TESTIMONY OF THE BORDER TRADE ALLIANCE
THROUGH SUSAN KOHN ROSS

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on Oversight of the U.S. Customs Service

May 15, 1997

The Border Trade Alliance (BTA) was formed in 1986 by those who live, work and/or do business along the Southwest border for the purpose of addressing issues which are unique to doing business in that part of the country. BTA members are legitimate business people from both sides of the border who engage in the purchase and sale of legitimate goods. Because we are focused on the Southwest border, we have a unique perspective regarding U.S. Customs. It can be either a barrier to trade or a facilitator. We have had experience with both approaches. Our members are at the spot where many people see drug interdiction and cargo facilitation colliding head-on. That, however, is not necessarily our experience.

The BTA has been a strong supporter of the dual missions of U.S. Customs - drug interdiction and trade facilitation. We do not believe these missions are contradictory, nor do we subscribe to the idea that one should be focused upon at the expense of the other. It is our experience that the very same enforcement efforts which are directed to uncovering commercial fraud can, and often are, brought to bear to uncover illicit shipments of contraband, including drugs. Recognizing that Customs' efforts at drug interdiction will be enhanced if there is a public-private partnership, BTA has been an early and strong supporter of the Business Anti-Smuggling Coalition (BASC). BASC is a program whose goal is to generate proven cargo security programs, developed by the private sector, which can be transferred from industry to industry, and focuses on minimizing the likelihood of drugs or any other contraband or illegality from transiting with legitimate cargo shipments.

In terms of the focus of today's hearing, we intend to address in brief a number of issues: Customs reorganization, implementation of the Mod Act, outbound concerns and trade facilitation. Our focus as an organization is that rapid movement of legitimate cargo and people is key to the economic well-being of the Southwest border region. Cities on both sides of the border are joined together by many ties, including familial, cultural and social relationships. If goods cannot move to meet just-in-time delivery or if people cannot transit the border to conduct legitimate business, the boom of commercial business will become a bust.

Customs Reorganization:

In the context of Customs' efforts to reorganize, the BTA believes that Customs may have gone too far in attempting to streamline its operations. By eliminating both the Regions and the Districts, Customs has created a new set of problems for the trade and for itself. Whereas in the past there were fifty nine (59) localities (the Districts and the Regions) with which to deal in order to resolve problems, now there are 301 ports plus Headquarters. Given that the staff at Headquarters has been reduced, an awkward situation exists in that decision making responsibility has been delegated to the ports, but often the Port Director is not sufficiently trained or is unwilling or unable to make the necessary decisions. For example, is an individual inspector being overzealous? Is the position of the importer or customs broker correct so that the involved Customs person should be overruled? If so, by and large, Port Directors are unwilling to take the needed steps.

Because there is such a wide disparity in capabilities and decision making amongst the Port Directors, the Customs Management Centers (CMC) also do not operate as originally envisioned. Some have no interaction with the trade and some have nothing but interaction with the trade. To name a few, the CMC Directors in San Francisco, San Diego, El Paso and Laredo are particularly noted for their involvement with the trade. However, in Los Angeles, the CMC Director is involved only by his attendance at industry functions. We mean our comment as a factual statement only, because each CMC Director is responding to the needs of the trade and the capabilities of the Port Directors under his/her jurisdiction. The problem this creates is Customs management is becoming overwhelmed because Headquarters is the only place where issues of uniformity can be resolved. The BTA feels that the original idea of a point of contact for the trade at each CMC to deal with uniformity issues should be revived to solve this dilemma.

Additionally, given the wide disparity in capabilities between the various Port Directors, the potential for an increase in port shopping exists. While Customs has uniformity as one of its goals, we know from experience it simply does not happen. The large importers who have been assigned Account Managers are delighted to have someone assigned by the agency to fight the uniformity battle for them. Those less fortunate look for other ports to ship through, because these other ports are perceived as easier to deal with.

Mod Act Implementation:

Automation:

Turning next to implementation of the Mod Act, much can be said. Given limited time, we want to deal with automation and the status of the regulatory packages only. Many positive things have been accomplished as Customs has increased its reliance on automation. Recognizing in this era of ever-tightening budget constraints that a significant funding increase for Customs is not likely, the agency has developed more sophisticated targeting capabilities which result in the allowance of quicker processing for many routine shipments. As previously indicated, the ability to obtain quick release of high volume routine shipments is important to the border region's economic well-being.

There remain, however, several problem areas. One big concern is the number of different automation programs. For example, there is line release and border cargo selectivity. Different regions along the border prefer one program over the other, simply because of the processing time involved. It differs greatly from port to port. Of equal concern is the impact of then overlaying a program such as the North American Trade Prototype (NATAP). NATAP requires the inputting of some of the same data elements as either line release or border cargo selectivity. We would urge Customs to find ways to eliminate these duplicate data input situations.

Automated Export System:

Also troublesome is the fact that Customs often creates automation programs without truly appreciating their consequences. The Automated Export System (AES) is just such a program. We applaud the goal of the program which we understand to be the establishment of reliable export trade statistics. We, in the business, know that Members of Congress, Senators and others in and out of the Administration are making decisions about our relationships with key trading partners and currently are forced to rely upon what we know to be wholly unreliable trade statistics. Where we differ with Customs, as does most of the rest of the trade, is in the requirement that a great deal of data is required well in advance of exportation. In formulating this program, Customs has apparently overlooked the reality of trading at the land borders. A plant on the U.S. side of the border is sometimes only 30 to 45 minutes away from its sister plant on the Mexican side of the border. To require detailed information about a truckload ready for export and to require that information days or even hours before shipment is simply an impossibility. In certain circumstances, the information may not be known until the goods are actually shipped. In those circumstances, providing the required data elements even minutes in advance of export is problematic.

Other elements of the trade have weighed in criticizing the problems the advance notice requirement causes in the last minute air shipment situation or delivery just as receiving in the ocean context is closing. The potential for damage to trade across the land border by this advance notice requirement is simply incalculable. Manufacturing will come to a halt.

Blitzes:

Another area of concern in the automation context is the number of blitzes different arms of Customs generate. Here our concern focuses on various programs which Customs develops that require goods to be inspected. We understand the need to periodically inspect goods. We in the trade recognize inspections help Customs insure that goods are legitimate. It also helps industry uncover internal improprieties. Where we have concern is the circumstance which periodically arises of an importer who has had a series of shipments inspected, often at a cost of $200 to $500 per inspection. No violations have been found. As a result, no further inspections are required for the reasons caused by the first blitz. However, a new blitz looking for different issues is immediately instituted, again driving up the cost of doing business and for no apparent tangible reason. Additionally, there are often times directives from Headquarters to inspect certain types of goods which are at odds with the information needed by local commercial personnel. The importer ends up caught in the middle, but it is the consumer who ends up bearing the additional cost.

Reasonable Care:

Next we turn to the status of the regulations implementing the Mod Act. As this Committee knows all too well, the Mod Act was signed into law at the end of 1993. With few exceptions, no final regulations have yet been published. In fact, for most areas of reform, not even proposed regulations have been published. We are pleased to see that Customs has engaged the trade in formulating these regulations. However, it appears to us that a better degree of prioritization is needed.

One overarching area of concern for us is the lack of a clear definition of "reasonable care." Informed compliance requires that Customs inform the trade what is expected. Reasonable care requires that the trade follow that advice. While Customs is to be commended for the many publications which have been issued, one area of grave concern to all the trade is - when will reasonable care be defined by the agency? We are mindful of the proposed regulations on this topic which were published in January 1996. Many in the trade are aware that Customs continues to have internal debates about the best way to define reasonable care - should it be through examples? a definition? general principles? While we appreciate the difficulty encountered in addressing this issue, there is a vacuum in terms of what the field is to do. As a result, we see inconsistent action occurring. There are penalties issued to importers which cite a lack of reasonable care simply because the importer continued to rely on a long established practice which Customs decided was now wrong. We have seen penalties issued to brokers in circumstances where the behavior complained of had no bearing on the harm about which Customs complains. We have seen brokers penalized not once but twice over the same set of alleged improprieties, each time relying on different statutes. In short, without a clear definition of reasonable care, there is no real understanding by the trade or Customs of what is expected.

Use of Experts:

Another open area is that of the use of experts. The Mod Act allows an importer to make full disclosure to his selected expert and then rely on that expert's advice to establish reasonable care. What is not clear is how Customs will respond if a series of importers all rely on the same expert and that expert habitually disagrees with Customs' point of view. We presume for purposes of this example that the expert is competent and the disagreement is legitimate. However, it is also unclear what will happen if the expert is incompetent. Is it really going to be enough to fully disclose and rely on the expert's opinion? At what point will Customs say the importer should have known the expert was wrong? In the absence of a clear definition by which all parties may govern themselves, it is only a matter of time before such a case arises because of the judgment call of a field officer.

Unified Port Management:

As a last point, we want raise the issue of Unified Port Management (UPM). BTA has long been an advocate of the idea that for the land ports of entry to work most efficiently, one agency needs to be in charge for personnel purposes. Our concept of UPM involves leaving the agencies retaining their respective substantive areas of expertise. We believe, however, that one agency needs to be in charge to respond to staffing and hours of operation issues. We are aware there are pilot projects in Buffalo and Nogales. We know the Buffalo program by an INS person and the Nogales program is headed by a Customs person. We understand these two programs have been moderately successful in bringing the various agencies together to discuss issues of common concern, but they do not go as far as the BTA proposes. In both pilots, each agency retained its original jurisdiction, including staffing. Therefore, as we understand the results, no real efficiency in transit or release time was obtained. The BTA believes that UPM offers the government an opportunity to streamline operations without the need for added funding because it makes one agency responsible for staffing and hours of operation.

Conclusion:

Overall, the BTA believes that Customs has been adept in its efforts to enter the 21st Century. The issue we find most troubling is that Customs has had to balance a number of competing requirements without any meaningful increase in its budget. We do not subscribe to the idea that throwing money at an agency solves any problem, witness our UPM proposal. We do, however, recognize that Customs has been given more and more responsibility and each additional responsibility has been complex in its implementation. We have mentioned several of those recently added responsibilities today: NATAP, reorganization and the Mod Act. To this list should be added such efforts as NAFTA and Uruguay Round implementation, along with new textile rules of origin and the international application of NATAP. It is easy to criticize any large organization. We think there are a number of areas in which Customs could improve, most notably in staffing determinations, the education and training of its personnel and the manner in which those personnel are evaluated and promoted, including measurement of trade facilitation in the employment evaluation area. Nonetheless, Customs remains near the top of the list in revenue collection and enforcement success. Its efforts should be recognized and acknowledged as suggestions are made to improve its operations.