[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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