Statement of Frederico C. Zuniga, F. Zuniga, Inc., Laredo, Texas,
and Vice President, National Customs Brokers and Forwarders Association of America, Inc.

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

Hearing on Trade Agency Budget Authorizations and Other Customs Issues

July 17, 2001

NCBFAA is the national trade organization for America's customs brokers, professionals who serve as the interface between the importing public and the United States Customs Service. We represent small, medium and large importers, preparing their entries, collecting duties and other revenues, and ensuring that imported merchandise complies with US law. In many respects, we act as a logistics manager, on an outsourced basis, providing businesses with the capability to keep up with the high-volume, fast-paced demands on their supply chain. We serve as an essential resource to Customs in that we are responsible for the accuracy, reliability and integrity of data provided by 400,000 importers. Every element of our daily activity is inextricably interwoven with Customs' and we are uniquely suited to provide this committee with a candid and intimate 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 -- and for whom we tailor many of the concepts that you have heard them articulate, American customs brokers have a particularly important relationship with those who interact with Customs less frequently, or in less volume, or with lower valued transactions. This 30% of the value of Customs' entries being filed represents a vastly greater number of businesses -- in fact, it represents almost 70% of the transactions being filed. It is here that we bring order to the countless and disparate transactions that Customs must handle daily. And, it is to these customers that we owe our special efforts to ensure that the Customs entry system is efficient, transparent and serves them just as well as it serves large companies.

The Automated Commercial Environment (ACE)

The Automated Commercial Environment is an important step in modernizing the Customs Service. Designed to replace the aging and increasingly unreliable Automated Commercial System (ACS), a system designed in the 1980s and upgraded on an ad hoc basis, ACE represents an ability to modernize its technical automated features and provide versatility for new methods of doing business. The two previous iterations of the Customs Modernization Act in the 1990s envisioned profound changes in the entry system designed to help Customs manage the overwhelming increase in commercial transactions that is now taking place. Yet, without the automated tools to accomplish this, much remains undone.

For customs brokers and smaller importers, the requirements for an automated system are reasonably fundamental. We need a system that is reliable, efficient, and that processes transactions quickly. The demands of "just in time" inventory are just as great for a small company providing parts for a domestic manufacturer as they are for a giant manufacturer doing the same thing. And, in some respects, the consequences of a failure in the Customs automated system are more severe. While we are told that "brownouts" and "downtime" have diminished lately, Customs notices of times when the system will be turned off are too vivid and too recent to give us much solace. Customs must move forward with development of ACE and Congress must provide the funding for the system.

The Administration's budget request for FY2002 mirrors the funding provided in FY2001. The budget asks for $130M to pay for a system that must be deployed in four to five years at a total cost in the range of $1.4 billion. Simple math shows that, at this rate, it will take 14 years to put ACE to work. Not to belabor what many others have observed about this funding timetable, let us simply observe that this is absurd. The commercial world will change many times over in this period. By then, the most important aspect of the entry process will be to ensure that goods comply with US standards, particularly health and safety, and the volume of merchandise will simply overrun Customs' ability to meet these responsibilities.

We are heartened by reports that appropriators have recently proposed funding ACE at the $300M level. Congressmen Ernest Istook(R-OK) and Steny Hoyer(D-OK), together with their subcommittee, have our full support. It will be of equal significance for the Ways and Means Committee to authorize funding at a level of $350M or more. And, we urge you to do so.

International Trade Data System (ITDS)

The International Trade Data System is an effort to provide other federal regulatory agencies with data much earlier in the entry processing cycle so that they can more efficiently clear merchandise for entry to the US. From an enforcement perspective, earlier and more complete data allows these agencies to screen incoming goods more effectively, providing the public with more assurance that the requirements of health, safety and other public laws are being met. And, from the perspective of brokers and importers, it establishes a single point of entry for data.

Over the course of time, ITDS has gravitated to becoming the "front end" of the new ACE system. In other words, data communicated to Customs at the outset of the entry process is then passed on immediately to the other federal agencies with jurisdiction. Ultimately, they too will have fully paperless, automated processes that will more efficiently process information and provide approvals for release of merchandise.

A pilot will soon get underway in Buffalo, NY, whereby ITDS will be tested and refined. From here, the pilot will move to other border locations and then towards universal implementation. Customs has very effectively managed the development of this pilot, overseen by an independent Board of Directors comprised of representatives of the other affected regulatory agencies. We believe that what we have witnessed thus far is a model for interagency cooperation and effectiveness. NCBFAA wants this process to remain in place.

ITDS however requires your Committee's support and active involvement. It has enormous ramifications for the future and can help contribute to seamless border operations that we all demand.

Reforming the Entry Process

For the past two years, the Customs Service has engaged the private sector in continuing discussions about the manner with which the customs entry process can be adapted to meet the demands of today's business environment. Our colleagues in industry, as represented on this panel, have observed that many of the reforms envisioned by the Customs Modernization Acts have not come to fruition because of archaic technology and processes that do not serve them well. Thus, as ACE begins to move forward in design, the time is now to plan for processes that will accommodate their vision for a more streamlined, less costly approach. NCBFAA supports them in achieving this goal.

Yet, at the same time, there are 400,000 other smaller businesses that require our attention. Under the existing processing model, they file customs entries under Tracks I, II and III. Much of the debate between Customs and the private sector evolves around a "Track IV" -- one which incorporates consolidation of data, periodic filing, periodic payment and other innovative changes. As discussions continue in Customs' forum, the Trade Support Network (TSN), many of these proposals will be adapted for Tracks I-III; however, a majority of the change will be reserved for Track IV which will involve a relatively small number of companies. NCBFAA supports that result and believes that as many companies that wish to enter Track IV should be permitted to do so.

Having said this, we firmly believe that the fundamental elements of today's processing system within Tracks I, II and III are sound. It is in fact the foundation, the "rock" upon which an effective system exists for most importers today. As circumstances have demanded, with input by Customs, importers and brokers, this entry process has evolved over twenty years and has adapted well to the changes that have taken place in world commerce. We therefore observe that it is this that must be the basis for Customs' operating system as it transitions to ACE. It is this processing system that must be moved intact to ACE, as Tracks I-III, before innovations are incorporated. We customs brokers and our importer customers want to be assured of stability, consistency and predictability first and foremost. Improvements can and must come, but risk must be prudent.

Specific Recommendations for Congressional Action

In an exchange of letters in April and May, our private sector coalition and the Customs Service agreed on a number of principles for the Entry Revision Process, leaving the more laborious task of filling in the details to the Trade Support Network. We are reassured now that the TSN can fulfill that mandate and work successfully in developing these new processes. To date, meetings have been constant, well-attended and productive. NCBFAA believes that Congress will be satisfied with the results of this activity.

Nonetheless, there were issues left unresolved from our two-year negotiation with Customs. This occurred when matters under dispute could not be resolved without support from the Congress. We would like to address several matters here today.

Right to Protest: "Protest" is a procedure by which appeal can be made by an importer against a customs decision with which he(she) disagrees. There have been recent decisions at the Court of International Trade raising the issue of whether liquidations by operation of law may be protested. Customs has taken the position that, if no change is made by Customs to an importer's final declaration, then there are no protestable issues. This effectively removes an avenue of appeal that has traditionally belonged to an aggrieved importer.

There are many situations in which entry information -- classification, value, quantity, duty, fees, etc. -- filed by an importer is discovered after liquidation to be incorrect, and adverse to the importer. There is no good reason why such an entry should not be subject to protest so that the importer may recover an overpayment of duties

Interest Applied to Periodic Payment: Discussions have been ongoing about providing a separate avenue to paying duties and fees, apart from the entry data filing process. As data is filed with Customs to provide for the release of imported goods into the commerce of the US, the importer may incur a financial liability. Rather than burden the entry process by requiring payment for each transaction, why not simply consolidate the money due and provide a monthly invoice, much like the credit card system? However, unlike the credit card system, Customs wishes to impose interest on transactions, even though payment 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. But beyond this, there is no justification for interest to be exacted when the benefits to the importer and to the government are mutual. The cost to the government of collecting funds with each transaction and the savings that can be accomplished by consolidating that activity need to be understood.

Corrections: 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 that timeframe as negligence on the part of the importer and therefore subject to penalty. At the same time, Customs has other administrative mechanisms in place, such as reconciliation, that essentially permit an ongoing ability for an importer to make corrections as required. We have therefore opted to employ these procedures for correction purposes, asking that they be improved considerably.

We think that an ongoing, online ability to improve the reliability of data is advantageous to all parties and we resist the inclination at Customs to make this an occasion for punitive action. We ask the Committee's direct involvement here to help us improve the systems now in place.

Mr. Chairman, this concludes my testimony. I will be pleased to respond to your questions. NCBFAA is grateful for the opportunity to share its expertise and experience on customs matters with the Committee.