U.S. Customs Service: Office of Regulations and Rulings Has Yet to
Establish Performance Measures (Testimony, 03/11/97, GAO/T-NSIAD-97-115).
GAO discussed several key issues regarding the management of the U.S.
Customs Service's Office of Regulations and Rulings (ORR), focusing on:
(1) what this office does; (2) how it measures its performance; (3) the
extent to which it is meeting its internal timeliness goals; and (4)
industry views regarding its performance.
GAO noted that: (1) ORR facilitates the entry of goods into the United
States, valued at over $800 billion in 1996, by: (a) drafting
regulations implementing U.S. trade laws; (b) issuing rulings on the
proper classification, valuation, country of origin and marking of
imported goods; and (c) providing guidance to the trade community and
other Customs units on their compliance responsibilities; (2) while
ORR's legal and technical analysis and advice are critical to Customs'
trade administration mission, Customs has not included ORR in its annual
plans identifying goals and performance measures; (3) as a result, ORR
has not prioritized its work, set office-wide objectives, or established
how to measure its overall performance; (4) ORR's only
performance-related measure is set forth in a 1989 directive issued by
the Commissioner of Customs which covers a limited but important segment
of ORR's work; (5) the directive requires that certain legal decisions,
or rulings, that deal with the classification of merchandise be issued
within 120 days of receipt by Customs; (6) ORR recently set a goal of 30
days for a limited number of rulings dealing with the country of origin
of textile and apparel imports; (7) GAO found that ORR has not
determined whether it was meeting the timeliness requirements
established in the 1989 directive; (8) based on GAO's analysis, GAO
learned that ORR did not meet the requirement to issue rulings within
120 days for 53 percent of the classification cases closed in 1996 that
GAO reviewed; (9) ORR did not meet its internal 30-day target to issue
rulings on country of origin cases for 59 percent of the cases GAO
reviewed; (10) by not tracking whether it is meeting its timeliness
targets and by having performance measures on only a limited segment of
its work, ORR is not able to measure its overall effectiveness; (11) if
Customs included ORR in the annual planning process, ORR would assess
its overall workload and priorities, and then be able to determine
whether its current timeliness goals for classification rulings are
appropriate or whether changes are needed in its processes and de facto
priorities; (12) overall, representatives from the trade community GAO
interviewed were generally pleased with the quality of ORR's services;
(13) they indicated that, by and large, ORR rulings provided important
analyses and information about the duties they should expect to pay, an*
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-NSIAD-97-115
TITLE: U.S. Customs Service: Office of Regulations and Rulings Has
Yet to Establish Performance Measures
DATE: 03/11/97
SUBJECT: Customs administration
International trade
Import regulation
Tariffs
Productivity
Legal opinions
Strategic planning
IDENTIFIER: Customs Service Legal Case Inventory System
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Cover
================================================================ COVER
Before the Subcommittee on Trade, Committee on Ways and Means, House
of Representatives
For Release on Delivery
Expected at
10:00 a.m., EDT
Tuesday,
March 11, 1997
U.S. CUSTOMS SERVICE - OFFICE OF
REGULATIONS AND RULINGS HAS YET TO
ESTABLISH PERFORMANCE MEASURES
Statement of JayEtta Z. Hecker, Associate Director, International
Relations and Trade Issues, National Security and International
Affairs Division
GAO/T-NSIAD-97-115
GAO/NSIAD-97-115T
(711219)
Abbreviations
=============================================================== ABBREV
GPRA - Government Performance and Results Act
HTS - Harmonized Tariff Schedule
LCIS - Legal Case Inventory System
ORR - Office of Regulations and Rulings
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss several key issues regarding
the management of the U.S. Customs Service's Office of Regulations
and Rulings (ORR). Specifically, I will address (1) what this office
does, (2) how it measures its performance, (3) the extent to which it
is meeting its internal timeliness goals, and (4) industry views
regarding its performance. Our observations are based on (1) work at
Customs offices in Washington, D.C., and New York; (2) visits to the
ports of Los Angeles and Baltimore; (3) discussions with a limited
selection of representatives of the international trade community,
including importers, brokers, and attorneys; and (4) analysis of the
timeliness of key ORR rulings using Customs' automated system and
case files. Before I get into our specific observations, let me
provide a brief summary.
SUMMARY
---------------------------------------------------------- Chapter 0:1
ORR facilitates the entry of goods into the United States, valued at
over $800 billion in 1996, by (1) drafting regulations implementing
U.S. trade laws; (2) issuing rulings on the proper classification,
valuation, country of origin and marking of imported goods; and (3)
providing guidance to the trade community and other Customs' units on
their compliance responsibilities under Customs' regulations and
related laws.
While ORR's legal and technical analysis and advice are critical to
the furtherance of Customs' trade administration mission, Customs has
not included ORR in its annual plans identifying goals and
performance measures. As a result, unlike other Customs' units, ORR
has not prioritized its work, set officewide objectives, or
established how to measure its overall performance as envisioned in
the 1993 Government Performance and Results Act (GPRA) (P.L.
103-62). ORR's only performance-related measure is set forth in a
1989 directive issued by the Commissioner of Customs, which covers a
limited but important segment of ORR's work. The directive requires
that certain legal decisions, or rulings, that deal with the
classification of merchandise be issued within 120 days of receipt by
the Customs Service. In addition, ORR recently set a goal of 30 days
for a limited number of rulings dealing with the country of origin of
textile and apparel imports.
We found ORR has made no effort to determine whether it was meeting
the timeliness requirements established in the 1989 directive
regarding classification rulings. Based on our analysis, we learned
that ORR did not meet the requirement to issue rulings within 120
days for 53 percent of the classification cases closed in 1996 that
we reviewed. Further, ORR did not meet its internal 30-day target to
issue rulings on country of origin cases for 59 percent of the cases
we reviewed. By not tracking whether it is meeting its timeliness
targets and by having performance measures on only a limited segment
of its work, ORR is not able to measure its overall effectiveness.
If Customs were to include ORR in the annual planning process, ORR
would assess its overall workload and priorities, and then be able to
determine whether its current timeliness goals for classification
rulings are appropriate or whether changes are needed in its
processes and de facto priorities.
Overall, representatives from the trade community we interviewed,
including importers and trade attorneys, were generally pleased with
the quality of ORR's services. They indicated that, by and large,
ORR rulings provided important analyses and information about the
duties they should expect to pay on the goods they import; they noted
that the rulings were crucial to their ability to make effective
business decisions and comply with Customs' regulations. The only
concern they cited was the timeliness of ORR's decisions.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
The U.S. Customs Service is a key agency for enforcing the nation's
trade laws and policies. In addition to preventing imports of goods
that threaten our health and safety, it prevents the illegal export
of protected technologies, stolen merchandise, currency, and other
contraband. In the course of enforcing U.S. trade laws, Customs
collects duties on imported merchandise. ORR plays an important role
in carrying out Customs' trade mission by providing legal and
technical support regarding payment of duties to Customs' officers at
the ports and at headquarters and guidance to the trade community on
Customs' regulations and related laws.
ORR is headed by an Assistant Commissioner and has offices in
Washington and New York. Its staff of 248 consists mainly of
attorneys and specialists in commodity classification. For fiscal
year 1997, out of Customs' total budget of $1.6 billion, ORR's budget
is $16.38 million, of which $15.2 million is for salaries.
WHAT ORR DOES
---------------------------------------------------------- Chapter 0:3
ORR carries out its principal mission by (1) drafting regulations
implementing U.S. trade laws; (2) issuing rulings on the proper
classification, valuation, country of origin and marking of imported
goods; and (3) providing guidance to the trade community and other
Customs' units on their compliance duties under Customs' regulations
and related laws. ORR informs the trade community primarily through
its rulings, which affect the duty an importer will pay. These
rulings advise importers on how they can be in compliance with
Customs' laws and help importers make marketing and pricing decisions
by providing information on the cost of importing their goods. For
example, ORR's prospective classification rulings give both the
requesting importer and importers of similar goods vital information
to help them determine the amount of duties and fees they will be
charged when they eventually enter their merchandise at a port.
Customs' officers, at any port, will accept the merchandise under the
classification contained in the ruling. Importers can use duty
information to help weigh whether to import a new line of
merchandise.
ORR also handles importers' applications for further review
protesting the duties they have paid. For example, an importer who
believes he or she has been charged too much duty by a Customs' port
official can protest the official's decision on the duty owed. If
the protest cannot be resolved at the port, the importer can seek
relief from ORR. Also, a Customs' port inspector deciding whether to
seize a shipment for a Customs' law violation can call ORR for
guidance on the law and policy regarding the classification, value,
admissibility, entry, and detention or seizure of merchandise.
Under the Customs Modernization and Informed Compliance Act of 1993
(P.L. 103-182), responsibility was shifted from Customs to importers
for assuring that shipments are in compliance with Customs'
classification, duty, and reporting requirements.\1 Because of this
additional responsibility, importers are relying more than ever on
ORR's rulings and educational activities. Under the act, importers
are expected to use reasonable care to enter, classify, and value
imported merchandise and submit any information necessary for Customs
to properly assess duties.
--------------------
\1 Informed compliance attempts to maximize importers' voluntary
compliance with Customs' laws and regulations by keeping them clearly
and completely informed of their legal obligations.
HOW ORR MEASURES ITS
PERFORMANCE
---------------------------------------------------------- Chapter 0:4
As we noted in a 1996 report,\2 the Customs Service as an
organization has been in the forefront, in some areas, of the effort
to improve government performance. While Customs as a whole and
other Customs' units have developed a strategic management framework
that integrates planning, budgeting, and performance measurement, ORR
does not have such a system in place. The Office has not established
any overall goals, priorities, or specific performance measures in
order to prepare to meet the implementation requirements of GPRA.\3
Establishing a strategic management framework, as envisioned in GPRA,
could help ORR assess its priorities and determine what goals are
feasible and responsive to the business needs of the trade community.
ORR's only performance-related measure was set forth in a 1989
directive issued by the Commissioner of Customs. The directive
specifies timeliness requirements for a limited segment of ORR's
work; it requires that certain rulings that deal with the
classification of merchandise (those done by about 30 of ORR's
headquarters attorneys) be issued within 120 days of receipt by
Customs of a request for such a ruling.\4 ORR, however, does not
consider the directive's requirements to be related to GPRA. In
addition, the Assistant Commissioner informed us in writing that ORR
has no specific performance measures in relation to the annual plan;
rather, he said, ORR provides support and technical assistance to the
strategies and processes outlined in the plan. Because ORR provides
a direct service to the trade community by issuing rulings, it does
appear that having performance objectives for issuing these rulings
would be appropriate.
--------------------
\2 Executive Guide: Effectively Implementing the Government
Performance and Results Act (GAO/GGD-96-118, June 1996.)
\3 GPRA requires all U.S. government agencies to set goals, measure
performance, and report on their accomplishments. As a first step,
the act states that agencies must develop strategic plans by the end
of fiscal year 1997. In addition, the Office of Management and
Budget required agencies to submit major parts of their strategic
plans by June 1996.
\4 Classification rulings that involve interpretation of the
Harmonized Tariff Schedule (HTS), but no legal analysis, are the
responsibility of ORR's National Commodity Specialist Division
located in New York City. The HTS is an extension of the 6-digit
Harmonized Commodity and Coding System, the internationally
recognized system for classifying commodities. The 1989 directive
requires that the division issue classification rulings within 30
days. ORR told us that the New York division consistently met this
target. However, we were unable to verify that this was the case.
Although we requested information on this division's performance in a
January 28th letter, ORR has not provided the data.
ORR'S TIMELINESS ON
CLASSIFICATION RULINGS
---------------------------------------------------------- Chapter 0:5
ORR was unaware of whether it was meeting its 1989 directive's
timeliness goals for issuing classification rulings. The directive
requires issuance of classification rulings referred to ORR
headquarters within 120 days from the date of their receipt by the
Customs Service. While Customs has an automated tracking system,
called the Legal Case Inventory System (LCIS), to monitor rulings
subject to the directive and is required to do so by the directive,
we found that ORR makes little, if any, effective use of the system
for that purpose. Finally, we found that ORR has not consistently
met the directive's timeliness requirements on its 1996
classification rulings.\5 ORR told us that its ability to issue
timely rulings was affected by uncontrollable events and by a heavier
workload coupled with diminished staffing resources. We were not
able to verify whether these factors contributed to delayed rulings.
--------------------
\5 We reviewed 55 percent, rather than our intended 100 percent, of
the cases closed in 1996. We requested from ORR case files for all
classification and country of origin cases closed in 1996 and subject
to the directive. ORR provided us with 83 classification cases and
108 country of origin cases it identified as the complete set. We
eliminated two classification files due to incomplete information.
Therefore, we reviewed a total of 189 files. In verifying the
automated data ORR provided us, we discovered that ORR should have
included an additional 154 cases. ORR could not adequately explain
this discrepancy.
ORR UNAWARE OF WHETHER IT IS
MEETING TIMELINESS GOALS
-------------------------------------------------------- Chapter 0:5.1
We found that ORR did not know whether it was meeting the timeliness
goals set forth in its 1989 directive. ORR lacks crucial information
to make this determination because it is not effectively using LCIS
to monitor these rulings, as required under the directive. The
directive states that LCIS "will be the backbone for controlling the
timeliness of rulings." However, ORR's Assistant Commissioner told us
that "to use the LCIS to determine that the self-imposed time frames
are met is an improper use of the system. Rather, LCIS 'red flags' a
matter for the OR&R first line managers to review the file and
discuss it with the case handler."
We found that, although ORR enters case information into LCIS, it is
not excluding the rulings subject to the directive. ORR informed us
that its regular reports do not include this information. Thus, ORR
could not readily provide the necessary information for us to do an
analysis of its performance regarding timeliness. Ultimately, ORR
had to request special programming from Customs' Office of
Information Technology to provide us with the data we needed to
conduct this analysis.
ORR'S INCONSISTENT
APPLICATION OF DIRECTIVE
RENDERS LCIS DATA FOR
MEASURING PERFORMANCE
INACCURATE
-------------------------------------------------------- Chapter 0:5.2
ORR is not consistently calculating the 120-day processing period
according to its directive. As a result, key LCIS data elements ORR
uses to calculate the 120-day period are inaccurate.
ORR told us it calculates what it calls the "days in process" from
the LCIS "assigned date"--the date the case was assigned to a case
handler--to the LCIS "closed date"--the date the ruling is issued.
The Assistant Commissioner of ORR wrote us that "the date received in
the first Customs office and the `assignment date' data element were
originally intended to be the same. . . . The foregoing is how it
should be, but, clearly with automated systems the data is only as
good as what is entered and there will be cases where the above was
not adhered to."
ORR also told us that it factors into its calculation of the number
of days in process certain events beyond its control that could delay
its issuance of the ruling. The directive states that a ruling may
be delayed only for required laboratory analysis or when other agency
consultation is needed. In calculating the 120-day processing
days,\6 ORR's policy is to adjust the assignment date when the case
is considered to be in process to the date when any delay has been
removed.\7
Of the 189 rulings we examined subject to the directive and closed in
1996, ORR had not consistently adjusted the assignment date according
to our review of LCIS data relative to data in the actual paper case
files. We found that 53 percent of the "assigned" dates on LCIS were
incorrect,\8 with 25 percent of those off by 3 months or more. The
"closed" date, on the other hand, had an error rate of 3 percent for
the same set of cases.
--------------------
\6 ORR also considers delaying events to include meetings initiated
by a ruling requester, new information affecting the case, other
ruling cases pending, proposed changes in rulings, pending court
cases, and requests for confidentiality.
\7 For example, if the delay were due to the need for a laboratory
analysis, the new assignment date would be the date that ORR received
the laboratory results. For cases with multiple delaying events, the
new assignment date would be the date when the last source of delay
was eliminated.
\8 We defined an "incorrect" assignment date as follows: (1) a case
with no delays outside ORR's control---the assignment date was not
the date the ruling request was received in the first Customs office
or (2) a case with such delays---the assignment date was not adjusted
according to ORR procedures.
ORR DID NOT MEET TIMELINESS
GOALS IN DIRECTIVE
-------------------------------------------------------- Chapter 0:5.3
We corrected the relevant LCIS data and found that ORR did not
consistently meet the 1989 directive's timeliness goals.
Specifically, ORR achieved the directive's 120-day goal in 47 percent
of the 81 cases that involved providing a ruling on classification of
merchandise under chapters 1-97 of the HTS. The average number of
days for classification cases in process was 147. Figure 1 shows the
extent to which classification cases fell below or above the 120-day
goal. In about 25 percent of the cases, the days in process ranged
from about 200 to over 500 days.
Figure 1: Number of Days in
Process for ORR Classification
Cases Closed in 1996 and
Subject to the Directive
(See figure in printed
edition.)
Source: Customs' LCIS.
Regarding textile country of origin cases, ORR told us it had set a
special goal of 30 days or less to issue these rulings.\9 Figure 2
shows the distribution of country of origin cases below and above 30
days. For over half of the country of origin cases, the days in
process ranged from about 40 to about 190 days.
Figure 2: Number of Days in
Process for ORR Textile Country
of Origin Cases Closed in 1996
and Subject to the Directive
(See figure in printed
edition.)
Source: Customs' LCIS.
--------------------
\9 ORR set this goal because of the effect on its workload of new
rules of origin for textile and apparel products effective July 1,
1996. ORR textile country of origin rulings had been delayed due to
the need to research and analyze the new rules. Thus, ORR made these
rulings a top priority. ORR told us that its 30-day goal for textile
country of origin rulings "was not in effect until February or March
of 1996." We based our analysis on the cases ORR provided us,
namely--108 textile country of origin rulings closed throughout the
entire 1996 calendar year. Only 8 of the 108 cases we reviewed were
closed prior to April 1996.
INDUSTRY VIEWS REGARDING ORR'S
PERFORMANCE
---------------------------------------------------------- Chapter 0:6
Overall, industry representatives we interviewed, including
importers, brokers, and trade attorneys, were generally pleased with
the quality of ORR's services. They indicated, that while they did
not always agree with ORR rulings and decisions, these rulings and
decisions generally provided important analyses and information about
the duties they should expect to pay on the merchandise they import.
They said that ORR's services were critical to their ability to make
effective business decisions and comply with Customs' regulations.
The key concern industry representatives cited regarding ORR's
performance related to the timeliness of its decisions, including
rulings and decisions regarding protests and penalties. They
indicated that delays in ORR decisions could sometimes adversely
affect their ability to make plans to import and price their
products. For example, a toy company representative told us that a
1-year delay in an ORR classification ruling hampered his company's
ability to import and sell a particular product. Specifically, the
ruling was to determine whether a toy set including a miniature piece
of luggage should be classified as a toy or a luggage item; the
ruling was significant as toys have no duty while luggage has
relatively high duties. Due to the potential effect on the item's
price of no duty versus a substantial duty, the company had to
withhold its importation of the item until it received the ORR
ruling.
ORR's Assistant Commissioner acknowledged that delayed rulings can
negatively affect importers, particularly those importing seasonal
goods, holiday items, or items subject to fashion trends.
-------------------------------------------------------- Chapter 0:6.1
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared remarks. I will be glad to answer any further questions you
may have.
*** End of document. ***