    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                       SUBCOMMITTEE ON RURAL DEVELOPMENT
                           ENTREPRENEURSHIP AND TRADE
                     HEARING ON TEXTILE IMPORT ENFORCEMENT
                         IS THE PLAYING FIELD LEVEL FOR
                           AMERICAN SMALL BUSINESSES?

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

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                 June 18, 2009

                                   __________

                                   [GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                Small Business Committee Document Number 111-031
    Available via the GPO Website: http://www.access.gpo.gov/congress/house

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                    NYDIA M. VELAZQUEZ, New York, Chairwoman

                              DENNIS MOORE, Kansas

                          HEATH SHULER, North Carolina

                         KATHY DAHLKEMPER, Pennsylvania

                             KURT SCHRADER, Oregon

                            ANN KIRKPATRICK, Arizona

                              GLENN NYE, Virginia

                             MICHAEL MICHAUD, Maine

                             MELISSA BEAN, Illinois

                             DAN LIPINSKI, Illinois

                          JASON ALTMIRE, Pennsylvania

                            YVETTE CLARKE, New York

                            BRAD ELLSWORTH, Indiana

                            JOE SESTAK, Pennsylvania

                             BOBBY BRIGHT, Alabama

                            PARKER GRIFFITH, Alabama

                          DEBORAH HALVORSON, Illinois

                      SAM GRAVES, Missouri, Ranking Member

                          ROSCOE G. BARTLETT, Maryland

                             W. TODD AKIN, Missouri

                                STEVE KING, Iowa

                         LYNN A. WESTMORELAND, Georgia

                              LOUIE GOHMERT, Texas

                             MARY FALLIN, Oklahoma

                             VERN BUCHANAN, Florida

                          BLAINE LUETKEMEYER, Missouri

                             AARON SCHOCK, Illinois

                          GLENN THOMPSON, Pennsylvania

                             MIKE COFFMAN, Colorado

                      Michael Day, Majority Staff Director

                     Adam Minehardt, Deputy Staff Director

                          Tim Slattery, Chief Counsel

                      Karen Haas, Minority Staff Director

            .........................................................

                                      (ii)

    ?

                             STANDING SUBCOMMITTEE

                                     ______

         Subcommittee on Rural Development, Entrepreneurship and Trade

                      HEATH SHULER, Pennsylvania, Chairman

    MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri,
    BOBBY BRIGHT, Alabama                Ranking
    KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
    ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
    YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                     (iii)

                                C O N T E N T S

                                   __________

                               OPENING STATEMENTS

                                                                       Page

    Shuler, Hon. Heath...............................................     1
    Luetkemeyer, Hon. Blaine.........................................     2

                                   WITNESSES

    Baldwin, Mr. Dan, Assistant Commissioner, Office of Trade, U.S.
      Customs and Border Protection, Department of Homeland Security.     4

                                    APPENDIX

    Prepared Statements:
    Shuler, Hon. Heath...............................................    14
    Baldwin, Mr. Dan, Assistant Commissioner, Office of Trade, U.S.
      Customs and Border Protection, Department of Homeland Security.    16
    Nation, Mr. Dan, President, Parkdale Mills Inc., Gastonia, NC....    22
    Yager, Dr. Loren, Director, International Affairs and Trade,
      Government Accountability Office...............................    34
    Stowe, Mr. Harding, Former President & CEO, R.L. Stowe Mills,
      Belmont, NC....................................................    45
    Crichton, Mr. Richard T., MRC Consulting, Services, Inc.,
      Hopkinton, NH..................................................    48
    Autor, Mr. Erik, Vice President, International Trade Counsel,
      National Retail Federation.....................................    51

    Statements for the Record:
    Shuler, Hon. Heath, Letter to Baldwin, Mr. Dan, Assistant
      Commissioner, Office of International Trade, U.S. Customs and
      Border Protection..............................................    58
    Baldwin, Mr. Dan, Assistant Commissioner, Office of International
      Trade, U.S. Customs and Border Protection, Letter to Shuler,
      Hon. Heath.....................................................    60

                                      (v)

                       SUBCOMMITTEE ON RURAL DEVELOPMENT
                           ENTREPRENEURSHIP AND TRADE
                     HEARING ON TEXTILE IMPORT ENFORCEMENT:
                           IS THE PLAYING FIELD LEVEL
                          FOR AMERICAN SMALL BUSINESS?

                                  ----------

                            Thursday, June 18, 2009

                         U.S. House of Representatives,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    2360 Rayburn House Office Building, Hon. Heath Shuler [chairman
    of the Subcommittee] presiding.
        Present: Representatives Shuler, Michaud and Luetkemeyer.
        Also Present: Representative Kissell.
        Chairman Shuler. The Subcommittee hearing is now called to
    order.
        Before we get started, we are going to be having votes. We
    have 28 votes on the House floor probably in the next 15 to 30
    minutes. Therefore, that is probably a couple of hours. So
    we're going to try to get to ask quickly as we can opening
    statements and hopefully some Q&A, and if not we will just have
    to come back. We apologize for the schedule. Sometimes we just
    do not have control over the schedule. So we will try to get
    through this as quickly as possible.
        In recent weeks our economy has shown promising signs of
    recovery, but we are not out of the woods yet. With
    unemployment hovering at 9.4 percent, we cannot afford to let
    up now. We need every job we can get, particularly in core
    industries.
        But for entrepreneurs and textile trade, keeping workers on
    payroll is harder than ever. Every year we export $16 billion
    worth of items like fabric and clothing. Textiles are a small
    business driving industry and make everything from mini yard to
    baseball caps.
        Even more importantly, the sector employs one million
    American workers, but while textiles clearly play an important
    role in our economy, manufacturers are struggling. Like
    everyone else, these businesses have been battered by the
    recession, but unlike the rest of the country, textile firms
    are facing an additional crippling challenge.
        In this morning's hearing, we're going to discuss the
    impacts of illegal imports on textile entrepreneurs. For small
    businesses, these are often overlooked, but it is an extremely
    important concern. Today we will shed some light on the issue.
        A balance trade system is critical, particular to the
    health of small businesses. That is why the current situation
    is so troubling. While domestic firms are playing by the rules,
    foreign importers are dodging terrorists and getting around
    other trade laws. By gaming the system, they are managing to
    deliver impossibly cheap products, undercutting honest
    entrepreneurs.
        For textile firms across the country, this has been
    devastating. Between 2002 and 2007, more than 1,300 textile
    mills have closed their doors. When these businesses shut down,
    they took countless jobs with them. In fact, the industry
    employment levels have dropped more than 40 percent since 2002.
        And because most textile firms are located in rural
    regions, those areas are really suffering. When a textile plant
    closes, it sets off a domino effect. It is not just mill
    workers who are impacted. It is restaurants, where they eat,
    the clothing store where they go shopping, and the supermarkets
    where they get their groceries.
        We often worry about shipping our jobs overseas. Well, that
    is exactly what happens with textiles. A properly functioning
    inspection system is essential not just to protect American
    consumers, but to protect American jobs. Yet textile
    examinations have dropped off considerably. If we are going to
    guard against illegal imports then we will need greater
    enforcement. It is critical that the Customs and border patrol
    make textile inspections a priority.
        For centuries textiles have played an important role in the
    U.S. economy, but today the U.S. is struggling. It is suffering
    at the hands of foreign businesses that are cutting corners to
    cut costs. We need to be sure our homegrown firms have a level
    playing field.
        Domestic textile businesses do not just keep Americans at
    work. They sustain an entire community.
        I would like to thank all of the witnesses in advance for
    their testimony. I know that they have taken time from their
    businesses to be here, and I look forward to hearing from them.
        With that I will yield to our Ranking Member for his
    opening statement.
        Mr. Luetkemeyer. Thank you, Mr. Chairman for holding this
    hearing on this very important issue. It is one I know is
    particularly pressing for folks back in your district.
        The U.S. textile industry is a critical component of our
    nation's economy, boasting the third largest exporter of
    textile products in the world with over 16 billion in exports
    last year. The textile industry has experience dramatic changes
    in the past decade.
        Today the U.S. textile industry is undergoing negative
    profits, countless plant closings, layoffs, and possible
    bankruptcies. In 1790, a British mechanic named Samuel Slater
    is said to have introduced the first successful American cotton
    spinning mill in Pawtucket, Rhode Island.
        This occasion transferred New England from an agricultural
    to industrial region. The textile industry's focus on the
    individual rather than the family or community was a major
    shift in American society. It meant that the federal government
    would only encourage industry. The actual operation of mills
    would be left to individuals.
        Today, in a lagging economy, individuals who own textile
    firms, the majority of whom are small business owners, are
    struggling to stay afloat. A real concern, especially given
    this country's mounting unemployment rate, is the fact that the
    textile industry employs nearly one million workers in the U.S.
    From 2002 to 2007, the levels of employment have fallen by over
    41 percent.
        In the decades following World War II, the American textile
    industry lost ground to firms in Asia and central and South
    America. In 1946, imports of cottons and wood in manufacturers
    were worth 45 million and 41 million, respectfully.
        Within ten years, they had risen to 161 million and 196
    million. However, textile communities throughout the nation
    were forced to develop new economic strategies, but many
    textile towns continued to decay reflecting the new realities
    of American industry in a global context.
        Folks in the industry are saying that many of these jobs
    are being lost because of illegal imports, illegal textile
    transshipment, the shipment of goods to an intermediate
    destination and from there to yet another destination to
    circumvent trade laws and other applicable trade restrictions,
    and inbound diversion are methods being used to evade U.S.
    Customs duties.
        To be sure, I am an ardent supporter of free trade so that
    we can expand markets for American products. However, we must
    insure that free trade is fair trade. We should not allow other
    nations to illegally exploit our trade agreements to avoid
    tariffs imposed by the U.S., eventually leading to job losses
    in domestic manufacturing. This is something this Subcommittee
    must examine.
        I know the Small Business Committee and this Subcommittee
    recognize how critical U.S. textile industry is to the economic
    health of this country.
        Again, thank you, Mr. Chairman, for holding this hearing. I
    look forward to hearing from the witnesses examining possible
    strategic issues for maintaining U.S. textile companies'
    competitiveness in global markets.
        With that I yield back.
        Chairman Shuler. Thank you, sir.
        At this time I would like to just recognize Larry Kissell,
    also from North Carolina, who is talking about an area and a
    region that North Carolina has certainly suffered in the
    textile industry. So not on the Committee, but obviously, this
    is very important to the people in his community, and so,
    Larry, thank you for being on the dias today.
        At this time I would like to yield to Mr. Michaud for his
    opening statement.
        Mr. Michaud. Thank you very much, Mr. Chairman and Mr.
    Ranking Member, for having this very important hearing today.
    It is so important that, as you know, I chair the Veterans
    Affairs Committee. We have a hearing today over there with
    several bills. I chose to relinquish the gavel toe be here
    today because of the importance of this hearing.
        Having read through the testimony last night, I am also
    pretty amazed and shocked, but not surprised at some of the
    testimony we're going to hear today. And although I have not
    been a proponent of contracting out, I'm willing to look at
    that provision as it relates to Customs. If it means that we
    are going to get better enforcement of what is happening at our
    borders, as well as retailers--I have been a strong supporter
    of small businesses, and reading some of the testimony from the
    retailers about their concern about over zealous enforcement
    because of the textile industry--I would be pleased with
    enforcement of the current laws and put the burden on some of
    the retailers if they knowingly import products that are
    illegal They actually could lose their license if caught.
    That's how strongly I feel about this.
        When you look at the fact that the USTR--I am not too
    impressed with the current USTR, what he has been saying, and
    quite frankly, I do not think he understands what is happening
    when you look at trade and the lack of enforcement o trade.
        It gets right back to CAFTA. when we passed CAFTA it passed
    by a slim vote. One of the reasons why it did pass
    unfortunately is some of the textile industry supported it
    because of the commitment by the Bush Administration that they
    would enforce the law.
        The enforcement has not occurred not only on CAFTA but a
    lot of the other trade deals, and I think it is important when
    we look at the impact of trade, when we look at what is
    happening at our borders that we have that strong enforcement.
        And I can tell you, Mr. Chairman, having talked to some
    border patrol folks after 9/11, one of the concerning issues
    that I have not only on the lack of enforcement when you look
    at, you know, trading issues, but also national security issues
    when some border patrol individuals have told me that when the
    line backs up, the supervisor will go out--and this on the
    Mexican border, not the Canadian border--the supervisor will go
    out and just tell the border patrol folks to let them through.
        So that is not very encouraging when I hear that from those
    who are supposed to protect our borders, but I will be looking
    forward to hearing what U.S. Customs has to say and how we can
    improve and make sure that enforcement is strong enforcement,
    as well as hearing from the retail industry on why they are
    concerned about over zealous enforcement and if they are
    willing to make sure that the retailers who are knowingly
    breaking the law, that they are punished as well.
        So I yield back my time, Mr. Chairman, and really want to
    thank you and the Ranking Member for having this very important
    hearing here today.
        Chairman Shuler. Thank you, sir.
        Our first witness is Dan Baldwin. Mr. Baldwin is Assistant
    Commissioner of the Office of International Trade with the U.S.
    Customs and Border Protection.
        Mr. Baldwin, you are recognized for five minutes.

      STATEMENT OF DAN BALDWIN, ASSISTANT COMMISSIONER, OFFICE OF
       INTERNATIONAL TRADE, U.S. CUSTOMS AND BORDER PROTECTION,
                    DEPARTMENT OF HOMELAND SECURITY

        Mr. Baldwin. Chairman Shuler, Ranking Member Luetkemeyer
    and distinguished members of the Subcommittee, I am pleased to
    appear before you today to discuss the actions that we are
    taking today at Customs and Border Protection to insure that
    the laws governing the importation of goods in the United
    States, and particularly textiles, are properly enforced.
        As you mentioned, my name is Dan Baldwin, Assistant
    Commissioner of our Office of International Trade. My office is
    responsible for formulating CBP's trade policy, developing
    trade programs and enforcing our U.S. import laws.
        The mission of CBP is to prevent terrorist and terrorist
    weapons from entering the United States, while also
    facilitating legitimate trade and travel. Indeed, no other
    country has been as open to legitimate international trade or
    as committed to facilitating trade by simplifying and
    automating its trade processes.
        As a result of America's free trade policies, in our
    increasing efficiencies in processing global trade over 50
    percent of the goods we buy in this country are, in fact,
    imported. Legitimate trade is an integral part of our American
    business.
        Last year we published the CBP trade strategy, our public
    blueprint for now CBP will carry out its trade mission,
    facilitating legitimate trade without depending on ever
    increasing cargo inspections at our 300-plus ports of entry.
        As a practical matter, we can no longer inspect our way out
    of trade problems as an exclusive measure of our enforcement
    actions. Many of our ports of entry are already saturated and
    simply cannot accommodate escalating cargo examination regimes.
    Because of these constraints, the CBP trade strategy recognized
    the need for a more layered enforcement approach. This means
    working both upstream before the entry occurs and downstream
    after the merchandise has already been entered.
        Pre-entry activities, including reaching out to other
    governments to leverage global partnerships to accomplish our
    common goals. Post entry enforcement includes conducting audits
    and taking civil or criminal action against those who ignore
    our trade laws.
        Since we cannot physically inspect every shipments, we rely
    on risk analysis and targeting to identify those shipments most
    likely to violate our trade statutes and regulations. The
    domestic textile industry has achieved substantial productivity
    gains by investing billions in new plants and equipment and now
    ranks third globally in exporting textile products.
        The industry has expressed strong concerns, however that it
    is not receiving the full benefits of its highly competitive
    productivity because of unfair trade practices by the
    countries. The elimination of textile quotas in 2009 largely
    removed the incentive through illegally transshipped textiles,
    but many risks were named. These include country of origin
    fraud, illegitimate trade preference claims, misdescription and
    misclassification, duty evasion, gross under valuation, and
    well as outright smuggling.
        In response to these threats, CBP maintains a robust trade
    enforcement program to insure compliance with all laws and
    regulations governing imports. Our trade enforcement resources
    are concentrated on the most significant trade risks which are
    designated as priority trade issues.
        Textiles and apparel continue to be economically sensitive
    commodities and have, in fact, been identified as one of our
    top seven priority trade issues. The goals of the textile PTIs
    to insure that textile imports which generate more than 42
    percent of the duties collected by CBP fully comply with the
    applicable laws, regulations, free trade agreements, trade
    preference program requirements, and intellectual property
    provisions.
        CBP uses the multi-faceted layered approach to enforce our
    trade laws and to insure the appropriate revenues collected.
    This includes trade pattern analysis, on-site verification,
    review of production records, audits and laboratory analyses.
        Risk management driven textile enforcement operations are
    used to address noncompliance with these laws, free trade
    agreements, and other requirements. New tools are constantly
    being utilized to increase the effectiveness of these
    operations, including our automated targeting system which
    provides numerous targeting elements that were not available in
    the past to allow specific issues to be addressed while
    facilitating those legitimate shipments.
        In addition, we continue to target entities for visits by
    textile product verification teams, make audit referrals, and
    work with foreign governments to enforce our trade laws.
        While seizure statistics at the ports have fallen due to
    the elimination of quotas, our ability to review shipments and
    penalize violators reach as well outside the ports. I would
    strongly caution against the practice of relying solely on
    seizure statistics as an accurate measure of CBP textile
    enforcement activity.
        In 2008, CBP performed 11,800 textile trade exams. Over
    1,700 samples were tested by our laboratories. And 42 textile
    related audits and another 79 were initiated over last year.
    The textile product verification team visits, sometimes we find
    that the facility does not exist or lacks the capacity to
    produce the textile products in question.
        Since 2000, we have visited over 4,500 factories, including
    472 this last fiscal year alone. These on-site verification
    visits disclose major discrepancies, discourage future fraud,
    and help us target specific shipments into this country.
        A major concern we have today, however, is that of the
    supply chain management within the industry itself. Currently
    our verification process and controls are limited to the
    manufacture and importation of the textile goods themselves.
    That leaves large gaps between those two points where we have
    little information, lack the authority to make in-country
    visits or require additional records to insure that
    manufacturers, processors, and importers are all complying with
    the goods within the entire supply chain process.
        In summary, let me say that the U.S. Customs and Border
    Protection is committed to vigorous enforcement of the trade
    laws and regulations. We recognize the vital importance of the
    textile industry to this country, and we continue to focus a
    substantial amount of our trade enforcement resources in this
    priority area to help protect our domestic industry and its
    vital role as an employer in our economy.
        Thank you for the opportunity to testify, and I am happy to
    field any questions you may have at this time.
        [The prepared statement of Mr. Baldwin is included in the
    appendix.]

        Chairman Shuler. Thank you, Commissioner.
        At this time we will open it up for questions. The first
    question I have is if you were to give a grade by the agency,
    if you were to grade the agency on the overall, the numbers if
    you were to take every single container that comes in either
    from our ports or from I guess it would be the land ports, what
    would be the grade if you were to grade the overall agency in
    the last five years of being able to examine all?
        You know, examine every single container would be an A.
    What grade would you give the agency?
        Mr. Baldwin. I would give it an incomplete for the
    following reason, sir. I think the point I was trying to make
    in my testimony, if I were to try to grade--
        Chairman Shuler. We are in politics.
        Mr. Baldwin. I understand. Well, that is why I gave it an
    incomplete. While I would try to argue that inspecting,
    examining at the physical border every single shipment, I would
    probably give CBP an F for collapsing the American economy. It
    is just not possible to do, and I think what you will hear from
    the next panel is that nobody wants us to examine every
    shipment.
        What we need to do a better job, and I think we do a fine
    job actually of being able to target the high risk commodities
    and take the verification activity that needs to take place at
    the right point in the supply chain.
        I would suggest to you that the paradigm of intensive cargo
    examinations at the physical border in Detroit or Los Angeles
    or New York or Loredo, when we had a quota system in place and
    we suspected illegal transshipment from the Far East, that was
    the right point in the supply chain to take a look at that
    activity.
        However, since those admissibility issues no longer exist
    for the most part and our risks are primarily related to free
    trade agreements and qualifications within those free trade
    agreements, physical inspection at the border looking for the
    sweater is really not the right place to be doing that, nor is
    it the right skill set for our uniformed officers to be looking
    at that.
        This is where you might want to deploy better risk analysis
    with our targeters in our national targeting analysis groups in
    New York and in Headquarters, where we might want to use more
    robust use of our auditors and import specialists that
    understand production records and internal control system
    evaluation, looking at qualification processes by the supply
    chain as opposed to the goods themselves.
        Chairman Shuler. So by not examining, we actually have a
    national security threat then, by not examining all of the
    containers.
        Mr. Baldwin. No, sir. We screen 100 percent of every
    shipment that comes in here, meaning our targeters take a look
    at and evaluate for risk every shipment that comes in this
    country, but we do not examine every container that comes into
    the country.
        Chairman Shuler. All right. So what are some improvements?
    As members of Congress, you know, I think so often we want to
    beat up an agency or talk about it. What are the things that we
    can do to help?
        Obviously national security is at the top of the list, but
    to protect our businesses, small business and entrepreneurs and
    especially textiles. What can we do in order to change the law
    or better to improve the work that is done in order for us to
    accomplish our goal, which is to protect American jobs?
        Mr. Baldwin. Well, one item that I would suggest and I
    tried to touch upon is sort of an evolution into evaluating our
    trade work along a supply chain model as opposed to the
    tangible good model. I think what we use in Customs and Border
    Protection certainly for security is trying to evaluate the
    entire supply chain. From the point the container has been
    stuffed abroad to the point it is here, we would like to
    evaluate who has control of the goods all along the way.
        Certainly in the arena of import safety and intellectual
    property rights you are seeing that take greater hold as well;
    that while the goods are important to evaluate that they are,
    in fact, safe, it is also important to know the players
    involved throughout the supply chain, that they are upholding
    their obligations each and every step.
        And I think there is a lot of promise in a lot of our trade
    enforcement actions if we evolve into that direction as well.
    One of the issues that I try to point out, and certainly having
    some discussions with some of our distinguished members on the
    next panel, is understanding how complex the supply chain
    process, the manufacturing process when it goes abroad, for
    example to CAFTA countries and how much work goes within those
    countries. Do we have the right visibility and traceability
    within those countries? It probably does not exist today.
        But I think their way to address that is using a supply
    chain philosophy as a complement to our traditional enforcement
    methodologies to get more visibility and more accountability
    for some of our trading partners abroad.
        Chairman Shuler. So what happens when you get, say, a
    container of sweaters that comes in and you have seen that they
    are trying to dodge the tariffs or, you know, that it is
    improperly imported? What do you do with that container?
        Mr. Baldwin. Depending upon the violation, let's
    hypothetically say it is misclassified and they should have
    paid a higher rate of duty. What we will do is we will issue
    them a bill and they can pay a higher rate of duty, but the
    sweaters go on their way and enter the stream of commerce in
    the United States.
        If it is illegally marked, we may require them to put the
    proper marking on the goods or perhaps we will even seize the
    goods in those circumstances, but for the vast majority of
    circumstances where we would have kept those goods out of the
    stream of commerce when the quota regime went away through the
    WTO agreements, we no longer do that. Now it is usually a
    financial issue, a financial remedy that is applied.
        Chairman Shuler. So how much money is recovered typically
    of the fines?
        Mr. Baldwin. That I would probably have to get back to you
    with some exact numbers.
        Chairman Shuler. but it actually could be a source of
    revenue, probably lost revenue from the federal government and
    probably not collecting those tariffs.
        Mr. Baldwin. And I think what we could probably provide to
    you in a follow-up, sir, is to take a look at what does our
    compliance baseline show as the statistical risk for those
    kinds of issues and give you some sort of idea of what that
    dollar amount would be.
        Chairman Shuler. So if someone--
        Mr. Baldwin. But--
        Chairman Shuler. Oh, go ahead.
        Mr. Baldwin. But I was going to say in our larger
    compliance measurement program this is not textile specific,
    but all imports. We find that we collect 99 percent of the
    duties that are owed through a statistical baseline measure
    that we've had in place since 1995.
        So while there might be several hundred million dollars at
    risk from time to time, given the 30-plus billion dollars we
    collect in revenue, we are not seeing revenue underpayment as a
    significant risk just yet.
        Chairman Shuler. Okay. At this time I will yield to our
    ranking member, Mr. Luetkemeyer.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Do you have a figure of roughly how much or what the value
    of textile goods is that comes into our country illegally?
        Mr. Baldwin. Illegally?
        Mr. Luetkemeyer. Yes.
        Mr. Baldwin. No, sir, I do not.
        Mr. Luetkemeyer. Well, do you acknowledge that some does
    come into our country illegally?
        Mr. Baldwin. I am certain that there are cases of smuggling
    in the inbound diversion as has been highlighted before.
        Mr. Luetkemeyer. Okay. You talked about being
    mischaracterized or mis-licensed or whatever. I mean, do you
    have figures on that?
        Mr. Baldwin. We would be happy to get you some more
    specific information in terms of the magnitude of the violation
    in the aggregate. The kind of numbers we do collect and I could
    provide for you is the amount of verification activities and
    what kind of activities we conduct and what results from that.
        That in and of itself though does not show the amount of
    the risk that we have identified in the textile industry as a
    whole.
        Mr. Luetkemeyer. So how do we know what kind of job we are
    doing if we do not have an idea of how much we are stopping or
    that we are verifying?
        Mr. Baldwin. Well, sir, we do have an idea of how much were
    verified. My apologies if I misunderstood the question. I
    thought you were asking how much of a risk is it. How much are
    we missing? That is a number I could probably give you a
    statistical number for, but my degree of confidence is not the
    highest.
        What I can tell you is how many examinations we do, how
    many import specialist verifications we do, how many audits we
    do, how many laboratory analyses we do, and what the results of
    that verification activity would be throughout the supply chain
    process.
        Mr. Luetkemeyer. A minute ago you said that you were able
    to collect dollars and fines on some of the things that have
    been coming into the country incorrectly or under wrong permit
    or whatever, but you indicated you kind of allowed the stuff to
    go on in and then collected the money after the fact.
        Mr. Baldwin. That is correct. We will issue a bill.
        Mr. Luetkemeyer. Is there any reason why you do not hold it
    until you get the dollars in hand?
        Mr. Baldwin. Because the issue at hand is not an
    admissibility issue. The goods are allowed into the country. It
    is just that we will assess a bill and pay the right amount of
    money and allow the goods to go downstream. There is no legal
    reason to seize or detain the goods at that time.
        Mr. Luetkemeyer. The fact that they have not gotten
    something correct, the fact that they owe the government some
    money and have not paid the bill, that is not enough to hold
    it?
        Mr. Baldwin. No, it is not. We will issue them a bill, and
    we will hold them accountable for paying the bill, but for
    delaying the cargo entry, that is not a legal reason to hold
    the goods as a detention or seizure.
        Mr. Luetkemeyer. How long does it take to get payment on
    those things?
        Mr. Baldwin. Usually from most reputable companies we will
    get 30, 60, 90 days, a short time.
        Mr. Luetkemeyer. What about the ones that are not
    reputable?
        Mr. Baldwin. Then we send them up to our Office of Finance
    for a collection action.
        Mr. Luetkemeyer. And how long does that take?
        Mr. Baldwin. For the most part it is usually collected
    within a reasonable amount of time.
        Mr. Luetkemeyer. Man, I am pulling teeth here. Do you have
    an answer of just the number of days other than ``reasonable''
    and others?
        Mr. Baldwin. Off the top of my head, sir, no, I do not have
    an exact answer.
        Mr. Luetkemeyer. So we do not know how we can hold and how
    we can make sure that we get the dollars on the ones that we
    know are irreputable firms.
        Mr. Baldwin. Those that we know are damaged companies,
    those that we know are irreputable, as you put it, I will have
    to come back with you some answers, but as of right now I don't
    have a strong answer for that.
        Mr. Luetkemeyer. Have you identified some companies that
    are some problems so that if those companies ship goods to us
    that you can immediately target those?
        Mr. Baldwin. We do run special operations and do target
    certain companies for enforcement action, and we do our
    enforcements. We do our import specialist review and look at
    their corporate records, yes. We do take actions against those
    companies.
        Mr. Luetkemeyer. Do you look at their corporate records in
    their country?
        Mr. Baldwin. Here in the United States, the importers.
        Mr. Luetkemeyer. Okay. Whenever you target somebody like
    that, do you target it from the point that it is manufactured
    all the way through the chain to where it gets here or are you
    just catching them at the border?
        Mr. Baldwin. What we will do is we will target them, you
    know, through our risk analysis processes. We will target them
    for whatever the issue may be, for example, like under
    valuation. We will work through the importer trying to gain the
    records to understand and decipher where the problem occurred,
    but some of the problems that have recently been brought to my
    attention, for example is not really with the importer or the
    foreign apparel manufacturer, but it is actually further
    downstream than that, perhaps through the knitter or a
    consolidator, and that is where some of the problems occur, and
    that is where we do not have visibility or traceability into
    their operations.
        Mr. Luetkemeyer. Okay. Thank you, Mr. Chairman.
        Chairman Shuler. At this time I would like to yield to Mr.
    Michaud for his questions.
        Mr. Michaud. Thank you very much, Mr. Chairman.
        Thank you, Mr. Baldwin, for coming here today.
        As I mentioned, I read all of the testimony and actually
    had a chance to talk to some of the people in the industry, and
    some of the concerns without mentioning the individual
    mentioned that they feel that you are the roadblock to custom
    enforcement, and that you actually facilitated the office from
    moving more of an enforcement role to a policy role.
        In reading the testimony also from Mr. Stowe, he had
    mentioned in his testimony that Customs has not hired over 72
    textile apparel specialists that Congress has appropriated. If
    that, in fact, is true, then I would probably agree with the
    statement that you are the problem as far as not enforcing.
        Reading the GAO testimony, they talked about their previous
    findings suggesting that the shift in mission contributes to a
    reduction, reduced focus and resource devoted to custom revenue
    functions, and they also have a lot of concern.
        So I guess my question to you, Mr. Baldwin, is: can you
    explain, in fact, why you have not hired the Customs officials
    to beef up the enforcement at the borders? And do you think
    Customs has dropped the ball on enforcement since you cannot
    state or give accurate numbers at this point to the Ranking
    Member?
        And my third question is later on we are hearing testimony
    from a former U.S. Customs and Border Protection Agency
    individual who is going to speak, and he makes suggestions, and
    if you had a chance to read his testimony, do you agree with
    the recommendations that he is proposing for us?
        Mr. Baldwin. First off, I would comment that it is
    unfortunate if I am viewed personally as a barrier to our
    enforcement actions, but a couple of things I would point out.
        First, when we formed the Office of International Trade
    back in 2007 through the Safe Port Act process, for the first
    time we actually created an Executive Director for commercial
    targeting enforcement. The agency never had a specific office
    dedicated to nothing except targeting and our enforcement
    action. So I think that should alleviate one point.
        Second, I think it is unfortunate that there still
    continues, and it seems like I answer the question most every
    year, that we have not hired the personnel that was directed
    back in 2005. First, the $9 million that was provided was
    divided between Customs and Border Protection and Immigration
    and Customs enforcement.
        Second, the statistics simply just do not prove that out. I
    can point to what is in my written testimony. In 2006 the
    import specialist position alone had 264 positions dedicated to
    textile enforcement; in 2008, two years later under my
    leadership, 329 positions.
        I do not know where the misconception continues to go.
        Mr. Michaud. But you are saying the 72 textiles and apparel
    specialists have been hired?
        Mr. Baldwin. They were hired, and I have actually testified
    on textile issues in the past and have consistently said they
    have been hired.
        I think the problem results unfortunately in the perception
    that we still have not done enough with those positions. And
    while I am happy to continue to talk about what our enforcement
    actions have taken, I would be happy to give you more
    statistics on what actions we have taken and what successes we
    have had.
        I do not want to diminish the fact that of the 329
    positions we have for import specialist in our agency today, it
    composes about 35 percent of all important specialists for all
    issues, dwarfing the amount of resources we dedicate to
    intellectual property rights, import safety, anti-dumping and
    countervailing duty, dwarfs the amount of resources we have.
        Mr. Michaud. My time is running out. So do you feel that
    your operation is more of enforcement or a policy?
        Mr. Baldwin. I would say what we do is we have both. What I
    would strongly suggest is we have--
        Mr. Michaud. More on enforcement or more on policy?
        Mr. Baldwin. We have two separate divisions. One is
    dedicated solely to policy issues. One is dedicated solely to
    enforcement issues. We give them equal attention. We give
    considerable attention to our enforcement role. We have
    significantly stepped up the number of special operations we
    conduct on issues, the work we do with our sister agency,
    Immigration and Customs Enforcement, for criminal civil
    investigative matters has significantly increased not on just
    textiles but all trade enforcement issues.
        Mr. Michaud. And do you support the recommendations on the
    next panel from the former U.S. Customs and Border Patrol
    Agency? Do you support his recommendation?
        Mr. Baldwin. Could you refresh my memory as to what that
    recommendation might be?
        Mr. Michaud. Actually he makes several recommendations for
    improvement in textile verification teams as well as
    recommendations for better enforcement of the classification
    and evaluations of imports.
        I know my time has run out, but we are going to have to run
    out for votes. So if you have not seen his testimony, hopefully
    during the break you can look at it.
        Mr. Baldwin. But certainly as a question for the record I
    would be happy to come back with a more formalized answer if we
    are not able to get to it after the break.
        Mr. Michaud. Great. Thank you.
        Chairman Shuler. Thank you, sir.
        I have one last question.
        Mr. Baldwin. Yes, sir.
        Chairman Shuler. If 40 percent of the duty tariffs coming
    into the U.S. is textiles and we are only examining on the
    basis of value of only a fraction of those and those that you
    are examining we are seeing at 44 percent of them are under
    valued from CAFTA, if 44 percent from the CAFTA agreement and
    only 44 percent of them are under valued, how many millions if
    not billions of dollars is the U.S. losing?
        Mr. Baldwin. First off, I would say most of the efforts we
    would take to evaluate those are targeted initiatives. So we
    have already gone through the process and said this is a high
    risk and we have high level suspicion that this is fraudulent.
    We could not statistically extrapolate from that number to say
    that that is the magnitude of the universe, but we do have
    programs that can give a statistical projection as to what
    those risks would be, and we do use those to help us improve
    our targeting for future actions.
        Chairman Shuler. My last comment would be for every one
    that we do not fully examine, and I know that may be difficult,
    may cause, you know, us to hire more people; for every one that
    does not, there is a family and there is a job out there that
    Americans are losing every single day. If we are losing that
    much money and revenue, we are also losing even more of that in
    the quality of life in America for not having a job.
        So I hope that we can collectively work together, and I
    think obviously from the Ranking Member, I think we are on the
    same page talking about there is a lot of money that is being
    lost, but more importantly, we are looking at lots of jobs in
    the U.S.
        So hopefully we can work together. I think that is the most
    important thing we could do is actually work together and pull
    the rope in the same direction.
        Yes, and if you could just identify a staff member who is
    going to be staying for our next witnesses.
        Mr. Baldwin. Jo Reese will be here, as well as members of
    our Congressional Affairs.
        Chairman Shuler. Perfect. That would be great.
        Well, at this time we are going to be in recess until the
    call of the Chair again, and we will be back shortly after the
    votes are over.
        Thank you.
        [Recess.]
        Chairman Shuler. I call this hearing back to order.
        Due to the length of the series of votes and the schedules
    of our witnesses, we will forego having the second panel of
    witnesses appear before the Subcommittee.
        I ask unanimous consent that the witnesses' statements be
    submitted to the record and any necessary follow-up questions
    be conducted through written correspondence. Without objection,
    so ordered.
        I ask unanimous consent that the members will have five
    days to submit statements and supporting material for the
    record. Without objection, so ordered.
        This hearing is now adjourned.
        [Whereupon, at 6:41 p.m., the Subcommittee meeting was
    adjourned.]

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