| Statement of Michael Laden, President, Target Customs Brokers, Inc., Minneapolis, Minnesota, on behalf of the Retail Industry Leaders Association Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means June 15, 2004 Chairman Crane, Ranking Member Levin and members of
the Committee, thank you for allowing me to testify today. My name is
Michael Laden and I am currently
the President of Target Customs Brokers, Inc. a division of Target
Corporation. I am here today on behalf
of Target Corporation and the Retail Industry Leaders Association (RILA) to
discuss the important issues surrounding the reauthorization of U.S. Customs
and Border Protection.
With annual sales of approximately $50 billion
Target Corporation is the third largest U.S. retailer and the second largest importer of containerized cargo. Target
Corporation operates approximately
1,500 retail stores in 47 states and employs about 285,000 team members. As
an importer, Target files more than
110,000 entries annually with Customs and Border Protection for a variety of
retail merchandise that touches almost every chapter of the harmonized tariff.
By way of background, the Retail Industry Leaders
Association (RILA) is an alliance of the world’s most successful and innovative
retailer and supplier companies – the leaders of the retail industry. RILA
members represent more than $1 trillion
in sales annually and operate more than 100,000 stores, manufacturing
facilities and distribution centers nationwide.
Its member retailers and suppliers have facilities in all 50 states, as
well as internationally, and employ millions of workers domestically and
worldwide. Through RILA, leaders in the
critical disciplines of the retail industry work together to improve their
businesses and the industry as a whole.
Target Corporation, along with RILA, has been
actively working with Customs on issues surrounding commercial operations as
well as security. I am currently serving
on the DHS Advisory Committee on Commercial Operations of the U.S. Customs
Service (COAC). I also, along with RILA,
played a key role in the development of the Customs-Trade Partnership Against
Terrorism (C-TPAT) program; Target was one of seven C-TPAT charter members.
Target is also participating in programs such
as Operation Safe Commerce (OSC) and the Customs Smart Box, which are testing
end-to-end supply chain security efforts.
I will discuss these issues later in my testimony. I am also the Chairman Emeritus of the
American Association of Importers and Exporters (AAEI), and was a founding and
charter member of the Business Alliance for Customs Modernization (BACM).
In the post 9/11 world Customs, the trade community
and the United States as a whole have faced a new and difficult reality. How do you maintain the
balance between
homeland security and the free flowing movement of legitimate international
commerce? While a difficult task, we
believe that Customs and the other agencies have done a good job thus far.
This is a monumental task that cannot be
rushed into without serious consideration of the potential impact that
regulations could have on the international supply chain. There are
currently a number ongoing
government and private sector initiatives looking into this. I will
discuss security issues later in this
testimony.
With that being said, Congress and the trade
community must make sure that Customs does not lose its focus on issues
surrounding commercial operations and focus solely on homeland security.
There are still a number of major issues
surrounding commercial operations that Customs needs to address. I will
discuss one such issue this morning
dealing with the expiration of global textile and apparel quotas at the end of
the year. This is an issue that Customs,
as well as other agencies, need to address right now so that retailers, such as
Target, are prepared for the beginning of 2005.
Commercial Operations
Removal of Global Quotas
On December 31, 2004, global quotas on textile and apparel products will be
removed for members of the World Trade Organization (WTO) under the Agreement
on Textiles and Clothing. Retailers have
long been looking forward to this date since Congress passed the Uruguay Round
Agreements Act back in 1994.
While Target is extremely excited about the possibilities
in a quota free world, there are many questions that we have as to what the
process will be on January 1, 2005. We, along with many other RILA member
retailers, are in the process of placing orders for the first quarter of
2005. There are a number of outstanding
issues that Customs, along with the Committee for the Implementation of Textile
Agreements (CITA), need to address now so that retailers will have the
appropriate measures in place beginning on January 1, 2005.
It is fully expected that merchandise entered on January 1, 2005 will no longer be
subject to quota at the time of entry.
But there are a number of questions that we have about the filing
process.
There are some necessary programming changes needed
for the Automated Broker Interface (ABI) to be able to handle quota-free
entries on January 1, 2005.
We need to know from Customs as to when the
changes for the current requirements will be made. This is critically important for those
importers who pre-file their entries, as many do. Will the ABI system be able to recognize that
a pre-filed entry on December 29, 2004 for merchandise arriving in the US on January 2, 2005 will not
be subject to quota requirements? It is
critically important that the ABI system be able to recognize this difference
and recognize the new quota-free environment.
There are also a number of issues surrounding the
future use of textile visas. Will
Customs still require a visa for shipments arriving after January 1, 2005?
Customs requires visa control numbers for their textile quota shipments
to match the year of export from the last port in the shipment’s country
of origin. The U.S. Code of Federal
Regulations, Title 19, Part 12.130 (i): defines the date of exportation for
quota, visa or export license requirements, and statistical purposes, as “... the
date the vessel or carrier leaves the last port in the country of origin, as
defined by this section. Contingency of diversion in another foreign territory
or country shall not change the date of exportation for quota, visa or export
license requirements or for statistical purposes.” (See also
Administrative Message
94-0366, dated April 12, 1994). Will
Customs still require this for exports after January 1, 2005? If
so, will this be for exports from all nations or just those countries subject
to trade restraints?
In addition, we also have some concerns about what
is being communicated to Customs officers at U.S. ports. When will Customs issue a
directive to the ports regarding full integration of all quota categories for
WTO member countries? This is actually a
situation where Customs is waiting for guidance from CITA. We also encourage
Customs to ensure that the
types of required documents for entry for textile and apparel goods remains
consistent at every port. As an example,
the Port of Los Angeles requires that goods imported from Russia have a Certificate of
Origin even though this is not a standard required
document for entry.
Because of the quota regime, importers of textile
and apparel products have not been able to take advantage of many of the modern
entry procedures available to importers of other types of merchandise. This
creates additional work for importers
and it certainly creates additional work for Customs, which has been required
to operate parallel entry systems, one for textiles and apparel and another for
most other merchandise. We are more than
happy to work with Customs and CITA on all of these issues.
We are pleased that Customs has created a website to
address these issues. However, at this
point, there is no current information or guidance to the trade on what is to
be expected. It is critical that Customs
populate this webpage with relevant information and alert the trade community
of its existence. This will not only
help the trade ensure they are compliant, but will help Customs in the end as
well.
We urge at this point in time that Customs and CITA
get together to work with each other, as well as the trade, to resolve all of
the outstanding issues. These decisions
are going to affect sourcing decisions that U.S. retailers are making right now.
Anti-Transshipment Efforts
Another area that continues to concern us is
Customs’ enforcement of illegal transshipments.
We want to work with Customs to help fight illegal transshipments, but
we continuously feel as if Customs thinks that importers of textiles and
apparel routinely look for and conspire with foreign manufacturers to
circumvent the quota system. This could
not be further from the truth. Target,
as well as others in the trade would like to work with Customs in partnership,
as we have done on security measures, to address issues of illegal
transshipments. We encourage Customs to
work with the importing community on these efforts and refrain from treating
every import as being an illegal transshipment.
Broad Interpretation of Preference Programs
Representing a company which has run into numerous
problems with a narrow interpretation by Customs of certain preference
programs, I am glad to the Sense of the Congress in Section 125 of H.R. 4418
that would require Customs to “interpret, implement, and enforce the
provisions of section 112 of the African Growth and Opportunity Act (19 U.S.C.
3721), section 204 of the Andean Trade Preference Act (19 U.S.C. 3203), and
section 213 of the Caribbean Basin Economic Recovery Act (19 U.S.C. 2703),
relating to preferential treatment of textile and apparel articles, broadly in
order to expand trade by maximizing opportunities for imports of such articles
from eligible beneficiary countries.”
We, along with many other RILA members, have run into too many
situations where Customs has taken a narrow interpretation of the existing laws
and disqualified products from receiving benefits that Congress had intended to
receive. As a result, a great deal of
business has been lost from those countries, especially from the nations of
sub-Saharan Africa.
We strongly encourage members of this committee to ensure that Customs
use as broad an interpretation as possible with regards to these and future
preference programs.
This is critical not only for enforcement of
preference programs, but as it relates to enforcement of free trade agreements
as well. Over the past several years,
the United States has significantly increased the number of free trade agreements that have been
negotiated or are in the process of being negotiated. The problem is that
each comes with a different set of rules of origin that are extremely complex, not only for the
trade, but for Customs as well.
User Fees
I would also like to state our support for the
language in Section 103 of the bill that would require a study on the current
user fees collected by Customs. As a
major contributor to the user fees, Target strongly supports directly tying the
funds collected through the Merchandise Processing Fee (MPF) directly to
Customs commercial operations. As it
stands now, the money goes into the general revenue and we are unable to
conclude whether or not the funds go directly to Customs. We strongly
support the language that was
included in the FSC/ETI bill that tied the money directly to Customs commercial
operations.
Security Efforts
Target, RILA and its members remain committed to
working with Customs, the Department of Homeland Security and the other
agencies involved in supply chain security.
Target has worked very close with a number of the agencies and is
involved in several private sector projects, as well as government projects,
looking at ways to address supply chain security from the factory to the store
floor. Target not only helped to write
the Customs-Trade Partnership Against Terrorism (C-TPAT), but also was one of
the original seven charter members. As
well, we are also participating in several trade lanes under Operation Safe Commerce,
which is testing supply chain security from the factory all the way through the
supply chain, as well as the Customs Smart Box program. Target is also very active on the
international level as well. We are working
with both the World Customs Organization and International Maritime Organization
on their efforts on supply chain security.
Members of Congress should recognize that there is a
great deal of work being done on supply chain security. Major regulations,
including the Maritime
Transportation Security Act, the Bioterrorism Act and the Trade Act of 2002
have all addressed aspects of supply chain security. In addition,
enforcement of the International
Maritime Organization’s International Ship and Port Facility Security (ISPS)
Code will begin on July 1. While this
will be enforced by the U.S. Coast Guard, members of this committee need to
recognize that this could have an impact on the free flow of legitimate
commerce.
I urge this committee to continue to maintain
oversight and jurisdiction over any future legislation that could impact global
commerce. As well, we strongly urge that
all of the agencies involved in homeland security continue to work with each
other, as well as the business community, to ensure the effectiveness of any
new regulations.
There are some specific issues that I would like to
address specifically dealing with Customs and security.
Communications to the Trade
The Customs-Trade Partnership Against Terrorism
(C-TPAT) is a great example of a true government-private sector program that
addresses supply chain security. While
the program is voluntary, over 6,000 companies have signed up for the
program. As a charter member, we
strongly believe in the program.
However, we do have some concerns.
One of the biggest problems that we see is a lack of
education among Customs agents in the field about C-TPAT and its benefits.
As a trusted and verified C-TPAT partner, we
are supposed to qualify for “green lane” benefits, expedited clearance.
Unfortunately, we have not seen this
occur. In addition, when Customs agents
find an anomaly with a container belonging to Target, we believe that they
should contact us to find out whether or not the anomaly is one that can be
explained or not. We have information
about the container and the vendor, starting from the purchase order, that
Customs might not have access to from either the vessel manifest or the Customs
entry. We can offer insight on the chain
of custody of the container that Customs might not be aware of. As well, we
have critical information about
both the products and the vendors that Customs might not be able to identify
from the vessel manifest.
In the true sense of public-private partnership,
this type of communication is critical.
This not only helps Customs to identify suspicious cargo, but helps keep
legitimate cargo moving through the supply chain.
VACIS Inspections
As Customs seeks to increase the number of
non-intrusive inspections by using the Vehicle and Cargo Inspection System
(VACIS), we continue to experience long delays at a number of ports. In
some ports, a VACIS examination can take
upwards of seven days. Such long delays
can cause havoc for a retailer’s supply chain.
Customs has identified this as a problem and is currently studying the
situation. We urge them to correct the
situation as soon as possible. Customs
needs to make sure that the appropriate resources are available to correct the
situation. Long delays not only impact a
retailer’s supply chain, but also lead to increased congestion problems at U.S. ports.
In addition, as Customs installs radiation portal
monitors at the major U.S. ports, they need to ensure that the use of the monitors do not lead to
increased congestion. While Customs says
that it will only take a couple of minutes for a container to go through the
portal, this could cause major delays.
Congress, as well as Customs, needs to make sure that this does not
cause further strain on already congested ports.
Shipper Definition
When Customs issued final regulations under the
Advanced Electronic Cargo Manifest Requirements under the Trade Act of 2002,
Customs had originally defined the term “shipper” on the manifest as the
vendor/manufacturer as opposed to traditional definition of the party who makes
the contract of carriage. While we
understand the need for Customs to have information about what happens early in
the supply chain, redefining the term “shipper” on the manifest would not help
to solve the problem. Using the new
definition would have caused major problems for the maritime industry as well
as others.
We are pleased that Customs has agreed to return to
the traditional definition of “shipper” on the manifest and remain committed to
working with Customs to identify other ways to collect additional trade
data. We urge Customs to continue to
work with the trade on these issues as future regulations are developed.
Regionalization
As part of the president’s fiscal year 2004 budget
for the Department of Homeland, there was a provision that called for the
Department to “create a powerful and logical regional structure.” While the trade does not oppose the creation
of a regional structure for the Department, we do have some concerns about the
impact a regional structure would have on day-to-day Customs operations. We need to make sure that uniformity and
consistency in the application of Customs laws, policies and procedures are
maintained. We have communicated this
concern to Secretary Tom Ridge, Under Secretary Asa
Hutchinson and Customs Commissioner Robert Bonner on numerous occasions.
Under Secretary Hutchinson addressed the COAC
meeting earlier this year to describe the Department’s view of the regional
structure. According to Under Secretary
Hutchinson there will be between seven and ten regions. The regional director will have three areas
of responsibility: 1) act as a liaison
between the Secretary and local officials; 2) act as the onsite commander for
incident management coordinating the multiple agencies involved; and 3) handle
day-to-day coordination. The regional
director will not be responsible for day-to-day Customs operations. All normal Customs operations (entry,
rulings, etc.) will be handled by Customs headquarters. National level policies on trade will be
determined on the national level.
While we appreciated the briefing, we have not heard
anything since. At the meeting the Under
Secretary stated that the trade, and especially the COAC, would have an
opportunity to review and comment on the regionalization plan. Our biggest concern has been that the
regionalization plan was crafted in complete secrecy. While we understand the need for some things
to be done this way, this effort should not have been. The critical stakeholders had no input or
opportunity to vet the proposed structure.
To this date, we have not seen any additional
information besides what was provided verbally at the COAC meeting in
February. This is a critical issue that
the trade, as well as this committee, needs to be involved in.
Automated Commercial Environment
The retail industry played a critical role in
helping secure funding for Customs’ Automated Commercial Environment
(ACE). We still believe that this system
will help Customs in their future endeavors, not only with commercial entries
but also as another tool for homeland security.
With that being said, we are not sure of where the ACE system is at this
point in development. While the funding
and architecture were developed before September 11th, we are not
aware as to whether or not the new security requirements (advanced manifest,
etc.) are being considered as the system is being built. While these issues are hopefully being
discussed in the Trade Support Network (TSN), we fully believe that Customs
needs to communicate to the entire trade community on the status of the
program. This system was promised under
the Customs Modernization Act, which passed Congress in 1994. Almost 10 years later and we do not have a
modern system. The current system, the
Automated Commercial System (ACS), is over 20-years old and is need of
replacement.
Operation Safe Commerce/Customs Smart Box
As I stated earlier, Target is participating in both
Operation Safe Commerce and the Customs Smart Box program. While we believe it is critical to
participate in these efforts, we are concerned about the number of agencies who
are running different programs looking at the same thing – supply chain
security. It is important that both
agencies share their learnings from these programs with the trade. This will only help to shape future
regulations as well as best practices.
Disaster Recovery Program
While a great deal of work has been done to prevent
weapons of mass destruction from entering the United
States, we are concerned about what happens
if something does occur at a port. If something does occur, will all
of the U.S. ports shut down as the airline industry did on September 11th? If not,
what are the procedures? Are the Captains of the Port ultimately in charge?
As an example, if something were to happen in the Port of Los Angeles, what would the
impact on the Port of Seattle be? Would the port remain open and ships
be allowed to enter? Have there been discussions about how to divert ships to alternate ports?
Using the above example, if something happens how much extra cargo would the Port of Seattle be able to handle?
What about Tacoma and some of the other ports?
We know that the individual ports have their Area
Maritime Security Committees and are working on the “what if” situations for
their individual ports, but what is the impact on the ports in other
areas?
We are not aware that this has been discussed. One only needs to look at the situation
caused by the lockout on the West Coast in 2002 to see the potential impact of
a port closing. In the span of 10 days,
there were hundreds of ships lined up outside of the ports and it took months
for the system to recover at the cost of several billion dollars. We would be very
interested in participating
with the Department and any other agencies involved in disaster recovery planning.
Conclusion
In the post September 11th world, Customs
faces many new challenges, witnessed by the name change to Customs and Border
Protection. Customs has always had a
difficult mission of facilitating legitimate trade while enforcing a very
complex and arcane set of rules. This is
now further complicated by a new focus on security.
We are encouraged by the progress that Customs has
made and the increased partnership with the trade community on new efforts on
security, but we would like to see more on some of the traditional Customs enforcement
programs. We are also pleased to see
Customs working with other agencies, such as the Food and Drug Administration,
on ensuring that the trade does not have a duplication of security efforts.
We strongly urge Customs not to lose sight of
its commercial operations responsibilities.
There must be a continued balance of legitimate trade and security by
the Department of Homeland Security.
Target Corporation, RILA and its members stand ready
to work with Customs, members of this Committee and the rest of Congress and
the Administration to help ensure the security and safety of our cargo arriving
at U.S. ports.
Thank you for the opportunity to testify today. I’d be happy to take any questions that you
might have. | 
