[Senate Hearing 118-399]
[From the U.S. Government Publishing Office]
S. Hrg. 118-399
ENDING TRADE THAT CHEATS AMERICAN
WORKERS BY MODERNIZING TRADE LAWS
AND ENFORCEMENT, FIGHTING FORCED
LABOR, ELIMINATING COUNTERFEITS,
AND LEVELING THE PLAYING FIELD
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 16, 2023
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-649 WASHINGTON : 2024
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina
SHERROD BROWN, Ohio BILL CASSIDY, Louisiana
MICHAEL F. BENNET, Colorado JAMES LANKFORD, Oklahoma
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(II)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Allen, Cindy, vice president, regulatory affairs and compliance,
FedEx Logistics, Memphis, TN................................... 5
Meserve, Andy, president of Local 9423, United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and
Service Workers International Union (USW), Owensboro, TN....... 7
Nova, Scott, executive director, Worker Rights Consortium,
Washington, DC................................................. 9
Pickel, John, senior director, internal supply chain policy,
National Foreign Trade Council, Washington, DC................. 11
Smith, Brenda B., global director, government outreach,
Expeditors International of Washington, Inc., Glen Burnie, MD.. 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Allen, Cindy:
Testimony.................................................... 5
Prepared statement........................................... 35
Responses to questions from committee members................ 38
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 43
Meserve, Andy:
Testimony.................................................... 7
Prepared statement........................................... 44
Responses to questions from committee members................ 49
Nova, Scott:
Testimony.................................................... 9
Prepared statement........................................... 50
Responses to questions from committee members................ 63
Pickel, John:
Testimony.................................................... 11
Prepared statement........................................... 65
Responses to questions from committee members................ 70
Smith, Brenda B.:
Testimony.................................................... 12
Prepared statement........................................... 76
Responses to questions from committee members................ 78
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 80
Communications
Center for Fiscal Equity......................................... 83
E-Merchants Trade Council, Inc................................... 84
SafePackage LLC.................................................. 93
Tlusty, Michael, Ph.D., and Andrew Rhyne, Ph.D................... 95
Transnational Alliance to Combat Illicit Trade................... 96
ENDING TRADE THAT CHEATS AMERICAN
WORKERS BY MODERNIZING TRADE LAWS
AND ENFORCEMENT, FIGHTING FORCED
LABOR, ELIMINATING COUNTERFEITS,
AND LEVELING THE PLAYING FIELD
----------
THURSDAY, FEBRUARY 16, 2023
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:34
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Wyden, Cantwell, Menendez, Carper,
Whitehouse, Crapo, Cornyn, Thune, Young, Johnson, Tillis, and
Blackburn.
Also present: Democratic staff: Sally Stewart Laing, Chief
International Trade Counsel; and Tiffany Smith, Deputy Staff
Director and Chief Counsel. Republican staff: Gregg Richard,
Staff Director; Molly Newell, International Trade Counsel;
Mayur Patel, Chief International Trade Counsel; and John
O'Hara, Trade Policy Director and Counsel.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The Finance Committee will come to order.
Trade cheats in China and around the world are constantly
looking for new ways to evade U.S. trade laws and rip off
American jobs and American workers. They wish to sell illegal
products in America--goods made with forced labor, illegally
harvested timber, and products that steal our intellectual
property.
Trade cheats are a grave threat to American workers,
farmers, and businesses--in fact, all Americans who play by the
rules. The most offensive example of trade cheating is the
state-sponsored forced labor that's rampant in China's Uyghur
region. The Chinese Government is arbitrarily detaining more
than a million Uyghurs and other Muslim minorities.
These detainees find themselves thrown into reeducation
camps where they're isolated from their families and forced to
work under the worst conditions. The Chinese Communist Party's
treatment of the Uyghur community is a moral abomination, and
it threatens American jobs.
The math is pretty simple: you pay poverty wages, and you
pollute as you please. Chinese companies have been able to
flood U.S. markets with cheap goods and undercut all the
competition. We believe here on this committee that American
workers are the best in the world, but it's awfully hard to
compete with slave labor.
What's the effect here at home? Factories are shuttered,
and American jobs are lost to China.
We're going to hear today from Andy Meserve. He's a USW
local president whose aluminum factory was idled, in part, due
to forced labor abroad. The problem is that when domestic
aluminum factories like Andy's get shut down, China is the only
game. So companies must commit to cleaning up forced labor in
their supply chains.
In December this past year, I launched an investigation
into allegations that the auto industry is still relying on
supply chains that are tainted by forced labor. The allegation
is that components for cars--from steel to batteries to tires--
have a huge likelihood of being made with Uyghur forced labor.
So our committee asked the eight major automakers about their
supply chains and what they're doing to clean them up.
This, of course, is a flagship American industry, employing
more than 90,000 Americans, contributing over $700 billion
annually to the U.S. economy. America can't allow those jobs to
be ripped off and sent to an economy that strategically pays
workers nothing. U.S. law already prohibits importing products
made with forced labor. The challenge is identifying the
products and stopping them.
Customs agents are on the front lines of this effort. The
Customs folks have a twofold job. First, intercept shipments
that violate U.S. law. Second, they've got to keep legal goods
moving efficiently through American ports. A lot has changed
since 2016, when the Finance Committee passed our last package
of trade enforcement tools.
Senator Crapo remembers working on these issues. I see
Senator Cornyn, Senator Thune. We've been working on these
issues for a long time, the four of us, in a bipartisan way.
The Trade Facilitation and Trade Enforcement Act has produced
real results. It gave Customs the tools to swiftly crack down
on duty evasion that hurts American workers and businesses.
It's helped keep out counterfeits that threaten American
innovation and public safety.
He's not here at this time, but Senator Brown deserves a
great deal of credit for working with us to close an egregious
loophole that was letting products made with forced labor come
to our markets. Closing that loophole was enormously important,
because products made with forced labor can't be allowed to
enter our country, period.
Today, Customs has new challenges. COVID-19 changed the way
people buy and sell goods. E-commerce has exploded. In this
committee, we said years ago that the Internet is the shipping
lane of the 21st century, and that has certainly been evident
over the last couple of years. Shipments have surged. The CBP
is processing millions more packages, small packages, every
day.
Fentanyl and other illicit drugs continue to enter through
our ports. Illegal seafood is entering the U.S. market and
threatening the livelihoods of coastal communities.
Counterfeiters rip off American products, posing an economic
and health threat to American citizens. Intellectual property
theft is estimated to cost the U.S. economy up to $600 billion
every year, much of it from China.
Foreign companies continue to find new ways to work their
way around our trade laws. Keeping out the trade cheats is
something of a game of Whac-A-Mole. In my view, stepping up
trade enforcement requires finding and stopping the cheats and
crafting tools that are flexible enough to stop the next round
of cheaters.
I'll close by saying it's going to take better coordination
with Customs and Border Protection across the U.S. Government,
from the Department of Labor to the fisheries experts in
Commerce. We'll be working with CBP and others to improve our
trade laws to make sure these agencies have the tools they
need.
This morning's hearing is an important first step. We're
going to hear from businesses that need inputs, and some
logistics professionals who work with Customs to keep supply
chains moving. We'll also hear from folks who work to get
forced labor out of the supply chains, and an American worker.
And I know you've worked very closely with us, Mr. Meserve,
to tell us how it's personally impacted you through this unfair
competition. We want to hear how Customs can maximize
enforcement while streamlining imports from Trusted Traders
with clean supply chains. That's going to help U.S. producers
get the inputs they need, reduce bottlenecks, and help our
workers and consumers.
Senator Crapo, I look forward to your remarks.
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you, Mr. Chairman, and thank you for
holding this hearing. It's a very critical issue. And I want to
thank you, our witnesses, for appearing before us today.
As I begin, I want to mention two things particularly,
since this is this committee's first trade hearing of this new
Congress. First, I want to welcome Ms. Cindy Allen of FedEx
Logistics. She traveled here today from Tennessee, the home of
one of our new Finance Committee members, Senator Marsha
Blackburn. We're very happy to have you both here.
And of course, I'm also glad to see Senators Tillis and
Johnson here, who have also just joined the committee. But
we're going to have to wait a little bit longer to get some of
the fine folks from your States here before the committee.
Second, I want to thank Senator Cassidy for his leadership
on the issue of Customs modernization. He spends a lot of time
thinking about how to ensure our Customs laws are effectively
enforced and how to better harness the data to that effect. We
all look forward to hearing his insights as we consider these
issues further.
Modernizing U.S. Customs laws is fast becoming of critical
importance. The last comprehensive update to our Customs laws
occurred exactly 30 years ago. A smart reform now will not only
allow us to seize new opportunities, but also to confront the
rise of opportunists. Some of those Senator Wyden has already
mentioned.
Opportunity is out there right now waiting for the law to
catch up with it. The drafters of the last modernization could
not possibly foresee the technological tools available to us
today, or the sheer number of small businesses that now take
advantage of international trade, or the benefit to consumers
of widespread access to e-commerce. But with any new
opportunity, unfortunately, also comes the opportunists.
Modernization is imperative to counter both existing
threats trying to make their way into this country and those on
the horizon. At the El Paso port of entry, the brave men and
women of the U.S. Customs and Border Protection, or CBP,
seized, in just the month of January alone, over 327 pounds of
methamphetamine, 139 pounds of cocaine, and 42 pounds of
fentanyl. We've got to close the flow of these drugs over our
southern border.
On January 29th, CBP officers at Chicago's O'Hara seized
counterfeit jewelry and apparel that would have been worth over
$686,000 if it had been genuine. CBP is also actively enforcing
a number of withhold release orders and the Uyghur Forced Labor
Implementation Act to keep goods made with forced labor out of
this country.
The good news about Customs modernization is that it's not
an either/or proposition when it comes to trade facilitation
and trade enforcement. By making smarter use of data
collection, we can reduce burdens on both lawful commerce and
CBP personnel so that we can better focus resources on
enforcement challenges.
Let's take an example: something as simple as importing wet
pet food. Importation currently requires the importer to submit
data to assist three of CBP's partner agencies: USDA, FDA, and
the National Oceanographic and Atmospheric Administration, or
NOAA. These agencies cumulatively want 54 data elements, but 21
of these elements are redundant, and there are 16 inconsistent
definitions for the same data. Under these circumstances, the
importer faces the challenge of figuring out what exactly is
required, and our law enforcement authorities may end with
information of little utility.
We can and must do better, particularly given some of the
supply chain bottlenecks we see at our ports. Fortunately, we
are well situated to attack the modernization effort today
because CBP and its advisory committee started thinking about
many of these issues in 2018, when CBP launched its 21st
Century Customs Framework Initiative to develop ideas about
what a modernized Customs regime might look like.
Combining CBP's efforts with additional expertise,
including that of our witnesses today, we can create an
efficient and effective framework. New tools, including
automation, can help us identify risks at an early stage. We
need a system where contraband never enters the United States
in the first place. By catching threats early, we can save CBP
from engaging in lengthy investigations on U.S. soil to figure
out whether something is a threat or not. A modern system will
also expedite lawful commerce to get essential inputs faster to
our manufacturers and goods to our consumers.
To sum up, smart Customs modernization will fight and deter
crime, create jobs, move goods faster, and save Americans money
all at the same time. This is precisely the type of work this
committee was set up to do and does well. I look forward to
working with my colleagues and the committee on taking up that
challenge.
Now I look forward to hearing from our witnesses and their
ideas about how to improve our Customs laws.
Thank you, Mr. Chairman.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. Thank you, Senator Crapo. And I think you're
spot-on in terms of saying there's enormous bipartisan
potential here. And for those who are following, in the last
Congress when there was gridlock, and we went on and on and on,
on the Senate floor, unable to move, Senator Crapo and I walked
into the middle of the Senate chamber, literally in the middle
of the two parties, and put together the amendment that got
more than 90 votes and freed up what was really, ultimately,
the CHIPS legislation. And I thank him and look forward to
working with him as we did before on these trade issues.
Let me briefly introduce our guests. Ms. Allen, you got a
little bit of a sendoff already. I note that you're doing good
work over there at FedEx on regulatory affairs and compliance.
You've been working in this space for 30 years.
We already gave Andy Meserve a little bit of a sendoff,
president of the United Steel Workers, Local 9423, in Kentucky.
We appreciate him.
Scott Nova, the executive director of the Worker Rights
Consortium, is doing good work in terms of monitoring labor
rights abuses around the globe.
John Pickel is with us, senior director of international
supply chain policy at the National Foreign Trade Council. He's
got expertise in a number of issues that are important to us--
anti-counterfeiting, for example.
And Ms. Brenda Smith is with us as well, global director of
government outreach at Expeditors International, which does
global logistics in our part of the world in Seattle. So, we
welcome her as well.
So, let's proceed with our witnesses, and we'll begin with
you, Ms. Allen.
STATEMENT OF CINDY ALLEN, VICE PRESIDENT, REGULATORY AFFAIRS
AND COMPLIANCE, FEDEX LOGISTICS, MEMPHIS, TN
Ms. Allen. Chairman Wyden, Ranking Member Crapo, and
members of the committee, thank you for inviting me to testify
today. My name is Cindy Allen, and I've been working in
international trade for 35 years.
FedEx believes that a connected world is a better world,
and at FedEx, trade is our business. Expanding global trade is
essential to our customers, our team, and the economy. In
modernized trade, Customs processes are key to that. In the
United States, FedEx employs over 412,000 individuals,
accounting for nearly 6 percent of the employees in the U.S.
transportation services sector.
We play a crucial role in the U.S. supply chain that keeps
the country, its people, and the economy moving. We are
immensely proud of our global efforts to combat COVID-19 by
delivering vaccines and critical PPE. And when the trade
disruptions congested our ports, FedEx participated in the
White House Supply Chain Disruptions Taskforce to get trade
moving again.
American prosperity is linked to growing markets and
greater opportunities for U.S. companies, especially small and
medium businesses, which comprise more than 98 percent of U.S.
exports. More than 40 million American jobs depend on trade.
With 95 percent of the world's population and 80 percent of its
purchasing power outside of our borders, global trade will
continue to be of critical importance to U.S. economic growth.
It's not just exports that benefit the American economy,
but imports as well. Nearly 60 percent of imports are raw
materials, capital goods, and industrial products which are
used by U.S. manufacturers and U.S. farmers to produce goods in
the U.S.
If the U.S. hopes to strengthen its manufacturing base, it
must have efficient and reliable access to components from
around the world. We must recognize that there has been a sea
change in the profile of global trade, however. The global
supply chain is more complex and has many more participants,
shifting from trade between large, multinational corporations
to package-based trade between businesses and individual
consumers.
This shift presents unprecedented opportunities to make
global trade more inclusive by enabling small and medium-sized
businesses to participate in the global economy. But it also
presents challenges for the government as they grapple with the
impact of increased low-value shipments and its impact on their
core responsibilities.
Against this backdrop, FedEx supports the U.S. Government
in its efforts to update its Customs rules and adapt to a
changing trade environment. Given the increased number of trade
participants, the government should focus on requiring the
right data at the right time from the right party. Appropriate
guard rails should be included to prevent unnecessary burdens
on companies and supply chains in the name of data collection,
especially elements that do not have demonstrated value for
targeting or admissibility evaluation purposes.
Governments around the world look to the United States for
leadership. When considering new requirements on U.S. imports,
the U.S. should ask whether U.S. exporters, especially those
SMEs, would support the same requirements being placed on their
exports by other countries.
A truly successful Customs modernization needs to be a co-
created approach to leverage best practices and to develop
feasible joint solutions in a bidirectional manner.
In our written testimony, we outline seven concepts for
consideration. For example, the original Customs Modernization
Act established the International Trade Data System to act as a
single window for all the agencies. The Automated Commercial
Environment did deliver that single window, but it currently
has 47 different panes, one for each of the agencies involved
in international trade. And the glass is a little bit different
in every pane.
To truly unify the trade processes, both for the government
and for trade, a forum for government-wide policy should be
established that looks at processes and procedures, and should
be given the responsibility and the authority to make joint
decisions for trade and enforcement purposes. And the trade
must have an active role in this forum.
Additionally, shipments have a history when they arrive at
the border. Government agencies have expressed interest in
receiving critical data associated with these shipments and
parties to the transactions to better inform their
admissibility decisions. We propose an iterative or progressive
filing be developed to allow the right party with the right
data at the right time to provide data much earlier in the
supply chain, which should be linked to Trusted Trader
benefits.
Lastly, FedEx would like to highlight the importance of a
current feature of the U.S. Customs laws that facilitate trade,
the strong U.S. de minimis provision. De minimis is a
longstanding feature of the United States import system.
Congress looked at this issue most recently in 2016 via the
Trade Facilitation and Trade Enforcement Act, which explains
that the higher de minimis value threshold provides significant
economic benefits to businesses and customers in the U.S.--and
the economy of the U.S. And it's important to note that CBP has
the same, if not more, opportunity to review, screen, examine,
and seize shipments in the de minimis environment as they do
every other shipment into the United States.
Additionally, in the express environment, we have dedicated
individuals who work side-by-side in partnership with CBP and
other government agencies to identify and eliminate goods in
violations of these laws. We'd love to invite the committee,
the chairman, the ranking member, to visit the Memphis Airport
and visit our world hub to see this in action.
Thank you for inviting me, and I look forward to our
discussion today. Thank you.
[The prepared statement of Ms. Allen appears in the
appendix.]
The Chairman. Ms. Allen, thank you.
Let's go next to Mr. Meserve.
STATEMENT OF ANDY MESERVE, PRESIDENT OF LOCAL 9423, UNITED
STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY,
ALLIED INDUSTRIAL, AND SERVICE WORKERS INTERNATIONAL UNION
(USW), OWENSBORO, TN
Mr. Meserve. Hello. Thank you, Chairman Wyden and Ranking
Member Crapo, for the invitation. Thank you, members. Thank you
for the opportunity to testify today on modernizing our trade
laws and improving our country's trade enforcement. My name is
Andy Meserve, and I am union president of United Steel Workers
Local 9423.
My local represents workers at Century Aluminum, Hawesville
Kentucky Smelter, located on the Ohio River. Our plant is one
of six remaining primary aluminum smelters in the United
States, which when operating employs around 650 union and
management workers, making up to 250,000 tons of primary
aluminum a year.
I'm a maintenance mechanic by trade, meaning that I am
responsible for ensuring everything from conveyor belts to
cranes operates safely in a manufacturing process that turns
raw materials into primary aluminum. My job is to not just fix
the immediate problem, but to do preventive maintenance and
find root causes to any breakdowns, making recommendations to
management on how to solve the problems long-term.
In some ways, you all are managers of our country's
economic well-being, so I hope that my testimony today will
highlight the immediate problems facing our smelter, but also
make long-term recommendations to ensure the U.S. has a
competitive primary aluminum industry, which is critical to our
national security.
If you Google Hawesville Kentucky Smelter, the first thing
that comes up are articles that highlight high energy prices
that temporarily idled my smelter, throwing over 600 workers
into economic uncertainty. To me, that is like looking at a
broken conveyor and not asking what caused that failure.
Yes, energy prices are a factor in our current plant
idling, but we need to step back and see if we can set
conditions for success in long-term operations. Aluminum is a
globally traded commodity in an energy-intensive trade-exposed
industry. The policies and decisions you make in trade will
impact whether we have a domestic aluminum industry or not,
just as much as regional power prices.
My immediate recommendations to you are that we update our
trade enforcement laws and quickly respond to illegal trade
practices, put in place trade rules that better account for
worker abuses and environmental pollution, and ensure that we
prioritize Customs and Border Patrol efforts to collect duties
and stop illegal goods at the border.
Regarding trade enforcement, the USW has supported a bill
which passed the House of Representatives last Congress and was
lead in the Senate by Senator Brown and former Senator Portman,
commonly known as the Leveling the Playing Field Act 2.0. The
legislation would have provided a number of trade law updates
that would give new tools to U.S. workers and manufacturers to
fend off illegal dumping and subsidized goods. We urge the
Finance Committee to take up that bill this Congress and pass
it as soon as possible.
Another enforcement action we could take today is stopping
Russian aluminum imports into the U.S. It's hard for me to sit
here at this table and not be angry that we allow Russian
aluminum imports to enter our country while 500 of my brothers
and sisters and fellow Americans are out of work who could make
the same product. The USW supports every effort to prohibit
Russian aluminum products from entering our market. The union
sees value in placing tariffs on Russian aluminum products, but
it would be more effective to sanction or place a total ban on
downstream products that have Russian smelted and cast primary
aluminum in the supply chain.
Congress must also do everything you can to limit forced
labor goods and goods made in countries that prohibit free and
independent unions from entering our markets. My written
testimony goes into detail on how forced labor practices in
China affect the global aluminum supply chain. This must stop.
We should be making primary aluminum here and not allowing
traders to hide behind outdated contracting policies which
allow forced labor goods into globally traded commodities.
My union has prepared a number of other recommendations to
better account for dumping and subsidized goods. Significant
work and my union's dollars have gone into that effort. I
support those recommendations and ask that you act swiftly on
them. I do this not just for my union brothers and sisters at
my local, but also to ensure a better, more democratic global
market.
I look forward to answering your questions and thank you
for your time.
[The prepared statement of Mr. Meserve appears in the
appendix.]
The Chairman. Thank you very much, Mr. Meserve, and we know
this is a particularly challenging time for workers. I mean,
you're trying to come out of the pandemic. You're dealing with
supply chain issues, and then you're bumping up against these
unfair trade practices like forced labor and the kinds of
things you've outlined. And we want to come up with some
policies that give workers more of a chance to get a fair
shake, and we appreciate it.
Okay; Mr. Nova?
STATEMENT OF SCOTT NOVA, EXECUTIVE DIRECTOR, WORKER RIGHTS
CONSORTIUM, WASHINGTON, DC
Mr. Nova. Chairman Wyden, Ranking Member Crapo, thank you
for the opportunity to testify. My name is Scott Nova. I'm
executive director of the Worker Rights Consortium, an
organization that monitors working conditions in global
manufacturing supply chains and promotes respect for worker
rights. We're a member of the Coalition to End Forced Labor in
the Uyghur Region.
I'll address the enforcement of the Uyghur Forced Labor
Prevention Act in section 307 of the Tariff Act. The removal of
the consumptive demand exception from section 307 and the
enactment of the UFLPA are rare elements of U.S. trade policy
that constrain the ability of corporations to produce goods
under abusive and unlawful conditions overseas and sell them in
the United States.
These laws are of immense importance to vast numbers of
workers and a major step toward fair competition in the global
economy. Strong enforcement is crucial. Most corporations will
not of their own volition respond adequately to the risk of
forced labor in their supply chains, even in circumstances as
horrific as those we've witnessed in the Uyghur region. That is
why the UFLPA was necessary.
In assessing UFLPA enforcement, we are mindful that the law
is prodigious in scope and the task facing the enforcement
agency is daunting. We recognize that the executive branch and
Congress are committed to enforcement. Eight months since the
law took effect, there are positive indicators.
Shipments are being detained in a growing list of
industries, and importers know they face unprecedented
scrutiny. Many, though by no means all, major apparel brands
have exited or are exiting the Uyghur region. Demand for
Xinjiang cotton is plummeting.
There are also reasons for concern. Customs and Border
Protection is not reporting adequately on enforcement. For
example, the data CBP publishes on its most important actions--
stopping shipments with content from the Uyghur region--lumps
all relevant data points into a single statistic: the number of
shipments or entries identified for further examination. The
statistic is so broad as to be meaningless.
We do know, for example, what percentage of the shipments
CBP examines are detained versus allowed into the U.S. Solar is
a priority under the law, but CBP does not publish sufficient
data for the public to know if its enforcement effort reflects
that.
Not only is there no disaggregation of the data by
industry, much less disclosure of which specific importers are
trying to bring in banned goods, CBP does not report which
countries targeted goods are coming from. We also do not know
whether CBP is addressing industries more recently identified
as high-risk, like auto, steel, and aluminum. As researchers at
NomoGaia and Sheffield Hallam University have shown, if you
bought a car in the last 5 years, there is a good chance it
contains parts made with Uyghur forced labor. The UFLPA and its
strong enforcement are the keys to ensuring that your 2024
Toyota or Ford does not. Your letter to auto executives,
Chairman Wyden, was an important wake-up call for the industry.
Insufficient forced-labor reporting by CBP is not a new
problem. It dates back to the section 307 enforcement push that
began in 2016. Accountability depends on reasonable
transparency. It is important to the enforcement of the UFLPA
in section 307 that CBP provide more and more informative data.
The UFLPA mandates that the government maintain a list of
suppliers implicated in Uyghur forced labor so their products
can't enter the U.S. The list contains only 20 companies and
has not been expanded since June.
The decision to add a company must be made carefully and in
a time frame that allows the list to serve its purpose.
Independent researchers have identified hundreds of candidates.
It is important that the Forced Labor Enforcement Taskforce,
which manages the list, acts expeditiously to add companies
that deserve to be included.
Statements by CBP also suggest too much emphasis on the
tiny volume of goods exported directly from the Uyghur region
to the U.S. CBP should not ignore this channel but should not
allocate disproportionate resources to it. To put this in
perspective, direct U.S. imports from the Uyghur region before
UFLPA were $300 million per year. The U.S. will import twice
that volume of goods from all other sources just during the
time it takes to complete this hearing. Addressing this set of
issues, hopefully with expanded resources from Congress, will
strengthen a UFLPA enforcement effort already having an
unprecedented impact.
I'll conclude by offering two observations on broader
enforcement of section 307. First, while Customs modernization
is a worthy objective, it is vital to ensure that it
strengthens and expedites forced labor enforcement. Among the
modifications to avoid would be adding layers to the withhold
release order process that would give importers violating the
law new tools to delay enforcement.
Second, if we want corporations to exercise due diligence
on forced labor, we need to enforce the law. The reason
corporations fail at due diligence is not because they can't
figure out how to do it, but because it costs money to do it
right, including paying prices to suppliers commensurate with
running a clean shop.
By contrast, importing goods made with forced labor in
violation of the law hasn't cost most corporations anything.
When the vigorous enforcement of section 307, including fines
on importers, makes the cost of failing to prevent forced labor
higher than the cost of succeeding, we will see due diligence
from industry.
Thank you, and I welcome your questions.
[The prepared statement of Mr. Nova appears in the
appendix.]
The Chairman. Very good.
Mr. Pickel?
STATEMENT OF JOHN PICKEL, SENIOR DIRECTOR, INTERNAL SUPPLY
CHAIN POLICY, NATIONAL FOREIGN TRADE COUNCIL, WASHINGTON, DC
Mr. Pickel. Good morning, Chairman Wyden, Ranking Member
Crapo, and members of the committee. Thank you for the
opportunity to discuss these important topics. I'm John Pickel,
the senior director of international supply chain policy at the
National Foreign Trade Council, or NFTC. The views expressed
today are mine and on behalf of NFTC, not representing any
previous employer or specific company.
Trade supports 40 million jobs and increases the purchasing
power of households by $18,000 annually. The U.S. Customs
system has been tested by recent disruptions, but still
provides a firm base for American companies to supply families
and businesses with the products that they need.
Customs modernization proposals should encompass the
following principles. One, balance trade facilitation
enforcement. Effective compliance can be done in a way that
facilitates legitimate trade. Well-defined challenges should be
addressed through jointly developed solutions with clear
outcomes that consider impact on trade flows and promote
similar balance across government agencies.
Two, clarify the responsibilities of actors throughout the
process. As trade models shift, government and industry need to
set clear expectations and maintain flexibility, particularly
to ensure that the correct information is being collected from
the right party at the right point in the process.
Three, promote partnership between government and industry.
Partnership constructs need to be updated to promote voluntary
information sharing that addresses compliance actions earlier
in the supply chain and improves efficiency of enforcement.
Four, embrace automation to simplify the processing of
cargo. Automation improves efficiency but is reliant upon
inputs from various actors, which can be onerous on small
businesses. So, required information should be available and
relevant in addressing critical visibility gaps.
Five, apply Trusted Trader principles to address emerging
risk factors. Current Trusted Trader programs were developed in
partnership with private industry and should adapt to meet
emerging demands through the same spirit of collaboration and
trust and provide meaningful benefits aligned with the cost of
participation.
Improving the efficiency of the trade processes promotes
product availability and increases purchasing powers for
families and businesses. Third Way found that improved
facilitation in the following areas could create almost 1
million American jobs.
First, simplifying border processes ensures predictability
of rules, fees, and processes. Second, embracing digitization
has saved the government $1.75 billion, and many hours for
industry. This system should ensure government-wide
participation and a process with resources to improve
functionality. Third, focus on speed and security through risk
management prioritization with meaningful de minimis and
informal entry policies to provide quick and compliant
clearance.
Congress ensured that over 1 billion annual shipments to
families and businesses would not be subject to taxes and
administrative burden by increasing the de minimis threshold in
2016. These shipments are subject to trade laws and largely
compliant. De minimis treatment of low-value goods reduces
costs, but eroding this policy would be a regressive tax that
disproportionately impacts low-income households and diverts
resources from current enforcement priorities.
There is no place for forced labor in American supply
chains, period. American companies continue to shift sourcing
away from regions of concern and would like to work with CBP to
further compliance efforts through testing supply chain tracing
technologies and anticipating detention prioritizations under
the Uyghur Forced Labor Prevention Act.
As we address visibility gaps in complex supply chains, the
trade community craves predictability and clear due diligence
standards to structure sincere compliance efforts. Engagement
with partner governments should address the root causes of
forced labor, including recruitment practices and governance
around existing laws related to forced labor.
In closing, I'd like to emphasize that the world will be
watching how the U.S. seizes the leadership opportunities
discussed here today. Commitment to trade facilitation through
open rules-based trading is a standard that we should be
exporting to our trading partners.
Thank you for your attention to these important topics, and
I look forward to your questions.
[The prepared statement of Mr. Pickel appears in the
appendix.]
The Chairman. Thank you very much, Mr. Pickel.
Ms. Smith?
STATEMENT OF BRENDA B. SMITH, GLOBAL DIRECTOR, GOVERNMENT
OUTREACH, EXPEDITORS INTERNATIONAL OF WASHINGTON, INC., GLEN
BURNIE, MD
Ms. Smith. Mr. Chairman, Senator Crapo, and members of the
committee, thank you for the chance to testify before you
today. My name is Brenda Smith, and I currently work as the
global director of government outreach for Expeditors
International of Washington, a global logistics, freight-
forwarding, and information company.
Previously, I served for 7 years as the Executive Assistant
Commissioner for Trade at U.S. Customs and Border Protection.
The views I express this morning are my own and do not
necessarily reflect the position of my current or past
employer.
The pandemic laid bare the weaknesses in a global system
that moves goods from farmers and manufacturers to consumers.
In the 40 years that I have worked in this arena, the volume of
global trade has multiplied 32 times what it was in the mid-
1980s. This staggering growth has been accompanied by an
overlay of trade agreements, expanded supply chain parties, and
increased consumer expectations.
Customs administrations have also evolved over those same
40 years, mostly in response to border security challenges,
leaving many trade modernization efforts unfinished. In my work
on the U.S. single window, I learned the importance of
developing a clear vision and then translating this vision into
legal, operational, and technology frameworks.
My own statement of principles underlying such a vision
would include the following things. First, leveraging Trusted
Trader investment to share risk information and truly
streamline entry and compliance procedures by all regulatory
agencies. Make the green lane a priority and a reality across
all types of shipments and all trade processes. This approach
should extend to expansion and full implementation of AEO
mutual recognition agreements.
Second, truly digitizing agency requirements for supply
chains, including a continued commitment to the U.S. single
window and a full rationalization of data requirements to
minimize redundancy and focus on collecting only the most
important data at the right time from the right party. More
data isn't always better. Quality is more important than
quantity.
Third, planning and practicing a response to supply chain
disruptions across all government agencies and their supply
chain partners. Resiliency will be greater if potential
regulatory and operational flexibilities are determined in
advance and recognize the lower risks associated with Trusted
Traders.
And fourth and finally, a single process across all
government agencies with requirements for goods crossing
borders, to include the alignment of their regulations,
operational processes, Trusted Trader programs, and a
commitment to using only the single window for the collection
of data.
What will it take to implement this vision? There are many
things that could be included, but I'd like to highlight two
specific areas: first, an investment in Customs personnel and
technology; and second, collaboration with stakeholders.
First, implementation will require ongoing investment in
the softer parts of Customs infrastructure, specifically
expertise and technology. Aside from significant investment in
forced labor capabilities, the level of CBP's nonuniformed
trade personnel has not materially increased since CBP was
founded in 2003.
In addition to ensuring that there are enough specialists
to handle the growth in trade complexity, these individuals
need to be well trained in both modern business practices and
traditional Customs competencies, with a dedicated trade and
cargo academy and regularly updated curriculum. Today's
emerging technologies can support greater supply chain
visibility and a targeted risk management approach that
facilitates trade and improves revenue collection, compliance,
and security in ways not possible even 5 years ago.
The second requirement for modernization is collaboration
with stakeholders. I worked extensively with the trade
community and valued forums that allowed frank discussion and
consensus building among trade stakeholders. Expanding private-
sector engagement with the partner government agencies through
the Border Interagency Executive Council and driving more
active regulatory operational and technology coordination
through forums like the COAC, the Trade Support Network, and
the BIEC would result in better problem-solving and a trade
environment that meets the needs of both government and the
private sector.
I thank this committee for the opportunity to advocate for
Customs modernization. Much work remains to be done, but I
strongly believe that it is worth pursuing as we support
opportunities for businesses and consumers as they engage in
the global marketplace.
[The prepared statement of Ms. Smith appears in the
appendix.]
The Chairman. Thank you very much. And all of you have been
excellent.
I'll start with you, Mr. Meserve. I was reading your
statement last night in the wee hours, and I thought you really
hit it strongly how aluminum made with Uyghur forced labor gets
into the global supply chains. And you describe how companies
in China take advantage of slave labor and undercut their
competitors on environmental laws. And then you were really
specific about how multiple Uyghur-region producers make
primary aluminum, and that's made at your facility in Kentucky.
You know, that's the ball game. Uyghur-made aluminum goes into
Chinese auto parts and ends up on the international metals
trading platform.
So here's my question, because this gets pretty complicated
and all the rest. It seems to me you've really given us a very
eloquent statement, a very good statement, saying that all you
want, all the workers want, is a more level playing field--that
you can beat the pants off the competition as long as you get
close to a level playing field. Is that a fair assessment of
what you're trying to make sure we understand in the Senate?
Mr. Meserve. Well, thank you for the question. Yes, we have
520 well-trained steel workers in Kentucky who can make primary
aluminum. We can do it well. We can compete with anybody in the
world as long as we're given the opportunity--and like I said,
a level playing field with market power that's accessible,
where people aren't flooding the market with goods, driving the
prices down, or manipulating the LME.
The Chairman. Well, you tell the members of your union that
we thought you were a little logical for Washington, DC, but
you said it really well, and that's what we're committed to
doing. Senator Crapo and I have been working on this for some
time--to get you a more level playing field--because this is a
private economy and markets, and we know you can win in those
markets if we just get you a level playing field. I thank you.
Mr. Meserve. Thank you.
The Chairman. Mr. Nova, our investigations team learned
about these allegations of troubling practices in the auto
sector, with the key auto inputs: steel, aluminum, copper. They
are increasingly made in the Uyghur region, which has
documented ties to forced labor. We are reviewing the answers
we've gotten from the companies. I'll have more to say as we
get a chance to have a more thorough analysis.
My initial take is, they've got a lot more work to do, and
we're going to be following up and looking at the entire
automotive supply chain. And my question to you is--you've been
working with these companies to eliminate forced labor, so what
would be your counsel to the automobile companies? What should
they be doing to ensure that we get this forced labor scourge
and the products associated with it out of the supply chain?
Mr. Nova. Well, in the broader sense, they need to take all
the steps necessary to ensure that none of the inputs that end
up in their vehicles are coming from the Uyghur region or from
any producer elsewhere in China participating in the scheme
whereby the Chinese Government forcibly transfers Uyghur
laborers to other parts of the country to work under forced
labor conditions.
More specifically, the first step is to know where the
inputs are coming from. And I say that wanting to be clear that
these corporations could have and already should have known
where these inputs are coming from.
The Chairman. Let me make sure we understand that. They
should have known already?
Mr. Nova. Should have known already. Sometimes
corporations, including auto companies, will act as if the
origins of the inputs that go into their cars are some kind of
unfathomable mystery. But the reality is, they have the ability
and the power to know where every single element comes from. If
they don't know, it's not because the information is
unknowable, but because they've not prioritized gaining and
maintaining that knowledge. So they need to start there. They
need to know where the aluminum comes from. They need to know
where the other raw materials come from. They need to know
where every element comes from.
The Chairman. All right.
One last question, if I might, Mr. Pickel, for you, on this
fentanyl issue. This is the single deadliest drug threat that
our country has encountered. The deaths just keep going through
the stratosphere, nearly 70,000 in 2021. It definitely has hit
Oregon very, very hard.
Last month, Oregon Live reported a massive drug bust near
Salem, uncovering 45,000 fentanyl pills. Worse yet, these were
counterfeit pills: fentanyl masquerading as oxycodone, so no
one knew that one pill--just one pill--could kill them. We're
hearing constantly from families who've lost kids too early,
and no community is safe. And we've been very concerned about
Customs' role here and believe more needs to be done.
You worked on the STOP Act implementation at Customs, which
provided Customs more advanced information on air shipments and
better risk analysis and the like. I, again, think that there's
a lot more that needs to be done. I mean, I just described to
you that last month in my State--this is not somewhere else
thousands of miles away, but in my State--they found 45,000
fentanyl pills. So what else do you think this committee ought
to be doing to beef up the enforcement effort to deal with this
scourge?
Mr. Nova. Senator, thanks for the question. I think the
availability of fentanyl is certainly an ongoing issue, and I
think a small silver lining may be that with passage of the
STOP Act and enactment of the requirements that you referenced,
there have been shifts in how fentanyl comes to the United
States that have been well documented in the press.
I'm obviously not here representing CBP--and they may have
additional thoughts on this--but what I would offer is that
data sharing capabilities, particularly with foreign postal
operators, provides very valuable insight to enable enforcement
actions.
The Chairman. Do you think we ought to be pushing foreign
postal operators to be working more closely with us?
Mr. Nova. I think that this committee and the U.S.
Government should work with those foreign postal operators to
understand what information is important to target in on that
particular risk. That may shift over time, so developing a
dynamic framework for shifting what data is available would be
very beneficial in an enforcement posture.
The Chairman. I'm way over my time.
Senator Crapo?
Senator Crapo. Well, thank you, Senator Wyden. And I'm
going to follow up on that exactly. I have been meeting with
the sheriffs in Idaho across my State because of the very same
crisis that's happening in Idaho that Senator Wyden talked
about in Oregon. In fact, one of my sheriffs said to me that
every State is a border State in the context of fentanyl,
because it's coming into every single State in massive amounts
and in massive ways. So I believe this is one of the key issues
we need to address as a specific risk that comes from our
border protection.
You just indicated, Mr. Pickel, that the STOP Act and some
of the other things that have already been done have shifted a
little bit, or at least improved our understanding about how
and where it's coming across the border. I know that at one
point--and today still, there is still a lot of argument about
that.
There are those who say that most of it comes through the
ports or the ports of entry, and others say it's just coming
across the border because of the virtual free flow of illegal
entry across the border. Could you give any of your insight on
that?
Mr. Nova. Yes. Thank you, Senator. So, the movement of
narcotics through ports is a much more controlled environment
to be able to address enforcement actions and deploy
technologies that can detect these substances more readily. So,
pushing those movements into that environment do improve the
enforcement efficiencies significantly.
I can't speak to the current flows. I'm not in the
government anymore. But what I would say is that the sharing of
information and identifying risk factors earlier in the context
of supply chain movements will certainly impact the improvement
of compliance in that area.
Senator Crapo. All right. Thank you.
Do any of the other witnesses have knowledge or expertise
you could share with us on this issue? [No response.] All
right. Thank you. Then I'll move on.
Ms. Allen, you intrigued me. Your testimony intrigued me
when you talked about how what we intended to be a single
window actually has 47 different window panes, and they are of
different types of glass, so to speak. Could you elaborate on
that a little bit? I think that it's probably something that
most Americans can intuitively understand in terms of a
description of bureaucracy, but would you please elaborate on
that a little bit and tell us how maybe we could fix that?
Ms. Allen. Yes. Thank you. Thank you, Ranking Member Crapo.
I was also glad to hear in your comments that you mentioned the
multiple streams of data that have to be filed, the same data
elements, and the different definitions and terms that are used
in different agencies. I'd like to point to the definition of
``agent.''
In a review of all of the 47 different agencies that have
both the authority to stop goods and have jurisdiction over
imports and exports, the term ``agent'' is littered throughout,
and there are 10-plus different definitions of agent. And you
can imagine I, as a Trusted Trader with the U.S. Government, am
trying to file that data, so I'm not sure how I'm acting at
that particular moment. Am I an agent by the definition of FDA?
Am I an agent of the USDA? Am I an agent of Customs and Border
Protection?
So really looking at those common definitions in the
regulations and streamlining those will help facilitate legal
and lawful trade. Most companies want to be compliant with the
law, but it's very complicated. That's why Ms. Smith and I have
jobs to make sure that we're assisting that trade facilitation.
There are a couple of things beyond that that we can do.
One is ensuring that the information that goes into single
window actually goes through the window. Right now, we have
agencies that have built systems outside of that single window
that I, as a Customs broker, have to file data through to get
release of the cargo. And then I have to repeat that process
within the single window, so we'd like to have one true single
window as it was intended in the Modernization Act as it was
first passed.
The other thing is the policy, procedures, and processes.
Every agency has their own jurisdiction. They're authorized by
different congressional committees to carry out that work, and
have their own sets of laws and regulations that they must
comply with, and we understand that. However, as a participant
in international trade, we would like one body, one forum to go
to, to really understand what I need to do to be compliant.
What do I need to do as a trader to meet all those different
regulations and truly provide that single window experience so
that we understand what is needed to facilitate the trade?
Senator Crapo. Well, thank you very much. I appreciate the
information you've provided us and the advice that you've given
us on that issue. I think we do need to fix it.
Thank you.
The Chairman. I certainly share your view, Senator Crapo.
Our next two Senators will be Senator Carper and then
Senator Cornyn.
Senator Carper. Thanks, Mr. Chairman. Welcome everybody.
Nice to see you. Thanks for your presence and your input today.
Last Congress I introduced legislation, along with Senator
Cornyn, Senator Menendez, and Senator Tim Scott--all members of
this committee--and it's called the Customs Trade Partnership
Against Terrorism Pilot Program Act. It has an acronym, as you
know. I hate acronyms, and I'm inclined not to use one in this
case, but it was approved--I think unanimously--by both the
Homeland Security and Governmental Affairs Committee, on which
I serve, and it was approved by the full Senate, as you may
recall.
Our bill would expand a successful program within the
Customs and Border Protection agency that I'd like to think of
as kind of like a TSA pre-check, but for goods instead of for
people.
A question, if I could, for Mr. Pickel. I love your name. I
don't know if anybody's told you that today. Makes me smile
when I say it. And, Ms. Smith, I love your name too, ma'am.
Ms. Smith. Thank you.
Senator Carper. In your experience, for both of you, how
would expanding programs like the one that we're talking about
here today--the Customs Trade Partnership Against Terrorism
Pilot Program--improve the efficiency and security of our
supply chains? And what other measures should we consider here
in Congress in order to modernize the screening of goods on our
borders? Mr. Pickel, do you want to go first? I just want to
say your name again.
Mr. Pickel. Thank you, sir. I would say any effort to
expand the participation in the CTPAT--I'll use the acronym--
partnership would be helpful so long as those participants do
have full control of their supply chain. They would need to
meet those requirements and understand the limitations of what
exists within their business models.
I would say that an important part of reconsidering the
role of CTPAT would be how can that cadre of willing experts in
industry be used to tackle new and emerging risks in the
Customs space; and also, how can we look at the value that
businesses are getting within their business models, because it
does require significant resources to participate in these
programs.
Senator Carper. All right. Thank you.
Ms. Smith, any thoughts?
Ms. Smith. Thank you. My name isn't as quite as interesting
as my colleague's.
Senator Carper. You've got a boot on your right foot; are
you okay?
Ms. Smith. I am. Thank you, sir.
Senator Carper. Good. I used to wear one of those.
Ms. Smith. It's a terrible thing.
Senator Carper. I broke my foot running a half marathon--on
the first mile.
Ms. Smith. I don't have as good a story.
Senator Carper. All right. But it ended well.
Ms. Smith. Thank you.
I think we have an opportunity to take a look at how we use
Trusted Traders, whether it's the CTPAT program or the
Authorized Economic Operator programs around the world, and
really look at the process that we use to facilitate low-risk
trade. By and large, the members of partnership programs are
meeting a very high standard for security and for trade
compliance. And I think we could take a look at the process,
using a managing-by-account approach, provide more data up
front, and let the individual transactions, the individual
shipments which are relatively low-risk, flow through.
I think that that would set a standard, an international
standard, and then we can use that for our businesses around
the world through mutual recognition agreements.
Senator Carper. All right. Thanks for that.
One last question, I think. Back to you, Mr. Pickel.
There's been discussion about the pros and cons of the de
minimis program, but I want to focus on one specific quirk of
the program related to the foreign trade zones.
Every State in our country has at least one foreign trade
zone, as you know, and Delaware is no exception to that.
Currently, goods entering the U.S. from other countries are
eligible to use the de minimis provision. However, goods
imported through the U.S.-based foreign trades zones into the
U.S. markets are not. I'm concerned that this disparate
treatment may have unintended consequences, such as giving
foreign distributors a cost advantage over distributors located
in the U.S. foreign trade zones. And this may, in turn,
incentivize e-commerce operations to be located offshore rather
than in U.S.-based zones that employ American workers.
Quick question: in your experience, how do you think the
U.S. companies would benefit if they could take advantage of de
minimis when they import goods through foreign trade zones;
just briefly?
Mr. Pickel. U.S. companies would benefit from the use of de
minimis thresholds being applied to entries through foreign
trade zones. I would say that we would want to work closely
with you to make sure that that's done in a precise way that
doesn't have unintended consequences.
Senator Carper. All right. Thank you. Thank you for your
brevity and for your testimony.
The Chairman. Thank you, Senator Carper.
Senator Cornyn?
Senator Cornyn. Thank you, Mr. Chairman.
Ms. Smith, maybe I'll start with you. The Infrastructure
Investments and Jobs Act contained about $3.8 billion for CBP,
including $450 million directly appropriated to CBP, and
another $3 billion for the General Services Administration that
can be used for port-of-entry modernization. Would you comment
on the current state of those facilities--that infrastructure,
that technology--and what additional investments or what
additional things that the U.S. Government should do to
facilitate the flow of legitimate trade and commerce across our
border? The southern border is what I'm thinking about,
obviously, coming from Texas.
Ms. Smith. Yes, sir. Thank you for the question. I think we
have a tremendous opportunity with a huge investment in our
physical infrastructure. Two points I would make. One, many of
the ports of entry are constrained by their physical footprint.
They just don't have room to grow. I do believe, as I mentioned
in my testimony, we have an opportunity to think about what a
green lane looks like to facilitate low-risk trade.
Senator Cornyn. Green lane means you wave it on through,
right?
Ms. Smith. Wave it on through. We have good partners,
compliant partners, low-risk trade. We have the technology.
Let's apply it to build a process that supports a green lane.
The second thing I would note is that, as I mentioned in my
testimony, physical infrastructure isn't the only thing we need
for the process. The technology and the expertise of the
Customs personnel are as critical, I believe, as physical
infrastructure.
Senator Cornyn. Well, of course, I'm very familiar with the
men and women in blue who work at our ports of entry along the
southern border between Mexico and Texas. And frequently when
we talk about Mexico, when we talk about our southern border, I
will hear people say we should seal the border, which, if you
come from Texas, strikes me as very odd. And I guess if you
think about it, it's pretty odd because Mexico is our single
largest trading partner, and U.S. companies amount to more than
half of Mexico's foreign investment.
So, Ms. Allen, I imagine FedEx does a lot of business in
Mexico; is that correct?
Ms. Allen. Yes; we do business in 220 countries around the
world, so we definitely have a presence in Mexico, and have a
robust business in Texas, actually operating foreign trade
zones in Texas, which we support very heavily.
Senator Cornyn. Me too. Well, I know FedEx has a big
portfolio, but just focusing now on Mexico, I remember when
China became fashionable because of the low cost for
manufacturing in China, and a lot of manufacturing moved from
Mexico to China. Now we're seeing a reversal of that because of
concerns about supply chains and because of the rising
hostility of the Chinese Communist Party, and now we're looking
for friend-shoring or other friendly places where we can secure
those supply chains.
And Mexico, given the fact that they're already a major
trading partner of the United States, would seem like a logical
place for those manufacturing facilities to land as part of
that friend-
shoring. It also strikes me there are other benefits to the
United States just because our economies and our countries are
tied together by a common border. And anything we can do to
help Mexico help itself and prosper and create jobs and
economic opportunity would take a lot of pressure, I think, off
of the border itself in terms of illegal migration, but also
would benefit the United States through increased trading
opportunities. Would you share some thoughts on that topic?
Ms. Allen. Firstly, I'll say we are very much in favor of
trade across the southern border. Our FedEx jobs--we say all of
our jobs are trade jobs. We have almost 600,000 individuals
around the world. They are a part of trade, so we have a
presence in Mexico. I share Ms. Smith's opinion that the
infrastructure is a challenge on the southern border as well as
staffing.
We support additional staffing at the ports. We've found,
in our experience, that with additional staffing, those ports
of entry have better outcomes and facilitate trade in a much
more efficient manner. I also believe that that bidirectional
education that happens between trade and CBP is a good thing.
We do meet with our CBP colleagues and the Mexican Customs
authorities to ensure that we have good working relationships
to facilitate trade and share best practices and ideas across
that border every chance we get.
Senator Cornyn. Thank you very much.
The Chairman. Thank you, Senator Cornyn.
Next is Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. Mr. Chairman, when
I came in, in 2015, I never did a maiden speech, but I thought
that maybe for this hearing this will be kind of a replacement
for it.
The Chairman. All right.
Senator Tillis. For you all, I thank you for being here.
Ms. Allen, FedEx was a client of mine back in the 1980s. I
spent a lot of time in Memphis, and every time I was there, I
spent a lot of time at Rendezvous too getting some good ribs.
Mr. Pickel, I know your name is not spelled exactly right,
but when you get a chance, you ought to take a trip to Mt.
Olive, the center of the pickle universe and Mt. Olive pickles.
And to the other witnesses, thank you all. My family has a
proud tradition of labor membership. I have a brother-in-law
who started Fruit Growers Express and retired from CSX, and
another brother-in-law who just recently retired from CSX, and
other families.
And, Mr. Pickel, I spent about 10 years of my career as a
partner at Price Waterhouse in global supply chain management,
strategic sourcing, offshoring when we had to, and I think we
have a great opportunity ahead of us. I've heard a lot of great
ideas from members here on this committee, and I do think the
focus needs to be on China. There are other bad actors--
actually, we have allies who are bad actors, but I hope that we
can have a broader view.
I'll give you an idea of how I think we need to go against
China and have them notice a whole-of-government, a whole-of-
Congress approach across many committee jurisdictions. Last
week I met with the DEA, and the transnational criminal
organizations have completely changed the game on how they
launder money. They don't go to semi-sophisticated people
carrying cash around. They go to a global network of banking
entities that are moving across this globe and laundering
billions of dollars, known entities that the DEA knows. We need
to be able to track them down, and we can do that in the
Banking Committee and maybe here in Finance.
I have two companies headquartered in North Carolina--one
is Nucor Steel, which is not a union shop, but a very well-
regarded steel producer--that are being ripped off every single
day of the year for the last decades. And I've seen some of our
partners have bad behavior in dumping illegal steel here in
this country.
Charlotte Pipe, Mr. Chairman, is a family-owned business in
downtown Charlotte that has a very sophisticated business, but
still maintains its old-time foundry image. You can go to a
province in China, and they have like a Hollywood movie set. It
looks just like Charlotte Pipe. It's called Charlotte Pipe.
They print Charlotte Pipe on it, and they dump it in this
country and other countries. They're one of the biggest
producers of pipes in the United States. But I think we need to
let China know we know what they're doing.
I have a friend, Enes Kanter Freedom. He was an NBA
standout who basically got fired by the NBA because he stood up
against the issue of human rights violations against the
Uyghurs. We need to let them know that they are benefiting from
literally slave labor and forced imprisonment. We need to let
them know that we know that they are exploiting our financial
system. We need to let them know that they're making it unfair
for union labor to actually compete on a level playing field.
Can we get all of the links in the supply chain back?
Absolutely not. And even if we could, we may want to think
strategically about countries that we do want to have strong
trading partnerships with, especially in this hemisphere. We
need to make sure that we have four or five green lanes coming
across all land ports of entry in Mexico to increase commercial
traffic there and to get them through here, but also know that
China is sending precursors to Mexico and poisoning hundreds of
thousands of people across the globe and killing about 100,000
people from opioids, fentanyl.
We need to let them know we know this, and the best way we
can do that is to have a coordinated effort with the House and
the Senate and the committees of jurisdiction to say, ``We got
you. We're going to match you on trade. We're going to compete
fairly. And we're going to move supply chain links out of China
to countries we can rely on.''
And we can't forget how we saw those supply chains break
down with COVID. So, I think that this is a great opportunity,
and I believe that there's a huge bipartisan base of people
here to vote on it. If we have the hearings and we have the
markups, we can send a message to China that's going to benefit
the free world, and it's going to benefit free markets. So you
all can count me in. We'll make sure that we're in touch with
you all. You can count me in on listening to your priorities,
because everything I heard in your opening testimony was spot-
on. Count me in to help.
Thank you, Mr. Chair.
The Chairman. That was some kind of maiden speech, I'm
telling you. Well said, Senator Tillis. And for all our guests,
you really heard just now a capsulized summary of what this is
all about, and particularly the call for some bipartisanship.
I understand our friend from Indiana has voted. So what I'm
going to do is turn this over to him, and then I'm going to try
and get back as quickly as possible. We've got a list of
colleagues who may be coming in and out. And I thank you,
Senator, my friend. Thank you.
Senator Young [presiding]. Thank you, Mr. Chairman. I
appreciate your leadership. And I want to thank our witnesses
for your willingness to appear here today, offer your words of
wisdom, and share some knowledge about what can be a really
complex issue.
Ms. Allen, thank you in particular. We are so grateful for
the significant presence that FedEx has throughout the State of
Indiana--in particular, your massive facility in the
Indianapolis area. It is an amazing city within a city that
lights up at night and is processing so many shipments, as
FedEx generally does every day. To be exact, 16 million
shipments are processed each day. It blows the mind. But a lot
of Hoosier jobs depend and will depend, as we look into the
future, on our trade system working effectively. Reducing
friction where we can, optimizing the systems, all the boring
stuff of government--that really, really matters to rank and
file Hoosiers.
So they've delegated to me to try and sort some of this out
and improve what we're doing, keep doing what doesn't need to
be improved. Ms. Allen, can you explain how the international
express shipping process works at major facilities like FedEx's
Indianapolis hub? And then I'll give you an opportunity
momentarily to tell us about the policy changes that have been
discussed here today and which ones matter most to you.
Ms. Allen. Thank you, Senator. And I have to say, I grew up
in Indiana. I actually grew up in Plainfield, IN, which abuts
the airport, and my high school boyfriend's farm is now the
FedEx hub facility there--so, near and dear to my heart, and I
love getting back there.
Senator Young. Well, he'll be able to see you on YouTube
now.
Ms. Allen. That's right.
Getting shipments in, we take information in from multiple
sources. Anyone can ship anything anywhere now, and getting
that information into the systems at the foreign port is really
critical. They put in that raw information, and we share that
information with the government. We want to make sure that the
government, specifically CBP, has an opportunity to understand
what's coming in to the country, from who, how it's transiting
into the U.S.
And when it arrives here, then there's another transfer of
information on the manifest. So there's a robust amount of
information for every shipment, regardless of value, as it
comes into the United States. We then file additional
information with CBP once the goods are 24 hours out,
requesting a release, and that means we're telling them this is
a formal shipment--it's over $2,500 or it's de minimis, it's
under $800--and file a few more data elements.
I think it's important to note that the data between a de
minimis shipment that's under $800 and a shipment that's over
$800 is just a few data elements for release purposes. So, CBP
has the opportunity and the information available to make good
targeting decisions. And in the case of FedEx, we have Customs
on site in our facilities, and we work hand-in-glove with them
to make sure that they have the information and access to the
cargo that they need to, to make those seizures, to identify
concerning or illicit products.
We work with them, work with other intelligence agencies as
well. We welcome them into our facilities because, really,
there is no place in our network for illegal or illicit
substances, and we try to do everything we can to work with law
enforcement to make sure that that is eradicated from our
system. So, thank you.
Senator Young. Well, you've gone exactly where I wanted you
to go. You've painted a picture of a number of forms and
processes and activities which are essential to your work in
ensuring that we work together to catch those violations like
drug trafficking or Chinese counterfeits. And we want to be
careful, but we want to be bold as we implement policy changes.
So, would some of the policy changes expressed here today
improve the process you've laid out, and if so, how? And if
they'll create challenges, if there are certain ones that you
have great concerns about, if you could vocalize that to me, it
would be appreciated.
Ms. Allen. I think we have a great opportunity before us
with the Customs modernization. Our written testimony outlined
seven high-level concepts that we think are great opportunities
to marry enforcement activities with trade facilitation for
legal and lawful importers.
The Trusted Trader system has mainly offered benefits in
the security and physical areas. We'd like to see that expanded
from a compliance perspective, and we think there's an
opportunity to do so. CBP and other government agencies have
outlined that they would like additional data earlier in that
process. They want an ability to have access to the data that's
there. They want to offer companies that want to have a Trusted
Trader status file that information in an iterative manner as
it's transmitting through that process that I just spoke
about--and even before it even becomes a shipment, back to the
source materials.
This has a couple of benefits for CBP from an enforcement
perspective, but also for the trade. If I'm filing information
all the way back to where that aluminum was actually produced,
I can prove that I have no forced labor in the supply chain.
And similarly for trade agreements, if I understand and can
demonstrate through that filing the origins of those goods,
it's an automatic qualification for free trade agreements,
which is an onerous process today to actually qualify those
goods. So I think there are opportunities for facilitation
married with that enforcement activity by the delivery of
Trusted Trader benefits.
Not everyone is going to be able to do that, specifically
small and medium enterprises. We help our SMEs a lot, because
this is not their business. They don't know the international
laws, and they rely on companies like FedEx to help them
navigate that process. So I think that you'll find that larger
companies that do want to do the right thing will participate
in that, and we'll help our SMEs participate in that trade
process moving forward.
Senator Young. Thank you, Ms. Allen. I'm over time, and I'm
sure my colleagues will have some thoughtful follow-ups. And I
continue to rediscover the importance of seniority in this
institution. So, my senior and distinguished colleague from
Idaho, take the con, as we say in the Navy.
Senator Crapo [presiding]. Thank you very much, Senator
Young, and we'll turn it right over to Senator Thune.
Senator Thune. Thank you, Mr. Chairman, and thanks for
having the hearing today on Customs modernization. I want to
welcome all of the witnesses.
In 2015, I led a trade provision with my colleague, Senator
Wyden, which was included in the Trade Facilitation and Trade
Enforcement Act--which was the last major Customs bill--and
that particular provision updated the de minimis threshold for
imports from $200 for products to $800. The idea behind the
update was to reduce trade barriers and allow more low-value
items to be imported into the country duty-free and with fewer
unnecessary administrative requirements.
Ms. Allen, in your written testimony, you state that the
current de minimis provision streamlines trade and benefits
American consumers, small and large businesses, e-commerce
platforms, and transportation companies in many sectors of the
economy. And I know you've touched a little bit on some of the
issues surrounding that subject, but if you could elaborate on
the importance of the de minimis provision and why it's so
critical to American customers and business--and then there is
a concern among businesses, I would say of all sizes, that that
threshold could be reduced or even eliminated, as some have
proposed, and maybe talk about that impact.
Ms. Allen. Yes, thank you, Senator. De minimis is extremely
important when you're talking about trade facilitation. Those
small and medium businesses now have opportunities like they've
never had before. And if you think about what happened during
the pandemic, when large-scale shipments had an issue
transiting through our ports, the e-commerce environment of
sales was actually exploding and allowing goods to get to
consumers who didn't have an ability to go out to the stores
and procure those products.
So, the de minimis provision actually supports the e-
commerce space to a great degree. We think that it does
facilitate small and medium businesses and that they're able to
transit the trade process, which I explained is very complex,
in a much more streamlined manner.
I think one of the concerns that I've heard in the industry
is also the amount of data and the ability of CBP to target
that. CBP, as I mentioned, does have access to ACAS, which is
the Air Cargo Advanced Screening data that's filed multiple
times by air carriers to make sure that the CBP has the
opportunity to target data, specifically the parties to the
transaction, when it comes in.
And then we file a manifest that has more specific data and
tells Customs where it's coming, where we landed, what's going
to happen to those goods after the fact, and then we have some
commercial data that's filed as well. So CBP does have the
authority, the data, and the opportunity to have enforcement
actions in the de minimis environment, and specifically in our
hubs where they're actually located.
We have a number of seizures that result from that very
robust targeting process, so I think it's important from a
small to medium perspective. It's important to continue that
process for opportunities for the American public.
Senator Thune. And how about the proposal to change those
limits?
Ms. Allen. The proposal to change the limits we would be
concerned about. We think $800 is a good amount, and I know our
company worked with you on that provision in TFTEA. The data
that we see, the average value is much lower than $800. And as
we are moving that forward, looking at eliminating that--this
allows companies to not pay a tax. Tariffs are a tax, and the
de minimis provision has been around for a long time, basically
to avoid an additional tax on goods coming into the United
States for small imports, and many of those imports are
legitimate.
Senator Thune. I want to hit one other subject here
quickly, and that has to do with market access, greater market
access. Better trade facilitation obviously would be a welcomed
development for U.S. producers and manufacturers as well, but I
would argue that greater market access would provide some of
the most durable and outsized results for American businesses
and workers. So, could you just comment quickly on why it's
important to expand market access opportunities for American
exporters--which, according to your written statement, I
believe, are more than 98 percent small and medium-sized
businesses?
Ms. Allen. Yes, the U.S. is a leader. There's no question
about that. When you go to the WTO, the WCO, those countries
and those bodies look to the U.S. and say, ``What is the U.S.
doing?'' So the U.S. has always had a leadership role in market
expansion, and also Customs modernization activities. CTPAT was
an idea born in the U.S. and then adopted as the AEO around the
world, so we have a great opportunity to lead the world in
market access. And we took a bold step in TFTEA in doing that
so that we could lead the world in market access and develop
small and medium-sized businesses, not just here, but globally.
And that could elevate the economies, not just here, but also
globally, which is really important. And that de minimis
provision and its equivalence around the world are critical to
that.
Senator Thune. Thank you. And I would add, in terms of the
trade policy of the current administration, there is really
zero that I can tell related to market access. There's a whole
bunch of other things that are being contemplated and
considered, but that, to me, is the fundamental issue when it
comes to certainly the ag exporters that I represent.
Thank you.
Senator Crapo. Thank you.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
I wanted to ask Mr. Pickel about the Coast Guard
Authorization Act, which was part of the NDAA bill last year.
It includes a number of provisions to improve identification
and enforcement of illegal fishing and forced labor in the
fishing industry.
As you know, many agencies have a role in combating this:
NOAA, CBP, and the Coast Guard. One provision includes the aim
to improve identification of forced labor at sea by training
Federal officials so they can identify forced labor on the
ground. When those officials ultimately identify the forced
labor, where will that data go? How will we inform law
enforcement about the flow of those goods?
Mr. Pickel. Thank you, Senator. So, I'm not familiar,
personally, as I'm not in that particular position anymore
within the government. What I would point out to you
specifically--i.e., fishing concerns--is that there are
responsibilities spread across several agencies and that there
are tremendous opportunities to improve information sharing as
well as joint training programs, particularly between DHS and
the Department of Commerce and NOAA.
In that regard, I think that gets to your question in terms
of making sure that the information is readily available to
make sure that the identification of suspect shipments is
specifically identified at the point that it hits U.S. ports.
Senator Cantwell. You hit on it, and that's what I want--
interagency coordination--because it's a joint effort, and they
have to share the data and information so that we can grow our
capacity here.
Mr. Pickel. And I think one other item I would add to that,
ma'am, is to identify opportunities for engagement with
industry so that you're getting the full picture of what that
industry looks like and how those commodities are coming into
the U.S. market so that those agencies have the benefit of that
insight.
Senator Cantwell. Great. Thank you.
Ms. Smith, welcome. You have experience, both at CBP and in
technology issues. Technology can increase Customs clearance
efficiency in many ways, but you still have to have staffing
and resources. Do you have a view on the general staffing and
resources capacity at our Customs clearance at our seaports
today? Do you have recommendations on what we should do to
improve that?
Ms. Smith. I do. And thank you for the question. CBP is
known by its people in blue, the uniform. But what I would call
out are the significant number of trade specialists, analysts,
auditors, and attorneys that sit behind the uniformed force
that have a lot of the Customs competencies that help ensure
both trade enforcement and trade facilitation.
As I noted in my initial statement, the investment in CBP
workforce writ large since the events of 9/11 has been
tremendous, but the investment in the nonuniformed trade
specialists has been relatively minimal, aside from the
tremendous investment made this past year in the forced labor
capability. I believe very strongly that the agency needs to
have the bandwidth to be able to think through what a
modernized Customs process looks like, to implement the
regulations, the processes, and the technology. And to do that,
you not only need to have sufficient numbers of personnel, but
they need to be well trained in the legal frameworks, but also
in how modern business works every day. And Cindy Allen
mentioned the concept of bidirectional education. I think there
are many companies, including my own, Expeditors of Washington,
that are interested in working with the government to be sure
that we understand what the government is looking for and that
the government understands how business works on a day-to-day
basis.
Senator Cantwell. Do you think there's a number there? I
long ago proposed increasing, at USTR, the number of lawyers,
because I was like, well, the amount of deals that we're doing
outside the United States, so if you don't have lawyers to go
down to Chile or whatever and talk about illegal timber--and so
we've literally fought for our businesses and consumers because
we upped the legal capabilities at USTR. Is there some capacity
bill that we need to do here now for CBP to understand the
complexity and volume?
Ms. Smith. Yes, 100 percent. The number that I often use is
that, during my career in trade over the last 40 years, trade
has multiplied 32 times. So I think it wouldn't be out of
consideration to double the Customs workforce. The numbers I
used when I was at CBP--there are about 3,000 nonuniform
personnel who do trade on a full-time basis. Doubling that to
6,000 would make a tremendous difference in their ability to
modernize, facilitate, and enforce.
Senator Cantwell. And you're talking about distribution
throughout the U.S., with the major ports and things of that
nature, to help catch this illegal activity.
Ms. Smith. That's right.
Senator Cantwell. Thank you, Mr. Chairman.
Senator Crapo. Thank you.
Senator Blackburn?
Senator Blackburn. Thank you, Mr. Chairman. And, Ms. Allen,
thank you so much for being here today. Tennesseans are mighty
proud of FedEx and what they have brought with innovation into
the logistics industry, and it is quite appropriate that we
have you before us here today. So, thank you for being here.
And, Ms. Allen, I want to come to you. You've talked a
little bit this morning about dealing with data sharing and its
impacts. And as we look at modernization and really delving a
little bit into how we avoid a supply chain crisis like we have
been through, talk for just a minute about the importance of
protecting that data share, verifying that data share, and
making certain that rights and responsibilities for that
transmission are there so that there's accuracy in that
process.
I think any of us who've been to the FedEx sort at
midnight--and if you have never been to the FedEx sort, you
need to make a trip to Memphis and go through this and see. You
appreciate the speed and accuracy. So I wanted to give you just
a moment to drill down a little bit further on that, because
you all have led that innovation.
Ms. Allen. Thank you, Senator. And I'm proud to be here
from FedEx, and it is very nice to have you here.
We, in our statement, really believe that if you get the
right data at the right time from the right party, it gives CBP
and the government the ability to do the right thing and make
the decisions that they need to make for admissibility.
Senator Blackburn. Okay, so let's stop right there. It's
getting the right information in at the right time. So, no
mistakes on the front end, and then that will speed it along.
And then I'll come back to you on something else on that. Go
ahead.
Ms. Allen. Well, I think that's it. The right data from the
right party at the right time, and giving that to CBP ahead of
time, and linking that to Trusted Trader benefits. If you file
information ahead of time about your products, you should have
an ability to understand if your goods are going to be stopped
or if they're going to be released into the United States. And
the more data that those companies are willing to file, the
more benefits that they can get.
Senator Blackburn. Okay. Now, let me stop right there. How
do you work with the SMEs and all of these smaller users and
say, ``This is what is going to get this flagged?'' So how do
you all work with them? And, Mr. Pickel, I'm going to come to
you next on this, okay?
Ms. Allen. We work very collaboratively with our small and
medium-sized enterprises. We have an education role, and we
work with the Department of Commerce quite closely to get that
information in the hands of the small and medium importers so
that they can understand the complex processes and the
information that they need to provide to make sure their goods
are imported in an efficient and compliant manner. We're not
necessarily educating them on what to do, but we're educating
them on the law and how it applies to their products, because
most people don't really understand that. They're in the
process of manufacturing or in selling their goods. They are
not experts in Customs law, and that's the opportunity that we
have, along with our government partners, to help them
understand that and to assist when they have issues with that.
Senator Blackburn. Okay.
Now, Mr. Pickel, I wanted to come to you. I've appreciated
your comments today, and I know Senator Crapo touched on drugs
very briefly. And I think we're all astounded with the amounts
of drugs that were apprehended at our ports.
We do know there's a lot of bad actors out there. We do
know that they seem to be emboldened right now. Talk a little
bit, if you will, about first of all, how you segregate, how
you say, ``These are questionable shippers; these are people
who are following the rules and are trying to get that
education?'' And what is that red flag for CBP?
Mr. Pickel. That's a great question. And what I would say
is that we need to acknowledge on the front end that the vast
majority of parties importing to the United States are
tremendously compliant, right? So, when you're looking at
segmenting risks, in the cargo environment particularly,
information is key--but the right information is key, to Ms.
Allen's point.
And information provided to CBP provides a very good basis
to be able to understand the nature of a shipment that's
happening. There are companies that go above and beyond to
really open their books up to the government and say, ``Here
are our processes.'' And the government will help CBP, through
the CTPAT program, to help them to understand vulnerabilities.
That information needs to be shared early in the supply
chain process so that those compliant parties can take their
own actions to root out any causes of concern before we get to
a port, right, before we get into an enforcement scenario.
Senator Blackburn. Excellent. My time's expired.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Whitehouse, and then Senator Menendez and others
may come, but we had so many people waiting that I want to make
sure that Senator Whitehouse and Senator Menendez could be
next, okay?
Senator Whitehouse. Great. Thank you, Mr. Chairman.
There was a famous thesis not long ago about the world
being engaged in a clash of civilizations, and I tend to
subscribe to that thesis, but I think its author got the
boundary, the line of contact if you will, wrong. I think the
clash of civilizations that we are in is between rule-of-law
regimes and regimes that are criminal, kleptocratic, and
autocratic. And one of the perils that we on the rule-of-law
side of that clash of civilizations face is the support within
rule-of-law jurisdictions for assets amassed by the
kleptocrats, the autocrats, and the criminals, who know that if
they leave it at home, some bigger kleptocrat, autocrat, or
criminal is going to come and steal it. So they come and seek
refuge behind rule of law and they seek that refuge in
anonymity.
In order to get those assets where they want to hide them,
money laundering is the best tool, and there are lots of ways
we hunt down money laundering. And I want to thank Senator
Crapo for his leadership in the beneficial ownership battle
that we had, so that U.S. shell corporations are no longer such
an obvious tool for money launderers and kleptocrats and
criminals. But trade-based money laundering has now emerged as
a means of accomplishing this foul purpose.
And trade-based money laundering is a little bit difficult
to track, because the symbol of it may be a perfectly innocuous
package of goods that is perfectly legal in every respect. And
if you were to take that package apart and inspect every part
of it, you would find no contraband and nothing wrong. But
let's say it was a $750,000 set of goods. If the bill for it
that went to pay for it was for $7,500,000 or if it was for
$750, the margin is probably a way of laundering money across
borders.
And I'm very interested in that context, particularly, Ms.
Smith, from you, with how we get--and I'm working with Senator
Cassidy on this, and I want to signal his leadership on this
issue first. But what are the things that we can do, and how
can we continue to work with you to figure out the things we
can do to solve this without creating a bureaucratic and
reporting nightmare for people for whom it just is a $750,000
package of perfectly innocent goods for which they paid
$750,000.
Ms. Smith. A very interesting issue and very timely,
Senator, but it is tough to find. The scope that trade-based
money launderers work against is $32 trillion worth of trade
last year; so, a huge range of opportunity for them.
When we talk about trade-based money laundering, we're
really talking about the evasion of Customs laws, and so
expertise in those laws----
Senator Whitehouse. Although, kind of in a strange way,
because the delivered product itself might fall totally within
the Customs laws----
Ms. Smith. Absolutely.
Senator Whitehouse [continuing]. Be completely legal and
innocuous. It's only when the payment moves, and it isn't
commensurate with the goods that then the problem comes.
Ms. Smith. That's right. And there are a number of creative
ways to evade Customs laws. And so, having individuals at CBP
and other U.S. Government agencies that work with financial
flows is really critical. So, I would talk about expertise. I
would talk about having the capacity, the number of boots on
the ground to actually investigate trade-based money
laundering, both on the civil side and the criminal side--so at
CBP and Homeland Security Investigations--and I think a free
flow of information among U.S. Government agencies first, and
then second, their international counterparts, because it's not
a crime that's limited here to the U.S. These flows go all over
the world.
Senator Whitehouse. Well, I look forward to continuing to
work with you on it. I would like to be a good ally to Senator
Cassidy as we try to solve this problem, and I think getting it
right will save people a lot of trouble, compared to setting up
systems that don't catch what we want to catch. Thanks very
much.
Thanks, Mr. Chairman.
The Chairman. Senator Menendez--and my schedule is pretty
tight. We're going to have another vote. Unless there are other
members who come very quickly after Senator Menendez, we're
going to wrap up.
Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman.
One of CBP's most important jobs is to safeguard Americans
from the importation of counterfeit products. These products
cannot only cost hardworking Americans their jobs and money,
they can be dangerous, as we saw during the pandemic with the
huge influx of counterfeit COVID-19 items.
Mr. Meserve, Mr. Nova, can you talk about how failing to
crack down on counterfeit goods harms U.S. workers?
Mr. Meserve. I know of a case a few years ago where Chinese
companies were sending in primary aluminum in the form of a
pilot or in some type of shipping arrangement, and then it was
getting sold and remelted and brought into the country that
way. What we make at my plant is what we call a ``sow.'' It is
an internationally recognized good. It's got a shape, a size, a
weight, and an LME-set price for that. And we have to work
within that margin of price point to be profitable. And if
somebody's bringing in a good that's in the wrong shape or
wrongly marked or mislabeled, then yes, it definitely hurts.
Senator Menendez. Mr. Nova, do you have any insight on
that?
Mr. Nova. I'd just say it is part, I think, of the broadest
challenge we face, which is that we have a trading system that
frequently allows goods produced illegally overseas to be
imported and sold here. Whether that illegality is in the
context of counterfeiting, or the use of forced labor, we need
a much more aggressive approach policing that trade to ensure
that people cannot benefit from abuse of unlawful conditions
overseas by selling products in the U.S.
Senator Menendez. This issue is only growing. According to
the most recent report on intellectual property rights
seizures, in Fiscal Year 2021 CBP seized more than $3.3 billion
worth of counterfeit goods, compared to $1.3 billion in Fiscal
Year 2020--so almost three times as much. The report indicates
that China and Hong Kong account for more than half of the
products seized.
Ms. Smith, how can we better combat the influx of
counterfeit products from countries like China?
Ms. Smith. Two things, Senator. I think, one, the continued
partnership between the government and the private sector,
particularly the rights holders. They know their business. They
know their products, and they can help educate and collect
intelligence on the ground, which is useful to the government
as they target counterfeit shipments.
I think the second thing that we have to be sure of is that
the U.S. Government has the ability to enforce its penalties on
overseas actors. That can be a challenge. The enforcement
process is lengthy, and it often does result in not being able
to collect the penalty, collect the additional duties because
they can't reach the individual that caused the importation in
the first place.
Senator Menendez. Well, we'll have to look at that. That
has a little bit of a potential foreign relations aspect. We'll
have to look at that.
The goal of tariffs is to pressure foreign governments to
live up to their commitment to American workers and companies
by forcing foreign producers to make price concessions or lose
customers. However, too often when tariffs are imposed, they
end up punishing U.S. importers with goods that are already in
transit.
Ms. Allen, Mr. Pickel, is it fair or effective trade policy
to impose tariffs on goods that are already in transit when the
tariffs are announced?
Ms. Allen. Thank you, Senator, for the question. I will
tell you, as someone who has to apply those tariffs at the time
of entry, it's a very complex environment today. Some dates for
tariffs or other trade actions happen at time of export, some
at time of arrival, some at time of entry, which can be
different dates, and it's complex. So we'd like to have an
opportunity to streamline that, also have predictability for
our customers to know that additional tariffs are going to be
applied to their goods before they're shipped. That way they
have better predictability to contain those costs and
understand how it's going to impact their operations in the
U.S.
Senator Menendez. Mr. Pickel?
Mr. Pickel. Senator, no, it's not fair to have those
surprises that are impacting not only American businesses, but
also American consumers as well. Those business decisions and
purchasing decisions are made well in advance of the
finalization of the tariff actions, and I believe the action
you're suggesting would be appropriate.
Senator Menendez. That's why Senator Cassidy and I
introduced the Fair Tariff Act in the last Congress. It would
exempt goods that are already in transit from additional
tariffs and require a standardized 60 days notice before new
tariffs take effect. That would ensure that the burden of
tariffs falls on their intended targets and not on innocent
imports.
And so I think, Mr. Chairman, a consistent standard that
protects goods on the water from surprise tariffs benefits
importers without compromising the effectiveness of our trade
policy, and we look forward to working with Senator Cassidy and
with you, hopefully, to move it forward.
Thank you.
The Chairman. Senator Menendez, your leadership with
Senator Cassidy is much appreciated. This is an extraordinarily
important issue, and I look forward to working with you. And
Senator Crapo and I have been saying throughout this that it's
going to be a bipartisan issue.
I want to say to our guests that it's a pretty hectic time
right now; otherwise, I would make a profound closing address.
This is an extraordinarily important issue. This is not an
abstraction. In other words, you have these debates about trade
policies and trade rules, and it sounds like a lot of alphabet
soup and the like, but it's really about--as Mr. Meserve talked
about--the hopes of all these working families that, if they
can just get a level playing field, they're going to be in a
position to out-compete anybody anywhere. And so, that's what
it's about.
We've got a lot of work to do. You'll hear more about this
soon as we evaluate the responses from the big automobile
companies. There we're talking about thousands and thousands of
workers, and we are not going to sit around and see forced
labor undercut their hopes, as Mr. Meserve was talking about.
And we'll have more to say shortly.
I'm going to close by saying that Senator Brown, of course,
has been a critical leader in stopping forced labor and
leveling the playing field for U.S. workers. He couldn't be
here. He's home in Ohio advocating for the people of East
Palestine, who are facing an environmental disaster. He's got
questions for witnesses that we'll submit for the record. And
we look forward to your answers. It's also a process of the
Senate Finance Committee that the questions for the record will
be due in a week, on Thursday, February 23rd, I think.
I thank all of you. I thank my colleagues. We're going to
tackle this in a bipartisan way.
And with that, the Finance Committee is adjourned.
[Whereupon, at 12:21 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Cindy Allen, Vice President, Regulatory
Affairs and Compliance, FedEx Logistics
Every day, in every corner of the world, FedEx is connecting
communities, moving goods, and providing services that power the global
economy. FedEx fuels innovation, creates and supports local jobs, and
helps lift individuals and their communities. That's why FedEx believes
a connected world is a better world. At FedEx, trade is our business.
Trade is the lifeblood of the global economy, and FedEx plays a
critical role in expanding global trade, helping to build nimble supply
chains, and delivering local products and services to customers around
the world. We believe everyone benefits when it is easier to bring new
ideas and products to the global market. Expanding global trade is
essential to our customers, our team members, and the economy. We see
the value of trade every day: our more than 500,000 global employees
(410,000 in the United States) move an average of 16 million shipments
daily, serving more than 220 countries and territories.
In the United States, FedEx provides delivery services to every
U.S. ZIP code and accounts for nearly 6 percent of employees in the
U.S. transportation and postal and courier services sectors. In Fiscal
Year 2022 (FY22), FedEx spent nearly $45 billion with our U.S.-based
supply chain partners, and in Tennessee alone, FedEx spent $257.3
million with local suppliers in the first three quarters of FY22. FedEx
plays a crucial role in the U.S. supply chain that keeps this country,
our people, and economy moving. We are immensely proud of our global
efforts to combat COVID-19, and in the United States alone we have
delivered hundreds of millions of COVID-19 vaccine doses and boosters,
as well as ancillary kits and other essential supplies. And when the
trade disruptions stemming from COVID-19 congested ports in the U.S.,
FedEx participated in the White House Supply Chain Disruptions Task
Force to help develop solutions to stabilize supply chain disruptions
to get trade moving again.
American prosperity is linked to growing markets and greater
opportunities for U.S. companies, especially small and medium
businesses, which comprise more than 98 percent of U.S. exporters.\1\
More than 40 million American jobs--roughly 1 in 5--depend on trade,
and trade is critical to the success of many sectors of the U.S.
economy.\2\ With 95 percent of the world's population and 80 percent of
its purchasing power outside our borders, global trade will continue to
be of critical importance to U.S. economic growth.
---------------------------------------------------------------------------
\1\ https://www.uschamber.com/international/trade-agreements/we-
cant-stand-still-the-benefits-of-trade-agreements-in-america.
\2\ https://tradepartnership.com/wp-content/uploads/2020/10/
Trade_and_American_Jobs_
2020.pdf.
It is not just exports that benefit the American economy, but
imports as well. Imports bring lower prices and more choices for
American families as household budgets are increasingly stretched.
Access to imports boosts the purchasing power of the average American
household by about $18,000 annually.\3\ Imports also give Americans
access to products that would not otherwise be available--for example,
fresh fruit in the winter. It is not only consumers that benefit from
imports, but also U.S. companies that depend on imports for raw
materials and other inputs. In fact, nearly 60 percent of U.S.
merchandise imports are raw materials, capital goods and industrial
products, which are used by U.S. manufacturers and farmers to produce
goods in the United States.\4\ This lowers costs for manufacturers and
other businesses and helps them be more competitive globally. If the
U.S. hopes to strengthen its manufacturing base, it must have efficient
and reliable access to imported components from around the world.
---------------------------------------------------------------------------
\3\ https://www.piie.com/publications/policy-briefs/payoff-america-
globalization-fresh-look-focus-costs-workers.
\4\ https://tradepartnership.com/wp-content/uploads/2020/10/
Trade_and_American_Jobs_
2020.pdf.
The rise of global e-commerce represents a sea change in the
profile of global trade. The trade landscape is shifting from
container-based trade between large multinational corporations to
package-based trade between businesses and individual consumers. Put
simply, the global supply chain is more complex and has many more
participants. This shift presents unprecedented opportunities to make
global trade more inclusive by enabling small and medium-sized
businesses (SMEs) to participate in the global economy. But it also
presents challenges for governments as they grapple with the impact of
increased volumes of low-value shipments and their responsibilities for
---------------------------------------------------------------------------
revenue collection and border safety and security.
Against this backdrop, FedEx supports the U.S. Government in its
efforts to update its Customs rules and adapt to a changing trade
environment. We welcomed the U.S. Customs and Border Protection's (CBP)
initiative in its 21st Century Customs Framework (21CCF) to address
modern trade challenges and opportunities and have been engaging in the
21CCF process since its inception.
Given the increased number of trade participants globally, the
first goal of any Customs modernization proposal must be to properly
define the roles and responsibilities of these new actors. As the U.S.
government begins to assess what new information should be required for
importation, it must remain focused on requiring the right data, at the
right time, from the right party. Rules requiring additional data from
new stakeholders must ensure that gaps in data availability or
transmission do not lead to bottlenecks at U.S. ports. Responsibility
for the accuracy of data should be appropriately assigned to the party
most responsible for the creation and retention of that data. In
addition, new legislation should not delegate unfettered authority to
government agencies. Any new authorities should include appropriate
guardrails to prevent unnecessary burdens on companies and supply
chains in the name of data collection.
Governments around the world look to the United States for
leadership and as a provider of global best practices. The United
States must be mindful that new approaches to importing processes could
be adopted by other countries. Therefore, the United States should,
when considering new requirements on U.S. imports, ask whether U.S.
exporters, especially SMEs, would support the same requirements being
placed on their exports by third countries.
A truly successful Customs modernization needs a ``co-creation''
approach, where the public and private sectors identify the challenges,
they are trying to address and leverage best practices to develop
feasible joint solutions. While CBP deserves credit for its outreach
efforts on 21CFF to date, more in-depth and widespread engagement of
the private sector is needed as the agency fills in the details behind
its goals. Moreover, most of the discussion has focused on increased
trade controls and enforcement, and very little on trade facilitation.
Any Customs modernization effort should balance grants of additional
authority to border agencies with appropriate guardrails and trade
facilitations to receive support from industry. Described more fully
below are some of the trade facilitative measures that FedEx supports
including in such an effort.
Achieving a Government-Wide Policy Approach to Accompany the
Single Window: The International Trade Data System (ITDS) as
outlined in the original Customs Modernization Act, has been
achieved with the delivery of the Automated Commercial
Environment (ACE), establishing the technical side of
intergovernmental operability with one single window for all
agencies who have the authority to regulate the importation and
exportation of goods. Unfortunately, this has become a 47-paned
window due to various policy, procedures, and processes
established by each agency. Customs modernization should define
a government-wide decision making, policy, and authority
process that is centralized and coordinated with CBP. This
policy and coordination approach could be achieved through a
council such as the Border Interagency Executive Council
(BIEC). Regardless of the mechanism, the authority to make and
drive decisions must reside within this forum. Additionally,
trade participation to assist in guiding in a manner that is
achievable in current and future trade processes should be
included.
Enabling Global Entry for Cargo: Shipments have a history
when they arrive at the border. Government agencies,
specifically CBP, have expressed an interest in receiving the
critical data associated with the shipment to assist with
targeting purposes and allow better informed admissibility
decisions. An iterative or progressive filing of data should be
codified and developed to allow the best party, with access to
the relevant data, to file it at the earliest available time,
building the data for each shipment until the arrival at the
border. This should be linked to Trusted Trader and Authorized
Economic Operator (AEO) benefits, such as admissibility
decisions that the trade can rely upon, qualifying of certain
free trade agreement benefits, and ensuring a secure and
compliant supply chain. This program would be in addition to
the information already filed for security purposes, especially
in the air environment.
Limiting Redelivery Authority: Outdated language allows CBP
to recall goods up to 60 days after admissibility decisions are
made. This authority was vested in old statues around quota and
visa transshipment concerns that do not exist today. Today,
with the speed of cargo delivery, especially when it is direct
to the consumer, it is almost impossible to redeliver something
to CBP custody outside of 24 hours. This redelivery authority
should be removed except in cases that post safety and security
concerns.
Establishing Timelines for Government Response: In most
circumstances, the trade is bound by defined timelines, yet
there are few timelines CBP is bound by. This leads to
uncertainty for U.S. businesses as they try to move forward
with business planning and product launches and causes
financial uncertainty. The Customs modernization effort should
establish reasonable timelines for CBP to respond to trade
actions and requests such as petitions, protests, advice, and
Customs rulings. If a decision is not produced within the
timeline, it should be considered an affirmative response for
the trade. Holding agencies accountable to provide timely
decisions should be a key part of this legislation.
Further Facilitating the Informal Entry Procedures: The
United States Congress should expand the United States' global
leadership in facilitating trade by focusing on the informal
entry process, those shipments currently between $800-$2,500.
Congress should raise the $2,500 ceiling to a more competitive
baseline, while granting CBP the regulatory authority to raise
it further. For informal entries, a ``bucket'' system for
Harmonized Tariff Schedule (HTS) classification for eligible
shipments, e.g., a limited number of classifications instead of
the 10,000+ tariff lines should be adopted. Excluded from
``bucketing'' would be shipments subject to ``restricted''
goods where 10-digit HTS codes are required. Further, for those
highly integrated networks like express carriers, a simplified
release by presentation of commercial invoices should be
allowed. Since a bucket system for HTS codes would be utilized
to further simplify the process, Congress should expand who can
file these informal entries to include nominal consignees like
carriers (as currently permitted for de minimis entries).
Codifying the Express Delivery Sector: To recognize the
express delivery process is a unique procedure for providing
expedited clearance of shipments based on longstanding success
and shared responsibility, including the investments the
express industry has made to ensure it meets all Government
requirements for data accuracy and completeness, the express
delivery sector must be codified. The codification of the
express delivery clearance process will allow for:
A single submission of information, a
manifest, covering all goods contained in an express
shipment;
Expedited release of these shipments
based on the minimum documentation of a single
submission of information; and
Consolidated entries.
Codifying the Express Carrier's Right to File De Minimis
Entries and Establish a Waiver for the Express Carriers From
More Burdensome Requirements When Filing De Minimis Entries:
Currently, the express industry's right to file de minimis
shipments was created by regulation a long time ago and, for
the reasons discussed above, this process should be codified in
statute. Further, the hundreds of millions of dollars of
investment the express industry has made to segregate Partner
Government Agency (PGA) regulated items from its manifest
should be considered as a justification for waiving the
requirement to provide an HTS code for de minimis shipments in
any future CBP rulemaking.
Regardless of any legislative proposal, Congress should take into
account competitive considerations. Any new requirements must apply
equally to express and international mail shipments. We recognize to
modernize the Customs process, CBP needs additional funding to support
initiatives like the development of ACE 2.0 to meet the technological
challenges of the future. Therefore, we support additional funding
streams to dedicate more funding to CBP. Specific ideas include a
higher percentage of Merchandise Processing Fee collections made
directly available to CBP, a charge for each Entry Type 86 Pilot entry
(with 100 percent of collected proceeds going to CBP for its costs
incurred for processing those entries), and a revival of the Customs
Forfeiture Fund, or alternatively creating a new fund of a similar
nature, to be used exclusively for CBP enhancements of this variety.
Lastly, FedEx would like to highlight the importance of a current
feature of the U.S. Customs laws that facilitates trade: the United
States' strong de minimis provision. De minimis simplifies and
streamlines documentation, expedites border processes, and eliminates
duties and taxes, which is a significant trade facilitation measure
that benefits U.S. consumers, large and small businesses, e-
commerce platforms, transportation companies, and many other sectors of
the U.S. economy. For example, e-commerce SME customers like Greentop
Gifts, a Black woman-owned business based in Atlanta, GA, and AnaOno, a
woman-owned, Philadelphia, PA-based business, rely on this simplified
process in delivering their products.
Established by Congress decades ago, de minimis is a longstanding
and key feature of the U.S. import system. Congress looked at the issue
recently when it raised the level to $800 in 2016 via the Trade
Facilitation and Trade Enforcement Act (TFTEA). This was a deliberate
policy choice Congress got right. As TFTEA explains, the higher de
minimis value thresholds provide ``significant economic benefits to
businesses and consumers in the United States and the economy of the
United States through costs savings and reductions in trade transaction
costs.''
Connecting people with goods, services, ideas, and technologies
creates opportunities that fuel innovation, energize businesses, and
lift communities to higher standards of living. At FedEx, we believe a
connected world is a better world, and that belief guides everything we
do. A modernized Customs process is key to this.
We would be honored to invite this committee and its staff to visit
the largest Customs clearance port of entry in the United States, the
Memphis International Airport, where our FedEx Express World Hub is
located.
______
Questions Submitted for the Record to Cindy Allen
Questions Submitted by Hon. Mike Crapo
Question. Congress is grappling with the problem of supply chain
delays. FedEx and others played a critical role during the pandemic to
facilitate the movement of goods.
How would some of the proposals mentioned in your opening statement
alleviate the hurdles the shipping industry now faces at our borders?
Answer. Thank you for your leadership on this issue. The World
Customs Organization (WCO) measures the performance of the Customs
processes across countries using time release studies. The WCO
describes this methodology as ``a strategic and internationally
recognized tool to measure the actual time required for the release
and/or clearance of goods, from the time of arrival until the physical
release of cargo, with a view to finding bottlenecks in the trade flow
process and taking necessary measures to improve the effectiveness and
efficiency of border procedures.''\1\
---------------------------------------------------------------------------
\1\ https://www.wcoomd.org/en/topics/facilitation/instrument-and-
tools/tools/time-release-study.aspx.
Trade facilitation lowers the time in which it takes to clear goods
through the various border agencies. By giving CBP and other U.S.
border agencies the tools to release and clear goods more efficiently,
---------------------------------------------------------------------------
release times will decrease as the movement of goods is facilitated.
There is an opportunity to create a new program for cargo
facilitation akin to CBP's Global Entry program for travelers.
Government agencies, specifically CBP, have expressed an interest in
receiving the critical data associated with shipments to assist with
targeting purposes and allow better informed admissibility decisions.
An iterative or progressive filing of data should be codified and
developed to allow the best party, with access to the relevant data, to
file it at the earliest available time, building the data for each
shipment until the arrival at the border.
This should be linked to Trusted Trader and Authorized Economic
Operator (AEO) benefits, such as admissibility decisions that the trade
can rely upon, qualifying of certain free trade agreement benefits, and
ensuring a secure and compliant supply chain. This program would be in
addition to the information already filed for security purposes,
especially in the air environment.
Another area to explore to alleviate release times is the
Government-wide policy concerning the single window. The International
Trade Data System (ITDS), as outlined in the original Customs
Modernization Act, has been achieved with the delivery of the Automated
Commercial Environment (ACE), establishing the technical side of
intergovernmental operability with one single window for all agencies
who have the authority to regulate the importation and exportation of
goods.
Unfortunately, as I outlined in my testimony, this has become a 47-
paned window due to various policy, procedures, and processes
established by each agency. Customs modernization should define a
government-wide decision-making, policy, and authority process that is
centralized and coordinated with CBP. Strengthening the original
Customs Modernization Act regarding ITDS to address the application of
the single window may achieve this result. Regardless of the mechanism,
the authority to make and drive decisions must reside within this
forum. Additionally, trade participation to assist in guiding in a
manner that is achievable in current and future trade processes should
be included. Such improved coordination will alleviate the hurdles
often faced when shipping goods regulated by those other (non-CBP)
agencies.
Question. I share your concerns about undue delays and a lack of
responsiveness from government agencies. As you outlined in your
opening statement, nearly 60 percent of U.S. merchandise imports are
raw materials used by American manufacturers. Businesses rely on the
timely delivery of these inputs.
From a business perspective, what would be a reasonable timeline
for CBP to respond to trade actions and requests?
Answer. In most circumstances, the trade is bound by defined
timelines, yet there are few timelines CBP is bound by. This leads to
uncertainty for U.S. businesses as they try to move forward with
business planning and product launches and causes financial
uncertainty. The Customs modernization effort should establish
reasonable timelines for CBP to respond to trade actions and requests
such as petitions, protests, advice, and advanced rulings. Holding
agencies accountable to provide timely decisions should be a key part
of this legislation.
The U.S.-Mexico-Canada Agreement (USMCA) put out the following
standard for Customs authorities to issue advanced rulings: ``as
expeditiously as possible and in no case later than 120 days after it
has obtained all necessary information from the person requesting an
advance ruling[.]''\2\
---------------------------------------------------------------------------
\2\ USMCA, Article 7.5.6(c).
CBP should set similar deadlines for other agency decisions such as
those related to protests, petitions, applications for further review,
and penalty determinations, coupled with a default rule under which,
when CBP fails to respond by the deadline, the decision's outcome is
---------------------------------------------------------------------------
then decided, by operation of law, in favor of the trader.
The lack of timeliness has real-world effects. For example,
outdated statutory language currently allows CBP to recall goods up to
60 days after admissibility decisions are made. This so-called
redelivery authority was created in statutes concerned with quota and
visa transshipment concerns that do not exist today. Today, with the
speed of cargo delivery, e.g., the speed required by manufacturers when
importing intermediary goods to incorporate into their manufacturing
processes, it is almost impossible to redeliver something to CBP
custody outside of 24 hours. This authority should be removed for
normal cases, with the timeline shortened in exceptional cases that
pose safety or security concerns.
______
Questions Submitted by Hon. Chuck Grassley
Question. The U.S. marketplace has been flooded with counterfeit
merchandise, often originating from China.
Knockoffs not only violate intellectual property rights; they also
threaten the economy and consumer safety. Unfortunately, as consumers
rely more on online shopping, bad actors are finding new ways to
exploit legitimate channels to box out businesses and dupe consumers
with bogus products.
In 2019, as chairman of this committee, I led an effort to crack
down on counterfeit goods entering the United States by modernizing the
Trade Enforcement and Trade Facilitation Act and expanding U.S. Customs
and Border Protection's (CBP) authority to share information with
rights holders and other interested parties on suspected counterfeit
merchandise.
After then-Ranking Member Wyden and I released a bipartisan
committee report studying counterfeit goods sold online and their
effect on businesses and consumers, we found that improved information
sharing between CBP and its private-sector partners would aid efforts
to identify and curtail the sale of counterfeit imports, some of which
may pose significant health and safety threats to consumers. Namely,
and most pressing of which, is fentanyl--which is coming from China and
destroying our communities.
You note in your testimony that the rise of global e-commerce
presents profound new challenges for the responsibility of governments
to collect revenue and enforce safety and security.
What regulatory steps could Congress take to give logistics
providers and entities such as FedEx the information and tools they
need to ensure they aren't contributing to the destruction of our
communities by trafficking deadly drugs like fentanyl?
Answer. Thank you for your questions on this very important topic.
The safety of our team members, customers, and the communities we serve
is our top priority at FedEx.
FedEx has extensive security measures in place to deter and detect
the use of our networks for illegal purposes. We follow the laws and
regulations everywhere we do business and have a history of close
cooperation with authorities.
U.S. express delivery companies such as FedEx Express are pioneers
in providing advanced electronic data to Customs authorities, beginning
with our industry's groundbreaking work in the 1980's with the U.S.
Customs Service. That work began a longstanding and productive
relationship with CBP in addressing the agency's data needs. For
example, immediately after 9/11, the express industry began to provide
advanced cargo manifest information earlier than carriers in other
modes. After the Yemen bomb plot in 2010, the express industry worked
with CBP to co-create the Air Cargo Advanced Screening (ACAS) pilot
program which, after running for several years without major hiccups,
now forms the basis for CBP's ACAS regulations. More recently, the
express companies have joined CBP's section 321 Data Pilot as the
agency explores the need for new data elements in light of e-commerce's
growth.
We welcome CBP's extension of the Pilot into 2025 because, based on
our conversations with CBP, we believe there are outstanding issues in
how future regulations would work. For the same reason, we support
expanding the pilot to include more members to capture more e-commerce
business models. Doing so will allow CBP to determine the right data it
needs to enhance targeting, which party is best positioned to provide
that data, and at what time that data is most useful.
Against this backdrop, we support the concept of advanced
electronic data in a very real and hands-on way. We believe we can
continue to play a constructive role in this space. Bidirectional and
actionable information exchanged between the government and the trade
could provide further insight into the opportunities to prevent the
introduction of the goods that violate U.S. law.
To the extent CBP lacks data under the current framework, the focus
should be on the international postal system. While the STOP Act aimed
to close this gap in U.S. law, CBP still grants waivers to dozens of
countries as far as we know, leaving the agency without data on postal
shipments from the vast majority of origin countries.
Question. Do you have any other thoughts about ways to responsibly
regulate the air cargo market and e-commerce in a way that cracks down
on counterfeit goods?
Answer. We support a comprehensive approach that looks at entire
supply chain. This includes enhanced information sharing, moving in
both directions, between CBP and IP rights holders. For example, we
support the concept of a government-issued ``bad actors'' of IPR
violators. Such a government-issued list (populated with distinct and
specific targets, identified based on name, address, city, and country,
etc.) could be highly effective in improving the interdiction of non-
compliant shipments.
This is another area where policymakers must continue to stress the
importance of equal treatment between the various air cargo modes,
ensuring that postal shipments are subjected to the same treatment as
the others. Failing to do so creates competitive imbalances and gives
illicit traders the ability to exploit regulatory differences to their
advantage.
______
Question Submitted by Hon. Bill Cassidy
Question. In testimony on February 16th, you indicated that de
minimis was created to allow small businesses to avoid ``tariffs''
which, you stated, are taxes. However, the legal definition of de
minimis is ``too small to be meaningful or taken into consideration;
immaterial.'' The purpose of de minimis was to alleviate Customs and
border protection of having to spend effort on small packages, mostly
coming in with tourists returning with presents for example. However,
since 2016 when the de minimis threshold was increased to $800,
packages coming into the U.S. under de minimis are approaching 1
billion a year. Though, because CBP has no information on contents, we
will never know the value, The Wall Street Journal estimated the value
to be at $67 billion. Other estimates are higher, even up to $150
billion. According to CBO, this ``tax cheat'' is at least $10 billion a
year.
Does FedEx consider 1 billion packages to be trade that is ``too
small to be meaningful or taken into consideration?''
Does FedEx consider a $67- to $150-billion trade envelope to be
``immaterial''? Does FedEx believe that a $150-billion industry should
be able to avoid taxation? Do you think that the Federal Government has
the responsibility to close tax loopholes identified by industry in
public hearings?
Answer. Thank you for your continued interest in Customs
modernization. De minimis is not a loophole, but a deliberate policy
that Congress codified into law. Not only does the law save taxpayer
money on administrative costs to collect nominal duties, but Congress
rightly identified that the law provides ``significant economic
benefits to businesses and consumers in the United States and the
economy of the United States through costs savings and reductions in
trade transaction costs.''\3\ This remains true today.
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\3\ See Trade Facilitation and Trade Enforcement Act of 2015
(TFTEA), sec. 901(a)(2), Pub. L. No. 114-125 (2016).
The international trade community recognizes the importance of a de
minimis provision, as it is included in the World Trade Organization's
Trade Facilitation Agreement, the World Customs Organization's
Immediate Release Guidelines, and numerous U.S. trade agreements as a
best practice. In fact, a recent study demonstrates that global
adoption of U.S. trade facilitative measures found in U.S. trade
agreements, including de minimis, would save the U.S. $88 billion in
trade costs and lead to almost a million new jobs created across all 50
States.\4\ U.S. exporters recognize the value of these provisions in
foreign markets, which is why Congress rightfully noted in Trade
Facilitation and Trade Enforcement Act of 2015 (TFTEA) that the U.S.
``should encourage other countries, through bilateral, regional, and
multilateral fora, to establish commercially meaningful de minimis
values[.]''\5\
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\4\ Third Way, Reducing the Red Tape around Supply Chains (July 25,
2022), available at https://www.thirdway.org/report/reducing-the-red-
tape-around-supply-chains.
\5\ See TFTEA, sec. 901(b).
Eliminating or reducing de minimis levels is the equivalent of
raising taxes, as it will cause more shipments to be subject to
tariffs. This would be a highly regressive tax, as it falls mainly on
parties like small businesses and individual consumers for whom paying
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tariffs could be particularly burdensome.
Contrary to popular belief, CBP receives an abundance of advanced
data for all shipments from express carriers, as well as de minimis
shipments, including, but not limited to, the value for each shipment.
This gives CBP the same opportunity to review, screen, target, and
detain shipments in the de minimis environment as they do for other
shipments regardless of value upon arrival.
As you correctly noted, in fiscal year 2020, CBP data showed that
out of a total of $2.42 trillion dollars in import values, de minimis
shipments represented $67 billion dollars, or only 2.77 percent of all
trade value into the United States, which is a relatively small portion
of total trade value.
______
Questions Submitted by Hon. John Barrasso
Question. The COVID-19 pandemic laid bare many of the shortcomings
in our supply chains. Supply chain challenges impacted nearly every
industry, and those challenges were felt by businesses and consumers
alike. As we look to strengthen and secure our supply chains, are there
steps we can take to ensure U.S. Customs and Border Patrol (CPB)
operations aren't exacerbating existing supply chain challenges?
What changes or improvements to existing CPB authorities should we
consider to keep goods and services flowing across our borders?
Answer. Thank you for identifying an important issue. Our
experience during the pandemic demonstrated that CBP works as well as
it can given the current statues and regulations. There are several
opportunities to provide streamlined processes as well as additional
resources to provided an enhanced experience.
Congress should expand the United States' global leadership in
facilitating trade by focusing on the informal entry process, i.e., the
Customs procedures governing shipments valued between $800-$2,500.
Congress should raise the $2,500 ceiling to a more competitive
baseline, while granting CBP the regulatory authority to raise it
further. For informal entries, a ``bucket'' system for Harmonized
Tariff Schedule (HTS) classification for eligible shipments, e.g., a
limited number of classifications instead of the 10,000+ tariff lines
should be authorized by statute. Excluded from ``bucketing'' could be
shipments subject to ``restricted'' goods where 10-digit HTS codes are
required. Further, for those highly integrated networks like express
carriers, a simplified release by presentation of commercial invoices
should be authorized. Since a bucket system for HTS codes would be
utilized to further simplify the process, Congress should expand who
can file these informal entries to include a nominal consignee like
carriers (as currently permitted for de minimis entries).
Along similar lines, Congress should codify longstanding and
successful models that CBP has crafted via regulation over the last
several decades. The express industry's right to file de minimis
shipments was created by regulation a long time ago and, for the
reasons discussed above, this process should be codified in statute.
Further, the hundreds of millions of dollars of investment the express
industry has made to segregate PGA regulated items from its manifest
should be considered as a justification for waiving the requirement to
provide an HTS code for de minimis shipments in any future CBP
rulemaking.
For the same reasons, Congress should codify the express delivery
process more generally as a unique procedure for providing expedited
clearance of shipments based on longstanding success and shared
responsibility, including the investments the express industry has made
to ensure it meets all government requirements for data accuracy and
completeness. The codification of the express delivery clearance
process will authorize:
A single submission of information, a manifest, covering all
goods contained in an express shipment;
Expedited release of these shipments based on the minimum
documentation of a single submission of information; and
Consolidated entries.
Lastly, we support additional funding for CBP officers at the ports
of entry and to improve those CBP technologies that facilitate the
movement of goods.
Question. You noted in your testimony the importance of
establishing timelines for a response from CBP. I've heard from
businesses in Wyoming who have had shipments held at U.S. ports for a
variety of reasons. In some cases, CBP works quickly and the shipments
move along to their final destination. In other instances, the imported
goods can sit for weeks or months awaiting CBP action. This is
unacceptable.
I agree that Customs modernization must establish reasonable
timelines for CBP in order to keep goods moving and provide American
businesses with certainty.
In your opinion, what is a reasonable amount of time for CBP to
take action on protests, petitions, and other Customs matters?
Answer. In most circumstances, the trade is bound by defined
timelines, yet there are few timelines under law that bind CBP in the
same way. This causes uncertainty for U.S. businesses as they try to
move forward with business planning and product launches and causes
financial uncertainty.
The U.S.-Mexico-Canada Agreement (USMCA) outlines the following
standard for Customs authorities when issuing advanced rulings: ``as
expeditiously as possible and in no case later than 120 days after it
has obtained all necessary information from the person requesting an
advance ruling[.]''\6\
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\6\ USMCA, Article 7.5.6(c).
CBP should be held to similar deadlines for other agency decisions
such as those related to protests, petitions, applications for further
review, and penalty determinations, coupled with a default rule under
which, when CBP fails to respond by the deadline, the decision's
outcome is then decided, by operation of law, in favor of the trader.
Any Customs modernization legislation should explore this important
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topic of holding agencies accountable to provide timely decisions.
Expedited decisions on freight seized for various reasons should be
reviewed as an opportunity for earlier resolution. A part of this
process is updating the very manual processes on the CBP side with
enhanced capabilities in automated systems, including a comprehensive
interactive capability with the trade industry. Many seizures are
resolved and the cargo is admitted into the U.S. for consumption;
facilitating this process can add value and allow CBP to focus on bad
actors and shipments.
The lack of timeliness has tangible effects on traders. For
example, outdated statutory language currently allows CBP to recall
goods up to 60 days after admissibility decisions are made. This so-
called redelivery authority was created in statues concerned with quota
and visa transshipment concerns that do not exist today. Today, with
the speed of cargo delivery, especially in the direct-to-consumer
setting, it is almost impossible to redeliver something to CBP custody
outside of 24 hours. This authority should be removed for normal cases,
with the timeline shortened in exceptional cases that pose safety or
security concerns.
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
Thank you, Mr. Chairman, and thank you to our witnesses for
appearing before the committee today. Before we begin, I will mention
two things--particularly since this is the committee's first trade
hearing of the new Congress.
First, I welcome Ms. Cindy Allen of FedEx Logistics. She traveled
here to testify today from Tennessee, the home State of one of our new
Finance Committee members, Senator Marsha Blackburn. Very happy to have
you both here. Of course, I am also glad to see Senators Tillis and
Johnson here, who have also just joined the committee, but we will have
to wait a little longer to get some fine folks from your States here to
share their expertise.
Second, I must thank Senator Cassidy for his leadership on the
issue of Customs modernization. He spends a lot of time thinking about
how to ensure our Customs laws are effectively enforced and how to
better harness data to that effect. We all look forward to hearing his
insights as we consider this issue further. Modernizing U.S. Customs
laws is fast becoming of critical importance.
The last comprehensive update to our Customs laws occurred exactly
30 years ago. A smart reform now will not only allow us to seize new
opportunities, but also to confront the rise of opportunists.
Opportunity is out there, right now, waiting for the law to catch up
with it.
The drafters of the last modernization could not possibly foresee
the technological tools available to us today, or the sheer number of
small businesses that now take advantage of international trade, or the
benefit to consumers from widespread access to e-commerce. But with any
new opportunity, unfortunately, also comes opportunists. Modernization
is imperative to counter both existing threats trying to make their way
into this country, and those on the horizon.
At the El Paso port of entry, the brave men and women of U.S.
Customs and Border Protection, or CBP, seized--in just the month of
January alone--over 327 pounds of methamphetamine, 139 pounds of
cocaine, and 42 pounds of fentanyl. We have got to close the supply of
those drugs coming across our southern border.
On January 29th, CBP officers at Chicago's O'Hare seized
counterfeit jewelry and apparel that would have been worth over
$686,000, if genuine. CBP is also actively enforcing a number of
``withhold release orders'' and the Uyghur Forced Labor Implementation
Act to keep goods made with forced labor out of this country. The good
news about Customs modernization is that it is not an either/or
proposition when it comes to trade facilitation and trade enforcement.
By making smarter use of data collection, we can reduce burdens on both
lawful commerce and CBP personnel so that we can better focus resources
on enforcement challenges.
Let us take, as an example, something as simple as importing wet
pet food. Importation currently requires the importer to submit data to
assist three of CBP's partner agencies: USDA; FDA; and the National
Oceanographic and Atmospheric Administration, or NOAA.
These agencies cumulatively want 54 data elements. But 21 of these
elements are redundant, and there are 16 inconsistent definitions for
the same data. Under these circumstances, the importer faces the
challenge of figuring out what exactly is required, and our law
enforcement authorities may end up with information of little utility.
We can and must do better--particularly given some of the supply
chain bottlenecks we see at our ports. Fortunately, we are well
situated to attack the modernization effort today, because CBP and its
advisory committees started thinking about many of these issues
starting in 2018, when CBP launched its 21st Century Customs Framework
Initiative to develop ideas about what a modernized Customs regime
might look like.
Combining CBP's efforts with additional expertise--including that
of our witnesses today--we can create an efficient and effective
framework. New tools, including automation, can help us identify risks
at an early stage.
We need a system where contraband never enters the United States in
the first place. By catching threats early, we can save CBP from
engaging in lengthy investigations on U.S. soil to figure out whether
something is a threat or not. A modern system will also expedite lawful
commerce to get essential inputs faster to our manufacturers and goods
to our consumers.
To sum up, smart Customs modernization will fight and deter crime,
create jobs, move goods faster, and save Americans' money--all at the
same time. This is precisely the type of work this committee was set up
to do, and does well. I look forward to working with my colleagues on
the committee to take on the challenge.
Now, I look forward to hearing from the witnesses on their ideas to
improve our Customs laws.
______
Prepared Statement of Andy Meserve, President of Local 9423, United
Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied
Industrial, and Service Workers International Union (USW)
Thank you, Chairman Wyden and Ranking Member Crapo, for the
opportunity to testify today on modernizing our trade laws and
improving our country's trade enforcement. My name is Andy Meserve, and
I am the union president for United Steelworkers Local 9423. My local
represents the workers at the Century Aluminum Hawesville Kentucky
Smelter, which when operating, employs around 650 union and management
workers who make up to 250,000 tons of primary aluminum a year.
Located on the Ohio River, our plant is one of six remaining
primary aluminum smelters in the United States. Our smelter is, from my
understanding, the last producer in the NATO region of high-purity
aluminum used for defense and aerospace applications. These good-
paying, union jobs are teetering on the knife's edge because of global
politics; decades of decisions by government; and especially important
to this hearing, international trade.
I am a maintenance mechanic at the smelter, meaning that I am
responsible for ensuring that everything from conveyor belts to cranes
operates safely in a manufacturing process, which turns raw materials
into primary aluminum. My job is to not only fix the immediate problem,
but to do preventative maintenance, and also make recommendations to
management on how to solve any problem long term.
In some ways, you all are managers of our country's economic well-
being. So I hope that my testimony today will highlight the immediate
problems facing our smelter, but also make long-term recommendations to
ensure that the U.S. has a competitive primary aluminum industry, which
is critical to our national security, and also ensure that our shared
democratic values flow through our economy.
If you Google Hawesville Kentucky Smelter, the first things that
come up are articles highlighting how high energy prices have
temporarily idled my smelter, throwing over 600 workers into economic
uncertainty. To me, that is like looking at a broken conveyor belt and
not asking what caused the failure. Yes, energy prices were a factor in
our current plant idling, but we need to step back and see if we can
set conditions for success and long-term operation. Aluminum is a
globally traded commodity in an Emissions Intensive, Trade Exposed
Industry (EITI). The policy decisions you all make in trade will impact
whether we have a domestic aluminum industry or not, just as much as
regional power prices.
My immediate recommendations to you under the topic of this hearing
are that we update our trade enforcement laws to respond faster to
illegal trade practices, put in place trade rules that better account
for workers' abuses and environmental pollution, and prioritize Customs
and Border Patrol's (CBP) efforts to collect duties and stop illegal
goods at the border.
faster enforcement
As our economies have become more connected globally, governments
and multinational companies are making economic decisions designed to
target products like aluminum, in order to capture market share and
press out competitors. Few other countries have been so aggressive in
that effort than the People's Republic of China. Today, producers in
China account for around 58 percent of global primary aluminum
capacity.\1\ In 2019, China's global aluminum exports rose by 20
percent.\2\ Chinese aluminum producers have attributed this increase to
their country's Belt and Road Initiative, which is a series of loans
and subsidies to third-party countries that help them reduce
unproductive capacity in aluminum.\3\ These actions have negatively
impacted U.S. metals markets, something I've worked in for over 22
years. While direct primary aluminum imports from China into the U.S.
are relatively low, aluminum is a globally traded commodity, meaning
price fluctuations are directly impacted by government efforts to
dominate commodity markets.
---------------------------------------------------------------------------
\1\ Reuters, ``Column: Aluminum rattled by signs of `green'
disruption in China,'' March 19, 2021, https://www.reuters.com/
business/energy/aluminium-rattled-by-signs-green-disruption-china-andy-
home-2021-03-19/.
\2\ Africa Center for Strategic Studies, ``Implications for Africa
from China's One Belt Road Strategy,'' March 22, 2019, https://
africacenter.org/spotlight/implications-for-africa-china-one-belt-one-
road-strategy/.
\3\ Shanghai Metals Market, ``Chalco: `One Belt and One Road
Initiative' to Offer Opportunities for Aluminum Industry,'' May 26,
2017, https://news.metal.com/newscontent/100738492/chalco
-%E2%80%9Cone-belt--one-road-initiative%E2%80%9D-to-offer-
opportunities-for-aluminum-industry%C2%A0/.
Our trade enforcement laws must respond to these sorts of global
swings. It is common to see U.S. producers and workers file one
antidumping and countervailing (AD/CVD) trade case and win, only to
have to file a new ``successive'' trade case a few years later as
imports from other countries, often on imports by similar companies,
undermining the years of work it took to win the first case. For
example, this is true for aluminum sheet.\4\ We need capable trade laws
that can respond to repeat offenders and serial cheaters who move
production to another country in an effort to go around existing AD/CVD
orders.
---------------------------------------------------------------------------
\4\ The Aluminum Association, ``Targeted Trade Enforcement in
Action: Common Alloy Aluminum Sheet AD/CVD One Year Later,'' May 2022,
https://www.aluminum.org/sites/default/files/2022-05/
CAAS_%20WhitePaper_4-2022.pdf.
We also need to better account for China's Belt and Road Initiative
as well. Hundreds of billions of dollars are being spent by China's
communist leadership to build facilities and export goods into third
party countries. Our trade enforcement laws have a gaping hole in
---------------------------------------------------------------------------
dealing with these sorts of cross border subsidies.
These issues are not new, USW supported a bill that passed the
House of Representatives last Congress and was led in the Senate by
Senator Brown and former Senator Portman. Commonly known as Leveling
the Playing Field Act 2.0, the legislation would provide a number of
trade law updates that will give new tools for U.S. workers and
producers to fend off illegally dumped and subsidized goods. We urge
the Finance Committee to take up the bill this Congress and pass it as
soon as possible.
russian aluminum
Today, roughly 3 percent of our country's aluminum imports come
directly from Russian sources. We need to be more comprehensive on how
we push back against Russia's war in Ukraine. It is hard for me to sit
at this table and not get angry that we allow Russian aluminum imports
to enter our country while 500 of my brothers and sisters, fellow
Americans, are out of work who can make this critical national security
product. While I believe the efforts we've made to help the Ukrainian
people are worth it, I can also be frustrated that we have spent $50
billion in U.S. taxpayer dollars to help the people of Ukraine fend off
Russia's invasion,\5\ yet we haven't stopped Russia's war machine from
selling aluminum products into the U.S. market.
---------------------------------------------------------------------------
\5\ Council on Foreign Relations, ``How Much Aid Has the U.S. Sent
Ukraine? Here Are Six Charts,'' December 16, 2022, https://www.cfr.org/
article/how-much-aid-has-us-sent-ukraine-here-are-six-charts.
The USW supports every effort to eliminate Russian aluminum
products and downstream third-party country imports from entering our
market. The union sees value in efforts to place a tariff on Russian
aluminum products,\6\ but it would be more effective to sanction or
place a total ban of downstream products that have Russian smelted and
cast primary aluminum in the supply chain.
---------------------------------------------------------------------------
\6\ Bloomberg, ``U.S. Plans 200% Tariff on Russia Aluminum as Soon
as This Week,'' February 6, 2023, https://www.bloomberg.com/news/
articles/2023-02-06/us-plans-200-tariff-on-russian-aluminum-as-soon-as-
this-week?sref=HEwoTbCT.
---------------------------------------------------------------------------
forced labor in aluminum supply chain
This committee is well familiar with the forced labor practices
being used against the Muslim Uyghur population in the Xinjiang region
of the People's Republic of China. This includes previous USW member
testimony on the issue.\7\ I wish to provide additional detail related
to my industry and ensure this committee is aware of recent work that
highlights more must be done to eliminate forced labor practices in our
supply chains. Late in 2022, a key report came out regarding the
automotive sector and forced labor practices in the People's Republic
of China Xinjiang region.\8\ A number of products were listed in the
report, but I will focus on aluminum. The report ``Driving Force Auto
Supply Chains and Uyghur Forced Labor'' highlights how this region of
China would not be a cost-effective place to process bauxite into
alumina, but the region's extremely cheap energy and relaxed
environmental regulation have led to it becoming a prime location for
smelting. Today, the Uyghur region's production capacity is roughly 8
million tons per year, representing roughly 12 percent of the world's
capacity.\9\ For perspective, in 2021, the United States produced
908,000 metric tons of primary aluminum, significantly below the peak
domestic output of 5.1 million metric tons in 1980.\10\
---------------------------------------------------------------------------
\7\ U.S. Senate Finance Committee, Testimony of Joe Wrona for
hearing on ``Fighting Forced Labor,'' March 18, 2021, https://
www.finance.senate.gov/imo/media/doc/Wrona,%20Joe%20
(USW)%20-%20Testimony%20for%20SFC%20Forced%20Labor%20Hearing.pdf.
\8\ Sheffield Hallam University, ``Driving Force: Automotive Supply
Chains and Forced Labour in the Uyghur Region,'' December 2022, https:/
/www.shu.ac.uk/helena-kennedy-centre-international-justice/research-
and-projects/all-projects/driving-force.
\9\ Ibid.
\10\ Congressional Research Service, ``U.S. Aluminum Manufacturing:
Industry Trends and Sustainability'', October 26, 2022, https://
crsreports.congress.gov/product/pdf/R/R47294#::text=
Many%20defense%2Drelated%20products%20must,defense%20ground%20and%20weap
on%20
systems.
Multiple Chinese producers are implicated in the report of
producing primarily aluminum that is then spread throughout the
aluminum auto supply chain. Aluminum without clear indications of the
original source in trading platforms like the London Metals Exchange,
through international trading firms, or through Chinese companies with
unannounced trade links to the Uyghur region should not be permitted on
American shores and we should hold these international trading firms
accountable and liable for not purging metals made with forced labor
---------------------------------------------------------------------------
from their systems.
We also need to better account for forced labor in aluminum
extrusions. The USW, along with the Aluminum Extruders Association,
filed a petition for a withhold release order against Dominican
Republic aluminum extrusions. We joined on this petition because
Customs on a CBP verification report from an Enforce and Protect Act
(EAPA) Allegation into Kingtom Aluminio S.R.L. found multiple instances
of forced labor tactics that were listed in their EAPA report.\11\ The
USW strongly encourages Congress to ensure that U.S. inspectors of
products be required to report instances of observed illegal labor and
environmental practices.
---------------------------------------------------------------------------
\11\ Yahoo, ``Aluminum Extruders Council Calls for Biden
Administration to Hold Kingtom Aluminio Accountable for Evading
Tariffs,'' June 16, 2022, https://www.yahoo.com/now/aluminum-extruders-
council-calls-biden-155900625.html?guccounter=1.
---------------------------------------------------------------------------
environment
This past December, the USW testified at a House Ways and Means
Committee Trade Subcommittee hearing regarding trade and the
environment. The testimony highlighted a recent Department of Commerce
International Trade Administration report on both the challenges and
opportunities related to the global market for environmental
technologies goods and services. The report highlights the nearly $700
billion in export potential for environmental goods and technologies,
but for the union, the report also highlighted a more ominous series of
statistics:\12\ The lack of basic clean air and water enforcement, and
often regulation, that communities in some of our largest trading
partners are experiencing.
---------------------------------------------------------------------------
\12\ U.S. Department of Commerce, International Trade
Administration, ``2019 Top Markets Report Environmental Technologies: A
Market Assessment Tool for U.S. Exporters,'' April 2020, https://
www.trade.gov/sites/default/files/2020-05/
2019%20Environmental%20Technologies%2
0Top%20Markets%20Report.pdf.
For example, in Vietnam, industrial wastewater treatment has
emerged as a critical need as approximately 75 percent of wastewater is
being discharged into lakes and rivers without treatment. Congress
needs to recognize that the third largest exporter into the U.S. is
poisoning their citizen's air and water ways because corporations want
to simply bring cheap goods into one of the largest consumer markets--
the United States. The union also highlighted examples of air and water
pollution in India and Indonesia.\13\
---------------------------------------------------------------------------
\13\ U.S. House Ways and Means Committee, hearing on ``Promoting
Sustainable Environmental Practices Through Trade Policy,'' December
14, 2022, https://waysandmeans.house.gov/event/hearing-on-promoting-
sustainable-environmental-practices-through-trade-policy/.
This pollution needs to be considered an illegal industrial
subsidy, and U.S. workers and their employers should not have to
compete against environmental degradation without properly accounting
for its cost. To give perspective, since the passage of the U.S. Clean
Water Act, government and industry have invested over $1 trillion to
abate water pollution, roughly $100 per person per year. While
challenges remain domestically, we have made marked improvements in our
water quality.\14\
---------------------------------------------------------------------------
\14\ Oxford Academic, ``Consequences of the Clean Water Act and the
Demand for Water Quality,'' The Quarterly Journal of Economics, Volume
134, Issue 1, February 2019, pages 349-396, https://academic.oup.com/
qje/article/134/1/349/5092609.
Any member of our union who works in an energy intensive, trade
exposed industry will tell you that fair trade must include mechanisms
that replicate and encourage our high domestic standards
internationally. This cannot just be trade facilitation initiatives,
but also methods to hold firms, importers, and countries accountable
for this pollution outsourcing. We need to allow workers, both
domestically and globally, to have access to remedies against
industrial polluters. For example, recent trade mechanisms in the
United States Mexico Canada Agreement (USMCA) could be extended to
address bad actors and ensure that foreign governments and
multinational corporations treat communities with the same care we
expect for our citizens.
other customs and trade items
There are a host of trade issues facing the country and my
testimony has highlighted several large issues facing this committee
regarding trade enforcement and better accounting for environmental
pollution in trade. There are also several other significant items this
committee should take up to improve trade enforcement and ensure U.S.
workers and firms have every tool available to them to fairly compete.
USW supports or encourages actions on items such as:
Increasing the penalties for fraudulent actors and repeat
offenders of our Nation's trade laws. This should also target
the ability of individuals to get permission to import goods
into our country. If an individual or company is fraudulently
importing goods, their import licenses should be at risk.
Supporting the U.S. and EU effort to build a global
arrangement framework on steel and aluminum. Following the
announcement suspending the steel and aluminum 232 duties on
the EU and tariff retaliation against the U.S., the global
arrangement has the potential to limit carbon intensive and
non-market economy steel and aluminum products from entering
the two markets with the most amount of import reliance
globally. Congress should do everything it can to foster this
effort including supporting legislative action if necessary
under a successful framework.
Company's and workers harmed by a U.S. importer's fraudulent
or grossly negligent violation of the U.S. Customs laws should
be able to pursue a remedy directly against the violator in any
venue in which the interested party has suffered damage.
Congress should take up and pass the National Critical
Capabilities Defense Act. This legislation led by Senators
Casey and Cornyn would create a whole-of-government process to
screen outbound investments and the offshoring of critical
capacities and supply chains to foreign adversaries, like China
and Russia, to ensure the resiliency of critical supply chains.
Repealing the Customs Operations Advisory Committee (COAC).
Created in the 2015 Trade Facilitation and Trade Enforcement
Act, this committee appears to be captured by large importers
of record and obstructs CBP's trade enforcement agenda outside
the public eye. COAC has made recommendations which would make
it harder for U.S. workers and firms to track imports that are
being dumped and subsidized into the U.S. market, and should
not predominate over the interests of domestic industry, labor
organizations, human rights organizations, and any other groups
with interests in trade enforcement.\15\
---------------------------------------------------------------------------
\15\ U.S. News, ``U.S. Businesses Propose Hiding Trade Data Used to
Trace Abuse,'' October 17, 2022, https://www.usnews.com/news/business/
articles/2022-10-17/us-businesses-propose-hi
ding-trade-data-used-to-trace-abuse#::text=Home-
,US%20Businesses%20Propose%20Hiding%20
Trade%20Data%20Used%20to%20Trace%20Abuse,buy%20to%20labor%20abuse%20over
seas.
---------------------------------------------------------------------------
domestic resources
We should make every effort to deploy resources passed under the
Infrastructure, Investment, and Jobs Act (IIJA) and the Inflation
Reduction Act (IRA) to ensure existing energy intensive, trade exposed
manufacturing facilities are able to upgrade and compete globally. The
fact that my plant sits less than one hundred miles from the Tennessee
Valley Authority's (TVA) lower cost power grid should not go unnoticed
by lawmakers. TVA supplies safe, reliable, clean low-cost public power
to 153 local power companies and about 60 large industrial customers
and Federal facilities.\16\ We should make every effort to expand the
footprint of this federally owned electric utility corporation and
increase domestic energy production, including renewables. When around
17,000 kilowatts of electricity are required to produce 1 ton of
aluminum, improving our energy grid and increasing access for diverse
affordable energy should be a priority of Congress.
---------------------------------------------------------------------------
\16\ Tennessee Valley Authority, ``TVA at a Glance,'' accessed
February 14, 2023, https://www.tva.com/about-tva/tva-at-a-glance.
---------------------------------------------------------------------------
conclusion
Congress must act swiftly and effectively to ensure globally traded
goods, like aluminum, are traded fairly and with an eye toward the
democratic values that win the future. When the Organisation for
Economic Co-operation and Development (OECD) found that the global
aluminum industry received up to $70 billion in government support
between 2013 and 2017, with the large majority of support concentrated
in China and countries of the Gulf Cooperation Council--we must put up
more of a fight to defend our values. Most Americans would be appalled
at learning that the primary aluminum used in our fighter jets could
come from China, Russia, or countries that outlaw independent trade
unions like the United Arab Emirates.\17\ We can do better and we must
do better to ensure that U.S. industry and workers are not starting on
their back foot in the economic competition.
---------------------------------------------------------------------------
\17\ U.S. Department of State, ``2021 Country Reports on Human
Rights Practices: United Arab Emirates,'' accessed February 14, 2023,
https://www.state.gov/reports/2021-country-reports-on-human-rights-
practices/united-arab-emirates/.
I am just a maintenance mechanic hoping to restart the smelter
where I've worked at for over 20 years. My job helped me raise a family
and allowed me to call Kentucky home. With proper trade enforcement and
improved energy security, I believe we can restart and make aluminum in
---------------------------------------------------------------------------
Hawesville for decades to come. Thank you.
______
Questions Submitted for the Record to Andy Meserve
Questions Submitted by Hon. Sherrod Brown
Question. One of the biggest threats to Ohio workers today is when
countries, like China, find new and novel ways to circumvent our trade
laws. Current U.S. law doesn't provide enough tools to challenge the
unfair trade practices of the Chinese Communist Party.
Last year, I joined with Senator Portman to introduce legislation--
a bill we called Leveling the Playing Field 2.0--to address China's
anti-competitive trade practices and provide 21st-century solutions to
address this subsidy shell game.
Senator Young and I plan to reintroduce this legislation in the
next few weeks to help U.S. workers and producers prosecute repeat
offenders and serial cheaters who simply move production to another
country to get around existing antidumping or countervailing duty
orders.
Can you talk about how our legislation updating U.S. trade laws
would benefit U.S. companies suffering from these new forms of unfair
trade? Do you agree that these provisions would be useful to address
the whack-a-mole game of unfair trade practices by the Chinese
Government?
Answer. As the largest manufacturing union in North America,
representing workers in a variety of industries, we need our trade
enforcement laws that reflect 21st-century challenges.
The bipartisan Leveling the Playing Field Act 2.0 would aid the
union and our member companies who have to use the trade laws in the
following ways.
Makes it easier for U.S. workers/companies to stop repeat
offenders and speeds the process so manufacturers, agriculture
workers, and miners can focus on American made goods.
Targets Belt and Road Initiative subsidies--right now China
is spending billions out of the country to build factories that
will dump into the U.S. and other markets. The bipartisan
American COMPETES act will give the U.S. government authority
to call out those subsidies.
Improves enforcement--importers constantly pull tricks to
try and lower or evade duties. The Leveling the Playing Field
Act will clarify processes and timelines making government more
efficient in stopping dumped and illegally subsidized goods.
Technology changes all the time; our trade laws must adjust just as
quickly. Passing the Leveling the Playing Field Act 2.0 is a must for
workers and employers to maintain and improve U.S. competition.
United Steelworkers urges Congress to pass the bipartisan Leveling
the Playing Field Act 2.0 as it would aid in stopping this Whac-A-Mole
issue where multinational employers guilty of dumping goods from one
country quickly ramp up imports from other countries--undercutting the
effectiveness of trade measures.
Question. Several years ago, Congress gave Customs and Border
Protection (CBP) the authority to investigate whether a company has
evaded antidumping and countervailing (AD/CVD) duties. While CBP has
made dozens of determinations since that time, Customs fraud continues
to undermine the value of the United States' antidumping and unlawful
subsidy trade laws, meaning hundreds of millions of dollars of
antidumping and countervailing duty fees don't get collected.
Can you speak to how American manufacturing workers are hurt by
transshipment and other forms of evasion?
Answer. Workers and employers who have been negatively impacted by
illegally dumped and subsidized goods often see several negative
impacts that range from lost hours at the job, layoffs, concessionary
bargaining, and/or when plants close--communities see a reduced tax
base which then trickles through the local economy.
Employers and unions who chose to use our trade laws to fight back
often spend millions of dollars proving their case and having to show 3
years of data--often 3 years of economic harm to receive relief. To
then have that relief undercut by multinational employers and/or
unscrupulous importers who try to evade or transship goods.
As I mentioned at the hearing, there has been a history of primary
aluminum transshipment. The Wall Street Journal in 2016 highlighted how
close to $2 billion of primary aluminum was transshipped into Mexico
(https://www.wsj.com/articles/chinese-billionaire-linked-to-giant-
aluminum-stockpile-in-mexican-desert-1473356054). These sorts of
anticompetitive practices reduce domestic sales and hurt communities
like my own.
______
Prepared Statement of Scott Nova, Executive Director,
Worker Rights Consortium
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for the opportunity to offer testimony today on the vital
matter of government enforcement of laws designed to combat forced
labor in the supply chains of brands and retailers selling goods in the
United States. My name is Scott Nova, and I am executive director of
the Worker Rights Consortium (WRC), a nonprofit organization committed
to advancing labor rights in global manufacturing. The WRC conducts
factory-level labor rights compliance assessments in more than two
dozen countries; issues public reports of documented labor rights
violations; and works with relevant actors to secure remedies, with a
particular focus on the responsibilities of the brands and retailers
that use the factories in question to make their goods. The WRC serves
on the steering committee of the Coalition to End Forced Labour in the
Uyghur Region.
I will address in my testimony both the enforcement of the Uyghur
Forced Labor Prevention Act (UFLPA) and, more broadly, of section 307
of the Tariff Act, including some policies and practices of Customs and
Border Protection that bear on both. The removal of the consumptive
demand loophole in 2016, which made section 307 enforceable, and the
enactment of the UFLPA, along with the inclusion of a robust labor
rights mechanism in the U.S.-Mexico-Canada Agreement (USMCA), are
recent and rare elements of contemporary U.S. trade policy that
meaningfully limit the ability of corporations to make products under
abusive working conditions in other countries and then sell them in the
United States--often undercutting competitors that make goods either
here in the U.S. or under decent conditions overseas. The bipartisan
support for these initiatives, exemplified by the Senate's unanimous
passage of the UFLPA, augurs well. It hopefully signals a trend away
from trade policies that serve primarily to facilitate corporate access
to easily exploitable workers overseas and toward policies that protect
the rights and well-being of workers both at home and abroad. The
effective enforcement of these statutes, including the UFLPA, is thus
of enormous importance, both to vast numbers of individual workers and
to the broader goals of combating forced labor, upholding the rule of
law, and ensuring fair competition in the global economy.
By continuing to source from the Xinjiang Uyghur Autonomous region
(``Uyghur region'') while the Chinese Government radically expanded its
regime of forced labor, leading global brands and retailers made
themselves a party to abuses of the Uyghur and other Turkic peoples
that have been deemed crimes against humanity by leading human rights
organizations.\1\ State-sponsored forced labor in the Uyghur region
intersects with and reinforces other egregious human rights violations,
including a vast campaign of arbitrary detention, forced family
separation, and one of the most pervasive regimes of mass surveillance
ever imposed.\2\ In 2019,\3\ a point by which forced labor was rampant
in cotton production, the Uyghur region was the source of roughly 20
percent of the apparel industry's global cotton supply. In 2020,\4\ the
region produced 45 percent of the world's solar-grade polysilicon. The
Uyghur region is also the source of more than 12 percent of the world's
supply of primary aluminum and produces 10 percent of the world's
polyvinyl chloride (PVC). Thus, the supply chains of a huge number of
corporations that sell products in the U.S. run through a region that
is the global epicenter of forced labor, where the prevailing
environment of repression and fear makes human rights due diligence a
practical impossibility. At the time of the UFLPA's enactment, there
were tens of thousands of shipping containers arriving at U.S. ports
every day, laden with sweatshirts, solar panels, and myriad other
products, all made partly in the Uyghur region, under conditions likely
involving forced labor. In these circumstances, robust enforcement of
the UFLPA \5\ is essential to end the complicity of U.S. corporations
in the horrors unfolding in the Uyghur region.
---------------------------------------------------------------------------
\1\ U.S. State Department, et al., Xinjiang Supply Chain Business
Advisory, July 13, 2021, https://www.state.gov/wp-content/uploads/2021/
07/Xinjiang-Business-Advisory-13July2021-1.pdf; Human Rights Watch and
Mills Legal Clinic, Stanford Law School, China: Crimes Against Humanity
in Xinjiang, April 19, 2021, https://www.hrw.org/news/2021/04/19/china-
crimes-against-humanity-xinjiang.
\2\ U.S. Department of Labor, Bureau of International Labor
Affairs, ``Against Their Will: The Situation in Xinjiang,'' accessed
March 10, 2022, https://www.dol.gov/agencies/ilab/against-their-will-
the-situation-in-xinjiang; Congressional-Executive Commission on China,
Global Supply Chains, Forced Labor, and the Xinjiang Uyghur Autonomous
Region, March 2020, https://www.cecc.gov/sites/
chinacommission.house.gov/files/documents/CECC%20Staff%20Report%20
March%202020%20-
%20Global%20Supply%20Chains%2C%20Forced%20Labor%2C%20and%20
the%20Xinjiang%20Uyghur%20Autonomous%20Region.pdf.
\3\ Amy K. Lehr, Addressing Forced Labor in the Xinjiang Uyghur
Autonomous Region: Toward a Shared Agenda, Center for Strategic and
International Studies, July 30, 2020, https://www.csis.org/analysis/
addressing-forced-labor-xinjiang-uyghur-autonomous-region-toward-
shared-agenda.
\4\ Laura T. Murphy and Nyrola Elima, In Broad Daylight: Uyghur
Forced Labour and Global Solar Supply Chains, Sheffield Hallam
University Helena Kennedy Centre for International Justice, May 2021,
https://www.shu.ac.uk/helena-kennedy-centre-international-justice/
research-and-projects/all-projects/in-broad-daylight.
\5\ Uyghur Forced Labor Prevention Act, Pub. L. No. 117-78, 135
Stat. 1525, December 23, 2021, https://www.congress.gov/117/plaws/
publ78/PLAW-117publ78.htm.
In trying to assess UFLPA enforcement to date, as well as broader
enforcement of section 307, we are mindful that CBP's task is very
broad in scope and that genuine enforcement against importers of forced
labor-made products is still in its institutional infancy. Prior to
Congress's decision to close the consumptive demand loophole, there
was, in the forced labor realm, virtually nothing for CBP to enforce.
(Indeed, there was not a single withhold release order (WRO) issued
between 2000 and 2016.) The enforcement infrastructure specific to
forced labor was correspondingly minimal, and CBP had no institutional
memory of robust forced labor enforcement. CBP has had only 7 years to
develop the infrastructure and methods to identify forced labor-made
---------------------------------------------------------------------------
products, and growing pains are an inevitable part of such a process.
It is also the case that despite the funds recently appropriated
for UFLPA enforcement, there remains a large mismatch between the scope
of the task and the extent of the resources available, both in terms of
the UFLPA and broader section 307 enforcement. Further expansion of
CBP's resources targeted specifically to forced labor enforcement is
necessary for a full-scale enforcement effort.
With all that in mind, I would like to provide the following
observations and recommendations in relation to the implementation and
enforcement of the UFLPA to date.
enforcement of the uyghur forced labor prevention act
Since the law went into effect last June, we have seen some
encouraging indicators of successful enforcement. Shipments across
multiple sectors are being targeted and detained. Brands, in at least
some sectors, are being asked to provide an unprecedented level of
supply chain disclosure. CBP is availing itself, at least to some
extent, of new technology that allows the geographic origin of the raw
material comprising a product to be identified through physical testing
of the product, either during the production process or off of the
store shelf.
The WRC believes that CBP, and the other agencies that are part of
the Forced Labor Enforcement Task Force (FLETF), are committed to
meaningful enforcement of the UFLPA. And there are credible indications
from industry sources that, at least in the apparel sector, many--
though by no means all--major brands and retailers have exited or are
exiting the Uyghur region, in response to the advent and enforcement of
the law. We have also seen recent evidence of a sharp decline in demand
for Xinjiang cotton as a result of these developments.\6\
---------------------------------------------------------------------------
\6\ Ji Siqi, ``As China's cotton harvest begins, Xinjiang `forced
labour' law and global recession fears hobble demand,'' South China
Morning Post, October 7, 2022, https://www.scmp.com/economy/china-
economy/article/3195043/chinas-cotton-harvest-begins-us-xinjiang-
forced-labour-law?module=hard_link&pgtype=article.
Every enforcement action taken by the U.S. Government--and every
corporate decision, driven by those actions, to shift sourcing away
from the Uyghur region and away from suppliers implicated in Uyghur
forced labor--strikes against the impunity both of the Chinese
Government and of global corporations that have heretofore been
complicit in those abuses. The UFLPA is putting substantial political
and economic pressure on the Chinese Government. And it is forcing
thousands of global corporations to go through the altogether healthy
process of adjusting to an unprecedented level of legal and financial
---------------------------------------------------------------------------
risk arising from labor practices in their supply chains.
Against this encouraging backdrop, there are also significant
reasons for concern, including the paucity of public reporting from CBP
and the FLETF on the nature and progress of the UFLPA enforcement
effort and indications that progress in certain areas has been too
slow.
Any assessment of the UFLPA enforcement to date is partial by
necessity, not only because the law took effect less than 8 months ago,
but because CBP is, at present, sharing very little information about
its work. It is important to note, as explained in more detail below,
that this is not a problem specific to the UFLPA or to the current
leadership of CBP; it is a lack of transparency that has characterized
CBPs approach to public reporting with respect to all of its forced
labor enforcement, dating to 2016. Public reporting by U.S. Government
agencies on UFLPA enforcement activities is critical for numerous
reasons, not least the ability of nongovernmental organizations to
coordinate and collaborate with the enforcement agencies, a goal
specified in section 2(d)(7) and section 4(b)(3)(A) of the UFLPA.
As shown in the table below, in September 2022, CBP first started
releasing data on shipments it has targeted, beginning with the month
of August 2022.\7\
---------------------------------------------------------------------------
\7\ On January 26, 2023, the WRC reviewed CBP's Monthly Operational
Updates for the 12-month period prior to the enactment of the UFLPA.
None included information on entries identified by CBP for further
examination. See: U.S. Customs and Border Protection, ``CBP Releases
July 2022 Monthly Operational Update,'' August 15, 2022, https://
www.cbp.gov/newsroom/national-media-release/cbp-releases-july-2022-
monthly-operational-update and U.S. Customs and Border Protection,
``Media Releases,'' https://www.cbp.gov/newsroom/media-releases.
------------------------------------------------------------------------
Number of entries identified by CBP
for further examination based on the
suspected use of forced labor, and
which may be subject to a withhold Value of the
release order, forced labor finding, entries identified
Month or the Uyghur Forced Labor Prevention by CBP for further
Act's rebuttable presumption, and examination
prohibited importation into the
United States under 19 U.S.C. Sec.
1A1307
------------------------------------------------------------------------
August 2022 838 More than $266
million \8\
------------------------------------------------------------------------
\8\ U.S.
Customs and
Border
Protection,
``CBP
Releases
August 2022
Monthly
Operational
Update,''
September
19, 2022,
https://
www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
august-2022-
monthly-
operational-
update.
September 491 More than $158
2022 million \9\
------------------------------------------------------------------------
\9\ U.S.
Customs and
Border
Protection,
``CBP
Releases
September
2022 Monthly
Operational
Update,''
October 21,
2022, https:/
/www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
september-
2022-monthly-
operational-
update.
October 2022 398 More than $129
million \10\
------------------------------------------------------------------------
\10\ U.S.
Customs and
Border
Protection,
``CBP
Releases
October 2022
Monthly
Operational
Update,''
November 14,
2022, https:/
/www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
october-2022-
monthly-
operational-
update.
November 2022 444 More than $128
million \11\
------------------------------------------------------------------------
\11\ U.S.
Customs and
Border
Protection,
``CBP
Releases
November
2022 Monthly
Operational
Update,''
December 23,
2022, https:/
/www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
november-
2022-monthly-
operational-
update.
December 2022 310 More than $59
million \12\
------------------------------------------------------------------------
\12\ U.S.
Customs and
Border
Protection,
``CBP
Releases
December
2022 Monthly
Operational
Update,''
January 20,
2023, https:/
/www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
december-
2022-monthly-
operational-
update.
January 2023 282 More than $69
million \13\
\13\ U.S.
Customs and
Border
Protection,
``CBP
Releases
January 2023
Monthly
Operational
Update,''
February 10,
2023, https:/
/www.cbp.gov/
newsroom/
national-
media-
release/cbp-
releases-
january-2023-
monthly-
operational-
update.
------------------------------------------------------------------------
The data actually tell us very little, because CBP does not
disaggregate it in a manner that would give the public a clear picture
of how the UFLPA is being enforced. CBP is now reporting the number and
dollar value of entries ``identified for further examination,'' but it
does not report the number or value of the entries that are actually
detained. We thus do not know what percentage of shipments targeted for
``further examination'' are ultimately allowed into the United States.
CBP also does not indicate which of these entries are targeted under
the auspices of the UFLPA; the data lumps together shipments targeted
under the UFLPA and under every extant WRO. CBP also does not provide
any breakdown of targeted shipments by industry, much less specific
product category. Nor is there any breakdown by country of origin.
As a result, we cannot glean from the data CBP is publishing how
many shipments have been detained--or even how many have been targeted
for ``further examination''--in any of the high priority sectors
identified by the UFLPA (cotton, tomatoes, polysilicon) or in any other
individual sector. We know that some solar panels have been detained,
but we do not know how many, or from what country or countries they
were shipped, or why they were detained. We also, of course, do not
know what companies shipped the panels that were detained, nor which
companies were attempting to import them. We do not know the answers to
those questions with respect to any other industry or product. We also
do not know to what extent CBP is focusing its the enforcement of the
UFLPA on imports from countries other than the PRC--an important
question since, in some industries, including apparel, the majority of
goods containing inputs from the Uyghur Region are not finished in the
PRC.
Officials at CBP and the Department of Homeland Security (DHS)
occasionally disclose bits of more precise information via interviews
with journalists. For example, in a September 2022 interview with The
Wall Street Journal, Robert Silvers, the U.S. Department of Homeland
Security Under Secretary who chairs the FLETF, stated that during the
first 3 months after the UFLPA went fully into effect, 1,452 cargo
entries valued at $429 million were targeted under the law.\14\ But
these occasional disclosures add only marginally to the overall
picture.
---------------------------------------------------------------------------
\14\ Richard Vanderford, ``Forced Labor a `Top-Tier' Compliance
Issue, Says U.S. Official,'' The Wall Street Journal, September 27,
2022, https://www.wsj.com/articles/forced-labor-a-top-tier-compliance-
issue-says-u-s-official-11664271003.
CBP exhibited a similar lack of transparency with respect to the
WRO issued on cotton from Turkmenistan in 2018 and with respect to
---------------------------------------------------------------------------
other regional and company-specific WROs.
This lack of transparency precludes a reliable or comprehensive
assessment of the quality and effectiveness of CBP's UFLPA enforcement
efforts. In meetings as recently as January 2023, CBP has indicated to
nongovernmental organizations that it is planning to publish a
``dashboard'' with more detailed enforcement statistics; however, CBP
has not provided a specific timeline for when the dashboard will be
released or information on the level of detail that will be included.
CBP cites multiple reasons for its approach: capacity limitations,
constraints ostensibly imposed by the Trade Secrets Act, and
confidentiality obligations relating to CBP's law enforcement role most
prominent among them. However, it is difficult to see why any of these
factors would preclude the sharing of information as basic, and as
anonymous, as the volume of detentions specifically carried out under
the UFLPA, or the percentage of detained shipments that originated in
countries other than the PRC, or the total volume of apparel shipments
detained, or whether any shipments have been targeted based on the
involvement in their manufacturing with companies on the Entities
Lists. Indeed, it is clear to us that CBP, in all of its forced labor
enforcement work, dating back to 2016 when that work began in earnest,
has consistently and by a large margin erred on the side of too little
transparency.
This is a problem that can and should be rectified within the scope
of existing law, which allows CBP far more latitude for public
disclosure than it is utilizing. One of the most important steps that
CBP and the other FLETF agencies can take to ensure effective
implementation of the UFLPA is to greatly increase the volume and
precision of its public reporting on the enforcement process, beginning
with disclosure of data on the volume of both targeted and detained
entries that is industry-specific, country-of-origin specific, and
specific to UFLPA enforcement.
There are also a number of specific elements of the UFLPA
enforcement process that are of concern.
The ``Clear and Convincing'' Evidence Standard and Labor Rights Audits
in the Uyghur Region
One of the strengths of the UFLPA is the evidentiary standard
Congress has applied \15\ to any effort by an importer to prove that a
product with content from the Uyghur region (or a product partly made
by a company on the UFLPA Entities List) was made without forced labor,
thereby overcoming the ``rebuttable presumption'' that forced labor was
used and gaining entry for the product. Importers must prove their case
with ``clear and convincing evidence,'' a high standard appropriate to
the circumstances, to the long history in the PRC of exporters faking
labor rights compliance, and to the enormous incentives exporters have
to hide their complicity in forced labor in the context of a
review.\16\
---------------------------------------------------------------------------
\15\ Uyghur Forced Labor Prevention Act, Pub. L. No. 117-78, 135
Stat. 1525, section 3(b)(2).
\16\ Finbarr Bermingham and Cissy Zhou, ``Bribes, fake factories
and forged documents: The buccaneering consultants pervading China's
factory audits,'' South China Morning Post, January 22, 2021, https://
www.scmp.com/economy/china-economy/article/3118683/bribes-fake-
factories-and-forged-documents-buccaneering; Kevin Lin, Liana Foxvog,
Olga Martin-Ortega, and Opi Outhwaite, Time for a Reboot: Monitoring in
China's Electronics Industry, International Labor Rights Forum and
Business, Human Rights and Environment Research Group, September 2018,
https://laborrights.org/sites/default/files/publications/
Time_for_a_Reboot_0.pdf.
An important question concerning CBP's approach to enforcement is
how it applies this evidentiary standard to potential efforts by
importers to present, as evidence to overcome the rebuttable
presumption, labor rights audits conducted within the Uyghur region.
CBP should give no evidentiary weight to such audits, because reliable
---------------------------------------------------------------------------
audits cannot be performed in the region under prevailing conditions:
Candid worker interviews are a necessary \17\--indeed, they
are the central--element in any reliable labor rights
inspection related to forced labor. A worker whose labor is
coerced cannot provide an auditor with candid testimony about
this coercion unless that worker has good reason to believe
they can do so without incurring a significant risk of
retaliation, from the employer and/or public authorities.
---------------------------------------------------------------------------
\17\ International Labour Organization, ``Guidelines concerning the
measurement of forced labour,'' 20th International Conference of Labour
Statisticians, Geneva, 2018, https://www.
ilo.org/wcmsp5/groups/public/---dgreports/---stat/documents/
meetingdocument/wcms_648619.
pdf.
Given the political conditions in the region, every Uyghur
worker has good reason to believe the opposite. The government
has effectively criminalized any deviation by individuals from
government-approved cultural practices, political views, and
personal associations,\18\ and it brutally punishes those
suspected of such deviations with extrajudicial internment,
criminal prosecution without hope of a fair trial, physical
torture,\19\ forced relocation, and other devastating forms of
sanction.\20\ The government also maintains a vast,
multifaceted surveillance apparatus \21\ designed to ensure
that deviations from approved thought and practice are
detected. Under these conditions, workers from the Uyghur
community, or from any other Turkic or Muslim community, who
are victims of forced labor would have reason to assume that
providing truthful testimony about their circumstances to a
private auditor or inspector would not only incur a risk of
retaliation but the virtual certainty of retaliation.
---------------------------------------------------------------------------
\18\ Sean R. Roberts, The War on the Uyghurs: China's Internal
Campaign against a Muslim Minority, Princeton, NJ: Princeton University
Press, 2020.
\19\ Rebecca Wright, Ivan Watson, Zahid Mahmood, and Tom Booth, ``
`Some are just psychopaths': Chinese detective in exile reveals extent
of torture against Uyghurs,'' CNN, October 5, 2021, https://
www.cnn.com/2021/10/04/china/xinjiang-detective-torture-intl-hnk-dst/
index.
html.
\20\ Human Rights Watch and Mills Legal Clinic at Stanford Law
School, ``Break Their Lineage, Break Their Roots'': Chinese Government
Crimes against Humanity Targeting Uyghurs and Other Turkic Muslims,
April 2021, https://www.hrw.org/sites/default/files/media_2021/04/
china0421_web_2.pdf; U.S. Department of State, Bureau of Democracy,
Human Rights and Labor, China 2020 Human Rights Report, March 2021,
https://www.state.gov/wp-content/uploads/2021/10/CHINA-2020-HUMAN-
RIGHTS-REPORT.pdf.
\21\ Chris Buckley and Paul Mozur, ``How China Uses High-Tech
Surveillance to Subdue Minorities,'' The New York Times, May 22, 2019,
https://www.nytimes.com/2019/05/22/world/asia/china-surveillance-
xinjiang.html; Human Rights Watch, ``China: Big Data Fuels Crackdown in
Minority Region,'' February 26, 2018, https://www.hrw.org/news/2018/02/
26/china-big-data-fuels-crackdown-minority-region.
Under these conditions, there is a very high likelihood that
a victim of forced labor who is asked to submit to an auditor's
interview will provide testimony favorable to their employer
and to the government, whether or not that testimony is true.
This is why no audit conducted in the region can be relied upon
as meaningful evidence: candid worker interviews are essential
to effective audits and candid worker interviews are impossible
---------------------------------------------------------------------------
in the Uyghur region.
This is why many reputable auditing firms \22\ ceased
conducting labor rights audits in the region in 2020.
---------------------------------------------------------------------------
\22\ Eva Xiao, ``Auditors to Stop Inspecting Factories in China's
Xinjiang Despite Forced-Labor Concerns,'' The Wall Street Journal,
September 21, 2020, https://www.wsj.com/articles/auditors-say-they-no-
longer-will-inspect-labor-conditions-at-xinjiang-factories-11600697706.
If CBP is treating such audits with appropriate skepticism, the
``clear and convincing'' standard will be very difficult to meet--as it
should be--and we anticipate relatively few attempts to overcome the
rebuttable presumption.
Admissibility Reviews
As a result, the primary focus of CBP's engagement with importers
will likely not be the rebuttable presumption, but rather the process
CBP calls ``admissibility reviews.''\23\ These occur in the context of
the enforcement of WROs, and now of the UFLPA, when CBP targets a
shipment because of indications that the products include content from
a banned region or a banned supplier. Under this process, CBP grants
the importer the opportunity to demonstrate by evidence that the
product does not have such content or was not touched by the banned
supplier. We understand from CBP's statements at informational sessions
for nongovernmental organizations \24\ that such reviews are a common
part of its WRO enforcement process and that a substantial number have
been carried out under the UFLPA. This means that CBP's enforcement
work under the UFLPA has been, and is likely to be, much more about
determining where a product's inputs were sourced, and who touched the
product along the supply chain, than about the labor conditions at any
facility.
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\23\ U.S. Department of Homeland Security, Strategy to Prevent.
\24\ Remarks by CBP representatives at the CBP-CSO Roundtable
Meeting on November 17, 2022.
It is thus important that this work be done rigorously, to ensure
importers cannot use these reviews to sneak banned products into the
U.S. Such reviews are self-
evidently appropriate: if a product does not have Uyghur region
content, and CBP mistakenly suspects it does, an importer should be
given the opportunity to prove its case. What we do not yet know is how
CBP goes about this work. We can glean from some CBP materials, or
otherwise surmise, the kind of data it seeks from importers, but we do
not know how CBP vets the veracity of documentary evidence or what
evidentiary standard it uses. We also do not know how many such reviews
are being conducted and what percentage of them have resulted in CBP
deeming the shipment admissible. Unlike the process by which an
importer seeks to overcome the rebuttable presumption, admissibility
reviews are not subject to disclosure requirements as to decisions made
and the evidence on which they are based. Given that a sizable number
of reviews are likely taking place, it would be impractical for CBP to
disclose specifics related to each. But CBP could and should disclose
information about its methods and aggregate data on outcomes, which
would go a long way toward reassuring observers that an importer is not
using this process as a runaround to the rebuttable presumption.
Avoiding Excessive Emphasis on Goods Imported Directly From the Uyghur
Region
An important area where CBP can increase both the efficacy and
efficiency of its enforcement is with improved geographic targeting,
including less emphasis on products exported directly from the Uyghur
region and more on products arriving from third countries. Last year,
the FLETF averred that ``. . . the highest-risk goods include those
imported directly from Xinjiang into the United States. . . .''\25\
Communications from CBP to nongovernmental organizations have
underscored this category of shipments as a high priority. While such
imports should obviously not be ignored, they are in practice both tiny
in number and relatively easy to detect. Indeed, almost all of the
products entering the United States that include Uyghur region content
arrive from someplace other than the Uyghur region. This is because the
primary contributions of the Uyghur region to global supply chains are
raw materials and other inputs that provide their value added early in
the production process:\26\ cotton in the apparel supply chain,
polysilicon in the production of solar panels, PVC used to make
flooring, aluminum used to make cars. Very few of those finished
products are manufactured in the Uyghur region. Indeed, even before
CBP's region-wide WRO and the subsequent enactment of the UFLPA, the
Uyghur region directly exported only $300 million worth of goods to the
United States per year.\27\ To put this in perspective, the U.S. will
receive more than twice that amount, from other trading partners,
during the time it takes to complete this hearing. In 2019, direct
shipments from Uyghur region sources represented less than one-tenth of
1 percent of U.S. imports from the People's Republic of China (PRC) and
roughly 0.01 percent of all imports. Without minimizing the symbolic
importance of shipments direct from the Uyghur region, and the need to
avoid them slipping through, CBP should not focus more than a very
modest portion of its limited resources on this element of UFLPA
enforcement, and it should apply any resources saved to shipments from
third countries, including major exporters of apparel like Bangladesh
and Indonesia, and major exporters of solar panels like Vietnam.
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\25\ U.S. Department of Homeland Security, Strategy to Prevent.
\26\ See, for example: Laura T. Murphy, et al., Laundering Cotton:
How Xinjiang Cotton is Obscured in International Supply Chains,
Sheffield Hallam University Helena Kennedy Centre for International
Justice, November 2021, https://www.shu.ac.uk/helena-kennedy-centre-
international-justice/research-and-projects/all-projects/laundered-
cotton; Laura Murphy and Nyrola Elima, In Broad Daylight; Laura T.
Murphy, Kendyl Salcito, and Nyrola Elima, Financing and Genocide:
Development Finance and the Crisis in the Uyghur Region, Atlantic
Council Digital Forensic Research Lab, Sheffield Hallam University
Helena Kennedy Centre for International Justice and NomoGaia, February
2020, https://www.shu.ac.uk/helena-kennedy-centre-international-
justice/research-and-projects/all-projects/financing-and-genocide.
\27\ U.S. Department of Homeland Security, Strategy to Prevent.
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Expansion of the UFLPA Entities List
Section 2(B) of the UFLPA requires the FLETF, in consultation with
the Secretary of Commerce and the Director of National Intelligence, to
develop and maintain four entity lists and one product list, as
follows: (i) a list of entities in the Xinjiang Uyghur Autonomous
Region that mine, produce, or manufacture wholly or in part any goods,
wares, articles and merchandise with forced labor; (ii) a list of
entities working with the government of the Xinjiang Uyghur Autonomous
Region to recruit, transport, transfer, harbor or receive forced labor
or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out
of the Xinjiang Uyghur Autonomous Region; (iii) a list of products
mined, produced, or manufactured wholly or in part by entities on the
list required by clause (i) or (ii); (iv) a list of entities that
exported products described in clause (iii) from the People's Republic
of China into the United States; (v) a list of facilities and entities,
including the Xinjiang Production and Construction Corps, that source
material from the Xinjiang Uyghur Autonomous Region or from persons
working with the government of the Xinjiang Uyghur Autonomous Region or
the Xinjiang Production and Construction Corps for purposes of the
``poverty alleviation'' program or the ``pairing-assistance'' program
or any other government labor scheme that uses forced labor.
The current version of the UFLPA Entity List does not have any
additions since the original version that was published on June 21,
2022.\28\ The ``list of entities that exported products described in
clause (iii) from the PRC into the United States,'' per section
2(d)(2)(B)(iv), remains blank. Across the available lists, there are a
total of only 20 entities, several of which have additional
subsidiaries or affiliated entities that may or may not be covered by
their inclusion.\29\ All of the entities on the list are derived from
WROs or Commerce Department actions dating from June 2021 or
earlier.\30\ In other words, despite submissions by researchers \31\
directly to enforcing agencies and a series of publicly available
academic reports since before the law went into effect,\32\ as well as
more recently, that identified relevant entities and products meriting
inclusion on these lists, the FLETF has not expanded these lists from
those that were in effect before the law was enacted.
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\28\ The current version of the UFLPA Entity List is available at
U.S. Department of Homeland Security, ``UFLPA Entity List,'' accessed
January 19, 2023, https://www.dhs.gov/uflpa-entity-list. The original
version of the UFLPA Entity List is available at U.S. Department of
Homeland Security, Strategy to Prevent the Importation of Goods Mined,
Produced, or Manufactured with Forced Labor in the People's Republic of
China, July 17, 2022, https://www.dhs.gov/sites/default/files/2022-06/
22_0617_fletf_uflpa-strategy.pdf. A product list as required by section
2(d)(2)(B)(iii) of the UFLPA is included within the Strategy to Prevent
report but is not available on DHS's UFLPA Entity List page.
\29\ U.S. Department of Homeland Security, ``UFLPA Entity List.''
\30\ U.S. Customs and Border Protection, ``Withhold Release Orders
and Findings List,'' accessed January 19, 2023, https://www.cbp.gov/
trade/forced-labor/withhold-release-orders-and-findings.
\31\ Spreadsheets that ``include names and addresses (in English
and Chinese) of thousands of companies operating in or sourcing from
the Uyghur region'' were provided by Laura T. Murphy to enforcing
agencies separate from her publicly available submission to the
Department of Homeland Security at https://www.regulations.gov/comment/
DHS-2022-0001-0148.
\32\ See, for example: Laura T. Murphy, et al., Laundering Cotton;
Laura Murphy and Nyrola Elima, In Broad Daylight; Laura T. Murphy,
Kendyl Salcito, and Nyrola Elima, Financing and Genocide.
An August 4, 2022, Federal Register notice by the Homeland Security
---------------------------------------------------------------------------
Department specifies a process for additions to the UFLPA Entity List:
The FLETF will consider future additions to the UFLPA Entity
List based on the criteria described in clauses (i), (ii),
(iv), or (v) of section 2(d)(2)(B) of the UFLPA. Any FLETF
member agency may submit a recommendation to the FLETF Chair to
add an entity to the UFLPA Entity List. Following review of the
recommendation by the FLETF member agencies, the decision to
add an entity to the UFLPA Entity List will be made by majority
vote of the FLETF member agencies.\33\
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\33\ Department of Homeland Security, ``Notice on the Addition of
Entities to the Uyghur Forced Labor Prevention Act Entity List,''
Federal Register 87, no. 149, (August 4, 2022): 47777-47779, https://
www.federalregister.gov/documents/2022/08/04/2022-16754/notice-on-the-
addition-of-entities-to-the-uyghur-forced-labor-prevention-act-entity-
list.
It is currently unclear to us whether any FLETF member agency has
submitted a recommendation to the FLETF chair to add an entity to the
UFLPA Entity List. What is clear, however, is that there have been no
additions to the UFLPA Entity List since its original publication 7
---------------------------------------------------------------------------
months ago.
We recognize that multiple agencies within the FLETF have affirmed
that it is a high priority to them to work on expansion of the UFLPA
Entity List. And we recognize the challenges involved in gathering
evidence and making final determinations. However, the lists are
integral to the UFLPA, and it will be crucial for CBP and the FLETF to
achieve progress in identifying more of the companies that fit the
criteria and adding them to the lists, so that goods produced by those
companies can be prevented from entering the United States.
Expanding the List of Priority Sectors
Section 2(d)(2)(B)(viii) of the UFLPA specifies that high-priority
sectors for enforcement shall include cotton, tomatoes, and
polysilicon.\34\ Accordingly, the U.S. Department of Homeland
Security's (DHS) June 17, 2022, report to Congress, ``Strategy to
Prevent the Importation of Goods Mined, Produced, or Manufactured with
Forced Labor in the People's Republic of China'' (UFLPA Strategy),
indicates apparel, cotton and cotton products, silica-based products
(including polysilicon), and tomatoes and downstream products as high-
priority sectors for enforcement actions by U.S. agencies.\35\ CBP's
``Operational Guidance for Importers'' likewise identifies cotton,
polysilicon, and tomatoes as commodities with a high risk of forced
labor, indicating ``the types of documents CBP may require to be
submitted on or after June 21, 2022.''\36\
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\34\ Uyghur Forced Labor Prevention Act, Pub. L. No. 117-78, 135
Stat. 1529, Sec. 2(d)(2)(B)(viii).
\35\ U.S. Department of Homeland Security, Strategy to Prevent.
\36\ U.S. Customs and Border Protection, ``Operational Guidance for
Importers,'' June 13, 2022, https://www.cbp.gov/sites/default/files/
assets/documents/2022-Jun/CBP_Guidance_for_
Importers_for_UFLPA_13_June_2022.pdf.
In addition to these sectors, new academic research on supply
chains published after President Biden signed the UFLPA into law
indicates the need for expansion. This includes the important work on
the automobile and PVC (polyvinyl chloride or vinyl) industries by Dr.
Laura Murphy at Sheffield Hallam University and her colleagues,
demonstrating how some of the world's largest steel and aluminum
producers have shifted into the Uyghur region \37\ how these
commodities and other inputs from the Uyghur region flow into the
automobile supply chain, and how PVC used in building materials is
manufactured through state-sponsored labor transfers in the Uyghur
region.\38\ The UFLPA did not establish a specific process for adding
additional priority sectors to those specified in the law, nor does the
UFLPA Strategy shine a light on the criteria and timeline for expanding
the priority sector list. In a September 2022 conversation with a
journalist from The Wall Street Journal, Under Secretary Silvers noted
in general terms that FLETF is ``looking closely at any other product
category where forced labor may come into play.''\39\ In this regard,
Chairman Wyden, we applaud your recent letter to major automobile
manufacturers, asking essential questions about their supply chains,
and their approach to due diligence, in the context of forced labor in
the Uyghur region.
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\37\ Laura Murphy, Kendyl Salcito, Yalkun Uluyol, Mia Rabkin, et
al., Driving Force: Automotive Supply Chains and Forced Labor in the
Uyghur Region, Sheffield Hallam University Helena Kennedy Centre for
International Justice and NomoGaia, December 2022, https://
www.shu.ac.uk/helena-kennedy-centre-international-justice/research-and-
projects/all-projects/driving-force.
\38\ Laura T. Murphy, Jim Vallette, and Nyrola Elima, Built on
Repression: PVC Building Materials' Reliance on Labor and Environmental
Abuses in the Uyghur Region, Sheffield Hallam University Helena Kennedy
Centre for International Justice and Material Research L3C, June 2022,
https://www.shu.ac.uk/helena-kennedy-centre-international-justice/
research-and-projects/all-projects/built-on-repression; Sandler,
Travis, and Rosenberg, P.A., ``Forced Labor Enforcement Efforts
Expanded to PVC Products,'' February 9, 2023, https://www.strtrade.com/
trade-news-resources/str-trade-report/trade-report/february/forced-
labor-enforcement-efforts-expanded-to-pvc-products; and Joe Deaux,
``U.S. Detains Chinese Aluminum, a Suspected Product of Forced Labor,''
Bloomberg, February 1, 2023, https://www.bloomberg.com/news/articles/
2023-02-01/us-detains-chinese-aluminum-suspected-of-using-forced-labor.
\39\ Richard Vanderford, ``Forced Labor a `Top-Tier' Compliance
Issue.''
We encourage the FLETF to consult with nongovernmental
organizations in developing a process for expanding the list of
priority sectors and urge that the public be updated on the plan
expeditiously. Given the findings of recent investigative reports, we
would anticipate that both the automotive industry and building
materials imports will be given serious consideration for inclusion on
the priority sector list.
broader issues of forced labor enforcement
While the forced labor crisis in the Uygur region is unique in
scope and brutality, forced labor is a global scourge affecting vast
numbers of people in dozens of countries. The International Labour
Organization, in its 2022 report on forced labor and forced marriage
around the world,\40\ estimates that more than 27 million people are
currently subjected to conditions of work that constitute forced labor.
Many of them work within global manufacturing supply chains, making
clothing, toys, processed foods, electronic gadgets, medical supplies,
and automobiles for the U.S. and other consumer markets.
---------------------------------------------------------------------------
\40\ International Labour Organization, Walk Free, and
International Organization for Migration, Global Estimates of Modern
Slavery: Forced Labour and Forced Marriage, 2022, https://www.ilo.org/
wcmsp5/groups/public/---ed_norm/---ipec/documents/publication/
wcms_854733.
pdf.
Combined with the UFLPA, section 307 of the Tariff Act is by far
the most significant mechanism the United States possesses for keeping
the massive volume of forced-labor-made goods that are flowing through
global supply chains out of the United States--and for using the
enormous power inherent in control over access to the U.S. market to
hold accountable those corporations that practice forced labor and
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benefit from it.
The following are observations and recommendations related to
enforcement of section 307.
The Importance of Remedy, the Limitations of Auditing, and the Role of
Unions and Other Civil Society Organizations in Achieving and
Verifying Remediation
Achieving proper remedies for workers subjected to forced labor--
fully compensating workers for stolen wages and other harms and
establishing viable mechanisms to prevent the recurrence of abuses--
should be a high priority for CBP in its consideration, issuance, and
modification of WROs. Delivering remedy to workers directly affected by
forced labor is not feasible in all circumstances; it is, for obvious
reasons, a practical impossibility to safely transmit compensation to
victims of forced labor in a Uyghur region internment camp. However, in
CBP's section 307 enforcement work around the word, especially in the
case of company-specific WROs, remedy is often readily achievable.
Remedies in a given case must, at a minimum, include making workers
whole for any financial loss, including reimbursement of recruitment
fees, compensation for unpaid or underpaid wages, and reimbursement for
illegal wage deductions, among other forms of wage theft. If
enforcement action results in job loss, workers can and should be
compensated for lost wages. Providing back pay, reimbursing workers for
illegal fees and deductions, and providing replacement income for job
loss should be a basic requirement for any employer seeking
modification of a WRO. CBP should also consider requiring additional
compensation for non-monetary physical and psychological harm.
Equally important, effective remediation requires that mechanisms
be put in place to ensure that employer pledges not to transgress in
the future are verifiable and, to the greatest extent possible, legally
enforceable. Employers subject to a WRO have every incentive to make
promises of reform; unless there is equivalent incentive to keep those
promises over time, there is little reason to expect improvements to be
maintained. Employers must, at a minimum, understand that scrutiny will
be ongoing and that import bans will be reimposed if abuses recur. And,
where unions are seeking binding labor rights commitments from an
employer, whether in the form of a collective bargaining agreement or
an ad hoc pact on remedies, CBP should do everything within its power
to support this process. CBP should also lend strong support to efforts
by unions and allied civil society organizations to couple labor-
management agreements with binding commitments from importers to use
their economic leverage to ensure that employers comply. These
mutilevel agreements--which advocates refer to as ``Worker-Driven
Social Responsibility Programs'' or ``Enforceable Brand Agreements'' --
are, by leaps and bounds, the most effective way to lock in any labor
rights progress achieved through a company specific WRO.\41\
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\41\ See: Worker-Driven Social Responsibility Network, https://wsr-
network.org/.
CBP has demonstrated recognition of the importance of effective
remedy for workers and, in particular, the value of binding agreements.
This view is reflected, for example, in the statement \42\ the agency
issued in conjunction with its decision to modify the WRO against
Natchi Apparel in India last year--an action CBP undertook partly in
recognition of binding agreements achieved between worker
representatives, the employer's parent corporation Eastman Exports, and
important customers of Eastman, including H&M.\43\
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\42\ U.S. Customs and Border Protection, ``CBP Modifies Withhold
Release Order on Natchi Apparel (P) Ltd.,'' September 7, 2022, https://
www.cbp.gov/newsroom/national-media-release/cbp-modifies-withhold-
release-order-natchi-apparel-p-ltd.
\43\ Global Labor Justice--International Labor Rights Forum,
``Landmark Dindigul Agreement to Eliminate Gender-Based Violence and
Harassment at Eastman Exports Natchi Apparels with the Support of
Global Allies,'' April 1, 2022, https://laborrights.org/releases/
landmark-dindigul-agreement-eliminate-gender-based-violence-and-
harassment-eastman-exports.
In order to achieve effective remedy, it is essential for CBP also
to look with skepticism not only on the claims employers make on their
own behalf, but also on the reports of third-party auditors hired by
employers. In its ``Guidance on WRO Modification and Revocation
Process,''\44\ CBP cites, as an example of the information it considers
beneficial in assessing a request for the modification of a WRO,
``evidence of implementation and subsequent verification by an
unannounced and independent third-party auditor.''
---------------------------------------------------------------------------
\44\ Eunkyung Kim Shin, ``U.S. Customs and Border Protection Issues
Guidance on WRO Modification and Revocation Process,'' Global Supply
Chain Compliance, March 16, 2021, https://
supplychaincompliance.bakermckenzie.com/2021/03/16/u-s-customs-and-
border-patrol-issues-guidance-on-wro-modification-and-revocation-
process/.
While the idea of an ``independent auditor'' sounds good on its
face, in industry parlance--for example, in the apparel and electronics
sectors--an ``independent'' auditor is almost always a firm retained
and paid by the employer being audited, or by one of the employer's
buyers (the ``independence'' of the audit residing only in the fact
that the people conducing the audit are not direct employees of the
company). The auditor is thus accountable to corporations with a vested
interest in a positive audit outcome, a built-in conflict of interest
that defines most of the labor rights verification work that takes
place today in global supply chains. Among the many weaknesses of
audits carried out in global supply chains under industry auspices,
interviews with workers are usually arranged with the involvement of
factory management and conducted inside the workplace or at another
locale, such as a company-run dormitory, where workers are unlikely to
feel comfortable speaking candidly, particularly if they have
information to share that would displease the employer. Depending on
the circumstances and exact methods used, a company-funded audit may
offer some useful evidence of compliance; however, unless the results
are corroborated by candid worker interviews and/or by information from
truly independent sources, CBP should not consider the results of
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industry audits, alone, to be adequate proof of compliance.
The conflicts of interest inherent in most industry audits make it
imperative that CBP, at every stage of the WRO process, work with a
union that represents workers at the workplace in question, or, where
there are no representative unions, with local civil society groups
that have a track record of fighting for workers' interests. These
organizations are in the best position to articulate workers'
priorities for remediation--in a far better position than the
corporations involved or consulting firms acting on their behalf.
Unions and other civil society organizations with a track record of
defending workers' interests are also best positioned to evaluate the
veracity of claims that wrongs have been remedied, that the building
blocks for longer-term change are in place, and that the employer is
honoring its commitments over time. Exporters and their customers in
the U.S. have a powerful incentive to overstate progress, and it is far
easier for them to do so successfully when they and their paid agents
are the primary sources of information.
Remedy for workers who have been subjected to forced labor is a
vitally important end in itself; but it is also essential for a
functioning enforcement regime. If workers and worker organizations do
not see complaints and petitions, and the WROs to which they lead,
resulting in concrete benefits for workers--if instead they see a
stream of cases where the only result workers experience is the loss of
their jobs--then they will, quite rationally, choose not to support the
process. If we want workers, unions, and allied organizations to play
their vital role in the enforcement process--as whistleblowers, as
providers of evidence and testimony, as designers of remediation plans
and verifiers of their implementation--then we must demonstrate that
doing so is in workers' interests. If genuine remedies are achieved,
that will build faith, and participation, in the process.
Corporate Due Diligence
The fact that so many corporations were (and surely, in many cases,
still are) sourcing from the Uyghur region underscores the need for
corporations to conduct effective due diligence within their own supply
chains. Indeed, the question of due diligence, and how to get
corporations to do it, is a focal point of much of the present
discourse around labor rights and corporate accountability.\45\
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\45\ European Center for Constitutional and Human Rights, OECD
Watch, Swedwatch, European Coalition for Corporate Justice, and Center
for Research on Multinational Corporations (SOMO), ``Downstream due
diligence: Setting the record straight,'' 2022, https://www.ecchr.eu/
en/publication/downstream-due-diligence-setting-the-record-straight/
https://www.ecchr.eu/fileadmin/user_upload/
Downstream_due_diligence.pdf.
The answer to this question is simpler than it may seem. The best
way--indeed, the only practical way--to get global corporations to
perform meaningful labor rights due diligence in their supply chains is
to make the cost of failing to perform due diligence higher than the
cost of performing it. Real due diligence carries a price tag, and not
just for more sophisticated audit methods. Real due diligence will
reveal that serious labor rights abuses, including in some instances
forced labor, are present in a brand's supply chains--and will further
make obvious the ways in which the brand's own sourcing practices,
including the price pressure it places on suppliers, do not just allow
but incentivize abuses. Addressing the problems that meaningful due
diligences surfaces will mean substantial investments in eliminating
abuses and compensating affected workers at specific facilities (see,
for example, the hundreds of millions of dollars in factory renovations
required under the Accord on Fire and Building Safety in Bangladesh to
turn 1,600 apparel factories with life-threatening safety deficiencies
into safer structures,\46\ with a substantial portion of the cost born,
in various ways, by the apparel brands that were signatories to the
agreement).
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\46\ RMG Sustainability Council, ``Safety Remediation Progress,''
May 31, 2022, https://www.rsc-bd.org/en/post/safety-remediation-
progress.
This will also require changes in sourcing practices: ensuring
prices paid to suppliers are commensurate with the cost of producing
under decent conditions and in conformance with applicable law;
skipping less frequently from supplier to supplier, and country to
country, in search of cheaper labor costs and instead maintaining
longer-term relationships with suppliers that demonstrate the
willingness and ability to run a clean shop; and cutting ties with
suppliers that commit egregious abuses and refuse to remedy them, even
when doing so means ending lucrative partnerships. These changes
involve costs that, while manageable, are substantial. Corporations
will never voluntarily incur them. They will do so only if their
failure to root out grievous labor rights violations will cost them
even more. Historically, even in the case of forced labor, it has cost
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them nothing.
This is why strong enforcement of section 307 and the UFLPA is
vital. If the law is enforced, importers with forced labor in their
supply chains are caught, and painful consequences are imposed,
corporations will recognize it as being in their interest to start
performing their own due diligence to prevent forced labor. If we want
to see corporate due diligence, we need to enforce the law.
There are specific measures a brand should use when it wants to
perform genuine due diligence. In the context of UFLPA compliance, an
important step toward due diligence, in industries where the
technologies apply, is taking advantage of the emergence of isotopic
testing and other forensic technologies that provide corporations a
means, independent of their suppliers, to determine whether the
products they are sourcing have content from the Uyghur region. In all
contexts, a due diligence measure brands should use is to understand
the political context in which they are operating--recognizing for
example why a labor rights inspection inside the Uyghur region cannot
yield meaningful information or why the decisions of governmental labor
arbitration bodies, operating under authoritarian regimes in Burma and
Cambodia, should be treated with skepticism.\47\ Another example is
simply not swallowing uncritically whatever claim a supplier puts
forward to put a veneer of legality on actions workers are calling out
as unlawful. Numerous leading apparel brands and retailers, and their
auditing firms, swallowed just such empty claims from suppliers in
India in 2020 and 2021,\48\ the suppliers to deny a legally mandated
minimum wage increase to hundreds of thousands of workers, eventually
racking up more than $50 million in arrears.
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\47\ Human Rights Watch, Only ``Instant Noodle'' Unions Survive
Union Busting in Cambodia's Garment and Tourism Sectors, November 21,
2022, https://www.hrw.org/report/2022/11/21/only-instant-noodle-unions-
survive/union-busting-cambodias-garment-and-tourism.
\48\ Annie Kelly, `` `Worst fashion wage theft': Workers go hungry
as Indian suppliers to top UK brands refuse to pay minimum wage,'' The
Guardian, December 16, 2021, https://www.
theguardian.com/global-development/2021/dec/16/worst-fashion-wage-
theft-workers-go-hungry-as-indian-suppliers-to-top-uk-brands-refuse-to-
pay-minimum-wage.
It is important to note that none of these measures are obscure or
difficult to put into practice for any sizable corporation. The reason
corporations fail to perform due diligence in their supply chains is
not because they do not know how to do it, but because they are not
convinced it is worth their while. The good news is that enforcement of
the UFLPA is starting to change that calculation for many corporations
that are, or were, sourcing from the Uyghur region.
Protecting and Expanding Transparency of Import Data
Public disclosure of import data is critical to tracing and
monitoring forced labor risk in supply chains, and it is an essential
tool in enabling journalists and civil society organizations to conduct
supply chain investigations to support the robust implementation of
both section 307 and the UFLPA.
Currently, public access to ocean freight data is provided under
Federal law (19 U.S.C. Sec. 1431). There is, however, no public access
to data on shipments arriving by air, truck, or rail. CBP noted in
December 2022 that trade via ocean freight accounted for roughly 40
percent of U.S. imports, meaning there is no publicly available import
data for about 60 percent of the goods we import.\49\ There is no
rationale for greater secrecy for shipments arriving by air freight as
opposed to those arriving by sea. There is a compelling rationale for
making data from all categories of shipments accessible.
---------------------------------------------------------------------------
\49\ U.S. Customs and Border Protection, ``CBP Releases December
2022 Monthly Operational Update.''
Industry is pushing in the opposite direction: 30 civil society
organizations recently wrote to CBP in response to public reports of a
proposal from U.S. businesses on the Customs Operations Advisory
Committee (COAC) \50\ to end public access to data on maritime
shipments:
---------------------------------------------------------------------------
\50\ Joshua Goodman, ``U.S. businesses propose hiding trade data
used to trace abuse,'' Associated Press, October 17, 2022, https://
apnews.com/article/business-global-trade-regulation-us-customs-and-
border-protection-c878caa703150f417342c9777504b9a1.
The trajectory should be for more transparency, not less. We
advocate for disclosure of air, road, and rail manifests, in
addition to maritime vessel manifests, while the COAC proposal
seeks to shroud all import data behind a thick veil of secrecy.
We urge CBP to reject calls for more ``confidentiality'' and
instead disclose all types of Customs data--air, rail, maritime
and road--to the public. . . .\51\
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\51\ See full letter: Advocating Opportunity, et al., ``Open Letter
to CBP on Trade Data Transparency,'' October 20, 2022, https://
htlegalcenter.org/wp-content/uploads/Open-Letter-on-Trade-Data-
Transparency-FINAL.pdf.
In order to support robust forced labor enforcement, Congress
should protect the transparency of data for ocean-going shipments and
expand that transparency to shipments arriving by air, road, and rail.
Forced Labor Enforcement in the Context of the de Minimis Exception
Another area of concern is the impact on forced labor enforcement
of the de minimis exception under section 321 of the Tariff Act, which
provides duty- and tax-free treatment to shipments ``imported by one
person on one day'' with a retail value below $800.\52\ There has been
significant recent attention to the growing volume of imports
benefiting from de minimis treatment \53\--most prominently the
explosive rise of the PRC-based cut-price apparel retailer Shein, many
of whose direct-to-
consumer shipments are imported under the exception--and the
relationship between this growth and the decision by Congress in 2015
to raise the de minimis threshold from $200 per shipment to its current
level of $800. The primary issue of concern, however, is not the $800
threshold, as sources indicate that the average value of shipments
benefiting from de minimis treatment is around $100 \54\ and relatively
few exceed $200.
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\52\ U.S. Customs and Border Protection, ``Section 321 Programs,''
accessed February 10, 2023, https://www.cbp.gov/trade/trade-
enforcement/tftea/section-321-programs.
\53\ Sheridan Prasso and Olivia Poh, ''U.S. Senators Ask Shein
About Forced Labor Concerns for Its Cotton,'' Bloomberg, February 9,
2023, https://www.bnnbloomberg.ca/us-senators-ask-shein-about-forced-
labor-concerns-for-its-cotton-1.1881406.
\54\ Jeff Ferry, ''The Tade Deficit is Worse Than We Thought: De
Minimis Hides $128 Billion of U.S. Imports,'' Coalition for a
Prosperous America, January 26, 2022, https://prosperousamerica.org/
the-trade-deficit-is-worse-than-we-thought-de-minimis-hides-128-
billion-of-u-s-imports/.
The concern, from the standpoint of the section 307 and UFLPA
enforcement, is that the limited information disclosure required for
such shipments, and the streamlined clearance procedures utilized by
CBP, may have the effect of shielding de minimis shipments not only
from duty and tax, but also from forced labor scrutiny. Xinjiang
cotton, for example, has recently been detected in imports from Shein,
via stable isotope analysis.\55\ Yet there are no indications that any
products from Shein, which produces exclusively in the PRC, have been
targeted by CBP in its UFLPA enforcement efforts. That specific problem
can be rectified quickly, and, indeed, CBP should be applying intensive
scrutiny to Shein's imports, but the broader question is how to ensure
that the de minimis exception does not also become a forced labor
exception. CBP is operating two pilot programs \56\ reportedly designed
to elicit data on de minimis shipments that is more detailed and that
is provided earlier in the clearance process. It is unclear whether
these pilots, which have been running for several years, represent a
solution; however, whether through the mechanisms being piloted or
alternative means, it is essential that CBP now move swiftly to ensure
that de minimis shipments are properly scrutinized for potential Uyghur
region and forced labor content.
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\55\ Sheridan Prasso, ``Shein's Cotton Tied to Chinese Region
Accused of Forced Labor,'' Bloomberg, November 20, 2022, https://
www.bloomberg.com/news/features/2022-11-21/shein-s-cotton-clothes-tied-
to-xinjiang-china-region-accused-of-forced-labor.
\56\ U.S. Customs and Border Protection, ``Section 321 Programs.''
______
Questions Submitted for the Record to Scott Nova
Question Submitted by Hon. Ron Wyden
Question. Following a recent report on the alleged presence of
Uyghur forced labor in automotive supply chains, I launched an
investigation seeking information from eight major car makers cited in
that report. I have asked them for detailed information on their
efforts to eliminate forced labor from their supply chains. I am
reviewing their responses and plan to follow up with them and others in
the automotive supply chain.
But automakers are not the only companies that have work to do to
clean up supply chains. Many other sectors with complex and varied
inputs will need to take steps to ensure compliance with the Uyghur
Forced Labor Prevention Act and section 307.
What steps should companies--including the automakers--be taking to
ensure there are no products made with forced labor in their supply
chains?
Answer. In order to ensure that its products are not made with
Uyghur forced labor, a corporation must do the following:
Identify every input in each product's supply chain, from
raw material to finished good, flagging any inputs originating
in the Uyghur region;
Work with suppliers to identify alternate, non-Uyghur region
sources and replace those inputs;
Contractually bind suppliers at every level of the supply
chain to exclude Uyghur region inputs from the corporation's
products;
Require suppliers, from one end of the chain to the other,
to provide documentation that shows the source of inputs and
vet this documentation carefully for discrepancies;
Spot-check compliance through unannounced inspections at the
workplace level to ensure that the inputs that a facility
claims to use are the ones it actually has in stock and is
using;
Where applicable, use independent isotopic testing to verify
that finished and semi-finished products do not have Uyghur
region content; and
Terminate the business relationship with any supplier that
provides false information about the origin of inputs; move
business to suppliers that have demonstrated reliability in
this regard.
Corporations have the ability to know where their inputs originate.
When a corporation lacks this information, it is not because the
information is unknowable; it is because the corporation has not made
it a priority to gain and maintain the information. Any corporation
that says it is impossible to determine where every input comes from is
stating, in effect, that it does not know whether it is in compliance,
on any given day, with U.S. law--including the UFLPA and section 307 of
the Tariff Act.
______
Questions Submitted by Hon. Sherrod Brown
Question. Importers continue to use section 321 de minimis tariff
waivers to import millions of individual shipments daily into the U.S.
duty-free, much of which comes from China and is likely skirting
enforcement actions like the Uyghur Forced Labor Prevention Act and
section 301 penalty tariffs.
The de minimis loophole provides a pathway for counterfeit, unsafe,
and forced labor products to enter U.S. commerce under the radar. The
result is that there are: pharmaceutical products coming into the U.S.
not meeting basic safety standards, bike helmets that won't protect
children because they are not compliant with basic safety standards,
and textiles that may violate forced labor protections. And last but
not least, there is fentanyl which poisons our communities and comes
into our communities straight from China via this loophole. There are
billions of dollars of these shipments coming to the U.S. every year
virtually with no protocols to vet where these products are made, who
is making them, or if they will keep us safe.
Representative Blumenauer has legislative efforts on this front,
and I have worked with Senator Cassidy on the issue.
Does the de minimis trade provision facilitate unsafe and forced
labor imports to American consumers?
Answer. Yes.
The central problem, from the standpoint of forced labor
prevention, is not the tariff treatment of these products, but the fact
that these products do not go through the normal Customs clearance
process, enjoying instead a less formal, and far less rigorous,
procedure. The resulting lack of scrutiny has the effect of turning a
waiver of tariff into a potential waiver of labor rights compliance
(and compliance with other relevant requirements).
Regardless of whether the tariff waiver is maintained at the
current level, or reduced, or otherwise modified, it is crucial to
apply sufficient oversight to these shipments. Representative
Blumenauer's Import Security and Fairness Act includes provisions that
address this urgent need.
Question. Would you support closing this loophole by removing de
minimis treatment for products tied to forced labor, and other products
where there's a potential consumer safety issue or--in the case of
fentanyl--no public benefit?
Answer. If the Customs clearance process for shipments coming in
under the de minimis exception is not modified to ensure full and
proper scrutiny of these shipments, then the exception should not be
afforded to any product with a high risk of being tainted with forced
labor (or a high risk of otherwise violating standards that protect
human rights and public health).
______
Question Submitted by Hon. Robert P. Casey, Jr.
Question. The Uyghur Forced Labor Prevention Act (UFLPA) was a
landmark advancement in our fight against forced labor on a global
scale. It has helped United States trade agencies curb the amount of
product made with forced labor entering U.S. markets. Yet, the UFLPA
alone cannot solve the problem of forced labor in American supply
chains. Corporations that import goods to sell in U.S. markets are
still sourcing inputs and goods from the Xinjiang region of China,
where forced labor is known to be happening in abundance. Companies
must be doing their due diligence to find and root our forced labor in
their supply chains.
To what extent have existing regulations gone unenforced and failed
to hold corporations accountable for their complicity in forced labor?
How can we hold private corporations accountable for their lack of due
diligence and, in many cases, complicity in the presence of forced
labor in their supply chains? Furthermore, how do we root out remaining
forced labor in American supply chains in addition to strong
enforcement of section 307 and the UFLPA?
Answer. Section 307 went almost entirely unenforced until 2016;
corporations could, and did, import forced labor-made goods with
impunity. Progress has been made in section 307 enforcement over the
last 7 years; however, the level of resources being applied to this
enforcement is far below what is required, given the magnitude of the
task.
The UFLPA greatly enhances the enforcement process with respect to
Uyghur forced labor, and Congress has added resources to support this
enhanced enforcement--a major step in the right direction. Right now,
however, we do not know how effective enforcement has been since the
law took full effect last June. This is because Customs and Border
Protection has provided very little reporting as to the nature and
extent of its UFLPA enforcement work. CBP made more detailed data
publicly available for the first time this week, and analysis is
required to gauge the extent to which these data provide a reasonably
clear picture.
It is clear, though, that the percentage of shipments arriving at
U.S. ports subject to review under the UFLPA is quite small: 0.1
percent of shipments, according to CBP. We also see that the Entities
List of companies implicated in forced labor, the creation of which was
mandated by the UFLPA, remains a very short list.
While substantial enforcement effort is clearly being made, with
significant impact on the practices of major brands and retailers,
these low numbers are a cause for some concern. Given the vast scope of
the UFLPA--potentially affecting hundreds of billions of dollars in
imports--we would expect to see a higher percentage of shipments
scrutinized and many more corporations that have been implicated in
forced labor added to the Entities List.
Accountability is crucial. The level of effort corporations make to
remove forced labor from their supply chains is in direct proportion to
(1) the likelihood that the presence of forced-labor-made goods in
their imports will be detected, and (2) the penalties and costs they
will incur as a result. If corporations believe that the chances of
getting caught are low and/or that the penalties for getting caught
will be minor, they have very little incentive to incur the substantial
cost of achieving broad compliance. The way to hold corporations
accountable is to ensure that when they import goods tainted by forced
labor they usually get caught and to impose penalties involving not
just the denial of entry to tainted goods but the imposition of civil
penalties on the importer--and additional measures achievable under
existing law, such as publishing the names of corporations that are
repeat offenders. This will result in far less forced labor in the
supply chains of corporations selling goods in the United States.
______
Question Submitted by Hon. John Barrasso
Question. The Chinese Communist Party continues to commit terrible
human rights abuses. The Uyghurs, a religious and ethnic minority in
China, have experienced brutal repression at the hands of the Chinese
Government. They continue to be subjected to torture, imprisonment, and
forced labor.
At least 1 million Uyghurs have been put in internment camps by the
Chinese Communist Party. Around 100,000 Uyghurs and ethnic minority ex-
detainees have reportedly been used as forced labor in textile and
other industries in China.
How effective have U.S. actions been at addressing the human rights
abuses and the use of forced labor?
What more should the United States do on transparency and
enforcement?
Answer. The enactment of the UFLPA and the use of WROs against
products with content from the Uyghur region have had a sizable
economic impact, making the Chinese Government's ongoing destruction of
the Uyghur people an increasingly expensive enterprise. It is not
possible to measure the human rights impact with any precision and,
where a piece of progress can be discerned, it is impossible to know
what role economic pressure may have played in that particular
development. What we do know is that the Chinese Government, like every
other government, makes policy choices based on their perceived costs
and benefits. When costs rise, they reevaluate. Action to date has
raised the costs of the Chinese Government's brutal policies in the
Uyghur region, and that is a good thing for the Uyghurs. The higher the
costs, the greater the prospect of change, which is why the strongest
possible enforcement of the UFLPA against corporations complicit in the
abuses taking place in the Uyghur region is the best way forward.
______
Prepared Statement of John Pickel, Senior Director,
Internal Supply Chain Policy, National Foreign Trade Council
introduction
Good morning, Chairman Wyden, Ranking Member Crapo, and members of
the committee. Thank you for the opportunity to appear before you today
and discuss the importance of these topics.
I am John Pickel, the senior director of international supply chain
policy at the National Foreign Trade Council (NFTC). The NFTC is the
premier business association advancing trade and tax policies that
support access to the global marketplace. Founded in 1914, NFTC
promotes an open, rules-based global economy on behalf of a diverse
membership of U.S.-based businesses.
As Chairman Wyden has noted, I have served in several roles at the
Department of Homeland Security and U.S. Customs and Border Protection
(CBP) that promoted the development and implementation of trade
facilitation and enforcement policies. The views expressed in my
statement and subsequent conversation are my own and given on behalf of
the NFTC. I am not representing any agencies where I was previously
employed or any specific company.
The efficient and effective implementation of U.S. trade laws is a
critical aspect of our economic competitiveness. The American Customs
framework, which dates back to the earliest days of our country,
continues to be a brilliant example for the international community.
Any discussion around issues of Customs modernization should begin by
acknowledging that this system has provided a strong foundation for the
growth and diversification of trade models that meet the needs of
American consumers and supplies American made manufacturing products to
markets around the world.
In recent years, the trade community has worked within this system
to accommodate the dramatic expansion in the volume of e-commerce
shipments, overcome challenges associated with the COVID-19 pandemic,
and respond to historic supply chain disruptions.
Trade is a critical driver of every aspect of the American economy.
Forty million American jobs depend on trade.\1\ Access to imports
increases the purchasing power of the average American household by
about $18,000 annually.\2\ Manufacturers rely on imports of
intermediate goods and raw materials, which represent more than 60
percent of all U.S. goods imported, to provide high quality products at
competitive prices.\3\
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\1\ Trade Partnership Worldwide LLC (2020). Trade and American
Jobs: The Impact of Trade on U.S. and State-Level Employment: 2020
Update, https://tradepartnership.com/wp-content/uploads/2020/10/
Trade_and_American_Jobs_2020.pdf.
\2\ Hufbauer, Gary C., and Lu, Zhiyao (Lucy) (2017). The Payoff to
America from Globalization: A Fresh Look with Focus on Costs to
Workers. Peterson Institute For International Economics, https://
www.piie.com/publications/policy-briefs/payoff-america-globalization-
fresh-look-focus-costs-workers.
\3\ See, https://www.uschamber.com/international/trade-agreements/
the-benefits-of-internation
al-trade (accessed February 14, 2023).
Government and the business community share the objective of
promoting efficient, stable, and compliant supply chains. Trust and
collaboration will be key in that joint pursuit as business models and
global economic conditions change rapidly. A close working relationship
between the private sector and U.S. Government agencies, especially
CBP, has led to innovations that promote both facilitation practices
and compliance with U.S. trade laws. For example, the trade community
has provided technical capacity in developing a single window that
provides trade data to government agencies, shifted port-level
processing of individual shipments to
industry-based Centers of Excellence and Expertise, established Trusted
Trader programs that provide earned benefits for certain validated
parties, and many other accomplishments. The basis for this
relationship is confidence in realizing that the vast majority of
parties involved in trade transactions are trustworthy, compliant with
the law, and eager to advance American economic security through their
---------------------------------------------------------------------------
role in a resilient supply chain.
This committee has a well-documented history of supporting Customs
policies that balance the importance of facilitating legitimate trade
and promoting compliance with U.S. trade laws through principles like
informed compliance, co-creation between government and the private
sector, and risk-based enforcement. This was most recently codified
throughout the Trade Facilitation and Trade Enforcement Act of 2015
(TFTEA).
customs modernization
Since 2019, CBP has engaged the trade community to develop a 21st
Century Customs Framework. NFTC has participated constructively in this
process directly and in coordination with member companies.
Modernization of Customs authorities should be very intentional and
precise, addressing specific gaps or challenges in a way that supports
well-defined outcomes. As the committee prepares to consider proposed
statutory changes, I would like to offer several key areas of
consideration when evaluating legislative efforts to address specific
needs while preserving the foundations that have served U.S. Government
agencies and the trade community well for many years.
Balance the Benefits of Trade Facilitation and the Updating of
Enforcement Authorities
The efficient entry of legitimate merchandise into the U.S.
improves economic conditions; reduces burdens on government agencies,
businesses, and customers; and provides a high level of overall
compliance.
As the committee considers statutory changes to existing
authorities, please consider three questions:
What specific non-compliance is being addressed and what
information about volume and means of penetrating supply chains
is available to inform the most effective response?
How does the proposal impact the flow of commerce into and
out of the U.S.?
Can an updated authority be structured in a way that reduces
red tape in the entry process? (For example, collection of
unnecessary data could be difficult for small and medium
businesses to comply with and overwhelming for government
agencies to ingest and effectively utilize.)
Clearly Articulate the Roles and Responsibilities of Actors Throughout
the Import Process
Clearly and specifically identifying roles and responsibilities,
with an emphasis on the value of information throughout the import
process, will promote effective partnership between the government and
the private sector. For example, information requirements should be
targeted to address specific risks and be developed in partnership with
the trade community to ensure the right information is being collected
from the right party and at the right point in the process. Information
is likely to come from multiple parties throughout the process, so
avoiding assumptions about the level of information available to each
actor and ensuring the ability to consolidate information from
disparate entities is crucial.
This process will continue to set an example for the world, with
interest from our trade partners and strategic competitors alike.
Promoting a rules-based system that supports a nimble and effective
Customs framework to serve as this example will be an effective way to
promote similar practices among our international trading partners. In
practical terms, we can expect other countries to adopt some of the
same practices, so American exporters will be expected to comply with
the evolving U.S. standards as they are adopted by other countries.
Promote Partnership Between Government Agencies and the Private Sector,
With a Particular Emphasis on Sharing Information
Both government regulators and private-industry interests are
served by effective collaboration. Government and the private sector
have a shared goal of fostering efficient, resilient, and compliant
supply chains. Reimagining the exchange of information between
government agencies and the private sector by reconsidering current
statutory restrictions will allow the private sector to remove risk
from its supply chains and make government enforcement more efficient.
For example, jointly identifying meaningful information that can be
provided on a voluntary basis, will improve effectiveness for all
parties.
Embrace Automation to Simplify the Processing of Cargo and Promote
Transparency
This committee has consistently supported the automation of the
entry process and should continue to prioritize the ability to automate
proposed changes to trade laws. Automation makes the government more
effective and allows the private sector to provide better service to
American consumers. The effective adoption of automation and other
forms of technology is a tool--a means to an end. In other words,
please keep in mind that systems still rely upon information generated
and entered by multiple parties throughout trade transactions. Rather
than a ``more is always better'' approach, please know that sometimes
``more is just more.'' Information and data requirements can be onerous
on all parties involved and may not have a clear benefit to specific
objectives.
Apply Trusted Trader Principles to Address Emerging Risk Factors
This committee codified, as the first substantive section of TFTEA,
the importance of embracing partnership programs that advance the trade
enforcement and trade facilitation missions of CBP. Existing programs
have served their national security objectives well and should be
constantly reevaluated to address the equally important goals of
promoting trade facilitation and jointly vetting supply chains to
ensure compliance with U.S. trade laws--particularly as government and
industry confront new challenges in an ever-changing global trading
environment. Current Trusted Trader programs were developed in
partnership with private industry stakeholders and need to be adapted
to meet emerging demands through the same spirit of collaboration and
trust. Participants in these programs dedicate significant resources to
attain membership and complete recurring evaluations. Another critical
aspect of examining Trusted Trader programs, which promote
sustainability, is understanding the value of benefits provided to
participants. These parties have demonstrated a willingness to open
their processes to government evaluation and should be seen as a cadre
of constructive experts that have worked alongside the government to
address past challenges and will continue to do so in the future.
Whether in the context of a comprehensive Authorized Economic
Operator program or more targeted approaches, the ``trust'' aspect of
Trusted Trader programs should be fully embraced in order to share
information, develop best practices, and foster a constant dialogue
between the private sector and the government to truly support our
joint objective of securing resilient supply chains.
Again, this is an area where the world is watching. Trusted Trader
programs are used by many of our trading partners to facilitate low-
risk shipments and many of those programs have Mutual Recognition
Arrangements with the United States that provide reciprocal benefits
for program participants. Continuing to set an evolving global standard
for Trusted Trader programs around the world to address emerging needs
and promote viability of membership will support the adoption of
compliance standards with our trading partners and facilitate
transactions for American importers and exporters.
importance of trade facilitation
The reduction of administrative and financial challenges
encountered when importing into the United States promotes product
availability, purchasing power, and lowers transaction costs for
businesses and consumers. Conversely, increasing red tape in the
importation process is a regressive tax on the American middle class
that increases the cost of products they purchase for personal and
business use. This committee has a strong history of promoting trade
facilitation and encouraging government partnership with the private
sector to address supply chain challenges. However, as we learned
during the COVID-19 pandemic, facilitating the importation of critical
supplies like medical products continues to be a challenge and will be
a determining factor in the success of U.S. supply chain resiliency
programs and emergency response.
Trade facilitation measures create jobs and promote innovation
through the availability of product inputs. A recent report by the
Third Way found that reducing administrative burdens throughout our
supply chain has the potential to save the United States $88 billion in
export costs and create just under 1 million jobs nationwide--
benefitting every state in the country.\4\ This report outlines clear
guidance in three areas of trade facilitation that increase compliance
and resiliency, while reducing costs.
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\4\ Horowitz, Gabe (2022). Reducing the Red Tape Around Supply
Chains. Third Way, http://thirdway.imgix.net/pdfs/reducing-the-red-
tape-around-supply-chains.pdf.
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Simplify Border Processes
The foundation of trade facilitation is ensuring clarity and
predictability of rules, fees, and processes that incorporate the
expertise of the trade community before being finalized. Penalties for
not following the rules should be clear and enforcement regimes should
provide a process for traders to review and appeal determinations.
Incorporating international standards and commitments in trade
agreements, such as the trade facilitation provisions of the U.S.-
Mexico-Canada Agreement, is also important.
Embrace Digitization
Promoting the use of single window systems creates a unified method
of providing information to the government. The U.S. single window has
saved the government $1.75 billion and saved the trading community
775,000 hours.\5\ As you evaluate
single-window functionality in the U.S., and how to promote this best
practice among our trading partners, please consider several important
elements. First, ensure that this is a government-wide system built to
provide all agencies with information imports and exports, and enable
release via that system. Second, ensure clarity of downtime procedures
in the case of system failure or a cybersecurity event. Third, the lack
of acceptance of digital payments is still a significant barrier.
Domestically, digital payments save the government and the trade
community a significant amount of processing costs and staff time.
Internationally, digital payments reduce the risk of corruption and
remove the burdens of exchanging money for local currency. Finally,
single windows should have transparent governance structures that allow
for existing functionality to be improved and new capabilities to be
added, with a clear source of funding.
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\5\ Ibid 6.
Focus on Speed and Security
Promoting simplified processes that provide the quick processing of
compliant shipments is both a key ingredient and result of effective
trade facilitation. Employing effective risk management programs to
assess threat levels allows government agencies to release low-risk
shipments and focus enforcement resources more quickly on goods that
are more likely to be noncompliant. The adoption of de minimis and
``informal entry'' treatment of certain entries helps to facilitate
lower-value shipments that do not pose a risk to revenue collection.
Notably, TFTEA took the important step of increasing de minimis--
the threshold for items to enter the U.S. free of taxes--from $200 to
$800 and suggested that the U.S. Trade Representative encourage trading
partners to adopt similar policies.\6\ In doing so, Congress found that
``higher thresholds for the value of articles that may be entered
informally and free of duty provide significant economic benefits to
businesses and consumers in the United States and the economy of the
United States through costs savings and reductions in trade transaction
costs.''\7\ This de minimis policy, also a longstanding U.S. trade
agreement negotiating objective, has been instrumental in supporting
the dramatic expansion of online shopping and the e-
commerce models used by American businesses and consumers every day.
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\6\ The Trade Facilitation and Trade Enforcement Act of 2015, 19
U.S.C. Sec. 1321(a) (C) et seq. (2016), https://www.govinfo.gov/
content/pkg/USCODE-2021-title19/pdf/USCODE-2021-title19
-chap4-subtitleII-partI-sec1321.pdf.
\7\ The Trade Facilitation and Trade Enforcement Act of 2015, Pub.
L. 114-125 Sec. 901(a) (2016).
Low-value shipments coming into the country are subject to
enforcement. Significant volumes of de minimis shipments entering the
U.S. come through express carriers that provide significant information
for government agencies to use when targeting inspection and
enforcement resources--a practice that dates to the 1980s, and have CBP
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officers co-located within their facilities.
In addition, this committee played a critical role in the passage
of the Synthetic Trafficking and Opioid Prevention (STOP) Act. Through
STOP Act mandates, shipments that arrive in the U.S. through foreign
postal operators are supposed to be subject to comparable information
sharing requirements.\8\ However, work remains to be done to achieve
full implementation of the STOP Act.
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\8\ SUPPORT for Patients and Communities Act, Pub. L. 115-271
Sec. 8003 (2018).
As one aspect of trade facilitation, de minimis treatment of low-
value entries promotes sourcing choices for American consumers and
producers. Eliminating or reducing the threshold for de minimis
treatment of low-value goods could make over a billion shipments every
year subject to tariffs, a tax that disproportionately impacts low-
income households,\9\ and African American and Hispanic families.\10\
Furthermore, increasing costs for small businesses to source products
would negatively impact inflation reduction efforts and stifle
innovation among our economy's most dynamic entrepreneurs.
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\9\ Russ, Katherine N.; Shambaugh, Jay; and Furman, Jason. US
tariffs are an arbitrary and regressive tax (2017). Centre for Economic
Policy Research, https://cepr.org/voxeu/columns/us-tariffs-are-
arbitrary-and-regressive-
tax#::text=Tariffs%20%E2%80%93%20taxes%20on%20import
ed%20goods,on%20some%20key%20consumer%20goods.
\10\ Gresser, Ed, Trade Policy, Equity, and the Working Poor
(2022). Progressive Policy Institute, https://
www.progressivepolicy.org/publication/trade-policy-equity-and-the-
working-poor/.
In considering changes to trade facilitation and enforcement
authorities, I encourage the committee to prioritize consistency
between enforcement efforts and our trade agreements. This is another
area where the world is watching, and the U.S. should take the
opportunity to lead. Promoting adherence and commitment to a rules-
based international system of trade will promote the adoption of those
standards by our trading partners abroad and give predictability to
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American companies doing business around the world.
The advancement of the trade facilitation elements described above
should also be embraced during ongoing trade negotiations such as the
Indo-Pacific Economic Framework for Prosperity (IPEF) and the Americas
Partnership for Economic Prosperity (APEP), and as part of regular U.S.
government engagement at international trade organizations including
the World Trade Organization and the Asia-Pacific Economic Cooperation
forum, especially during the 2023 U.S. host year.
forced labor
There is no place for forced labor in American supply chains. In
recent years, this committee has advanced significant changes in
prohibitions on the importation of goods made using forced labor.
Specifically, removal of the ``consumptive demand exception''\11\ and
enactment of the Uyghur Forced Labor Prevention Act (UFLPA) have
mandated the use of border measures to prevent the importation of these
goods. The global trade community has responded quickly to shift supply
chains from areas where forced labor is a high risk. We have seen this
happen when CBP issues withhold release orders and during
implementation of the UFLPA. It is clear that there is a sincere
commitment by responsible U.S. companies to minimize the risk of forced
labor from infiltrating supply chains.
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\11\ The Trade Facilitation and Trade Enforcement Act of 2015, Pub.
L. 114-125 Sec. 910 (2016).
The noble objectives of current U.S. trade laws related to forced
labor are clear, and responsible American importers want to utilize
those constructs in a way that addresses global supply chain risk.
Those companies want to work with the committee to identify ways that
partnership programs and information sharing authorities, for example,
can be used in new and creative ways that promote compliance before
goods arrive in the U.S.--making it clear that forced labor is not only
inhumane, but also bad for business. As we work together toward that
shared goal, the trade community craves transparency and predictability
in understanding what is a feasible level of due diligence in
minimizing risks within supply chains that, for example, can include
complicated machines containing thousands of components, some of which
cross borders many times before being incorporated into a finished
product. Recognizing that government has many of the same gaps in
visibility when it comes to nuanced supply chains, the seamless sharing
of meaningful information, and confidence that we are jointly moving in
the direction of mitigating the presence of forced labor in U.S. supply
---------------------------------------------------------------------------
chains is the best approach to joint success.
Further, as forced labor efforts relate to countries that are
willing to partner with the U.S., bilateral and multilateral efforts
should be used to address the root causes of forced labor and systemic
factors that contribute to these terrible practices. For example, the
U.S. Government has an opportunity to work with foreign governments to
implement best practices related to labor recruitment and basic
governance that support existing labor laws. Additionally, working with
foreign partners to promote congruent standards for addressing forced
labor concerns in supply chains would further the global interest in
enforcing forced labor prohibitions and promote predictability for U.S.
businesses exporting to other countries.
conclusion
Thank you for the committee's attention to these important topics.
Continued partnership between government and the private sector will be
critical to supporting a comprehensive, predictable Customs framework
that provides for compliance with U.S. trade laws and supply chain
resiliency. This partnership will continue to promote our shared
objectives of fostering efficient and compliant supply chains that
support American economic security. NFTC and our member companies look
forward to working with the committee going forward, and I welcome your
questions.
______
Questions Submitted for the Record to John Pickel
Questions Submitted by Hon. Mike Crapo
Question. In your opening statement, you stated that Customs
modernization efforts should address the principle of simplifying
processes. You also mentioned, in your statement, that increases of red
tape in the importation process is effectively a tax on the middle
class by virtue of increasing the cost of goods.
What are some actionable Customs reforms that would cut red tape?
Are there certain reforms that would be particularly beneficial for
small and medium enterprises?
Answer. Red tape is synonymous with duplicative paperwork. Third
Way found that increased efficiency in this area could create 987,000
jobs total, increasing job growth in each State across the U.S. As the
committee considers changes to Customs authorities, ensuring ongoing
updates to automation capabilities will greatly promote efficiency in
facilitating legitimate trade. The current automation framework is not
entirely paperless and there are many examples of duplicative data
elements required by various agencies. Businesses of all sizes would
benefit from the adoption of automation by foreign trading partners,
such as full information sharing and interoperability between the
Automated Commercial Environment and ASEAN single window. Small and
medium enterprises would benefit most from clarity of responsibilities,
clear due diligence standards, and clear government commitment to
ongoing trade policies that lower transaction costs. This committee
should continue to promote the competitiveness of small and medium
enterprises through a continued commitment to a meaningful de minimis
level and consider raising the current upper limit for informal
entries, ensuring increased purchasing power and lower transaction
costs for low-value shipments that supply small businesses with narrow
profit margins. These low-value shipments are subject to trade law
enforcement based on information provided by shippers, have a similar
compliance rate when compared to other types of shipments, and provide
meaningful economic benefits to underserved communities. Automating
changes to Customs procedures, along with ensuring harmonization and
de-duplication between the data requirements of CBP and the 49 partner
government agencies that also regulate trade will also be key.
Question. In your opening statement, you emphasized the importance
of partnership programs, such as Trusted Traders.
How may strengthening partnership programs, whether with companies
in the United States or with U.S. trading partners, facilitate more
lawful trade?
Answer. Updating existing partnership programs to focus on the
benefits of participating entities in accomplishing the regulatory
responsibilities of government agencies, identifying new applications
of Trusted Trader principles would improve effectiveness of U.S. trade
law enforcement, and reducing costs from inspections and administrative
burdens imposed on low-risk shipments--ultimately benefiting American
businesses and consumers. Trusted Traders should be provided detailed
information about risks identified through their supply chain, with
confidence that such information will be used to address any
vulnerabilities earlier in the supply chain. Mitigating risk earlier in
the supply chain is a more effective approach to achieve compliance,
especially in areas like forced labor enforcement and anticounterfeit
efforts, than trying to resolve potential compliance issues upon
arrival at ports in the U.S. Furthermore, specific confidential
information-sharing and convening authority should be granted to DHS
that allows bidirectional exchanges of information between government
agencies and among participating companies throughout the import
process to further promote compliance in a manner that removes concerns
about potential liability. In other words, information should be shared
on a voluntary basis, removing the risk of penalty or other liability
imposed by the government, and should be held in confidence among the
government and industry participants.
______
Question Submitted by Hon. Sherrod Brown
Question. Several years ago, Congress gave Customs and Border
Protection (CBP) the authority to investigate whether a company has
evaded antidumping and countervailing (AD/CVD) duties. While CBP has
made dozens of determinations since that time, Customs fraud continues
to undermine the value of the United States' antidumping and unlawful
subsidy trade laws, meaning hundreds of millions of dollars of
antidumping and countervailing duty fees don't get collected.
Senator Tillis and I are working on legislation that supports CBP's
efforts and will empower American companies to pursue private rights of
action against bad actors. We hope to introduce our bill within the
next couple of weeks.
You worked at CBP, and likely saw how some importers never pay the
duties they owe. Would you support strengthening CBP's ability to
collect on tariffs and pursue certain resident importers who support
foreign rule-breaking?
Answer. The evasion of revenue owed to the government is illegal
and should be pursued vigorously. I look forward to fully reviewing
your proposed legislation and offer whatever assistance NFTC may
provide you and Senator Tillis to fully consider the benefits and
implications of the bill. Generally speaking, the current retrospective
system of assessing and collecting AD/CVD revenue has an inherent risk
of evasion and under-collection from bond coverage, which has likely
factored into the decision by so many countries around the world to
adopt a prospective AD/CVD system. The vast majority of importers are
responsible, compliant, and regularly resolve their financial
obligations to the government. Accordingly, amendments to the current
statutory framework in this space should ensure due process is provided
to protect good actors from being harmed.
______
Question Submitted by Hon. Robert P. Casey, Jr.
Question. Workers in Pennsylvania and across this Nation can out-
compete anyone in the world if the playing field is level. Yet, decades
of trade cheating like IP theft, state subsidization, and the use of
forced labor have distorted fair market prices and cost American jobs.
Pennsylvania's steel industry has especially borne the brunt of these
unfair trade practices. Anti-dumping and countervailing duties--which
the CBP plays a critical part in supporting--have been a key part of
providing a level playing field for American workers and industry. Yet,
nonmarket economies ceaseless efforts to circumvent U.S. trade law
continue to permeate our defenses. In your written testimony, you've
made a set of recommendations to improve CBP's ability to facilitate
trade and enforce trade remedies.
How do you propose we focus these recommendations on protecting
American workers, not just American industry?
Answer. Compliance with U.S. trade laws is an objective shared by
the U.S. Government and responsible members of the private sector. If
crafted effectively, trade facilitation can be achieved in a way that
promotes compliance to the benefit of American companies and workers.
For example, the effective utilization of Trusted Trader programs to
share information between government and businesses would mitigate
illicit behavior like illegal transshipment that undermines enforcement
of AD/CVD orders at the time of entry. The effective use of automation
provides U.S. regulatory agencies with more information in less time
than a paper-based process, giving the opportunity to identify high-
risk shipments requiring further scrutiny. American-based companies
that import into the U.S. are overwhelmingly compliant. ``Shrinking the
haystack'' by removing low-risk shipments from consideration for
resource-intensive actions at ports allows government agencies to
allocate precious hours and equipment to more effectively act where
there is a higher risk of illicit trade, like forced labor and
counterfeits. More broadly, given that more than 40 million workers
depend on international trade for their jobs, it is critical for the
United States to aggressively pursue new trade agreements with key
economic and strategic allies to increase market access for American
goods and services and to write high-standard rules that protect
intellectual property, facilitate innovation and create more resilient
supply chains.
______
Questions Submitted by Hon. Chuck Grassley
Question. In your testimony, you say that the world is watching how
the U.S. is for setting standards on trade facilitation and
enforcement.
What are some areas the U.S. could take more of a leadership role
in for setting those international standards?
Answer. The United States should continue its commitment to
facilitating legitimate trade, and encouraging our foreign trading
partners to adopt reciprocal policies that benefit American exporters.
Easing the flow of trade globally ensures that responsible trading
partners can meet customer demands and innovate in a dynamic global
trading environment. This is particularly true when it comes to
promoting de minimis and informal entry treatment for low-value
shipments and automation standards (including the ability to process
electronic payments) that improve efficiency in addressing entry
requirements in the U.S. and around the world.
Along similar lines, the United States should build on its global
leadership in trade facilitation by improving and expanding the
informal entry process for those shipments currently valued between
$800-$2,500. While the de minimis threshold for duty- and tax-free
shipments is a critical component to building a strong SME sector in
international trade, the key for governments is to establish efficient
and streamlined collection mechanisms for low-value shipments where tax
and duty are applicable. Congress should raise the $2,500 ceiling to a
more competitive baseline, while granting CBP the regulatory authority
to raise it further.
In addition, Congress should require CBP, in coordination with
other agencies, to design and implement a ``bucket'' system for
Harmonized Tariff Schedule (HTS) classification for eligible shipments,
e.g., a limited number of classifications instead of the 10,000+ tariff
lines currently found in the HTS. We recommend excluding from this
``bucketing'' system Partner Government Agencies (``PGA'') shipments
and other ``restricted'' goods where 10-digit HTS codes are required.
For those informal entries where HTS codes are required, however, an
expansion of Entry Type 86 clearance processes could also apply. This
model could then be held up to the world as a best practice and
continue the U.S. leadership role in setting the gold standard for
facilitative trade.
Question. I understand some of your work has focused on advancing
policies related to anticounterfeiting. Do you have any recommendations
for this committee on how the U.S. can help lead the way in
anticounterfeiting measures?
Answer. Fighting counterfeits has been a hallmark of American trade
policy with foreign trading partners. Combating trade in counterfeits
requires a coordinated partnership between the U.S. Government and the
trade community. Domestically, rightsholders spend significant
resources protecting their intellectual property and information
available during the entry process would be helpful in that endeavor.
First, information shared by U.S. Customs and Border Protection with
rightsholders to assist in determining whether a shipment is
counterfeit is restricted to the product and retail packaging. CBP's
sharing images of other items in or on the shipping box (like address
labels, invoices, packing lists, promotional materials, etc.) would
also be helpful to share with rightsholders. Additionally, there is a
significant gap between the initial sharing of information and post-
seizure data being provided to the rightsholder. Permitting CBP to
share information throughout the detention, pre-seizure, and seizure
phases would give rightsholders insight into practices used to steal
their intellectual property. Finally, working with the Department of
Justice to prioritize prosecution of counterfeiters would send a strong
message to illicit actors. In each of these areas, it will be important
to promote due process standards to appropriately enforce trade laws
against bad actors, but also ensure that good actors are not
arbitrarily implicated or harmed.
Question. I would also like to know your thoughts about how you
think the government and the private sector can work together more
effectively to advance policy solutions that achieve a balance between
trade facilitation and enforcement?
Answer. There are a variety of ways that collaboration between
government and the private sector can promote compliance in a way that
facilitates legitimate trade. First, evaluating current Trusted Trader
programs to identify how ongoing and emerging challenges are being
addressed. Calibrating requirements to align with security and trade
compliance in a way that provides commercially significant benefits
will provide a meaningful, mutually beneficial framework for government
and the private sector. Second, effective automation saves the
government and industry precious resources. Collaborating to address
current gaps in automation capability and ensuring the effective
automation of new requirements into the future--including sustainable
funding structures--will amplify those benefits. Third, which may
require statutory authority, government and industry should be able to
share information on a voluntary, confidential basis free from concern
that such information sharing could violate current law (i.e., Trade
Secrets Act, Privacy Act, etc.).
______
Question Submitted by Hon. Bill Cassidy
Question. Does CBP have the ability to police imports without HTS
numbers?
Answer. The purpose of the classification of products under the
Harmonized Tariff Schedule of the U.S. (HTS) is to determine the duty
liability of an importation, not for policing. CBP does not need an HTS
code to police shipments, and it is unclear how useful HTS numbers are
to CBP for purposes of targeting. An HTS code is based off a
description of the goods, which are required for all shipments,
including de minimis shipments. In many ways a description of a product
is better for targeting purposes than an HTS code because one HTS code
can cover numerous different products, whereas a description often adds
more detail. The dozens of additional data elements already required
for each shipment are more useful than an HTS, especially considering
the costs associated with providing one. Requiring an HTS code would
increase costs on traders significantly because, by statute, the
provision of an HTS code is considered ``Customs business,'' which
necessitates the hiring of a licensed Customs broker. This costly
burden would fall disproportionately on small and medium-sized
enterprises.
Questions Submitted by Hon. Todd Young
Question. Naturally, increasing trade leads to more economic
activity, higher wages, and new job opportunities across various
sectors. For underdeveloped countries, expanding trade can elevate
standards and provide economic stability.
Do you believe there are better benefits associated with a free
trade agreement versus voluntary frameworks with soft regulations?
Answer. Binding and enforceable free trade agreements are critical
tools for unlocking new market opportunities for American businesses
and workers as well as for enshrining best practices and
nondiscriminatory rules. While voluntary frameworks can be helpful in
advancing shared goals, formal agreements, which include market access,
can provide more robust benefits and durable rules to improve the
playing field for American businesses and workers and break down
barriers to enable more resilient supply chains. The U.S. Government
has an important role to play in aggressively pursuing robust free
trade agreements, including with key trading partners like the United
Kingdom.
Question. As efforts build to promote friend-shoring and re-
shoring, Customs processing should function as a tool instead of a
barrier as businesses find new sources for inputs. Creating clear
guidelines and efficient procedures at ports of entry can help
alleviate some of the stressors created by establishing a new supply
chain for a given product. In other words, there must be stronger
collaboration between the government and the private sector to minimize
hurdles in the process.
How can efforts to modernize the Customs process help our domestic
enterprises to friend-shore and re-shore?
How can partnerships between the government and private sector be
better leveraged to address our supply chain challenges?
Answer. Supply chains continue to shift in response to disruptions,
with a clear trend toward redundancy and expanding closer and more
secure sourcing options. Resilient supply chains are diverse, agile,
and reflect ever-changing models driven by customer demands. Government
policies aimed at reorienting supply chains should be mandated only
when consistent with U.S. international trade obligations. In keeping
with those obligations, modernized U.S. Customs processes should be
applied, to the greatest extent possible, on a most-favored nation
basis. That said, effective enforcement of U.S. trade laws comes down
to identifying and segmenting risk. More effectively sharing
information between trusted partners, to root out risk earlier in the
supply chain, and adopting technology that provides greater visibility
into shipments will be key. That more surgical approach is better for
traders of all sizes than more drastic actions targeting entire
countries and sectors.
Question. The ability for U.S. companies to become self-sufficient
in terms of supply chain resiliency varies somewhat from product to
product. Some materials simply are not obtainable domestically, so
supply chains will require sourcing from geographically diverse
locations. However, among the lessons of the pandemic is that the U.S.-
based companies must do more to secure inputs for strategic goods.
What tools or resources do U.S. companies need from the Federal
Government to help remove their supply chains from non-market economies
that likely use coercion or protectionist policies that distort market
values?
Answer. This is a great point, Senator. There is a significant
trend in U.S. companies diversifying their supply chains to build in
agility and align with suppliers that are geographically closer and
more secure to the next stage of manufacturing or end users. The
Federal Government's sharing of specific information about suspected or
verified risks in supply chains, particularly with trusted parties, is
the best way to promote resilient sourcing decisions. The trade
community wants to be compliant, and they want to create sustainable
supply chain--which means minimizing risk. To the extent there can be a
trust-based exchange of information and ideas between government and
responsible companies, better decisions will be made toward the end of
compliance and resilience in supply chains that are the cornerstone of
American economic security.
Question. As companies are working to comply with the Uyghur Forced
Labor Prevention Act and eradicate forced labor from supply chains,
they have expressed several challenges, including the lack of available
information from suppliers in China.
What actions can the administration take to ensure companies have
the information they need to comply with the law despite the China's
attempt to set up barriers?
What actions should this committee consider to support companies
and their efforts to effectively spot and prevent forced labor in their
supply chains?
Answer. There is no place for forced labor in American supply
chains. Private industry continues to dedicate significant resources to
compliance programs and social responsibility initiatives that
implement the letter and spirit of current statutory requirements
related to forced labor. But the private sector cannot address forced
labor--particularly state-sponsored forced labor--alone. The
administration should provide a unified approach to address the root
causes of forced labor, sharing information about risk assessments with
private industry to inform specific sourcing decisions. Working with
foreign trade partner countries to address the root causes of forced
labor, such as promoting best practices in recruitment and governance
that supports existing forced labor laws, would be far more effective
in ending forced labor than addressing information gaps when cargo
arrives at U.S. ports. Establishing a jointly developed understanding
of due diligence standards would promote compliance earlier in supply
chains and streamline admissibility determinations at already congested
ports.
______
Questions Submitted by Hon. John Barrasso
Question. The expiration of the Generalized System of Preferences
(GSP) and the Miscellaneous Tariff Bill (MTB) is hurting our
manufacturers, businesses, and families across the country. American
businesses have already paid more than $2 billion in extra taxes due to
the expiration of GSP. The National Association of Manufacturers
estimates U.S. manufacturers are paying $1.3 million per day in extra
taxes due to the expiration of the MTB.
Can you explain how the expiration of these programs impacts
businesses, consumers, and U.S. Customs operations?
Answer. The lapse of these trade preference programs has short- and
long-term implications for businesses and their consumers. More
obviously, businesses are paying money to the government that could be
used for investment in their market competitiveness. Even if GSP
refunds are provided retroactively, as they have in the past, the loss
of capital access during this lapse has already impacted business
decisions, potentially limiting the ability of companies to hire
employees, offer new products, and innovate. The GSP program is
intended to promote trade with developing countries, while the MTB is
meant to ease financial burdens for businesses when importing products
that can't be procured domestically. Allowing these programs to lapse
sends an unfortunate, if unintended, message that businesses cannot
rely on consistent, long-term government commitment to these
initiatives. The benefits of these programs are undercut by perceived
lack of commitment because business cannot rely on them to make long-
term sourcing decisions.
Question. The COVID-19 pandemic laid bare many of the shortcomings
in our supply chains. Supply chain challenges impacted nearly every
industry and those challenges were felt by businesses and consumers
alike. As we look to strengthen and secure our supply chains, are there
steps we can take to ensure U.S. Customs and Border Protection (CPB)
operations aren't exacerbating existing supply chain challenges? What
changes or improvements to existing CPB authorities should we consider
to keep goods and services flowing across our borders?
Answer. This is a great point about the importance of resilient and
compliant supply chains. I would first point out that the spirit behind
specific authorities is to promote partnership and efficiency in the
joint objective of promoting resilience and compliance. There should be
a principle, across trade law enforcement, that improves information
sharing between industry and government to address compliance concerns
earlier in the supply chain. Conversely, addressing admissibility
issues at ports of entry taxes government resources, increases costs
for American consumers, and negatively impacts business operations.
There are specific authorities that would promote the facilitation of
legitimate cargo coming into the U.S., like ensuring long-term
approaches to automation to better address current and emerging needs
facing both government and industry. In addition to the other
authorities mentioned in my statement, I would encourage a fresh look
at the current authority to require redelivery of cargo that has been
cleared by CBP. If the government clears cargo which is, in many cases,
immediately delivered to customers or put on shelves for retail sale,
requests to redeliver back to the government places an unrealistic
burden on the trade community and conflicts with modern demands to
provide timely delivery of products being imported.
Question. The Chinese Communist Party continues to commit terrible
human rights abuses. The Uyghurs, a religious and ethnic minority in
China, have experienced brutal repression at the hands of the Chinese
Government. They continue to be subjected to torture, imprisonment, and
forced labor.
At least 1 million Uyghurs have been put in internment camps by the
Chinese Communist Party. Around 100,000 Uyghurs and ethnic minority ex-
detainees have reportedly been used as forced labor in textile and
other industries in China.
How effective have U.S. actions been at addressing the human rights
abuses and the use of forced labor?
What more should the United States do on transparency and
enforcement?
Answer. Assessing the impact of the Uygur Forced Labor Prevention
Act in addressing the atrocities facing Uyghurs and other ethnic groups
is critical. As I mentioned in my statement, there is no place for
forced labor in American supply chains. Where supply chain
vulnerabilities are identified, American companies have shifted their
sourcing to comply with legal requirements and our shared goal of
removing risk of forced labor entering supply chains. The efficacy of
UFLPA will align with advancements in promoting supply chain visibility
in the government and private sector, and information sharing that
promotes compliance at earlier points of the supply chain. Furthermore,
ensuring consistent collaboration with foreign trading partners to
address root causes of forced labor, like promoting recruitment best
practices and improving governance in other countries to enforce
existing laws, will drive more sustainable change related to forced
labor. Finally, it would be helpful to include specific private-sector
representatives as part of the Forced Labor Enforcement Task Force,
subject to eligibility criteria and confidentiality, to provide
industry context as part of the FLETF deliberations.
______
Prepared Statement of Brenda B. Smith, Global Director,
Government Outreach, Expeditors International of Washington, Inc.
Mr. Chairman, Senator Crapo, and members of the committee, thank
you for the chance to testify before you today. My name is Brenda
Smith, and I currently work as the global director of government
outreach for Expeditors International of Washington, Inc., a global
logistics, freight forwarding, and information company. Previously, I
served for 7 years as the Executive Assistant Commissioner for Trade at
U.S. Customs and Border Protection, during my 35-year career with the
Federal Government. The views that I express today are my own and do
not necessarily reflect the official policy or position of my current
or past employers.
I would like to highlight four areas of opportunity for Customs
modernization, that will support both better trade facilitation and
stronger trade enforcement:
Leveraging Trusted Traders to manage risk;
Digitization and single windows;
Supply chain resilience; and
Coordination of government agencies operating at the border.
context
The global pandemic laid bare the weaknesses and gaps in the
complex, global system that transports goods from farmers and
manufacturers to consumers. In the 40 years that I have worked with
trade issues, the volume of global imports and exports has grown from
$854 billion in 1984 to a record-breaking $32 trillion last year. This
staggering growth has been accompanied by an overlay of new trade
agreements, expanded parties in the supply chain, and increased
consumer expectations.
challenge
Customs administrations have evolved significantly over those same
40 years, but mostly in response to significant border security
challenges. This security-driven evolution has often left trade
modernization efforts at the 75-percent completion stage, thereby
missing the chance to deliver critical benefits for both private and
public sectors. Incomplete modernization efforts have resulted in:
Paper or PDF documents remaining part of government
processes;
Multiple systems needed for document/data submission, even
where single windows exist;
Few purpose-built processes or bespoke physical
infrastructures that allow for frictionless, low-risk trade;
Little recognition of Authorized Economic Operator status
outside a ``home'' country; and
Poor regulatory and operational coordination between Customs
and other government agencies.
action
In my work on the U.S. single window, I learned the importance of
having a clear vision for the effort and then translating this vision
into the relevant legal, operational, and technology frameworks. My own
``statement of principles'' underlying a vision for Customs
modernization would include these provisions:
First, leveraging Trusted Trader investment to share risk
information and truly streamline entry and compliance procedures by all
government agencies. Make a ``green lane'' a reality across all types
of shipments and all trade processes. This approach should extend to
expansion and full implementation of AEO Mutual Recognition Agreements.
Second, digitizing all government agency requirements for supply
chains, to include a continued commitment to the U.S. single window and
a full review and rationalization of data requirements to minimize
redundancy and focus on collecting only the most important data at the
right time from the right party. More data isn't always better; quality
is more important than quantity.
Third, planning and practicing a response to supply chain
disruptions across all government agencies and their supply chain
partners. Further, resiliency will be greater if potential regulatory
and operational flexibilities are determined in advance and recognize
the lower risk associated with Trusted Traders.
Fourth, and finally, a single process across all agencies with
requirements for goods crossing borders, to include alignment of
regulatory requirements, operational processes, Trusted Trader
programs, and commitment to using the single window for the collection
of all data or documents.
Most of these concepts are not new, and this committee gave
guidance in these areas during the passage of the Trade Facilitation
and Trade Enforcement Act. However, meaningful change takes time and
investment and requires that all stakeholders involved prove the value,
get feedback, and then iterate. If we capitalize on the opportunities
that still exist in these areas, U.S. businesses would be more
competitive, U.S. consumers would benefit, and U.S. Government agencies
would be more successful in enforcement of laws that protect U.S.
consumers and businesses.
What will it take to implement this vision? There are many things
that should be included, but I would like to highlight two specific
areas: (1) investment in Customs personnel and technology; and (2)
collaboration with stakeholders.
First, implementation will require ongoing investment in ``softer''
parts of Customs infrastructure, specifically expertise and technology.
Customs needs sufficient trade personnel to enforce trade rules, but
also needs the bandwidth to create and implement new approaches for
facilitation and enforcement. Aside from tremendous investment in
forced labor capabilities, the level of CBP's non-uniformed trade
personnel has not materially increased since CBP was established in
2003. In addition to ensuring that there is enough personnel to handle
the growth in trade and complexity, these personnel need to be well
trained and expert in both modern business practices and in traditional
competencies such as classification, valuation, and Customs
enforcement, with a dedicated Trade and Cargo Academy and regularly
updated curriculum.
Investment in technology is also an integral part of developing a
common Customs process and makes it possible to support the data
collection, transmission, and analysis around compliance with common
rules. Technology investment must prioritize the continued
modernization of the Automated Commercial Environment. Today's emerging
technologies can help supply chain visibility and a targeted risk
management approach that facilitates trade, improved revenue
collection, compliance, and security in ways not possible even 5 years
ago.
The second key requirement for modernization is collaboration with
stakeholders. During my tenure at CBP, I worked extensively with the
trade community in the Commercial Operations Advisory Committee, the
Trade Support Network (TSN), trade associations, and with individual
companies. I valued interagency forums like the Border Interagency
Executive Council (BIEC), which allowed frank discussion and consensus-
building between agencies. Expanding private-sector engagement with the
partner government agencies through the BIEC and driving more active
regulatory, operational, and technology coordination through forums
like COAC, the TSN, and the BIEC would result in better problem solving
and a trade environment that meets the needs of both government and the
private sector.
results
Multinational traders face the challenge of meeting compliance and
service obligations while managing the cost required to deliver value
to the market. Global security concerns, economic uncertainty, and
varying Customs and other government agency processes represent real
business challenges. Trade can be a tremendous engine of economic
growth--more so if the pieces and parts of the trade process are
aligned. These processes and the expertise, technology and
collaboration that underpins them must keep up with the pace of change
happening in the global economy. When private and public participants
work together, the outcome should lead to predictability and
consistency, improved compliance and security, better revenue
collection, reduced supply chain costs, and improved performance
overall.
conclusion
Modernization efforts should begin with a shared vision which
should include four key elements:
Leveraging Trusted Traders to manage risk;
Digitization and single windows;
Supply chain resilience; and
Coordination of government agencies operating at the border.
We should then use a staged approach, developed through private-
and public-
sector collaboration, to develop and implement the legal framework,
operational approach, and automation. This will enable the trade
community and government alike to take full advantage of the
opportunities of modernization and to validate over time that the
government's trade processes have been simplified and that
inefficiencies or variables that were previously manual and subjective
are not exacerbated through automation. We must review and test the
policy, regulations, process, and technology at each stage in a
controlled manner across regions and government agencies to assess
whether the new technology is an improvement.
I thank this committee for the opportunity to advocate for Customs
modernization. Much work remains to be done, but I strongly believe
that it is work worth pursuing, as we support opportunities for
businesses and consumers as they engage in the global marketplace.
______
Questions Submitted for the Record to Brenda B. Smith
Questions Submitted by Hon. Mike Crapo
Question. You most recently served as the Executive Assistant
Commissioner in CBP's Office of Trade, overseeing both enforcement and
facilitation matters.
As Congress considers modernizing Customs laws, can you speak to
the importance of balancing these priorities?
Answer. The facilitation of legitimate trade and the enforcement of
U.S. trade laws are both critical to the U.S. economy, its businesses,
and consumers. Investing in measures that facilitate low-risk trade,
particularly that of trusted partners, can reduce the cost, time, and
unpredictability associated with the traditional movement of goods. At
the same time, the enforcement of U.S. trade laws helps to provide a
level playing field and the opportunity to compete in the global
marketplace for compliant businesses. U.S. Customs and Border
Protection (CBP) is called on to balance these imperatives.
From an operational perspective, these two requirements reinforce
each other. Trade enforcement (the identification of noncompliant
trade) is often referred to as ``finding a needle in a haystack.'' By
enabling legitimate, low-risk trade to move across U.S. borders without
stopping or conducting nonproductive inspections with few results, CBP
is reducing the size of the haystack, enabling CBP to spend more time
and resources focused on finding entities or individuals looking to
evade U.S. laws.
Question. In your opening statement, you highlighted the need for
better operational coordination between Customs and other agencies.
Where do the most glaring breakdowns in communication between CBP
and other Federal agencies occur?
Answer. The greatest opportunity for better operational
coordination resides with the overall vision for how the U.S. moves
goods across its borders. In the United States, we have several policy
goals--including border security, trade facilitation, public health,
consumer product safety, and agricultural security, to name just a
few--that, by statute or tradition, are operationally executed at the
border.
Developing a framework for the streamlined execution of these
priorities by the government and efficient compliance by the private
sector is critical to resolving the lack of strategic coordination on
trade operations. This framework needs to leverage a single approach
across the government to automation and digitization, admissibility,
information requirements, targeting and Trusted Trader programs. The
lack of uniformity in approach by the 50 agencies with equities at the
border causes breakdowns in communication, resource planning,
programming of systems, training, and operational execution. Further,
the resulting inconsistencies and duplication cost the private sector
time and money, which reduces the benefits of trade to the U.S.
economy, U.S. manufacturers and U.S. consumers.
______
Question Submitted by Hon. Robert P. Casey, Jr.
Question. Workers in Pennsylvania and across this Nation can out-
compete anyone in the world if the playing field is level. Yet, decades
of trade cheating like IP theft, state subsidization, and the use of
forced labor have distorted fair market prices and cost American jobs.
Pennsylvania's steel industry has especially borne the brunt of these
unfair trade practices. Antidumping and countervailing duties--which
the CBP plays a critical part in supporting--have been a key part of
providing a level playing field for American workers and industry. Yet
nonmarket economies ceaseless efforts to circumvent U.S. trade law
continue to permeate our defenses. In your written testimony, you've
made a set of recommendations to improve CBPs ability to facilitate
trade and enforce trade remedies.
How do you propose we focus these recommendations on protecting
American workers, not just American industry?
Answer. Three specific areas come to mind when thinking about how
to support the American worker through our Customs laws. First,
protection of intellectual property, as these enforcement actions go to
the core of American workers' ability to innovate and stay ahead of the
global economy. Second, the enforcement of antidumping and
countervailing duty orders. Too many American jobs have been lost when
the businesses they support get priced out of the market. Protecting
CBP's enforcement authority against violative entities and individuals
supports domestic economic activity and keeps jobs in U.S. communities.
Third, the targeting of unfair labor conditions spotlights illegal
competition from workers in substandard working environments and
supports fair working conditions for American workers.
______
Question Submitted by Hon. Bill Cassidy
Question. The Consumer Products Safety Commission still regularly
finds lead in imported children's toys. Under formal entry, they can
detain a shipment that typically consists of at least an entire
shipping container, and do a lab test to determine whether that entire
shipment should be entered.
But when a toy is shipped by itself directly to a child's house, is
it still viable to expect the Commission to pay to test that specific
toy? If they did, and the results tested positive for lead, would CBP
be able to intercept other de minimis shipments of that same toy?
Answer. Under current Customs laws, goods in small packages must
meet the same compliance expectations and exhibit the same level of
``reasonable care'' as goods in 40-foot containers. In practice, this
is not always the case. We want people to be able to trust the goods
that arrive quickly and with relatively low cost on their doorsteps.
The government's challenge is to determine where best to collect
information and compel compliance responsibility to keep goods flowing,
while allowing CBP and other government agencies the opportunity to
assess risk and stop noncompliant goods.
CBP and its other agency partners have heavily invested time and
resources to modernize their processing and oversight of the movement
of small packages and have learned a great deal, but work remains to be
done.
Further streamlining compliance expectations is not the answer.
Engaging non-traditional actors to collect the right information at the
right time and extending compliance responsibility to those same
actors, while mandating the government has sufficient resources to
enforce those responsibilities, would help to safeguard the health and
well-being of consumers and promote economic fairness and growth.
______
Questions Submitted by Hon. John Barrasso
Question. The expiration of the Generalized System of Preferences
(GSP) and the Miscellaneous Tariff Bill (MTB) is hurting our
manufacturers, businesses, and families across the country. American
businesses have already paid more than $2 billion in extra taxes due to
the expiration of GSP. The National Association of Manufacturers
estimates U.S. manufacturers are paying $1.3 million per day in extra
taxes due to the expiration of the MTB.
Can you explain how the expiration of these programs impacts
businesses, consumers, and U.S. Customs operations?
Answer. Other than the duty impact and increased expense to
consumers resulting from the expiration of these programs, the two main
costs to both government and industry stem from the unpredictability
and the rework required to file for and process the revised Customs
entries if the programs are reauthorized.
The value of these programs in driving investment overseas and
building resilient supply chains is significantly diminished when U.S.
businesses are unable to rely on these programs as part of their
sourcing strategy. Further, when these programs are allowed to expire
and then are reauthorized with retroactive applicability, both the
government and the trade must manage the administrative and duty
changes in a large volume of Customs entries, taking resources away
from other priorities like innovation and compliance. Reauthorizing
these programs in advance would streamline administrative processes for
both business and government and increase the overall value of these
programs.
Question. The COVID-19 pandemic laid bare many of the shortcomings
in our supply chains. Supply chain challenges impacted nearly every
industry, and those challenges were felt by businesses and consumers
alike. As we look to strengthen and secure our supply chains, are there
steps we can take to ensure U.S. Customs and Border Protection (CBP)
operations aren't exacerbating existing supply chain challenges?
What changes or improvements to existing CPB authorities should we
consider to keep goods and services flowing across our borders.
Answer. CBP does tremendous, good work in managing the day-to-day
border operations for a very complex network of global supply chains.
Opportunities exist to modify the strategic framework around the
management of the supply chains that cross U.S. borders. Congress could
provide CBP the legal authority and mandate to test additional ideas
resulting from stakeholder consultation and government expertise,
prioritizing more streamlined, digitized, and economically competitive
trade processes.
This strategic framework should prioritize more streamlined
processes for Trusted Traders, a consistent approach to risk management
among government agencies and CBP enforcement authorities and means to
effectively pursue those entities and individuals who seek to evade our
laws--whether they are a U.S.-based business or are located outside the
United States.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
Trade cheats in China and around the world are constantly looking
for new ways to evade U.S. trade laws and rip off American jobs. They
want to sell illegal products in America--goods made with forced labor,
illegally harvested timber, and products that steal American IP. Trade
cheats are a grave threat to the American workers, farmers, and
businesses who play by the rules.
The most egregious example of this trade cheating is the state-
sponsored forced labor that's rampant in China's Uyghur region. The
Chinese Government has arbitrarily detained more than a million Uyghurs
and other Muslim minorities. These detainees are thrown into
``reeducation'' camps, where they're isolated from their families and
forced to work under the worst conditions.
The Chinese Communist Party's treatment of the Uyghur community is
a moral abomination. It also threatens American jobs. The math is
simple. By paying poverty wages and polluting as they please, Chinese
companies have been able to flood U.S. markets with cheap goods and
undercut all the competition. American workers are the best in the
world--but no one can compete with slave labor.
What's the effect here at home? Factories are shuttered, and
American jobs are lost to China. We'll hear today from Andy Meserve, a
USW local president whose aluminum factory was idled, in part due to
forced labor abroad. The problem is, when domestic aluminum factories
like Andy's shut down, China becomes the only game in town.
So companies must commit to cleaning up forced labor in their
supply chains. In December, I launched an investigation into
allegations that the auto industry is still relying on supply chains
tainted by forced labor. The allegation is that components of cars--
from steel to batteries to tires--have a high likelihood of being made
with Uyghur forced labor.
I asked eight major automakers about their supply chains, and how
they're cleaning them up. This is a flagship American industry that
employs more than 90,000 Americans and contributes over $700 billion
annually to the U.S. economy. America can't allow those jobs to be
ripped off and sent to an economy that strategically pays workers
nothing.
U.S. law already prohibits importing products made with forced
labor. The challenge is identifying those products and stopping them.
Customs agents are on the front lines of these efforts.
Customs' job is twofold: first, they have to intercept shipments
that violate U.S. law. Second, they have to keep legal goods moving
efficiently through the ports.
A lot has changed since 2016, when the Finance Committee passed our
last package of trade enforcement tools. That legislation--the Trade
Facilitation and Trade Enforcement Act--produced real results. It gave
Customs new tools to swiftly crack down on duty evasion that hurts
American workers and businesses. It helped keep out counterfeits that
threaten American innovation and public safety.
Senator Brown and I worked to close an egregious loophole that was
letting products made with forced labor come through our borders.
Products made with forced labor cannot be allowed to enter the United
States, period.
Today Customs has a whole new set of challenges:
COVID-19 changed the way people buy and sell goods. E-
commerce has exploded, shipments have surged, and CBP is
processing millions more small packages per day.
Fentanyl and other illicit drugs continue to enter through
our ports.
Illegally fished seafood is entering the U.S. markets and
threatening the livelihoods of coastal communities.
And counterfeits rip off American products, posing an
economic and health threat to American citizens. Intellectual
Property theft is estimated to cost the U.S. economy up to $600
billion each year, much of it from China.
Foreign companies continue to find new ways to circumvent our trade
laws. Keeping out the trade cheats has become a game of Whac-A-Mole.
In my view, stepping up enforcement requires finding and stopping
today's trade cheats, and crafting tools that are flexible enough to
stop the next round of trade cheaters too. It's going to take better
coordination with CBP across the U.S. Government, from the Department
of Labor to the fisheries experts at Commerce.
This year, the Finance Committee will be working with CBP and
others on how Congress can improve our trade laws and give CBP the
tools it needs to meet this moment. The hearing this morning is an
important first step in that process. We'll hear from American
businesses that need inputs and logistics professionals who work with
Customs to keep supply chains moving. We'll also hear from folks who
work to get forced labor out of supply chains, and an American worker
personally impacted by this unfair competition.
I also want to hear how Customs can maximize enforcement while
streamlining imports from Trusted Traders with clean supply chains.
This will help U.S. producers get the inputs they need; reduce
bottlenecks, delays, and price increases for consumers; and help
Customs focus their resources on enforcement to keep out illegal goods.
______
Communications
----------
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Wyden and the Ranking Member Crapo, thank you for the
opportunity to submit these comments for the record to the Finance
Committee, which repeat the same points made to the Committee on Ways
and Means Subcommittee on Trade in July 2021. These repeat our comments
from March of that year. I have removed pandemic related content and
addressed the question of who should be stealing from whom in the
technology sector.
I am less worried about China stealing our intellectual property. Their
students have come here, gotten advanced degrees and largely returned
home. This may plant the seeds of future revolution in China. It also
means that in many areas of technology, particularly artificial
intelligence, they are ahead of the game. Perhaps we need to steal more
from them. Making it easier for Chinese students to stay would be a
good first step.
A huge issue with China, as well as south Asia and the global south, is
de facto slavery. Boycotting the products of slavery worked in fighting
the Confederacy. The mass migration of slaves had more of an impact. A
boycott of Xinjiang cotton and tomatoes is problematic during a
pandemic, but generally it cannot succeed as a stand-alone action. Even
though it may hurt in the short run, we should still do it.
To make a boycott work, we cannot do it alone. At minimum, Islamic
nations must join in as well and start linking the cause of the Uygurs
to the New Silk Road. The ethnic Turkmen range from modern Turkey to
Xinjiang, so a little solidarity on their part could go a long way. If
we do go this route, the whole effort to interfere in Iran must end. We
cannot be with South Asian Muslims on some things and expect solidarity
with them on others.
On the moral front, I am not sure we have room to talk. We hold
migrants in stark conditions prior to deportation. If you doubt it,
visit Lewisburg Federal Prison. Also stop in the Federal Prison
Industries factory while you are there. Visit any food processing plant
with large immigrant workforces (send people undercover) and see how
many workers were trafficked and how local law enforcement reacts when
they decide they want to leave. Examine the plight of sex workers in
the United States and see how many of their pimps have arrangements
with local police.
Our best weapon is our example. As long as slavery exists in the United
States, our moral voice is compromised. Again, I am not saying to
ignore this situation. I am saying to All In to really fight slavery.
Also, call it slavery. On the same subject, examine the Chinese
treatment of peasant workers at their factories. There is a two-level
society, and American consumers benefit from this. Our commitment to
abolishing slavery cannot live only in the fringes.
This is not to say that loopholes cannot be closed, although we must
stop our own unfair trade practices as well. American food should not
show up in countries just before harvest when doing so depresses the
price of local agricultural products. Poverty begets slavery. Making
others poor is an invitation to exploitation.
Poor farmers can either be individual or tenant farmers who are
essentially peons. The drive for lower food prices for American
consumers comes at a human cost. This is especially true when only one
buyer dominates the market, as is sometimes the case for export to
America (if not often).
Poor factory workers never have access to collective bargaining. This
factor also drives down wages in American factories--often those with
immigrant labor bearing the brunt of bad working conditions, poor wages
and lax enforcement. The major difference is that being blacklisted in
the United States for attempting to organize is rarely deadly, as it
can sometimes be overseas.
Improved enforcement takes money and the willingness to accept higher
food prices. More inspectors with more authority are needed at home and
abroad. Government or third-party inspection is vital to make sure work
is safe, fairly compensated and able to organize. We cannot expect
worker protection in China or Guatemala if we do not insist on it in
North Carolina and Alabama.
Existing supply chains must be reexamined and should not privilege big
named brands over smaller importers and suppliers. Citing bad behavior
must be cited. There is no better education than a ticket.
The long-term solution to labor inequality is employee ownership at all
points in the supply chain. A multi-national employee owned firm would
provide all workers an equal standard of living and ownership rights. I
would hope this would start here. The one pebble that will move
mountains is allowing market investors the same exception to capital
gains taxes when shares are sold to a qualified broad-based ESOP (or
COOP) that privately owned companies now receive. A bigger pebble is
enacting an asset value-added tax with an internationally agreed upon
rate with the same loophole. Sometimes loopholes can be a good thing.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
______
E-Merchants Trade Council, Inc.
1655 North Fort Myer Drive, Suite 700
Arlington, VA 22209
(703) 574-0000
https://www.emtc.org/
On behalf of the E-Merchants Trade Council, Inc. (EMTC), I am Marianne
Rowden, CEO of EMTC and respectfully submit this statement for the
record. EMTC appreciates the opportunity to comment concerning the
topics covered in the hearing on ``Ending Trade That Cheats American
Workers By Modernizing Trade Laws and Enforcement, Fighting Forced
Labor, Eliminating Counterfeits, and Leveling the Playing Field'' held
on February 16, 2023.
EMTC was formed in July 2021 to represent the interests of the e-
commerce industry by creating a global community of micro, small and
medium-size enterprise (MSMEs) e-sellers, marketplace platforms, and
service providers to resolve trade, tax and transportation challenges.
EMTC's advocacy mission is to support national and international
policies that simplify cross-border transactions of physical and
digital goods. EMTC facilitates dialogue among the E-Merchant worldwide
community and global regulators.
EMTC applauds the Committee for holding this hearing on ``Ending Trade
That Cheats American Workers By Modernizing Trade Laws and Enforcement,
Fighting Forced Labor, Eliminating Counterfeits, and Leveling the
Playing Field.'' We recommend that the Committee hold more hearings to
receive testimony, comments and input from as many stakeholders as
possible since the United States' trade policy affects every segment of
American society. EMTC's comments expand three (3) areas discussed by
the witnesses during the hearing.
1. Policy: E-commerce Is the 21st-Century Trading System
E-commerce is the trading system of the 21st Century--90% of shipments
entering the U.S. are low-value shipments (685 million as de minimis in
FY22) and a significant percentage of shipments exported from the U.S.
comprise of e-commerce shipments.\1\ In 2021, the Digital Economy
represented 10.3% of the U.S. Gross Domestic Product and created 8
million jobs. E-commerce activity generated $942 million representing
25.4% of the 3.70 trillion Digital Economy Gross Output (2021).\2\
According to Digital Commerce 360, e-commerce sales in 2022 topped $1
trillion for the first time, despite lower year-over-year growth, based
on U.S. Department of Commerce figures.\3\
---------------------------------------------------------------------------
\1\ See EMTC Interview with CBP Executive Assistant Commissioner
AnnMarie Highsmith on December 14, 2022 at: https://vimeo.com/
791769636/748d1c0ff3 and New and Revised Statistics of the U.S. Digital
Economy, 2005-2021, Bureau of Economic Analysis at: https://
www.bea.gov/system/files/2022-11/new-and-revised-statistics-of-the-us-
digital-economy-2005-2021.pdf. We note that e-commerce is not the same
as de minimis and vice versa--that is, not all e-commerce shipments are
entered as low-value shipments under 19 U.S.C. Sec. 1321 and not all de
minimis shipments were ordered online.
\2\ New and Revised Statistics of the U.S. Digital Economy, 2005-
2021, Bureau of Economic Analysis at 2.
\3\ See ``US ecommerce in 2022 tops $1 trillion for first time; Q4
sales hit record high'' at: https://www.digitalcommerce360.com/article/
quarterly-online-sales/?_hsmi=246591683&_hsenc
=p2ANqtz-9UEOD-k56g1JaxHy1X6iSpKlajANIyE-FA33MBXmp1Aq_D7IMkxeGAG_D-
lw3lDfuK
qvhM0k4XU7JD-rAS2DLnuFDqvQ and U.S. Census Bureau's Quarterly Retail E-
Commerce Sales released on February 17, 2023 at: https://
www.census.gov/retail/ecommerce.html.
E-commerce is the trading system that has democratized global trade and
enabled small businesses and entrepreneurs to participate in global
market opportunities as both exporters and importers. Since e-commerce
represents a growing sharing of the U.S. economy and global trade, U.S.
trade laws should be modernized to facilitate and regulate e-commerce
commensurate with the risk that such shipments pose to the revenue,
---------------------------------------------------------------------------
security and safety of the United States.
Systems-Based Governance as a New Form of Risk Management
Currently, the U.S. Customs statute is a ``transaction-based'' regime
in which every Customs entry declaring the applicable tariff
classification, value, origin, and quantity of the goods is treated as
a separate and discrete transaction. This means that every entry is a
declaration to U.S. Customs and Border Protection (CBP) and serves as a
basis for assessing a penalty under 19 U.S.C. Sec. 1592 if any
information in the entry is incorrect. ``Transaction-based'' risk
management is a problem for both CBP and the importer as a single error
repeated over a large number of entries elevates non-compliance to
systemic level (i.e., gross negligence) without the intent to routinely
violate the Customs laws under the reasonable care standard adopted in
the Customs Modernization Act.\4\ The scale of e-commerce entries
number in the hundreds of millions and make ``transaction-based'' risk
management impractical.
---------------------------------------------------------------------------
\4\ The Customs Modernization Act was enacted as Title IV of the
North American Free Trade Agreement (NAFTA), Pub. L. 103-182, 107 Stat.
2057 (December 8, 1993).
When transactions-based audits became too time-consuming and unwieldy,
CBP adopted an ``account-based'' approach to risk management by
evaluating an importer's internal control policies to determine whether
the company has procedures in place to exercise reasonable care.
``Account-based'' risk management works well for large multinational
corporations that import and export routinely, invest corporate
resources in trade compliance programs, and join trusted trader
(Authorized Economic Operator) programs. CBP has moved to ``account-
based'' management system for the largest traders (e.g., the top 1,000
importers) through its Centers for Excellence and Expertise (CEEs)
organized by industry, but the percentage of imports entered by the top
1,000 importers has decreased from 70% to 58% while the number of
Importers of Record has increased from over 300,000 to 442,897.\5\
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\5\ See EMTC Interview with CBP Executive Assistant Commissioner
AnnMarie Highsmith on December 14, 2022 at: https://vimeo.com/
791769636/748d1c0ff3.
The challenge that e-commerce presents to CBP is how to manage risk
that is diffuse (i.e., a large number of foreign sellers with no risk
profile outside its jurisdiction) posed by low-value shipments that are
irregular in frequency and destination (i.e., to different consumers).
All imports need to be validated through five (5) regulatory
---------------------------------------------------------------------------
checkpoints:
Security: to ensure that the goods do not pose a threat to the
U.S. (e.g., physical threat of a bomb in a package or economic threat
through a pest infestation) at the port of export;
Admissibility: to ensure that the goods meet regulatory
requirements of other government agencies;
Payment: transmission of duties to CBP or confirm duty-free
entry of the goods;
Liquidation: opportunity for reconciliation of any errors or
updated entry data; and
Finality: the point at which the entry becomes binding on both
the importer and CBP so that the only recourse is litigation for non-
compliance or refund.
EMTC believes that e-commerce presents an opportunity to adopt a new
type of risk management regime--``systems-based governance.'' See Risk
Management chart in Attachment 1. E-commerce has two unique attributes:
(1) major investments in computing power by marketplaces and compliance
platforms; and (2) economies of scale over a large number of shipments.
The reason why e-commerce has become such a success is because it
flipped international trade on its head: instead of sellers figuring
out if it is profitable to scour the globe for buyers of its goods
taking into account logistics and regulatory costs, computer engineers
built electronic marketplace platforms that are inherently global to
enable buyers to find sellers of products they want and facilitating
that sale to reduce ``friction'' to a minimum (e.g., one-click
shopping).
Based on the computing power and economies of scale of the e-commerce
industry, EMTC proposes a ``systems-based governance'' that deploys
multiple layers of technology (e.g., Artificial Intelligence, Machine
Learning, blockchain) in a holistic system to reduce trade compliance
risks. E-commerce companies (marketplace platforms, e-sellers) and
their facilitators (trade compliance platforms, logistics companies,
brokers, and agents) expend tremendous resources on evolving technology
and regulatory costs which need to be integrated into the price of
goods and services for small companies and consumers. EMTC has drafted
a proposed a statutory change adding 19 U.S.C. Sec. 1484(a)(2)(D):
(D) When an importer of record or an agent authorized to make
entry files information pursuant to an electronic data
interchange system using a risk-based methodology to assess the
admissibility, tariff classification, value and origin of
merchandise required under paragraph (a)(1), it shall not be
subject to penalty under section 1592. A risk-based methodology
shall mean an electronic system interpreting the Customs laws
and regulations by deploying methods such as natural language
processing, knowledge representation, image-based analysis,
algorithmic decision-making, and machine learning. The
Secretary shall accept a risk-based methodology adopted by an
importer of record or an agent provided it received a ruling
from U.S. Customs and Border Protection or an opinion letter
from a Customs expert that the methodology produces
consistently correct results.
See EMTC Proposal for 21st-Century Customs Framework (November
2022).\6\
---------------------------------------------------------------------------
\6\ EMTC 21CCF Proposal posted on its website at: https://emtc.org/
resources/
EMTC%20Proposal%20for%2021st%20Century%20Customs%20Framework%20(11-28-
22).pdf.
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2. Regulation: ``Global Trusted 2 Trade'' Program
At the regulatory level, CBP's risk management for e-commerce needs to
conform to the business reality and velocity of the supply chain
without favoring or disfavoring different business models and
technologies. CBP needs data that is real-time, verifiable and
auditable.
Nearly every small business has a role in the global supply chain.
Whether traditional trade or e-commerce, a supply chain must deliver
the right product to the right place at the right time for the right
price. E-commerce by its nature requires significant reduction in the
order to cash processing time. This can only be achieved through a
supply chain account composed of certified products, processes and
people that are granted a simple single release.
Efficient and effective trade can only be achieved by developing a new
set of laws structured around the certification of people, process and
products. New regulatory regimes must reflect systems-based governance
by risk level of the end-to-end process through the use of Artificial
Intelligence and Machine Learning to capture the right data, not an
excessive quantity of data.
A ``Global Trusted 2 Trade'' (T2T) Program must recognize that the use
of digital technology is woven into all aspects of twenty-first century
trade, including traditional trade transactions. It acknowledges that
all e-commerce is composed of three distinct, but related pillars--
people, product and process across all participants in the value chain
that are either upstream or downstream of the cross-border transaction.
Each pillar must understand and work in concert with the other two to
reduce risk and simplify exports and imports to enable sustained and
continued growth of e-commerce.
Risk management of twenty-first century trade is more effective through
the certification of product, process, and people. A ``Trusted 2
Trade'' program must address the need for collaboration, education and
certification of all members of the value chain to reduce risk through
creation of a Trusted Trader-type management account at the supply
chain level, rather than for each individual participant. Each supply
chain has an identifiable trade ``passport'' covering its certified
members and products. See Managing Risk Systems-Based Governance chart
in Attachment 2.
Process
In an international e-commerce supply chain, the right product must be
verified with regard to its origin and its value at the earliest point
in the supply chain when the best information is available. With high
interest rates and limited storage space for most small businesses,
inventories are kept low. The right place means that verified products
are granted expedited clearances to meet demand for consumption or
further processing. To attain the right and timely delivery, goods must
be validated as they pass through the supply chain milestones beginning
with the point of export production. Finally, goods must be available
at the right price to meet market demands. The price factor encompasses
not only the cost of production of the good but the additional supply
costs to enable the delivery to the final market. This requires access
to de minimis benefits for package-based trade into U.S. markets and
increased de minimis privileges globally. The U.S. must set the example
for this model and leverage its negotiation acumen to support the
increase with our trading partners.
The e-commerce global supply chain contains more and diverse players.
In traditional trade a multi-national had an office, factory or
representative in the exporting country. U.S. Customs and Border
Protection reported that there were 685.1 million de minimis (low-
value) shipments in FY22.\7\ Small businesses transactions are with
unrelated parties who offer goods or materials needed for U.S.
production of a finished product or a market offering. Through e-
commerce small and mid-sized businesses have access to expand their
sales using platforms with a global market reach. However, the
increased numbers of participants in any single supply chain also
increases the complexity of the regulatory regime.
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\7\ See CBP Trade Statistics at: https://www.cbp.gov/newsroom/
stats/trade.
E-commerce global trade is not well suited to a transaction-based
system. Traditional transaction-based processing of such shipments will
break the e-commerce supply chain both upstream and downstream of the
point of importation as well as adding significant cost. The use of
technology to manage the movement of goods through each milestone and
develop a validated import or export will alleviate the impact on the
supply chain. Milestones may include but are not limited to preparation
for export, classification, origin and value. E-Merchants Trade Council
recommends that a specific supply chain be certified for its people,
process and product. A certified supply chain with the appropriate
---------------------------------------------------------------------------
credentials is eligible to use the simple release process.
Product
The seller of the goods is in the best position to know or have access
to the manufacturing details necessary to determine the first sale
value, origin and classification of the product. The seller, however,
may not have the trade expertise to apply such information to trade
laws. In some cases, trade law in the seller's country may differ from
U.S. law for determination of origin or classification. Artificial
Intelligence must be applied to capture pertinent data points and
verify products. Artificial intelligence can evaluate the data and
determine the appropriate origin and classification by applying the
U.S. law to the item in question. Accurate commercial data can be used
to determine the regulatory status of a product. A verified product is
one component of a certified supply chain for purposes of U.S. import
or export.
People
During the verification process for the product, the seller will also
submit information about the actual manufacturer as well as his company
if he is a distributor or re-seller of the goods. Through use of
Artificial Intelligence, the veracity of the seller can be validated.
Intermediaries in the supply chain such as freight forwarders, express
carriers and marketplaces may already have an Authorized Economic
Operator status. Such programs can be a foundation for an e-commerce
``Trusted 2 Trade'' program that is supplemented by an E-commerce
Framework of Standards. The sellers require basic training of the
information elements necessary for the determination processes. Such
sellers can take foundational courses in business language sufficient
to certify their understanding of the data necessary to be provided for
regulatory purposes.
3. Implementation: A New Approach ``Validate As You Go''
Customs modernization that addresses the exponential growth of e-
commerce requires a new set of regulatory requirements that
accommodates the expanded ecosystem created by more and new
participants in the process. This system must be separately codified to
interweave the needs of business and all regulators into one seamless
tome of agreed upon standards for admissibility as an import or an
export.
Global Single Window
Since other countries look to the U.S. for best practices, EMTC
proposes that the U.S. work towards a single global window based upon a
risk management system. It should set the standards for global cross-
border transactions using the certified supply chain account model. It
must apply Artificial Intelligence capable of accumulating critical
quality data as the good passes through multiple countries with
simplified processing. Such data should be held by private industry
certification agents and made available to regulators evaluating entry
into any territory. In such a case, the verified supply chain is in
fact a ``global entry passport'' for selling and re-selling goods with
confidence of a high level of accuracy across the globe. This would
create a single global window to trade rather than a single country-
centric release.
Addressing Low-Value Goods Efficiently
Low-value goods, those defined as under US$800 should be processed with
the lowest cost for the lowest risk imports or exports. Goods in these
supply chains should be certified for both people and product groups at
a six-digit level of the Harmonized Tariff Schedule. Classification
using artificial intelligence can determine and validate the accuracy
of the classification for regulatory purposes. De minimis should be
available for such goods. A simplified process will deliver the right
products to the right place at the right time for the right price.
Benefits such as export information gleaned through our system-based
governance should be offered to partners who meet or exceed the U.S. de
minimis standard. Such data will enable our trading partners to also
efficiently process the movement of package-based trade to their
consumers.
Duties, Fees and Penalties
As a part of the streamlining of processes, the certified supply chain
should also be viewed as a single account payer. Duties, fees, taxes or
other costs should be paid on an account basis and reconciled quarterly
for any discrepancies discovered. Supply chains that are certified as
low risk using system-based governance models should receive credit in
the form of discounted penalties. A sliding scale model can be used for
moderate risk supply chains to reward efforts to reduce risk. It would
serve as an incentive to invest in verification of its people, products
and processes. Multiple or egregious penalties could result in being
moved to a higher risk level.
Codify the Process
To ensure that the risk management process is available to all e-
commerce participants, the standards as described here must be codified
into a new statute for all digital trade. Such standards must apply to
sellers, marketplaces, forwarders and all types of transportation
including international mail and express carriers.
As shown in Attachment 3, digital trade represents 10% of GDP. The
facilitation and management of this expanding and fast-paced sector
must be addressed with a regulatory regime that is tailored to the
needs of this trade community. Such a regime would interweave the
appropriate requirements from various agencies to eliminate competing
and different definitions of a single term. Standards must be commonly
agreed upon for levels of risk. A cross-agency Center of Excellence
dedicated to e-commerce should be developed to facilitate trade. The
center agents should be trained in business vernacular to effectively
communicate with industry members, particularly small businesses, and
certified in e-commerce processes.
4. Conclusion
In summary, EMTC believes that the Committee should carefully consider
creating a framework setting out the policy goals and enabling language
to leverage technology and using new risk management techniques for
processing e-commerce shipments while not creating regulatory burdens
on MSME e-sellers.
EMTC appreciates the opportunity to comment on the testimony presented
at the hearing, and we are happy to discuss the ideas expressed above
in more detail.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
SafePackage LLC
5152 Edgewood Drive, Suite 250
Provo, Utah, 84604
March 1, 2023
The Honorable Ron Wyden
United States Senate
221 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Wyden:
SafePackage LLC would like to submit comments in response to the
hearing ``Ending Trade That Cheats American Workers By Modernizing
Trade Laws and Enforcement, Fighting Forced Labor, Eliminating
Counterfeits, and Leveling the Playing Field'' held by the Finance
Committee held on February 16, 2023. We strongly concur with the
Chairman's remarks. We also would like to thank you for calling
attention to these matters.
Counterfeits, products made with forced labor, and other violative
goods continue to be available to U.S. consumers via e-commerce.
Customs and Border Protection (CBP) is under considerable pressure from
many different entities as its mission of protecting the border cuts
across many domains. CBP operates on a model based upon advanced
information, applying intelligence-based or law enforcement-based
targeting rules against this information, and identifying suspect
shipments across the priority mission set (national security,
narcotics, commercial trade violations). For the most part, CBP applies
a traditional enforcement approach, acting to address those concerns at
the border to prevent the introduction of violative goods into the
commerce of the United States that may threaten the health and safety
of the U.S. consumer. CBP's resources, including staff and funding, are
inadequate to inspect, interdict, and administratively deal with the
seizure of the flood of violative goods coming from China.
We do, however, wish to bring to your attention an alternative approach
that is consistent with existing CBP practices, and does not require
new legislation or funding. This approach relies on leveraging CBP's
industry partnership program framework. It also incentivizes companies
to perform greater ``reasonable care'' responsibilities prior to
shipping in a cost effective and efficient manner. Companies could also
agree to reject (prevent shipping) any packages found to be violative
against publicly known information (i.e., the patent and trademark
database and known Partner Government Agency requirements).
We have developed an innovative prescreening technology called
SafePackage. When applied by parties in the supply chain, it could have
dramatic results by preventing the shipping/importation of high-volume,
low-value violative goods into the United States by stopping their
shipment at the point of origin. This could significantly help CBP as
these items of low value would not have to undergo the costly seizure/
forfeiture/disposition process, but yet they would be prevented from
entering the commerce of the U.S.
We feel that preventing the shipment of illegal goods at the point of
origin is the most cost-effective approach for the government. Imagine
the impact an approach that requires stopping violative goods at the
point of origin could have on combating the increasing flood of de
minimis goods violating IPR, forced labor, health and safety laws. CBP
is rightly focused on high value commercial violations, hard narcotics
(fentanyl, heroin, cocaine, methamphetamine, etc.), and other priority
trade-related violations (forced labor, revenue loss, other government
agency requirements).
As pressure mounts on CBP to do more in the e-commerce environment, the
procedures designed for targeting and supply chain security in the
traditional commercial environment may not pose the best answer.
Foreign manufacturers and shippers are relatively small, unknown
entities. They do not have the same auditable or documented business
practices. They may also number in the millions and can easily change
company identifiers.
Violations in e-commerce are easy for CBP to identify, but to take
sustained action against the high volume of low-value (both in terms of
cost and potential harm) shipments is not cost-effective. The
traditional approach of the right data from the right party at the
right time may support better targeting for priority and lesser
frequent violations in e-commerce but does not address low-value/high-
frequency violations due to the cost-prohibitive nature of the seizure
process.
CBP can address e-commerce challenges by leveraging industry
partnerships to incentivize stakeholders to prescreen and reject
violative packages prior to shipping. This is consistent with the
approach in other CBP mission areas such as: CSI (Container Security
Initiative), ACAS (Air Cargo Advance Screening), and in the immigration
environment IAP (Immigration Advisory Program), RCLG (Regional Carrier
Liaison Groups), and Preclearance.
Certain entities in the supply chain already have access to the
platform/marketplace level data as part of their business
transactions--namely pictures and item descriptions directly from the
e-commerce websites. These entities, like logistics and shipping
providers, can apply an algorithm such as SafePackage, identify
violations, and stop a transaction before it gets shipped to the US.
Data on rejected shipments can be shared with CBP.
SafePackage is a patented technology that uses AI and machine learning
to prescreen products and automatically identify goods that would be
prohibited from importation into the U.S. SafePackage has been used on
a large scale in the Chinese e-commerce environment, which accounts for
over 80% of all packages imported into the U.S.
SafePackage has proven to be more than 99% effective in preventing the
shipment of goods by screening e-commerce merchandise for compliance
with laws and regulations pertaining to USPS false labeling, IPR
infringements, FDA, USDA, DOL (forced labor), FWS, CPSC, and more.
SafePackage believes that prescreening technology could be most
effective when coupled with CBP's Customs Trade Partnership Against
Terrorism (CTPAT) program, specifically a special program aimed at
partnering with the industry engaged in e-commerce shipments. CBP's
trusted trader program could develop a Minimum Security Criteria for
participants that ship, import or otherwise play a role in the
importation and entry of de minimis goods which would incorporate a
validated prescreening criterion.
By requiring the use of prescreening technology for CTPAT e-commerce
participants, CBP and U.S. consumers could see the following benefits:
Reducing the volume of e-commerce shipments CBP would need to
inspect and allow CBP to focus on higher priorities;
Reducing the volume and costs associated with the seizure,
forfeiture, and destruction of violative goods (since any violative
goods would be stopped at the point of origin);
The foundation for a partnership role by the trade community in
preventing the entry of e-commerce goods in violation of U.S. laws;
An expanded trade partnership in line with past Customs efforts
dating back almost 40 years to improve security and compliance with
U.S. laws (e.g., CIP, Land Border CIP, etc.);
Support for a proof of concept vision beyond the border itself;
and
A viable response to Congress and other critics regarding CBP's
enforcement efforts.
To this end, SafePackage has conducted two technology demonstrations
for CBP on the effectiveness of applying the SafePackage algorithm to
shipments prior to foreign departure and rejecting violative
merchandise. The two examples are a demonstration at the land border at
Otay Mesa, and a demonstration on air cargo shipments at Los Angeles
Airport.
The Otay Mesa land border demonstration consisted of running the
SafePackage algorithm against shipments prior to departing Mexico. A
third party logistics company consolidates, and ships Chinese made
goods to U.S. consumers from Mexico. A total of 106,510 packages have
been run through SafePackage since May 16, 2022, and 3 violations have
been identified. This provides a way to identify a compliant shipment
of assorted, de minimus packages on a single truck crossing the border
and complement CBP's risk management approach to inspections.
The Los Angeles air cargo demonstration consisted of running the
SafePackage algorithm against shipments prior to departing China. The
freight forwarding and logistics companies consolidate Chinese made
goods sold to U.S. consumers from several Chinese based e-commerce
platforms/websites. A total of 932 packages (1,014 distinct products)
were screened by SafePackage, and 142 violations were identified and
rejected.
In sum, SafePackage is recommending that the Finance Committee take
into consideration the greater role that evolving technology can play
in preventing the introduction of products in violation of U.S. laws by
prescreening products and stopping their transport at the point of
origin. We would be happy to provide additional information or address
any questions you may have.
Respectfully,
John Farley
Chief Executive Officer
______
Letter Submitted by
Michael Tlusty, Ph.D.
Associate Professor
Sustainability and Food Solutions
School for the Environment
University of Massachusetts Boston
100 Morrissey Blvd.
Boston MA 02125
[email protected]
Andrew Rhyne, Ph.D.
Professor
Marine Biology
Roger Williams University
One Old Ferry Road
Bristol, RI 02809
[email protected]
Chairman Wyden, Ranking Member Crapo, and Members of the Committee,
As experts in the international trade of aquatic wildlife and seafood,
we strongly support the goals of the Finance Hearing ``Ending Trade
That Cheats American Workers By Modernizing Trade Laws and Enforcement,
Fighting Forced Labor, Eliminating Counterfeits, and Leveling the
Playing Field.'' We believe that collecting accurate trade data is
essential to achieving these goals.
The trade in live animals is extremely biodiverse, encompassing
thousands of species. Some of these species can be poisonous to humans,
such as lionfish imported from Indonesia. Some can carry diseases such
as salamanders or frogs. Some are extremely high value species being
intentionally hidden as other products to avoid taxes, while some are
so rare and endangered that they are listed by the Convention on
International Trade in Endangered Species of Wild Fauna and Flora
(CITES), but the traders list them as common species. In our analysis
of the trade in aquatic wildlife,\1\ we have observed all of these
cases. We have also created an automated system that can collect all
relevant information from an invoice, compare that to a declaration to
ensure it is all properly accounted for and assigned the correct
harmonized code, and provide Customs inspectors with a report on any
detected anomalies within the shipment. All this automated processing
can be done in a minute or two and not impinge upon the speed of the
trade.
---------------------------------------------------------------------------
\1\ Rhyne, A.L., Tlusty, M.F., Szczebak, J.T., and Holmberg, R.J.,
2017. Expanding our understanding of the trade in marine aquarium
animals. PeerJ, 5, p.e2949.
In the comments during the hearing by Cindy Allen, Vice President,
Regulatory Affairs and Compliance, FedEx Logistics, we agree with her
that there should be a ``favored trader status.'' A risk assessment can
assign a low risk to those companies that present correct declarations
and associated paperwork, and ensure their products are the first
priority for release. This will be a benefit to those who do not try to
---------------------------------------------------------------------------
hide illegal or counterfeit goods in their shipments.
However, it is also for these reasons that we disagree with her
statement about harmonized codes that there should be a ``limited
number of classifications instead of the 10,000+ tariff lines.''
Instead, we argue the opposite. We should be automatically collecting
detailed information from each invoice, and ensuring that it matches
the information presented on the declaration. The volume of goods, and
the extent to which they are packaged presents an arena that is ripe
for goods to be smuggled, or exchanged in avoidance of taxes. The push
to have only a ``limited number'' of tariff lines will greatly impede
the goals of this committee, to ``End Trade That Cheats American
Workers, Fights Forced Labor, Eliminates Counterfeits,'' and it most
certainly will not ``Level the Playing Field.'' Instead, fewer tariff
codes will increase the opportunity for each one of these nefarious
acts to increase, and will uneven the playing field where Americans as
a whole will be on the losing side.
In our work to automate trade streams, we have current tests occurring
in Canada \2\ where we see tax and health evasion by misnaming seafood,
regulatory malfeasance by not declaring CITES species, and a
significant lack of correct data being entered through their one stop
window system.
---------------------------------------------------------------------------
\2\ Gerson, H. and Remmal, Y. (2021). Report on use of the Nature
Intelligence System: Automated Screening of Commercial Import
Documentation--Simulation. Canada Border Services Agency unpublished,
36 pgs.
There are data tools that have been developed to address these trade
data issues. Our system was the Grand Prize winner of the USAID
sponsored Wildlife Crime Tech Challenge.\3\ There are other solutions
emanating from the study of the wildlife trade, including X-Ray
technology \4\ and DNA analysis that can be quickly expanded for
broader trade categories. Our system was designed for aquatic wildlife,
but being an automated optical character recognition-based system, can
quickly be trained to detect invoices containing any wildlife products,
including but not limited to timber and wood, and leather goods, to
other non perishable goods such as hardware, computer parts, and other
commonly traded commercial goods.
---------------------------------------------------------------------------
\3\ https://www.wildlifecrimetech.org/grandprizewinners.
\4\ https://www.microsoft.com/en-us/industry/blog/government/gov-
ai/2022/01/31/project-seeker-using-artificial-intelligence-for-good/.
There are a multitude of excellent and advanced solutions that can
rapidly be implemented. We cannot continue a business as usual scenario
and continue to turn a blind eye to the identity of goods being
imported into our country. We need to have a full and accurate
accounting of everything that crosses our borders. This will not hinder
our ability to do business, rather it will protect our companies and
---------------------------------------------------------------------------
the environment, and make business stronger and more competitive.
We are happy to discuss our work with the committee or staff.
Michael and Andy
______
Transnational Alliance to Combat Illicit Trade
9 East 8th Street #201
New York, NY 10003
+1-917-815-2824
www.TRACIT.org
email to [email protected]
I'm Jeffrey Hardy, Director-General of the Transnational Alliance to
Combat Illicit Trade (TRACIT), and I respectfully submit this written
statement for your hearing record.
I commend you, Chairman Wyden and Ranking Member Crapo, and the Senate
Finance Committee for holding today's hearing focused on ``Ending Trade
That Cheats American Workers By Modernizing Trade Laws and Enforcement,
Fighting Forced Labor, Eliminating Counterfeits, and Leveling the
Playing Field.'' Many of you have been staunch advocates for
strengthening protections against counterfeits and the illicit economy.
TRACIT is a United States-based, independent, private-sector initiative
to drive change to mitigate the economic and social damages of illicit
trade by strengthening government enforcement mechanisms and mobilizing
businesses across industry sectors most impacted by illicit trade. Our
members are multinational companies.
The Problem:
Illicit trade is a major and growing policy challenge in the United
States (U.S.) and across the world. From smuggling, counterfeiting and
tax evasion, to the illegal sale or possession of goods, services, and
wildlife, governments are losing billions in tax revenues, legitimate
businesses are undermined, and consumers are exposed to poorly made and
unregulated products. These crimes also are tied to human rights and
labor rights violations, money laundering, illicit financial and arms
flow, child labor, and environmental degradation.
Given that illicit trade is estimated to account for 5-8% of total
international trade, its utilization of cargo containers, parcel
packages, ship and airline capacity, and port capacity clogs the
world's trade infrastructure. According to the United Nations
Conference on Trade and Development (UNCTAD), there already are not
enough ports worldwide nor enough labor to process the goods being
traded across borders, and poor infrastructure creates congestion at
ports. Delays in shipping causes supply chain disruptions and increased
costs for all involved.
With estimates of various illicit activities running upward of $3
trillion, these figures rival the GDP of some G20 countries. These
costs multiply exponentially when accounting for drains on tax revenue,
the use of forced labor, obstruction of sustainable development,
organized crime, terrorism and the plundering of natural resources.
Moreover, trade in counterfeit and illicit goods has an extensive
destabilizing impact on American and global security due to its central
role in facilitating transnational organized crime and illegal flows of
money, people and products across borders. It undermines the formal
authority of rule of law, which can disrupt business and discourage
investment.
More recently, the COVID-19 pandemic has escalated an unremitting
illicit economy to expand and take root, spawning new markets for
illicit trade, like falsified vaccines, pharmaceuticals and medical
devices, and deepened age-old illicit trade in alcoholic beverages,
tobacco and counterfeits.
The pandemic drove Americans online to purchase products that could be
delivered directly to their homes. This facilitated the growth of the
sale of counterfeit and illicit goods primarily because nefarious
third-party sellers exploit e-commerce platforms, which heretofore do
not sufficiently vet their sellers, quickly take down known
counterfeits nor ban bad sellers, exposing consumers to unregulated
products. What types of products are we talking about? We have a
saying, ``If you make it, they can fake it.'' This means products
across every industry, including counterfeit automobile parts like
brakes, seatbelts, air bags, tires; appliances and parts such as water
filters for refrigerators; toys and other children's products; beauty
and personal care products; human and pet food; beverages; pesticides;
jewelry and apparel; cleaning products and on and on. Attached to my
statement is a comprehensive list.
Additionally, fraudulent advertising on social media platforms, e.g.,
Facebook Marketplace and Instagram, is a devious form of online fraud
intended to route social media users to rogue websites set up for the
sole purpose to sell counterfeits, cultivate bait and switch scams,
steal personal financial information or otherwise put at risk the
Internet's growing population of social media users. These may be
American-based platforms, but they serve over 1.4 billion users
worldwide, equivalent to over three times the entire population of the
U.S.
In an effort to warn consumers, educate policymakers and encourage
online platforms to improve system weaknesses, TRACIT and the American
Apparel and Footwear Association (AAFA) published in July 2020 the
first public report documenting the emergence of fraudulent advertising
on popular online social networking platforms: Fraudulent Advertising
Online--Emerging Risks and Consumer Fraud (TRACIT Report: Fraudulent
Advertising Online--Emerging Risks and Consumer Fraud--Transnational
Alliance to Combat Illicit Trade, https://www.tracit.org/featured-
report-fraudulent-advertising-online.html).
The 2020 Fraudulent Ad Report showed that fraudulent advertisements on
Instagram and Facebook targeted more than 70 major international
brands, some of which received up to a quarter of a million views
before they were detected. The lack of adequate policies and procedures
to verify an advertiser/user's true identity and to conduct the
necessary vetting and due diligence during the onboarding process is a
system weakness across multiple Internet-based platforms for social
networking. This enables infiltration of social media accounts by
fraudulent advertisers and exploitation of social media users. There is
also little protection from repeat offenders.
What Congress Can Do
Congress should move quickly to solve this exponentially growing
problem, with far-reaching negative impacts on American security,
innovation, economic growth and consumer safety. Below are some
specific actions:
Enhance Consumer Protection Laws
TRACIT joined many companies encouraging Congressional passage of
legislation to establish better, more uniform rules for secure and safe
conduct of e-commerce in the U.S., including legislation intending to
hold online marketplaces and social media platforms accountable for
keeping bad actors and fraudulent products off their marketplaces. It
is past time for depending on voluntary efforts by the e-
commerce platforms to remedy the situation, especially when their
bottom lines benefit from passive enforcement and looking the other way
as criminals easily manipulate the limited security measures currently
in place.
We worked with the last Congress to achieve passage of the Integrity,
Notification and Fairness in Online Retail Marketplaces for Consumers
Act (INFORM Consumers Act), which is the first step in improving
consumer protections by requiring e-commerce platforms to conduct more
due diligence in vetting sellers and requiring sellers to disclose more
information to platforms and consumers. In December 2022, President
Biden signed the new law which requires third-party sellers to provide
government issued IDs and disclose to consumers from where the product
is being shipped along with a contact link for customers. The INFORM
Act will help law enforcement, manufacturers, retailers and online
marketplaces of all sizes work together to protect consumers from bad
actors selling counterfeit and stolen goods.
But this first step is far from the necessary controls needed to
mitigate fraud and consumer risk associated with online shopping.
TRACIT urges Congress to reintroduce and pass the bipartisan bill, The
Stopping Online Harmful Offers on Platforms by Screening Against Fakes
(SHOP Safe Act), to enhance consumer protection for e-commerce
purchases. This law introduces the well-established principle of
liability, specifically holding e-commerce and social media platforms
responsible and liable for selling counterfeit and illicit products
that harm consumers. Only once they have demonstrated responsible due
diligence, by adhering to a set of prescribed best practices, including
increased third-party seller vetting and disclosure, expeditious notice
and take down of counterfeit products, and barring bad actors from
their platforms, would they be unencumbered from such liabilities.
Modernize Customs Laws
Congress should modernize the law governing U.S. Customs, which was
established 30 years ago, aiming to create a better balance between
streamlining the flow of trade with the ever-more critical need to
better protect U.S. consumers from the flood of counterfeit and illicit
goods entering the Customs process. We applaud Senator Cassidy's
leadership in working with government and the private sector to develop
a draft bill to enhance protections, facilitate trade, increase
information sharing and engagement with the private sector, and
strengthen enforcement and penalties. In 2021, the U.S. Customs and
Border Patrol (CBP) established The 21st Century Customs Modernization
Framework Task Force consisting of government and private sector
stakeholders to facilitate discussion and provide recommendations to
modernize the legal and operational framework for trade. TRACIT has
actively participated and contributed to this initiative. We believe a
strong legal framework embedded in legislation will go a long way to
preventing illicit and counterfeit goods from crossing into the U.S.
TRACIT strongly recommends the establishment of a mechanism to create
an e-
merchant ID that would be required for sellers wishing to sell into the
U.S. via e-commerce platforms. The integrity of such a system could be
maintained through a program similar to the U.S. Food and Drug
Administration's (FDA) Foreign Supplier Verification Program (FSVP),
established by the U.S. Food Safety Modernization Act (FSMA). Such a
system would enable e-commerce platforms, brands, law enforcement
agencies and consumers to block bad actors that are not registered.
This could be similar to a TSA pre-check for sellers of goods.
Registered importers would be able to step into the green lane for
Trusted Traders.
It is also time to revisit the level of de minimis exceptions in Sect.
321 of the Tariff Act for low-value shipments. The current $800 level
is already outdated and ineffective in addressing the rapid, recent
increase in e-commerce sales directly to consumers via small parcels
traveling through the U.S. Postal Service and express carriers. The
average value of goods shipped is $100 and very few are valued above
$200.
Focus on Stopping the Use of Forced Labor
TRACIT commends the U.S. Trade Representative (USTR) for its
recognition in its Notorious Markets for Counterfeiting and Piracy
Reviews for 2021 and 2022 of the serious dangers to workers who are
exploited and forced to create, manufacture and distribute counterfeit
and illicit products. As noted in the USTR's 2021 Report, TRACIT
conducted a study and produced a report in December 2021: The Human
Cost of Illicit Trade: Exposing Demand for Forced Labor in the Dark
Corners of the Economy (Featured Report: The Human Cost of Illicit
Trade: Transnational Alliance to Combat Illicit Trade (https://
www.tracit.org/featured-report-fraudulent-advertising-online.html)).
TRACIT outlined how criminal organizations utilize forced labor to
manufacture and distribute counterfeit and illicit products outside the
purview of labor regulations and government oversight.
The 2021 USTR Report devotes six pages to this human rights crisis and
calls for more investigation and data on the adverse impact of the use
of forced labor and child labor in the global production of
counterfeits. Fully ending these human rights abuses will only be
possible by eradicating counterfeiting and other forms of illicit
trade.
Since data is limited, and governments have not yet been successful in
closing this gap, additional data collected in the field is needed to
improve the understanding of how illicit supply networks operate, and
how they recruit, use and abuse their labor force. We endorse the
USTR's view that governments must actively gather more and better data
on the incidence of forced labor in illicit operations to improve the
evidence base for national and international policy-making and standard
setting. Governments must also strengthen investigative techniques to
address human rights abuses in illicit trade and dismantle the
organized criminal networks behind illicit trade.
TRACIT is prepared to collaborate on advanced data collection and is
willing to contribute information already collected from private
intelligence and investigations, raids, seizures and other measures
along illicit supply chains.
Enhance Free Trade Agreements (FTAs) and Other International Agreements
The U.S. Government should continue to work with its trading partners
to enhance worker protection provisions to explicitly guard against the
use of exploited labor in the manufacture and distribution of goods and
services across borders.
The U.S. also should strengthen its leadership in multilateral
organizations and work collaboratively to create a stronger global
structure to combat the manufacture and sale of illicit and counterfeit
goods. The U.S. should work to prioritize illicit trade work programs
in existing multilateral organizations, e.g., World Customs
Organization (WCO), World Trade Organization (WTO), the United Nations
(UN), the Organisation for Economic Co-operation (OECD).
TRACIT is working globally to urge governments--including the U.S.--to
establish a ``whole of government'' approach, appointing officials from
throughout each government including from Finance, Commerce, Homeland
Security, Labor, Trade, Customs, and Postal systems to establish an
action plan for detecting and blocking illicit goods, filling
governance and regulatory gaps, and training law enforcement and
Customs officers. We urge countries to establish a reporting mechanism
for consumers and businesses to alert law enforcement to suspected
illicit trade. Working with the private sector, governments should
raise consumer awareness to the dangers of counterfeit and illicit
trade.
Conclusion
TRACIT stands ready to work with Congress to better protect consumers,
workers, businesses, the U.S. economy and national security by stopping
the flow of counterfeit and illicit products into our country. We thank
the Senate Finance Committee for its leadership on this critical
imperative.
RESOURCES
OECD, Risks of Illicit Trade in Counterfeits to Small and Medium-Sized
Firms.
TRACIT, The Human Cost of Illicit Trade: Exposing Demand for Forced
Labor in the Dark Corners of the Economy (https://www.tracit.org/human-
cost-of-illicit-trade.html).
TRACIT, The Link Between Illicit Trade and Sovereign Credit Ratings.
TRACIT, Fraudulent Advertising Online: Emerging Risks and Consumer
Fraud (https://www.tracit.org/featured-report-fraudulent-advertising-
online.html).
TRACIT, Mapping the Impact of Illicit Trade on the Sustainable
Development Goals (https://www.tracit.org/featured-report-illicit-
trade-and-the-unsdgs.html).
COUNTERFEIT PRODUCTS WITH HEALTH PAND SAFETY IMPLICATIONS
You make it and they can fake it
All counterfeits present an absolute product safety risk. They are
manufactured outside legal frameworks, are unregulated and do not comply
with safety standards that are prescribed either internationally or
locally within a country. If a counterfeit product is ingested, applied
to the body or used as a safety device, the risks become even greater.
But the list of products presenting exposure to health and safety risks
is endless, starting with the products listed here:
------------------------------------------------------------------------
Examples of Product
Product Categories Types Associated Risks
------------------------------------------------------------------------
Beauty Products Shampoo, conditioner, Bacterial
cosmetics, hair contamination;
styling products, inadequate or missing
soaps, lotions, preservative systems;
moisturizers, toxic/Phazardous
deodorants, perfume, ingredients (chemical
razors (manual and and biological
electric) hazards, heavy
metals); non-
disclosed or high
levels of allergens;
presence of banned
ingredients; presence
of mold; absence or
decreased levels of
drug and/or
sanitizing/
Pdisinfectant active
ingredients;
electrical and/or
burn hazards
-------------------------------------------------
Disinfecting/sanitizing Liquid hand sanitizers,
Products wipes, surface sprays,
etc.
-------------------------------------------------
Feminine Care Products Tampons, menstrual
cups, sanitary pads,
adult incontinence
products
-------------------------------------------------
Food and Beverages Groceries, fresh
products (cheese,
eggs, etc.), hard
liquor
-------------------------------------------------
Medicines Prescription and over-
the-counter drugs,
supplements, vaccines,
products containing
sunscreens
-------------------------------------------------
Oral Care Products Toothpaste, teeth
whitening, mouth
rinse, denture
adhesives and/or
cleaners, dental
floss, toothbrushes
(manual and electric)
-------------------------------------------------
Pet Products Food, toys,
medications, grooming
items, etc.
------------------------------------------------------------------------
Children's Products Diapers, car seats, Noncompliance with
strollers, mattresses, safety standards;
toys, bedding, cribs, toxic/hazardous/
bottles, rattles, etc. flammable ingredients
------------------------------------------------------------------------
Cleaning/Laundry Detergents (laundry, Toxic/hazardous/banned
products dish), hard surface ingredients
cleaners, etc.
------------------------------------------------------------------------
Construction Products Power tools, building Fire/electrical
supplies (supports, hazards; critical
engineered joists, engineering failures
flooring, plumbing,
etc.)
------------------------------------------------------------------------
Digital/Communication Laptops, cell phones, Fire/electrical
Products, Replacement digital device hazards;
Parts/Equipment or chargers, batteries noncompliance with
Networks (rechargeable, manufacturing/safety
alkaline, lithium, standards; failure at
etc.), routers, critical moments
modems, cabling (HDMI,
VGA, LAN, indoor/
outdoor), software
------------------------------------------------------------------------
Electrical appliances/ Refrigerators, water Noncompliance with
equipment and filters, ovens, manufacturing/safety
replacement parts dishwashers, standards; fire/
microwaves, water electrical hazards;
heaters, washing toxic/hazardous
machines, dryers, chemicals
clothing irons, fire
detectors, home safety/
security equipment,
etc.
------------------------------------------------------------------------
Furniture Tables, chairs, Noncompliance with
mattresses, sofas, manufacturing/safety
shelving, etc. standards; toxic/
hazardous/flammable
ingredients
------------------------------------------------------------------------
Jewelry, Luxury Goods, Clothing, belts, Allergic reactions;
Textiles accessories, purses, treated with
jewelry, etc. chemicals that can be
hazardous, flammable,
toxic
------------------------------------------------------------------------
Office supplies Printer ink/toner Toxic/hazardous
cartridges chemicals; equipment
damage
------------------------------------------------------------------------
Personal Health Care Wheelchairs, hospital Noncompliance with
Equipment, Medical beds, thermometers, safety standards;
Devices blood pressure fail at critical
monitors, in-vitro moments; long-term
diagnostic kits, health effects due to
bandages, etc. toxic/hazardous/
Pacemakers, artificial flammable ingredients
joints, stents, breast (chemical,
implants, laser hair biological,
removal equipment, bacterial, heavy
syringes, surgical metals)
utensils, etc.
-------------------------------------------------
Personal Protective Face masks, eye
Equipment (PPE) protection, gloves,
gowns, ear plugs,
respirators, etc.
-------------------------------------------------
Product Packaging Tubes, jars, cans,
buckets, cartons,
tubs, bottles, etc.
------------------------------------------------------------------------
Pesticides Bug sprays (crop Toxic/hazardous
maintenance, home chemicals;
usage) environmental impact
------------------------------------------------------------------------
Sports equipment Footwear, protective Noncompliance with
gear (helmets, safety safety standards;
pads/guards, life fail at critical
jackets, etc.), moments; toxic/
camping gear, golf hazardous ingredients
clubs, sports balls
(baseball, basketball,
softball, golf, etc.),
hiking gear, etc.
------------------------------------------------------------------------
Transportation and Automobiles, planes, Fire hazards, system
replacement parts trains, hoverboards, severely impacted;
pedestrian powered compromised data
modes of transmission of
transportation (bikes, confidential/
scooters, skates, critical, personal
skateboards, etc.) identifiable,
healthcare related,
educational, military
information
------------------------------------------------------------------------
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