report was issued June 2005. 
The audit report indicated that preliminarily it appeared that the 
company had overstated its qualifying expenditures on the 2003 and 2004 
CDSOA certifications. However, a final determination of the issue 
required further legal analysis by CBP. The audit report stated that, 
upon resolution of the legal issues, CBP would finalize the 
determination of the qualifying expenditures for 2003 and 2004 and 
report the amounts of overpaid. It is CBP's understanding that analysis 
of the legal issues is being finalized and, the final results will be 
issued within sixty days of receiving the written decision.
    CBP has established a Verification Pilot Program for verifying 
CDSOA disbursements. CBP notified 20 FY2005 claimants of the agency's 
intent to conduct verifications and to request pertinent cost 
allocation information. CBP has received and reviewed information from 
all twenty selected claimants, and began site visits on July 31, 2006.
    CBP expects to complete the limited number of pilot site visits 
(six or eight) prior to September 30, 2006, and to summarize results by 
December 31, 2006.

                                 
               Question from Mr. McDermott to Mr. Basham

    Question: Please provide a list of your offices responsible for 
responding to business complaints regarding CBP's trade-related 
activities, including a description of the offices' responsibilities 
and a description of how a business that wishes to raise a trade-
related complaint with CBP should proceed. Please also describe which 
official in CBP is responsible for advocating on behalf of CBP's trade 
facilitation and enforcement roles so as to ensure that the agency's 
trade mission receives appropriate attention and 
resources, even while CBP pursues its other mission of protecting the 
nation's security.

    Answer: Customs and Border Protection's Office of Trade Relations 
(OTR) functions as liaison between the international trade community 
and CBP officials. Its role includes trade policy development and 
communication as well as problem resolution. The OTR serves as an 
impartial point of contact for the trade community for issues that 
could not be resolved at the local or national level. The Office of 
Trade Relations conducts independent reviews of complaints raised by 
the trade community and works with Headquarters and/or local CBP 
management to resolve legitimate concerns. The Director of the OTR is 
also the agency's designated Regulatory Fairness Representative for the 
Small Business Regulatory Enforcement Fairness Act (SBREFA).
    The Executive Director, Trade Enforcement and Facilitation (TEF), 
under the direction of the Assistant Commissioner, Office of Field 
Operations (OFO), has oversight of the U.S. Customs and Border 
Protection trade mission and CBP policies and procedures to ensure 
compliance with trade-related laws and regulations.
    TEF is also responsible for responding to trade related complaints 
raised by the international business community are reviewed and 
responded to in a timely manner. A business with a trade-related 
complaint should first approach local CBP management for resolution. If 
not satisfied or the problem is not local in nature, the issue can be 
raised to headquarters level through the Office of Field Operations, 
Customer Satisfaction Unit (CSU), the CBP office and/or branch with 
oversight responsibility, or with the Office of Trade Relations.
    The CBP Ports of Entry and Field Operations Offices (there are 
twenty Field Operations Offices in the United States that provide 
centralized management oversight and operational assistance to 317 U.S. 
ports of entry and fourteen pre-clearance offices), respond to concerns 
raised by the trade community in accordance with Customs Directive 
3830-001A: Customer Satisfaction Unit (CSU) and Centralized Complaint/
Compliment Processing. The CSU, established within OFO Headquarters 
(HQ), is responsible for monitoring complaints received by CBP. It also 
coordinates with the appropriate CBP HQ and field offices to ensure 
that they are reviewed in a timely manner with responses that 
appropriately address the concerns expressed by the complainant.
    Contact information for the ports of entry, Field Operations 
Offices and Headquarters are on the CBP Web site, www.cbp.gov. The 
address for the Customer Satisfaction Unit is, U.S. Customs and Border 
Protection FOIA/CSU Room 5.5C, 1300 Pennsylvania Ave., N.W., 
Washington, D.C. 20229. The Office of Trade Relations can be reached at 
202-344-1440 or [email protected] The CBP website also provides a 
ready resource for answering a variety of questions and concerns and 
provides up-to-date information on CBP trade programs and initiatives.

                                 
                Question from Mr. Larson to Mr. Bashamm

    Question: Please provide your views on all of the recommendations 
contained in the Department of Homeland Security Inspector General's 
report that recommended the merger of CBP and ICE, including what 
actions you intend to take on the report's recommendations and 
timelines for those actions.

    Answer: On April 24, 2006, the Department of Homeland Security 
(DHS) submitted a response to the Inspector General's report titled 
``An Assessment of the Proposal to Merge CBP and ICE. '' ICE and CBP 
worked closely together with the Department in developing this 
response, in which DHS (and ICE and CBP) concurred or concurred in part 
or concept with all of the IG's non-merger based recommendations for 
the DHS Second Stage Review implementation.
    Taking into account the IG's recommendations, Assistant Secretary 
Julie Myers and Acting Commissioner Deborah Spero on May 10, 2006, 
issued a memorandum that outlined existing referral guidance agreements 
between CBP and ICE. It also provided important guidance to the field 
and HQ components regarding currency and monetary instruments, illegal 
drug apprehensions and seizures, commercial importation and exportation 
violations, national security matters, gangs, and other important 
current issues. As the integral enforcement relationship between ICE 
and CBP continues to expand, ICE and CBP field personnel were 
encouraged to find every feasible opportunity at the local level to 
promote broader cooperation, coordinate efforts on case referrals, and 
jointly resolve, at the field level, issues as they arise, elevating 
issues only as necessary.
    Furthermore, on December 8, 2005, the Director of ICE's Office of 
Investigations and the Director of CBP's Office of Field Operations 
issued a joint memorandum that establishes regular meetings of senior 
Headquarters executives from CBP and ICE to discuss issues of 
significance between the agencies. Moreover, the memorandum provides a 
mechanism for ``Working Group'' members (comprised of Headquarters and 
field executives) to study, discuss, and resolve large-scale issues and 
make joint recommendations to senior agency executives. Finally, the 
memorandum has further encouraged field managers to discuss and resolve 
issues related to coordination and communication.
    These efforts and many others attest to the strong and mutually 
beneficial working relationship that currently exists between ICE and 
CBP. ICE and CBP are committed to carrying out the IG's recommendations 
and continuing this successful and cooperative partnership.
    Please refer to attached document for detailed explanation of the 
Department's views on the Inspector General report, ``An Assessment of 
the Proposal to Merge CBP and ICE.''

                                 
         Question from Mr. Tanner and Mr. Levin to Mr. Bashamm

    Question: Please provide an explanation of why DHS is not in 
compliance with section 412(b) of Homeland Security Act requiring that 
customs revenue functions and staffing not be diminished. In addition, 
please provide a detailed description of the staffing numbers related 
to this issue and plans and timelines for addressing any deficiencies.

    Answer: CBP will carefully monitor future retirements and attrition 
to ensure compliance with section 412(b). Although CBP has new hires in 
the ``pipeline'' for many positions, we recognize that this is not 
enough. CBP will aggressively recruit and hire additional personnel to 
return us to the baseline staffing levels established by section 412 by 
the end of the year. The table below details the current status of 
revenue function staffing.


                                       Baseline-- March    Current-- July     ``Pipeline''-- New
          Revenue Function            FY 2003  Staff On-   FY 2006  Staff    Hires  Selected and    Future Hires
                                             board            On-board            In Process           Needed

Import Specialists                    984                 897               40                     47
Customs Auditor                       364                 349               10                      5
International Trade Specialist         74                  59                7                      8


    Performing our trade mission requires the skills of employees in 
many positions. While staffing of specific positions and hiring more 
people may have been an effective way of ensuring that CBP's trade 
mission was met in the past, technological advances and improved 
methods are other factors that must be considered in the future. With 
the growing volume of trade, the personnel, strategies, and technology 
for ensuring trade compliance and facilitation must also grow and 
change. Personnel, such as national account managers and regulatory 
auditors, play an increasingly important role in addressing compliance 
and facilitation at the company level rather than focusing on 
individual shipments as has been our historical approach. In addition, 
technological advances under ACE provide efficiencies that enable the 
redirection of human resources to other functions. Once we return to 
the baseline staffing levels established by section 412 by the end of 
the year, CBP would like to begin a dialog about how changes to our 
infrastructure affect staffing.
    CBP will be compliant with section 412(b) by December 31, 2006. 
Current Import Specialist staffing numbers as of July 2006 are 897. In 
order to be compliant with section 412(b), CBP must maintain a staffing 
level of 984 Import Specialists. This leaves eighty-seven positions to 
be filled by year's end. As of July 8, 2006, twenty-nine applicants are 
pending Background Investigations and eleven applicants have accepted 
positions and are waiting start dates. CBP is actively recruiting to 
fill the remaining forty-seven positions.

                                 
                Question from Mr. Reynolds to Mr. Basham

    Question: For trade agreements to deliver their promised benefits, 
there must be a strong commitment on the part of the Administration to 
ensure that they are strictly enforced. One area of potential abuse 
concerns the transshipment of goods from countries with which we do not 
have trade agreements through countries which have been given 
preferential import treatment, in violation of the stringent rules of 
origin that the U.S. typically negotiates. This very issue was most 
recently brought to my attention by western New York's dairy producers, 
who have concerns about the potential transshipment of dairy products 
through Peru under the proposed trade agreement with that country. 
There have been reports that the number of import specialists at 
Customs has declined significantly since the agency was shifted into 
the Department of Homeland Security, despite an increase in the overall 
volume of trade since that time.
    If those reports are true, how will Customs be able to more closely 
and regularly monitor imports from our FTA partners in order to ensure 
that violations of the rules of origin, including transshipment of 
finished goods and the shipment of products using foreign ingredients 
originating outside the FTA, are not taking place?

    Answer: CBP has uncovered a number of fraudulent schemes designed 
to take advantage of preferential import treatment when in fact, they 
are not eligible to do so. To combat this enforcement challenge, CBP 
regularly monitors import data and analyzes shifts in patterns that may 
indicate a violation of the Free Trade Agreement (FTA) requirements. 
Once targets are identified, CBP has a variety of means to verify the 
eligibility of the FTA claims, such as Import Specialist review, 
audits, laboratory analysis, and foreign factory visits for textile 
products.
    Each FTA provides for strong cooperation between the bilateral 
partners for fighting illegal transshipment and enforcing FTA 
provisions and under each of the FTA requirements, there are separate 
sections governing the imports of textiles using the duty free 
preferences.
    Within Customs and Border Protection we have several means of 
verifying the claims made under the free trade agreements. One 
effective FTA tool, for example, provides for the deployment of the 
Textile Production Verification Teams to high-risk factory locations 
located in the foreign country. These teams ensure that the goods 
produced in the foreign factory facility and imported into the United 
States meet not only the requirements of the FTA, but that the country 
of origin is correct. Each year, CBP visits approximately twelve to 
thirteen countries for this purpose.
    In addition, Import Specialists are responsible for verifying the 
veracity of preferential claims made under our free trade agreements. 
Import Specialists receive a yearly Trade Agreement Sub Plan, mandating 
the verification of specific numbers of free trade agreement (FTA) 
claims. Verifications for claims made under the pending Peru FTA will 
be mandated. By using risk assessment, Import Specialists are 
instructed to focus their resources on claims possessing the highest 
risk.
    The CBP Regulatory Audit Division, with participation from the 
Office of Field Operations, also conducts Quick Response Audits (QRAs) 
to investigate transshipment allegations brought to our attention by 
U.S. industry groups.

                                 
                Question from Mr. Herger to Mr. Bashamm

    Question: Both the House and Senate recently passed amendments to 
the FY 2007 Homeland Security Appropriations bill that would prevent 
funding for U.S. Customs and Border Protection to carry out its mission 
and halt shipments of imported prescription drugs from other countries 
that comply with certain requirements of the Federal Food, Drug, and 
Cosmetic Act. Specifically, an amendment in the Senate would limit 
imported prescription drugs to those that originate from Canada. A 
similar amendment in the House contains no country-specific 
restrictions, and would allow importation from any country.
    There are a number of issues presented by prescription drugs 
imported from other countries. First, it is virtually impossible to 
tell merely by looking at a prescription bottle whether the product 
meets all U.S. requirements. Second, prescription drugs imported from a 
particular country, such as Canada, may not in fact originate in that 
country. This difficulty was highlighted in a recent editorial in the 
Washington Times. Although the editorial specifically criticized the 
Senate amendment, it noted the startling findings of a 2003 federal 
crackdown on illegal drug imports, in which 85 percent of drug 
shipments headed to the U.S. and claiming to be from Canada were in 
fact from other countries, including Iran, China and Ecuador. A full 30 
percent of the drugs were counterfeit.
    In your view, what impact would these amendments have on the 
ability of Customs and Border Protection to fulfill its mission of 
protecting the American public from potentially unsafe and counterfeit 
medicines? If either amendment were included in the final Homeland 
Security Appropriations bill, what impact would this have on the 
potential for U.S. citizens to become exposed to other more dangerous 
substances?

    Answer: CBP has conducted ``Operation Safeguard'' enforcement 
blitzes at all international mail branches (IMB's) and at two express 
courier facilities. These enforcement efforts are designed to identify 
the type, volume, and quality of such shipments. During Operation 
Safeguard, CBP laboratory analysis was unable to identify the 
appropriate active ingredient in approximately 9 percent of the sampled 
drugs. Similarly, during a recent measurement exercise, approximately 
10.5 percent of the drugs that CBP performed laboratory analysis on 
were identified to be counterfeit or contained wrong, additional or no 
active ingredients.
    The Food and Drug Administration (FDA) is the Federal agency 
responsible for determining whether non-controlled prescription drugs 
comply with the Food, Drug and Cosmetic Act (``The Act''). For those 
drugs covered by either amendment, CBP would be precluded from 
assisting the FDA in enforcing The Act and in protecting the health and 
safety of American consumers from potentially unsafe and counterfeit 
medicines.

                                 
                Questions from Mr. Tanner to Mr. Bashamm

    Question: The Customs-Trade Partnership Against Terrorism (C-TPAT) 
guidelines for air carriers currently include customers in the 
definition of ``business partners.'' Please explain why CBP considers 
customers a business partner of an air carrier and also explain what 
kind of ``screening and selection'' of customers CBP expects from air 
carriers. What impact does CBP think this requirement would have on the 
air cargo and express industries?

    Answer: Throughout the C-TPAT program, all member carriers (sea, 
highway, air, rail) are required to have knowledge of the company 
contracting for the shipment of their cargo from foreign into the 
United States. Known business partners may pose less of a security risk 
than new or unknown partners. Ultimately the carrier has the 
responsibility for all cargo carried on their conveyance, and the C-
TPAT program is designed to enhance the security of the supply chain 
through greater knowledge of the business partners, and the adoption of 
strong security practices. These business partner guidelines for the C-
TPAT program are very similar to the Known Shipper requirements of the 
TSA as applied to air carriers and indirect air carriers. CBP does not 
believe that requiring an air carrier to have some knowledge of the 
customer who has contracted to ship goods via the air carrier would 
have negative impact on the air cargo and express industries.

    Question: The Mod Act 1994 raised statutory limits for informal 
entries to $2500. Why has CBP not increased the informal entry limit to 
$2500 as authorized by statute?

    Answer: The final rule published in April 3,1998 (TD 98-28, 63 FR 
16414) set the informal entry limit to the intermediate level of $2,000 
rather than the statutory ceiling of $2,500. It was determined that 
this created the best balance with respect to revenue and statistical 
information collection while expanding the public's opportunity to use 
the less burdensome informal entry procedures. CBP has not identified a 
financial or operational need to raise the value to $2,500.

    Question: The Mod Act 1994 established a new minimum level of $200 
for administrative exemptions. Why has CBP not increased the value of 
this administrative exemption?

    Answer: The regulatory limit for this administrative exemption from 
duty and taxes is currently $200 as established by Title 19, Code of 
Federal Regulations, Part 10.151. These changes were effective as of 
July 28, 1994. CBP has not identified a financial or operational need 
to raise the value of this exemption.

    Question: What is CBP doing to solidify the requirements for the 
remaining modules and functions of Automated Commercial Environment 
(ACE) and to provide sufficient advance notice to the trade community 
for development and implementation of ACE?

    Answer: CBP Office of Field Operations (OFO) provides operational 
guidance to ensure that ACE is built to meet CBP's enforcement needs, 
policies, and procedures while remaining within the legal parameters 
set by statute and regulation.
    The Software Development Lifecycle (SDLC) provides an overall 
framework for ACE development and the requirements definition process 
that is a cornerstone of this development effort. Key SLDC milestones 
relating specifically to requirements definition include the Project 
Initiation Review and Authorization/Project Definition Completion 
Review, which ensures that user and functional requirements are 
defined, and the Critical Design Review, which ensures compatibility 
between defined requirements and completed design.
    Supporting the SDLC requirements definition process are extensive 
efforts to elicit input on ACE requirements from stakeholders across 
CBP, International Trade Data System (ITDS) Participating government 
Agencies (PGAs), and the trade community. CBP Field Advisory Boards, 
comprised of personnel from various CBP operating disciplines, provide 
input on planned ACE capabilities. Advisory Board members are 
operational personnel working in ports and represent the CBP 
constituency who will actually be using our new system. Their ``real 
world'' input is critical to ACE's design and development. Requirements 
from fifty ITDS PGAs are also being integrated into future ACE releases 
via ITDS efforts.
    The Trade Support Network (TSN), jointly hosted by OFO and OIT 
(Office of Information & Technology), is also an invaluable source of 
trade community input on ACE capabilities. Established in 1994 to 
provide an informal forum for the discussion of commercial system 
redesign efforts, the TSN now includes more than 280 active members 
representing 190 companies or organizations that span the entire 
breadth of the trade community, including trade associations, 
importers, brokers, carriers, and sureties. TSN subcommittees 
(including Subcommittees on account management, entry, revenue, multi-
modal manifest, ITDS, ``transition,'' legal and policy, exports, and 
supply chain security) provide input on user and functional ACE 
requirements. To date, the trade community has developed 
recommendations on more than 100 ACE requirements. Moreover, thirty 
members of the TSN have been designated ``Trade Ambassadors'' who spend 
up to forty hours per month (at individual company expense) in the 
Washington, DC area, working side-by-side with CBP personnel on the 
design of ACE.
    The TSN provides a foundation for informing the trade community 
about the status of ACE and plans for forthcoming releases. Toward this 
end, the TSN meets two to three times per year to discuss the latest 
status of ACE development efforts with CBP leadership. Trade 
Ambassadors and the chairs of the aforementioned TSN Subcommittees 
constitute the Trade Support Network Leadership Council (TLC), which 
convenes telephonically on a monthly basis and provides leadership and 
guidance for TSN efforts.
    CBP is also engaging the trade community through outreach efforts 
that encourage the formation of ACE accounts, the use of ACE Periodic 
Monthly Statement capabilities, and the submission of ACE electronic 
truck manifests. For example, CBP conducted the first ACE Exchange 
Conference on August 15--17, 2006, providing four hundred conference 
participants--including importers, brokers, and carriers--with 
information on new legal and regulatory requirements that will be 
implemented with ACE. The ACE Exchange also provided participants with 
information on: ACE benefits; how ACE will affect business operations; 
and how to apply for an ACE account. Due to the strong trade community 
response to this event, CBP is planning a second ACE Exchange 
Conference in Tucson, Arizona between October 31 and November 02, 2006. 
Additional, ongoing outreach efforts to help carriers prepare for the 
forthcoming requirement to file e-Manifests include mailings to 
northern and southern border carriers, attending appropriate trade 
shows, conducting local outreach seminars, and participating in local 
media interviews.
    In addition to the CBP Field Advisory Boards and the CBP Trade 
Support Network, CBP personnel participate in various industry forums 
at which the ACE initiative is part of the agenda. These forums include 
the Association of American Railroads ``Rail--Customs EDI Task Force,'' 
the Air Transport Association ``Air Manifest Users Group,'' a weekly 
telcon hosted by the American Trucking Associations, the ``TOPAS'' 
(Terminal Operators and Port Authorities) meetings and multi-modal 
carrier forum CESAC (Customs Electronic Systems Action Council).
    To further ensure development of thorough requirements, CBP is 
``decomposing'' the program logic of the Automated Commercial System to 
identify the twenty (20) years of business rules and operational 
requirements contained the ACS programs that will serve as the baseline 
upon which new functionality will be created for Entry Summary, 
Accounts, and Revenue (ESAR) (see Release 5) and e-Manifest: All Modes 
and Cargo Release (see Release 6) capabilities. The decomposition 
process promotes CBP's ability to transition forward into the ACE 
environment, key operational and business process requirements from the 
existing systems, as new functionality is incorporated and the core CBP 
automated commercial processes are transformed under the ACE 
initiative.

    Question: The statutory provisions for reimbursement for Customs 
services at express consignment facilities was revised and simplified, 
effective October 2002. Has CBP done an analysis and accounting of 
Customs services provided at express consignment facilities subject to 
these fees? Please comment on the current status of the costs to 
provide Customs services at these facilities and to collect these 
reimbursable fees.

    Answer: CBP has conducted a financial analysis of the costs 
incurred by CBP in providing services to express consignment facilities 
and centralized hub facilities in Fiscal Years (FY) 2004, 2005, and 
2006. The collection/cost data reveals that at the close of FY 2004, 
the half of the 58c(b)(9)(A)(ii) payment intended to defray the cost of 
services to express consignment and centralized hub facilities left the 
agency with a deficit with the agency collecting only 78% of the moneys 
expended to provide those services. In FY 2005, CBP collected only 70% 
of these costs. In FY 2006, CBP collected only 59% of these costs. 
Projections for FY 2007 indicate that the deficit will increase again 
due to the fact that certain CBP expenses, such as reimbursable wages 
for CBP employees at these sites, will increase.
    In FY 2006, CBP incurred a per bill cost of $0.55. If the payment 
is raised to $1.00, as proposed, CBP will collect $0.50 per bill (the 
other $0.50 to be deposited with the Secretary of the Treasury in lieu 
of the informal entry Merchandise Processing Fee).
    Based on these figures, and subject to the monetary limits set by 
law, CBP proposes raising the $0.66 payment to $1.00 so that the half 
of the payment associated with providing services to express 
consignment and centralized hub facilities is more closely aligned with 
the actual costs incurred by CBP. The other half of the payment, 
collected in lieu of the MPF, is set by statute at equal to the payment 
for providing services to express consignment and centralized hub 
facilities.
    This NPRM is the first proposed adjustment since the law was 
enacted. Therefore, if the NPRM becomes final the law will need to be 
revised to enable CBP to adjust the fee to recover actual costs in 
future years. CBP recommends that the ``--not more than $1.00--'' 
language be removed without establishing a new ``not more than'' 
maximum. By revising the statute without a ceiling, the continuous need 
for new legislation each time the level is met will be eliminated.
    The growth of the industry and their desire to establish additional 
hubs and facilities will continue to cause CBP's reimbursement to be 
less than actual costs. The CBP Regulatory Audit Division has conducted 
audits of three express consignment operators during FY06 with 
additional ones scheduled for FY07.

                                 
                 Questions from Mr. Levin to Mr. Basham

    Question: Please describe whether the economic impact analysis 
conducted by DHS and the State Department on the Western Hemisphere 
Travel Initiative will go beyond the simple implementation costs of the 
proposed PASS Cards and include a comprehensive analysis of the broader 
economic impact on tourism and trade, and if not, an explanation of why 
not. Also, please provide information on whether DHS and State will 
conduct an economic analysis of other proposals for satisfying WHTI, 
other than the PASS Card proposal, and if not, an explanation of why 
not.

    Answer: For the land rule, DHS, CBP, and DOS will adhere to the 
requirements for economic analysis set forth in EO 12866 and OMB 
Circular A-4. We have completed our economic assessment for the air and 
sea rule and are now accepting public comment as part of the proposed 
rule.

    Question: What steps is CBP taking to evaluate and minimize the 
impact of its regulations and new programs on small- and medium-sized 
businesses, including, but not limited to, participation in C-TPAT and 
the potential outsourcing of verification procedures within that 
program?

    Answer: As a voluntary, not regulatory, program, the C-TPAT 
initiative is designed to enhance supply chain security through the 
adoption of stronger security practices. The program follows a flexible 
model, allowing for the customization of security practices based on 
the business model and size of the member. C-TPAT does not mandate 
specific security equipment, but rather allows the member to implement 
various types of procedures aimed at addressing any security 
weaknesses. At present, CBP conducts all C-TPAT validations with CBP 
personnel, at no cost to the C-TPAT member. Should CBP move to allow 
validations to be performed by outside contractors, the financial 
impact on the C-TPAT member would need to be analyzed. No decision has 
been made at this time as to whether or not C-TPAT validations may be 
contracted out at a later date.

                                 
   DHS Response to OIG Recommendations from the report entitled ``An 
           Assessment of the Proposal to Merge CBP and ICE''

    We appreciate the Office of the Inspector General's (OIG) 
recommendations to improve coordination between CBP and ICE. The 
Department has carefully studied these recommendations. As a general 
matter, they are consistent with the Secretary's vision for the 
Department and with steps that he has implemented over the past year. 
To that end, we concur with the recommendations, although, in certain 
instances we have taken alternative corrective actions that we believe 
would more effectively address the issues raised in the OIG Report. 
Below are our specific responses to the OIG's 14 recommendations.
    OIG Recommendation 1: Establish that the Under Secretary for Policy 
and the Director of Operations Coordination have authority over CBP and 
ICE with respect to policy and operational coordination. These offices' 
purview must be re-enforced by the Secretary and Deputy Secretary's 
actions. Accordingly, it will be essential for the Secretary and Deputy 
Secretary to channel related discussions and decisions with CBP and ICE 
through these offices.

DHS Response: Concur in part. Completed.
    After conducting a Second Stage Review of the department, the 
Secretary announced and implemented organizational changes in order to 
enhance the coordination of policy, operations, and intelligence across 
the DHS spectrum. These changes resulted in the creation of a 
department-wide Office of Policy, Office of Operations Coordination and 
Office of Intelligence and Analysis. This new organizational structure 
became effective in November 2005. Although they do not have direct 
authority over ICE and CBP, which are now direct reports to the 
Secretary, these offices have been charged with utilizing the tools of 
all of DHS's components to address the Department's critical homeland 
security mission. Indeed, these new offices interface on a daily basis 
with their counterparts in CBP and ICE, among other DHS component 
agencies.
    Thus, for example, the Office of Policy consults closely with ICE, 
CBP, and CIS, in developing legislative and regulatory immigration and 
border security-related proposals. During weekly Security Border 
Initiative (SBI) meetings with the Secretary, the Assistant Secretary 
for Policy, the heads of ICE, CBP, and CIS, the General Counsel, the 
Chief Intelligence Officers, and the Director of Operations 
Coordination, among others, regularly review a range of immigration-
related policy matters. This coordinated effort has vastly improved the 
Department's ability to develop strong regulatory and legislative 
proposals.
    Similarly, the Office of Policy has established an Immigration War 
Room, with participants from CBP, CIS, ICE, the General Counsel, and 
the Office of Legislative Affairs, to review closely and respond to 
legislative proposals moving through Congress. Other similar efforts 
are coordinated through the Office of Policy.
    As stated earlier, complementing these changes and following the 
Secretary's Second Stage Review, CBP and ICE became direct reports to 
the Secretary, a streamlined management approach that increases 
accountability, while eliminating layers of bureaucracy. Direct 
responsibility is thus placed on the agencies to better coordinate and 
cooperate in developing and implementing operational efforts. To 
complement and solidify the effectiveness of this structure, CBP and 
ICE, under the Secretary's direction, created the ICE-CBP Coordination 
Council. The Council meets regularly to proactively consider and 
address issues to better coordinate and resolve operational and policy 
matters and to monitor implementation of Memoranda of Understanding, 
among other things. The Council reports to the Secretary on outstanding 
issues, resolutions, and disagreements that require further direction 
or de-confliction. The Council also interacts closely with the 
Assistant Secretary for Policy, the Director of Operations Coordination 
and the Chief Intelligence Officer. Co-chaired by the leaders of both 
agencies, and including the heads of the main operational divisions of 
ICE and CBP, Council Members include:

------------------------------------------------------------------------
                      CBP                                  ICE
------------------------------------------------------------------------
Acting Commissioner                             Assistant Secretary
Assistant Commissioner, Office of Field Ops     Deputy Assistant
                                                 Secretary
Chief, Office of Border Patrol                  Director, Office of
                                                 Investigations
Director, Office of Anti-Terrorism              Director, Office of
                                                 Detention and Removal
Director, Office of Policy and Planning         Senior Policy Advisor
------------------------------------------------------------------------

    OIG Recommendation 2: Develop a vision of how ICE and CBP are to 
work together and contribute to the overall DHS mission. Consistent 
with this vision, the Operations Coordination Office and Under 
Secretary for Policy should work with CBP and ICE to define and set 
their respective roles and responsibilities. At minimum, clarification 
needs to be provided in the following areas:

      ICE's role at POEs and the establishment of its 
jurisdictional authorities in consideration of CBP authorities.
      CBP's role in referring case leads to ICE; ICE's role in 
responding to case referrals from CBP.
      ICE DRO's transportation and CBP support roles.
DHS Response: Concur in part. Completed.
    We concur with the need to more effectively implement the 
Secretary's vision for ICE and CBP cooperation toward the overall 
mission of the Department. The Department has made a number of 
significant improvements to enhance this coordination so that we are 
achieving measurable border security and interior enforcement-related 
results.

1. Secure Border Initiative (SBI)
    Chief among the changes instituted by the Secretary was the stand-
up of the Secure Border Initiative (SBI), a collective effort to 
improve department-wide coordination in the apprehension, detention and 
removal areas.
    Under the Secretary's guidance, an SBI Program Executive Office 
situated within the DHS Office of Policy, is actively working across 
the components to address our challenges, with an integrated mix of 
increased staffing, more robust interior enforcement, greater 
investment in detection technology and infrastructure, and enhanced 
coordination on Federal, State, local, tribal and international levels. 
Indeed, the SBI Program Executive Office brings together ICE, CBP, 
Budget, and Management regularly to align resources. And the Secretary 
sits down with the leadership of these components each and every week 
to monitor improvements closely, launch new initiatives, ensure that we 
are measuring results, and readjust and realign resources accordingly.
    Taking a comprehensive approach to immigration enforcement, the 
Secretary is providing the vision necessary to ensure a transformation 
of how CBP, ICE, and the Department at large conduct the critical 
border security mission. With an emphasis on national security and 
public safety, this vision, and SBI generally, focuses broadly on two 
major enforcement themes: (1) border control; and (2) interior 
enforcement. Strategies have been developed to ensure that all 
enforcement efforts--and proper CBP and ICE resources--are prioritized 
efficiently.
    Using an integrated systems approach, The entire immigration 
enforcement system is constantly being reviewed, beginning with the 
gathering of immigration-specific intelligence and the detection of 
illegal border crossings; followed by apprehension, processing, 
transportation, and detention of the alien; and ending with the alien's 
removal from the United States. This systematic approach deploys all of 
these tools in stages, allowing each stage to build on the success of 
earlier stages.

2. Border Enforcement and Security Task Forces
    Since the issuance of the OIG report, DHS has established Border 
Enforcement Security Task Forces (BESTs) along the Southwest 
border.These DHS-led task forces are comprised of ICE, CBP, the DHS 
Office of Intelligence and Analysis, other Federal, State, and local 
entities, as well as representatives from the government of Mexico in 
appropriate locations. The goal of the BESTs is to improve border 
security through the creation of an environment that fosters 
cooperation and collaboration. A BEST in Laredo, Texas has been 
operational for several months now and is a model for widespread 
cooperation and efficacy. It has already improved DHS's effectiveness 
against criminal activity. The next BEST is being stood up in Arizona. 
Planning is underway for future task forces.
    The BESTs are charged with sharing information, developing priority 
targets, and executing coordinated law enforcement operations designed 
to enhance border security and interior enforcement efforts. BESTs 
ensure that resources are appropriately focused and expended to 
identify and prioritize emerging or existing threats to border security 
and to coordinate a unified response that leverages Federal, State, 
local, tribal, and foreign law enforcement/intelligence entities to 
disrupt and dismantle cross-border criminal organizations to mitigate 
border security vulnerabilities. They focus on DHS strategic border 
security priorities, including:

      Cross-border Violence
      Cross-Border Human Smuggling and Trafficking
      Cross-Border Contraband Smuggling
      Cross-Border Money Laundering and Bulk Cash Smuggling
      Transnational Criminal Gangs
      Cross-Border Weapons Smuggling or Trafficking
      Travel Document-related Identity Theft and Benefit Fraud
      Cross-border Drug Smuggling

3. ICE-CBP Coordination Council
    As discussed above, ICE and CBP have also created as an alternative 
corrective action the ICE--CBP Coordination Council. Through the 
Coordination Council, ICE and CBP leaders work directly together to 
proactively drive toward effective, executable solutions. Recent MOUs 
between ICE/Office of Investigations (OI) and CBP's Office of Border 
Patrol (BP) and Office of Field Operations (OFO) demonstrate that the 
necessary policy and operational coordination is occurring and 
continues to evolve.
    In line with specific ``at minimum'' issues raised in the OIG 
recommendations, the Council has addressed areview of CBP investigative 
referrals to ICE. For example, a joint memorandum issued by the ICE 
Director of the Office of Investigations (OI) and the CBP Assistant 
Commissioner of the Office of Field Operations (OFO) on December 8, 
2005, recognized ICE as the investigative arm and primary point of 
contact for investigative matters within the POEs. This memorandum also 
deemed CBP responsible for operational and interdiction activities in 
the POEs. CBP refers all case leads developed in the POEs to ICE for 
investigation.
    Interactions between OI and CBP, Office of Border Patrol (OBP) were 
already governed by a November 16, 2004, joint memorandum issued by CBP 
Commissioner Robert Bonner and ICE Assistant Secretary Michael Garcia. 
This MOU clarifies that OI has primary responsibility for all 
investigations and OBP has primary responsibility for cross-border and 
border related interdiction activities between POEs. Based on locally 
established thresholds, OBP gives investigative referrals to ICE, with 
the exception of narcotics interdictions. OBP refers such interdictions 
to the Drug Enforcement Administration (DEA) under an existing MOU that 
predates the creation of DHS. When OBP makes a referral to an agency 
other than ICE, it provides details of the referral, information and 
intelligence to ICE. As discussed during the February 13, 2006, Council 
meeting, CBP will provide additional guidance to its field elements to 
ensure appropriate coordination between OBP and ICE.
    The ICE-CBP Coordination Council has also established a working 
group to directly review CBP personnel support for ICE/DRO, including 
transportation and other requirements, related to common efforts to 
achieve the overall DHS mission. Progress on this working group will be 
reported out at the next Coordination Council meeting.
    As just one example of improved operational coordination, in 
Operation Texas Hold 'em, CBP and ICE worked cooperatively to resolve 
detention and transportation issues involved in the apprehension of 
non-Mexican illegal aliens (NMIA) arrested in the Border Patrol's Rio 
Grande Valley Sector. Over a 60-day period between July 1, 2005 and 
August 29, 2005, ICE and CBP worked together to address the 
unprecedented increase in Brazilian nationals apprehended in the Rio 
Grande Valley Sector. Upon completion of the 60-day period, 
approximately 900 Brazilians were apprehended and removed from the 
United States achieving a tremendous deterrence effect as the number of 
Brazilian nationals attempting to enter illegally dropped 90% following 
this effort.
    OIG Recommendation 3: Communicate roles and responsibilities to all 
levels of CBP and ICE so that they are understood throughout the 
organizations. It is paramount that CBP and ICE employees understand 
their individual and institutional roles and responsibilities and the 
relationship of these to the roles and responsibilities of those of the 
other agency.

DHS Response: Concur. Completed.
    We concur with this recommendation and will continue to address 
these issues with all component agencies and, particularly with ICE and 
CBP, through the ICE-CBP Coordination Council. Primarily, CBP and ICE 
will utilize the Council to clarify any issues that arise related to 
roles and responsibilities. The Council's ongoing mission will be to 
identify and address areas where greater cooperation can enhance mutual 
achievement of our missions and be proactive in fostering improved 
coordination efforts. It will address a revolving agenda of ICE-CBP 
touch points, developing, as appropriate and necessary, interagency 
policies, prioritizations, and procedures to better guide ICE and CBP 
interactions and communicate roles and responsibilities in those 
matters.
    At the February 13, 2006 Council meeting, for example, the agencies 
agreed that CBP Acting Commissioner Spero and ICE Assistant Secretary 
Myers will issue a memorandum to both components' personnel that will 
serve as a reminder and clarification regarding referrals between the 
agencies. This memorandum will reinforce the procedures and again 
communicate the roles and responsibilities of CBP and ICE as previously 
issued in the OI/OBP and OI/OFO MOUs. To be sure, communication at the 
field level is a priority and occurs through regular contact between 
the principal field officers, supervisory personnel and working level 
employees of ICE and CBP.
    OIG Recommendation 4: Monitor CBP and ICE field performance to 
ensure adherence to DHS' vision and guidance, and accountability to 
related goals. To support this accountability, DHS leadership should 
develop performance measures and a reporting mechanism that convey an 
accurate picture of current operations to senior managers. In addition 
to performance metrics to measure internal CBP and ICE operations, a 
set of joint performance metrics should be developed to gauge the 
extent of interaction and coordination between CBP and ICE, as well as 
the level of support each organization extends the other.\1\ Resulting 
metrics should assist the organizations in arriving at shared 
expectations about their respective obligations and level of support.
---------------------------------------------------------------------------
    \1\ One such performance measure could, for example, reflect the 
average number of beds allocated to aliens apprehended by CBP per day.
---------------------------------------------------------------------------
DHS Response: Concur. Ongoing.
    We concur with the recommendation and note that one of the 
Secretary's top priorities for SBI was the establishment of metrics to 
closely monitor progress, inform decisionmaking, and quickly adjust the 
allocation of resources as appropriate. These metrics are constantly 
being updated.
    Indeed, DRO and OBP are developing a new automated data sharing 
architecture for SBI-related issues, which are improving existing 
processes and result in faster processing of illegal aliens. These 
changes, in turn, allow ICE to detain more aliens within current 
resources, thus ensuring that the Secretary's goal of ending ``catch 
and release'' along the Southwest border is met. As shared service 
partners, DRO and OBP agree that a high-level of communication, 
assistance and interaction is required to successfully carry out the 
business processes required for this integrated system. The Secretary 
is briefed weekly on metrics that display ICE/CBP success in achieving 
SBI-related goals for gaining operational control of the border.
    Collectively, these metrics provide us with a clear overall picture 
of what is transpiring within the system. Most importantly, they allow 
us to make informed decisions on what needs to be changed, disregarded, 
or implemented. The following attachments provide an example of how 
metrics assist us in diagnosing problems and obtaining awareness.

      Appendix 1: This metric illustrates apprehensions by 
quarter. It shows an anticipated drop in apprehensions between the 1st 
quarter and 2nd quarter of FY 06. This is significant because it would 
be the first such drop in this timeframe in 4 years.
      Appendix 2: This metric compares weekly apprehensions and 
detentions (breaking out Salvadoran apprehensions). It illustrates 
that, except for Salvadorans, almost all other Non-Mexican Illegal 
Aliens apprehended along the Southwest border are being detained.
      Appendix 3: This metric shows the ``gap''--that is, 
aliens apprehended but not detained. To end ``catch and release,'' the 
gap must be at or near zero. The current gap shows that the bulk of 
those not detained are Salvadorans and family groups.
      Appendices 4 and 5: These metrics foreshadow the 
projected detention resources required to eliminate ``catch and 
release.'' The first metric shows bed needs if all Salvadorans are 
placed into regular section 240 immigration proceedings. The second 
metric shows bed needs if DHS could place most of these aliens into ER.

    In addition, a Technology Solutions Work Group, convened by DRO, 
has made significant progress in establishing specific metrics related 
to SBI goals during the past few months. The working group consists of 
OBP, OI, and DRO representatives, who assess the reporting capability 
of existing ICE information systems, such as the Deportable Alien 
Control System (DACS) and Enforcement Integrated Database (EID), to 
provide critical information and data to monitor and measure the 
performance of the SBI transformation effort.
    The group, for example, has identified specific events in the 
apprehension and removal process that need to be measured by SBI, as 
well as data collected in support of those events. These metrics focus 
on apprehensions of non-Mexican expedited removals, the length of 
detention for those aliens with and without credible fear, and the 
total number of removals. Several gaps in the data were identified. The 
working group examined the process of apprehending, detaining, and 
removing an alien under expedited removal to identify specific events 
and corresponding data fields that would address these gaps. Key 
metrics and data were identified for each step of the process along 
with the corresponding database(s) and data field(s). Key metrics that 
did not have a corresponding data field were also identified and a 
proposed data field was provided for the associated database.
    The group also developed several methods of improving the quality 
of information supporting SBI performance metrics and the reporting 
process. Since enhancements were made to the EID--DACS interface, data 
passed between these systems has been more timely and accurate, and 
metrics now can be analyzed with greater confidence. Also, a newly 
established reporting capability uses automated downloads to create a 
limited SBI data view based on current SBI reporting requirements. The 
new report uses information gathered from the EID, DACS, and Asylum 
Pre-Screening System (APSS) database and will create a baseline for a 
more permanent solution made possible with the introduction of a 
planned Data Mart.
    Finally, the Secretary recently hired a new Special Assistant to 
the Secretary and Director for Information Integration, who will 
oversee Department-wide performance metrics implementation, monitoring 
and reporting. This experienced manager will be responsible for 
coordinating and implementing new metrics to monitor performance 
against goals established by the Secretary, in coordination with DHS 
customers, including the President, the Congress, and State and local 
officials.
    OIG Recommendation 5: Develop a formal mechanism to assure that the 
Under Secretary for Management and the CFO collaborate with ICE and CBP 
management to develop a process for CBP and ICE to increase 
participation in one another's budget formulation and strategic 
planning processes. This budgeting and planning interaction should 
include avenues for CBP and ICE to comment on and influence one 
another's budgets and strategic plans. These efforts should be pursued 
with the aim of achieving an effective balance of resources and 
ensuring adequate support for major operational initiatives across 
institutional boundaries. In addition, the CFO should track budget 
execution to guarantee compliance with agreed-to budget and plans.
DHS Response: Concur in concept. Completed.
    Processes are in place to monitor and align budgetary priorities. 
The Department, through the Investment Review Board (IRB) and the Joint 
Requirements Council (JRC), guides the overall balance between the two 
agencies in regards to resources and budget requests. The IRB is the 
formal DHS mechanism to assure that the Under Secretary of Management 
and the Chief Financial Officer (CFO) collaborate with ICE and CBP to 
ensure agency budget formulation and strategic planning processes align 
with the Department's comprehensive strategy to achieve its mission.
    As part of the SBI, the Department established in November 2005 a 
new SBI Program Executive Office (PEO). A key responsibility of the PEO 
is the effective coordination of border resources, particularly between 
ICE and CBP, including both in the formulation of budget requests and 
the operational implementation of appropriated resources. The PEO is 
partially staffed with ICE and CBP detailees working hand-in-hand to 
review border security resource proposals in advance of, or concurrent 
with, DHS CFO review. The office is also developing integrated planning 
models and program plans upon which major border and immigration reform 
resource decisions are based.
    It is a paramount responsibility of the CFO to develop budgets that 
are sufficiently coordinated and integrated across components, not just 
ICE and CBP. If there is a need to improve coordination of plans and 
budgets among components, the CFO will take comprehensive actions and 
will not establish unique operational processes and procedures for ICE 
and CBP alone. Indeed, multiple offices and components have an 
operational stake in our border, immigration, and law enforcement 
missions.
    Nevertheless, the efforts of the SBI PEO will clearly help the 
Department continue to improve resource and planning process results. 
The DHS CFO staff continues to meet regularly with both ICE and CBP 
regarding planning and budget execution. All DHS components must report 
financial information monthly to the CFO, and a formal process is in 
place to meet with ICE and CBP for mid-year financial reviews. Both ICE 
and CBP are regular, active members of the CFO-led Joint Requirements 
Council that both reviews and makes decisions on key investments of 
both agencies. ICE and CBP are also active participants of the Chief 
Information Officers Council. In addition, the Chief Financial Officer 
tracks budget execution to guarantee compliance with agreed-to budget 
and plans.
    Finally, the CFO has a full time staff dedicated to budget, 
performance, and strategic planning and integration between all 
components.
    OIG Recommendation 6: Direct the Operations Coordination Office to 
undertake an interagency procedural review process to ensure that ICE 
and CBP procedures support agreed upon roles and responsibilities and 
are compatible with one another at touch points. Where necessary 
procedures do not exist, the Operations Coordination Office should 
direct development of needed procedures, and notification and 
information exchange protocols.

DHS Response: Concur in concept. Completed.
    We have stood up the ICE-CBP Coordination Council to address 
compatibility of roles and responsibilities. The ICE-CBP Coordination 
Council has and will continue to address, at a national level, 
appropriate touch points that are raised internally, or from the field 
level. An example of the Council's procedural review process is its 
evaluation of existing ICE-CBP MOUs on referrals. During the Council 
meeting on February 13, 2006, ICE and CBP agreed to issue a joint 
memorandum to the field that would clarify and reinforce key components 
of the existing policies by which CBP refers cases to ICE for 
investigation and will ensure that enforcement results are routinely 
and effectively shared between the two agencies. The signatories of 
this memorandum will be Acting Commissioner Spero and Assistant 
Secretary Myers, prior to its distribution to the field.
    OIG Recommendation 7: Ensure that the Operations Coordination 
Office closely monitors the development of redundant capabilities 
within CBP and ICE as indications that resource sharing arrangements 
are not proceeding smoothly. Attention should be given to:

      CBP's plans to expand the number of enforcement officers 
and enlarge their jurisdiction.
      CBP's use of Border Patrol agents in an investigative 
capacity.
      CBP's fraudulent document analysis capability.
      CBP's expanding intelligence apparatus.
DHS Response: Concur in concept. Completed.
    We concur with the over arching theme of this recommendation. We 
understand, however, that similar capabilities resident in separate 
organizations are not necessarily redundant and therefore inefficient 
or ineffective. DHS will continue to sustain the mutually reinforcing 
capabilities resident within ICE, CBP, and other component agencies and 
will work to ensure that capabilities are complementary, aligned and 
consistent with organizational mission accomplishment. We have various 
mechanisms in place including the Joint Requirements Council, the 
Investment Review Board, CIO Council, and the ICE-CBP Coordination 
Council to ensure component agency capabilities are within their scope 
of authorities and responsibilities.
    In addition, we are certain that areas addressed in the 
recommendation are not redundant but complimentary in nature. For 
example, The CBP Fraudulent Document Analysis Unit (FDAU) and the ICE 
Fraudulent Document Lab (FDL) are not redundant, but are instead quite 
complementary and together provide for a comprehensive review and 
analysis of fraudulent documents. The intelligence and targeting 
functions of the FDAU are complemented by the forensic capabilities and 
broad trend analysis and targeting of fraudulent document use performed 
by the FDL. Frequent liaison and communication between the FDL and the 
FDAU assures constant linkages between the two and promote appropriate 
information sharing to the field.
    As well, in terms of intelligence, both CBP and ICE coordinate with 
the Department's newly established Office of Intelligence and Analysis. 
Specifically, an example of the CBP and ICE cooperative interaction is 
reflected at CBP's National Targeting Center (NTC). ICE has an on-site 
liaison officer assigned to the NTC to ensure effective communication 
and information exchanges between CBP and ICE. For example, all 
``special interest alien'' intercepts by CBP Officers or Border Patrol 
Agents are reported to the NTC and notification is made to the ICE 
liaison officer to conduct further investigations or inquiries, or to 
forward the information for further review to the appropriate ICE 
headquarters personnel.
    Additionally, the Coordination Council will be issuing guidance 
reaffirming that CBP/OBP has primary responsibility for all cross-
border and border-related interdiction activities between the ports of 
entry (POE), and ICE/Office of Investigations has primary 
responsibility for all investigations. Interdiction cases conducted by 
Border Patrol agents that require investigative follow-up are referred 
to ICE/OI, as well as general cases for information sharing purposes. 
In addition to national policy being reviewed and reaffirmed through 
the ICE-CBP Coordination Council, local notification thresholds and 
protocols are also in place between Border Patrol Chief Patrol Agents 
(CPAs) and OI Special Agents in Charge (SACs) at the local level to 
consider unique operational environments and resources.
    OIG Recommendation 8: Require that the Policy Office engage in 
coordination with CBP and ICE to align priorities with an interagency 
bearing (e.g., detention bed space, investigative case selection) 
through a consultative process. Pursuant to this process, the Policy 
Office should monitor implementation of these priorities through 
performance tracking and periodic interagency reviews including 
assessments of related resource deployments.

DHS Response: Concur in part. Completed.
    We agree and via the ICE-CBP Coordination Council, CBP and ICE are 
working together to align all priorities with an interagency bearing. 
When necessary, they consult with the DHS Policy Office for guidance 
and alignment with broader DHS priorities. Additionally, as part of the 
Secure Border Initiative, ICE and CBP coordinate closely to ensure a 
systems management approach to border security and interior enforcement 
initiatives. A good example of this recommendation in practice is the 
SBI Program Executive Office's reengineering of the detention and 
removal processes. Under this initiative the ``catch and release'' 
style of border enforcement will be eliminated and replaced by a 
``catch and remove'' approach. Organizationally placed in the Policy 
Office, the Secure Border Initiative is a comprehensive multi-year plan 
created to reduce illegal immigration into the U.S. via enhanced border 
security and interior enforcement. By integrating ICE and CBP 
capabilities and facilitating effective resource utilization and 
prioritization, SBI is enhancing security along our Nation's borders.
    OIG Recommendation 9: Establish a forum for coordinating among 
staff from the Secretary and Deputy Secretary's Office, Under Secretary 
for Management, CFO, Under Secretary for Policy, Director of Operations 
Coordination, CBP Commissioner, and ICE Assistant Secretary to discuss 
issues related to the ICE-CBP relationship.

DHS Response: Concur. Completed.
    As discussed in greater detail above, the Secretary holds weekly 
meetings with the agency heads of CBP, ICE, and CIS, the Under 
Secretary of Management, the CFO, the Assistant Secretary of Policy, 
the Assistant Secretary of Intelligence and Analysis, the Director of 
Operations Coordination, as well as staff from the Secretary and Deputy 
Secretary's Office, to discuss efforts related to SBI and to coordinate 
and raise issues as appropriate.
    Additionally, the new ICE-CBP Coordination Council, with its close 
relationship to DHS leadership, provides for the proper level of 
communication necessary to nurture the ICE-CBP relationship. Through 
the Council, the highest level of ICE-CBP leadership will have direct 
interaction, and given that these senior leaders are direct reports to 
the Secretary, all in key DHS leadership positions will have consistent 
and regular interaction concerning ICE and CBP.
    The Deputy Secretary's weekly ``Gang of Seven'' meetings, in which 
the Deputy Secretary hosts a meeting, with the seven heads of DHS 
operating agencies provides an additional forum for coordination 
between the Secretary's most senior staff and the leadership of ICE and 
CBP.
    In addition to the above, the heads of ICE and CBP meet 
individually and collectively with the Secretary and the Deputy 
Secretary on a regular basis to discuss a host of issues related to 
these two components.
    OIG Recommendation 10: Create joint CBP-ICE bodies to oversee the 
implementation of interagency coordination efforts and MOUs. These 
bodies could respond to requests to deviate from plans, make 
adjustments, provide clarification, and resolve different 
interpretations of related guidance.

DHS Response: Concur. Completed.
    We agree and efforts to improve coordination in critical areas such 
as the provision of air support to ICE investigations have led to the 
establishment of interagency working groups such as the OI--OBP working 
group in November 2004 and the OI--OFO working group in December 2005. 
In addition, the CBP Air Council, established in November 2005, has 
kept ICE informed of decisions relative to the deployment of air assets 
in support of their traditional role in investigations.
    In addition, the Secure Border Initiative Program Executive Office 
as well as the ICE-CBP Coordination Council were created to coordinate 
interagency efforts and MOUs. We are also in the process of 
establishing local ICE-CBP working groups in the 23 ICE Detention and 
Removal Offices (DRO) to address routine and extraordinary coordination 
issues in the field.
    Another example of an effective interagency coordination body is 
the ICE/OI and CBP/OFO interagency working group chartered on December 
8, 2005, to address a series of priority issues, including; National 
Policy Coordination, JTTFs, Sharing of Intelligence, Third Party Rule, 
Controlled Deliveries, and CBP Officer Enforcement.
    As noted above, DHS is forming Border Enforcement Security Task 
Forces (BESTs), pulling together ICE, CBP, I&A, and other Federal, 
State, and local law enforcement entities to focus on cross-border 
crimes. BESTs are integrating intelligence, investigative and 
interdiction efforts, to take a comprehensive approach toward 
dismantling the cross-border criminal organizations that exploit our 
border.
    BESTs will work in conjunction with existing task forces (JTTFs, 
HIDTAs, and OCDETFs) to enhance communication and proactively exchange 
data and intelligence. They will leverage those entities as well as 
cooperating foreign law enforcement and intelligence entities to focus 
investigative, interdiction, and intelligence resources to identify, 
prioritize, and attack emerging or existing threats, to include drug-
related threats.
    These models are beneficial because they enable officials at the 
point of execution to identify problems that hinder the operational 
development process and to proffer potential solutions.
    OIG Recommendation 11: Develop a headquarters-level joint CBP-ICE 
standing Committee to manage the relationship between the two. This 
Committee could address a revolving agenda on CBP-ICE touch points and 
develop interagency policies and procedures to guide CBP and ICE 
operations. The Committee should document and distribute information on 
dispute scenarios and resolutions to help foster greater uniformity in 
interpreting policies and procedures and resolving related disputes. To 
resolve disputes at both the headquarters and field levels, CBP and ICE 
should create a strictly proscribed time standard for disposition, as 
the dynamic nature of the enforcement environment requires swift 
decisions to accomplish the mission.

DHS Response: Concur. Completed.
    We agree and, as discussed above, have established the ICE-CBP 
Coordination Council. The Council's ongoing purpose is to identify and 
address areas where greater cooperation can enhance mutual achievement 
of our missions and be proactive in fostering improved coordination 
efforts.
    In December 2005, the Council conducted its first meeting. Acting 
ICE Assistant Secretary John P. Clark and Acting CBP Commissioner 
Deborah J. Spero attended and were joined by other ICE and CBP senior 
managers and representatives. A subsequent meeting was held on February 
13, 2006, at which ICE Assistant Secretary Julie Myers and Acting CBP 
Commissioner Deborah J. Spero, along with senior managers and subject 
matter experts from the respective agencies, discussed agenda items 
including: OI and OBP Referral Policy, CBP Air deployment plans, Single 
Journey Boarding Letters, DRO detailees, Interior Repatriation and 
Busbound, Enforcement Initiatives, and Intelligence and Information 
Sharing.
    Please see responses to OIG Recommendations 1, 2, and 3 for further 
clarification of the Coordination Council and corrective action 
addressing this point.
    OIG Recommendation 12: Develop dispute arbitration and resolution 
mechanisms at the field-level. These mechanisms should be available for 
airing both routine and extraordinary interagency operational concerns 
and recommending remedial actions, and they should be designed to 
minimize the risk of retaliation against employees who raise concerns. 
When the resulting field-level arbitration mechanisms result in the 
resolution of a dispute, headquarters should be notified of the issue 
and resolution.

DHS Response: Concur. Completed.
    We agree. The Department recognizes that frequent and regular 
communication between ICE and CBP in the field is essential to 
maintaining effective working relationships. On December 8, 2005, the 
OI--OFO working group directed their respective field offices via a 
joint memorandum to develop local communication mechanisms to ensure 
that enforcement actions are routinely and effectively shared between 
ICE and CBP in their respective areas of operations. Both agencies are 
confident in their operational commanders in the field (DFOs/Sector 
Chiefs/CBP Air Commanders/SACs) to resolve issues and disputes, and 
will elevate such issues to the headquarters level if a resolution has 
not been achieved.
    Additionally, we have established local working groups operating 
out of DRO Field Offices to address local coordination issues. The 
groups meet to discuss planned operations and work out support issues. 
The groups focus on detention priorities and coordinate to allocate the 
limited detention resources among the competing enforcement priorities. 
The ICE--CBP Coordination Council intervenes to resolve disputes that 
rise to the headquarters or national level, taking as an assumption 
that issues and disputes should first be addressed by the relevant 
operational commanders in the field (DFO/Sector Chief/CBP Air 
Commander/SAC). The ICE-CBP Coordination Council will issue guidance to 
the field that will reinforce effective communication between CBP and 
ICE.
    OIG Recommendation 13: Develop an operating environment that 
facilitates collaborative intelligence activities. Such an environment 
should promote ICE-CBP staff co-location when possible and where 
appropriate. In addition, CBP and ICE should pursue the development of 
joint intelligence products to reflect a more comprehensive picture of 
border security. Finally, CBP and ICE should jointly employ new 
technology systems for the exchange and analysis of intelligence 
information that facilitate these activities.

DHS Response: Concur. Completed.
    We agree and are addressing this through further coordination of 
intelligence and information sharing opportunities. This is in fact one 
of the initial issues that the ICE-CBP Coordination Council is 
addressing. A working group has been established to propose solutions. 
Additionally, it should be noted that improved coordination mechanisms 
are in place, including staff co-location of an ICE representative at 
the CBP National Targeting Center (NTC). Additionally, pending a 
departmental National Intelligence sharing directive and other ongoing 
DHS-wide intelligence initiatives, ICE and CBP components will continue 
to work jointly to develop processes and procedures to improve 
information sharing and intelligence activities.
    OIG Recommendation 14: Address the prevalent and growing 
contentiousness between CBP and ICE. Competition is natural between two 
groups, but ICE and CBP leadership should develop programs and policies 
to encourage mutual respect. Field level activities must be monitored 
more closely to ensure that border security is not compromised by 
organizational antagonisms mentality. Likewise, DHS leadership should 
take action to develop a corporate culture in which all CBP and ICE 
employees believe that they have a vested stake in each other's mission 
and in the overall DHS mission.

DHS Response: Concur. Ongoing.
    We agree and note that the Secretary recently approved a DHS-wide 
initiative aimed at addressing the Department's culture in order to 
transform the Department into a highly effective, world-class 
organization. The Organizational Transformation Team lead by the Chief 
Human Capital Office will address additional management and human 
resource issues that affect ICE and CBP, as well as the issues leading 
to the Department's performance in OPM's Federal Human Capital Survey. 
The Secretary's vision is for the Department to develop a single DHS 
culture that encapsulates the combined individual cultures of our 
component agencies while embracing a single team oriented focus on the 
department's mission.

                                 

    [Submissions for the record follow:]

                                         National Retail Federation
                                                      July 25, 2006
The Honorable Clay Shaw, Chairman
U.S. House of Representatives
Ways and Means, Subcommittee on Trade
1104 Longworth House Office Building
Washington, DC 20515

Dear Mr. Chairman:

    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 23 million employees--about one in five American workers--and 2005 
sales of $4.4 trillion. As the industry umbrella group, NRF also 
represents more than 100 state, national and international retail 
associations.
    NRF's members import products into the United States or rely on 
imported products to fill out their merchandise orders. Many of our 
members are participants in the Customs-Trade Partnership Against 
Terrorism (C-TPAT) and a large number of are regarded by U.S. Customs 
as significant importers. Many NRF members have also instituted 
innovative supply chain security practices to insure the safety of 
their global supply chains. NRF therefore, has a strong interest in 
insuring that the Department of Homeland Security (DHS) and the Bureau 
of Customs and Border Protection (CBP) have adequate resources to carry 
out their functions needed to promote the movement of legitimate 
commerce while also safeguarding the international supply chain from 
the entry of dangerous materials and persons.
    We have several issues that we would like to address as part of 
these hearings:

    1.  The validation process associated with membership in C-TPAT;
    2.  The appropriate development of the Automated Commercial 
Environment (ACE); and
    3.  The development of a post maritime security incident response 
plan.

The C-TPAT Validation Process
    A Government Accountability Office report in 2005 stated that the 
C-TPAT program remains an essential security component to deter the 
introduction of harmful materials. However, the report also stated that 
the program could be improved upon by insuring that C-TPAT members are 
validated to guarantee that members actually abide by the business 
practices identified in their supply chain security profile.
    CBP has hired a cadre of ``Supply Chain Security Specialists'' to 
perform these validations. To date, these CBP agents have completed a 
validation on almost 60% of the over 6,000 C-TPAT members. Furthermore, 
CBP plans to hire additional supply chain security specialists to 
complete a validation on 100 percent of C-TPAT members as soon as 
possible.
    NRF supports the use of CBP agents to perform these validations. We 
have misgivings and apprehensions about proposals to allow CBP to use 
third-party validators to perform these on-site visits. Outsourcing the 
validation process to third party companies has the great potential to 
prove problematic for retailer importers for the following reasons.
    First, there remains no requirement or regulation that would 
safeguard against the release of trade secrets, proprietary sourcing 
information or other confidential business information. Even if U.S. 
regulations and legislation were in place to prevent the release of 
this information by third party validators, nothing prevents validators 
domiciled in other countries from releasing this information to 
competitors. Already, many countries refuse to allow or make it 
difficult to allow CBP agents to perform in-country validations. The 
use of third parties registered in these countries to perform 
validations has the potential to release confidential business 
information even if U.S. regulation or legislation prohibited such 
action.
    Second, there remains no mechanism to guarantee that third parties 
used to perform C-TPAT validations are capable of actually performing 
the duties to which they have been tasked. In order to guarantee an 
adequate level of performance, CBP would need a vetting process and 
perform a regular audits on these validators. Addressing this problem 
could result in needless redundancies and act as a drain on much needed 
resources by forcing CBP to hire auditors to examine the auditors.
    Finally, NRF remains concerned that U.S. retail importers could be 
required to assume the added expenses of paying for the services of 
third-party validators, especially since importers may have 
insufficient information about particular validators, and could expose 
themselves to theft of trade secrets and the revealing of confidential 
business information. These validation expenses borne by importers 
could also add additional costs to membership in the program, which 
could act as a disincentive for potential new members to join.
    For these reasons, NRF urges the Trade Subcommittee to insure that 
CBP has adequate funding to hire the requisite number of supply chain 
security specialists to perform in-country C-TPAT validations as 
opposed to outsourcing these duties to third parties.
The Development of the Automated Commercial Environment (ACE)
    After more than a decade and several billion dollars over budget, 
DHS is still slowly building and improving the ACE computer system. The 
rollout of ACE has the great potential to demonstrate enormous benefits 
for importers including retailers by providing these companies with a 
single electronic interface for duty collection and customs and 
regulatory compliance.
    While it is slowly rolling out trade compliance components of the 
ACE system, DHS has stated that security features will be the last 
elements incorporated into the system. NRF supports the inclusion of 
security data elements in ACE as quickly as possible in order to ensure 
its rapid deployment as an effective security enforcement tool.
    The incorporation of security related data in ACE has the benefit 
of providing DHS with a wealth of existing trade data used to identify 
truly suspect cargo. Today, DHS collects information relating to the 
security of cargo destined to U.S. ports through each ocean carrier's 
vessel manifest. However, a manifest is an internationally regulated 
contract of carriage and does not list vital pieces of data to help 
identify high-risk cargo. For example, the manifest does not list the 
foreign vendor or factory and sometimes does not list the ultimate 
consignee or other businesses party to the transaction. However, 
importers already provide much of this information, including foreign 
vendors and factories, electronically to CBP as part of the customs 
entry process. In essence, CBP already collects this information. 
Unfortunately, CBP cannot easily tap into these databases to improve 
upon existing programs to identify the suspect cargo effectively and 
efficiently.
    Other federal agencies also collect vital trade data that could be 
used to better identify suspect cargo. An effort has been underway to 
allow these agencies to share and view trade data through the 
International Trade Data System (ITDS). However, once again, DHS plans 
to incorporate these databases into ACE are currently among the last 
elements of the ACE system as it is becomes fully operational.
    NRF urges the Committee to provide oversight into the development 
of ACE and how DHS and CBP plan to incorporate security related 
elements.

The Development of a Post Maritime Security Incident Response Plan
    Retailers remain particularly sensitive to the need to promote 
sound policies and business practices that strengthen security. 
Retailers typically have very tight supply chains. A few days added to 
the supply chain schedule translates into lost sales and large 
financial losses. A maritime security incident that that could close 
ports of entry will surely lead to lost sales for retailers and 
enormous economic losses for the nation. For this reason, retailers 
remain the most ardent supporters of C-TPAT and other programs designed 
to promote supply chain security to help minimize the chances of a 
maritime security incident.
    Retailers have long urged Congress, DHS and the Administration to 
work with importers in developing plans to resume trade lanes in the 
aftermath of any incident. Doing so will help retailers and other 
importers to make better contingency plans to mitigate the economic 
consequences of the event. To date, retailers still do not know if all 
U.S. seaports will be closed following an event, or just a select few. 
Retailers still do not know if cargo originating from all countries 
will be allowed to enter U.S. ports or only a select few. Retailers and 
others must know certain specifics of these plans in order to make 
contingency plans regarding the routing and sourcing of cargo. The 
ability to do so will impact not only the retail industry but U.S. 
commerce and economy as a whole.
    NRF supports proposals that outline how DHS is to resume trade 
lanes following a maritime security incident. These proposals give 
retailers and other importers vital information needed to make these 
crucial contingency plans. For example, DHS could be required to give 
priority to C-TPAT cargo carried by C-TPAT steamship lines that 
transited a CSI port as has been proposed in other legislation, such as 
the Senate GreenLane Maritime Cargo Security Act. Still other proposals 
go so far as to require that DHS take comments from the trade community 
before publishing these rules on resuming trade lanes. NRF calls on the 
Trade Subcommittee also to include a provision requiring that DHS 
communicate these plans to the importing community.
     In closing, NRF thanks the Subcommittee for holding these hearings 
and urges it to continue its oversight activities and DHS and CBP trade 
compliance and security activities. If you have any questions about NRF 
or its positions on these issues please contact me.
            Sincerely,
                                                      Erik O. Autor
                                                     Vice President

                                 

Statement of The Honorable John R. Carter, a Representative in Congress 
                        from the State of Texas
    Chairman Thomas:
    The purpose of this hearing is to review the impact of current and 
proposed border security and immigration policies on programs in the 
Committee's jurisdiction.
    As you are aware, Section 2029 (y) of the Social Security Act 
requires aliens in the United States to be ``lawfully present'' in 
order to receive Social Security benefits. Even though most illegal 
workers pay taxes, they do not place a burden on the Social Security 
Administration (SSA) as they are not eligible for said benefits unless 
they become legal residents of the United States.
    Currently, there are over 10 million illegal immigrants living and 
working in our borders. Several surveys indicate that households headed 
by illegal workers pay, on average, less than $5,000 annually in 
federal taxes. This is less than two-thirds of the average paid by all 
legal households. While providing much less to the treasury, each 
illegal household results in a net loss of over $2,700 annually due to 
healthcare costs and other social programs. However, the Social 
Security Administration actually sees a net profit from illegal workers 
because while they pay in, they are not eligible to receive benefits.
    Under current law, the path to citizenship for an illegal alien is 
difficult. However, language in S 2611 would allow some 10 million 
illegal aliens a path to citizenship. This newfound amnesty will place 
a severe strain on Social Security to meet the needs of the 10 million 
new workers suddenly eligible to receive benefits--benefits they have 
accrued by openly ignoring our laws.
    I am concerned about the obvious incentives of S 2611 to additional 
illegal workers. Our first priority should be to employ U.S. citizens, 
whether native born or legal immigrant. As we learned in the years 
following the 1986 amnesty, a path to citizenship for illegal workers 
only serves to invite more illegal aliens across our borders, not shut 
the door. This open invitation will serve only to place additional 
strain on welfare programs and drive down wages for American workers.
    I am also concerned about the cost associated with the Senate Bill 
as projected to all social security wage earners. Through Tax Year 
2003, over 255 million wage files have been placed in the Earnings 
Suspense File (ESF) by SSA. In the 1990's alone, nearly $190 billion in 
unmatched wages were placed in the ESF. Some have argued that this 
serves as a ``savings account'' for illegal workers to later draw 
benefits once they reach a legal status. Make no mistake that this is 
not the case. The ESF, by its very definition, is comprised of money we 
cannot attribute to any worker, legal or not. Each wage report placed 
in the ESF merely shows that SSA cannot match the file with a worker in 
its system. Because of this, any wages attributable to an illegal 
worker that are placed in this file are wages earned through either 
identity theft or Social Security fraud. I find it reprehensible that 
we would consider granting benefits to those who work in our country 
illegally while the solvency of Social Security for America's seniors 
remains a very real problem.
    Furthermore, the Earnings Suspense File does not include 
contributions made by illegal workers under fraudulently obtained, 
valid Social Security numbers or Individual Taxpayer Identification 
Numbers legally obtained from the IRS. While these records result in 
deposits to Social Security, they are not drawn on due to the illegal 
status of the record holder. Should these monies, deposited over 
several decades, be drawn we should expect nothing less than bankruptcy 
of the Social Security system.
    As we attempt to forecast the effects of the amnesty included in S 
2611, it is important to note that in 2010, the first of the ``baby-
boomers'' generation will be eligible for Social Security benefits. It 
is an unfortunate coincidence that just as an entire generation of 
Americans begins to draw Social Security benefits, the first wave of 
the10 million illegal aliens granted amnesty would also become eligible 
for these very same benefits, thereby placing an even greater strain on 
the system.
    Because of these concerns, I urge the Ways and Means Committee to 
look into methods by which we can utilize the Social Security 
Administration and the Internal Revenue Service to assist with not only 
controlling, but decreasing the levels of illegal work in the country. 
The primary tools to fight this battle are through more accurate 
verification of a person's eligibility to work legally in the United 
States, and enforcement of current law against employers who so 
willingly violate it. I also urge the Committee to undertake a serious 
study of the potential costs to federal, state, and community welfare 
programs and educational systems associated with the legalization of 
millions of illegal immigrants.

                                 

                                   Consumer Electronics Association
                                          Arlington, Virginia 22201
                                                     August 8, 2006
The Honorable Clay E. Shaw
U.S. House of Representatives
1236 Longworth House Office Building
Washington, DC 20515

Dear Chairman Shaw:

    The Consumer Electronics Association (``CEA'') appreciates the 
opportunity to provide this written statement for consideration by the 
Subcommittee on Trade of the Committee on Ways and Means, in 
furtherance of the public hearing held by the Subcommittee on July 26, 
2006, to review budget authorizations for the Bureau of Customs and 
Border Protection (``CBP'') of the Department of Homeland Security 
(``DHS'') and the Bureau of Immigration and Customs Enforcement 
(``ICE'') of DHS, as well as to review other Customs issues. As part of 
this review, CEA is grateful to the Subcommittee for its consideration 
of the important questions of whether DHS's new agencies are operating 
effectively, whether trade functions are being given sufficient 
priority now that the agencies are integrated into a department focused 
on security, whether adequate resources are devoted to customs 
functions, and whether companies are receiving the anticipated trade 
benefits from programs such as the Customs-Trade Partnership Against 
Terrorism (``C-TPAT'').
    With respect to each of the preceding questions, CEA believes that 
while DHS and CBP have made sincere efforts and continue to have 
commendable objectives in the trade realm, trade facilitation has not 
kept pace with the very important emphasis on security. We join with 
the statements and testimony already before the Subcommittee in 
believing security and trade must be balanced, and that neither should 
be sacrificed at the expense of the other. Indeed, CEA would like to 
thank Chairman Shaw for his initial statement recognizing that while 
border security must be one of our government's highest priorities, the 
government must also facilitate ``the legitimate trade that is the 
lifeblood of our economy.'' CEA agrees, and also agrees with the need 
identified by the Chairman to evaluate whether DHS has the resources it 
requires to protect both the safety and economic security of America's 
citizens.
    CEA particularly appreciates this opportunity to highlight for the 
Subcommittee significant issues of concern at CBP ports of entry along 
the United States' southern border, as a focused example of the 
consequences that can result from enhancing security without enhancing 
trade resources. These issues, which are tied to a lack of necessary 
resources at key border crossings with Mexico, have the potential to 
jeopardize CBP's voluntary supply chain security programs and strangle 
trade with the United States. CEA, on behalf of its members, strongly 
supports providing DHS with the appropriations necessary to resolve 
these issues. In revisiting CBP's trade-related activities, CEA also 
opposes any changes to what are currently voluntary programs such as C-
TPAT that would make them more burdensome or less rewarding to the many 
companies that have already invested significant sums to become true 
partners in supply chain security.

CEA'S INTERESTS
    CEA is the preeminent trade association promoting growth in the 
consumer electronics (``CE'') industry through technology policy, 
events, research, promotion and the fostering of business and strategic 
relationships. CEA represents more than 2,000 corporate members 
involved in the design, development, manufacturing, distribution and 
integration of audio, video, mobile electronics, wireless and landline 
communications, information technology, home networking, multimedia and 
accessory products, as well as related services. CEA's members account 
for more than $121 billion in annual sales in the United States. This 
figure represents approximately 40 percent of all CE sales worldwide. 
The CE industry directly employs approximately 1.9 million workers in 
the United States. Of these, 212,000 jobs are in manufacturing, 574,000 
are in retail, 38,000 are in transportation, and 1,073,000 are in parts 
of the U.S. economy that solely depend on the utilization of CE 
products, such as the motion picture and sound recording industries, 
telecommunications, broadcasting, and software development. In 2005 
alone, the U.S. CE industry added nearly 30,000 jobs--growing nearly 
1.5 percent in the last 12 months and 19 percent in the last 15 years. 
Today, the industry represents approximately 1.4 percent of total non-
farm employment.

CEA SUPPORTS FACILITATION OF SECURITY AND SOUTHERN BORDER TRADE BY 
        VOLUNTARY INITIATIVES SUCH AS FAST AND C-TPAT
    While the members of CEA have interests that span the globe, trade 
within the NAFTA is particularly attractive because of the size of the 
consumer market at issue, and the ability to serve that market with the 
most efficient supply chain techniques. The U.S. trade relationship 
with Mexico, at more than $270 billion per year, is second only to U.S. 
trade with Canada. In fiscal year 2005, over 3.5 million containers 
entered the United States from Mexico across the southern border.
    To serve these markets, companies have become increasingly reliant 
on ``just in time'' inventory procedures. Reliance on successful ``just 
in time'' inventory procedures within NAFTA, however, means that the 
significant volume of trade among the three NAFTA nations depends on 
rational and efficient border facilitation. Because we recognize that 
border operations must never be streamlined at the expense of national 
security, CEA and its members have applauded and sought to take 
advantage of cooperative endeavors such as C-TPAT and the Free and 
Secure Trade Program (``FAST''), among others.
FAST and C-TPAT are Increasingly Popular Tools for Trade
    CEA is not alone in recognizing that FAST and C-TPAT are important 
and potentially beneficial programs. Indeed, in his remarks submitted 
to the Subcommittee, CBP Commissioner W. Ralph Basham identified five 
``pillars'' which are the key components that will allow CBP to achieve 
its mission goals of border security and trade facilitation. The fifth 
pillar identified by the Commissioner was CBP's efforts to partner with 
the private sector. These partnerships include both the C-TPAT and FAST 
programs.
    With respect to FAST, we note from prior testimony that since its 
inception in December 2002, FAST has enrolled approximately 61,000 
commercial drivers and has expanded to seven locations along the 
Southwest Border. It is anticipated that FAST will expand in 2006 to 
seven additional locations along the Southwest Border. Similarly with 
respect to C-TPAT, more than 10,000 companies have applied to become C-
TPAT members, and more than 6,000 of those have been certified as 
having implemented C-TPAT security criteria.
    CEA believes that FAST and C-TPAT have succeeded in generating so 
many applicants because, as echoed by the Commissioner, they were 
created as voluntary, incentive based partnerships between CBP and 
industry, which benefit the U.S. economy and national security by 
improving supply chain security while at the same time facilitating the 
movement of low-risk cargo through expedited border processing, ``Front 
of Line'' inspections, and reduced border examinations.

FAST and C-TPAT Have Had Positive Real-World Results
    When operating as intended, programs such as FAST and C-TPAT have 
helped to facilitate the increasingly significant cross-border trade 
with Mexico. FAST, for example, was created as part of our government's 
efforts to work closely with Mexico to create institutions and 
infrastructure to enhance border security while making border transit 
easier and quicker for legitimate travelers and goods. It was intended 
to provide expedited crossings for cargo from participating companies 
who have demonstrated that their facilities are secure and their 
shipments low-risk.
    One of our member companies commented that initiatives such as FAST 
and C-TPAT allow for transit of products across borders in minutes 
instead of hours. When these programs work as intended, the company 
noted that it was not uncommon to be able to cross through some Mexican 
and U.S. Customs areas in as little as 15 minutes, as compared to as 
much as two hours under prior procedures. Such speedy entries under the 
FAST program work to enhance security, as by their very nature high 
speed crossings act to significantly reduce the number of trailers 
waiting in lines, which in turn reduce the likelihood that trailers 
could be tampered with.

ENTRY CHALLENGES AT THE SOUTHERN BORDER ARE JEOPARDIZING SECURITY AND 
        TRADE
    Recent experiences at certain southern border crossings, 
particularly at peak times, suggest that because of insufficient 
resources the system is not working as it should, and that the promised 
benefits of C-TPAT and FAST participation are not being realized. This 
is not only disappointing for the companies that committed significant 
resources to participate in these programs, but the practical 
consequences of mounting delays jeopardize both trade and security.

Resources and Procedures are Inadequate to Address High Import Volumes, 
        Leading to Significant Delays
    Both the C-TPAT and FAST program have provided for designated lanes 
at major border crossings, which are intended for use by participants 
in the programs. In practice, however, some of these travel lanes 
designated for C-TPAT and related expedited programs have not been 
enforced. Consequently, the benefit of voluntary compliance in these 
programs is eroded if not altogether eliminated. One of our members 
reported that at one entry point on the Mexican border, vehicles within 
all classifications have been directed to the same lane.
    Even where dedicated lanes are maintained, some of our member 
companies have experienced long delays at some Mexican border points of 
entry which, while clearly exacerbated by seasonal volume changes, are 
largely due to insufficient personnel to staff existing lanes, limited 
hours for customs clearance, poor road infrastructure within the 
customs complex, and increased security concerns.
    At the Otay Mesa/Tijuana port of entry, for example, on average an 
estimated 2800 trucks now cross the border each day, and seasonal 
volume peaks between August and January (as U.S. retailers stock 
inventory for the holiday season) cause the long queuing of trucks. One 
company reported that while one to two hours is the normal delay for 
non-FAST shipping at this crossing, it can take up to four to six hours 
to cross a trailer during peak production periods. Last year, leading 
into the Christmas period, waiting periods actually jumped to 8-10 
hours. Another major CE company reported that on May 22, 2006, a non-
peak period, its 18 shipments through this port of entry took an 
average of 5.5 hours to clear customs, and on the following day its 13 
entries took an average of 6.5 hours to clear, even though only 9 of 
the 31 total entries were inspected either by x-ray or other means.
    At other ports of entry, for example the San Luis port of entry, 
delays associated with inspecting shipments during the peak 
agricultural season have spillover effects for non-agricultural goods, 
and can lead to the doubling of waits during these times. While a new 
commercial crossing has been planned for San Luis, it is not expected 
to open until 2008.
    Other delays have been the result of failure to staff the border 
consistently during peak times, and to coordinate staffing between U.S. 
and Mexican customs officials. Companies report that the hours at U.S. 
and Mexican ports of entry are inconsistent at each crossing. In 
addition, there have been instances where only three Mexican and eight 
U.S. gates are open during operating hours.
    We applaud the temporary efforts that have been taken by CBP at the 
U.S. port at Otay Mesa/Tijuana where staff has been temporarily 
supplemented with CBP Officers transferred from other ports and where 
three temporary entry lanes have been created to supplement the eight 
existing gates. We note that both the Mexican and U.S. ports have 
extended their hours of operation during peak traffic periods. Trucks 
may now enter the Mexican compound until 8 p.m. each weekday evening, 
an increase of one hour. Both ports have agreed to allow empty truck 
importations beginning at 5 a.m., instead of 6 a.m. Moreover, we 
understand that the U.S. port is committed to expand the current 
facility by two permanent lanes next year and the project is now in the 
design phase. We remain concerned, however, that these measures are 
temporary at best and/or dependent on the availability of resources and 
political will to achieve long term relief for this growing problem.

The Consequences of Delay
      Economic Impact

    The significant delays identified above can have far reaching 
consequences. The most apparent are the economic repercussions, namely 
increased operation costs for border crossing carriers, damage to 
important customer relationships, and potential drops in U.S. exports 
as foreign purchasers decide to find more reliable sources of supply 
that are less vulnerable to border delays than products crossing the 
U.S. border. Moreover, border delays can result in even greater harm to 
the competitive position of U.S. manufacturers. Delays in the delivery 
of any crucial input can shut down entire U.S. assembly lines, idling 
U.S. workers and undermining productive capacity and international 
competitiveness. Finally, these delays risk undermining private 
companies' confidence in the purported benefits of C-TPAT/FAST 
participation
    In more concrete terms, the consequences of these delays is that at 
Otay Mesa, for example, rather than three or four ``turns'' back and 
forth across the border per truck per day during non-peak times, trucks 
average 1.6 ``turns'' per day during periods of the greatest delay, at 
a 50%+ loss in earnings and customs revenue. Importers have reported 
that these delays occur both north and south bound, and that they are 
the result of contraband searches, inadequate staffing of customs 
officials, limited hours, and poorly constructed roadways leading into 
certain Customs border areas that cause traffic to cross over and 
bottleneck against itself.

      Security Impact

    Separate from the financial challenges, there are potentially 
significant security concerns. For example, long wait times require 
trucks to sit in mixed queues for sometimes hours on end, which can 
expose their cargos to tampering. Allowing such circumstances to exist 
for extended periods for commingled FAST/C-TPAT and non-participant 
shipments runs directly counter to one of the objectives of these 
programs, namely to enhance security by reducing the number of trailers 
waiting in lines.

      Environmental/Societal Impact

    Unnecessary delays at border crossings also impact persons who have 
no involvement with a particular shipment. This includes environmental 
consequences felt by society as a whole, as requiring trucks to wait in 
long lines is necessarily inefficient and results in increased 
emissions from fuel needlessly burned. It also includes a societal 
impact on immediate residents of border communities who are exposed to 
exhaust and noise from a collection of hundreds of heavy-duty trucks 
idling day in and day out for months on end.

Without Additional Resources, Trade Conditions at the Southern Border 
        Are Likely to Deteriorate Further
    Multiple statements submitted to the Subcommittee for its July 25, 
2006 hearing suggest that matters may grow worse if significant action 
is not taken. Colleen Kelley, speaking to the Subcommittee on behalf of 
the union representing over 15,000 CBP officers and import specialists, 
provided the deeply troubling information that within CBP many 
experienced personnel are leaving in frustration as a result of 
staffing shortages, and that as many as 25% of import specialists will 
either retire or become retirement eligible in the next few years. The 
data provided by Ms. Kelley with respect to the depth of existing 
personnel shortfalls, as well as similar information provided to the 
Subcommittee in the statement of Mary Joe Muoio, President of the 
National Customs Brokers and Forwarders Association of America, further 
underscores importer observations that ports of entry along the 
southern border simply do not have the personnel needed to handle 
increasing daily traffic as effectively as necessary and on a long-term 
basis.
    Relatedly, Ms. Kelley rightly noted that Customs revenues are the 
second largest source of federal revenue collected by the U.S. 
government after tax revenues, and that staffing shortfalls within CBP 
can lead to loss of such revenues. As seen at the Otay Mesa port of 
entry alone, congestion at peak times reduces daily per-truck cross-
border trips from 3 to 4 per day to 1.6 per day. This 50% reduction in 
trips leads directly to a commensurate reduction in revenue for CBP. It 
stands to reason that growing delays in the future will only serve to 
increase losses of such revenue.

CBP MUST CAREFULLY ASSESS THE BURDEN THAT ANY NEW MEASURES WOULD HAVE 
        ON TRADE
    In addition to its concerns about identified trade facilitation 
challenges that already exist at particular points of entry, CEA is 
mindful of the potential for other trade-related challenges that may 
result from further efforts by CBP to increase security. CBP has 
progressively increased the burdens and costs of participating in C-
TPAT, thereby re-writing--after the fact--the terms under which many 
companies originally agreed to join the program.
    For example, CBP has been imposing mandatory standards and 
requirements that were not initially required for participating 
companies, such as requirements that third party business partners 
satisfy many of the C-TPAT requirements. In some instances, the C-TPAT 
participating companies bear the burden of verifying that those 
standards are satisfied by its business partners, which has become a 
very costly expense for C-TPAT companies. This is in addition to the 
significant internal investments that all C-TPAT member companies had 
to make to join the program initially.
    Another issue is that while many consumer electronic companies 
manufacture their products outside of the NAFTA region, they warehouse 
their products in Mexico in order to have sufficient inventory in the 
supply chain for North America. Generally foreign third-party 
warehouses and other foreign logistics providers are ineligible to 
enroll in C-TPAT. Current restrictions on the ability of these 
important players to participate in C-TPAT directly not only restricts 
the smooth flow of trade, but also undermines the U.S. government's 
overall objective of securing as much of the international supply chain 
as possible through C-TPAT and related programs.
    Of more immediate consequence to delay at the border would be any 
new measures that require 100 percent physical inspection of U.S.-bound 
containers. While the security objectives of such a program are 
undoubtedly commendable, unless the significant technical challenges 
and resource allocation issues associated with any such proposals are 
resolved before the proposals are implemented, the on-the-ground 
consequences at the border could be intractable many-mile-long delays. 
Should such undifferentiated delays become more endemic than they 
already are, a readily foreseeable result would be the further erosion 
of benefits promised to companies that have invested in international 
supply chain security through C-TPAT participation.
    Similarly, while we are pleased with developments at Otay Mesa 
regarding the Automated Commercial Environment (``ACE'') system, CEA 
encourages CBP to do everything necessary to develop and implement ACE 
as soon as possible and as broadly as possible, so that it can be used 
by personnel at all border crossings toquickly and reliably process 
entries. As occasional failure of the current computer system at many 
ports of entry is yet another factor that can contribute to entry 
delays at the southern border, CBP should ensure that ACE, once fully 
implemented, make things better and not worse. Because ACE is a system 
intended to streamline virtually every aspect of CBP's commercial 
operations, CBP should be provided with the necessary appropriations to 
make its good intentions for ACE become reality, and it should continue 
to maintain its close communications with the trade community regarding 
development of a system with actual trade benefits.

RECOMMENDATIONS
    Given the level of frustration which already exists among many 
southern border importers and exporters, we welcome Commissioner 
Basham's commitment to the Subcommittee at its hearing on July 25, 2006 
that CBP will be hiring more import specialists by the end of this 
calendar year, in the hopes of bringing CBP back into compliance with 
Section 412(b) of the Homeland Security Act of 2002 (requiring DHS not 
to reduce CBP functions and resources from pre-DHS levels). CEA hopes 
that these new specialists, as well as other new personnel, will begin 
to make a difference for CBP's trade facilitation activities.
    When asked about the consequences of current personnel shortfalls, 
the Commissioner indicated that the shortfalls have not impacted 
validations of new C-TPAT applicants. At the same time, it is not clear 
that adequate resources have been devoted to ensuring that C-TPAT 
members who have already undergone validation receive the benefits 
promised by the program thereafter. CEA hopes that adequate resources 
will be devoted not only to bringing new companies into C-TPAT and 
FAST, but to delivering real results for the companies who have already 
committed to do their part for these important security/trade 
partnership programs.
    A renewed commitment to trade facilitation is particularly 
important for CBP's southern border operations, where comparatively 
small adjustments could have significant results. CEA believes that the 
following changes, if implemented, could be greatly beneficial to those 
users of the southern border who have volunteered to assist DHS in its 
security programs.

Increase Personnel & Adopt Trade-Partner-Friendly Lane Allocations/
        Hours
    We urge that CBP consider making permanent the additional staffing 
(at a minimum during peak months) at high volume border crossings in 
order to expand hours, expedite processing and maintain sufficient 
movement of the queue, thereby cutting down on possible security 
breaches. CBP should have the resources necessary to staff and operate 
all existing gates, particularly at peak times. To ensure that this is 
possible, CEA believes more personnel are required.
    CEA is also in favor of increasing and/or shifting the hours for 
ports of entry, at a minimum during peak months, to provide needed 
staff from 5 AM to 10 PM. This is particularly necessary before and 
after U.S. and Mexican Holidays. Such shifts may be possible by 
apportioning current Saturday hours to other days of the week, so that 
ports can stay open two hours longer per day, Monday through Friday. 
Most traffic is Monday through Friday, while Saturday traffic is 
typically used to accommodate trucks that did not make it through on 
Friday.

Adjust Existing Traffic Patterns to Avoid Blocked FAST lanes and 
        Gridlock Generally, and Add Additional Crossings Where 
        Necessary
    CEA requests that CBP examine both traffic flows within existing 
ports of entry and opportunities to work with Mexico to improve road 
and bridge construction at the border. This includes expediting new 
proposed commercial crossings for ports of entry such as San Luis, and 
the investigation of construction of additional crossings, particularly 
near Tijuana.
    At existing facilities, dedicated FAST program lanes should be 
operated as such, and CBP should quickly work to cooperate with Mexican 
officials to realign traffic patterns so that FAST-eligible shipments 
have access directly to these lanes, without the current need to wait 
behind non-FAST shipments. At its worst in 2005, congestion at certain 
facilities such as Otay Mesa was so severe that it actually blocked 
entry into the FAST lane, requiring companies who volunteered for the 
FAST program and took steps needed to participate to wait in queues 
with all of the other non-participants. This completely defeats the 
benefit to the importer of the fast program, and could lead to 
decreased participation in this valuable security program. As CBP looks 
to dedicate additional lanes, attention should be given to how those 
lanes are aligned with existing traffic flows to eliminate the 
possibility of cross-over with non-FAST traffic.
    Similar efficiencies can be obtained within some of the port 
facilities, by eliminating reverse and crossing traffic flows that 
trucks are often required to follow through the inspection process. 
Inspection equipment infrastructure should also be added, so that 
additional inspection lanes are available to process trucks once they 
enter the facility.

Refine C-TPAT Targeting to Reduce Inspections of Tier 1 Members
    To ensure that existing resources are used as efficiently as 
possible, CEA supports the continued reduction in Automated Targeting 
System scores for Tier 1 C-TPAT members. Reducing these scores should 
serve to reduce the number of unnecessary inspections conducted on the 
imports of C-TPAT members, and allow those resources to be focused on 
higher risk importers who have not volunteered to commit to the C-TPAT 
program.
    CEA also opposes any of the pending legislative proposals that 
would seek to eliminate the ATS score reduction benefit for Tier1 C-
TPAT members. Currently, the limited resources available to CBP for C-
TPAT validations have led to extended waits for companies that seek to 
become Tier 2 C-TPAT members. (Our members report in some cases having 
waited over two years for CBP to complete the validation process after 
the company's certification). Even without a reduction in benefits for 
Tier 1 members, CBP must devote adequate resources to the validation 
process to eliminate such unreasonable delays. Unless and until CBP is 
able to reduce the C-TPAT validation cycle time, any discussion of 
eliminating Tier 1 benefits is counterproductive, as it will serve to 
reduce the benefits of many companies that--but for delay on the part 
of CBP--would otherwise qualify as Tier 2 participants.

Permit FAST Participants' Trucks to Use FAST Lanes Even Without 
        Containers
    An additional entry inefficiency reported by one of our members, 
which seemingly could be easily remedied, stems from the way CBP 
reportedly handles FAST members' trucks that reach ports of entry 
without containers. Under current practice, if a FAST participant's 
truck brings an empty container south, to one of its Mexican 
facilities, and leaves the container there for future loading, upon 
returning to the border without a container the truck is reportedly 
prohibited from using the FAST lane. Instead, we understand the truck 
will be put through the normal non-FAST lanes, which take a much longer 
time to clear, even though the truck has no cargo (or even empty 
container) to inspect.
    If a truck driver has passed all the screening required for FAST 
but has no cargo, it would be more efficient to allow the driver 
through the FAST Lane. In addition to easing congestion in the non-FAST 
lanes, this would ease burdens on FAST member companies, who would be 
able to stockpile empty containers at factories in Mexico for future 
use. Under the current system, it has been reported that stockpiling of 
containers is prohibitive (due to loss of use of trucks while waiting 
to cross the border in non-FAST lanes), which leads to longer inventory 
hold times at the factory while empty containers are brought in from 
the United States. This increases inefficiencies and is not an optimal 
allocation of resources in FAST members' supply chains.

CONCLUSION
    CEA is cognizant of the many challenges that confront our 
government in its efforts to keep Americans safe from external threats 
while simultaneously keeping our borders open to vital international 
trade. CEA and its members therefore wish to thank the exceptional men 
and women of DHS, CBP and ICE who have devoted their professional lives 
to striking an appropriate balance between security and trade, and who 
work every day to overcome these challenges despite at times having 
insufficient resources. Although recent emphasis on security may have 
tipped the scales away from trade in recent years, CEA believes that 
the consequences of such a shift are neither inevitable nor 
irreversible. Instead, with the appropriation of sufficient additional 
resources for trade facilitation, DHS's new agencies can operate 
effectively, and with the cooperation of industry through voluntary 
programs such as FAST and C-TPAT can make our borders effective 
barriers to threats which do not hinder commerce at the same time. 
Accordingly, CEA supports this Subcommittee's efforts to examine 
whether the current appropriations in this area are appropriate, and 
whether they have been sufficiently allocated.
    Thank you for considering our comments. We would be happy to answer 
any questions you may have.
            Sincerely,
                                                 Elizabeth A. Hyman
                                      Vice President, International

                                 

Statement of U.S. Citizenship and Immigration Services, U.S. Department 
                          of Homeland Security

    Mr. Chairman, Ranking Member Rangel, and Members of the Committee:
I. Introduction
    We appreciate the opportunity to submit testimony for the record to 
the Committee about the U.S. Citizenship and Immigration Services' 
(USCIS) Basic Pilot Employment Verification Program (Basic Pilot), 
which provides information to participating employers about the work 
eligibility of their newly hired workers. We will also describe the 
agency's plans to improve and expand the Basic Pilot in preparation for 
a nationwide mandatory Employment Verification Program.
    An Employment Verification Program is a critical step to improving 
worksite enforcement and directly supports the President's goal of 
achieving comprehensive immigration reform. In his speech to the U.S. 
Chamber of Commerce on June 1, President Bush endorsed the Basic Pilot 
as ``a quick and practical way to verify Social Security numbers'' that 
``gives employers confidence that their workers are legal, improves the 
accuracy of wage and tax reporting, and helps ensure that those who 
obey our laws are not undercut by illegal workers.''
    Clearly, if we are to control illegal immigration, we can't just 
focus on the border. Illegal immigrants are living and working in every 
state of the nation, and our solution must be just as comprehensive. We 
must make sure that our immigration laws are enforced in New York and 
Colorado and Georgia, not just along the southwest border. Today, an 
illegal immigrant with a fake ID and Social Security card can find work 
almost anywhere in the country without difficulty. It's the prospect of 
jobs that leads people to risk their lives crossing a hundred miles of 
desert or to spend years in the shadows, afraid to call the authorities 
when victimized by criminals or exploited by their boss.
    That is why the Administration has proposed a comprehensive 
overhaul of the employment verification and employer sanctions program 
as part of the President's call for comprehensive immigration reform.
    There is much we can do in advance of the enactment of 
comprehensive immigration reform. Here's what we are working on at 
USCIS to improve and expand the Basic Pilot:

      Ensuring that more aliens authorized to work have secure 
biometric cards.
      Accessing our card databases for verification of work 
authorization--which will decrease the number of Basic Pilot queries 
that require a manual check.
      Streamlining the enrollment process for employers by 
making it completely electronic.
      Creating monitoring and compliance units that will search 
Basic Pilot and Employment Verification Program data for patterns to 
detect identification fraud and employer abuse.

    The President's FY07 budget requests $110 million for expansion of 
the Basic Pilot to make it easier for employers to verify 
electronically the employment eligibility of workers. Based on our 
planning to date, we believe a feasible timetable allowing for phased-
in expansion of mandatory verification along with flexible, user-
friendly program requirements are essential to expand and operate the 
program as efficiently and effectively as possible.
    We will also reach out to employers, including small businesses, 
for feedback and real-world input, such as ideas on the best ways to 
submit data on new hires with the least collective burden and how to 
make electronic employment verification as user-friendly as possible.

II. The Current Basic Pilot Program and Employment Verification Program
    With that backdrop, we would like to take this opportunity to 
outline how the current Basic Pilot works and the plans USCIS is 
putting in place to expand and improve it in preparation for a national 
mandatory program.
    Congress established the Basic Pilot as part of the Illegal 
Immigration Reform and Immigrant Responsibility Act (IIRIRA) in 1996, 
creating a program for verifying employment eligibility, at no charge 
to the employer, of both U.S. citizens and noncitizens. The Basic Pilot 
program began in 1997 as a voluntary program for employers in the five 
states with the largest immigrant populations--California, Florida, 
Illinois, New York and Texas. In 1999, based on the needs of the meat-
packing industry as identified through a cooperative program called 
Operation Vanguard, Nebraska was added to the list. The program was 
originally set to sunset in 2001, but Congress has twice extended it, 
most recently in 2003 extending its duration to 2008 and also ordering 
that it be made available in all 50 States. However, the program 
remains only voluntary, with very limited exceptions. A small 
percentage of U.S. employers participate, although the program is 
growing by about 200 employers a month to a current 10,000 agreements 
between USCIS and employers. These employers are verifying over a 
million new hires per year at more than 35,000 work sites.
    We seek in operating the Basic Pilot program to encourage the 
voluntary participation of small businesses, and to be responsive to 
their needs and concerns. Most (87%) of our participating employers 
have 500 or fewer employees. We would welcome your support in reaching 
out to enroll even more employers in the program. Interested employers 
can register by going to our Basic Pilot Employer Registration Site at: 
https://www.vis-dhs.com/employerregistration

How the Basic Pilot Works
    After hiring a new employee, an employer submits a query including 
the employee's name, date of birth, Social Security account number 
(SSN) and whether the person claims to be a U.S. citizen or work-
authorized noncitizen (for noncitizens, DHS issued identifying # is 
also submitted) and receives an initial verification response within 
seconds. For an employee claiming to be a U.S. citizen, the system 
transmits the new hire's SSN, name and date of birth to the Social 
Security Administration (SSA) to match that data, and SSA will confirm 
citizenship status on the basis of its Numident database. For the 88% 
of employees whose status can be immediately verified electronically, 
the process terminates here; in the remaining cases, the system issues 
a tentative nonconfirmation to the employer. The employer must notify 
the employee of the tentative nonconfirmation and give him or her an 
opportunity to contest that finding. If the employee contests the 
tentative nonconfirmation, he or she has eight days to visit an SSA 
office with the required documents to correct the SSA record.
    Noncitizen employees face a more elaborate process. Once SSA 
verifies the name, date of birth, and SSN, the system will attempt to 
verify the person's work authorization status against the Basic Pilot 
database. (If a noncitizen's SSN information does not match, the 
individual is first referred to SSA) If the system cannot 
electronically verify the information, an Immigration Status Verifier 
will research the case, usually providing a response within one 
business day,\1\ either verifying work authorization or, in 19 percent 
of cases, issuing a DHS tentative nonconfirmation. If the employer 
receives a tentative nonconfirmation, the employer must notify the 
employee and provide an opportunity to contest that finding. An 
employee has eight days to call a toll-free number to contest the 
finding and cannot be fired during that time because of the tentative 
nonconfirmation. Once the necessary information from the employee has 
been received, USCIS generally resolves the case within three business 
days,\2\ by issuing either a verification of the employee's work 
authorization status or a DHS Final Nonconfirmation.
---------------------------------------------------------------------------
    \1\ Statistics gathered from the Basic Pilot database, Oct. 1, 2005 
to March 31, 2006.
    \2\ Ibid.
---------------------------------------------------------------------------
    As you know, the House and Senate have both passed significant 
immigration legislation this Congress, including provisions that 
require a mandatory electronic employment eligibility verification 
program for all 7 million U.S. employers. Although the House and Senate 
provisions differ in some significant ways, both bills would require 
the eventual expansion to all U.S. employers of an Employment 
Verification Program generally modeled on the Basic Pilot.
    USCIS is already planning for the expansion of the program. The 
President's FY07 budget request includes $110 million to begin 
expanding and improving the Basic Pilot, including conducting outreach, 
instituting systems monitoring, and compliance functions. USCIS is 
exploring ways to improve the completeness of the immigration data in 
the Basic Pilot database, including adding information about 
nonimmigrants who have extended or changed status and incorporating 
arrival information in real time from U.S. Customs and Border 
Protection. In addition, USCIS is enhancing the Basic Pilot system to 
allow an employer to query by the new hire's card number, when that 
worker has a secure I-551 (``green card'') or secure Employment 
Authorization Document. This enhancement will improve USCIS' ability to 
verify promptly the employment eligibility of noncitizens because the 
system will validate the card number against the repository of 
information that was used to produce the card, thereby instantly 
verifying all legitimate card numbers.

Planned Monitoring and Compliance Functions
    No electronic verification system is foolproof or can fully 
eliminatedocument fraud, identity theft, or intentional violation of 
the required procedures by employers for the purpose of hiring 
unauthorized persons or keeping them on the payroll. But an Employment 
Verification Program that includes all U.S. employers, along with 
monitoring and compliance functions and a fraud referral process for 
potential ICE Worksite Enforcement cases, can substantially deter and 
detect the use of fraud by both employers and employees as the 
Administration works to strengthen its overall interior enforcement 
strategy.
    The current Basic Pilot is not fraud-proof and was not designed to 
detect identity fraud. In fact, a recent analysis of Basic Pilot 
systems data found multiple uses of certain I-94 numbers, A-numbers, 
and SSNs in patterns that could suggest fraud. As currently envisioned, 
the Employment Verification Program will include robust processes for 
monitoring and compliance that will help detect and deter the use of 
fraudulent documents, imposter fraud, and incorrect usage of the system 
by employers (intentionally and unintentionally). USCIS will forward 
enforcement leads to ICE Worksite Enforcement in accordance with 
referral procedures developed with ICE. The monitoring unit will 
scrutinize individual employers' use of the system and conduct trend 
analysis to detect potential fraud. Findings that are not likely to 
lead to enforcement action (e.g., a user has not completed training) 
will be referred to USCIS compliance officers for follow-up. Findings 
concerning potential fraud (e.g., SSNs being run multiple times in 
improbable patterns; employers not indicating what action they took 
after receiving a final nonconfirmation) will be referred to ICE 
Worksite Enforcement investigators.
    It is essential that DHS have the authority to use information 
arising from the Employment Verification Program to enforce our 
Nation's laws, including prosecuting fraud and identifying and removing 
criminal aliens and other threats to public safety or national 
security. It is also important that the system contain security and 
other protections to guard personal information from inappropriate 
disclosure or use, and to discourage use of the system to discriminate 
unlawfully or otherwise violate the civil rights of U.S. citizens or 
work-authorized noncitizens.

Planning for the Employment Verification Program
    We are confident in our ability to get a substantially expanded 
Employment Verification Program operational with the President's budget 
request.
    The Administration supports a phased-in Employment Verification 
Program implementation schedule on a carefully drawn timeframe to allow 
employers to begin using the system in an orderly and efficient way. We 
favor having the discretion to phase in certain industry employers 
ahead of others. As noted elsewhere in my testimony, USCIS already is 
working to improve and expand the Basic Pilot program to support the 
proposed expansion.
    USCIS is also committed to constructing a system that responds 
quickly and accurately. In order for this system to work, it must be 
carefully implemented and cannot be burdened with extensive 
administrative and judicial review provisions that could effectively 
tie the system, and DHS, up in litigation for years.

III. Improved Documentation
    In the President's May 15, 2006 address to the nation on 
comprehensive immigration reform, he indicated that businesses often 
cannot verify the legal status of their employees because of widespread 
document fraud. We need, he said, ``a better system for verifying 
documents and work eligibility. A key part of that system should be a 
new identification card for every legal foreign worker. This card 
should use biometric technology--to make it tamper-proof. A tamper-
proof card would help us enforce the law, and leave employers with no 
excuse for violating it.''
    Many foreign workers already possess a secure, biometric card 
evidencing their immigration status as either an immigrant (an I-551 
card, commonly known as a ``green card'') or a work-authorized 
nonimmigrant (an Employment Authorization Document or EAD). Some 
nonimmigrants currently have non-secure EADs, but USCIS is planning to 
eliminate the issuance of these cards in favor of secure cards. In 
addition, USCIS is considering requiringmore classes of work-authorized 
nonimmigrants to obtain a secure EAD. Requiring all work-authorized 
nonimmigrants to obtain secure documentation would help ensure that 
their work eligibility can be instantly verified in the Basic Pilot or 
Employment Verification Program. As discussed previously, USCIS already 
is developing the system capability to verify a new hire's immigration 
card number against the card information repository. Under this new 
system, a legitimate card number matched with a name and date of birth 
will electronically verify in a matter of seconds--and only a 
fraudulent card would fail to verify.

IV. Conclusion
    We in USCIS are in a unique position to understand the importance 
of having legal means for individuals to enter and work in the United 
States. That is why we, and the President, support comprehensive 
immigration reform that includes interior and border enforcement in 
addition to a temporary worker program.
    We thank both the House and the Senate for recognizing the need for 
change in this area. With a strong cooperative effort now, the prospect 
of a truly effective national mandatory Employment Verification 
Program, combined with improved documentation, will reduce pressure on 
border and interior enforcement, simplify today's processes, put 
employers on an equal footing, and support a temporary worker program 
that is vital to our economy.

                                 
         Statement of Ann Weeks, Underwriters Laboratories Inc.

Introduction
    The following is a statement on behalf of Underwriters Laboratories 
Inc. (UL) regarding the critical role of Customs and Border Protection 
(CBP) and Immigration and Customs Enforcement (ICE) in the fight 
against counterfeiting. Counterfeiting threatens the health and safety 
of people and property, undermines the economy, and funds organized 
crime and terrorism. Ensuring that appropriate resources are dedicated 
to CBP and ICE is critical because these agencies are our first and 
best line of defense in preventing unsafe counterfeit products from 
reaching the United States marketplace, and in penalizing 
counterfeiters. The following is anecdotal evidence of how CBP and ICE 
efforts have kept tens of millions of dollars worth of products bearing 
counterfeit UL marks off the market. This statement also provides 
general recommendations on how additional funding could enhance their 
work to further protect the American public.

What is Underwriters Laboratories Inc.?
    For 112 years, the UL mission has been the protection of human life 
and property from product risks and hazards. UL is an independent, not-
for-profit product safety testing and certification organization. 
Founded in 1894, UL has earned a reputation as a global leader in 
product safety standards development, testing, and certification. UL 
evaluates tens of thousands of products, components, materials, and 
systems for compliance to specific requirements, and enables 
manufacturers and the public to benefit from products that meet 
standardized safety requirements. In 2005, an estimated 20 billion 
products entering the global marketplace carried the UL mark.
What is the UL Stake in Anti-Counterfeiting Enforcement?
    Product counterfeiting threatens health and safety, undermines the 
economy and funds organized crime and terrorism. Electrical products 
bearing counterfeit safety certification marks are particularly 
egregious because they lull consumers into a false sense of security. 
Consumers, local and federal authorities, and retailers all look for 
the UL mark to see whether products have met the appropriate safety 
standards. UL aggressively protects the integrity of the UL mark 
against counterfeiters. UL maintains a strict zero-tolerance policy:
    ``It is the policy of Underwriters Laboratories Inc. (UL) not to 
consent to the importation, exportation, or manipulation of merchandise 
that has been seized by Customs and Border Protection or any other 
international law enforcement agency for bearing counterfeit UL 
Certification Marks. This policy is uniformly applied and is considered 
reasonable and necessary in order to protect the integrity of UL's 
Registered Marks. UL does not compromise or negotiate with respect to 
this policy.''

How Does the Work of the CBP Affect the UL Anti-Counterfeiting Program?
    More than a decade ago, UL launched a formal anti-counterfeiting 
program in recognition of the growing threat of counterfeits and the 
potential health and safety risks of such counterfeits. Since that 
time, UL has worked closely with CBP and ICE (previously U.S. Customs) 
to eliminate trade in counterfeit goods and prosecute counterfeiters 
and distributors of counterfeits. CBP officers are our first and best 
line of protection in this fight. Left unchecked, counterfeiters can 
and will flood the U.S. market with poor quality, hazardous electrical 
products endangering the lives and property of millions of consumers.
    Products like low-cost, high-volume extension cords can be 
purchased for under a dollar at discount stores across the country. 
These counterfeit products can cause significant damage to property and 
casualties, even death. Why are these types of counterfeit electrical 
cords dangerous? To properly conduct current, an electrical cord 
requires wire of a certain thickness. Counterfeit extension cords have 
wiring so thin that there is no way they can properly conduct 
electrical current: they will eventually overheat, melt and potentially 
catch fire. Because of CBP vigilance, CBP determined that the product 
was counterfeit and seized this extension cord and thousands of similar 
cords. The CBP routinely makes roughly one-hundred UL-related seizures 
each year, with an estimated value in the millions of dollars. After a 
seizure has been completed, UL uses the information provided by CBP to 
determine the product's origin and to identify others in the supply 
chain in order to take appropriate legal action against the 
counterfeiters.
    During a routine inspection at the San Francisco International 
Airport, a CBP officer detained an individual bringing in five 
suitcases containing ``undeclared'' goods. Examination revealed that 
the suitcases actually contained 1500 counterfeit circuit breakers. 
These breakers will not protect home wiring: they pose a serious 
potential fire hazard. One average cargo container holds approximately 
186,000 breakers. Stopping these products before they enter the stream 
of commerce is vital in the protection of consumer safety.
    The UL anti-counterfeiting program has become among the most 
successful in the world. The hard work and dedication by CBP staff has 
been a major factor in our success. They have welcomed our training 
initiatives and materials and have taken up our fight as their own. 
Over the last decade, they have seized more than 1,200 shipments of 
products bearing counterfeit UL marks, or, put another way, literally 
millions of extension cords, power strips, nightlights and other poor 
quality electrical merchandise.

What Do We Need for CBP to Sustain (or Enhance) Its Effectiveness?
    In 1995, before UL approached CBP for assistance, seizures of 
consumer electrical products were minimal. By 2000, seizures of 
consumer electronics had climbed to three percent of total seizures. 
Recently released statistics for 2005 reveal that seizures of consumer 
electronics jumped to comprise nine percent of total seizures and are 
now the fifth most-seized product category. These numbers do not 
surprise UL: they reflect the increased vigilance by CBP and 
recognition of the clear and present threat that counterfeit posed by 
electrical products. We support the priority that CBP places on seizing 
counterfeit goods.
    This vigilance must be maintained, and ideally increased: 
counterfeiters believe they can flood the American market with shoddy 
counterfeits without consequence. Counterfeiting is becoming crime of 
choice for many criminal elements because margins are high and the risk 
is low. Counterfeiters know the profit potential of supplying consumer 
electronics. They will exploit that potential until it is no longer 
lucrative. Moreover, shipment seizure alone is not enough to deter 
these criminals. To some, a seized shipment is simply the cost of doing 
business. They write off the loss and ship to a different port. Going 
forward, however, prosecution and jail time may pose risks they are not 
willing to take.
    Over the past four years, UL has observed a general decrease in the 
number of staff at ports dedicated to counterfeit surveillance. At a 
minimum, UL would encourage that additional staff and resources be 
dedicated to ports, particularly those ports known to be high 
counterfeit traffic zones. For UL, top priority ports include Terminal 
Island/Long Beach, California (23 percent of UL-related CBP seizures); 
Miami, Florida (at 22 percent); Anchorage, Alaska (at 10 percent); 
Dallas, Texas (at 10 percent); and Newark, New Jersey (at 8 percent).
    UL also supports measures that would help CBP keep pace with the 
sophistication of counterfeiters. This means investing in training to 
help CBP staff understand changing authentication technologies, and 
investment in equipment to readily assess the authenticity of product 
and certification marks. This will help CBP capture copies and look for 
successfully duplicated security features.
    UL supports the Coalition Against Counterfeiting and Piracy (CACP) 
recommendation for increased risk-based modeling in cargo screening for 
trafficking of counterfeit goods. We support any technology-based 
solutions that make CBP processes more streamlined and effective. It is 
important to note that technology works to the benefit of 
counterfeiters as well: this is why the hands-on inspection of cargo as 
it crosses our borders is still vitally important.
How Does the Work of ICE Affect the UL Anti-Counterfeiting Program?
    CBP is authorized to prevent the entry of counterfeit goods: the 
role of the ICE is to identify criminal activity and eliminate 
vulnerabilities that pose a threat the U.S. border. The ICE both 
complements and enhances the work done by the CBP. An ICE investigation 
normally begins with a seizure by CBP. These agencies are most 
effective against counterfeiters when they are able to work hand in 
glove.
    UL has seen just how effective CBP and ICE can be when working in 
together. Instigated by a 2003 CBP seizure, ICE conducted an 
investigation of XYZ Trading Corp. in Houston, Texas. The investigation 
resulted in XYZ's owner, Zheng Xiao Yi, receiving convictions for six 
counts of trafficking and attempting to traffic in merchandise carrying 
counterfeit trademarks. Additionally, the jury found that Mr. Zheng had 
consciously and recklessly ignored the risk of serious bodily injury to 
the public. There is evidence to suggest that Mr. Zheng attempted to 
bribe his way to freedom after authorities learned that he was also the 
subject of an outstanding immigration warrant. Mr. Zheng was sentenced 
to 63 months in a federal prison and faces deportation upon his 
release.
    Last year in Miami, a federal grand jury indicted five individuals 
on three separate charges involving the importation and sale of 
counterfeit goods. On December 13, 2005, ICE agents raided the homes, 
warehouses and flea market booths where the products were sold. The 
merchandise seized, which included electrical cords, batteries, 
handbags, watches, clothing, footwear and other items, was valued at 
over $24 million.

What Do We Need for ICE to Sustain (or Enhance) Its Effectiveness?
    As the examples above demonstrate, CBP and ICE together make a 
stronger impact together than either working alone. With the proper 
funding, resources and direction to partner on these issues, we believe 
that many more successes of this kind can be achieved. These two cases 
send a clear message that trafficking in dangerous counterfeit goods 
will not be tolerated, and that the penalties will match the crime. It 
is our hope that the combined efforts of CBP and ICE will act as a 
strong deterrent to counterfeiters while safeguarding the American 
public from the hazards associated with these products.

CBP and ICE as Models for Counterparts in Other Countries
    Consideration should also be given to enhancing existing 
government-to-government cooperative efforts with U.S. trading 
partners. The CBP and ICE anti-counterfeiting best practices should be 
incorporated into these efforts and appropriately funded. Such 
cooperation is mutually beneficial, with both economic and public 
safety dividends.
    In deciding which countries to prioritize for enhanced outreach, UL 
would recommend China and Canada as top priorities. In 2005 alone, 80 
percent of U.S. Customs-seized counterfeits (related to UL) originated 
in China. With enhanced bilateral efforts underway to improve IPR 
enforcement, including that of the Joint Commission on Commerce and 
Trade, collaboration in this respect is relevant and practical. UL 
would welcome an opportunity to support expanded US-China collaboration 
in this area.

A Mission for Public Safety
    UL appreciates and applauds the dedication of CBP and ICE to 
protecting the American public against terrorists and the instruments 
of terror in the post-9/11 era. As the CBP mission states, they are the 
guardians of our nation's borders; they are America's frontline. The 
mission of ICE is to protect America and to uphold public safety. CBP 
and ICE must be adequately supported to sustain vigilance of not only 
terrorist threats but also the more subtle threats of counterfeits that 
ultimately jeopardize the same values and seek to undermine the 
American way of life.
    UL would be pleased to remain a resource to the Committee on Ways 
and Means, and the Subcommittee on Trade on this and other matters of 
mutual interest and concern.

                                  
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