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TRADE AGENCY BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES HEARING BEFORE THE SUBCOMMITTEE ON TRADE OF THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS FIRST SESSION JULY 17, 2001 SERIAL 107-42 Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS |
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| 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 |
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SUBCOMMITTEE ON TRADE |
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| E. CLAY SHAW, JR., Florida AMO HOUGHTON, New York DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JENNIFER DUNN, Washington WALLY HERGER, California PHIL ENGLISH, Pennsylvania JIM NUSSLE, Iowa |
SANDER M. LEVIN, Michigan CHARLES B. RANGEL, New York RICHARD E. NEAL, Massachusetts WILLIAM J. JEFFERSON, Louisiana XAVIER BECERRA, California JOHN S. TANNER, Tennessee |
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. |
Advisories announcing the hearing
U.S. Customs Service, Hon. Charles W. Winwood, Acting Commissioner
U.S. General Accounting Office, Laurie E. Ekstrand, Director, Justice Issues
Filner, Hon. Bob, a Representative in Congress from the State of California
Gonzalez, Hon. Charles A., a Representative in Congress from the State of Texas
Joint Industry Group, and Caterpillar, Inc., Ronald Schoof
National Treasury Employees Union, Colleen Kelley
United States Association of Importers of Textiles and Apparel, Julia K. Hughes
U.S. Office of Personnel Management, Donald J. Winstead, questions and attachments
International Mass Retail Association, Arlington, VA, statement
U.S. Business Alliance for Customs Modernization, Jane O'Dell, statement
TRADE AGENCY BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:00 p.m., in room B-318 Rayburn House Office Building, Hon. Philip M. Crane (Chairman of the Subcommittee) presiding.
[The advisory and revised advisory announcing the hearing follows:]
Chairman CRANE. If everyone will please take seats and discontinue conversation, we shall commence our hearing this afternoon.
And welcome to the Trade Subcommittee hearing on budget authorizations for fiscal years 2002 and 2003 for the U.S. Customs Service, the U.S. International Trade Commission (ITC), and the Office of the U.S. Trade Representative (USTR) and other customs issues.
The Office of the U.S. Trade Representative is responsible for developing, coordinating, and advising the President on U.S. international trade policy. USTR staff and consultants conduct our trade negotiations, seek new markets for U.S. goods and services, and defend our rights in the World Trade Organization (WTO). We should be impressed by the breadth and depth of USTR's work and accomplishments, especially now when we are asking them to undertake so many trade initiatives around the world.
We would also review the Customs budget request during our hearing. As a multi-mission organization, Customs is expected to meet a variety of demands and responsibilities, some of which might be conflicting. Customs is expected to facilitate trade to meet the fast deadlines for goods and services delivery while playing a critical role in border inspection, antiterrorism, and drug interdiction, which often results in delays.
Customs must recognize the need to facilitate the movement of legitimate commerce. This is where technology such as non-intrusive inspection technology or automated screening systems can assist Customs' efforts.
This is also where modern technology for trade data can also assist Customs' data processing efforts. It is essential to update U.S. Customs' automated systems for U.S. industry and the population at large.
Any potential slowdown or brownout in Customs' electronic entry process system can adversely affect critical imports.
Today we will hear views from Customs, the Treasury, the General Accounting Office (GAO), and the trade community about modernizing and funding for automation to meet the increasing volume of trade data. We will also hear about efforts to revise the process of bringing goods into the U.S. and what improvements are being proposed.
One of the most important points I want to make today is addressed to Customs and the Treasury Department. This Congress passed the Africa Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act with the intent of helping those regions develop. Some provisions are simply being ignored or given tortured meaning to render them null and void.
Where trade has been enhanced, Customs is virtually strangling it with regulations. Our message to the administration is simple: Implement this free trade law.
Customs faces enormous challenges, and every day Customs officers rise to meet these challenges. While I acknowledge the outstanding work of Customs officials, I remain concerned about the law written before Republicans took the majority that allows Customs officials to receive nighttime pay for working at noon.
I have an open mind about this matter, and I have asked several witnesses to address this matter, bringing new data to bear. I am very willing to listen to ideas of mending an apparent flaw while properly compensating Customs officers for their actual hard work performed.
Today, we will hear from the Office of the Inspector General, the General Accounting Office, and the union on these Customs labor issues.
Finally, Customs must take care that its integrity is intact and that its internal corruption tolerance rate is zero. Our ability to interdict drugs at our borders depends on maintaining sound integrity.
We will also receive testimony from the International Trade Commission. The ITC has a unique role within the Federal Government as an independent, nonpartisan, quasi-judicial agency. The ITC conducts trade investigations, provides Congress with technical assistance in developing trade policy, maintains the Harmonized Tariff Schedule, and offers technical advice to businesses seeking remedies under the trade laws.
The ITC and this Subcommittee have always enjoyed a close and supportive relationship.
And I would now like to recognize our distinguished ranking member, Mr. Levin, for any statement he would make.
[The opening statement of Chairman Crane follows:]
Mr. LEVIN. Thank you very much, Mr. Chairman.
I understand we are going to have quite a series of votes fairly soon, so let me do what I usually don't do, and that is submit this in the record. And I won't go over each and every one of these words for posterity.
But let me say just a few words then quickly about this authorization for some really important agencies.
ITC, I think we are fully aware of its significance, and that is today highlighted by the 201 investigation of the steel industry. The report is due within a few months, and it is a vital undertaking.
So I would hope that we would have some questions not about that per se, but about the work of the ITC and then get on with it.
But the same is really true of USTR. Its importance doesn't need to be underlined by me.
Mr. Chairman, you and I spend a lot of time with USTR.
I will be interested in the progress in the new positions that were created at USTR as part of the trade compliance initiative, and also the positions that were to be used to monitor China's accession and to make sure that it fulfills its commitments.
I hope the China commission that we created as part of Permanent Normal Trade Relations (PNTR) will soon be in operation.
As to Customs, I don't think I need to say anything at any length about the adjusted current earnings (ACE) program and how vital it is that we get on with it, among other improvements within Customs.
It has been a long time since we have passed an authorization for these agencies. And in recent years, we have been stuck on issues that I don't think are particularly salient to the overall operations of these agencies, including Customs.
I would hope, as we question, as the Chairman said, those who do so with an open mind, we can also remember the importance of looking at the larger picture and also the experience of officials as they operate these agencies. They have some wisdom, and I think we ought to listen to it.
So in a word, Mr. Chairman, I hope that we can agree on the need to reassert this Subcommittee and the Committee's voice in the appropriations debate and pass the budget authorization request for these three agencies.
And, again, I will submit my full statement for the record.
[The opening statement of Mr. Levin follows:]
Chairman CRANE. Without objection, so ordered. Thank you, Mr. Levin.
And today we will hear from a number of distinguished witnesses.
And in the interest of time, I would ask that you try and keep your oral testimony to 5 minutes or less. But all written statements will be made a part of the permanent record.
And we now have our first two witnesses, our distinguished colleagues, the Honorable Robert Filner from California and the Honorable Charles Gonzalez from Texas. And please proceed in that order.
STATEMENT OF THE HON. BOB FILNER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. FILNER. Thank you, Mr. Chairman.
Good afternoon. Thank you for holding this hearing and thank you for allowing your colleagues who are not on this Committee to speak.
I think I bring to you a very unique perspective on trade. As the congressman whose district sits on the Mexican-California border and includes the busiest border crossing in the world at San Ysidro and one of the largest commercial crossings at Otay Mesa, I think I can tell about the policies that certainly impede trade.
Having border crossings that are adequately staffed is a priority for all of us in the San Diego region. When the Customs inspection lanes are not open as they should be, waiting times increase to unacceptable levels. One hour or even three hour delays are not unheard of, affecting businesses throughout San Diego County and the livelihood of most of my constituents.
Long delays at the border impede what should be a normal, legal flow of goods, services, and workers between the United States and Mexico.
These border crossings simply are not adequately staffed. We have 16 lanes at Otay Mesa that Congress voted to build. We have 24 lanes at San Ysidro. Even at the times of greatest traffic, many lanes are routinely unstaffed.
The problems of the staffing are largely a function of the United States' difficulty in attracting and retaining Customs and Immigration and Naturalization Service (INS) inspectors. These inspectors face incredible day-to-day rigors on their jobs. I have seen them personally many times, as I try to share in their job on the border.
They risk encountering life-threatening interactions with smugglers intent to push their way into the United States at any cost. There have been shoot-outs at the border inspection stations.
Yet these valiant inspectors are not recognized with the status that we call "law enforcement status," which other Federal law enforcement officers enjoy. I continually hear stories in San Diego County of inspectors, who our country trains at our finest Federal law enforcement academies, leaving for other agencies, in the area that they do adequately recognize them for the law enforcement officers they are.
I know that a Customs inspector, for example, Roberto LaBrada, who was injured during a shoot-out with a drug smuggler a few years ago at the Calexico border crossings, finds this sad truth to be incredibly ironic: Had he or his partner, Inspector Nicolas Lira, been killed during the shoot-out, their names, Mr. Chairman, would have been inscribed on the walls of the National Law Enforcement Officers Memorial just a few blocks from here. Their names would have been inscribed on that wall. But in life, they have no such benefits or recognition.
That has to affect recruitment and retention. In fact, from 1998, when we had a peak of 701 inspectors, we are now down to 619 Customs inspectors. The INS has had difficulty maintaining its peak number also, and recruitment and retention is a key reason. INS inspectors also lack law enforcement status.
There is little incentive to take such dangerous jobs as they hold. Seventy-five Customs officers' names are inscribed on this memorial, the National Law Enforcement Officers Memorial, and each inspector knows that he or she could be next. It is just plain demoralizing for them to put their lives on the line without getting the recognition for the dangers of the job.
Thus far, we in Congress have said "no" to these officers and the hardworking Customs inspectors who work in long, polluted lines of cars, never knowing which one may have the next desperate smuggler.
They carry guns, make arrests, seize more illegal drugs than any other Federal group, and yet they do not have law enforcement officer benefits.
I do have a bill, H.R. 1841; others will mention it today. This changes that situation and it says "yes" to ensuring a strong and vigorous workforce necessary for our country to have the finest level of protection possible.
Our country deserves no less, Mr. Chairman. And these valiant officers who protect us deserve no less.
Any costs created by the change of their status is offset by savings in training costs and increased revenue collection. A 20-year retirement bill for these employees will reduce turnover, increase yield, decrease recruitment and development costs, and enhance the retention of a well-trained and experienced workforce.
I hope that this Committee will consider these personnel and morale issues when discussing the important role that the Customs Service plays in our country's trade policy.
And I thank you, Mr. Chairman, for looking at these issues and allowing us the opportunity to be with you today.
[The prepared statement of Mr. Filner follows:]
Chairman CRANE. Thank you, Mr. Filner. Mr. Gonzalez?
STATEMENT OF THE HON. CHARLES A. GONZALEZ, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. GONZALEZ. Mr. Chairman, and ranking member Levin, again, thank you very much for the opportunity of appearing before you today to testify on designating the San Antonio International Airport as a permanent port of entry for customs processing.
I know you have very weighty matters here today. This is a small piece of that puzzle. But it is very, very important to the community of San Antonio.
As you may be aware, San Antonio is located only about 150 miles from the Mexican border. Obviously, we very strong cultural and economic ties with Mexico and have had for a number of years.
But with the advent of North American Free Trade Agreement (NAFTA), obviously this has increased tremendously. NADBank is actually located and headquartered in downtown San Antonio.
Approximately a year ago, with the help of this Committee and members of this Committee, we were able to get our San Antonio International Airport designated as a port of entry. Unfortunately, this was only for a period of 2 years. And at the expiration of those 2 years, obviously it no longer has that designation, and we will run into problems.
One barrier to our city's ability to attract international companies and their investment in San Antonio until last year was that businesses that fly private aircraft from Mexico had to make an interim stop to clear Customs before arriving at their final destination of San Antonio.
What does this mean to the individual businessperson? It means that that cost--they are only 150 miles from San Antonio--is $1,500 to $2,000 when they stop, and they lose 1.5 to 2 hours in time.
As indicated, we were able to remedy this last year, but now we are seeking a permanent designation of the San Antonio International Airport as a port of entry.
I do wish to advise members of the Committee that I have personally gone out there to view the Customs operation as well as the Immigration operation there in the San Antonio International Airport, and I want to commend Mr. Gurdit Dhillon, the United States Customs Service director of field operations for South Texas, who was present there.
They have been doing a wonderful job. This is something that they can easily accommodate.
But to give you some idea of what is happening, in the first 6 months of the year 2000, the San Antonio airport accommodated 432 private aircraft on Customs processing. In the first 6 months of 2001, 675 private aircraft were processed. So as word gets out, obviously there is greater use.
I don't see that there is going to be any complications or that there is going to be a tremendous demand on resources of Customs in this particular case. But San Antonio has maybe finally arrived after many, many years of being the economic stepchild of South Texas. And I would really appreciate your support in seeking the permanent designation.
Thank you again.
[The prepared statement of Mr. Gonzalez follows:]
Chairman CRANE. Thank you, Mr. Gonzalez. Do you have any questions, Mr. Levin?
Mr. LEVIN. No, just to say, we will work on both. And we are glad you are here to raise these issues. So we will work on both.
Mr. GONZALEZ. Thank you again.
Mr. FILNER. Thank you.
Chairman CRANE. Well, thank you for your participation.
And with that, I would now like to invite our first panel of witnesses, deputy United States Trade Representative, Peter F. Allgeier; acting Customs commissioner, Charles Winwood; and, ITC chairman, Stephen Koplan. And if you folks will please take seats.
And, again, if you can keep your oral testimony to 5 minutes or less. And that is what this little gadget in front here with that light is for, to go from the green light to the yellow light, the warning light, to the red light, which means stop. Please try and keep your oral testimony to 5 minutes or less. And any written statements, though, will be made a part of the permanent record.
And with that, Mr. Allgeier, you may proceed.
STATEMENT OF THE HON. PETER F. ALLGEIER, DEPUTY UNITED STATES TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
Mr. ALLGEIER. Thank you, Mr. Chairman. I would like to thank you and Congressman Levin for holding this hearing.
And basically, I would like to make three points. One, to thank this Committee for the support that is provided in the past. Secondly, to explain how we have been using the additional resources that you have provided in this fiscal year. And third, to seek your support for our future operations.
First, we are very grateful of course for the addition to our budget in this current fiscal year and the additional staff.
Are you going to take a break?
Chairman CRANE. No, no.
Mr. LEVIN. Keep going.
Mr. ALLGEIER. Okay, all right.
But particularly, we are very appreciative of the unwavering support for our overall mission of opening markets, getting rid of trade barriers, and enforcing our agreements and our trade laws.
And let me just say that the support that we have had from the Committee and from the staff has been very welcome and very much appreciated. It is at least as important as the financial support that we have gotten from you.
In the current fiscal year, we received an additional $4 million in our budget and 25 additional full-time equivalent staff to help us deal with the growing negotiations and case loads that we have.
In terms of using or allocating the additional staff, more than half of the staff--13 positions--have been allocated for compliance and enforcement. Part of that has been to strengthen the general counsel's office, where the litigation in the WTO and NAFTA takes place, and part of it is to have compliance and enforcement capabilities within the functional offices and the geographic offices.
We don't just exercise compliance and enforcement through litigation, but also through trying to negotiate differences of interpretation and agreements.
Eleven of the new positions are for negotiators, and I think you know very well the additional negotiation burdens that we have. We have the ongoing negotiations in the WTO on agriculture and services. We are working toward launching a new round. But even as we do that, we have full-time negotiations on the Free Trade Area of the Americas and bilateral free trade agreements with Chile and Singapore.
The third area in which we have used the additional resources and money beyond negotiators and compliance is in the area of upgrading our communications security. Increasingly, we are doing our business across the Internet and through electronic communications. And it is vital, actually, to our mission that we have good security in those communications.
And so we have been using some of the additional financial resources over the last year to upgrade these aspects of our computer network as well as our communication with the State Department in transmitting electronically cables, which we will soon have that capability and that will increase our efficiency.
That, very briefly, is how we are using the additional resources that we have been granted this year. And as we approach the new fiscal year, we are requesting a very modest increase of 2.2 percent in our budget. That is $645,000. We are not seeking any additional increases in permanent staff.
And we will, however, use approximately $350,000 in carryover funds from last year, which of course will be very helpful as we prepare for the WTO ministerial in Doha.
One other point on resources, we are very fortunate that each year we have between 30 and 35 non-reimbursable detailees from other departments. These have proven to be essential for our mission, but I think it also has been very helpful over time in spreading trade expertise among the other agencies as these detailees go back to their home agencies, and that strengthens the overall U.S. negotiating approach or ability.
So in conclusion, thank you very much for the support that we have always had from this Committee. We look forward to working with you closely on these trade initiatives and trade promotion authority. And I would be happy to answer any questions that you have today. Thank you.
[The prepared statement of Ambassador Allgeier follows:]
Chairman CRANE. Thank you, Ambassador Allgeier. Mr. Levin has a quickie.
Mr. LEVIN. Right.
The Chairman suggested, Mr. Allgeier, Ambassador, that maybe you don't need to wait. I am afraid that the rest of you will, as we go and vote. How many votes do we have?
Chairman CRANE. We have two, I think, at this time.
Mr. LEVIN. So let me just say, there are lots of substantive issues we could discuss, but this isn't the place for it. So we will do that another time.
And we are glad to hear about your use of these new positions, including for some important new compliance issues. As China ascends to the WTO, it is going to, I think, raise a number of continuing implementation issues, as you know so well.
We are glad that the USTR carried out what was the urgent request if not mandate of this Congress that there be an annual review within the WTO. And that is going to happen the first decade.
But there is a need for continuing review by USTR, Commerce, and State. And we are glad that you are going to use some of the staff to be active and vigilant. So best of luck.
And that is all I have to say, Mr. Chairman.
Chairman CRANE. Very good. Mr. Becerra, do you have any comments?
Mr. BECERRA. No, Mr. Chairman.
Thank you for being here.
Chairman CRANE. Well, with that, we are going to stand in recess, subject to call of the Chair, because we have to run over for the two votes.
But we will let you be excused, if you don't want to hang out. If you want to hang out, there may be questions later still.
But with that, we are in recess, subject to call of the Chair.
[Recess.]
Chairman CRANE. Okay, folks, we are back in business. And I apologize to Commissioner Winwood. He most graciously has relinquished his seniority in line, and I know he was hoping that he had already made his last trip up to the Hill to give testimony before we asked him to come back.
But with that, I will now yield to our distinguished colleague, Mr. Koplan, and please keep your oral testimony to 5 minutes or less. And all written testimony will be made a part of the permanent record.
STATEMENT OF THE HON. STEPHEN KOPLAN, CHAIRMAN, U.S. INTERNATIONAL TRADE COMMISSION; ACCOMPANIED BY STEVE MCLAUGHLIN, DIRECTOR OF ADMINISTRATION; ROB ROGOWSKY, DIRECTOR OF OPERATIONS; LYN SCHLITT, GENERAL COUNSEL; AND NANCY CARMAN, CONGRESSIONAL RELATIONS OFFICER
Mr. KOPLAN. Thank you, Chairman Crane and Congressman Levin.
On behalf of the United States International Trade Commission, I thank you for affording me the opportunity to discuss our budget request for fiscal year 2002 that is in the amount of $51.44 million.
I am accompanied today by Steve McLaughlin, our Director of Administration; Rob Rogowsky, our Director of Operations; Lyn Schlitt, our General Counsel; and Nancy Carman, our Congressional Relations Officer.
The Commission fiscal year 2002 budget request represents a 6.9-percent increase as compared to the fiscal year 2001 appropriation of $48.1 million. It has the unanimous support of all six Commissioners.
At the Subcommittee's request, the Commission has estimated our authorization requirements for fiscal year 2003. We estimate the need for an authorization level of $53.45 million for fiscal year 2003, a 4-percent increase as compared to our current fiscal year 2002 request.
I am appreciative that over the last several months, Subcommittee staff and personal staff of many of the members took the time to meet with me, Commission vice chairman Deanna Tanner Okun, and certain of the agency's staff to discuss the Commission's justification for our fiscal year 2002 budget request.
The vice chairman would have participated with me this afternoon except for the fact that, at my request, she remained behind to take over the chairing of a Title VII antidumping countervailing duty hot-rolled steel hearing, covering 11 countries, that commission began at 9:30 this morning and that is expected to last all day.
We are also mindful of the bipartisan support that this Subcommittee provided for our fiscal year 2002 budget request in advance of the action taken by the House Appropriations Committee on July 10.
I refer specifically both to your letter, Chairman Crane, and to the joint letter of the ranking member of the full Committee, Mr. Rangel, and of the Subcommittee on Trade, Mr. Levin.
I need not review the details of our statutory mission. They are well-known to the members of this Subcommittee. It is the Committee on Ways and Means that publishes the overview and compilation of U.S. trade statutes, a book on the required reading list for everyone in the trade community. Indeed, we already have our order in for the new edition that I understand awaits printing at the Government Printing Office.
My submitted statement details the Commission's five operations. They are: import injury investigations; intellectual property-based import investigations; the research program; trade information services; and trade policy support. I will highlight some recent significant developments that we did not anticipate in preparing our current appropriation request.
First as to Operation 1. At the written request of the Administration on June 22, we instituted an extremely comprehensive section 201 safeguard investigation regarding certain steel products. The request covers over 600 Harmonized Tariff Schedule item numbers. We have assigned the equivalent of four separate investigative teams to handle it. We must complete our work on this by December 19.
Second as to Operation 2, intellectual property-based import investigations. The number of new cases has increased from 12 newly instituted for all of fiscal year 2000 to 29 newly instituted in just the first 10 months of fiscal year 2001.
Third as to Operation 5, trade policy support. As the number of section 201 safeguard cases has grown significantly, so too has the amount of time and other resources that our Office of General Counsel has devoted, because of experience in appellate practice, to assisting USTR litigation teams at the World Trade Organization.
The key components of our total budget are personnel, approximately 72 percent; and rent, approximately 11 percent. This means that a significant part of our requested increase over last year's appropriation is necessary just to fund the anticipated 3.7-percent pay increase that will occur next January.
The Commission will commence a number of new projects in fiscal year 2002. They include a means for facilitating electronic filing of Commission questionnaires for our import injury investigations, because we are required to collect and analyze large amounts of statistical data that are not available from standard sources; system enhancement to our online Harmonized Tariff System database, used now by both the government and the public for more than 200,000 research actions annually; and the establishment of an internal data warehouse for labor cost, personnel, and accounting data, to generate regular reports to facilitate management oversight and tighter control over budget execution in conformity with the Government Performance and Results Act.
The Commission will also establish a new position of Chief Information Officer as part of our commitment to compliance with the Clinger-Cohen Act and the Government Paperwork Elimination Act.
Mr. Chairman, I ask that the full text of my submitted statement be included as part of the record of this hearing and welcome any questions.
Chairman CRANE. Without objection, so ordered.
[The prepared statement of Mr. Koplan follows:]
Chairman CRANE. And we will go forward with any questions that you might have of Mr. Koplan, since he is on a time restraint.
So if you have any questions, Sandy, fire away.
Mr. LEVIN. I will tell you, I think, for example, we need to be cautious about our increase regarding cases before you. So I will withhold those. Everybody understands the importance of those matters, both the 201 and the antidumping case.
So I think we can just wish you well.
Mr. KOPLAN. Thank you, Mr. Levin.
Chairman CRANE. Mr. Camp, do you have any question?
Mr. CAMP. Thank you, Mr. Chairman.
I think that a lot of concerns I have heard about are staffing levels, particularly with the increase in trade and on the concerns that that brings.
Will the automated commercial environment (ACE) and the entry revision project help you use the staff more productively? And is there any comment you can make on that, Mr. Winwood?
Mr. Winwood?
Mr. LEVIN. He hasn't testified yet.
Mr. CAMP. Oh, we haven't heard from all three? I came late.
Chairman CRANE. No.
Mr. CAMP. Okay. Why don't we wait until you finish your testimony, then.
Chairman CRANE. Mr. English?
Mr. ENGLISH. For Mr. Winwood, I would just--
Chairman CRANE. Oh, no. This is just for Mr. Koplan, because he has to leave.
Mr. ENGLISH. Okay, very good.
Mr. chairman, good to see you again, twice in one day. And I certainly appreciate the past hospitality you have shown.
I was wondering, do you consider the sudden increase in filings of investigations related to section 337, intellectual property rights violations, to be temporary or permanent?
Mr. KOPLAN. Permanent. And I say that because the U.S. Eastern District Court of Virginia is a place where--it's often referred to as a rocket docket--those cases were being filed.
And what happened in the last year, after we submitted our budget authorization, is that they decided that those cases could be scattered throughout that District, not just heard in Alexandria, Virginia. And what has happened is that there has been an influx of cases to us, and so we are way up over the number of cases that we had at this time last year, and it looks like that will be permanent.
And I think also that the increase in filings generally has been because of what has been happening with the tech industry. So we anticipate that this is going to continue.
Mr. ENGLISH. Thank you, Mr. Chairman. I have no further questions.
Chairman CRANE. Thank you.
Well, with that then, we express appreciation to you, Mr. Koplan. We are sorry to both of you for the delays, and would now like to yield to Mr. Winwood.
But you can depart.
Mr. KOPLAN. Thank you very much, Mr. Chairman.
Chairman CRANE. You bet. Thank you.
You may proceed when ready.
STATEMENT OF THE HON. CHARLES W. WINWOOD, ACTING COMMISSIONER, U.S. CUSTOMS SERVICE
Mr. WINWOOD. Thank you, Mr. Chairman, Congressman Levin, and members of the Subcommittee. And it is an honor, of course, to appear before you today to discuss the U.S. Customs fiscal year 2002 budget request.
I have submitted a comprehensive long statement for the record that I will summarize briefly for you today.
Customs' fiscal year 2002 budget request totals $2.39 billion. This budget will support Customs ongoing mission to facilitate the flow of international travel and trade while protecting America from drug smuggling, terrorism, money laundering, cyber-crime, copyright fraud, and other threats.
The rapid growth of our world economy poses key challenges for the Customs Service. The spiraling volume of people and goods crossing our borders has put immense pressure on our resources. At the same time, we must accommodate a steady increase in new trade agreements and requests for services from the public.
Fortunately, Customs is supported by some of the most able, dedicated and best employees in the Federal Government. The men and women of Customs continue to process passengers and trade in record numbers.
Last year, the Customs Service processed over 33.5 million trade entries, 150-percent increase since 1990. That volume is expected to double by year 2006. In addition, we processed about .5 billion travelers at airports, seaports and land border crossing. And thanks to the Congress, Customs has been able to acquire the resources to help meet the growing demand for our services.
In addition to support for Customs' annual budget request, the Congress established a collection of traveler and conveyance processing fees, otherwise known as Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) fees, to pay for enhanced inspection services.
Currently, COBRA fees pay for approximately 1,100 inspector positions as well as overtime and premium pay for all inspectors. The fees are also used to cover pre-clearance inspection and other essential operating costs.
Regrettably, the rapid growth in Customs resource needs has outpaced COBRA revenues. And we look forward to working with the Congress to address this funding shortfall to ensure that Customs maintains its current level of service.
Staffing in general will continue to be a critical issue for our agency. With the help of a leading consultant, we built a resource allocation model to help us project future staffing needs at our Customs locations.
The model was designed as a planning tool for management. It can be programmed to take into account changing scenarios that impact our mission, such as expanded volume of trade or a shift in threat.
Customs will rely increasingly on technology to supplement the skills of our people. We have obtained a range of non-intrusive inspection technology for our busy southern tier. The use of these tools has cut down our processing times significantly and enabled us to seize more illegal drugs.
Of the many tools under development at Customs to help facilitate border flows, none will benefit the America public in more ways than our new automated system for trade. Customs' ability to contend with a heavy workload hinges largely on the development of ACE.
Last year, we received the first appropriation for ACE in our 2001 budget. With part of that funding, we were able to select an ACE prime contractor this past April after an intensive bidding process.
The e-Customs Partnership, led by IBM Corporation, was chosen to join with Customs to modernize our automated systems. Improved outreach to the trade community goes hand in hand with this ACE effort. We are working closely with the trade community on a proposal to streamline the entry process. We are also implementing risk management strategies throughout the agency that will lessen the focus on compliant importers and concentrate our enforcement efforts where they are needed most. And we have assigned individual account managers to the largest importers, refined our audit processes, and begun to deliver on a range of benefits to low-risk companies.
With the continued assistance of the Congress, we look forward to building upon these successes, enhancing our level of service to the American public.
In that regard, I want to thank members of this Subcommittee for the support you provided to Customs in the recent markup of the 2002 Treasury budget. The additional funding recommended, particularly in the area of new automation, would enable Customs to stay on schedule with their ACE planning and deliver faster, safer, more efficient trade processing in as short of time as possible.
And thank you again for this opportunity to testify, Mr. Chairman. And I will of course be willing to answer any questions at your leisure.
[The prepared statement of Mr. Winwood follows:]
Mr. WINWOOD. But I would like to make one statement. I didn't know that by conceding to your wishes that you would empty the table and leave me here by myself.
[Laughter.]
Chairman CRANE. Well, we figured that since this was your last visit and you had anticipated having to come back again, that we should feature you solo.
[Laughter.]
Mr. WINWOOD. Well, I appreciate that.
Chairman CRANE. Well, we thank you for being here today, and we thank you for all the good work you have done.
Your successor-apparent, Mr. Bonner, will soon take over the reins of Customs Service. And what good advice would you leave him with?
Mr. WINWOOD. Well, Mr. Chairman, I truly believe that I am in no position to give a man with his distinguished career, his background, and his experience, coming back to the Federal Government, any advice at all.
I would just simply say that we look very much forward to Mr. Bonner's arrival to the Customs Service. I think he is going to bring a new era of further growth and development to our agency, and I think he will be a tremendous asset to the Federal Government.
Chairman CRANE. Thank you.
Sandy?
Mr. LEVIN. You know, your testimony was 19 pages long, and I think it shows the breadth of the functions of your institution. So I am not quite sure where to start. I am sure my colleagues will cover different territory than I.
Mr. Rangel was not able to be here today. And if he were here, he was going to ask some questions, I think perhaps you know--about the implementation of African Growth and Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI).
Is it fair for me to ask you those questions? Are you in a position to respond or not?
Mr. WINWOOD. Well, I will try to respond to your questions, but if they get into a very technical area, I will be more than glad supply detailed information for the record.
Mr. LEVIN. Okay. That is fair enough.
And these aren't entirely new issues, as you know. Some of them relate to the Customs definition of words or implementation of certain phrases.
And the first one relates to the phrase "fabric cut and assembled." And the phrase has recently been defined to exclude knit-to-shape apparel, as you know, I think, when Customs has traditionally included knit-to-shape apparel within that definition.
How do you explain that? Or do you want to do it for the record?
Mr. WINWOOD. Well, that is the one I would like to do for the record.
I will tell you, Congressman Levin, that is a somewhat technical issue, and I think it would be best-served to address it for the record.
Mr. LEVIN. Okay, you may be saved by this bell.
[Laughter.]
Mr. LEVIN. It is frustrating. We apologize to everybody.
Chairman CRANE. Oh, we are in recess--
Mr. LEVIN. Are we?
Chairman CRANE. Subject to call of the Chair, apparently.
Mr. LEVIN. Then you are not saved by the bell.
Chairman CRANE. Maybe we adjourned.
[Laughter.]
Mr. LEVIN. No.
Mr. WINWOOD. But if I may say for the record, Congressman Levin, that we have instituted interim regulations that have been published. We have done a tremendous amount of work particularly with the African nations in the form of training help.
We have had several of our Customs officers visit the continent and several countries at least four times. As a matter of fact, we have a couple of our Customs officers there right now, talking to the different nations about what they need to do to help them, education, awareness, the steps they need to take.
And we also, when the legislation was first passed and we were ready to put out interim regulations, we had 90 individuals from 24 countries brought to the United States. And we spent a full week with them with our Customs staff and representatives from other government agencies associated with imports and textiles, et cetera, to talk about the procedures and steps we take to institute this revision of law.
Mr. LEVIN. All right, well, there is a similar question regarding the definition of fabric. I think what we will do is to submit these questions to you, though I think you already have them. And I think they will belay your testimony on it.
But these discussions have been going on for a long time--
Mr. WINWOOD. Yes, sir.
Mr. LEVIN. To put it mildly.
All right, let me just ask you about another controversial issue, and I guess we are going to be talking about the whole compensation issue, as you part, do you want to say anything about that?
Also, you know there is the proposition to make the officers, the inspectors, eligible for law enforcement status. Would you like to comment on that?
Mr. WINWOOD. Yes, sir.
On the whole concept of compensation for what we consider to be law enforcement officers who conduct a very critical, dangerous job, I think if there is going to be any review of any form of compensation--it was passed by Congress in 1994--it should be a holistic review.
We shouldn't be looking at one aspect first or another, because that package was put together as a total compensation package for individuals doing a very critical job.
I am very much in favor of adequate, proper compensation, both in the form of pay and additional compensation and protection for officers who do the type of work that these Customs officers do in the field every day. If we are going to look at the compensation program, the whole program should be looked at.
Mr. LEVIN. How long have you been with the service?
Mr. WINWOOD. Pardon me, sir?
Mr. LEVIN. How long have you been with them?
Mr. WINWOOD. Thirty years.
Mr. LEVIN. So you talk about a comprehensive look at it and not taking it piecemeal, you are drawing on your three decades of service within the service to say that? I mean, do you feel deeply about that?
Mr. WINWOOD. Most certainly, sir. I will tell you that when the law was passed in 1994, from my understanding and watching how the Congress worked and the different pieces were brought together, the attempt was to take a holistic look at the entire compensation package prior to the new enactment of the law in 1994.
If there was to be a review of that, I think we should, again, take a look at the whole package and not divide it up into segments.
Mr. LEVIN. Thank you.
Mr. WINWOOD. Yes, sir.
Chairman CRANE. Thank you. Mr. Camp?
Mr. CAMP. Thank you, Mr. Chairman.
I was interested in the staffing levels. Obviously, they have had a lot of demands placed on them because of increased trade. And I wondered what your thoughts were on that; and whether you thought that the ACE and entry revision project would allow the staff to be used more productively; and if you did, how you thought that would work.
Mr. WINWOOD. Congressman Camp, I think that is an excellent question. I think the future, the next generation of what we need to do to further enhance the economy and world trade and global trade, is to make sure we have the right combination of well-dedicated, trained, professional staff supported by the proper technology and supported by automation to enable them to work efficiently.
I am firmly convinced that the ACE modernization and the entry revision, as we continue to work with the trade to add that procedure to the ACE automated system, will definitely enhance the ability of our officers to work more efficiently. And it will cause us not only to work more efficiently, but be able to maintain some semblance of keeping up the tremendous growth that we know we are going to face.
Mr. CAMP. What are some of the efforts that you have on maintaining the integrity of the staff, given the amount of material that has been seized, in terms of money, drugs, contraband, other things? And are there any recent instances where there has been wrongdoing among the staff that you can relay to us?
Mr. WINWOOD. First of all, I would like to say emphatically that the Customs Service and all its employees have a zero tolerance toward any type of violation of the integrity of the organization and violations of the laws which we are sworn to support.
We have made major changes to our effort to help our officers stay with the highest level of integrity. We have new procedures in place.
We have reorganized our internal affairs office, have special organizations set up within internal affairs to do certain types of investigations. We have a special intake group that reviews every allegation that comes into the Customs Service and determines at what level it should be reviewed and what type of investigation should be done.
We have new procedures that we have documented, with the help of our employees, to make sure that people have logical, systematic processes that they can follow.
We have also set up not only announced inspections with an inspection program, but we also have unannounced inspections to ensure that we are all maintaining the level of professionalism and integrity that we agreed to maintain.
Now, with that being said, we do have some officers from time to time that cross the line. And we take it very seriously. We have several cases right now that we are working, where I think they made a major mistake by violating the law. We will prosecute those individuals, when they are found to have been guilty of violating the law, to the fullest extent that we can.
Mr. CAMP. All right, thank you. Thank you, Mr. Chairman.
Chairman CRANE. Mr. English?
Mr. ENGLISH. Thank you, Mr. Chairman.
Rather than ask a question, I would simply like to extend my thanks to Mr. Winwood, and specifically to three Customs agents who assisted a community in my district, Millcreek Township.
Millcreek Township participated in a joint investigation with Customs from June 1999 through February 2000. The joint investigative operation was successful in its efforts. However, reimbursement to the Millcreek Police Department was belated and entangled in red tape; I might add, not through any fault of Mr. Winwood's.
There were three agents in particular who worked with my office and got this situation fixed, and I would like to acknowledge them if I could: Mr. Gary Lang, the associate special agent in charge of the Baltimore field office; Mr. Bill Reid, the assistant director for policy and planning, Washington, DC; Mr. David Callahan, the resident agent in charge of the Philadelphia field office.
Let me say that this is a small matter in the scheme of things, but to me it is suggestive of an agency that is trying to work very closely and build a good interaction with local agencies to extend its reach, extend its resources, and when mistakes are made, address those problems.
Mr. Winwood, I would like to commend you for the way your agency responded to this situation in my district.
And, Mr. Chairman, with that, I will yield back the balance of my time.
Chairman CRANE. Thank you. Mr. Neal?
Mr. NEAL. Thank you, Mr. Chairman.
I apologize for being tardy, but simultaneously we were in another Subcommittee, debating the issue of tax simplification.
Chairman CRANE. Okay.
[Laughter.]
Chairman CRANE. You got it simplified, I trust.
[Laughter.]
Mr. NEAL. Well, we got it done.
[Laughter.]
Chairman CRANE. Oh, very good.
[Laughter.]
Mr. NEAL. I was able to rush over here, Mr. Chairman.
Mr. Winwood, let me be specific. Mr. Camp was general in his questioning.
The Port of Boston. The Coalition for New England Companies, they have been complaining vociferously now for a period of time about staffing levels in Boston. And they believe that trade is beginning to slow on the basis of staffing levels in Boston.
I don't expect you at this session to be able to specifically address the question, but it really is important.
Barney Frank wrote you, I believe on June 10, as a follow-up to a letter that the coalition had written on March 8 of this year. And if your staff could let me know what their analysis of staffing level has done in Boston?
As you know, the Port of Boston is very, very busy. And I would hope that you might be able to give us some answers in the near future. But it is a question now that comes up regularly when we discuss trade issues back in the State of Massachusetts, what is happening with the staffing levels at the Port of Boston.
Mr. WINWOOD. Congressman, I assure you that I will personally make sure that this is looked into and that we will respond with an analysis of the situation in Boston and give you a detailed accounting.
Mr. NEAL. Thank you very much. Thank you, Mr. Chairman
Chairman CRANE. Well, we thank you, Mr. Winwood, for all of your stellar service. And we especially thank you for going through the ordeal of coming back again as a witness, and we look forward to working with you in your next capacity.
Mr. WINWOOD. Thank you, Mr. Chairman.
Chairman CRANE. And with that, let me bring our next panel to the fore. And that is Dennis Schindel, deputy inspector general, U.S. Department of the Treasury; and Laurie Ekstrand, director, justice issues, U.S. General Accounting Office.
And before we commence, let me remind you to please try and keep your oral testimony to 5 minutes or less. And all written testimony will be made a part of permanent record.
And with that, we will proceed with Mr. Schindel.
STATEMENT OF DENNIS S. SCHINDEL, DEPUTY INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF THE TREASURY
Mr. SCHINDEL. Thank you, Mr. Chairman, members of the Subcommittee, I am pleased to appear before you today.
In April of 1999, I testified before the Subcommittee on the results of an audit that we conducted on the impact of the Customs Service Officers Pay Reform Act (COPRA) on Customs' overtime and premium pay. That audit found that while the COPRA legislation was expected to reduce the Customs overtime costs for inspectional services, it in fact increased those costs.
COPRA became law as part of the Omnibus Budget Reconciliation Act of 1993. It created a new and exclusive overtime compensation and premium pay system for Customs officers performing inspectional services. The intent of COPRA legislation was to more closely match earnings to hours worked.
A 1993 House report estimated that COPRA changes would result in overtime savings of $12 million in both fiscal year 1994 and 1995 with total savings through fiscal year 1998 of $52 million.
Our audit found, however, that premium pay expenses for Customs, specifically, the night work differential, substantially increased under COPRA. Instead of the significant reduction in Customs overtime costs that COPRA was anticipated to provide, costs increased when both overtime and premium pay were added up. Clearly, this was not the expected result when COPRA was passed in 1993.
From the data available from Customs, we determined that in fiscal year 1993, the last full year under the prior pay legislation, commonly know as 1911 Act overtime, Customs' total overtime costs, including shift differentials, were $99.2 million. Of this, approximately $51,000 was due to night differentials.
Looking at fiscal year 1995, the first full year under COPRA, we found that total overtime costs increased to approximately $106.1 million. Of this, $8.9 million was specifically attributable to night differentials. Therefore, COPRA substantially increased Customs' costs for night differential pay from $51,000 in 1993 to $8.9 million in 1995.
Customs has continued to experience higher costs each year. In fiscal year 1997, total overtime pay, including premium pay, was $126.8 million of which $9.3 million was due to night differentials. In fiscal year 2000, the costs were $158.9 million and $14.4 million, respectively.
One of the major reasons for the increase in Customs' premium pay costs and, more specifically, the night differential, is that the enactment of COPRA greatly increased the number of available hours in which a Customs officer could earn night differential. Also, COPRA increased the night differential amount from 10 percent of basic pay to 15 percent or 20 percent, depending on the time of day.
Specifically, the time period that qualifies for night differential premium pay extends from 3 p.m. to 8 a.m. or 17 out of the 24 hours of the day. The period from 3 p.m. to 12 a.m. qualifies for the 15-percent differential, and the period from 11 p.m. to 8 a.m. qualifies for the 20-percent differential.
The night differential provision in the COPRA also provides that if the majority of a shift falls within a night differential period, then the entire shift qualifies for the night differential premium.
For example, a Customs officer can earn a 15-percent night differential for the entire 8 hours of a shift that starts at 12 noon and ends at 8 p.m. That officer can earn a 20-percent night differential for an entire 9-hour shift that starts at 3 a.m. and continues through 12 noon. Likewise, a shift that runs from 8 p.m. until 4 a.m. would also qualify for night differential pay at the 20-percent rate.
What this means essentially is that all 24 hours of the day can qualify for night differential premium pay, and a tour of duty, such as 12 noon to 8 p.m., which most of us would consider primarily daytime hours, qualifies for 8 hours of night differential pay.
Another factor increasing Customs night differential expenses was an arbitration ruling, which was issued in 1995. A panel arbitrator ruled in favor of the National Treasury Employees Union, which protested Customs' refusal to pay night differential to Customs officers who were on leave for periods of 8 hours or longer.
The ruling required Customs to pay officers COPRA night differential even when they are on leave, if those leave days would normally qualify for night differential had the officers been at work. This created a situation where officers received night differential premium pay even if they were on vacation.
In summary, the overall cost to Customs for overtime has shown an increase rather than a decrease after the passage of COPRA and has steadily increased every year since 1995.
The night differential portion of that total cost has substantially increased from $51,000 in fiscal year 1993 to $14.4 million in fiscal year 2000. That substantial increase will remain a part of Customs' total overtime costs and continue its upward trend unless the provisions of COPRA outlined in this testimony are eliminated or modified through new legislation.
That concludes my remarks, and I would be happy to answer any questions.
[The prepared statement of Mr. Schindel follows:]
Chairman CRANE. Thank you, Mr. Schindel. Ms. Ekstrand?
STATEMENT OF LAURIE E. EKSTRAND, DIRECTOR, JUSTICE ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Ms. EKSTRAND. Thank you, Mr. Chairman.
I am going to very briefly discuss the results of three recent reports that GAO has done concerning the Customs Service, and let me start with Customs' automated commercial environment, ACE.
As you know, ACE was intended to replace Customs' current aging and error-prone system for import processing. Customs also plans to acquire a system known as the international trade data system (ITDS) that is to provide importers with a single interface with the Federal Government.
When Congress appropriated money for ACE and ITDS, they also stipulated that ACE funds may not be obligated until Congress approves the ACE expenditure plan that meets a number of management and oversight requirements, including review by GAO.
Customs submitted its first expenditure plan seeking the release of $45 million in March 2001. On April 23, 2001, we reported to the Customs Appropriations Subcommittee that the expenditure plan satisfied the appropriations act conditions and was consistent with our open recommendations concerning ACE.
We concluded that the plan constituted a reasonable first step in a complex, long-term modernization program. We made some additional recommendations for Customs actions, and they have agreed to implement them.
GAO will continue to monitor Customs' ongoing modernization efforts.
Next, let me turn to some work we have recently done concerning Customs Office of Regulations and Rulings, known as OR&R. This office is very important to importers because, among its duties, it issues rulings on such things as proper classification and valuation of imported goods. And these rulings are very important to the business decisions importers make and in some cases are time critical.
We reviewed a representative sample of headquarter's rulings that were requested and issued between January 1997 and October 1999. We found that about two-thirds were not completed within OR&R's 120-day benchmark for these rulings.
Indeed, about 16 percent took longer than a year to process. In response to our draft report, OR&R acknowledged problems with the timeliness of headquarter's rulings and attributed the delays to staffing shortages and competing workload demands.
We made a number of recommendations intended to resolve the problem, and Customs has indicated they will act on them. And we will again follow up in terms of the recommendations.
Finally, let me turn to our recent work concerning Customs officers' night differential pay. Specifically, we focused on the potential effects of two provisions of subsection C of H.R. 1833, which was introduced in the 106th Congress. And Mr. Schindel has just been over those two subsections. One deals with paying officers that are working night shifts for the time they are on annual, sick or other leave, and the other would change and reduce the number of hours in a day that Customs officers could earn night differential.
Our analysis of Customs data show that about 6,500 officers received about $13.5 million in night differential pay in fiscal year 1999, about $11 million of this was paid for work on six shifts. Had sections 123(a) and 123(b) been in effect for these shifts, Customs officers would have earned about $5 million less. In contrast but to a lesser extent, 122 officers would have received net increases of a total of $17,000 had the proposed changes been in effect.
Our analysis of the potential impact of the proposed changes across five selected ports showed that the extent of the impact would vary widely, depending on the size and staffing patterns of each port.
This concludes my oral statement. And of course, I would be happy to answer any questions you may have.
[The prepared statement of Ms. Ekstrand follows:]
Chairman CRANE. Thank you very much for your testimony.
Let me first ask Mr. Schindel, how would the proposed legislation reduce the expenditures for Customs? And is this a sound way of trying to address some of the problems?
Mr. SCHINDEL. Well, clearly, it would reduce some of the expenses because it would cut back on the number of hours that available to earn night differential, instead of the 17 hours out of the day.
And also, it would eliminate the majority of hours rule, so that the pay would more closely match the hours worked. So if you were in a shift that 3 or 4 of the hours qualify or fall into the night differential period, you only get paid for those 3 or 4 hours at night pay and not the entire 8-hour shift.
And of course, doing away with the provision that would pay for leave, sick leave or annual leave, would also address some of the reasons why the costs increased after COPRA.
Chairman CRANE. Ms. Ekstrand, in your experience with both Federal and private sector employees, is it unusual for someone to be paid nighttime premium pay for working in the afternoon?
Ms. EKSTRAND. There are so many different configurations of pay, sir, that it is hard to generalize. I don't know of other Federal employment situations where this is the case, but there certainly could be.
Chairman CRANE. There could be, but you don't know of them yet.
Ms. EKSTRAND. I don't know of them.
Chairman CRANE. Okay.
Ms. EKSTRAND. We have not looked at them, if they are there.
Chairman CRANE. Under my proposal of last year, would some officers make more money?
Ms. EKSTRAND. A small number of officers, specifically those that work in early morning hours, would make a small amount more money.
Chairman CRANE. And the Treasury employees union states that it would be appropriate for Customs officials to receive benefits as law enforcement officers. Can you compare the pay and benefits of both? And under such status, state how Customs would improve or not improve?
Ms. EKSTRAND. Well, certainly, a big portion of the difference between status of law enforcement officers versus others relates to retirement. Law enforcement officers get a 20-year retirement. That is an enormous part of the benefit.
Chairman CRANE. All right, Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman.
I didn't hear what you said before. I know we have gone through this as well in the past, so let me just ask a couple of quick questions.
I know that there is an issue of pay here with regard to what some of our Customs employees are making. And I know that in the Office of Inspector General report, you looked at absolute increases in the amount of pay.
I am trying to figure out if you can tell me if it would be better to try to differentiate between the different types of pay that we provide to our Customs employees, in trying to determine the substantial increases that we have seen for Customs employees can be attributed to more than just one particular level of employee and shift.
And I hope that made sense.
Mr. SCHINDEL. Of course, our work is somewhat dated now, but going back to looking at the initial passage of COPRA, the biggest increase we saw was in the night differential category. 1993 was the last full year before COPRA came into effect, and the Customs accounting record showed around $51,000 for night differential pay. And 1995 was the first full year after COPRA was in effect, and that figure went to $8.9 million, so it was a substantial increase in that one category.
I think, in fact, that some of the provisions of COPRA that were expected to reduce overtime costs in general did in fact general overtime a little bit, when you compare 1993 to 1995. But because night differential went up so substantially, total overtime and premium pay costs did not go down. In fact, it went up.
Mr. BECERRA. Ms. Ekstrand, I don't know if you want to answer or give us any of your thoughts right now, but I do have a followup.
Ms. EKSTRAND. We recently reported that certainly night differential provisions in COPRA have resulted in some increases in premium pay. In our recent report, we noted that the number of officers since 1995 to 1999 have increased by about 950 officers, and the number of hours has also increased.
So this is part of the picture of the increase, but we haven't done an analysis to ferret out the different parts of it.
Mr. BECERRA. The 1996 report that you all did, did not tell us whether there were more hours worked, if there was a higher volume of work that was required and that was the reason you saw such an increase in night differential pay. It didn't really dissect that, did it?
Mr. SCHINDEL. No, sir.
Mr. BECERRA. And wouldn't it be worthwhile to know if indeed--I mean, I know in my Port of Los Angeles, we have seen a tremendous increase in work, and that could have an effect on how much we are paying in a lump sum, in a total amount, to Customs employees.
And unless you take a look, it may give the appearance that night differential pay was the cause of increased costs, but indeed you had a high volume or an increased volume of work, and employees had to put in longer work hours.
That could also explain why you saw an increase in night differential pay as well, couldn't it?
Mr. SCHINDEL. Yes. Clearly, some of the increases, when you compare 1995 to 1997, or 1997 to 2000, is going to result from the the fact that there are more inspectors on board and more night differential hours being worked.
Our feeling was that when we compared 1993 to 1995, that there would not have been that much difference in the amount of officers on board in those 2 years, yet the night differential went up so substantially, from $51,000 to $8.9 million, that it was clear that some of these provisions in COPRA were having a direct impact on that substantial increase.
Mr. BECERRA. If some of the employees are working later into the night than usual, that is going to cost us more simply because they are working longer hours, and chances are, we are paying them more to do that, aren't we?
Mr. SCHINDEL. That is correct. The later hours in the night differential shift also earn the higher premium, which is 20 percent versus the 15 percent.
And, certainly, the COPRA legislation, part of the increase was also due to the fact that the premium was increased. It was 10 percent across the board for night pay before COPRA and then it went 15 percent and 20 percent, depending on the different shifts.
Mr. BECERRA. I am sorry, Mr. Chairman, if I could just conclude?
It seems to me that we have to update the report before we can reach and particular conclusions about what is happening with night pay differential and make some good, solid conclusions.
Mr. SCHINDEL. Well, again, I think that the recent GAO work, while it wasn't directly targeted at looking at how much night differential overall had been increased by some of these other factors, it was looking at what these provisions in the H.R. 1833 law would--what kind of impact they would have on the dollars as far as what it costs Customs for those types of premium pays.
So that data is pretty fresh.
Mr. BECERRA. Mr. Chairman, I know my time has expired. Thank you.
Chairman CRANE. Mr. Levin?
Mr. LEVIN. Mr. Becerra, I would be glad to yield to you.
Mr. BECERRA. Actually, Mr. Levin, that is fine.
Mr. LEVIN. I was going to ask some of the same questions, and I am sorry that I had to miss some of the testimony.
Though I must say, I am not sure there is anything new. I mean, how long have we been on this argument about data from 1993, 1995, updated by GAO to some extent, challenged by the GAO, I think? I don't know what we are doing.
And then I reread the letter to Mr. Rangel of January 14, 2000, from the Treasury Department that indicated that we cannot separately identify the increases due to mandatory pay raises--that is inflation, in part, right--within grade increases or promotions? There has been intensified effort in recent years to align the staff in a port with the hours when most of the weekend comes in.
I don't know what we are doing.
Would you disagree with the suggestion of the acting commissioner that we ought to take a look at the whole thing rather than doing this piecemeal, Mr. Schindel?
Mr. SCHINDEL. I haven't looked at it from that perspective, but certainly a more comprehensive review of compensation probably would be more beneficial than piecemeal.
The only point I would make is that while our work is somewhat dated, again, I think that the GAO review, which attempted to put a dollar figure on the impact of some of the provisions of H.R. 1833, cutting back on the number of hours that are available to earn night differential, doing away with the majority hours rule and doing away with the provision to pay for sick leave and annual leave, there is current data to show how much savings would be involved in that. So, by extension, it gives you an idea of how much of the night differential increase is due to those provisions.
I believe that the figures were around $5 million would be reduced.
Ms. EKSTRAND. It would be slightly over $5 million. The majority of that money is saved in relation to the provisions of majority of hours, as opposed to paying officers who are scheduled to work nights but are on some type of leave.
Mr. LEVIN. I would think any reasonable person listening to the two of you would say a comprehensive look might be in order. Thank you.
Mr. BECERRA. Mr. Levin, if you would yield just a second?
Mr. LEVIN. I would yield.
Mr. BECERRA. I don't know if this was answered or not, but did you find any abuse by management in the use of night differential pay or in the scheduling of Customs officers?
Mr. SCHINDEL. We did look at that in our review, and we did not. The shifts that were worked continued to be the shifts that were normal for those ports or airports, and we didn't see any indication that they were trying to arrange the shifts so that they could get the maximum benefit of the new provisions.
Mr. BECERRA. So there is nothing to indicate that anything other than just a workload and volume is causing Customs to have its employees work these particular hours and these scheduled times?
Mr. SCHINDEL. That is correct.
Mr. BECERRA. Okay, thank you.
Chairman CRANE. Mr. Houghton?
Mr. HOUGHTON. No, no questions.
Chairman CRANE. Well, with that, let me express appreciation to both of you for your testimony today, and we look forward to continuing to work with you.
Mr. SCHINDEL. Thank you.
Ms. EKSTRAND. Thank you.
[Questions submitted from Messrs. Crane, Shaw, and Neal to Mr. Winwood, and his responses follow:]
U.S. Customs Service
Washington, DC 20229
August 27, 2001
The Honorable Philip M. Crane
Chairman
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Chairman:
1. What contingency plans do you have if ACS crashes for more than a few hours? Can you describe how you see Customs automation system functioning over the next several years while ACE is built?
Customs has established a port-specific Business Continuity plan designed to address the contingency of an unexpected ACS outage, which provides for specific trade processing functions to successfully revert to manual operations after certain periods of time have passed.
The Office of Information Technology has established a Disaster Recovery Operations Center (DROC) team that is solely focused on disaster recovery and continuity of operations. An engineering plan is being developed to use a Commercial recovery Facility (CRF) for contingency operations. The CRF is planned to be operational by the first quarter of FY 03.
ACS will require life support and maintenance during the period that ACE is under development. Life support funding will be used to upgrade the mainframe computer and the communications network to maintain adequate service levels as trade growth continues and transaction volumes increase.
Additional infrastructure equipment (specifically desktops, local area networks) will require renewal as well. Software licenses and software upgrades will be required to meet ongoing regulatory updates and changes to the law.
ACS will continue to provide current capabilities while modernized trade business processes, called for by the Customs Modernization Act, will be delivered as ACE functionality is rolled out. ACE planning is staged such that as major new functional elements are deployed, corresponding ACS functions can be taken off line.
2. At the current funding level, how long will it take Customs to build ACE and what needs to be done to accelerate this? Also, the House appears to be ready to approve higher funding for ACE. Assuming such higher funding is given every year, what is the minimum amount of time it will take to build ACE?
At the current funding level, it is estimated the project will require 14 years to complete.
An accelerated ACE development could be safely accomplished if the increased funding was manageable.
There are limitations to the number of software developers that can be applied to the program to accomplish a program more quickly. Adding more people does not complete the project more quickly. There are software development modules that must be completed before others are started.
In addition, Customs will need to divert a number of subject matter experts from day-to-day operations to support ACE software development teams. Adding additional development teams would severely degrade field operations and the accomplishment of the Customs mission.
3. The Customs Service has been working for years to update the Automated Commercial System (ACS) with the Automated Commercial Environment (ACE). I understand that Congress has appropriated substantial funding this year to achieve this end. What assurances can you give the Committee that this money will be used to launch a version of ACE that reflects current technology rather than a version which reflects the design process Customs undertook several years ago when the idea was first conceived?
Customs has hired a world-class prime contractor, the e-Customs Partnership (e-CP), to build ACE. The e-CP is led by IBM Services and includes Lockheed Martin, a CMM level five software manufacturer. The e-CP created the Technology Vision Council (TVC) to provide input on current and emerging technology and assist in the revision of the enterprise engineering and infrastructure planning of ACE.
Customs and the e-CP negotiated a performance-based contract that will provide the e-CP with the incentive to be far reaching in its efforts to make ACE a world-class system. The ongoing and dynamic relationship between Customs and e-CP, with Customs servicing as a guide on a daily basis, will ensure the success of ACE.
As part of the first three tasks with the e-CP, business process redesign review and validation will be conducted to ensure that design processes reflect current thinking and allow maximum flexibility to react to changing global environment.
ACE will allow for the insertion of new technology as advances become more available and business needs change. Since Customs Modernization is considered ongoing, the systems renewal process will never end. The ACE system should never become obsolete.
4. During the hearing we heard from two Members about staffing levels. What is Customs doing to meet increased demands created by the substantial growth in trade, and will ACE and the Entry Revision Project allow you to use current staff more productively? If so, how?
ACE will allow Customs to distribute routine workloads evenly, freeing up Customs officers to concentrate their efforts on high-risk shipments.
Current paperless rate is averaging 38 percent, which equaled 10.4 million paper entries in 2000. At this rate, with our current system, Customs will be inundated with over 25 million paper entries by 2009. With ACE, paperless rates will increase, based in incremental deployment, to 99 percent, resulting in only 400,000 paper entries. This will free up our front line resources to concentrate on conducting enforcement actions because ACE will perform many of the clerical duties they are currently forced to perform.
The two-year dialogue with the trade on the Entry Revision Project reinforced the approach to streamline the entry process by offering an automated account-based system. This approach will minimize the amount of redundant data that is currently required and allow for periodic reporting of entry summary data.
Increased targeting capabilities will result in more effective examinations.
The trade community will have better access to their data. This increased access would allow the trade community to identify and correct potential compliance issues.
5. What is the status of the implementation of Foreign Trade Zone data automation that was required to be implemented by January 2000? I am told it has not yet been implemented.
Customs has completed the technical specifications for the necessary enhancements to the Automated Commercial System. The project is currently going through the Investment Management Process and is scheduled for review by the Customs Investment Review Board this August.
Due to the lack of funding, the pending development of ACE and the related freeze on enhancements to the Automated Commercial System, the Investment Review Board will most likely decide not to approve the Foreign Trade Zone automation project for ACS. Instead, this effort will be deferred for inclusion in ACE. The schedule for implementing Foreign Trade Zone automation in ACE will be determined under ACE Task #3, which is expected to be completed by the end of January 2002.
6. What is the status on the implementation of the provision in the Tariff Suspension and Trade Act of 2000 that allows multiple entries of merchandise to be listed as a single transaction? This simplification was intended to allow importers of large machinery and equipment to make one entry with one value rather than a very long list of parts and values.
The law as amended deals with two distinct issues, each presenting unique operational problems. It was determined to address the issues presented in separate regulatory projects, the first dealing with shipments which are expected to arrive on a single conveyance but which are split at the initiation of the carrier (split shipments). The second project is directed toward the large articles which exceed the capacity of a single conveyance and thus must necessarily be shipped on multiple conveyances (large articles).
A Notice of Proposed Rulemaking addressing the split shipments has been prepared and is presently in Customs review. Following this review, the document will undergo necessary review and approval by the Treasury Department prior to publication for public comment in the Federal Register.
A group comprising multiple Customs disciplines has been convened for the purpose of addressing large articles. The work product expected to emerge from this group is also a Notice of Proposed Rulemaking. The document will undergo a similar review and approval process prior to publication.
7. A large portion of the Customs budget is provided from user fees. Customs has difficulty providing budgetary information on whether fee money is being spent on commercial activity or non-commercial activity. I note that the Treasury Inspector General has several times commented on the need to improve core financial systems to provide more complete and accurate data. What improvements to Customs financial systems are needed to provide Congress with greater cost accounting details on where fee proceeds are being spent? How much will such a system cost and how long to implement?
Customs does collect fees for providing numerous inspectional services including the processing of air and sea passengers, commercial vehicles, vessels and rail cars. These fees, known as COBRA processing fees are collected and used by Customs to fund enhanced inspectional overtime.
Customs does have a cost management information system (CMIS) in place which does provide greater detail on the cost of providing services. Continued emphasis and training on the CMIS is a priority to ensure the accuracy of Customs fees and activity costing.
Customs also collects a fee for the processing of merchandise that is formally and informally entered into the country. The fee, known as the Merchandise Processing Fee or MPF, is set legislatively and offsets a portion of the costs for Customs commercial operations. However, Customs does not have access to the MPF collections.
In addition to the Inspector General, Customs has reported the need to improve deficiencies in providing complete and accurate information for financial reporting since 1993. Long term solutions include the implementation of ACE and an off the shelf enterprise resource planning software package called Systems Applications and Products (SAP).
8. Seizures along the Southwest Border continue to increase. The Customs Service should be congratulated for these seizures. However, what evidence do we have that demonstrates Customs is seizing a greater percentage of drugs rather than finding the same percentage of a much larger supply?
The Customs Service, as the nation's frontline agency in the counter-drug effort, seizes more drugs in each of the major drug categories than any other federal agency.
Measurement of the worldwide production of illegal drugs, however is very difficult due to a number of widely fluctuating variables. Nonetheless, the best available production estimates, compiled by law enforcement and intelligence community experts indicate that drug production, particularly opium and coca, in the major source countries has either remained stable or steadily increased.
Coca production in Colombia has increased steadily over the past 2-4 years. This increase in Colombian production has replaced the coca production of a number of other coca producing countries such as Bolivia and Peru. Opium cultivation in Colombia, by the same token, has also expanded over the past several years. The result of the increased production and the shifts in production locations, is that supplies of these illegal drugs remain widely available for shipment to the United States, as well as other areas such as Europe.
Estimates on the percentage of the total amount of illegal drugs that Custom seizes are difficult to gauge with any degree of accuracy.
Information and intelligence indicate that Customs drug seizures do have an impact on traffickers and their operational planning. However, traffickers are resilient and constantly seek opportunities to move drugs into the United States.
The Customs Service continues to focus on increasing our drug seizures not only along the Southwest border, but also at every major port of entry, as well as disrupting and dismantling drug smuggling groups through effective and efficient investigative, intelligence and interdiction strategies.
9. Drug seizures always raise questions. How can one use those rates to determine the success of drug interdiction efforts? For example, if you are successful and there are fewer drugs coming across the border, your seizure rates will come down. Lower rates could also suggest you aren't catching enough.
While drug seizure rates do have value in determining the success of drug interdiction efforts, they are not in and of themselves blanket indicators of success or failure. Drug seizure rates are perhaps most useful in determining the effectiveness of operations or tactics in a specific area. For example, Customs air interdiction capability efforts have resulted in an apparent decrease of smuggling into the United States via small aircraft.
Concentrated enforcement efforts along the Miami River in South Florida appear to have impacted the traffickers in that area as indicated by an apparent reduction in smuggling via Haitian coastal freighters. Even more to the point, a well-coordinated intelligence, aviation and investigative effort in the Eastern Pacific has resulted in multi-ton seizures of cocaine (over 100 metric tons in the past 18-24 months). Finally, Customs ecstasy seizures have tripled in the last 4 years, 400,000 in 1997 to well over 9 million in 2000, as we have moved to assertively target and interdict this drug.
Despite the above seizures, however, Customs is not in a position to draw conclusions as to the long-term impact of these impressive statistical successes. It should be noted that there are a number of interagency working groups operating under the auspices of ONDCP that are studying the long term impact of these types of enforcement and interdiction efforts. In the short term, intelligence does show that Customs enforcement and interdiction efforts do have a significant impact on drug smuggling groups and their operations.
10. Given that NAFTA prohibits the collection of user fees and Customs must use appropriated funds to operate the border activities, what cost accounting system does Customs have in place to tell Congress what funding is needed to process these entries and releases exempted by law? Is Customs subsidizing these activities at the border, which are exempt from user fees with the money collected elsewhere?
The merchandise processing fee (MPF) is not collected on the value of merchandise arriving from Canada and Mexico. The MPF collections are deposited into a special fund to offset the cost of commercial activities in the Customs appropriation. Since Congress appropriated the full amount necessary for Customs activities, both NAFTA and non-NAFTA, all Customs activities are funded through appropriated sources.
Customs does not have a system in place to estimate the funding used to process NAFTA and non-NAFTA merchandise. Customs does have a cost accounting system (Cost Management Information System CMIS) in place to estimate the cost of activities related to COBRA processing fees on arriving passengers and commercial conveyances.
11. Customs must perform financial audits on importers for various reasons. Financial auditing of many different types of businesses (of all sizes) obviously takes very specialized auditing skills and a need for keeping proprietary information strictly confidential. An inadequately trained auditor can miss instances of non-compliance as well as wrongly accuse business, which are in compliance. I have heard some concerns about the financial auditing skills of Customs, but I am not is a position to determine whether these are anecdotes or systematic problems. Can you describe the qualifications and auditing training your staff receives and whether improvements are possible?
We believe that Customs Regulatory Auditors receive excellent training throughout their careers with the Service. Our training program is based on standards set by the General Accounting Office (GAO) which are comparable to those help by private sector professional auditors. Upon initial entry, all auditors receive at least a total of nine weeks of basic Regulatory Audit training broken out in three classes of four, three, and two weeks, which prepares them for audits of major companies. In addition, all auditors are given advanced training classes in areas such as drawback, foreign trade zones, NAFTA, and other specialized audit areas after the nine weeks of basic Regulatory Audit training is completed. Customs auditors also receive continual training classes for audits of major importers to ensure all Regulatory Auditors are updated with the latest policies and procedures. Customs has also committed to provide all auditors with at least 80 hours of continuing professional education every two years.
12. GAO reported that rulings from Customs take a very long time. Since rulings are critical to importers' ability to operate, what improvements or increase in resources are needed for Customs to speed the process?
Customs has undertaken a review of the entire Customs ruling process through the publication of a notice of proposed rulemaking on Part 177 of the Customs Regulations, which covers the binding rulings program. After consideration of public comments in conjunction with recent Supreme Court decisions such as U.S. v. Haggar and U.S. v. Mead, Customs will re-examine the current process requiring issuance of binding rulings on a per request basis and other ways to fulfill informed compliance under the Mod Act.
During the past two years, OR&R has lost and re-hired approximately 29 attorneys (two waiting to come on board). While the office has re-staffed to prior levels, it has not increased its attorney staff level during the past six years. The OR&R has projected a need for six to eight attorneys to help increase the timeliness of rulings.
The office has developed a Cross-Training Program for its attorney staff, not only to provide the basic training for new attorneys but also to increase the technical diversity of all attorney staff. This allows for more attorneys to be assigned a variety of cases, which helps cover shortfalls in certain subjects when persons resign or retire.
13. COBRA fees are declining. What impact has that had on the reserve fund which is supposed to maintain a minimum balance? Also, has Customs precipitated this result by being too optimistic about expected fee receipts while obligating those receipts with permanent staff positions?
COBRA fees have been relatively stable but have not kept pace with inflation. Customs is maintaining the mandatory reserve of $30 million. Under the COBRA legislation, we must maintain this balance in case there are unforeseen downturns in revenue.
In addition to this reserve, Customs had $42 million in carryover funding at the start of this fiscal year. These funds, in addition to current year collections, estimated at $300 million, are available to cover specified inspectional activities.
Customs has been tracking revenues and costs closely to ensure that we do not exceed the available budget. For FY2001, Customs developed a financial plan that keeps current year costs approximately equal with anticipated collection levels. Customs is managing its inspectional staffing levels, overtime/premium pay and related costs to this level.
14. Customs staff handles an immense amount of seized drugs, goods, and money. Can you update us on ongoing efforts to ensure integrity is maintained among staff, and have there been any recent instances of wrongdoing?
To address the issue of integrity regarding seized property, we have created a senior management position of Director, Narcotics and Currency Inspections, in the Office of Internal Affairs. The purpose of this position is to monitor and inspect the direction, policies and activities related to the control and disposition of contraband materials, especially narcotics and currency.
As a result of the creation of this new position, many of the integrity vulnerabilities normally associated with seized contraband have been substantially reduced. Many policies and procedures have been revised to ensure that tighter controls and proper safeguarding and handling procedures were implemented throughout the Customs Service. In addition, new physical security standards were established for both temporary and permanent storage vaults, particularly along the Southwest border.
To ensure managers throughout the agency comply with Customs policy and procedures, Customs has instituted the Self-Inspection Program. Each Customs unit conducts an inspection tailored to its own organization every six months, documenting areas of compliance, improvement and deficiency. Areas addressed involve the seizure and storage of narcotics and federal deposition of currency.
Internal Affairs developed and distributed a computer-based integrity training program for every U.S. Customs employee, around the world.
To track allegations of serious misconduct and criminal activity; including those involving seized contraband, Internal Affairs formed an Intake Review Group and developed a case tracking system. Centralized receipt and classification of allegations has standardized the process nationwide, insuring every allegation is properly tracked and addressed by IA.
Office of Internal Affairs Recent Reports of Wrongdoing
On June 27, 2001, a federal grand jury in El Paso returned a multi-count indictment against former Customs Group Supervisor Ramon Torrez and a current Border Patrol agent. Torrez was charged with the importation of multi-ton loads of marijuana into the United States, accepting bribes and conspiracy to defraud the United States. The indictment followed a lengthy investigation by Customs Internal Affairs and the FBI. Torrez resigned from the Customs Service during the investigation.
On July 13, 2001, U.S. Customs Special Agent Robert McNaught was arrested by Customs Internal Affairs and the FBI in New York. McNaught was charged with federal narcotics conspiracy offences. McNaught allegedly offered to transport cocaine along the East Coast for a trafficking organization.
On July 16, 2002, Customs Internal Affairs agents and Postal Inspectors arrested a U.S. Customs Mail Technician in the JFK Mail Facility in New York for felony violation of 18 USC 1702 (obstruction of mail). The technician was observed stealing items, including jewelry, from parcels at the mail facility between November 2000 and July 2001.
15. Since the Customs Reorganization and the passage of the Mod Act, the Customs Service has conducted compliance audits of hundreds of businesses and even whole industries. What criteria are used in deciding which industries or particular businesses to audit? Are these general criteria? Why audit, say, the electronics sector and not some other sector?
Since the passage of the Mod Act, Customs has utilized several factors in selecting businesses for audit. Customs has concentrated on certain industry sectors because of their size and importance to the U.S. economy. Customs has termed these sectors Primary Focus Industries (PFI's), and devoted particular attention to verifying import records in the industries. Within PFI's, Customs audited those businesses with the greatest volume of imports. Audit was concentrated on particular import requirements such as antidumping assessments, quotas, duty collections, and special duty exemption provisions.
Based on our experience for the last five years, Customs has decided to add certain risk factors to the company selection process for audit. While company size will be a criterion for selection, other factors such as involvement of the company in certain high-risk trade issues will distinguish the company for the purpose of possible audit. For example, companies that import through several special duty exemption programs such as NAFTA and GSP would be selected before companies that import regularly under tariff provisions that do not have special requirements. Companies that import merchandise in a sector subject to antidumping assessments would be selected before companies that do not. Companies with documented compliance problems would be selected before companies whose records did not indicate patterns of non-compliance.
Questions from Congressman Shaw
1. I am concerned that the explosive growth in trade through gateways such as South Florida is not amply accounted for in the kind of statistics being kept by Customs and other commerce and trade agencies of the U.S. government. As tariff rates among the U.S. and our trading partners decline, less revenue is collected upon entry but volume increases. Are resource and personnel allocation formulas going to need to be adjusted for different factors as our trading profile changes? What are the most relevant factors in determining manpower and equipment allocations, as a function of volume, number of container/passenger landings, or other statistics? What studies or audits, either government-sponsored or privately undertaken, have been produced in recent years to analyze the trends in imports and exports to determine the effect that Customs procedures, processes, and resource allocations have on the positive flow of trade?
When Customs developed the Resource Allocation Model (RAM), it took into account the need to be flexible with workload and data drivers and assumptions on which the projections for personnel requirements would be based.
Global workload growth rates were set using straight-line projections based on the past 3-5 years of performance measurement data, tempered with some industry data. This was calculated using a variety of workload drivers such as passengers processed, entry releases, examinations, and container sweeps, just to name a few.
As this data changes, the output from the allocation model would also change.
The most relevant factors considered to address resource allocation include: workload growth, border presence, and enforcement threat. For these factors, Customs management information systems provide numerous categories of data and statistics on which the RAM projections are based.
In addition, Custom is engaged in in-depth discussions on the implication and impact of the future on Customs operations. Because Customs mission is so diverse and because it interfaces with such a variety of stakeholders, it is necessary to begin to look at the future and review how industry, business, national security, global economy, and technologies will change and how Customs must change to adapt to this future environment.
We are in the process of developing a report which summarizes future trends, implications on Customs and professional observations that can assist Customs in meeting the challenges of the future. Our review to date has confirmed that trade volume will increase and tariff rates and revenue are likely to decrease especially because of the international free trade agreements.
2. As the flow of agricultural products and services trade both increase, what new challenges does Customs foresee in how goods are handled, inspected, and cleared? How will this require changes in operating procedures, training of personnel, or upgrades in technology?
Currently, Customs enforces over 400 laws for over 40 agencies. Customs enforcement efforts for other agencies range from admissibility concerns to data verification. Admissibility issues, such as the identification and detainment of shipments that may be contaminated with Foot and Mouth disease, pose an additional workload burden on Customs Inspectors. Import Specialists are required to manually verify Antidumping/Countervailing Duty transactions, thereby significantly increasing their workload.
With the increased threat to the health and well-being of the American public and the economy of the Nation, Customs faces even greater challenges to meet the enforcement requirements of other agencies. To effectively meet these challenges, Customs applies and promotes a risk management methodology. This risk management approach effectively targets suspect shipments, thereby maximizing efficient use of Customs resources. In additional, when applicable, Customs is promoting a "Pre-Approval Process" to other agencies. This process places the responsibility of other agency data verification directly in the hands of the subject matter experts at the other agency.
3. Are specific resource allocation formulas or differentials used for high intensity drug traffic areas or other areas of national security concern, whether that concern includes interdiction of drugs, firearms and other weapons, or chemical/biological agents? What additional resources should Congress be committing to the Customs Service in coming years, and is that solely in the domain of annual appropriations or should this committee consider changes in current law?
The threat, whether from narcotics, firearms, chemical/biological agents, or other types of cross-border criminal activity, is a key factor in determining the allocation of Customs resources nationally. The Resource Allocation Model took these threats into consideration in projecting Customs staffing needs.
Customs receives the bulk of its funds to respond to these threats through annual appropriations. However, some additional funding is provided through accounts such at the HIDTA (High Intensity Drug Trafficking Area) program administered by the Office of National Drug Control Policy.
4. How sustainable is a fee-for-service arrangement beyond immediate needs for areas with unforeseen short-term needs or growth in a particular area? Should Congress undertake a more comprehensive inspection of how our border controls are managed and how fees are collected and allocated before re-authorizing such a system?
Fee-for-service arrangements have proven to be successful. Customs currently provides service on a fee basis to over 30 small airports, as authorized under the COBRA provisions (19 U.S.C. 58c). A Memorandum of Agreement has been developed to provide 24-hour cargo inspection on a fee-for-service basis at an international airport (Broward County), under the pilot program authorized by P.L. 106-35, Sect. 2425. We also developed a standard template that can be used to establish the cost of the service for possible future fee-for-service arrangements.
A Customs work group is currently reviewing all existing fees and reimbursable services work to determine the appropriate fees to be charges for services.
5. In addressing both traffic congestion issues and streamlined customs procedures, the fate of so-called "reliever airports" is often dependent upon our assuring responsive Customs coverage during peak hours and availability during non-peak, but still high-traffic time periods. In South Florida, where smaller, private aircraft are capable of making short-haul international flights and require Customs clearance, the limited hours of service at such airports, including Fort Lauderdale Executive Airport (FXE) constricts the capacity of such facilities to serve as relievers to the big international airports (in FXE's case, Ft. Lauderdale-Hollywood International (FLL) Airport), often requiring airplanes to land, clear customs, then take another short flight over congested, residential areas to return to their home airport. How can Customs re-arrange this system and provide the necessary service to ease the anxieties of the safety-conscious public and to mitigate the environmental hazard of additional noisy, costly take-offs and landings?
In September 2000, Customs representatives from the South Florida CMC worked with Congressman Alcee Hastings to discuss the possibility of extended hours at "reliever airports". A study was conducted of aircraft arrivals at the Fort Lauderdale Executive Airport (FXE) between January 12, 1997 and February 25, 1998, expanding the hours of operation from 5:00 p.m. to 7:00 p.m. During this time, activity between the hours of 9:00 a.m. to 11:00 a.m. averaged 3.71 flights per day. During the period of 5:00 p.m. to 7:00 p.m., 2.96 flights were averaged per day. As a result of the test, regular hours of operation (9:00 a.m. to 5:00 p.m.) were reinstated with the concurrence of FXE officials.
An update of the study of arrivals at FXE through June 30, 2001 was conducted. Arrivals from October 1, 2000 to June 30, 2001, increased by only 3.25% over the same time period compared to the previous fiscal year. The average number of arrivals remained the same as the previous test, 3.71 per day between 9:00 a.m. and 11:00 a.m. and 2.96 per day between 5:00 p.m. and 7:00 p.m.
The Port Director presented the results of the survey to a representative from the FXE Airport Association, stating that the 11:00 am to 7:00 p.m. hours could be considered, if the airport wished them. The representative from the FXE Airport Association stated to the Port Director that the hours should remain 9:00 a.m. to 5:00 p.m., since the corporate aircraft prefer those hours.
Customs is continuing to monitor the activity at FXE and keep congressional interests aware of the status and test findings
6. I was surprised to discover that the Customs Modernization process leaves South Florida not obtaining upgraded technology until several years down the road, even though collectively these ports and airports are among the fastest growing gateways to/from all parts of the world. I understand than land borders will be the first testing ground of the systems, followed by our nation's largest ports of entry. I would like to know if such timetables account for only current and past traffic patterns or if they also take into account the projected growth expected over the coming decade, spurred by new trade agreements with partners in the Caribbean, Latin America, and worldwide?
In 1997, Customs developed a Five-year Non-Intrusive Inspection Technology Plan. In FY 1999, the Five-year Plan received $134 million appropriated and emergency supplemental funds. Because of the high risk of narcotics smuggling on the southern tier of the United States, Customs effort in the deployment of NII technology focused initially on the Southern tier of the United States, including South Florida. Deployment and evaluation were simultaneous. There were no mobile NII systems acceptable for use at seaports in existence until deployment and testing.
3 of the 15 seaport NII systems are installed in South Florida, including a Mobile Truck Gamma Ray and a Sea Container X-ray to Miami and a Vehicle & Cargo Inspection System, or VACIS to Port Everglades. 3 additional Mobile Truck Gamma Ray systems (2 in Miami and 1 in Port Everglades) and 1 additional Sea Container X-ray system (Port Everglades) are scheduled for deployment to South Florida by the end of FY 2002.
Review of the Five-year Non-Intrusive Inspection Technology Plan is scheduled during the FY 2003 budget cycle.
7. As Social Security Subcommittee chairman, I am also concerned about privacy in the use of Social Security Numbers. Could you please describe how individual SSNs are used for tracking packages though Customs, how you protect SSNs from being misused, and any other potential privacy issues stemming from the information you gather on individual shippers?
Customs requires entries to include a unique, official identifier for each importer or ultimate consignee. Most importers meet this requirement by supplying their IRS Employer Identification Number (EIN). Those importers without an EIN meet this requirement by supplying their SSN. The SSN is used by Customs to track the importer or ultimate consignee within the Automated Commercial System (ACS).
The Trade Secrets Act and the Privacy Act require Customs to protect all of the sensitive data in its systems, including the SSN used for tracking entries. Customs Systems Security Policy and Procedures Handbook (CIS HB 1400-05A), updated this year, provides direction for implementing the protections required by these laws. These protections include:
No Customs employees are given access to any system, including ACS, until they have successfully completed a full-field background investigation.
All system users must complete a mandatory training course that covers protecting systems information from unauthorized disclosure.
Access to Customs systems requires a unique sign-on and matching password.
System access is controlled by "profiles" that limit individuals to only that information which is needed to perform their job. If an individual tries to access information outside their authority, they are suspended from the system.
Per Department of the Treasury security policy, trade information that is transmitted to or from the Customs Data Center from filers via the new trade interface is encrypted to ensure confidentiality.
Finally, the Customs Computer Security Incident Response Center (CSIRC) monitors all external network connections for possible outside attacks to Customs systems or networks.
In addition, all information that contains data that are subject to the protections of the Privacy Act is held within systems of records that have been developed in full compliance with the provisions of that Act.
Question from Congressman Neal
1. The Coalition for New England Companies has been complaining vociferously now for a period of time about staffing problems in Boston. They believe trade is beginning to slow on the basis of staffing levels in Boston. Tell me what the analysis of staffing levels has done in Boston. What is happening with the staffing levels at the Port of Boston?
Overall staffing in the Port of Boston has declined marginally from 178 to 170 in the 5-year period from FY 1996 to FY 2001 (as of July 14th). The number of Inspectors, Import Specialists, Customs Aids, and Entry/Liquidation Specialists has declined by only 1, from 151 to 150, during the same time frame. Four additional Inspectors are expected to be added in the next several months.
Customs has used its Staffing Analysis Tool (a “zero sum” analysis) to compare the Port of Boston to other ports similar in size and environment, such as Seattle and Houston. This analytical tool compares 18 performance measures, weighted to account for local variations in the major types of activity, across ports to show relative performance given their staffing levels. This analysis shows that the Port of Boston, like a number of other ports across the country, is modestly understaffed relative to current staffing at other ports.
Customs Resource Allocation Model (RAM) shows that the Port of Boston, along with virtually all of Customs ports, could benefit from additional staffing. However, Customs is developing risk management strategies that will help to manage the increased workload and threat in the absence of increased staffing levels. Risk management is a proactive management technique that identifies processes for controlling risks in Customs activities and will help to enhance our performance while resources remain relatively static on the northern border and elsewhere.
Yours Truly,
Charles W. Winwood
Acting Commissioner
Chairman CRANE. And with that, let us then call our final panel, Ronald Schoof, customs and export regulation administrator for Caterpillar; Frederico Zuniga, vice president, National Customs Brokers and Forwarders Association; Michael Laden, chairman, American Association of Exporters and Importers; Colleen Kelley, national president, National Treasury Employees Union; and Julia Hughes, vice president for international trade and government relations, United States Association of Importers of Textiles and Apparel.
All right, if it is not a problem for anyone, can Mr. Laden go first?
Mr. LADEN. Second.
Chairman CRANE. Second? Oh, okay.
Mr. LADEN. Yes, following Mr. Schoof.
Chairman CRANE. Oh, following Mr. Schoof.
Does anyone have a problem with that?
All right, Mr. Schoof, you kick off. And as I have indicated before, please try and keep your oral testimony to 5 minutes or less. All written testimony will be made a part of the permanent record.
STATEMENT OF RONALD SCHOOF, CUSTOMS AND EXPORT REGULATION ADMINISTRATOR, CATERPILLAR INC., PEORIA, ILLINOIS, AND CHAIRMAN, JOINT INDUSTRY GROUP
Mr. SCHOOF. Thank you, Mr. Chairman and distinguished Members of the House Ways and Means Subcommittee on Trade. My name is Ronald Schoof, and I am responsible for the import-export and compliance operations at Caterpillar in Peoria, Illinois. And I am also chairman of the Joint Industry Group (JIG), which is a coalition of more than 160 Fortune 500 companies, brokers, trade associations, and law firms actively involved in international trade.
I have been asked today to relate to you the position of JIG regarding the President's fiscal year 2002 Treasury budget and the needed funding for automated systems.
Customs' current system, Automated Commercial System (ACS), is operating at or near 95-percent capacity. And with projections of rapidly increasing trade, it will be unable to handle the workload without continuing costly life support. This will eventually cost more to the U.S. taxpayer than building a modern, efficient system.
We were encouraged when President Bush included $257 million for Customs modernization and earmarked $130 million for ACE in his fiscal year 2002 budget proposal. However, at this funding level, it would take over 10 years to fund the $1.3 billion Customs estimates that will be needed to build ACE.
Last week, the House Appropriations Subcommittee increased this amount to $300 million. We applaud chairman Istook and his Subcommittee for these additional funds.
Since the passage of the Mod Act, the trade community has been ready to start developing this system. However, we are, 8 years later, still fighting for funds.
We ask this Subcommittee to authorize the President's budget proposal and the additional funds the House Appropriations Subcommittee is prepared to appropriate to return ACE to its original 4-year timeframe.
Enforcement. With increase in volume of trade, travel, and globalization of our economy, the responsibility of U.S. Customs to protect American borders from dangerous threats has grown dramatically.
The ACE system will represent the nation's most effective and cost-efficient tool for achieving one of the government's highest priorities, protecting national sovereignty at our borders. It will add two important weapons to the arsenal of our national law enforcement agencies: technology and intelligence.
Trade facilitation. We need to understand the new ACE is more than a revamped ACS. ACE will allow Customs and the private sector to interact in an account-based environment, provide efficiency, predictability, and transparency to this critical link in the supply chain.
Customs and industry have already spent the past several months working together to redesign the import entry process. Today's ACE system operates the way Customs processed imports for the past 200 years. Customs recognized the deficiency as well and is committed to work with industry through the trade support network to design a new entry process based on principles agreed to by both Customs and industry.
As we work out the specific details, we know there will be a need for legislative changes to allow the entry process to work as it was provided for under the Customs Mod Act. We will come back to this Subcommittee with these requests. And I think some later panels will have issues on that.
Merchandise processing fee (MPF). Although the MPF should not be a topic of this hearing, recent legislative action in the Senate has forced this issue to the forefront. The MPF money, over $1 billion collected by Customs, however, does not directly fund Customs operation but instead is placed in the general fund.
Last month, the Senate passed Senator John McCain's bipartisan patient protection act, which extended the MPF expiration from 2003 to 2011. We urge this Subcommittee to do all within its authority and jurisdiction to prevent MPF extension language from inclusion in any form of bipartisan patient protection act or other legislation.
If the Customs Service is to continue collecting MPF, it must directly fund improvements to Customs' processes, specifically for ACE and other initiatives that are greatly needed to improve the trade process. Only by earmarking MPF funds in this manner will the potential for a WTO dispute be eliminated.
In conclusion, the Joint Industry Group supports the President's fiscal year 2002 request for funds to develop ACE and chairman Istook's effort to increase the needed funding level to allow a 4-year ACE development cycle. We ask this Subcommittee to authorize these funds.
Finally, we urge you and all Members of the House of Representatives to prevent an extension of the merchandise processing fee from inclusion in any legislation to reform health care in the United States.
Thank you for your time, and I would be available to answer questions.
[The prepared statement of Mr. Schoof follows:]
Mr. HOUGHTON. [Presiding.] Thank you, Mr. Schoof, very much. Mr. Laden?
STATEMENT OF MICHAEL B. LADEN, PRESIDENT, TARGET CUSTOMS BROKERS, INC., TARGET CORPORATION, MINNEAPOLIS, MINNESOTA, AND CHAIRMAN, BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS, NEW YORK, NEW YORK
Mr. LADEN. Mr. Chairman and members of the Subcommittee, I am Michael Laden, president of Target Customs Brokers, Inc., a wholly owned subsidiary of Target Corporation. I am also the current chairman of the board of the American Association of Exporters and Importers (AAEI). Additionally, Target is a founding member of the U.S. Business Alliance for Customs Modernization (BACM). And my comments here today are on behalf of that organization.
Let me thank you on behalf of the members of AAEI and member companies or BACM for giving us this opportunity to express our views.
Inefficient and redundant border-clearance processes employed by the U.S. Customs Service and other government agencies that regulate trade at the border impose a significantly greater cost on U.S. importers than do direct customs duties and other border taxes.
Last year, this Subcommittee moved legislation that called for a study by the Treasury Department of such inefficient and redundant border-clearance processes, with a report due to Congress later this year. We are very disappointed that there has been no funding to hire independent, expert third parties to conduct this study despite the law's direction to Treasury to do so.
Government and industry are attempting to complete the study. But without economic and ecometric assistance, it is difficult to develop an authoritative instruction or protocol for the collection, analysis, and extrapolation of data.
It is clear that the cost of inefficient and redundant processes at the border reduces the competitiveness of America companies and results in higher costs for all consumers. Moreover, by reducing the profitability of American companies and raising the cost of living for American families, these inefficient border procedures reduce tax revenues for all levels of the government.
There are several reasons for this current situation.
First, the Customs Service needs to adopt modern business processes. There has been no fundamental change to the U.S. system for collecting customs duties since it was first established more than 200 years ago. Each release of an import shipment requires the filing of a complete tax return in the form of a customs entry summary.
Reform legislation enacted by Congress in the late 1970s merely change the timetable for completing various steps of this process. More substantial reforms enacted by Congress in 1993 have never been fully implemented.
Leadership by the new Commissioner of Customs and strict oversight by this Subcommittee are needed to ensure that the reforms enacted by Congress, such as monthly summary filing of statistical and accounting data on imports, are implemented soon and with emphasis on reducing the cost and complexity of the import process.
Second, Congress should eliminate or modify obsolete customs laws that impose significant costs on importers and ultimately on American manufacturers and consumers.
For example, the country of origin marking law, originally enacted over a century ago, creates complexity and costs for importers without providing any significant benefit. Moreover, the multiplicity of different sets of rules of origin, each with different standards under various trade agreements and various government programs, unnecessarily adds to the complexity and cost to achieve compliance in this area.
Likewise, the drawback statute, complex and obscure when it was originally drafted, has become even more complex and obscure through its interpretation and application by Customs. At this point, both Customs and the trade community agree on the need for clarification, particularly with respect to substitution drawback.
Our tariff schedule has become so prolix that even the U.S. International Trade Commission could only provide an estimate when we asked them last week how many statistical items are now in the Harmonized Tariff Schedule of the United States. Their estimate is over 17,000.
By the year 2005, when tariff reductions and elimination of textile quotas agreed to the Uruguay Round are fully implemented, there will be a large number of tariff subheadings under which subordinate breakouts are no longer required to support duty differentials or administration of textile quotas.
Elimination of the superfluous breakouts under these subheadings would be one of the most useful acts that Congress could perform for the trade community.
Finally, Customs needs real help from the Administration and the Congress in replacing obsolete automated systems. The Customs automated commercial system, built in the early 1980s and operating on obsolete programming language, locks the entire U.S. international trade community into the archaic entry system that I described earlier.
Reprogramming the Customs system to allow implementation of Customs reforms approved by Congress in 1993 as well as even more streamlined processes supported by the U.S. trade community requires investment in new operating applications system software.
Mr. Chairman, let me again thank you and the members of the Subcommittee for holding this important hearing, and I shall be glad to join my colleagues in answering questions you may have.
[The prepared statement of Mr. Laden follows:]
Mr. HOUGHTON. Well, thank you very much.
I think, Mr. Zuniga, you are next, however, what I would like to do is to call on Ms. Kelley. I don't think we can have three men and then two women.
[Laughter.]
Mr. HOUGHTON. So, Ms. Kelley, would you like to go?
And then we will get right to you.
STATEMENT OF COLLEEN KELLEY, NATIONAL PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION
Ms. KELLEY. Thank you very much, Mr. Houghton and ranking member Levin, members of the Subcommittee, my name is Colleen Kelley, and I am the national president of the National Treasury Employees Union (NTEU). And on behalf of the 150,000 Federal employees we represent, including 13,000 Customs employees, I thank you very much for holding this Committee hearing today and for giving us the opportunity to testify, particularly on behalf of the issue that involves a change in legislation around Customs inspectors' night differential pay.
The Customs Officer Pay Reform Act, which is known as COPRA, was enacted in 1994, and it governs how the Customs inspectional staff receives premium pay for overtime hours and night shift work.
A Treasury Department inspector general's report from September of 1996 has been cited as evidence of the need for changes. However, at the request of Congressman Charles Rangel, the Treasury Department responded to additional questions surrounding that report. And a closer review of the report has shown that it contains some inaccuracies and misleading information.
NTEU believes that the original enactment of COPRA met the intent of Congress, and the original enactment of COPRA has not caused solely by itself a significant increase in the night differential. The need for the amendments that are proposed to night pay provisions are not necessary.
The overhaul of the prior Customs inspectional overtime law, which was known as the 1911 Act, occurred in 1993. Its intent was to ensure that hours paid to Customs inspectors for overtime work bore a more direct relationship to hours worked by the inspectors. This intent has clearly been met.
Before the enactment of COPRA, the 1911 Act system allowed an inspector to work only a few hours of overtime and to receive several days pay. That has been fixed and that is not the case today.
The second intent of Congress in enacting COPRA was to ensure that Customs inspectors' schedules met customer demand. That has also happened.
For example, 8 years ago, most inspectors worked an 8 a.m. to 5 p.m. shift and then routinely worked overtime in the evenings. Today, those officers are probably divided between an 8 a.m. to 5 p.m. shift and a 1 p.m. to 9 p.m. shift or some other similar configuration.
This reduces overtime but it increases night differential. Clearly, the Inspector General report was wrong to attribute increases in night differential payments solely to COPRA.
The report did not factor in increases in overall Federal pay rates, the doubling in commercial workloads with commensurate increases in staffing coverage that was needed, as well as increases in locations and hours of service that were requested by the trade community and by Congress and have been provided.
The recent GAO report that was requested by Senator Grassley for the Senate Caucus on International Narcotics Control focused on the impact of the proposed changes to the night pay provisions. And this report clearly shows the devastating impact that would be had if these provisions were enacted on Customs inspectors and if they had become law.
Of the five major ports that were profiled in the GAO report--JFK airport, LAX airport, Miami International airport, Baltimore-Washington airport and seaport, as well as the San Ysidro land border crossing--97 percent of these inspectors would have lost night pay, ranging from between $500 to $5,000 a year. And the report shows that the impact of H.R. 1833 would have been nationwide, not just as these five ports.
The night pay changes in the bill are pay cuts, plain and simple. Inspectors would perform the same work within the same timeframes and receive less money for that work. Nothing in last year's bill, H.R. 1833, would provide a benefit to inspectors to offset this pay cut.
Each year the Customs Service inspectional ranks have been asked to do more with inadequate personnel and resources. Trade and travel have increased at outstanding rates, yet Customs' inspectional ranks have not grown at the same rates.
The Customs Service relies on overtime to cover regional shift work during regional hours of operation. The ever-increasing hours of work assigned to inspectors every week is taking a toll on the health and the morale of the officers. They are faced with few days off, 16-hour days for several days in a row, and no end in sight to these grueling schedules.
Telling Customs officers that in addition to their increased workload and expanding work schedules, they will receive a pay cut for the non-overtime night shift work they perform will have a devastating and a senseless impact.
NTEU agrees with the members of the Committee that the compensation system for Customs is not perfect. For example, we strongly believe that Customs inspectors and CEOs should have law enforcement status.
So rather than enacting provisions that will definitely reduce current take-home pay for Customs employees, it would make much more sense to do a comprehensive review of the entire compensation package to see if there are changes that would make the system fairer and actually benefit Customs as well as the hardworking men and women of the Customs Service.
Thank you very much, again, for the opportunity to be here today.
[The prepared statement of Ms. Kelley follows:]
Mr. HOUGHTON. Thanks very much, Ms. Kelley. Mr. Zuniga?
STATEMENT OF FREDERICO C. ZUNIGA, F. ZUNIGA, INC., LAREDO, TEXAS, AND VICE PRESIDENT, NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION OF AMERICA, INC.
Mr. ZUNIGA. Yes, Mr. Chairman, and other members of the Subcommittee, I am Frederico Carlos Zuniga of Zuniga Inc., licensed U.S. customs broker on the southern border in Laredo, Texas, and vice president of the National Customs Brokers and Fowarders Association of America (NCBFAA).
NCBFAA is the nation's trade organization for America's customs brokers, professionals who serve as the interface between the importing public and the United States Customs Service.
Every element of our daily activity is interwoven with Customs, and we are uniquely suited to provide this Committee with a candid perspective on the performance of the agency.
For today's hearing we wish to underscore our role on behalf of the nation's small- and medium-sized importers. While many of our clients are comparable to the large companies represented here on this panel, these smaller importers enter 70 percent of the transactions.
It is to these customers that we owe our special effort to ensure that the customs entry system is efficient, transparent, and serves them just as well as it serves large companies.
Customs brokers and small importers need a system that is reliable, efficient, and that processes transactions quickly. The demand of just-in-time inventory are just as great for the small company providing parts for a domestic manufacturer as they are for the giant manufacturer doing the same thing. And in some respects, the consequences of a failure in the system are more severe for the small and medium companies.
Customs must move forward with the development of ACE, and Congress must provide the funding for the system. Again, we thank you for your support of these efforts.
With regard to reforming the entry process, for the past 2 years, Customs Service has engaged the private sector in continuing discussions about how the customs entry process can be adapted to meet the demands of today's business environment.
Using the existing processing model, entries are filed under a transaction-based system. We firmly believe that the fundamental element of today's processing system is sound. It is, in fact, the foundation, the rock, upon which an effective system exists for most importers today.
As circumstances have demanded, with import by customs importers and brokers, this entry process has evolved over 20 years and has adapted well to the changes that have taken place in world commerce. We therefore observe that this must be the basis for Customs operations system under ACE.
Specific recommendations for Congress: There are issues still unresolved from our 2-year negotiation with Customs. These matters under dispute need involvement from the Congress, and we would like to address several matters here today.
The first matter is the right to protest. Protest is a procedure by which appeals can be made by an importer against a Customs decision which he or she disagrees with. Based on a decision at the Court of International Trade, Customs has taken the position that if no change is made by Customs to an importer's final declaration, then there were no possible protestable issues. This effectively removes an avenue of appeal that has traditionally belonged to an aggrieved importer.
Second, interest applied to periodic payments. Discussions have been ongoing about providing a separate avenue to pay duties and fees apart from the entry data filing process. Rather than burdening the entry process by requiring payment for each transaction, why not simply consolidate the money due and provide a monthly invoice, much like a credit card system?
However, unlike the credit card system, Customs wishes to impose interest on transaction even though payments would be forthcoming and timely at the end of the month. Importers and, notably, those small- and medium-sized importers, who are our clients, cannot afford this added cost of doing business.
Finally, with regard to corrections on entries, in the past, we have proposed that there be a period in which data that is transmitted to Customs can be corrected in the interest of making the filing of entry data more accurate.
It has become clear to us that the downside to this proposal, which has been made in good faith, is the likelihood that Customs will consider errors not corrected within the timeframe as negligence on the part of the importer and, therefore, subject to penalty.
We have, therefore, opted to employ administrative procedures now in place, but they must be improved considerably.
We request the Committee's direct involvement here.
Mr. Chairman, this concludes my testimony. I would be pleased to respond to any of your questions.
[The prepared statement of Mr. Zuniga follows:]
Mr. HOUGHTON. Fine. Thanks very much. Ms. Hughes?
STATEMENT OF JULIA K. HUGHES, VICE PRESIDENT, INTERNATIONAL TRADE & GOVERNMENT RELATIONS, UNITED STATES ASSOCIATION OF IMPORTERS OF TEXTILES AND APPAREL
Ms. HUGHES. Thanks for the opportunity to appear today. What I want to talk about is a little bit different, about the delays and problems with the implementation of the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act (CBTPA).
It has been 14 months since the Trade and Development Act of 2000 was signed into law. Progress toward implementation is limited, with many questions unanswered.
The Customs Service issued interim regulations last October, after the law went into effect, but has yet to finalize those regulations.
Rulings on even simple implementation questions have not yet been issued. At the rate we are going, it is looking extremely unlikely that there will be final regulations by October, the 1-year anniversary of laws that only have an 8-year term.
In the absence of certainty as to whether their investments will qualify for duty-free, quota-free treatment, U.S. importers cannot make substantial commitments to shift business from Asia to sub-Saharan Africa or to the CBI countries.
Total apparel shipments from sub-Saharan Africa are increasing substantially, but only a small amount of these apparel imports actually qualify for the new AGOA benefits. The most recent statistics show that only $11.7 million worth of apparel imports qualified for the AGOA benefits.
Similarly, for CBTPA beneficiary countries, a small percentage of their apparel imports qualify, only $1.4 billion. And even worse, we have seen their actual trade and market shares slow down since the passage of this legislation with some countries for the first time having negative growth.
We think these statistics just highlight the fact that there are problems with implementation, and we want to just summarize the major concerns for U.S. companies.
First, maybe most importantly, is the question of whether knit-to-shape garments are entitled to preferential treatment under AGOA. Regrettably, the specific language in the statute references fabrics but fails to specifically mention components that are formed through a knit-to-shape process.
We believe strongly that the inclusion of knit-to-shape garments was the intent of Congress because all apparel is covered. And indeed, members of the full Committee made this clear with your letter on March 6 to Treasury Secretary O'Neill.
The opportunity to expand production of knit-to-shape sweaters in Africa is the single greatest opportunity we have to develop new business, and yet there is a stalemate that will soon lead to the cancellation of millions of dollars of orders.
Second, there is the issue created by Senator Helms, whether dying and printing of U.S. formed greige goods should be required in the U.S. in order for apparel to receive those benefits.
There is no ambiguity in the Customs regulations on this point. The law is clear, and the law was established under the Uruguay Round Agreements Act and the Breaux-Cardin rules of origin. That law, even as amended by the Trade and Development Act of 2000, says that fabric formation is either weaving or knitting and that such operations alone are origin conferring.
So long as this issue is under public review, however, investments in finishing operations, especially in the CBI countries, are at risk. And even more important for our long-term partnerships is the fact that U.S. companies cannot take the risk of shifting new orders when the rules may change overnight or even retroactively.
This is the most important benefit for the CBI region to attract new business.
Third, the Customs Service created unnecessary burdensome and complicated paperwork requirements. They have done nothing to ensure compliance with the law, but do greatly increase the likelihood of inadvertent and meaningless errors.
And fourth, the Customs Service has indicated to Sub-Saharan Africa countries that it is not sufficient for yarn and fabric and other inputs to originate in the region; instead they are requiring that all regional inputs must be produced in countries that also have in place formal visa system. However, since only five sub-Saharan Africa countries are so far recognized as having approved visa systems, that limits the opportunities for trade in the region.
Of course, we don't place all of the blame for the lack of progress on Customs. Efforts to overturn or rewrite the will of Congress through the regulatory process are also undermining the success of the law.
One additional problem that we want to mention is that while the law authorized funds to Customs to implement, Congress never actually appropriated these monies. Getting the necessary funding to Customs would help the beneficiary Caribbean and African countries understand and implement the law correctly. And that would give U.S. importers a greater comfort level in making new investments in these regions.
Thank you for the opportunity to appear today, and we urge the Subcommittee to take action for Customs to finalize the rules quickly. Thank you.
[The prepared statement of Ms. Hughes follows:]
Mr. HOUGHTON. Thanks very much, Ms. Hughes.
What I would like to do is turn the questioning over to Mr. Levin.
Mr. LEVIN. Thank you, Mr. Chairman.
I just have one comment or maybe two comments.
We, as you know, Ms. Hughes, somewhat discussed these issues earlier.
Ms. HUGHES. Yes.
Mr. LEVIN. And the Subcommittee and the full Committee membership have pressed these issues with Customs and otherwise. So maybe we will just leave it at that.
There may be two sides to some of these stories, but maybe not. And if there are, we ought to get them on the table. And I hope that will be done quickly.
Ms. HUGHES. Thank you.
Mr. LEVIN. I just want to close by saying a word about our discussion over the years about pay for Customs inspectors. I want us to be sure that Federal law if followed and also keep in mind what we are paying people.
Now, in your testimony, Ms. Kelley, you say, under inspection personnel, on page 2, this level means that at the very height of an inspector's career and even after 25 years of dedication to the Customs Service, he or she will make a maximum base salary of about $40,000 per year.
Ms. KELLEY. That is right, Mr. Levin.
Mr. LEVIN. Now, this would include or not typical overtime pay?
Ms. KELLEY. That would not include overtime.
Mr. LEVIN. And what would that be, the typical overtime pay, just more or less?
Ms. KELLEY. I hesitate to give you a number because the different locations have different hours of operation and--
Mr. LEVIN. It increased, do you think, on the average, 50 percent?
Ms. KELLEY. I think that would be a bit high, but I can get that for you.
Mr. LEVIN. But anyway, so we might be talking about people, after 25 years doing this kind of work of importance and of some danger, receiving maybe, with everything included, before taxes, maybe $60,000?
Ms. KELLEY. Maybe.
Mr. LEVIN. Well, maybe we do need to have a comprehensive look at pay.
And I just think it is easy to lose the forest for the trees here. And I would be glad to join anyone in participating in a discussion of appropriate pay levels for the people who are doing this work. Well, enough said.
Ms. KELLEY. Thank you, Mr. Levin. NTEU would be pleased to join you in that effort also. We would be pleased to work with you.
Chairman CRANE. [Presiding.] Mr. Houghton?
Mr. HOUGHTON. Thank you. I just have one question. I have a lot of questions, but I won't take your time because it is late.
I am very interested in the African Growth and Opportunity Act. So the question I have is, what should the Customs Service do in order to help the African nations? And also the Caribbean Basin Initiative?
Ms. HUGHES. Our recommendation is that they finalize the regulations and issue them as soon as possible. We think that they should follow the specific letter that they have received from Committee members about the intent on the knit-to-shape issue, which is the major outstanding issue holding back the AGOA countries from implementing.
And also, they should continue their training efforts. As acting commissioner Winwood said earlier, they have traveled to Africa and they have made efforts at training.
But training people to take advantage of regulations that aren't yet finalized really doesn't help us to move things forward. They need to finalize the regulations now, without changing the dying and finishing, taking knit-to-shape as I think Congress certainly intended. And let's move forward with implementing the legislation before we hit the 1-year anniversary.
Mr. HOUGHTON. Right. Okay. Thank you very much.
Chairman CRANE. Mr. Becerra?
Mr. BECERRA. Thank you, Mr. Chairman.
Let me first say to those of you who have worked on this issue of the merchandise processing fee, thank you so much. We finally got the administration off the dime in not calling for a new fee to try to move forward on ACE. And we have so far--keep your fingers crossed--a pretty good appropriations of some $300 million to move forward on ACE.
So I want to thank you all of you who have been clanging the bell for quite some time, saying that there is a processing fee that you have been paying for some time, for some 15 years, and it should be used to help how Customs processes the paperwork that you all need to have done.
And if we continue forward, maybe in the next few years, we will see some success with ACE, and let's say a few prayers to make sure ACE works a little bit better than ACS does.
We are going to be coming up on reauthorization of that fee fairly soon. And I know that it is on your radar screens. I would urge you to continue to talk to Members of Congress about the possibility of dedicating some of that fee toward to the payment of ACE.
I know that has been discussed in the past, and I know there are a number of us who would be very willing to work with you to make sure that that happens. So I hope that you all will continue to make the rounds up here in Washington, DC, because there are too many folks that don't recognize it.
And quite honestly, there are probably too many folks who recognize it. There is a pot of money that goes into the general fund that has nothing to do with just general revenues. It has to do with the monies that come out of people that you know and businesses that you are associated with.
So if we work together, maybe we will have some success in getting ACE taken care of by dedicating some of that processing fee.
Ms. Kelley, I wanted to ask you a question with regard to this whole issue of wages and the work hours. How common is it to have a Customs officer's scheduled work hours changed to an irregular or off-hour shift?
Ms. KELLEY. That can happen frequently, Mr. Becerra, depending on the location.
There are some inspectors who work the same shift on regular basis, but there are many others who have rotating shifts and whose entire personal life and family life, of course, is flipped on its head, so to speak, because it is dependent upon whatever that shift is that is needed to process the trade as well as the passengers at their ports of entry.
Mr. BECERRA. And let me make sure: We are not talking about, say, just a 9 to 5 shift and perhaps and 12 p.m. to 8 p.m. shift. We are talking about shifts that could take you throughout the night; part night, part wee hours of the night; part night, part morning.
So it can be a shift that can be very irregular, and irregular is a good word to define it?
Ms. KELLEY. Irregular is a very good word to define them.
Mr. BECERRA. Is it common to have someone who has more than just a couple of years--in other words, is low on the totem pole--is it common to have someone who has some seniority to have to go through this irregular work shift?
Ms. KELLEY. In many locations, it is. Depending on the size of the port, of course, and the number of staffing, with seniority in some locations probably comes more stability in others. But as the trade and the passenger traffic increases, the need to have more and more inspectors available for those shifts to provide for the entry is required, even with seniority.
Mr. BECERRA. So in my city of Los Angeles, where we are seeing trade just balloon, which is good for America and good for all of us, there is a good chance that a lot of the Customs officers, even though they have been around for a long time and have a lot of seniority under their belt, are still being asked to work irregular work shifts.
Ms. KELLEY. Definitely.
Mr. BECERRA. And I know all of us try to set up routines for our families and our regular work life, and chances are, it makes it very difficult if you are constantly having to shift the times that you work.
And I don't believe that any of our employers, including Customs, makes accommodations to help you with babysitting or anything else that may occur as a result of making you all of a sudden shift your hours of work.
Ms. KELLEY. That is right. That is a part of having to balance your family life and make many sacrifices in order to meet the needs of the Customs Service and to provide the service that the inspectors want to provide.
Mr. BECERRA. And are you all still in discussion--and by that I mean NTEU--are you still in discussions with Customs on trying to make sure that whatever we do in terms of changes to work shifts and hours and pay, that at least you have been able to provide your input so that any changes that Customs makes are made with your input in place?
Ms. KELLEY. Yes. We have been working together on a number of issues in that area and have had that opportunity. And for the most part, on most issues, actually, have the same interests and are moving in the same direction. And hopefully, we will be successful.
But, yes, we have had that input. Thank you.
Mr. BECERRA. I encourage you to continue to do that. And I thank you for your testimony.
And I thank all of you who have come today for your testimony, and we apologize for the long delays that have occurred as a result of our voting, but we thank you very much for your testimony.
Thank you, Mr. Chairman.
Chairman CRANE. Thank you. And I will keep it brief. I just have a couple of questions.
Ms. Kelley, if Congress is to make an exception for Customs inspectors and legislate that they be law enforcement officers, do they support abandoning the current tailor-made benefits package, which includes benefits that law enforcement officers don't receive?
Ms. KELLEY. Mr. Chairman, NTEU and the inspectors are willing to listen to and to look at any package that would be looking at a total compensation package, recognizing that there would be shifts. There would be pluses and minuses in any new system.
So, we are more than willing to be in that conversation and to consider anything that would be put together in a total package.
Chairman CRANE. Ms. Hughes, could you quantify the financial impact on local industry in Africa, CBI and U.S. industry such as retailers if the Helms legislation were to become law?
Ms. HUGHES. We tried to come up with a credible number. Part of the problem is that many of the orders that would be placed are prospective. So a conservative estimate I would imagine is probably around $50 million, which I think is probably rather low, but that is just hearing from companies that today are ready to shift operations.
What we see with the dying and finishing is that that was probably an unlimited opportunity to shift dying and finishing from Asia to closer to home.
Chairman CRANE. Well, let me apologize for the interruption when I had to leave during your testimony, but to express appreciation to all of you, and to tell you that we are all appreciative of your hard labors, and we look forward to continuing to work with you.
And with that, the Committee stands adjourned.
Thank you.
[Whereupon, at 5:39 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
U.S. Office of Personnel Management, Donald J. Winstead, questions and attachments
International Mass Retail Association, Arlington, VA, statement
U.S. Business Alliance for Customs Modernization, Jane O'Dell, statement