COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison Giles, Chief of Staff Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisory of June 19, 2002, announcing the hearing

U.S. Department of the Treasury, Hon. Jimmy Gurulé, Undersecretary for Enforcement

SUBMISSIONS FOR THE RECORD

American Apparel & Footwear Association, Arlington, VA, Stephen Lamar, letter

House of Representatives,
Committee on Ways and Means
Washington, DC.

The Committee met, pursuant to notice, at 5:22 p.m., in room 1100 Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding.

[The advisory announcing the hearing follows:]

Chairman THOMAS. The hour of two having arrived--

[Laughter.]

Chairman THOMAS. For those of you who have not had a chance to take a look at the document that is spread out on the table, courtesy of the National Archives, to try to set the tone of our discussion about the changes that may or may not be made in creating a new Department of Homeland Security, dealing with those areas that have traditionally been under the Committee on Ways and Means jurisdiction, what you have in front of you is the fifth act of Congress. That's correct. There were four previous acts. This was the fifth act, which created the U.S. Customs Service, the first agency of the U.S. Federal Government to be created.

It was signed more than 220 years ago.

This fifth bill passed by Congress was to create the agency to implement the first act of Congress, which was the Tariff Act of 1789.

So when we talk about making some fundamental decisions, the idea that the first and fifth act creating the Tariff Act to produce revenue, which was the sustaining revenue source for the U.S. Government for some time, along with excise taxes, and the agency to carry it out, means that, since Alexander Hamilton as the Secretary of the U.S. Department of the Treasury, the Customs' mission has always been, primarily, to collect revenue and to ensure that imports flow smoothly across the border.

Perhaps one of the reasons we are holding the hearing today is to examine the "primarily" aspect of it and to see what might be done in creating a greater degree of security for our homeland.

Today, Customs collects more than $20 billion in revenue each year. However, obviously, Customs over the years has taken on many other functions, because of its unique presence on the border: fighting against illegal drugs; illegal transshipment of T-shirts; illegal Rolex knockoffs; and you could go on and on and on.

And one of the reasons we need this hearing is to understand the changing priorities and the Administration's current point of rethinking our border security.

I just thought, in engaging in this discussion of change, it might be useful to reflect briefly on what has been constant. Obviously, the fundamental questions, as we move into the 21st century, are: What is Customs? What is the new role for Customs? To what extent is it a continuation of the old role? And to what extent, notwithstanding the fact of Customs physically being relocated somewhere else, should it maintain the long-term ties of revenue through Treasury and back to the Committee on Ways and Means?

So some of the fundamental questions we should be looking at are:

If we combine Customs with several more entities and have them answer to a Homeland Undersecretary in some way, will former Customs' inspectors start doing Coast Guard or Immigration and Naturalization Service (INS) or other work that is being pulled together under Homeland Security, or would they be somewhat moved but essentially the same in terms of the responsibility and the jurisdiction?

Are they going to be more specialized, more generalized?

Will they combine two or three different functions currently performed by other agencies' inspectors at the border?

Just how will the generation of information be shared between these disparate groups now pulled together?

And I guess the bottom line for this Committee is: Give us the vision that explains Customs first task, the collection of revenue, in this new department and 21st century.

So I look forward to the testimony. My guess is that we will have more questions than there are answers. But we have a very tight schedule. The leadership on both sides of the aisle have asked us to, by July 12, report the Committee's reflections on what ought to be done, for the purpose of putting a bill together to move it through the House. July 12 is our deadline.

And I now recognize the Ranking Member, the gentleman from New York, Mr. Rangel, for any comments he may have.

[The opening statement of Chairman Thomas follows:]

Mr. RANGEL. Mr. Chairman, I do not like to talk about our differences publicly, but you know that the minority has pledged to the leadership and to the President to try to set up this Homeland Security on a bipartisan basis as soon as we can, and that is why I was so pleased that you were one of the first to have hearings on this very important subject.

But I do not know how in the world you expect--is this the only hearing we are going to have on this before we--

Chairman THOMAS. I will tell the gentleman, if it is necessary to have additional hearings, we will. And I have put a request in that Governor Ridge speak with us. As you might imagine, he is very much in demand. I believe he has 18 different committees he is appearing in front of. He could not be here today, but he said he would make himself available at a future date.

And I do not think that it would be absolutely necessary, unless the gentleman from New York believes it to be the case, that we would need to meet in another public hearing. We could, as we have done in the past, perhaps meet bipartisan in the library or some other location to continue to ask questions from someone who, if he is not named the Secretary following the formation of the Cabinet, would certainly have most of the precise information about how this Cabinet would be structured.

Mr. RANGEL. Well, I would assume that our responsibility is not just to have a bipartisan meeting in the library but to get answers to serious questions that Americans and the rest of the House would have. They rely on us to a great deal. Customs is such a very important part of Treasury. And it is kind of hard for me to see why we do not have the Secretary of Treasury here, we do not have the Customs Commissioner, or anyone representing Customs. And, of course, I can see why we will not have Tom Ridge, because, actually, we do not know what role he is going to play with Homeland Security.

Chairman THOMAS. Will the gentleman yield briefly?

Mr. RANGEL. Yes, sure.

Chairman THOMAS. One of the things that we tried to do, given the demands on everyone's time, is to get someone who will be able to provide us with answers. The answers to the gentleman's questions would perhaps be better responded to at the end of the hearing, to see if in fact we have gotten some questions answered. And to the degree we have, then we can make additional decisions. To the degree that we have not, then I think we can go forward.

But one of the things we need to do is to have the hearing. And then we will decide if in fact the questions have been answered or not. It is harder for me to do it a priori.

Thank the gentleman for yielding.

Mr. RANGEL. Let me ask you this, could you at least tell me the thinking of the Chair in putting together the panel as to how the questions that I would have for Secretary O'Neill or the Customs Commissioner or a representative from Customs or Tom Ridge--you know the questions that Republicans and Democrats would want to ask. Just tell me the thinking of why you put together this panel, that's all.

Chairman THOMAS. The answer is, you have to begin somewhere. One of the things that I want to make sure there is a public record on is exactly what Customs' officials do. There is still a lot of failure to understand that diverse role. In looking at the way in which the structure was initially presented in discussions with a number of people who have interactions with Customs' officials in many different capacities, we thought it might be a pretty good idea to at least lay on the record what Customs' folks do today.

I know the gentleman wanted the representative of the Treasury employees, because we have had a number of discussions about the work hours, the locations, some of the difficulties in terms of the kinds of work hours that Customs' representatives carry out. That I think also has to be appreciated. I was pleased to have that individual on the panel at the gentleman from New York's request.

Mr. RANGEL. Well, Mr. Chairman, these people have waited for 3.5 hours, and if you are having this hearing in order to find out what Customs does, and not "where do we go from here" with Sectary O'Neill and the Customs Commissioner and how they see the split-up, they could have sent us an official document as to what Customs does. We want to find out what impact the President's recommendation is going to have on Customs when we make this move for them.

But let me thank the panel and everyone else for your patience with us.

But I just wish, Mr. Chairman, that you would see your way clear to have me to encourage more of my Members to be here to participate in something like this, because they had every reason to believe that, if we are talking about the Homeland Security, the President's new Cabinet position, that this Committee, just because of who we are, to be quite frank, would have the Secretary in front of us to see how it impacts on Internal Revenue Service (IRS) enforcement, on Alcohol, Tobacco, and Firearms (ATF) on a variety of things.

But this is the hand that you dealt us, and I pass.

Chairman THOMAS. I will tell the gentleman, you asked me about the panel that will follow the presentation of Mr. Gurulé, who is the Undersecretary for the Office of Enforcement. At the time the Committee was structured, at 2 p.m., Mr. Ridge was scheduled to appear before the Judiciary Committee. I perhaps would not dismiss the Undersecretary of Treasury until you have heard his testimony.

And I understand that the gentleman would much rather be in my seat than his, so I appreciate the concerns.

With that, the gentleman from Treasury, Mr. Gurulé, if you will give Mr. Rangel--and I will be listening very intently--an understanding of the current vision and direction of Treasury as this homeland security issue moves through, especially with emphasis on Customs.

Mr. GURULÉ. Thank you. Chairman Thomas, Members of the Committee, thank you for the opportunity to testify. Let me at the outset say that we want to work closely with you, Congressman Rangel, and the Members of the Committee to address your questions and concerns as we move through the legislative process on this very important issue.

We appreciate the Committee's historical role on trade and tariff matters, which, along with Customs itself, dates back to 1789. We also recognize the highly compressed schedule you are operating under, and we will make every effort to be responsive to you and do so in a timely manner.

I am proud to be here on behalf of the Administration to discuss President Bush's proposal to create the Department of Homeland Security. It includes moving the entire U.S. Customs Service into the new department, which is the subject of today's hearing.

Secretary O'Neill, Customs Commissioner Bonner, and I fully support the President's proposal and strongly believe that the new Homeland Security will play a key role in safeguarding the American people.

In his June 6 address to the Nation, President Bush called for the creation, and I quote, of "a single, permanent department with an overriding and urgent mission: securing the homeland of America and protecting the American people." The President also stated, and I quote, "The reason to create this department is not to increase the size of government, but to increase its focus and effectiveness."

Two days ago, President Bush toured Port Elizabeth, New Jersey, and commended employees of Customs, the Coast Guard, and the New York/New Jersey Port Authority for their vital work in keeping dangerous cargo from entering our country. The President told the employees that his proposed Homeland Security would make their jobs easier. President Bush said, and I quote, "It'll make our Federal Government more responsive. It will allow us to communicate better" to more effectively secure the homeland.

Since September 11, at the direction of the President, the top priority bar none at Customs has been responding to the continuing terrorist threat at our land border, seaports, and airports. The Customs is working diligently to protect homeland security by keeping terrorists and terrorist weapons from entering the United States, while at the same time enhancing our economic security by moving goods and people efficiently across the borders.

The Customs has implemented several key programs since September 11, and I just want to touch on a few of them briefly. These are initiatives that respond to the new threat our country faces.

First there is Operation Green Quest, a Customs-led multi-agency initiative that targets terrorist financing. This task force has already initiated hundreds of investigations, aggressively moved against terrorist funding sources, and led to the seizure of suspected terrorist assets.

Then there is the Container Security Initiative, CSI. Customs is entering into partnerships with foreign seaports to conduct prescreening and more effective risk targeting of sea containers before--and I stress "before"--they are shipped to our ports.

And there is Project Shield America, where Customs' agents monitor exports of strategic weapons and materials from the United States to prevent international terrorist groups from obtaining sensitive U.S. technology, weapons, and equipment that could be used in a terrorist attack on our Nation.

On April 16 of this year, Secretary O'Neill, Governor Ridge, and Commissioner Bonner launched the Customs-Trade Partnership Against Terrorism, or C-TPAT, in Detroit. The C-TPAT is a unique partnership with U.S. importers, carriers, brokers, and others to improve security along the entire supply chain, while expediting the flow of legitimate commerce into the United States.

The success of programs like CSI and C-TPAT demonstrates how Customs seeks to balance its important dual missions of security enforcement and trade facilitation, dual missions that are inextricably linked.

With C-TPAT, for example, Customs has been successful in recruiting companies to join the program and make additional investments in supply chain security solely because Customs is able to offer those companies the benefit of expedited clearance at the borders.

Another example of how Customs' trade and enforcement functions are intertwined can be seen in the way Customs' inspectors, import specialists, and special agents currently work closely with each other to enforce trade and anti-smuggling laws. I cannot stress enough the importance of these dual missions and the interconnectedness with respect to the duties and functions of these important components of Customs.

When Customs' inspectors make a substantial bulk cash seizure at the border using resources such as canine enforcement teams and non-intrusive inspection equipment, they hand the case over to Customs' special agents. These agents then conduct a follow-up investigation, such as an investigation into the source of the funds or the destination of the funds. This cooperative effort between inspectors and special agents is a seamless one precisely because of Customs' dual missions. The same is true with other border-related enforcement matters, such as intellectual property piracy. What begins as an infringement identification is often directly turned into an investigative effort.

There are three additional points that may be self-evident but cannot be overlooked in describing the link between Customs' dual missions. First, many trade enforcement functions are carried out by the same Customs' personnel who ensure border security. Second, Customs uses the information it receives from trade compliance examinations and manifests also to assess security risks for shipments; this information is the cornerstone of many of Customs' anti-terrorism efforts. And third, Customs relies on the expertise of its trade enforcement personnel to recognize anomalies in their review and processing of commercial transactions information associated with the admissibility and entry of imported goods that assist law enforcement in developing targeting criteria as well as targeting suspect shipments and initiating investigations.

Mr. Chairman, Treasury is proud of the vital role the men and women of Customs have played and will continue to play under the President's plan in defending our homeland.

Thank you again, Mr. Chairman and the Members of the Committee, for this opportunity to testify. And at this time, I would be happy to answer any questions you might have.

[The prepared statement of Mr. Gurulé follows:]

Mr. CRANE. [Presiding.] Thank you very much, Mr. Undersecretary.

Governor Ridge has stated that the Homeland Security will have a single mission, the most important job of the Federal Government, namely to protect the American people and our way of life from terrorism, and it will have a single, clear line of authority to get the job done. It will bring together everyone under the same roof, working toward the same goal, and pushing in the same direction.

In what way do you see Customs and, in particular, the collection of duties by Customs, fitting into the overall mission of the new agency?

Mr. GURULÉ. That is a very important question. And, again, I think it goes to the decision the President has made to move the entirety of Customs to this new department, this proposed Homeland Security.

First, it is clear that the enforcement efforts of Customs are inextricably linked with its trade and revenue functions. It is very difficult to split out those responsibilities. If you have Customs' inspectors at the border on the one hand inspecting cargo and conveyances for contraband, these same inspectors are likewise looking to determine trade compliance, looking to follow up on issues involving evaluation and certification of goods. And this information is shared both with Customs' agents and offices such as the Office of Regulations and Rulings. It is shared with import specialists.

So, again, this dual mission of Customs cannot be overstressed, overemphasized. And, again, it is very difficult to simply just carve out the trade and revenue collection function, because it is so closely linked to what Customs does on the enforcement side.

Mr. CRANE. Will there be a reorganization within Customs after the move?

Mr. GURULÉ. Well, the President's proposal, as you know, provides for the transfer of the entirety of Customs. It does provide, however, for a transition period after the legislation is enacted, with respect to when different functions of Customs or any of these other border security agencies would be transferred over. So there is some time there for looking at some of these complex issues and evaluating them and deciding when these functions will be transferred over.

And at the same time, the new Secretary of Homeland Security would have the authority to reconfigure or consolidate in a unique way or a different way, I should say, some of these agencies. But those decisions with respect to any reconfiguration or consolidation have not been resolved at this point in time. But at the same time, because these are complex issues, complex questions, we certainly welcome the opportunity to work with Members of this Committee, and we are certainly open to considering any concerns that you have.

Mr. CRANE. Can you describe how Treasury reviews revenue regulations and rulings prepared by Customs now and how that will change when Customs goes to Homeland Security?

Mr. GURULÉ. Well, it is envisioned that when Customs is transferred over to this new department, that its mission will be transferred intact as well. So there is not any sense, at least at this point, that there is going to be some major change with respect to its mission involving, for example, the promulgating of regulations for Customs that the Office of Regulations and Rulings is engaged in, or the issuing of binding rulings on matters such as classification valuations and such.

So the same mission transfers over as well.

Mr. CRANE. What can and will Treasury do if it disagrees with Customs' post-reorganization on such matters as classification, revenue collection, or transshipment?

Mr. GURULÉ. Well, I think that the President's bill is clear on this point. Those responsibilities transfer over. Those responsibilities become the responsibility of the Secretary of Homeland Security. So these operational functions that the Secretary of Treasury currently maintains would transfer over to the new Secretary of Homeland Security.

Mr. CRANE. Thank you, Mr. Undersecretary.

Mr. Rangel?

Mr. RANGEL. Thank you.

Mr. Undersecretary, the exchange I had with the Chairman in no way meant to infer that you and the panel that follows you are not qualified to do what you do.

But I love the work of this Committee, and I have worked very closely, for 35 years, with the oversight of Customs. And it just seemed to me that we should have the Secretary of Treasury before us, or the Commissioner of Customs, since we are very sensitive as to what is going to happen, not what is going to be envisioned or what you hope is going to happen. But we cannot protect these line outfits as Members of Congress unless we really know the concerns of the people who work every day with Customs.

And with all due respect, you have not worked with Customs, have you?

Mr. GURULÉ. Well, I have. In fact--

Mr. RANGEL. How long have you?

Mr. GURULÉ. My oversight responsibility includes oversight responsibility for Customs. The Commissioner of Customs reports to the Undersecretary for Enforcement. I, in turn, report to the Deputy Secretary, and the Deputy Secretary reports to Secretary O'Neill. So I work very closely with Customs, and have worked very closely with Customs since I was confirmed in August. Granted, that is a--

Mr. RANGEL. August of last year?

Mr. GURULÉ. That is true. In that sense, it is a short time.

I would add one other point. My relationship with Commissioner Bonner goes back 15 years, when he and I worked together in the U.S. Attorney's office in Los Angeles. I have great respect for him. We have a very good working relationship, and we have worked very closely, shoulder to shoulder, on important issues involving terrorism, especially post-September 11.

Mr. RANGEL. I am not challenging your commitment. I am challenging the fact that I think the Commissioner of Customs could do a better job in terms of telling us the concerns that he may or may not have as we work our way through this legislation than you who he reports to.

But having said that, I have a chart that came from the Secretary of Treasury's office on the organization of Homeland Security, and Customs is not even on it. One of my staff wrote in "Customs" next to "Border Security."

Something like this, a table of organization, are you familiar with that?

[The chart follows:]

Mr. GURULÉ. I cannot see the chart.

Mr. RANGEL. No, but it says, "Organization of Homeland Security." On top is "Secretary." There is a "Deputy Secretary." Then to the left of it is "Secret Service." To the right is "State, Local, and Private Sector Coordination." Then it goes down and the umbrella has four departments under it, and one of the departments is "Border and Transportation Security." Another is "Emergency Preparedness and Response." Another is "Chemical, Biological." And the other is "Information Analysis."

And under all of these hangars, all of these nice, rectangular boxes, the list that I am looking under is "Border and Transportation Security."

Under that hangs "Border Security," "Transportation Security," "Coast Guard," "Immigration and Visa Processing."

Mr. GURULÉ. I do have it in front of me now.

Mr. RANGEL. And Customs is not even in a box.

Mr. GURULÉ. Well, it is envisioned certainly that the border security function, that Customs would fall in the box here for border security. And as I have stated, Customs plays a very important, crucial role.

Mr. RANGEL. No matter how important the role is, it was not important enough even to give them a box. And we do not have the Secretary of Treasury to reaffirm the fact that, if they have every reason to believe that the Committee on Ways and Means that provides oversight over Treasury and over Customs, that if we are not going to be certain that in this transfer, that they do not have someone to look after their interests, besides just hoping that we do the best by the them--I do not think it is fair for us not to have the Customs Commissioner or the Secretary of Treasury or Tom Ridge here before us.

Do you know when this change is supposed to take--how many employees are there in Customs?

Mr. GURULÉ. In Customs, there are--let me tell you exactly.

Mr. RANGEL. Roughly.

Mr. GURULÉ. I will tell you exactly. There are 19,628, so approximately 20,000 employees.

Mr. RANGEL. When do they move over to the Homeland Security?

Mr. GURULÉ. The bill that the President has submitted to Congress provides that within--there is a transition period. After the legislation is enacted and signed into law, there is a transition period of up to 12 months. And within that 12-month period of time, the President has discretion to decide which particular functions and offices and agencies transfer over during that period of time.

I think that is a very important point to highlight, because it does provide time for addressing some of the more complex issues that are implicated by the creation of this new department. And it does afford an opportunity to work closely--

Mr. RANGEL. I am on a clock, and my time is about to run out.

Will we have a Customs Commissioner under the new program? Will that be his title?

Mr. GURULÉ. Again, the entirety of Customs would go over--

Mr. RANGEL. Will the union status and civil service status of the Customs' office as it exists now be the same?

Mr. GURULÉ. Yes. At this point, it is envisioned that--

Mr. RANGEL. No, no.

Mr. GURULÉ. They will transfer with the union status, with their--

Mr. RANGEL. It's a mean gavel. "Yes" is good for me.

Mr. CRANE. Thank you.

Mr. RANGEL. I have time. Don't I have a little time? Just one last question.

Can you say with some degree of accuracy that Customs, as we know it, with all the functions as we now know it, will be transferred intact with the Commissioner under the present setting without any changes that we should be concerned about?

Mr. GURULÉ. The initial transfer, it is intended that it be transferred over in its entirety and with the same mission, with the same responsibilities that it currently possesses.

Mr. RANGEL. Could you write and tell me why Customs just didn't make the organizational chart?

[The information follows:]

Under the proposed bill, the new Department would continue to fulfill all of the existing functions of the Customs Service.  While not specifically designated by name in the organization chart, as you point out, the President proposes to transfer the entire Customs Service – its border security, trade/revenue, and investigative missions – into the new Department of Homeland Security.

To recognize the importance of Customs’ functions, section 401 of the proposed legislation specifically includes within the jurisdiction of the Under Secretary for Border and Transportation Security a number of “primary responsibilities,” including:  “(1) preventing the entry of terrorists and the instruments of terrorism into the United States; (2) securing the borders, territorial waters, ports, terminals, waterways, and air, land, and sea transportation systems of the United States. … (4) administering the customs laws of the United States; and (5) in carrying out the foregoing responsibilities, ensuring the speedy, orderly, and efficient flow of lawful traffic and commerce.”

Certainly, the new Secretary will consider how to best organize the new Department in order to maximize efficiencies and synergies and minimize redundancies and overlapping missions.  It is anticipated that there will be integration of many of the border security functions – particularly when it comes to headquarters bureaucracies and duplicative inspection activities at our ports of entry.  The President wants to create the most efficient structure possible to ensure that our ports of entry and other critical assets are protected and combining key components will help do so.

Mr. GURULÉ. Sure. It may not have a separate box, but certainly what is most important is in the President's bill that has been submitted to Congress, it is very clear that the entirety of Customs is transferring to this new department, to address and to enhance security at the border.

And then lastly, I would just like to comment with respect to Commissioner Bonner's absence, and he does send his regrets. He is in Europe working on a very important initiative, the CSI. And he is presently, as we speak, negotiating agreements with the governments of the Netherlands and Belgium to implement this important initiative with respect to containers and, in essence, moving our border back to the point of origin with respect to containers, so that the inspections can be conducted in those foreign ports.

So it is a very important trip that he is on at this time.

Mr. CRANE. Thank you. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman.

And, welcome, Secretary. It is good to have you here, because I think a lot of us are seriously interested in exactly how this whole situation will work. And as you told our Ranking Member, in fact in the legislation covering homeland security, there is a statement that the entire operation of Customs and its responsibility to the Secretary of Treasury will be transferred over to Homeland Security. That is helpful.

I have been hearing from numerous carriers, people from my hometown, which is a port city, Seattle, Washington--shippers, truckers, express air service--about Customs' efforts to require more information on their manifests for security reasons that are obvious to all of us. Many of the carriers are, though, very concerned about the information they have to provide, the degree of it, the depth of it, as well as when they have to provide this information.

The additional requirement applies to both outbound and inbound flow of products, and we are, of course, looking for a balance between security and trade, because we do not want to slow down the passage of product and want very careful security to come out of this new relationship that we are forming.

Let me ask you a couple of questions that perhaps you can provide either general answers to or maybe even something more particular.

Is the Administration intent to collect information on the manifests of all types of carriers before the cargo is loaded or submission of the manifest prior to departure? If so, how will you accommodate carriers like trucking lines and air couriers who are often delivering within hours of receipt of cargo?

Airborne Express is an example of the kind of company that I represent that does overnight mail. I am sure that FedEx and others are in this same category.

Can you tell me how this is going to work? Are they going to have to measurably change their way of doing business?

Mr. GURULÉ. I would say that since September 11, we have certainly learned and appreciate the value and importance of information. I think that perhaps information is the most valuable weapon against terrorism and terrorist attacks. And it is information that must be shared if we are to prevent future terrorist attacks. It must be information that is shared on a real-time basis.

But at the same time, we have to be sensitive to this important balance of security and the facilitation of trade. I have had numerous conversations with Commissioner Bonner on the subject, as well as Secretary O'Neill. And they both feel strongly, as I do, that we must maintain that balance.

With respect to the sharing of information on a timely basis, and, as you stated, in some cases it is literally within hours, we want to get that information in advance. I think that the Automated Commercial Environment (ACE) system certainly is very important to achieving that end in terms of facilitating the easy collection of information, because when ACE is up and running, we will have an electronic filing system, where businesses can file electronically, not in paper form, but electronically, information with respect to manifests and goods that are being shipped.

So, again, that emphasizes the importance of the ACE system and its value both to trade facilitation as well as security.

Ms. DUNN. Would the Administration support a staggered implementation of data collection based on the type of carrier? And would, for example, the Administration support different implementation periods for outbound and inbound traffic?

Mr. GURULÉ. I think on that point, certainly we would be, and we always are, interested in your views and concerns on these types of issues. And so if there is a particular issue or concern here, we would like to hear it. We want to work with you.

We, obviously, want to do this right. We want to do it in a way that, again, addresses these important dual missions of Customs.

Ms. DUNN. That sort of consultation would be very useful. I would like to take you up on that offer.

There seems to be unanimity among carriers and importers that information that Customs needs should be shared directly with the government rather than requiring that importers send sensitive commercial information to a carrier which then sends the information on to Customs. Do you support allowing importers and shippers to deal directly with the government?

Mr. GURULÉ. That is a question, if I might, I would prefer to get my response back to you in writing, so that I am accurately communicating the Commissioner's views on that particular issue.

[The information follows:]

This issue involves the level of reporting detail which is required on cargo manifest reports -- the reports which carriers file to notify Customs of the cargo they are bringing to the United States.  For security targeting it is desirable to have the most detailed information that can be practicably provided in the manifest report.  The issue you raise is that it is not the carriers that have the most detailed information about the cargo, but their clients, importers and exporters who do not necessarily want to share those details with the carriers because the details involve confidential business information.

One method to address this issue, and the method that is embodied in the G-7 standardized electronic customs messages that the U.S. Customs Service is incorporating in its ACE design, is to build links between the carriers’ manifest report and the importers’ and the exporters’ reports that would allow the government to combine the information received from both.  This approach can provide detailed information to the government while shielding confidential information, and not requiring carriers to report information that the government can obtain from another source.  In the interim, it is critical that the carriers improve the level of detail above that which had been provided in the past.  Descriptions such as "freight, all kinds" are no longer acceptable.

Ms. DUNN. Thank you, Mr. Undersecretary.

And lastly, on the function of Customs, it sounds to me like you are envisioning a new Homeland Security that pays very careful attention to balancing the agency's core functions relating to trade and their new law enforcement functions, and that pleases me. I hope we can continue to stay in touch with you and make sure that it ends up that way.

I have great regards for Customs, because it was a very alert Customs' agent who was able to catch for us Ahmed Ressam, who you recall is the foreign terrorist who moved from Canada to the United States through one of our ports in Washington State, with a trunk loaded with potential bomb materials that he was going to transport down to blow up the LA airport.

And so, it is very important to us that we continue to operate very well in the areas of security with Customs on our borders and on our two ports in Washington State. But also, our State depends on trade for one out of three of its jobs these days. And so it also very important to us that that balance take place, because we want the transport of people and product to continue in the way that it has so successfully in the past.

Mr. GURULÉ. Well, I am here to reassure you and every Member of this Committee that the Administration is committed to that balance of responsibilities. And that commitment will carry over with equal vigor to this new Homeland Security.

Ms. DUNN. Thank you for being here.

Mr. CRANE. Mr. McCrery.

Mr. MCCRERY. Thank you, Mr. Chairman.

Mr. Gurulé, you talked about the ACE computer system. Can you give us an update on the status of that, and tell us if it is going to follow Customs into the new Homeland Security? And will Customs have control over that computer system once the transfer is made?

Mr. GURULÉ. First, the Administration strongly supports ACE. Again, there are many things that we have learned following the terrorist attacks of September 11. And as I stated before, the importance of information and information-sharing is certainly one of those.

And I think ACE is even more important today than it was prior to September 11, because of the enhanced ability that we will have to engage in better targeting of high-risk shipments and high-risk containers.

So we see ACE as being important to identifying high-risk cargo on the one hand, and expediting low-risk trade on the other hand.

Yes, it will carry over. That responsibility will remain within Customs, as Customs is transferred to the new department. And it is our intent to work aggressively to get Ace up and running as quickly as reasonably possible.

Mr. MCCRERY. So there is no danger that the funding is going to be delayed during this transfer?

Mr. GURULÉ. Absolutely not. The Administration remains fully supportive of ACE.

Mr. MCCRERY. Let's talk about one of the specific functions of Customs, and that is revenue-raising functions. It seems to me that this is a function unique to Customs, unique among those departments that are to be transferred to the new Homeland Security. Aren't there some offices within Customs that do nothing but raise revenues?

Mr. GURULÉ. Well, there are certainly some offices that are more heavily engaged in trade functions and trade revenue-related functions than enforcement. But having said that, at the same time, there is a strong nexus between those office functions and the enforcement function, the sharing of information for dual purposes.

And one example of that, if I might, is the Office of Strategic Trade, or OST. It has two principle purposes. One is to analyze trade data for trans-anomalies in compliance, and second, it oversees the regulatory audit function. So it engages in onsite audits of companies to make sure that they are in compliance.

Well, that certainly has a revenue-related function, to ensure that these audits are not highlighting anomalies or revenue that should be collected that is not being collected. But at the same time, once these anomalies and trends are identified, this information is shared with Customs' inspectors. And a Customs' inspector may be asked, "Well, with respect to this particular company, there is a shipment coming across the border on this date, and we want you to target it for close inspection." Or the information may be shared with a Customs' agent to conduct an investigation into possible trade fraud.

So, again, there is a very strong synergy between these enforcement functions and trade revenue-collection functions.

Mr. MCCRERY. Well, while there may be a synergy, still, those functions seem to me to be unique, again, among the departments that are going to be transferred. So I just wish that you all consider the special needs and circumstances of those offices within Customs that are primarily if not wholly trade-related or revenue collecting-related, and make sure that those functions get all the resources they need in that new department.

Mr. GURULÉ. I certainly do not want to suggest that anything in my comments that we would do other than that. In fact, we recognize, certainly, the importance of the Office of Strategic Trade, the importance of the ORR, the Office of Regulations and Rulings. And it is certainly envisioned that those functions will continue. They will continue with Customs. They will transfer over with Customs. And we need to preserve them. We need to preserve the work that they are currently engaged in.

Mr. MCCRERY. Thank you.

Mr. CRANE. Mrs. Johnson.

Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Chairman.

In your work on this matter, and I assume that you have been in on some of the discussions about the development of the new department, what exactly do you think might be the consequences of having Customs, the Coast Guard, and Immigration in the same department?

Mr. GURULÉ. Well, certainly, it is envisioned that the consolidation, bringing together these different agencies that have related functions, will enhance cooperation with respect to border security, and will enhance information-sharing and coordination.

Mrs. JOHNSON OF CONNECTICUT. I can generally see that. Could you give us examples? I can see that there might be some good cross work there, but can you give some examples of INS at the border, of you guys at the border? How will these missions complement one another so that actually you could each do your job more effectively? Or will it make any difference, you will just be side-by-side?

Mr. GURULÉ. No, I think it definitely will make a difference. And I think one way is that there is accountability here. There is a streamlining of the chain of command. So instead of these different agencies reporting to different departments with different secretaries, different leadership, now we have these agencies that are in the same department. And in the case of the division for border and transportation security, they will report to a single Undersecretary. And the single Undersecretary will be overseeing the coordination of these important functions and responsibilities.

So it is a streamlining of the information chain, if you will, and the complementing and the targeting and concentrating of resources.

Mrs. JOHNSON OF CONNECTICUT. Do you foresee cross-training at any level?

Mr. GURULÉ. Well, it is certainly a possibility. And it could be that it would make sense to have that done. But that is a decision that the new Secretary for Homeland Security will make and I think will certainly make with the objective of enhancing security and enhancing good government, because, again, that is another important objective of the President's bill, to reduce the redundancies, reduce the overlapping of responsibilities, to make these agencies work more effectively and efficiently. So certainly, I could envision that happening.

Mrs. JOHNSON OF CONNECTICUT. Thank you.

Mr. CRANE. Ms. Thurman.

Ms. THURMAN. Thank you, Mr. Chairman.

Mr. Undersecretary, we welcome you and thank you for being here today.

And I think as you know, all of us are wanting to see the Homeland Security Bill passed and implemented. But I do also think that we need to be concerned.

And I would kind of want to pick up a little bit on what Mr. Rangel and this box thing. I do not know if you had an opportunity to look at Colleen Kelley's testimony that she is going to be giving today. She really does make some very good points as to having Customs kind of as their own entity instead of being folded in as one large entity, because we are not doing it with Coast Guard, we are not doing it in some other areas, but just talking about what they have to do and what they have been doing in protecting our borders, interdiction of drugs, all of the other kinds of things. And so I am a little bit concerned that they are going to lose identity.

And you can respond to that, and I hope that you will get a chance to look at this and give us some response back to what they have said. And hopefully, as we go forward, we do in fact take into consideration those that know the job out there every day and why they feel so strongly in their commitments to their jobs. On the security issue, I think we do need to be listening to those people that are on the front lines.

The second thing that I would bring up, and I do not know if you remember this, but last year we had a Customs' bill before this Committee, and we had a huge fight over the benefit issue, particularly as it dealt with how they were paid and the differential pays that they received for nighttime work and those kinds of things. And according to some work that has been done by our staff, one of the things that they looked at is saying that section 730 of the proposal appears to remove all Homeland Security employees from the existing statutory framework governing employment of Federal employees. Specifically, section 730 removes all employees transferred to the new Homeland Security from existing Title 5, which governs the employment of Federal workers by creating new chapter within the title. So section 730 then leaves it to the discretion of the Secretary of Homeland Security and the Director of the Office of Personnel and Management (OPM) to decide what rules and regulations to apply to Homeland Security employees.

What comfort can you give us here today, as those Members of this Committee who have been through this fight over the last couple of years, and certainly was taken out of the bill in changing it, what comfort can we get that these employees will be treated as they have been and certainly considered and given the rights that Federal employees are given?

Mr. GURULÉ. First, let me publicly state what I have stated personally and directly to Customs' employees, and that is that this country owes a great deal of thanks and gratitude to the hard work, the dedication, and the professionalism of Customs' employees who have worked tirelessly, certainly since September 11, who are working 12 hours and in some cases longer--

Ms. THURMAN. Absolutely.

Mr. GURULÉ. And 6 days a week and so on. It is remarkable, and we owe them a great debt of gratitude.

I think it is interesting to note that the important contribution that Customs' inspectors are making to make this country safer for all Americans was recently recognized by Commissioner Bonner when he went ahead and changed or upgraded their GS status from a GS-9 to a GS-11.

Ms. THURMAN. But could that change if they were transferred over?

And let me ask, before my time runs out, secondly, and being recognized and doing that is great, but in the development of this plan, how much have we counted on those people on the front lines to give us input into this, into the President's proposal?

Mr. GURULÉ. Let me respond to your first question. You asked about the change of status and such. It is envisioned that these Customs' employees, when they would transfer over to the new Homeland Security, would carry with them their current, present GS status, their pay status, their benefits, even including their union status. What this bill seeks to do is provide the new Secretary of Homeland Security with some flexibility to retain employees, to promote employees, to make sure that we have the right people with the right expertise to ensure that this new department gets up and running effectively and as quickly as possible. That is the objective. And I think that, if anything, Customs' employees seek to benefit and benefit in a very significant way from this legislation.

And second, I'm sorry, was?

Ms. THURMAN. And how much input have we used from those employees on the front line, in putting this together?

Mr. GURULÉ. Well, I think certainly, in kind of a democratic process, it is the senior staff that obviously have been engaged, and extensively, in discussions about this proposal. And then it is dependent upon the senior staff to engage their supervisees and such. And so in that way, I think that has been an opportunity for input.

Mr. CRANE. Mr. Portman.

Mr. PORTMAN. Thank you, Mr. Chairman.

And thank you, Mr. Gurulé, for being here today and getting us started on what will be a major undertaking, but one that we are all committed to, because it is so critical to try to better protect, in the case of Customs, our borders and ports and ports of entry, many of which are inside the United States, including Cincinnati, Ohio, that I represent, from terrorism.

I guess a couple quick questions. One would be, if you were arriving in the greater Cincinnati airport and going through Customs and Homeland Security was in charge of Customs rather than Treasury, what difference would it make?

Mr. GURULÉ. Well, that, in terms of what difference it would make, is a decision that ultimately is going to be decided by the new Secretary of this new department. And as I stated, there is this 12-month transition period that the legislation provides, with respect to the functions being transferred over. But at the same time, there is a transition period--and, actually, beyond that 12-month period, for the new Secretary to decide how these agencies are going to be configured or reconfigured or how they are going to complement one another.

And so I think it is a very thoughtful and a very deliberate plan, because I think it does three things that are very important. I think, first, it advances the President's goal with respect to consolidating quickly these very important border agencies. Second, I think it does so in a way that is least disruptive to the border security functions, because it transfers over Customs intact. And then, third, it provides for this transition period to work through some of the more difficult and complex issues, issues that, again, we welcome input and consultation with the Members of this Committee in resolving and working out.

Mr. PORTMAN. A couple of quick questions.

One, do you all have a sense that you have lost any employees to the new Transportation Security Administration?

Mr. GURULÉ. Oh, we have. It is not even a question of--I mean, clearly, clearly we have. There have been Secret Service Uniformed Division officers that have been--

Mr. PORTMAN. How about Customs?

Mr. GURULÉ. That have left.

Less so. Less so with Customs. I think for me, and I have oversight responsibility not only for Customs but Secret Service, I have seen the exit more so with Secret Service. There have been some instances with Customs, but I do not think the numbers have been all that high.

Mr. PORTMAN. I ask that because we have seen that here with Capitol Hill police, and you have seen that with the UD guys at Secret Service, and other law enforcement. And I think it just makes the point that there are different rules that now pertain to the roughly 100 agencies and departments and offices that would be consolidated.

And getting to the earlier question about flexibility, it would seem to me that there would be the need not just to give the Secretary some flexibility on hiring and firing, to be sure that he is able to retain good people and attract the kind of people we need for this function, but also that there be some leveling of some of the pay and benefits so that you don't have one agency robbing another, robbing Peter to pay Paul, within the same department. It would be particularly acute within the same department, I would think, given that your goals will now be to work together.

I have read your legislation, and you do not have much specificity with regard to your personnel issues, but you do ask for some flexibility, which I hope that you will have, in part to be able to level out some of these issues, so that you don't have that kind of competition.

Mr. GURULÉ. I think that is important. It is certainly important for continuity of operations, for enhancing efficiencies, and for these agencies to work even more closely.

Mr. PORTMAN. Do you have pay bands at Customs?

Mr. GURULÉ. Well, that is an issue that--there has not been a decision reached on that. I think the legislation provides some flexibility. We are seeking flexibility there. But with respect to pay banding, that is a decision that is better left and will be left for the new Secretary.

Mr. PORTMAN. Do you provide intelligence information from Customs currently?

Mr. GURULÉ. Do we provide intelligence? Certainly there is intelligence information that is being shared on a regular basis between Customs and the intelligence communities. We see that through Operation Green Quest. Operation Green Quest is collecting information, enforcement information, intelligence information, and sharing it regularly with the FBI and working closely with the intelligence community.

So I think we have made some significant and substantial progress to breaking down stovepipes and engaging in a free flow or certainly a much freer flow of information and information exchange.

Mr. PORTMAN. I think that is an important point to make, that part of the advantage of this agency is not just FBI and CIA information that can now be more readily collected, synthesized, and hopefully matched with vulnerabilities or risk, but that many of these entities, including Customs, have valuable information, some of which may be integrated already, some of which may not. And the same would go for the INS, even the inspections and the Coast Guard. And this could be a valuable advantage to us and a more efficient way to get that information where it needs to go.

Mr. GURULÉ. And I would add that this is one other important reason for moving forward and moving forward aggressively with ACE, because ACE has the potential of being the IT platform for multiple law enforcement agencies that are involved in tracking goods and personnel across the U.S. borders. So they would be able to access this information, including the INS. And in a very expeditious way, it would be accessible.

Mr. PORTMAN. Thank you, Madam Chair.

Mrs. JOHNSON OF CONNECTICUT. [Presiding.] Thank you. Mr. Doggett.

Mr. DOGGETT. Thank you very much.

Mr. Secretary, the President has of course urged the Congress to move swiftly in enacting this legislation. If that occurs, how soon after enactment is it realistic to expect that these Customs' employees will be over working as a part of the new Homeland Security?

Mr. GURULÉ. Well, there is no question that, first of all, the legislation is very specific on this point. These functions, these agencies and responsibilities, will transfer over within a 12-month period of time, so within that period of time. Twelve months is the outside limit. But it is certainly envisioned that these agencies could transfer over sooner than that. But, again, the actual timing will be decided by the Secretary working closely with the President.

Mr. DOGGETT. But the outside limit is not more than a year after it is signed.

Mr. GURULÉ. That's correct.

Mr. DOGGETT. It was quite natural, of course, to see Customs transferred. I was surprised that the agency within your department that has principle responsibility for keeping tabs on explosives and guns that could fall into the hands of terrorists, that that agency was not transferred. Does the department oppose the transferring of the ATF agency to this new department?

Mr. GURULÉ. Well, the President made the decision based on what needs to be done quickly to secure the homeland. I recognize that there are other ideas out there about other law enforcement agencies and whether they should be included as part of this new department. But this proposal is designed to cover the changes that need to be made now to enhance security.

Mr. DOGGETT. And the President does not think that dealing with explosives is something that needs to be done now?

Mr. GURULÉ. No. Certainly, dealing with explosives not only is something that needs to be done now, it is being done now. And it is being done quite effectively by ATF. In fact--

Mr. DOGGETT. Does ATF have a key role in the war on terrorism?

Mr. GURULÉ. They are playing a very important role, especially with respect to inspection of facilities that house and store explosives. So the answer is yes.

Mr. DOGGETT. The department does not oppose their being transferred there, the Treasury Department?

Mr. GURULÉ. The Administration has not made a decision with respect to ATF.

Mr. DOGGETT. I guess it has made a decision not to transfer it in that it is not included in the bill.

Mr. GURULÉ. It is not included. That is correct.

Mr. DOGGETT. But Treasury has taken no position itself of opposing the transfer?

Mr. GURULÉ. The position that Treasury has taken is to support fully the Administration's position at it stands.

Mr. DOGGETT. And what reason is there to separate out the key role that ATF plays in opposing terrorism from this Homeland Security?

Mr. GURULÉ. The only thing that I can say is that this was certainly considered by Homeland Security, considered by Governor Ridge, and the President. The decision was made to not include ATF. A decision was made that the current organizational structure that is proposed is sufficient to provide the enhanced security that the President is seeking.

Mr. DOGGETT. Thank you.

Mrs. JOHNSON OF CONNECTICUT. Thank you very much, Mr. Gurulé.

Mr. Rangel, do you have any additional questions?

Mr. RANGEL. No, but I really did not understand the last answer, as to why ATF was not included in Homeland Security. I mean, if we all agree that they are doing a terrific job in terms of protecting our great Nation, and if this is Homeland Security, get them all under the same umbrella, what was the thinking in not just automatically including them as a part of that? Just what is the thinking? We support you, and we support the President, just why did you not do it?

Mr. GURULÉ. Again, as I stated, there are certainly different views with--

Mr. RANGEL. Just give us one.

Mr. GURULÉ. Respect to which agencies should be included, should be excluded. The President made a decision with respect to these particular agencies and believes that including these particular agencies in this new department will enhance security and will enable us to do so, enable the Administration to do so in a very timely, very timely way.

Mr. RANGEL. So it doesn't matter how many different ways I ask the question, you will not tell me why they reached that conclusion, right?

Mr. GURULÉ. I believe I responded to the question the best that I am able to.

Mr. RANGEL. Thank you.

Mrs. JOHNSON OF CONNECTICUT. Thank you very much for your testimony. We apologize for keeping you so late. And we will move on to the next panel.

Mr. GURULÉ. Thank you. It was a pleasure. Thank you.

Mrs. JOHNSON OF CONNECTICUT. I would like to welcome Timothy Farrell, Deputy Executive Director of the Port of Tacoma in Washington; James Clawson, the Chief Executive Officer of JBC International and Secretariat of the Joint Industry Group; Jerry Cook, Vice President of International Trade, Sara Lee Branded Apparel, Winston-Salem, North Carolina; and Colleen Kelley, National President of the National Treasury Employees Union.

Welcome to all of you.

And thanks very much to our National Archives for bringing this fine document for our observation today. Thank you.

Mr. Farrell, if you will proceed?

Mr. FARRELL. Thank you. I would like to thank the Committee for the opportunity to speak with you this evening.

As you mentioned, my name is Tim Farrell. I am the Deputy Executive Director of the Port of Tacoma, Washington.

Among the responsibilities that I oversee at the port is the integration of security into the free flow of trade through our port. And since September 11, we have dedicated more resources and greater vigilance to that task. And certainly we have had great partnership and help from the Federal Government and its various agencies, including Customs, as well as our private sector customers and partners.

I want to focus on three messages tonight. First, as you know, Customs is a very important player in both international trade and border security and, as such, has a major role to play in the economic vitality of the United States. As you heard earlier from Representative Dunn, Washington State is the most trade-dependent State in the Union, with one in three jobs related to international trade.

Secondly, as Customs integrates new security programs and standards into its operations at border crossings and ports, Customs needs to take care to assure that uniform application of these procedures at all border crossings and ports takes place. A non-level playing field, from a regulatory standpoint, impacts both security and commerce, as I will explain a little bit later.

And third, continued cooperation and coordination with Canadian Customs to assure comparable security protocols is essential in averting the risk of diversion of U.S.-bound cargoes from U.S. ports to Canadian ports.

Let me give a little bit of background on the Port of Tacoma, which operates on 5,000 acres of tide lands on Puget Sound about 30 miles from Seattle.

Tacoma along with Seattle comprises the third largest container gateway in the United States. The two combine to handle nearly 3 million containers each year. Most of those containers move through our ports into other parts of the country. In fact, 70 percent of imported containers move on to places such as the U.S. Midwest and Northeast. The Port of Tacoma handled $20 billion in international trade in 2001, and $3 billion in domestic trade as the gateway to Alaska.

The Port of Tacoma is also one of the U.S. Maritime Administration's 13 strategic ports, based on its proximity to major military installations and its ability to load military cargoes out from those installations.

As I mentioned, Tacoma is close to the Canadian border, and that has an impact on our activities and on the regulatory framework in which we operate.

Finally, the port generates directly and indirectly over 100,000 jobs within the State of Washington. And as such, we take regulation and security matters very seriously because trade is a major part of our economy in Washington State.

A little bit about what we have done in the ports, particularly in Puget Sound, about security since September 11: Ports of Seattle, Everett, and Tacoma jointly filed an application for Federal funding under the grant program that came out earlier this year. As far as we know, we were the only port range that submitted a joint application. We work closely together because you are only as secure as your neighbor. That grant program focuses much on target hardening, as it is called, fencing, barriers, cameras, officers, lighting, that sort of thing.

In addition, the Ports of Seattle and Tacoma are working together on a version of Operation Safe Commerce; Secure Maritime Asian Routes for Trade, SMART is our acronym for it, but essentially, it is similar to what you have heard about going on in the Port Authority of New York and New Jersey.

This program is designed as a way to determine best practices in securing the container logistics chain from the point of origin to the point of destination. It is based on the principle that if we find a weapon of mass destruction in a container in a U.S. port, it is too late. And so the critical information that we need to know is whether or not a container is loaded in a secure environment. And then from that point to its destination, is it secure, has it stayed en route, has it stayed on scheduled, has it been tampered with? And the Ports of Seattle and Tacoma, along with the other two major gateways for containers in the country, Los Angeles and New York-New Jersey, are working to determine some best practices for how we might consider and determine that containers are loaded and moving in a secure fashion.

We are looking forward to Federal assistance and partnership in making that process go forward.

With regard to Customs, it is critically important that in this time, where we consider changes to Customs and where its reporting relationships lie, that we do not compromise the non-security-related functions of Customs while at the same time we pay very close attention to security.

Customs, as you heard earlier from the Undersecretary, does have trade and revenue functions, as well as security functions.

I would call on the Congress to assure that, as we go forward in this security environment, that not only do we pay very close attention to security but that those things that Customs does to help the flow of commerce, including the development of the ACE system, be continually funded and supported.

I mentioned briefly in my introductory statement about our proximity to Canada and balanced implementation of regulation. There is a concern in our part of the country, in the Pacific Northwest, as well as some other places, including New York-New Jersey and Boston, that implementation of security regulations could have the negative impact of diverting cargo to foreign ports, foreign in this case being Canada.

This is an instance where we want to be very careful not to do the terrorists' jobs for them and use our security system to slow down commerce to the extent that commerce chooses to go in other directions.

Should that happen, two things occur. One is the obvious, immediate economic impact. I mentioned 100,000 jobs rely on the Port of Tacoma. The second is security. If cargo moves through another country, then we face the potential of a lower level of scrutiny in that Nation. So Customs has a very delicate balancing act that it accomplishes quite well, and that is the movement of trade, the facilitation of trade, as well as safeguarding our country from that trade.

One of the impacts that we could see, if we do not do this quite right, is steamship lines and other entities that report to Customs reporting to multiple agencies for their information. And we do not want to see that. That is a way of creating greater work for our customers in terms of reporting their information. If we keep Customs in its singular grouping with both sides of the house, we can serve those companies that generate trade and keep our economy flowing.

I want to commend Customs on its new programs: the CSI and the C-TPAT program. I think those are both strong initiatives, creative initiatives, in the direction of securing trade while continuing to make it happen. I think it is incumbent upon us and Congress to make sure that those programs are properly funded.

So just to summarize, I would like to issue a couple of challenges. One is to Customs, and that is to maintain balanced application of the regulations that it puts forth to the business community; and secondly, to Congress, to oversee Customs to ensure that, again, the focus on security doesn't overshadow the commercial functions of Customs, and also to support Customs in each of those areas, to make sure that it is properly funded to do so.

So I thank you for the opportunity again. And I am happy to take any questions you may have.

[The prepared statement of Mr. Farrell follows:]

Chairman THOMAS. [Presiding.] Thank you, Mr. Farrell.

And since you were the first member of the panel, prior to going to Mr. Clawson, as we move across the panel, we would like to get the horse before the cart, so it is my pleasure to call on the gentlewoman from Washington to introduce you.

[Laughter.]

Ms. DUNN. Thank you, Mr. Chairman. I appreciate you letting me step in here. We had a mixed message going on there, but you have already heard from Tim Farrell.

Tim of course is the Deputy Executive Director for the Port of Tacoma. These are two terribly important ports to us, not in but near my district, the Port of Tacoma and the Port of Seattle. In Washington State, one out of three jobs are related to trade, so it is no coincidence that the Port of Tacoma plays a vital role in our economic viability and in the competitiveness globally of our region.

The Port of Tacoma, as Mr. Farrell has told you, handles more than 15 million tons of cargo, amounting to about $20 billion a year in trade. Seventy percent of the containers that arrive in the port are bound for markets in the Midwest or East Coast, so you can see that we are a gateway to the rest of the United States. And what is done under the Customs' jurisdiction is, therefore, terribly important to us.

Tim has extensive experience in port management. He is responsible for a variety of port departments there in Tacoma, including finance, human resources, information technology, security, and risk management. Before he came to us at the Port of Tacoma, he worked for 7 years at the Massachusetts Port Authority. He is a native of Massachusetts. He graduated from Middlebury College. However, since he took his master's degree at the University of Washington, we do consider him a native of the Pacific Northwest.

Mr. Farrell has already brought out some very important points that have to do with competition between our ports and ports in other Nations. And I look forward to bringing some more points out from him as we go through questioning.

Thank you, Chairman.

Chairman THOMAS. Thank the gentlewoman.

The next panelist, thank you for coming. James Clawson, Chief Executive Officer of JBC International, who is here for the Joint Industry Group. Your written statement, if you have one, will be make a part of the record. You have 5 minutes to address us in any way you see fit, Mr. Clawson.

Mr. CLAWSON. Thank you, Mr. Chairman and Mr. Rangel and Members of the Committee. As usual, it is a pleasure to be here again.

Chairman THOMAS. Mr. Clawson, let me tell you, these microphones are very unidirectional, so you need to really talk directly into the end of it.

Mr. CLAWSON. Thank you very much. I just wanted to thank you and Mr. Rangel and the Members of the Committee.

In the interests of time, you have my written testimony. I thought that since I have been here enough on behalf of the Joint Industry Group and others for the last 20-plus years, I would like to just tell you some of our thoughts about where we are.

We fully support the proposal. We recognize that there are issues about it that are difficult to understand, and we are still looking forward to clarification. But we do support it for all of the reasons that have been described by the Undersecretary.

We also think that Customs ought to be kept together. There was discussion about splitting it. And, again, we support it for the reasons that were given, that Customs' dual mission is inextricably combined and cannot be separated.

Let me tell you the two things that I want to recommend to this Committee and to Congress that I think are very important. We have made the same recommendations to the Administration, and we will see where it goes. We totally agree with those who are concerned about the disappearance of Customs. We think there ought to be created within that chart that has been talked about a sixth Undersecretary for Customs Commercial Operations, just like the U.S. Department of Commerce has an Undersecretary and Commissioner for the Patent and Trademark Office. There is absolutely no reason why there cannot be an Undersecretary for the commercial work and the commercial side of the Homeland Security, giving it the same stature as the border security.

In the early 1970s, I worked in Treasury. We tried then to get a single border agency. It needs to be there, make no mistake, for all the reasons that are described. But I think it is critical that the commercial functions and all of the things that we talk about, from quotas to intellectual property protections, all the things mentioned in the Chairman's opening remarks, that they not be subsumed under some Undersecretary whose first priority has been given that of the security of our Nation's borders from terrorists and other security issues. I think that that is the critical nature of the recommendations that we make, to have that level of visibility, if you will, within the new department, reporting to the Deputy Secretary.

And then equally as important, we believe this Committee, which has had oversight for many years over those issues, ought to continue to have jurisdiction and oversight over that portion of the work of Homeland Security, which would be the Commercial Operations/Customs, if you would call it that.

And then there are some other suggestions that we are concerned about that haven't been addressed in this discussion. I am referring to ACE. We have been very active in getting the funding for ACE. There are over $600 million that has already been appropriated. We are way into it; 8 years after the Customs Modernization Act (MODACT) and the trade is still waiting for a lot of the implementation to be done. And I think there is a real concern that ACE will be put on the back burner again, even though all the assurance is to the contrary.

It is interesting that Customs has had 8 years to do ACE and has not done it. But it has deployed and put into place in less than 10 months enormous amounts of technology with regard to the security of our country. And I think it speaks to our concern over the fact that, when there is a priority--and I am not arguing that we shouldn't be concerned about the security our country. What we are concerned about is providing this commercial role sufficient priority with the other functions with regard to the economy of our country. And that is quite important.

In closing, I think it is important that, for budget discussions within the government in the future, and for the whole idea of coordination, there ought to be equal standing between the commercial side and the enforcement-security side, from that dual role.

And I am happy to take any questions that you might have.

[The prepared statement of Mr. Clawson follows:]

Chairman THOMAS. Thank you very much, Mr. Clawson.

Jerry Cook, Vice President, International Trade, Sara Lee, looking at trade from both inside the United States and outside.

Mr. Cook, your testimony will be made a part of the record. Address us in any way you see fit.

Mr. COOK. Thank you, Mr. Chairman, Mr. Rangel, and Members of the Committee. I will just summarize my written testimony, for time's sake.

Most importantly, the focus for us with Customs has been fairly successful, particularly this past year. Customs managed 23 million entries and related cargo, both from an enforcement and from a commercial facilitation. Important to note, is Customs maintain the primary data repository for over 40 other government agencies, as well as enforcing 400 laws, ranging from public health, safety, social, economic, environmental, and transportation, and all in a very timely and sensitive manner. The ability to execute these respective activities is not only critical for our public safety but also in fostering our economic security. With the advancement of the MODACT, the essential ingredients of combining trade facilitation along with the enforcement were critically linked to improve security, compliance, and, for us, a very predictable business solution. The successful trade programs that this Committee crafted, and the subsequent legislation have created economic opportunities in the United States and around our borders. The economic development of trade has decreased security threats to the United States, and the sustained economic development of regions like the Caribbean basin and the Sub-Saharan have placed an ongoing development of those regions totally dependent on an efficient Customs. To delink the Customs' enforcement from the business facilitation, in my mind, would likely have unintended consequences to the business community and to the respective agencies trying to manage the trade and business.

While the full development and implementation of Homeland Security is being contemplated, we need to ensure that the hard work and the leadership of this Committee and others ensures the timely implementation of ACE. The ACE system envisioned a very robust environment that can both facilitate risk assessment and reduce the cost burden of paper documents and the repetitive reloading of data in our current trading systems.

If the two roles were separated based purely on enforcement versus commercial, the definition of what constitutes enforcement versus commercial would likely lead to an endless level of appeals while trade is idled. By adopting ACE as the core platform for Homeland Security, the respective process necessary to exchange commercial and enforcement data will be incorporated on day one.

I believe trade advice to the senior management of Homeland Security will be vital in assessing what is working and what is not working going forward. The Customs receives valued input, problem identification and problem-solving via the trade support groups like the Commercial Operations Advisory Committee and the Trade Support Network. The willingness of Customs and the industry to jointly work together to identify issues affecting the commercial sides of trade along with enforcement and co-develop workable solutions is the cornerstone that exemplifies Customs versus other customs' services around the world.

The Customs provides valued input into other countries to advance their management of risk to our country. The joint role of enforcement and commercial facilitation is crucial to better develop models of trade prior to arriving to the United States.

As me move forward in Homeland Security, we should consider making some beneficial changes that would both enable the trade and Customs to better achieve border and economic security: 1) elimination of reconciliation for all entries that provide only statistical updates but no impact on revenue, 2) simplify and reduce the size of the harmonized tariff schedule; 3) provide total electronic interface for all required data; 4) eliminate any paper document requirements; 5) eliminate the releasing of confidential and trade-sensitive data to nongovernment agencies; 6) operate ports 24 hours, 7 days a week; and 7) reduce the required data for exports and imports to a single set as conceived under the ITDS model.

Mr. Chairman, Mr. Rangel, I want to thank you for the opportunity and, most importantly, for your leadership on fostering trade and fostering a modern trading system. I appreciate the opportunity to comment on this transfer of Customs to Homeland Security. In closing, the continued advancement of Customs' role in Homeland Security can provide a valuable baseline. Commercial success is achieved in concert with enforcement via an efficient and balanced Customs' process.

Thank you.

[The prepared statement of Mr. Cook follows:]

Chairman THOMAS. Thank you very much, Mr. Cook.

Ms. Kelley, your written statement will be made a part of the record. You can address us in any way as you see fit. And you are here as the National President of the National Treasury Employees Union. I am very interested in what you have to say.

Ms. KELLEY. Thank you very much, Mr. Chairman, Ranking Member Rangel, and distinguished Members of the Committee. I very much appreciate the opportunity to present NTEU's views on the President's proposed Homeland Security and the impact on Customs of that proposal.

As the President of the National Treasury Employees Union, I have the honor of leading a union that represents over 12,000 Customs' employees who provide the front line of defense to our country every day and trade facilitation. The Customs' inspectors, canine enforcement officers, and import specialists make up our Nation's first line of defense in the wars on terrorism and drugs, as well as facilitating lawful trade into the United States.

With a fiscal year 2002 budget of approximately $3.1 billion, Customs facilitates more trade and interdicts more drugs than any other agency. The Customs also provides the Federal Government with the second largest source of revenue. As you noted, Mr. Chairman, Customs deposited over $22 billion into Treasury this past year.

In 2001, Customs' employees seized over 1.7 million pounds of cocaine, heroin, marijuana, and other illegal narcotics. Customs also processed over 500 million travelers last year, including 1 million cars and trucks. Over the last decade, trade has increased by 137 percent.

In addition, there are increased threats of terrorism, dramatic increases in trade resulting from the North American Free Trade Agreement, and new drug smuggling challenges. And yet, Customs has confronted its rapidly increasing trade workload and homeland security mission with relatively static staffing levels and resources.

Unfortunately, this situation is not like to change under the President's Homeland Security proposal. The President has stated that his proposal will not include any additional funding that will enable Customs and its personnel to successfully accomplish their missions of trade facilitation and border security.

A number of these resource issues were addressed by this Committee in H.R. 3129, the Customs Border Security Act of 2002, which is part of the trade package before Congress. This legislation would authorize over $4 billion for a number of Customs' priorities such as staffing, commercial and noncommercial activities, narcotics detection equipment, child pornography prevention, the ACE computer system, and the air and marine interdiction units.

Both the American public and trade community expect the borders to be properly defended while at the same time being able to efficiently and safely facilitate trade across that border. The government must show the public that it is serious about protecting the borders and facilitating trade by fully funding agencies such as Customs who are tasked with defending the borders and enforcing the trade laws of the United States.

No organizational structure will be successful, no matter how good it may look on paper, if the government does not provide proper funding for its border agencies.

The President's Homeland Security proposal seeks to consolidate Customs, INS, Border Patrol, Animal and Plant Health Inspection Service, the Transportation Security Agency, and the Coast Guard into one division entitled Border and Transportation Security. Only the Coast Guard would be maintained as a distinct entity under the President's proposal.

Each of these agency's missions are unique. Combining each agency's field of expertise will lead to losing that expertise.

The fact that Customs would not be a distinct entity within Homeland Security would deal severe blows to the distinct missions in which Customs has world-class expertise: trade facilitation, the collection of revenue, and as the first line of defense in the wars on terrorism and drugs on our Nation's borders.

In the last 5 years alone, Customs has witnessed a 60-percent increase in trade entries processed, and this rate is expected to grow an average of 8 to 10 percent a year.

Keeping Customs as a distinct entity within the department, as it is proposed in both the Lieberman and the Thornberry Homeland Security bills, would help to retain the emphasis on the importance of Customs' trade-related duties.

In closing, the Administration has indicated that it wants new flexibility in the legislation that will establish Homeland Security. The President's proposal would allow two political appointees, the Secretary of Homeland Security and OPM Director, to set and to change the rules affecting pay, benefits, whistleblower protection, collective bargaining, and even merit principles. I urge Congress not to take away the rights and the benefits that are currently available to the employees who may be merged into this new department.

Before, during, and after September 11, front line employees have acted heroically to protect our freedom. They do not deserve to lose theirs.

Thank you for the opportunity to share NTEU's thoughts on these very important issues. And I look forward to working with the Committee on this and many other issues related to homeland security, trade facilitation, and Customs.

[The prepared statement of Ms. Kelley follows:]

Chairman THOMAS. Thank you very much, Ms. Kelley.

If we focus on the language difference that the gentleman from New York pointed out, in terms of the Coast Guard being a distinct entity, I think most people could kind of rattle off, "Well, they're the ones in the uniforms. They've got white ships and planes with an orange stripe. And they do X," and so on. So if you turn then to Customs and you use that same yardstick in terms of Customs, if we want a distinct entity in there, what would be the cement that would hold that distinct entity together?

When we look at it historically, it was probably obviously tied to those historical papers in terms of revenue. They collect revenue, but they do so much more. But they do it in conjunction with the collecting of the revenue.

So the line of questioning I would like--and some of you will see Customs from only a particular viewpoint.

And I agree with you completely; if we really want to have a secure border, Mr. Clawson, that getting ACE up and running and facilitating the smooth across the border, so there are no bottlenecks, hiccups, or problems, is significant and important in terms of security. So getting ACE up and running is in fact, as far as I am concerned, easily made a security argument.

But if we are going to try to argue that they are a distinct entity, the question is, is revenue enough cement? Could you actually look at Customs today, and notwithstanding some people are virtually wholly revenue associated, others are primarily revenue associated, some are somewhat revenue associated, and some are not revenue associated at all, if you used revenue as the cement, that is probably not a good argument because people could go in and show divisions.

So if we are going to rally around "keep Customs a distinct entity," what is it that is tangible that we could use to identify them?

And I guess the primary thrust of the question would go to you, Ms. Kelley, because you get see all of them together. These folks see pieces of them.

So that would be, I think, the first thing we would have to ask. And then secondly, is the rationale for wanting to keep it a distinct entity sufficiently strong to outweigh the counterarguments, that if you really want a seamless, integrated security approach, there are areas of Customs that could be shifted, that make some sense, so that you just don't parachute a distinct entity without ever doing some of the merging and restructuring.

And then lastly, if you look at it, is there a way for us to build a distinct entity out of a piece of Customs or most of Customs or with slight modifications, which is not attackable, because it is tied to revenue? Because this Committee's primary concern would be to follow the money.

Ms. KELLEY. Well, I think that Customs' mission is distinct from the other agencies, and I think that each of the pieces of those, while maybe it could be argued that the revenue doesn't touch each and every one employee, I believe that the mission of Customs and the way they have delivered on it over these past 200 years puts them in place as a very definable, distinct entity. One of the risks, of course, is losing the expertise that they have in each of these aspects of their mission.

And one of the things that concerns NTEU, and as I have traveled around the country and watched the Customs' employees do their work, is that there are some, I think, who believe that Customs and the other agencies that they see working side-by-side on the borders are interchangeable, and, therefore, they can each do each others' jobs. And that just is not the case.

They complement and supplement definitely, but they have distinct skills and expertise, which will risk being diluted if that distinction is not maintained.

The Customs as it operates today, with the different facets of what it does, have all been linked and successfully linked and delivered as a part of Treasury obviously for years, for hundreds of years. And I see no reason why that should be changed in the future, even in a new department.

Chairman THOMAS. I understand you don't see a reason. Some of us may not see a reason. But that does not mean it is not going to happen. And so I appreciate your 100-percent defense of keeping it the way it is. We may need to look at how we could create a core structure which is undeniably tied to revenue, which maintains sufficiently a distinct entity, that we could run the tie through Treasury because of the revenue, and back to us.

We would not have had this discussion 2 years ago. We would have been arguing about hours and why you pay time and a half and that sort of thing, for 1 p.m. in the afternoon. Put that behind us. We are under siege right now, in terms of coming up with a rationale that keeps Customs, Customs, or most of what Customs is Customs, rather than trying to present arguments to keep it the way it is.

I think the momentum is not to keep it the way it is, because somebody decided not to write in "distinct entity." As my friend from New York was pointing out, they also didn't bother to write in Customs on the flow chart. So it tells you that some folk are not looking at it the way we think it should be looked at. And if we cannot get them to completely, 180 degrees reverse their argument, we better be coming up with a way in which we have a very strong argument that this is something that makes sense and works and this is how we would want it, and that we can defend it. That is all I am saying.

Ms. KELLEY. If I could say this, Mr. Chairman, it is not clear to me why the Coast Guard was designated as a distinct agency, from a policy standpoint. And I have not thought about the question as you framed it, of cement running through it. I will do that, and I will be glad to share those thoughts with you within the next week or so, in writing, if that is acceptable.

Chairman THOMAS. As soon as you can get back to me, because to me our strongest argument we make is--that is why I brought these documents--it started with money, it follows the money, Treasury is money, we are the tax Committee, it is revenue. That is, I think, our strongest argument. And let's see what Customs looks like if we use that as the cement to build whatever the new model is. And I appreciate some help on that, because I do think that is an argument that I would very much like to make.

Ms. KELLEY. Okay.

Chairman THOMAS. But I do not know that we can make: "Don't touch a hair on the child's head. It is perfect the way it is," because some folks have said it may be perfect.

We have a new problem, and we have to rethink the way we do things.

Ms. KELLEY. I will be glad to provide you with my thoughts. I appreciate the opportunity.

Chairman THOMAS. Thank you very much.

Anybody else have a reaction to that? You don't have to.

Mr. CLAWSON. I was going to say, we would like to also supply something, because I agree with your analysis that we do need--there are parts of Customs that I respectfully disagree, that are very similar. There is a degree of interchangeability. When you do a land border crossing, you do not see Immigration and Customs at the land border crossing; they are doing each other's work right now and have been for years.

So I guess what I am saying is, I agree totally with you. We need to figure out a way to craft where we are, and we will help you with that.

Chairman THOMAS. And interestingly, the involvement of commerce I think would be, with the revenue collected by that, would be one of those aspects. And then take a look at what people in terms of enforcement, to what extent, is it primarily enforcement, secondarily collection or primarily collection--some discussion along that line.

And I will not share your thoughts with anyone, Ms. Kelley. Let's see how much is left or not left.

Ms. KELLEY. Okay.

Chairman THOMAS. Because I think that is something we need to do fairly quickly so this Committee can recommend a firm position that we feel very comfortable defending, so that we can make sure what all of us want is at least maximized under the new structure.

Ms. KELLEY. Okay.

Chairman THOMAS. Thank you.

Mr. COOK. Mr. Chairman, one comment that is worth considering. When you look at the composite of international trade, a lot of it is component manufacturing moving about. And you are looking at duty revenue, but there is a tax revenue on the other side. The successful ability of U.S. corporations in this country to be engaged in trade, if it stops, it impacts our business and has a significant impact on the IRS side.

So if you are looking at the flow of the money, that commercial viability becomes very important, being in this country altogether, if you are going to have problems moving products in and out. I would think from a policy perspective, you would not want to lose vision of that in homeland security, because it really is about securing our economic independence.

Chairman THOMAS. You are absolutely correct. And I think, at least in the short run, we have not focused on the fact that as fundamental as anything is the economic security and viability, to be able to allow for some of the other activities as well.

The gentleman from New York.

Mr. RANGEL. Mr. Chairman, I do not know if additions of Customs over the years, it seems to me that they should be protected intact unless there is reason why the flexibility that the Secretary would have would require in our national defense that it should be changed.

But if this is the hearing, all it has done is to raise the questions. And clearly, the Undersecretary, who just got on this job last summer, had indicated in his testimony that the bill is the thinking of the President. But we do not know why Customs was dropped off. We do not know what changes they intend to have with Customs. And if Customs is dismantled, I assume somewhere along the line, since we have congressional oversight, we are going to have to explain why the changes were made. I do not know how you intend to proceed, if this is it.

I know Ms. Kelley is going to send us a lot of questions, but how are we going to have answers to her questions? And what do we do? Ask Ms. Kelley to come back and have this exchange?

That is why I thought, since we have jurisdiction over the Secretary of Treasury, that it is so important, one, to have the questions raised by those people that believe that they may be adversely affected, to lock in, as the other committees have--because I am convinced that is why some of these people have their own rectangle and that is why Customs fell off at the end, because someone insisted on it.

And I am not saying, in the final analysis, that whoever drafted the legislation did not put a lot of thinking into it, but how do we find out why they set it up as they did? How do we know that role they intend for Customs to have in the future?

It is one thing to say it is going to be intact. It is another thing to say they want maximum flexibility.

Chairman THOMAS. If I might respond?

Mr. RANGEL. Yes, sure.

Chairman THOMAS. If the gentleman is coming to the conclusion that this hearing perhaps raises more question than it answers, then I think this will be a very valuable hearing, because it is very difficult for this Committee to proceed unless we get answers to those questions.

And if the gentleman assumes that those boxes were created on that piece of paper with significant interaction by other committees, and the laxity of this Committee's involvement did not get us a box, I can assure you, in my conversations with other committee chairmen, they do not believe that is the case. I believe there is a significant amount of "there but for the grace of God" in a number of committee jurisdictions.

However that was created, I believe that we need to go forward in an orderly fashion, ask the questions. And if we do not get answers, then we are either going to have to have another hearing or we will craft what we believe to be the appropriate response based upon our attempts to answer the questions that are created. And we will then move forward with what we believe is our solution.

Frankly, without having Customs in a particular box and already determined tells me we have an excellent opportunity to offer a solution to the problem, because if they already thought they had a solution to the problem, we would have to talk them out of their solution into ours. So I do not see it quite the same way the gentleman from New York does. I see this as an opportunity to shape where and how Customs is placed in this new structure far more than if they had told us they made up their mind, here's the box, and that's where it is.

I thank the gentleman for the time.

Mr. RANGEL. Well, Mr. Chairman, I have the utmost respect of the union representative of Customs, but it just seems to me that the Customs Commissioner may have a lot of questions as well, and as we heard those who use the services of Customs. So, yes, we can draft and decide what we want to do, but then where do we take it?

In other words, it just seems to me that you cannot do this unless you have those people who work with Customs every day. And clearly, the Undersecretary does not. They report to him. But Ms. Kelley is on the front line representing her members. The Customs Commissioner is someplace else. We have to do this before the election, or whatever the President wants.

And so it just seems to me, and you know how reluctant I am to get in the back room with you to work this thing out, which you are suggesting, but--

Chairman THOMAS. No, I am not suggesting that. Does the gentleman yield further?

Mr. RANGEL. Yes, but you said that we will have--

Chairman THOMAS. If the gentleman's concern is that he is disappointed that middle management is not here, so they can freely criticize upper management in the way in which this project is moving forward, he is probably not going to be happy.

One of the reasons that I was pleased that the minority asked union representation is that I believe they could be a bit freer about looking at the way in which structures could be made. And I do believe there is, if the gentleman is serious about why someone who is in a middle management position is not here so they can criticize the structure under which they are supposed to be moving, then we have a great gulf between us.

Mr. RANGEL. Mr. Chairman--

Chairman THOMAS. I believe the recommendation--

Mr. RANGEL. Mr. Chairman--

Chairman THOMAS. I just want to say this: I believe the recommendation of this Committee as to how this is handled will carry enormous weight with the leadership as they put the package together. We should focus more on the way it ought to be than the fact that we do not have somebody here that we can embarrass because you know they cannot answer--

Mr. RANGEL. Mr. Chairman--

Chairman THOMAS. In a way that either they want to or they won't.

Mr. RANGEL. It was you that brought the person here that could not answer the questions.

Chairman THOMAS. I believe that is upper management, not middle management.

Mr. RANGEL. Well, let me ask, Ms. Kelley, before you testified, did you have the opportunity to share your views with the Commissioner of Customs?

Ms. KELLEY. I spoke briefly with him last week on my concerns about the fact that Customs is not a district entity, does not have appropriate resources, and the risk of losing the expertise.

Mr. RANGEL. I would like to see whether or not--I am going to make a recommendation to the Chair that the Customs Commissioner and you, Ms. Kelley, would get together, because like any family, you can dispute with wages and hours and all of those things, but then when you find out that Customs itself may be under some type of attack, I am certain that you and the Customs Commissioner might have more in common in terms of making recommendations as to what would be effective than somebody who is just including you in an organization chart.

If the Chair cannot find a way for that type of a meeting to take place, so that we can be helpful to the Customs Commissioner, so that we can be helpful to the rank and file, then I might be reaching out to you and to the Customs Commissioner in asking: what do you think about this idea; how do you think it can be improved; what recommendations would you make? I am certain that that would be more helpful to me than what I have been able to get from this hearing.

So if there is no other scheduled hearing where I can ask these questions, then I would ask, in a very informal way, on behalf of the minority, that we can meet and meet with the Customs Commissioner and see what we can do to be helpful to our Nation, to the new department, and to Customs, that I think deserves this type of oversight.

Ms. KELLEY. I will pleased do whatever I could to help.

Mr. RANGEL. Thank you, Mr. Chairman.

Chairman THOMAS. I thank the gentleman. Does the gentlewoman wish to inquire?

Ms. DUNN. Thank you very much, Mr. Chairman.

I wanted to ask Mr. Farrell to clear up a couple of things that have concerned me. In your testimony, Mr. Farrell, you refer to concerns being raised by your customers, the folks that you do business with at the Port of Tacoma, about the lack of uniformity in the process of physically inspecting container cargo, and I am assuming that is among the ports in the United States. I am wondering if you could give us your thoughts on this.

The concerns that I have heard have to do with the fact that there are added costs and there are time delays that are being experienced by shippers in dealing with ports where there is, for example, 100-percent inspection of containers selected out of the numbers that are shipped into the port. I am wondering if you can just give us your thoughts on what is happening.

Mr. FARRELL. I can indeed. In the various ports, Customs' inspections take place at different levels and different volumes. In other words, percentage of the cargo that comes through the port and then percentage of the cargo in an individual container that actually is inspected. I am given to understand, from my conversations with Customs, that these numbers are based on their own rules and determinations about which cargoes to inspect and to what extent.

However, what we haven't been able to communicate is the basis on which those decisions were made and gather actual data from what those impacts are. What I can tell you is that we have anecdotal evidence from our customers that there is a difference in the intensity of enforcement of regulations across the entire West Coast port range, and that when a container is detained for an inspection, that container comes offline, it may be delayed anywhere from a half day to 3 days, and they carry additional costs for the actual physical unloading and inspection of the cargo.

It is as if while getting on an airplane, or attempting to get on an airplane, your bag is taken aside for inspection; you miss your flight; and for the privilege, you are sent a bill at the end.

The concern that we have, again, I mentioned diversion. Tacoma and Seattle, as well as New York-New Jersey, Boston, and others, are close enough to international borders to be effected by this type of activity. And it is important that we be able to communicate with Customs clearly and definitively about what actually is happening, what is the data, and how are these decisions being made.

We are the port are in close communication with our local Customs' people, and I also have spent time with people here in Washington at Customs, and have spent some time with members of our delegation to try to gather that data and try to improve those communications in such a way that our anecdotal evidence can either be shown to be correct or shown through the data to be incorrect and why.

Ms. DUNN. Well, we are going to have to watch over that. Do you feel that you have had adequate opportunity to share that with the Customs Commissioner?

Mr. FARRELL. I have had opportunity to share it with the higher levels of Customs, and I am optimistic that we may have some results that come from that.

Ms. DUNN. Wonderful. Let me ask you a last question here, and it has to do with your testimony that alluded the competitive disadvantage that certain ports have with other Nations. Of course, our being close to Canada means that the ports in Washington State, but also those on the East Coast, and actually along our whole western coast, are disadvantaged by a number of things, including the payment of the harbor maintenance tax, which affects several of us on this Committee, where we believe we get very little out of the payment of that tax. It is a tax on a container that does not occur at the Port of Vancouver in Canada, for example.

I am now concerned because I am hearing regularly about the threat of cargo diversion to ports in Canada, and I know also that they have made major gains over the last few years in market share, taking directly away from the ports that we have on the West Coast.

I am wondering if you could quantify for us your view of this growth for the Port of Vancouver that detracts from our ports on the West Coast and the East Coast, and tell me if there is something that we need to be doing about this, and how it is exacerbated by the problems we are running into now with the time delays.

Mr. FARRELL. Thank you for your question. I can give you a couple of ways of looking at this question. The first and clearest is the Port of Vancouver. In 15 years, since the institution of the harbor maintenance tax, container volume at the Port of Vancouver has increased by 414 percent. Over the same period of time, the container growth in the Port of Tacoma has been 98 percent, and in Seattle, 55 percent. So it is clear to us that as the trade volume grows, we are seeing a share of that cargo shifted north across the border as a result of the tilting of the playing field by institution of that tax.

You mentioned earlier that I spent some time at the Massachusetts Port Authority. We have the same issue there with the Port of Montreal.

Ms. DUNN. Excuse me, Mr. Chairman, I really would like to have us be an audience. This is so important, and I would really like to have other Members of the Committee hear it.

Chairman THOMAS. I'll tell the gentlewoman that there is a record being made, and there is a discussion going on, which is fundamental to it. I apologize, and I will turn my attention to the statements that are being made.

Mr. FARRELL. The harbor maintenance tax is an issue that the Massachusetts Port Authority addressed by asking and receiving from the Massachusetts State Legislature a State rebate for the harbor maintenance tax to companies based in Massachusetts that used Massachusetts ports to ship goods, as a way to blunt the impact that the Port of Montreal was having in that area due to the harbor maintenance tax.

So those are the two examples. Now, how does the security environment that we currently find ourselves in relate to that will certainly, as we look at enhancing security in our ports and at our border crossings, and we look to the Customs' CSI to partner with foreign ports, the first of which are the Canadian ports of Montreal, Halifax, and Vancouver, B.C., it is critically important that whatever security procedures we put in place at U.S. ports be balanced with ports across our borders, so that we do not have again a further slanted field, which affects both the commercial aspects of our business, in terms of the jobs related to moving of cargo, but also a security perspective.

Again, you are only as safe as your neighbor. You are only as secure as your neighbor. And that is why we have worked together with the ports of Seattle and Everett to make sure that our security initiatives are carried out jointly.

Ms. DUNN. Thank you very much. Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from California, Mr. Becerra, wish to inquire?

Mr. BECERRA. Thank you, Mr. Chairman.

First, thank you to all of you for your testimony. And I will try to contain myself to just a couple of questions.

If I could start with Ms. Kelley, I would like to see if I can get you to give me a little more information about section 730 of the proposal to create this new Homeland Security. I know that you have expressed concern that section 730 would not carry with it or would allow the department not take with it the various civil service protections--whistleblower protection, retirement, health benefit protections--that you currently receive as employees within Treasury or any department of the Federal Government.

Is there any circumstance in which you think Treasury employees or Customs' employees would accept a provision similar to section 730, which is the current proposal that President Bush has sent over to us?

Ms. KELLEY. I don't see how, because what the language says, as I read it, is that, on the day of the transfer that every thing stays intact. But whether it is 1 day, 1 week, or 1 month thereafter, that authority would lie with the Secretary of the department and the OPM Director.

And I guess at the bottom of all this for me is that employees of Customs, the employees of these agencies have done the work that they do on the front line for our country for decades as union members, with these rights, and it has never ever been an issue of their ability to do their jobs. So why a flexibility like this is needed is not understood by me.

We have asked a lot of questions, and it has never been made clear what the intent is to do with this. So the intent is unclear, and it is hard to address any specifics that they might have in mind.

Mr. BECERRA. On that point of having asked the questions, can you give me a better sense of what type of consultation you were afforded or NTEU was afforded with respect to the develop or formulation of the proposal that the Administration submitted to Congress?

Ms. KELLEY. Into the formulation, I would say zero. The day after the President's announcement, before the language was actually shared with anyone, I did have the opportunity to meet at the White House with Clay Johnson, Kay Coles James from OPM, and Mark Everson from the Office of Management and Budget. And they wanted to hear our concerns, and this was one of the concerns I clearly articulated.

So I guess from that standpoint, you could say they at least knew. And the response I got ranged from a stare to: "We understand the issue."

When the language was then finally made available, it was clear that any input we had or any opportunity we had to provide information was not included in the language.

Mr. BECERRA. And when you say you shared your concerns, it was beyond just the issue of section 730?

Ms. KELLEY. Yes. At the time section 730 did not exist, but we had a fear that this was going to happen, just from things that the President said in his address and from media reports later, in the next 48 hours or so, talking about flexibility. And so that kind of sent up the signals that we should be concerned.

So I was trying to anticipate what might happen and have a conversation that hopefully would stop it from happening. But that did not occur.

Mr. BECERRA. Other than the day before the proposal was presented publicly, did you have any other opportunities to comment to the Administration?

Ms. KELLEY. Actually, the conversation I just described was the day after the President's announcement. And then the next opportunity came the day before the language was made available. And it was a meeting held at OPM for a large number; employee organizations were invited.

I described that as a "Q" session, because they wanted to hear our questions, but there were no answers that were provided. But it was clear the next day, when it was published, that the language had already been written, and it really didn't matter.

I did reiterate that day everything I had said at the White House, but to no avail.

Mr. BECERRA. Thank you.

A question about the ACE system, the new automated system that hopefully we will have in place, anyone wish to comment about how we integrate that new system into this broader or larger agency, having to fulfill functions that go beyond what we thought it would be used for, and whether or not you think that we can accelerate it quickly enough?

So, can we use it still? Is there something we have to do now to retool to make sure that we can use it for more than just Customs, since it is going to be under this new Homeland Security? And do you believe that we can try to accelerate its implementation sufficiently to have a good system that will be capable of meeting the needs that we have under this new department?

Mr. CLAWSON. Yes, in answer to your question. I think that it is currently structured in such a way with what is called the International Trade Data System, ITDS, which is made up of 12 departments on a board, and that that is intended to provide this service across the government as one point, so it is more than just Customs. So that type of integration is already anticipated and has already somewhat been underway. It will have to be tweaked, obviously, in a new department, but I think it can be done.

I think the bigger concern that we have, those of us who worked on the coalition for automation funding and whatever else, is that it is just taking too long. And I don't know what that means, in the sense that I am not a programmer, I don't do these kinds of things, but I know that enormous things happen in this country, we have great people who are doing wonderful things. It seems somehow that the team that is building this with Customs, and I do not know all the ins and outs, because they do not really tell you that, the behind-the-scenes stuff, but I know that they have been at this for an awful long time, in terms of concepts and whatever else.

And I think they are getting, finally, underway a bit. But they have to figure out a way to accelerate it. I agree with you.

Mr. BECERRA. But, Mr. Clawson, your sense is that the infrastructure, the hardware, software, everything that makes up ACE, is still applicable, given its heightened demand?

Mr. CLAWSON. Yes. The architecture was done initially in such a way that it was modular and could be added on to, because they did not want to go through what we have done, that in 5 years or 10 years, it can be obsolete. So this was a growing, viable kind of system, the way it is designed. And maybe that is what is taking it so long to get off the ground. But I have a comfort level with the architecture; I have a discomfort level, very much, with the speed which it is being built.

Mr. BECERRA. Thank you.

Mr. COOK. Congressman, a couple of comments on that. One, I think the ACE design and the platform and the team that is doing it is a very capable team. And I think where they are, they have rightfully spent a lot of time to step back and "let's not automate the paper process; let's really dig in and now that we have a great tool that we are designing, let's change that." I think to your point, it is probably more important now to accelerate the development and implementation of ACE, because in the absence, we are liable to build a parallel system to fill some other need that may be coming up because of security, and then we really will have a problem of a bifurcated system.

The second one is that we in the trade community, to the government, really need to mandate that the other government agencies rely on ACE, because one of the problems we are facing is that it is voluntary that other governmental agencies use it as their data interface with trade. If it is not mandatory, then you stand a great chance of building very redundant systems that are very expensive and always trying to synchronize those, which does complicate the development and implementation of ACE.

And the third part is that we today in the trade arena require an enormous amount of data that really serves very little long-term use. A lot of it is for rounding up for census, but doesn't really provide the core mission of "what do I need to collect revenue, what do I need for enforcement and risk assessment?" And I think, if we go back and spend some more time to ferret out that, we can probably see ACE become a much more dynamic--I see ACE as really being the underlying system for all of homeland security, because it is advanced data, it is arriving data, it is post-data, it is identifying who shipped it, who is bringing it, and who is receiving it, and what commodities are coming. And that gives you the tool to do risk assessment and commercial clearance.

Mr. BECERRA. Thank you.

Mr. FARRELL. And I would second what both of these gentlemen have to say, and say that regardless of the ultimate disposition of Customs, the sooner we get this system in place, the better.

Mr. BECERRA. And it can be done quicker, do you think?

Mr. FARRELL. I would think so, yes.

Mr. BECERRA. Thank you.

Chairman THOMAS. I would tell the gentleman from California that it is probably misnamed if we call it "ACE." It is probably about a three of clubs.

[Laughter.]

Chairman THOMAS. And the problem is, it is well-financed; therefore, given the changing technology in the area, as you putter along, you are overtaken by new technology. If they could simply pick up the SKU system at Home Depot, they would really be on the cutting edge.

It has been underfinanced, and there is no integration in the approaches you heard. And I think we have going to have simply impose some requirements here to get it done. We have this problem with Social Security interfacing with IRS and everyone else. Now, that is a trillion dollar problem in other parts of the government. This is a distinct area in which, if we put mandatory requirements, minimum information, maximum flexibility, and speed at getting it done, because a border that is clogged up and is not moving is more insecure than a border that moves smoothly and you know who is where doing what.

This is a contribution that will come out of these hearings as we go forward, because if we have billions of dollars for homeland security, we ought to have a little bit for doing this particular function, because they raise enough revenue to pay for themselves, and that is not always the case in the other areas where enormous amounts of money are being spent. Security is security, and when you can get a return on your investment, you ought to work on this area.

Mr. BECERRA. I agree, Mr. Chairman.

Ms. THURMAN. I want to thank all of you. I know some folks are a little more frustrated, but I honestly believe that this Committee has the ability to tell the executive branch, if we are good enough, what the Customs' structure ought to look like under the new Homeland Security arrangement. And that is what we will attempt to do.

I look forward to getting the materials back from you. I know that we probably raised more questions. That may have been the intent of the Chair. Thank you very much.

[Whereupon, at 7:37 p.m., the hearing was adjourned.]

[Questions submitted from Chairman Thomas to Secretary O'Neill, and his responses follow:]

QUESTIONS SUBMITTED BY CHAIRMAN THOMAS TO SECRETARY O'NEILL

Question:

Can Customs perform its functions well if Congress mandates that Customs' revenue functions must remain intact and could not be reorganized internally or with other Homeland offices until such time as the Administration identifies specifically what it proposes?

Answer:

The President's proposal would move Customs intact to Homeland Security in order to minimize any disruptive effects. One of the main reasons for creating the new department is to achieve synergies and efficiencies among the now disparate agencies and the new Secretary would be given broad authority to do so, but any changes would need to be made only after further careful study. This is an issue on which the Administration would work closely with the Committee to address its concerns.

Question:

The fact that Customs collects revenue creates special circumstances and needs for Customs that other Homeland component offices will not experience. Do any other government offices or agencies being transferred to Homeland Security collect revenue as Customs does?

Answer:

Many agencies collect fees, fines, or penalties. Customs, however, also collects tariffs, which total about $20 billion annually.

Question:

Are there specific parts of Customs whose exclusive or substantial function is to collect revenue? Please identify for the Committee those roles within Customs such as the Import Specialists and the Office of Rulings and Regulations that have a primary role in the collection of revenue. What percentage of Customs inspectors perform primarily revenue collecting functions?

Answer:

Certainly, while there are some functions in Customs, such as those of the import specialists and the Office of Regulations and Rulings, that are more directly focused on tariff collection than others, these same people also make decisions regarding the basic admissibility of merchandising to the U.S. Inspectors on the border rely on expert technical and legal advice to help identify trade fraud and the regulation writers rely on their close contact with the field inspectors to help them craft trade rules that will both keep trade moving and permit effective, efficient enforcement. The regulatory audit function is another activity that is focused on tariff revenue collection, but the information that auditors develop about businesses and trade patterns help to target anomalies and risky shipments for enforcement actions. Inspectors are trained to perform trade enforcement as well as contraband, drug and security enforcement. We wart people examining shipments because of trade enforcement concerns to be alert for security risks. It is difficult, if not impossible, to separate the percentage of time individual inspectors devote to these various functions because they are intertwined.

Question:

Customs does so many things other than just searching for narcotics or preventing terrorists from entering the U.S. How will the President's proposed changes in organizational structure change the nature of what Customs does?

Answer:

The President's proposal would move Customs intact. Consequently, nothing in the nature of what Customs does would change.

Question:

Customs collects over $1 billion in user fees from importers. According to law, those fees must be used for commercial purposes only. How can Congress keep track of how the commercial fees will be spent by the Administration?

Answer:

Unless Congress changes that law, the same restrictions on user fees that apply now would apply in the future. Under the President's proposal, Customs would be moved intact, and the same process of evaluating costs that Customs goes through now could be used in the future.

Question:

If, Congress were to prohibit decreases in staffing and funding for Customs trade offices, would this ensure that trade activities are not inadvertently strangled?

Answer:

The President's proposal recognizes the importance of trade activities. In addition, Governor Ridge and Customs Commissioner Bonier have publicly committed to supporting the trade function as it moves to the never Department. We would want to work with Congress to take advantage of possible efficiencies that we may be able to realize, for instance efficiency gains from further automation and completion of the ACE system.

Question:

Has Customs done arty projections to determine if there will be a significant cost to move to a new Department?

Answer:

There should not be any because Customs would retain its current headquarters and other locations. In addition, the consolidation of the different border entities under one agency has the potential to create additional efficiencies in the future.

Question:

Have increased security measures affected imports in any way? Can you give us specific cases?

Answer:

Certainly there were border delays in the week following September 11th. Customs responded quickly to reduce bottlenecks and minimize the impact on the economy while maintaining a heightened level of alert. Customs has since implemented innovative approaches to reduce the impact of the security threat. The Container Security Initiative (CSI), with cargo examination at the point of export rather than import, helps prevent delays at the border as well as reducing the threat to the homeland, The Customs‑Trade Partnership Against Terrorism (C‑TPAT) enlists the private sector in the fight against terror. Both are creative alternatives to the traditional border search.

Question:

What trade authority does Customs have granted directly from statute, as opposed to delegated by the Treasury Department?

Answer:

Most Customs related authority is currently granted statutorily to the Secretary and delegated to the Commissioner. We are reviewing the trade statutes to identify those authorities granted to the Commissioner, and will provide that information to the Committee as soon as that effort is completed.

[Questions submitted from Mr. Rangel to Secretary O'Neill, and his responses follow:]

QUESTIONS SUBMITTED BY MR. RANGEL TO SECRETARY O'NEILL

Question:

Please advise me of any legislative provisions that you would like addressed in the bill (1) to ensure proper transfer of Customs to the new Department; (2) to preserve the effectiveness of Customs operations in protecting our borders and facilitating the commercial flow of trade; (3) to ensure retention of Customs employee job responsibilities and the employment protections currently under Title V; and (4) to maximize Customs’ ability to fight our war on terrorism, and other important responsibilities currently part of the Customs mission.

Answer:

The bill proposed by the President addresses these issues in the following manner.  The legislation includes specific provisions for the orderly transition of Customs to the new Department.  The bill would provide for a 12-month transition period, during which time the President would direct when individual components would be transferred.  The bill also provides other authorities for functions necessary for an orderly transition, such as support services, details, interim appointments, and the transfer of personnel, assets, and liabilities related to the components being transferred.

The President’s proposal seeks to create an efficient structure to help ensure that our ports of entry and other critical assets are protected, and his proposed combination of key components will help do so.  To recognize the importance of Customs’ trade functions, section 401 of the proposed legislation includes within the jurisdiction of the Under Secretary for Border and Transportation Security a number of “primary responsibilities,” including:  “(1) preventing the entry of terrorists and the instruments of terrorism into the United States; (2) securing the borders, territorial waters, ports, terminals, waterways, and air, land, and sea transportation systems of the United States. … (4) administering the customs laws of the United States; and (5) in carrying out the foregoing responsibilities, ensuring the speedy, orderly, and efficient flow of lawful traffic and commerce.”

Under the bill, Customs would continue to fulfill all of its existing functions.  The new Department would collect import duties and remit these funds to the Department of the Treasury.  There would be no loss of revenue as a result of this reorganization.

Customs also strongly believes that any effort to improve our border security must include the direct involvement and input of the trade community.  The success of programs like Customs Container Security Initiative (CSI) and the Customs-Trade Partnership Against Terrorism (C-TPAT) demonstrates how Customs effectively and efficiently balances its dual missions of security enforcement and trade facilitation.  Under the President’s plan, Customs will continue to administer and enforce the Customs laws, protect our borders against terrorists and terrorist weapons, and facilitate the flow of legitimate commerce.

When an organization becomes a part of the new Department, employees will transfer with existing pay and benefits intact.  When the Department is established, employees represented by unions will continue to be represented because their bargaining units will move with them to the Department.  The proposed legislation does not impair employees’ collective bargaining rights in any way or change existing authorities.

The President’s legislative proposal would unify authority over major Federal security operations related to our borders, territorial waters, and transportation systems.  The new Department of Homeland Security would assume responsibility for operational assets of the U.S. Customs Service, Coast Guard, Immigration and Naturalization Service and Border Patrol, the USDA’s Animal and Plant Health Inspection Service and the Transportation Security Administration – allowing a single government entity to manage the U.S. borders.  This is intended to improve coordination and communication among  border agencies, enhance intelligence sharing, and increase operational efficiencies.

Question:

What is your understanding of why the responsibilities of the Bureau of Alcohol, Tobacco and Firearms relating to firearms and explosives are not part of the President’s plan for transfer to the new Department?

Answer:

As you indicated, the President’s proposal does not include moving the Bureau of Alcohol, Tobacco and Firearms (ATF) to the new Department of Homeland Security.  While a number of options were considered, this was the final decision based on what needed to be done immediately to secure the homeland.

Under the President’s proposal, the new Department would have law enforcement responsibilities as they pertain to securing and policing our borders, ports, airports, and territorial waters.  The U.S. Secret Service, also proposed for transfer, would maintain its law enforcement functions, as well.

We recognize that other proposals have been made regarding ATF and the  reorganization of Federal law enforcement (e.g., Webster Commission).  The President’s proposal is designed to cover the changes that need to be made immediately to accomplish the priority goal of securing the homeland as quickly as possible.  The Treasury Department will be pleased to continue to work with the Committee on areas of concern as the legislation advances consistent with the President’s proposal.

[Questions submitted from the Committee to Director Ridge, and his responses follow:]

QUESTIONS SUBMITTED BY THE COMMITTEE TO DIRECTOR RIDGE

1.  Will the Customs Service remain intact within the Department of Homeland Security or will portions be merged with other agencies either initially or at some time later?

ANSWER:  The President proposes transferring the entire Customs Service – its border security, trade / revenue, and investigative missions – into the new Department of Homeland Security.  Certainly, the new Secretary will likely consider how to best organize the new Department in order to maximize efficiencies and synergies and minimize redundancies and overlapping missions.  The Administration also expects the new Department to study the different agencies' management systems with a view to attaining efficiencies in personnel management, fiscal oversight, procurement, contracting, and other administrative areas.

2.  Under the President's proposal, a number of agencies are keeping their identity within the new Homeland Department, such as the Coast Guard and the Secret Service.  Why is the Customs Service not being maintained as a discrete entity?

ANSWER:  The Administration believes that the new Secretary of Homeland Security should have the management flexibility to minimize operational redundancies and overlapping missions.  The Administration is also interested in achieving overhead efficiencies within the new Department.  This may mean that some overlapping functions presently performed by some agencies might be consolidated.

3.  The Administration's bill at §402 identifies the Coast Guard, the Transportation Security Administration, the Immigration and Naturalization Service, and the Animal and Plant Health Inspection Service as being in the new Border Security Office.  Who would be in charge, and what will these offices do differently once under the Homeland Security Department?

ANSWER:  Section 402 of the draft bill prepared by the Administration proposes that an Under Secretary for Border and Transportation Security be in charge of these agencies.  The Under Secretary's responsibilities would include: (1) preventing the entry of terrorists and the instruments of terrorism into the United States, (2) securing the borders, territorial waters, ports, terminals, waterways, and air, land, and sea transportation systems of the United States, (3) administering the immigration and naturalization laws of the United States, including the establishment of rules governing the granting of visas and other forms of permission to enter the United States to individuals who are not citizens or lawful permanent residents, (4) administering the customs laws of the United States, and (5) ensuring the speedy, orderly, and efficient flow of lawful traffic and commerce in carrying out these responsibilities.

The agencies being transferred to the new Department – The Coast Guard, the Customs Service, the Immigration and Naturalization Service, the Animal and Plant Health Inspection Service, and the Transportation Security Administration will retain their statutory missions within the Department of Homeland Security.  The principal advantage of transferring these agencies to the new Department is to consolidate responsibility for the inter-related tasks of border and transportation security within a single department whose primary mission is homeland security.  The Under Secretary for Border and Transportation Security will be able to address problems that have plagued federal border-control efforts to date – lack of coordination and cooperation among the numerous agencies involved in border management; overlap and duplication of efforts; fragmented authority and responsibility; and interagency rivalry.

4.  The fact that Customs collects revenue creates special circumstances and needs for Customs that other Homeland component offices will not experience.  Do any other offices or agencies being transferred to Homeland Security also collect revenue as Customs does?

ANSWER:  Transferring Customs' trade and revenue collection function into the Department of Homeland Security will achieve the larger objectives of the President's proposal by (1) ensuring the proper balance between security and trade facilitation, (2) limiting the size of the federal government, (3) ensuring accountability and coordinated policymaking, and (4) promoting the collection and analysis of all information related to homeland security.

While Customs' trade / revenue function is extremely important – the Service provides the nation with its second largest source of revenue, returning $22.1 billion to the Treasury in 2001 – all of the border-management agencies the Administration proposes be transferred to the new Department collect fees, fines or penalties.

5.  How can the Committee be sure that the trade mission of Customs will continue to be funded in the budget of the new Department?

ANSWER:  Should the Customs Service be transferred to the new Department of Homeland Security, The Administration will continue to develop a proposed budget for all of Customs' statutory functions, and will continue to transmit the budget to Congress within the Administration's fiscal year budget proposals.  The Congress will be able to verify the Administration's commitment to Customs' trade mission and, should it conclude that budget levels should be changed, make adjustments to the proposal during the appropriations process.

6.  Will Customs continue to be the lead office of the collection of trade data or will another part of Homeland Security take over this function?

ANSWER:  Yes.  Customs will retain the mission of collecting trade data.

7.  If Congress mandates that Customs' revenue functions will remain intact, even within the new Department, and could not be reorganized or with other Homeland offices until such time as the Administration identifies specifically what it proposes, is there any reason to believe that Customs could not perform its functions appropriately?

ANSWER:  The President's proposal would move the Customs Service intact to the Department of Homeland Security.  He believes that because of the interrelated tasks the Service currently performs, moving the Service in whole is important.  The Administration fully expects that Customs will continue to discharge its revenue functions upon its transfer to the new Department.  Given the Committee's 200 years of jurisdiction over the Custom Service, however, we would, of course, welcome the Committee’s input on this important function.

The Customs Service's trade and revenue collection mission is an operational one that involves both enforcing trade laws (e.g., determining and verifying the classification, valuation, and country of origin of goods brought into the U.S.) and collecting duties.  As part of this function, the Customs Service also determines the admissibility of goods by enforcing quotas and other trade restrictions.

This mission involves far more than the mere collection and remittance of funds to the Treasury.  The process begins with inspectors and other front line personnel who examine goods and paperwork to verify some of the critical components of admissibility and duty determinations -- classification, valuation, country of origin, and quantity, among other things.  After a duty is paid, Customs regulatory auditors may examine the records of an importer for compliance purposes and, depending on the outcome of that audit, may refer the matter to Customs Service special agents to open a criminal investigation.  The criminal investigation, in turn, may lead to recovery of lost duties and substantial civil and/or criminal penalties. 

Not only does the trade and revenue collection function cut across the entire Customs Service, it is a key part of the Customs Service's border security mission for several reasons:

First, the trade and revenue collection function is carried out by the same Customs Service personnel that ensure border security.  The front line personnel that perform trade enforcement and compliance activities at the border, such as physical inspections and paperwork verifications, are the same personnel that perform inspections for security and other enforcement purposes. 

Second, the trade and revenue function provides the Customs Service with the information that it needs to carry out its border security mission.  For example, a trade compliance examination (i.e., physical inspection) of a shipment at the border, or an audit of an importer, may reveal that the importer maintains poor controls over its inventory and thus should be considered a security risk.  As a result of that risk determination, the importer would be subjected to more physical inspections at the border to ensure that it does not intentionally or inadvertently bring contraband into the U.S.

8.  What will happen to the continuing development of the new Customs computer system, the Automated Commercial Environment (ACE), during the transition to the Department of Homeland Security?  What steps will be needed to join the Customs computer system with that of the other agencies?

ANSWER:  Systems plans for the components, which will enter the new department, will be carefully but promptly assessed to make sure they are consistent with both enterprise-wide requirements and specific statutory functions. There will be consolidation of systems where justified, with great care paid to make sure there is no interruption of critical functions.  It is likely that the rapid development of the ACE system will continue as will the interagency community's development of an International Trade Data System that creates a harmonized system for import-related data.  These systems will likely become a cornerstone of the Department of Homeland Security's enterprise architecture.

9.  Customs collects over $1 billion in user fees from importers.  According to law, those fees must be used for commercial purposes only.  How can Congress keep track of how the commercial fees be will spent by the Administration?

ANSWER:  Unless Congress changes the laws governing user fees, the present restrictions on user fees collected by Customs will apply if the Service is transferred to the Department of Homeland Security.  The draft bill prepared by the Administration does not change Customs' congressional reporting requirements.  Accordingly, Congress' oversight capabilities in regard to collection and expenditure of importers' user fees are not reduced in any way by the President's proposal.

10.  Has the Administration done any projections to determine if there will be significant cost to move a new Department?

ANSWER:  Earlier this year, the Office of Management and Budget (OMB) examined the costs associated with and the efficiencies that would result from the establishment of a single agency comprising the Customs Service, the enforcement elements of INS, the Coast Guard, and the border inspectors of the Department of Agriculture.  OMB estimated that combining these components into a single agency would have short-term costs and the potential for long-term redeployed resources. Short term costs associated with personnel buy-outs, relocation costs, and facility costs (breaking and entering new leases) would be covered from within the existing administrative budgets in these agencies.

[Letter submitted from Mr. Rangel to Ms. Kelley, and her responses follow:]

June 27, 2002

Colleen M. Kelley
National President
National Treasury Employees Union
901 E Street, NW
Suite 600
Washington, DC 20004

Dear Ms. Kelley:

Thank you for your testimony at the Committee’s hearing on June 26^th about the President’s plan to create a new Department of Homeland Security. I, and the other Committee Democrats, support the President’s effort and will work, on a bipartisan basis, to ensure development of a new federal Cabinet-level Department that effectively protects this country from the global threat of terrorism. As you know, the Ways and Means Committee is responsible for developing amendments to the President’s plan as relates to the U.S. Customs Service, and we hope to make such recommendations by July 10, 2002.

In order to move quickly in evaluating the President’s plan for Customs under the House Leadership’s schedule, I request that you advise me of any legislative provisions that you would like addressed in the bill (1) to ensure proper transfer of Customs to the new Department; (2) to preserve the effectiveness of Customs operations in protecting our borders and facilitating the commercial flow of trade; (3) to ensure retention of Customs employee job responsibilities and the employment protections currently under Title V; and (4) to maximize Customs’ ability to fight our war on terrorism, continue its drug interdiction programs, and other important responsibilities currently part of the Customs mission.

Also, as you agreed at the hearing, I ask that you meet with Customs Commissioner Bonner to discuss the future of Customs in the new Department. I am confident that meaningful dialogue between the Customs Commissioner and NTEU officials representing Customs will assist you in answering the questions listed above and in providing this Committee with valuable information and a clear direction on how we should proceed.

Given the short time frame under which the Committee is working, I request a written response to these questions by Tuesday, July 2, 2002. Please feel free to contact the Committee Democratic staff at 202-225-4021. Also, please provide a copy of your response to 1106 Longworth House Office Building.

Thank you for your assistance.

Sincerely,

Charles B. Rangel
Ranking Democrat

National Treasury Employees Union
Washington, DC 20004-2037
July 2, 2002

Honorable Charles B. Rangel
Ranking Member
Committee on Ways and Means
1106 Longworth House Office Building
Washington, DC 20515

Dear Ranking Member Rangel:

I again want to thank you for the opportunity to testify before the Committee on the President's proposal to create a Department of Homeland Security and its effects on the Customs Service missions of trade facilitation. I also appreciate the opportunity to offer possible legislative provisions for inclusion in legislation creating a new Department of Homeland Security.

I would like to address the issues you raised in the same order as in your letter. First, to ensure proper transfer of Customs to a Department of Homeland Security, it must be maintained as a distinct entity. Congressman Mac Thornberry's Homeland Security legislation, HR 4660 contains a provision that would achieve this goal. The provision is Section 102 Part (2) which states,

TRANSFER OF AUTHORITIES, FUNCTIONS, PERSONNEL, AND ASSETS TO THE DEPARTMENT.

The authorities, functions, personnel, and assets of the following entities are transferred to the Department:

(1) The Federal Emergency Management Agency, the 10 regional offices of which shall be maintained and strengthened by the Department. (2) The United States Customs Service, which shall be maintained as a distinct entity within the Department. (3) The portions of the Immigration and Naturalization Service responsible for law enforcement and border management, including the Border Patrol and Divisions of Inspections, Investigations, and Detention and Removal. (4) The United States Coast Guard, which shall be maintained as a distinct entity within the Department. (5) The Critical Infrastructure Assurance Office. (6) The National Infrastructure Protection Center and the National Domestic Preparedness Office of the Federal Bureau of Investigation. (7) The Animal Plant Health Inspection Service of the Department of Agriculture.

Second, to preserve the effectiveness of Customs operations in protecting our borders and facilitating the commercial flow of trade, the government must show the public that it is serious about protecting the borders and facilitating trade by full funding agencies such as the Customs Service which is tasked with defending the borders and enforcing the trade laws of the United States. The President's proposal-HR 5005, currently calls for no additional funding for any agencies that may be consolidated into a new Department of Homeland Security. No organizational structure change will be successful, no matter how good it may look on paper, if the government does not provide proper funding for its border agencies.

Third, to ensure retention of Customs employees and to ensure that employee protections currently provided under Title 5 are retained, it is imperative that the merit system that has evolved for over 100 years and has produced the most corruption free civil service in the world be maintained.

To accomplish this goal, Section 730 and 732 (bl of the President's proposal-HR 5005, must be removed. Section 730 provides that every section of Title 5 of them. ?7o de, which-sets out 7a of the rules, benefits and rights that currently apply to federal employees, may not apply to them once they are transferred to the new Department of Homeland Security, unless two political appointees, the Secretary of Homeland Security and the Director of OPM so choose.

A list of the main sections of Title 5 is listed below, but included are whistleblower protection, pay and benefits, including health care and retirement, antidiscrimination rules, the right to join a union and the merit system rules that prohibit political patronage. The legislation needs to ensure that employees of the new Department will be able to have a union and collectively bargain the same way employees who currently hold these jobs in their current agency do.

Under the President's proposal-HR 5005, the Secretary of Homeland Security and the Director of OPM would be allowed to prevent each and every one of these sections of law from applying to each and every employee of the new Department of Homeland Security. New personnel rules, created by these two political appointees, could be changed at any time. Every new Homeland Security Secretary and OPM Director would have the opportunity to rewrite them as they saw fit.

Section 732 (b) would allow the Secretary to hire any or all of the employees of the new department at any pay level, for any length of time. It is my understanding that the only agency that currently has an exemption such as this is the CIA.

The General Accounting Office and others have repeatedly warned Congress that the federal government faces a human capital crisis. The ranks of employees at or near retirement age have swelled to roughly half of the work force. How will the Department of Homeland Security be able to retain its most experienced employees when they will be faced with the possibility of losing the rights and benefits they have enjoyed for their entire career? More importantly, how will the Department of Homeland Security be able to attract the highly skilled employees it needs when employee pay, benefits and rights will be open to change at any time by political appointees that change every few years?

The employees that will be moved into a new Department of Homeland Security have been fighting the war against terrorism, before, during and since September 1 11th. They have captured potential terrorists, seized illegal contraband and prevented financial transactions that would provide potential terrorists access to the money they need to implement attacks. They have been fighting to protect our freedoms. This proposal would take away theirs.

Here is a list of the important sections of Title 5:

Ch.23 - merit system principles; Ch.43 - performance standards; Ch.53 - pay, including FEPCA; Ch.63 - leave; Ch.71 - labor/management relations, including the right to belong to a union; Ch.72 - anti-discrimination, including whistleblower protection; Ch.73 - conduct standards, including Hatch act; Ch.83 - CSRS retirement; Ch.84 - FERS retirement; Ch.89 - FEHBP.

Fourth, to maximize Customs' ability to fight our war on terrorism, continue its drug interdiction programs and other important responsibilities currently part of the Customs mission, the Customs Service must be fully funded to provide the proper number of personnel and resources to carry out their missions. In addition to full funding, additional legislative provisions that would be extremely beneficial to maximize Customs' employees ability to accomplish their missions include:

Addition of Journeyman 11 status for Customs personnel:

Language should include the following to ensure that the recent announcement to increase the Journeyman status of Customs employees by the Commissioner of Customs is statutorily provided:

AUTHORIZATION OF APPROPRIATIONS FOR CUSTOMS STAFFING

(1) IN GENERAL-There are authorized to be appropriated for the Department of Treasury such sums as may be necessary to provide an increase in the annual rate of basic pay--

(A) for all journeyman Customs inspectors and Canine Enforcement Officers who have completed at least one year's service and are receiving an annual rate of basic pay for positions at GS-9 of the General Schedule under section 5332 of title 5, United States Code, from the annual rate of basic pay payable for positions at GS-9 of the General Schedule under such section 5332, to an annual rate of basic pay payable for positions at GS-11 of the General Schedule under such section 5332;

(B) for the support staff associated with the personnel described in subparagraphs (A), at the appropriate GS level of the General Schedule under such section 5332.

Addition of Journeyman 12 status for Customs Import Specialists:

Language should include the following to increase the Journeyman status of Customs Import Specialists to Journeyman 12:

AUTHORIZATION OF APPROPRIATIONS FOR CUSTOMS STAFFING-

(1) IN GENERAL-There are authorized to be appropriated for the Department of Treasury such sums as may be necessary to provide an increase in the annual rate, of basic pay--

(A) for all import specialists who have completed at least one year's service and are receiving an annual rate of basic pay for positions at GS-11 of the General Schedule under section 5332 of title 5, United States Code, from the annual rate of basic pay payable for positions at GS-11 of the General Schedule under such section 5332, to an annual rate of basic pay payable for positions at GS-12 of the General Schedule under such section 5332;

(B) for the support staff associated with the personnel described in subparagraphs (A), at the appropriate GS level of the General Schedule under such section 5332.

Additional language for Law Enforcement Officer Status (6c) coverage for Customs personnel:

Language should include the following to enable Customs inspectors and canine enforcement officers to be recognized as law enforcement officers:

To amend chapters 83 and 84 of title 5, United States Code, to include inspectors and canine enforcement officers of the United States Customs Service as law enforcement officers.

SEC. 1. CIVIL SERVICE RETIREMENT SYSTEM.

Section 8331 of title 5, United States Code, is amended--(1) in paragraph (20) by inserting', customs inspector, customs canine enforcement officer, after 'administrative position; (2) by striking 'and' at the end of paragraph (27); (3) by striking the period at the end of paragraph (28) and inserting a semicolon; and (4) by adding at the end the following: '(29) 'customs inspector' means an employee of the United States Customs Service, the duties of whose position are primarily to--'(A) enforce laws and regulations governing the importing and exporting of merchandise; '(B) process and control passengers and baggage; '(C) interdict smuggled merchandise and contraband; and '(D) apprehend (if warranted) persons involved in violations of customs laws, including an employee engaged in this activity who is transferred to a supervisory or administrative position; '(30) 'customs canine enforcement officer' means an employee of the United States Customs Service, the duties of whose position are primarily to work directly with a dog in an effort to--'(A) enforce laws and regulations governing the importing and exporting of merchandise; '(B) process and control passengers and baggage; '(C) interdict smuggled merchandise and contraband; and ' (D) apprehend (if warranted) persons involved in violations of customs laws, including an employee engaged in this activity who is transferred to a supervisory or administrative position.

SEC. 2. FEDERAL EMPLOYEES RETIREMENT SYSTEM.

     Section 8401 of title 5, United States Code, is amended--

                  (1) in paragraph (17)--

                  (A) in subparagraph (C) by striking 'and' at the end;

                  (B) in subparagraph (D) by adding 'and' at the end; and

                  (C) by adding at the end the following:

                  '(E) a customs inspector, and customs canine enforcement officer;

                  (2) by striking 'and' at the end of paragraph (33);

                  (3) by striking the period at the end of paragraph (34) and inserting a semicolon; and (4) by adding at the end the following: '(35) 'customs inspector' means an employee of the United States Customs Service, the duties of whose position are primarily to-'(A) enforce laws and regulations governing the importing and exporting of merchandise; '(B) process and control passengers and baggage; '(C) interdict smuggled merchandise and contraband; and '(D) apprehend (if warranted) persons involved in violations of customs laws, including an employee engaged in this activity who is transferred to a supervisory or administrative position; '(36) 'customs canine enforcement officer' means an employee of the United States Customs Service, the duties of whose position are primarily to work directly with a dog in an effort to-'(A) enforce laws and regulations governing the importing and exporting of merchandise; '(B) process and control passengers and baggage; '(C) interdict smuggled merchandise and contraband; and '(D) apprehend (if warranted) persons involved in violations of customs laws, including an employee engaged in this activity who is transferred to a supervisory or administrative position; and

SEC. 3. ADMINISTRATIVE PROVISIONS.

(a) EMPLOYEE CONTRIBUTIONS-Any individual who has served as a customs inspector, and customs canine enforcement officer, before the effective date of this Act, shall have such service credited and annuities determined in accordance with the amendments made by sections 2 and 3 of this Act, if such individual makes payment into the Civil Service Retirement and Disability Fund of an amount, determined by the Office of Personnel Management, which would have been deducted and withheld from the basic pay of such individual (including interest thereon) under chapters 83 and 84 of title 5, United States Code, as if such amendments had been in effect during the periods of such service.

(b) AGENCY CONTRIBUTIONS-Not later than 90 days after a payment made by an individual under subsection (a), the Department of the Treasury shall make a payment into the Civil Service Retirement and Disability Fund of an amount, determined by the Office of Personnel Management, which would have been contributed as a Government contribution (including interest thereon) under chapters 83 and 84 of title 5, United States Code, for the service credited and annuities determined for such individual, as if the amendments made by sections 1 and 2 of the Act had been in effect during the applicable periods of service.

(c) REGULATIONS-The Office of Personnel Management shall determine the amount of interest to be paid under this section and may promulgate regulations to carry out the provisions of this Act.

SEC. 4. EFFECTIVE DATE.

This Act and the amendments made by this Act shall take effect 90 days after the date of enactment of this Act.

Additional language for raising the overtime cap for Customs Personnel:

Language should include the following to enable Customs employees to avoid being subject to arbitrary decisions by Customs management on what overtime cap is established nationwide:

Corrections Relating to Fiscal Year Cap:

(1.) Amend 5(c)(1) of the Act of February 13, 1911 (19 U.S.C. 267(c)(1)) to read as follows: Notwithstanding any other provision of law, the aggregate of overtime pay under subsection (a) of Section 267 of US Code Title 19 (including commuting compensation under subsection (a)(2)(B) of this section and premium pay under subsection (b) of this section that a customs officer may be paid in any fiscal year may not exceed 35 000, except that the Commissioner of Customs or his designee may waive this limitation in individual cases to prevent excessive costs or to meet emergency requirements of the Customs Service.

(2.) TREATMENT OF CERTAIN PAY FOR RETIREMENT PURPOSES‑ Section 8331(3)(G) of title 5, United States Code, is amended to read as follows-

`with respect to a customs officer (referred to in subsection (e)(1) of section 5 of the Act of February 13, 1911), compensation for overtime inspectional services provided for under subsection (a) of such section 5, but not to exceed 50 percent of any statutory or administrative maximum in overtime pay for customs officers which is in effect for the year involved;'

In closing, we believe that retaining all current Title 5 protections is critical to ensuring that Customs Service employees are able to continue to provide world class service and fight the war on terrorism. In addition, the proper funding, maintenance of employee rights, and legislative changes outlined here will ensure that Customs successfully continues its missions of trade facilitation and drug interdiction in the new Department of Homeland Security. Should you have any additional questions, please do not hesitate to contact me or Paul Giuliano or Maureen Gilman in NTEU's Legislative Department at (202) 783-4444.

Sincerely,

Colleen M. Kelley
National President

[Submissions for the record follow:]

American Apparel & Footwear Association, Arlington, VA, Stephen Lamar, letter