SPEAKERS       CONTENTS       INSERTS    
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51–799 CC
1998
MODERNIZATION OF U.S. CUSTOMS: IMPLICATIONS ON TRADE

HEARING

BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE

OF THE

COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

JUNE 11, 1998

Printed for the use of the Committee on International Relations

COMMITTEE ON INTERNATIONAL RELATIONS
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BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
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RICHARD BURR, North Carolina
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
LOIS CAPPS, California
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
DONALD A. MANZULLO, Illinois
STEVEN J. CHABOT, Ohio
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
DOUG BEREUTER, Nebraska
DANA ROHRABACHER, California
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
EARL F. HILLIARD, Alabama
BRAD SHERMAN, California
STEVEN R. ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
MAURICIO TAMARGO, Chief of Staff
YLEEM D.S. POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
CAMILA RUIZ, Staff Associate
C O N T E N T S

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WITNESSES

    Hon. Stuart E. Seidel, Assistant Commissioner, Office of Regulations and Rulings, U.S. Customs Service
    Mr. Norman T. Schenk, Chairman, Customs Subcommittee, Air Courier Conference of America
    Mr. Jonathan H. Kent, Washington Representative, National Customs Brokers and Forwarders Association of America
    Mr. Michael H. Lane, Chairman, Automation Committee, Joint Industry Group
APPENDIX
Prepared statements:
Hon. Ileana Ros-Lehtinen
Hon. Stuart E. Seidel
Mr. Norman T. Schenk
Mr. Jonathan H. Kent
Mr. Michael H. Lane
Additional material submitted for the record:
Letter from the American Association of Exporters and Importers and National Customs Brokers and Forwarders Association of America to Vice President Gore
MODERNIZATION OF U.S. CUSTOMS: IMPLICATIONS ON TRADE

THURSDAY, JUNE 11, 1998
House of Representatives,
Subcommittee on International Economic Policy and Trade,
Committee on International Relations,
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Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:43 a.m. in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen [chairwoman of the Subcommittee] presiding.
    Ms. ROS-LEHTINEN. Good morning. The Subcommittee will come to order. Thank you so much for being with us this morning.
    One of Congress's most solemn duties is to exert oversight over the implementation of our laws. It is both a legal responsibility, as well as a moral obligation, to ensure that laws are implemented in a responsible and timely fashion so that all sectors of the American population can enjoy the benefits.
    It is in this capacity that this Subcommittee today addresses the issue of Customs modernization, placing special attention to the status of provisions enacted under the Customs Modernization Act of 1993.
    Passed as Title IV of the NAFTA implementation act, the Customs Modernization Act, or the Mod Act, as it is commonly referred to, was designed to streamline, automate and expedite the commercial operations of the U.S. Customs Service. It was to increase the efficiency of Customs, expedite the movement of goods, reduce administrative burdens, and increase compliance with Customs law.
    The belief was that by removing archaic provisions requiring paper documentation and by providing the full authority for automated Customs transactions, importers, U.S. businesses and American consumers would be able to reap the full benefits of liberalized trade. The more efficient system would yield greater dividends for the U.S. economy.
    However, almost 5 years later, Customs brokers, express delivery services, and small freight forwarders and other companies which ship goods are claiming that the inability of the Customs Service to automate expeditiously, coherently and efficiently has cost the industry millions of dollars, with the potential to cause long-term damage as it contributes to further delays at U.S. ports.
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    Express shipment companies, for example, are severely hurt by what they term the lack of reliable, timely Customs clearance. Without full implementation of the Mod Act, they contend meeting express delivery deadlines is impossible.
    Customs, in turn, has argued that a structural overhaul of this magnitude, one which also includes a massive reorganization of the Customs Service, will take a number of years because with each provision to be implemented comes a series of new challenges.
    Different prototypes will have to be tested several times before they can be operational. Consultations with the trade community on regulations will have to be finalized; resources will have to be evaluated and reallocated to meet the demands of the act and of increased trade flows.
    In essence, the Customs Modernization Act has four principal features. First, it shifts the legal burden of determining the correct classification, value and duty rate for imported merchandise from Customs to the importer. Second, it allows importers to file import activity summaries for an entire month. Third, it permits electronic filing of duty drawback, and clarifies the rules regarding such filings. And, fourth, it gives Customs legal authorization to use remote filing of entry and national entry processing.
    The director of one of the largest express consignment companies referred to the remote filing and national entry processing as ''the most exciting thing with Customs' new system, where we will be able to funnel all of the information that comes from overseas into a processing center instead of having to process all of the data in different sites.''
    However, this provision is not without controversy. According to an expert on Customs regulations, many smaller brokers are still concerned that they will be edged out. He states that according to smaller brokers, ''The larger companies can afford to arrange for the necessary hookups with Customs to prepare the entry data from anywhere. Smaller brokers can't afford this kind of investment, nor can they afford to expand to other ports. They want to keep the location requirement so they could keep their competitive toehold in the markets and not surrender it to outsiders.''
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    However, does the industry as a whole not benefit from a faster, streamlined and more efficient system? The overwhelming response would be yes. Nevertheless, the importing community thinks the Customs Service has a long way to go to realize the full potential of automation and to meet the intent and objectives of the Mod Act.
    It was in mid-May of this year that the National Customs Automation Prototype offices in Laredo, Texas; Detroit, Michigan; and Port Huron, Michigan were opened. The long-awaited final regulations implementing the act will not be published until October. After more than 4 years, the informal entry limit was raised to $2,000 rather than to the $2,500 authorized by the Act.
    Further, in addressing the issue of compliance, Customs has created what some observers have referred to as an IRS-type mechanism of regulatory audits conducted by roving Compliance Assessment Teams, CAT. While, in theory, developing baseline information on the level of compliance may seem like a good idea, some outside experts believe the system established by Customs contains flaws which skew the results and pervert the intent of the Customs Modernization Act.
    In the end, the objective should be the same, the implementation of a system that will both ensure that U.S. businesses are able to compete and to reap the full benefits of trade liberalization, while other vital American national interests are also protected. The key remaining question is that of timing: That is, can all the provisions of the Mod Act be implemented immediately? How long is too long? Or must implementation be a gradual process where the final system is the result of trial and error and the correction of those mistakes?
    We hope that the discussions to be held today will be able to answer these and other critical questions.
    I would like to most especially thank and congratulate Congressman Roy Blunt for bringing this issue to the Subcommittee's attention and for his ongoing involvement with the other matters before the Subcommittee on a daily basis. Thank you so much, Roy, for helping us with this hearing. It was his idea to have it and he helped us with the witnesses. We thank Congressman Blunt very much.
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    I would like to recognize Congressman Luther for opening statements that he might have.
    Mr. LUTHER. Well, thank you very much, Madam Chair. I would simply reserve the right for our Ranking Member to insert an opening statement in the record, if that is agreeable, Madam Chair, and I want to thank you for the hearing in this Subcommittee.
    Ms. ROS-LEHTINEN. Without objection, we will put Mr. Gejdenson's remarks in the record.
    Thank you so much.
    Mr. Blunt.
    Mr. BLUNT. Thank you, Madam Chairman, and thank you for your willingness to hold this hearing.
    I recently had an opportunity to spend some time with some members of the Mexican Congress and the Canadian Parliament talking about NAFTA and the NAFTA implementation, and out of that conversation came some concern that the implementation of the Customs Modernization Act needed to be looked at, that we needed to have an overview of what was going on there, we needed to find out when these rules and regulations that will be coming out soon would go into effect, and certainly to hear from our friends at Customs about what we can do to help them implement better Customs procedures with the technology that is available now, that wasn't available even 5 years ago when the Customs Modernization Act was passed.
    I look forward to hearing from the Commissioner and also hearing from the second panel of individuals who work every day with Customs, and I am hopeful that the people we have here from U.S. Customs will stay and listen to that as well, and hopefully leave with some ideas of what we can do to make the process work in the best possible way and in the interest of both security and revenue and trade. I think we can do that, and I am grateful to you for holding this hearing.
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    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Clement.
    Mr. CLEMENT. Madam Chair, it is a pleasure to be here with all of you and the witnesses as well, and convening on this most important issue, to address complaints from the packaging industry that the U.S. Customs is extremely untimely in implementing the electronic transmission process mandated under this act.
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Bereuter.
    Mr. BEREUTER. Thank you, Madam Chairman. I quite sincerely want to thank you for holding this hearing. I think it is a very important subject and I appreciate my colleague from Missouri's initiative in response to it.
    I had a chance to visit the Long Beach and the Los Angeles Port Authority facilities last year. I came away with some concerns about the lack of resources available there, and to some extent about modernization. Also, I have been involved in trying to review periodically what is happening in Hong Kong, and the Hong Kong Customs people and the United States are beginning to work together even more intensely than they have. I think we can learn a lot from each other in that respect, and also to see some of the problems they are having there which are likely to face us.
    So, again, thank you very much for the hearing.
    Ms. ROS-LEHTINEN. Thank you so much.
    Dana Rohrabacher.
    Mr. ROHRABACHER. Madam Chair, I hate to say this but I am going to have to leave in a few minutes, so I am sorry I am going to miss the testimony. I have a couple other important meetings we have scheduled.
    But let me say for the record, I have a deep admiration for the dedicated men and women in U.S. Customs because they have an almost impossible task. We want them to watch out for our security and interest and we want them to watch out for the trade and we want them to watch out for drugs and we want them to make sure the trade is facilitated at the same time we want to make sure the revenues are put in the right places, and it is a mighty tough job that these men and women have been handed.
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    A lot of times we only focus on some of the times when they aren't doing it as fast as we would want them to, et cetera. We do need to make sure that they have that type of stimulation behind them and observation and oversight, and I am glad we are having this hearing today for that reason, but we also have to recognize what a mighty tough job it is.
    U.S. Customs has recently been involved, I know, with trying to—I mean, they captured a lot of Mexicans involved with bringing drugs into the United States of America. I want you to know that was one of the most effective operations they have had in a long time, and it didn't pass my purview without recognizing that U.S. Customs was deeply involved in that operation and did a terrific job.
    So while I hope that today this hearing does indeed stimulate them to do a better job in a certain area, at the same time I want to give them my accolades for handling a pretty tough job, and sometimes not getting the credit they deserve to get when they are going a good job.
    One last thing is, someone wanted me to mention that in my area anything that U.S. Customs can do to work with the World Customs Organization to help, so that there can be cooperation, the people in my area think that is a very good idea. So thank you all very much, and thank you, Madam Chairman.
    Ms. ROS-LEHTINEN. Thank you so much, Dana.
    Our first witness today is Mr. Stuart Seidel, who currently serves as assistant commissioner in charge of the Office of Regulations and Rulings. Previously he served at the same office as director of the International Trade Compliance Division and director for the Regulatory Procedures and Penalty Division.
    Other prior service included serving as regional counsel with the Southeast Region of Customs; assistant chief counsel of Enforcement and Operations with Customs; and representative to the U.N. Commission on Narcotic Drugs. He was also the legal advisor to the Customs Air Security Program and a Customs law specialist.
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    He has received numerous awards, including the 1997 Joint Industry Group's Excellence in Government Award, Presidential rank; Commissioner Citations and Senior Executive Performance Awards; as well as the Chief Counsel's Award and the Department of the Treasury General Counsel's Award. We thank Mr. Seidel for being with us, and you can begin your testimony.
STATEMENT OF STUART E. SEIDEL, ASSISTANT COMMISSIONER, OFFICE OF REGULATIONS AND RULINGS, U.S. CUSTOMS SERVICE

    Mr. SEIDEL. Thank you very much, Madam Chair. Good morning. On behalf of the Commissioner of Customs, I thank you for your invitation and the opportunity to testify before the Subcommittee. It is my hope that I can help the Subcommittee better understand the various U.S. Customs Service initiatives as they relate to the implementation of the Customs Modernization Act as part of the North American Free Trade Agreement implementation act.
    Although the Mod Act, as it is more commonly called, was passed in December 1993 as part of NAFTA, it was the result of several years of cooperative effort between the trade community and the Customs Service. It was a complex piece of legislation. Not only did it codify administrative protections for the trade in the areas of rulings, protests, detentions, seizures and audits, but it set the framework for the Customs Service to reinvent import procedures by removing obsolete mandatory paper-based transaction-by-transaction requirements for processes involved in the importation of merchandise. It permitted Customs to begin the work of redesigning its core processes to allow full automation and account processing.
    However, built into the Mod Act are safeguards to prevent unilateral adoption by Customs of arbitrary procedures. For example, all new automation components must be the result of consultation with the trade, prototype testing, evaluation, and reporting before the final result and resulting components can be implemented. These consultations with the trade take time, but result in a better product, one in which the trade has substantial input.
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    Some examples of trade submissions which have altered the original Customs proposal include drawback, for which the Vice President's Hammer Award was recently given to the joint Customs industry group that worked on a revision of those requirements: recordkeeping, remote location filing, and prior disclosure.
    Rather than merely convert the former paper-based procedures to conform to the Mod Act, we are working with the trade to redesign the entire import process. Our goals are to speed up release without compromising drug or trade enforcement, to maximize voluntary compliance; to eliminate obsolete or redundant procedures; to shift from transaction-by-transaction processing to account-based systems, and to improve our trade statistics accuracy.
    We anticipate that by the time the Mod Act is fully implemented, nearly 75 to 90 percent of the Customs Regulations will have been revised to clarify procedures and implement new provisions. The process is inherently a slow one, but in order to pick up the pace, the Acting Commissioner has become personally involved in identifying top priority regulations and implementation projects and tracking them.
    By this fall, Customs will have issued final or proposed rules on all the nonautomation components and will have prototype tests running on all the major automation components which can be implemented in whole or in part using Customs' existing automation network, called ACS, and in some cases on that part of the new system, ACE, which can be implemented because of funding. Future expansion and implementation is only possible with hardware and software improvements which will require a reliable source of funding.
    As an example of picking up the pace, the final drawback regulations were recently published. The recordkeeping regulations have been sent to the Federal Register and will be published this coming Tuesday. These recordkeeping regulations incorporate many industry suggestions: to have different time periods for different parties involved; to shorten the time for keeping the original records; and for allowing alternative storage methods.
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    A proposed regulation to implement private laboratory accreditations was published earlier this week in the Federal Register. Major revisions to the rulings and protest regulations and the broker regulations, which are also of significant trade interest, are currently under review, and some versions of them have been posted in our electronic bulletin board for public comment.
    Two new concepts which emerged from the Mod Act are informed compliance and shared responsibility. These concepts are premised on the idea that in order to maximize voluntary compliance with Customs laws and regulations, the trade community needs to be clearly and completely informed of its legal obligations. Accordingly, the Mod Act imposes a greater obligation on Customs to provide the public with improved information concerning the trade community's responsibilities and rights under the Customs and related laws.
    In addition, both the trade and Customs share responsibility in carrying out import requirements. The importer of record is responsible for using reasonable care to enter, classify and value imported merchandise. The Customs Service then determines whether that information is correct, and we have to fix the final classification and valuation. The failure of an importer to exercise reasonable care can at a minimum lead to delays in the clearance of their merchandise and at a maximum to both civil and criminal penalties.
    In order to provide information to the public, Customs has issued a series of informed compliance publications. I have some samples of those here at the desk to show you what we have been doing the last couple years, but we have been getting out as much information as possible to the trade in a variety of media. We have produced videos; we have a World Wide Web site that has been visited by over 5 million visitors and is extremely popular with the trade community; and we have a Customs electronic bulletin board in which we post all proposals or major suggestions to get trade input.
    A major section of the Mod Act dealt with automation initiatives. Remote location filing, reconciliation, and importer activity summary statements or periodic payments were specifically named initiatives for which prototypes have either recently been implemented or announced.
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    Remote filing has been very well received by the trade, and it has been expanded. Earlier reconciliation prototypes had been controversial, but our October prototype, which will be open to the entire trade community, should overcome a major part of the trade's concerns. Periodic payment has been tested only on a limited basis, and that is complicated by the software and hardware needed to implement it nationally. The perceived lack of progress in automation will remain our biggest area of trade concern and the greatest impediment to implementation.
    Concurrent with the passage of the Mod Act, Customs adopted process management as its way of doing business. Process reinvention takes time, but considerable progress has been made. The regulatory process cannot be implemented until the desired operational changes have been defined, tested, and trade comments considered.
    The Mod Act has allowed us to implement selectivity and compliance measurement techniques which allow us to improve targeting of suspect shipments. This facilitates the clearance of legitimate trade, while at the same time giving us the necessary tools for drug enforcement and enforcement of those trade programs that Congress and the Administration feel are important. Working with the trade to improve compliance will remain an ongoing priority through the turn of the century. We look to further strengthen our import partnerships in the future, not only in areas of trade facilitation, but in drug enforcement programs as well. We have many programs working with the trade to help us in our burden of detecting drugs coming into the United States.
    In closing, I would like to emphasize that the Customs Service remains committed to complete implementation of the Customs Mod Act and is fully cognizant of the impact of this very important act on Customs compliance and enforcement missions. We remain dedicated in our efforts and mission, while creating innovative programs to assist those engaged in international trade. We look forward to exploring new and innovative strategies for improving our performance and achieving Customs goals.
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    We are fully aware the support of Congress and the American people is crucial in achieving and improving our missions. Thank you for your time and professional consideration of our testimony. I would be happy to try to answer any questions you might have or to provide any answers later for the record. Thank you.
    [The prepared statement of Mr. Seidel appears in the appendix.]
    Mr. BLUNT. [Presiding.] Thank you, Mr. Seidel. We will have questions. We have a series of votes. They are going to take maybe 20 minutes, and as soon as the series of votes is over, we will be right back and we will resume the hearing at that time. So we will be in recess for a few minutes.
    [Recess.]
    Ms. ROS-LEHTINEN. Our Subcommittee is back. Thank you so much. I am sorry I missed your testimony, but I had the opportunity to read it previously, so thank you so much. I don't know if you had any last minute ending thoughts, or if not, we can start with the questions.
    How does Customs determine what provisions of the Mod Act should be implemented first? You have a lot there in front of you, and what factors have been considered in order to determine the priorities or the time limit that would be required for the implementation of these provisions?
    Mr. SEIDEL. Certain of the provisions are mandatory because they actually change procedures that were in existence. Those procedures had to be implemented almost immediately and we began discussion with the trade almost after passage. We held meetings at various forums and we formed a core group to discuss with the trade how those might be implemented.
    Of more concern and difficulty are the ones where Customs has various options to pursue in how it implements provisions, such as the automation ones and such as those provisions which allow flexibility, for example, the invoicing requirements and the electronic transmission requirements. In those we have met with the trade, and we have tried to work with the trade through something called the Trade Support Network and various other groups in order to develop the trade's needs, so that our automation efforts at least coincide with their needs.
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    Based on that, and based on the ability to reprogram computers or to implement changes using our existing technology, we have formed prototype groups, advertised those in the Federal Register and solicited comments in participation, and then we have to go through an evaluation period. That is basically the procedure that has been followed for most of the programs.
    Two exceptions to that are in the drawback and the recordkeeping areas. We felt that those were so significant to the trade that even before we started the formal procedures, we posted concept papers on something called the Customs Electronic Bulletin Board and solicited extensive input from the trade.
    In the drawback area, it was so extensive we went back to the drawing board and actually did bargaining negotiations with members of the trade to come up with a final proposal. In the recordkeeping, we ended up putting out a considerably different product at the end of the comment period than we would have had we just gone ahead in the beginning, always because of the trade input.
    Ms. ROS-LEHTINEN. How about the recordkeeping requirements that are before you, how would you respond to the charges? We have heard from various folks that Customs is not making the distinction between various parties involved in an import transaction and this will actually create redundant paperwork for them.
    Mr. SEIDEL. Actually, the original proposal that was put out did not differentiate between the various parties who were filing documents. It just required mandatory recordkeeping for a 5-year period of all the required records enacted in statute or by regulation.
    However, based on the trade comments, the final recordkeeping package which will be published in the Federal Register this coming Tuesday takes into account those needs. There are differing periods of time for different types of documents.
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    For example, packing lists are only required to be kept for 60 days after the release period, not the full 5 years. Other entry documents relating to informal entries are only required to be kept for 2 years. The trade was complaining about original documents having to be kept for a year. We shortened the period to 120 days, and they only have to be kept in the original format, whether that be electronic or paper; and if an alternate storage method has been adopted, such as CD-ROM or imaging, after the 120-day period they may implement that without approval from Customs, merely notifying Customs they are using a different system.
    Ms. ROS-LEHTINEN. So you are willing to be flexible in that area?
    Mr. SEIDEL. Oh, yes. And also, the documents that are provided by, for example, carriers, which include the manifest and waybills, are different types of documents than may be required by an importer who actually has the transaction records, so the final regulations take those into account as well, and it is a distinction in the list of records between who has to keep which records. So I think we have taken into account the trade's concerns there.
    Ms. ROS-LEHTINEN. The Montreal Protocol to the Warsaw Convention, what has kept us from ratifying this? What factors or variables can you point to?
    Mr. SEIDEL. I think that is something that is outside the Customs Service's purview. It is probably more properly addressed to the Special Trade Representative. The Customs Service is not involved in those negotiations.
    Ms. ROS-LEHTINEN. What role will the U.S. Customs play in Customs reform efforts that are taking place in the World Customs Organization, and regionally as well?
    Mr. SEIDEL. We are very active in WCO and the APEC efforts to standardize procedures internationally. We have a prototype that started this week with the British Government, which is called the international trade prototype, which we hope will be——
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    Ms. ROS-LEHTINEN. That is my husband in the audience.
    Mr. SEIDEL. Oh. He may remember me from my days in Miami.
    Ms. ROS-LEHTINEN. That is right. That is right, I told him you would be here.
    Mr. SEIDEL. The international trade prototype that we are beginning with the British is one of the proposals the WCO is looking at which allows one country's export information to be transmitted to another country to be used as their import information, therefore facilitating trade, since the shipper only has to provide one set of data elements. We are also working with WCO and G–7 to standardize data elements that are used by the big trading partners of the United States and the European Community and Japan.
    In addition, we are working with WCO and APEC to bring up to international standards the other countries of the world that hope to accede to the WTO by making their operations transparent. We have been told by most countries that in many of the countries, they cannot get advanced rulings, the valuation laws are not consistent, and the classification standards for merchandise are not consistent or transparent, which makes it very difficult for U.S. businesses to operate overseas. We hope to standardize those through the WCO, and we are on several of the committees with the WCO in doing that.
    Ms. ROS-LEHTINEN. I just have one more question. In my opening statement I talked about the limit, the entry limit, $2,000 as opposed to $2,500. What factors did you use to determine the increase in the informal entry limit? Why was it increased only that much, and do you anticipate another increase authorized by the Mod Act?
    Mr. SEIDEL. I think the Mod Act allows us to go up to the full $2,500. The various policy and revenue considerations, it was initially thought that rather than going the full amount, initially we would up it to $2,000 and see what the impact was on international trade statistics. Because when you go to an informal limit, the documents that are required are much less, and the trade statistics that are provided tend to be much less accurate because they don't have to provide the detailed information. So we are trying to see what kind of experience we have in that information-gathering arena and in the revenue arena, and based on our experience I think we can reconsider whether we go the full $2,500 or not.
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    Ms. ROS-LEHTINEN. What we would do, if it is all right with you, Commissioner, I don't want to take up too much of your time, but as you see, the other Members have not come back from some votes because we expect a series of them coming up. If it would be all right with you, if you could stay around in the audience for a little bit, because I know Congressman Blunt did have some questions, but I would like to introduce the second panel so we can get started, because once we have the series of votes, we will be out for a while.
    Mr. SEIDEL. I would be happy to remain.
    Ms. ROS-LEHTINEN. Thank you so much.
    Our second panel is headed by Mr. Norm Schenk, chairman of the Customs Subcommittee of the Air Courier Conference of America, its international committee. Mr. Schenk also serves as Customs and brokerage manager for United Parcel Service (UPS), where he has been for 13 years. Mr. Schenk is a licensed Customs broker who has worked in the industry for almost 20 years. He has an extensive background in the development of Customs issues and automated systems.
    He will be followed by Jonathan Kent, National Customs Brokers and Forwarders Association of America's lobbyist before the Congress and the Federal regulatory agency, specializing in trade and transportation. Mr. Kent has served in various capacities in Congress and is a private sector spokesperson for the nation's Customs brokers and ocean freight forwarders. He is founder of Kent and O'Connor, Incorporated.
    Last is Michael Lane, Automation Committee chairman for the Joint Industry Group. Previously he served as Deputy Commissioner for the U.S. Customs, Deputy Assistant Secretary for Operations in the Department of the Treasury, Assistant Commissioner for Commercial Operations in Customs, Deputy Assistant Commissioner of Inspection and Control for Customs, and Assistant Director for Planning and Evaluation with the Bureau of Alcohol, Tobacco and Firearms. He has received a number of honors, including meritorious and distinguished Presidential rank awards and the Joint Industry Group Excellence in Government Award.
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    We thank you, gentlemen, for being with us, and we will begin with Mr. Schenk.
STATEMENT OF NORMAN T. SCHENK, CHAIRMAN, CUSTOMS SUBCOMMITTEE, AIR COURIER CONFERENCE OF AMERICA
    Mr. SCHENK. Thank you, Madam Chair. It is a pleasure to appear before you today. My name is Norm Schenk and I am chairman of the Customs Subcommittee of the Air Courier Conference of America, known as ACCA. I am also Customs and brokerage manager of United Parcel Service, one of ACCA's members.
    ACCA is the trade association representing the express consignment industry. In addition to UPS, our members include other large firms with global delivery networks such as DHL, Federal Express, and T&T, as well as smaller businesses with strong regional delivery networks, including Global Mail, Midnite Express and Quick International. Together, our members employ over half a million American workers and earn global revenues in excess of $50 billion.
    I am pleased to be able to discuss issues regarding Customs today, because Customs administrations play a critical role in ensuring expeditious movement of goods across borders and consequently are critical to our industry's ability to deliver express international service. To give you a sense of the size of our industry in U.S. trade, we account for roughly 25 percent of all Customs' formal and informal entries.
    I would like to focus my comments on three issues: the benefits of accelerating the movement of goods across borders; policies and procedures that impede the full realization of benefits from Customs modernization; and the express industry's efforts to modernize Customs procedures worldwide.
    For countries to advance their economic growth, it is essential to liberalize trade, not only by reducing tariffs but also by eliminating nontariff barriers and by creating a modern infrastructure that supports the efficient movement of goods and provision of services. Distribution is an essential linchpin of trade; in fact, it is the backbone of trade.
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    Without the free movement of goods, many of the benefits of liberalized trade are stunted. Archaic, arbitrary and arcane Customs procedures can clog distribution channels. This is why Customs modernization, both in the United States and in foreign countries, is so important.
    For example, in order to support world-class manufacturing, Customs release times must be measured not in days but in hours or even minutes. Predictability is almost as important as speed, as unpredictable Customs clearance delays are incompatible with efficient manufacturing.
    Customs modernization also assists Customs administrations in their enforcement mission, because transparent and rational regulations engender high compliance. Furthermore, automation, training, selectivity, and other modern procedures improve enforcement.
    The express industry has been a leader in working with U.S. and other Customs administrations to modernize practices as a means of both facilitating trade and improving enforcement. We have spent millions of dollars to achieve these joint goals.
    The failure of Customs authorities to simplify and modernize Customs procedures significantly restricts the benefits of trade liberalization and Customs modernization initiatives to U.S. consumers and U.S. businesses. I would like to highlight four areas of particular importance to the express industry where this is the case.
    The first is automation. Good functional automation systems will enable Customs administrations to improve enforcement standards while moving goods more efficiently. Unfortunately, U.S. Customs automation initiatives thus far have not been well structured, coordinated or managed. This needs to change in the future so that businesses and government can fully benefit from automation.
    Furthermore, we believe it is imperative for U.S. Customs to draw on the experiences of other Customs administrations in implementing new procedures. For example, U.S. Customs should consider the success of United Kingdom's pre-clearance program, which has significantly reduced the time and paperwork associated with importing, while retaining British Customs' enforcement abilities.
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    Second, Customs paperwork requirements can limit the benefits of liberalized trade initiatives. For example, the U.S. economy is failing to reap the full benefits of NAFTA because the cost of paperwork is so high. The paperwork requirement has significantly slowed the flow of goods across the border and has added to the expense of trading. ACCA believes this burden needs to be taken into account in future trade negotiations.
    Third, we have been following the development of Customs' recordkeeping regulations very closely, as they will have major implications for our business. I was very pleased to hear Mr. Seidel's testimony that Customs has taken into account the concerns of the trading community in revising these regulations, and look forward to reviewing the regulations when they are published next Tuesday to ensure ACCA's specific concerns have been addressed.
    Finally, for years, the express industry has urged U.S. ratification of Montreal Protocol 4 to the Warsaw Convention. This protocol will soon take effect without U.S. participation, which will place the U.S. transport industry at a competitive disadvantage. ACCA strongly urges Congress to ratify this important trade facilitating measure.
    As I have already indicated, the express industry believes that modern, simplified Customs procedures are a critical aspect of any liberalized trade initiative. It simply makes no sense to reduce certain barriers to trade, such as tariffs, but to continue to maintain outdated Customs, postal and other policies that obstruct the efficient distribution of goods and services.
    Dismantling these barriers is a fundamental goal of ACCA, and it is one we are pursuing not only in the United States but throughout the world. Currently, we are particularly active in three trade initiatives: the Free Trade Area of the Americas; APEC; and the Transatlantic Economic Partnership. Also, for many years we have been working with the World Customs Organization and the International Chamber of Commerce.
    In closing, Madam Chair, I want to thank you for this opportunity to discuss these important issues before you today. ACCA is very pleased that the Subcommittee is interested in exploring these issues, and we hope this hearing is the beginning of a lengthy and fruitful dialog on the interrelationship between trade at the policy level and trade at the commercial level. We look forward to working with you and other Members on these issues, and we would be happy to answer any questions you have on our global Customs modernization efforts or the Mod Act.
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    [The prepared statement of Mr. Schenk appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much, Mr. Schenk. We will put all of your testimony in the record.
    Mr. Kent.

STATEMENT OF JONATHAN H. KENT, WASHINGTON REPRESENTATIVE, NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION OF AMERICA

    Mr. KENT. Madam Chairman, the National Customs Brokers and Forwarders Association of America is pleased to be invited to testify before your Committee. I am Jon Kent, the association's Washington representative.
    In order to provide the Subcommittee a perspective on our views, it is necessary to explain how a Customs broker and a freight forwarder works with the U.S. Customs Service.
    A Customs broker is, as a general matter, retained by an importer to perform the necessary transactions required by Customs for bringing merchandise into the United States. While the importer is primarily liable for the correctness of his information, for paying duties and for observing applicable U.S. law, a Customs broker works in the importer's behalf to assist in meeting these obligations. At the same time, a Customs broker is likely to perform other services for his clients, and often serves as an exporter's ocean freight or air forwarder, whose function may include filings made to Customs' newly developed automated export systems.
    The Customs broker and freight forwarder's services are closely intertwined with the requirements of the Customs Service. It is a complex relationship. Customs plainly cannot do without the broker. With trade expanding exponentially and the number of individual exporters and importers increasing with it, a broker serves as a reliable partner in consolidating an overwhelming flow of data into a manageable and automated stream. A broker creates efficiency where there otherwise would be chaos.
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    The relationship, however, has run hot and cold. When occasionally Customs feels it can function without the broker, when, incredibly, the agency assumes importers can input their own data, bypassing expertise and technical resources of the broker, we do not do well together. On other occasions when we work in partnership, developing new and more efficient automated systems, and when we solve difficult problems of regulation and enforcement together, the Customs Service and Customs brokers create a synergy that enhances the entire trading environment.
    Resources have recently been shifted at the expense of commercial operations, and Customs must look at handling more trade with less.
    Ms. ROS-LEHTINEN. Mr. Kent, if I could interrupt you a second, I apologize. We have just 6 minutes to go on the vote. I was hoping we would have another Member back so we wouldn't have to recess; but I am going to make a mad dash to make that vote, but I am sure somebody is going to be back. Mr. Blunt is probably walking back already, so as soon as he comes or somebody else, we will resume the testimony. I apologize.
    Mr. KENT. I will suspend.
    Ms. ROS-LEHTINEN. The Subcommittee will be briefly recessed.
    [Recess.]
    Mr. BLUNT. [Presiding.] Mr. Kent, go ahead.
    Mr. KENT. Thank you, Mr. Blunt.
    I was just talking a little bit about the relationship of the Customs Service and Customs broker and how together they create a synergy that has great value to the trading environment.
    But resources have been recently shifted, as I noted, at the expense of commercial operations, and Customs must look at ways to handle more trade with less. The solution seems clear to us. Customs must work smarter. They must use the resources of the private sector, especially the hard-working intelligence of Customs brokers. Instead, Customs often optimizes.
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    Let us take, for example, its responsibility under the Customs Modernization Act to implement remote entry filing. Remote entry filing would permit the electronic filing of Customs entries anywhere in the United States, whereas now they must be filed in the local Customs district. This is a high-profile, high-priority program. A stumbling block has been Customs' insistence on receiving invoices only by electronic means, using only one unpopular format.
    We recommended, in a program we called Enhanced Electronic Entry Processing, that we be permitted to transmit the invoice data Customs requires in another format, fax, a simple, common-sense solution. Customs hasn't responded, and the entire remote entry filing program fails to get off the ground. Often this inflexibility is the result of this ''not invented here'' attitude of Customs, and often it is a result of a tendency to overmanage the commercial operations of the private sector.
    In another area, Customs has advanced a plan for a massive overhaul of its automated systems, calling the new plan ACE, Automated Commercial Environment. A new system is essential to replace the existing structure in order to effect many of the changes contemplated in modernization.
    But rather than involve brokers at the ground level of input, where they would partner in the design of systems that brokers would be required to implement, Customs has worked in a vacuum, presented only gross generalities, and then asked the private sector to provide a blank check, an increase in the merchandise processing fee. The international trade community is united in its opposition to increasing the MPF, but would support its resourcing through regular appropriations if only Customs would work with us in the base level details of its design.
    It is necessary, however, to illustrate what can be accomplished through a comprehensive give-and-take between the trade and the Customs Service. We compliment the Customs Service for what it is achieving in designing the automated export system; intended to meet Customs statutory responsibilities in the export area, including illegal shipments of cash. Customs has aggressively sought the involvement of the private sector in its design. Our NCBFAA ocean freight forwarders have generally responded enthusiastically and participated at the ground floor.
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    Rather than simply foist an imperfect system on an unhappy private sector, the agency has engaged in an interest-based negotiation under the auspices of the Treasury Department's Private Sector Advisory Committee. It is within a single meeting of completion. And this process recognizes that in the commercial area, only through real partnership and agreement can Customs succeed in its mission. It must listen to our ideas and concern and find some measure of flexibility in its institutional solutions to our mutual problems.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kent appears in the appendix.]
    Mr. BLUNT. Mr. Lane.

STATEMENT OF MICHAEL H. LANE, CHAIRMAN, AUTOMATION COMMITTEE, JOINT INDUSTRY GROUP

    Mr. LANE. Thank you, Mr. Chairman. I am Mike Lane. I am chairman of the Joint Industry Group Automation Committee (JIG) and a member of the JIG Steering Committee. The Joint Industry Group was established in 1976. It includes 130 members. Its members include Fortune 500 companies, other trade associations, and individuals, all united to improve the international trade process in the United States and around the world.
    JIG was the key organization responsible for helping Customs and the Congress craft the Modernization Act, along with former Commissioner George Weise. The Joint Industry Group has also been a key organization in helping Customs work in partnership with the trade industry to improve the trade process.
    Our testimony today will take three parts, as outlined in your invitation letter. First, we will address the complexity of Customs procedures and compliance; second, the implications of Customs performance for the United States and our trading partners; and, third, the benefits of accelerating trade.
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    First, in regard to complexity of Customs procedures and compliance, Customs, as the other panel members have noted, does have a tough job. For the past four decades, I believe, trade into the United States has doubled each decade. Customs staffing has remained about the same. Today, this year we will process in Customs approximately $1 trillion worth of goods. This means Customs must classify, value, determine the origin and admissibility of all of that, and collect the statistics.
    At the same time they are facilitating this trade, Customs must enforce laws at the border, with increasing concerns about transnational crime, narcotics, money laundering and sanctions against countries such as Cuba and Iraq. The Mod Act was meant to be one of the tools by which they would be able to handle this workload with the minimal staffing, and to some extent, as has been noted today, it has been successful. In other areas, Customs has been slow to implement in terms of getting regulations out and implementing some of the automated programs.
    In the second area, implications for U.S. and other trading partners, Customs is extremely important not only domestically, but internationally. As the world's largest trader, Customs should be setting the standard and example to other Customs organizations and promoting standardization worldwide. Customs is doing that through the WCO, but much more needs to be done.
    Improving the process in the United States is going to require automation, as John Kent and Norm Schenk have pointed out. The ACE program has been moving far too slowly. On the other hand, Customs and Treasury have been moving out with programs such as the International Trade Data System and the International Trade Prototype, as well as NATAP, which is the right direction, but again, the automation program is moving far too slowly.
    Third, the benefits of accelerating trade. It is Customs' job to improve compliance, and decreasing the cost of compliance is extremely important to the domestic industry and the economy. People have talked about today ''just in time'' inventory systems and international supply chain management. Customs and other government requirements are right in the middle of those international supply chains.
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    The costs to business and industry are not measured in millions or even hundreds of millions, but tens of billions of dollars each year in the inefficiency of the international trade process. That is primarily through inspections, unnecessary paperwork, and slow processing by Customs around the world. Automation, and to some extent the Mod Act itself, are a model for helping improve that entire process.
    In the area of automation, which is my area of responsibility with the Joint Industry Group, we are particularly concerned about getting the new Automated Commercial Environment system established and the year 2000 changes made. We believe that there is a potential here for a national crisis if those systems are not expeditiously put in.
    As we understand it, there is $800 million needed over the next 5 years to ensure the implementation of that new system, and the existing system, as we understand, is falling apart. The industry is currently paying millions of dollars in user fees, and I don't believe that it is the consensus that we are getting the service that we should be getting for those fees. As John has pointed out, and I think Norm as well, the Customs needs to be provided that because the whole idea of handling these workloads is substituting information for manual processes and inspections. If they don't get that $800 million, we are all going to be suffering and I believe the economy as well. As I mentioned, we are paying substantial user fees that may be diverted into other areas.
    That is the statement of the Joint Industry Group, and we appreciate the opportunity to be here.
    [The prepared statement of Mr. Lane appears in the appendix.]
    Mr. BLUNT. Thank you, Mr. Lane. Sorry for the schedule this morning, but the schedule here is always unpredictable. I haven't found anyone yet who has any control of it. I certainly know I don't. And I suspect because of that, Members may want to submit questions to each of you in writing. Your statements, whether fully made or submitted, will go in the record, and we appreciate you being here today.
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    Mr. Seidel, do you want to comment on any of the comments made by this panel?
    Mr. SEIDEL. Well, I certainly agree with the private industry that we have to work very close with them in developing our automated systems, and we have been trying to do that through a variety of different factors.
    In addition to that, I agree that some steady source of funding has to be found. As you know, the Administration did make a proposal earlier this year which was met with less than thrill and enthusiasm by the trade, but that is understandable. But some reliable source of funding has to be found to maintain the system.
    I agree with Mr. Lane that the existing system, while not quite falling apart, has reached the end of its usable years. It is programmed in Cobol. If anybody knows anything about computers, they know Cobol programmers are fast disappearing and the companies that used to support it are stopping support of that programming.
    The system itself, the existing system, was developed in the early 1980's, and while it was state-of-the-art back then, it didn't anticipate the types of transmissions that both the air couriers and brokers would like us to do, which include digitized images, rapid acceptance of various formats of electronic transmissions, and the acceptance of different formats from overseas.
    Mr. BLUNT. Are you in agreement with the $800 million figure?
    Mr. SEIDEL. I think that is the official figure that both the Customs Service and the industry are aware of. I think it is $792 million.
    Mr. BLUNT. How much of that was in the President's budget?
    Mr. SEIDEL. I can provide that for the record. Is it $48 million this year?
    Mr. BLUNT. Mr. Kent.
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    Mr. KENT. I am hearing different numbers floating around me.
    Mr. LANE. The numbers I have heard, one is $7 million and another is $50 million.
    Mr. KENT. What happened, Mr. Chairman, is the Administration offered to increase our tax, our special user fee that is paid on a valued basis when items are imported in the country. By doing that, the burden is shouldered by the importing community, so it was a special assessment against importing.
    Mr. BLUNT. Well, we will look at that. Matter of fact, you may just research that for me and get me the number. The $800 million was a 5-year number, and possibly as much as $50 million of it was in the President's budget, but we don't know the answer to that right now and we will find out.
    Did the topic of the package industry versus the post office come up here today at all? If it didn't, are you doing anything to try to offset any disadvantage the private package industry has versus the U.S. Postal Service as they deal with Customs?
    Mr. SEIDEL. There has been a working group in our Office of Field Operations that has been looking at whether or not there is a disadvantage to the package industry versus the Postal Service in view of the way goods are processed, and I don't know if the report is finished yet, but I can submit that for the record as well.
    Mr. BLUNT. I would like you to submit that for the record. Apparently I am about to miss the vote, so I will turn this back over to the Chairman.
    Ms. ROS-LEHTINEN. Thank you so much. We have a good tag team here.
    Thank you for your testimony. I am glad, Commissioner, that you were able to rejoin this panel. Thank you.
    Many importers have claimed preferential duty treatment for their goods under programs we have established, such as the Generalized System of Preferences; the CBI, the Caribbean Basin Initiative; and the North American Free Trade Agreement, NAFTA. Please specify, how would full implementation of the Mod Act impact upon business' use of these preferential treatments? How would it improve it, how would it further complicate it, how would you be impacted by the Mod Act when you use these preferential treatments?
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    Mr. SEIDEL. I can tell you from the government's standpoint that if the Mod Act were fully implemented, programs like reconciliation would make claims for these preferences a lot easier to proceed with.
    Frequently, importers don't have the necessary documentation or the certifications at the time the goods arrive. Rather than hold up the shipment, the documents that are presented are frequently insufficient. One of the things that the reconciliation program allows is within an 18-month period, additional documentation or claims to be made, so that goods could be imported and released immediately, documentation provided later, and then a claim made for GSP or NAFTA treatment when the certificates are provided. In fact, the reconciliation prototype we are talking about for October specifically allows NAFTA claims to be made within 12 months of the original document, using the reconciliation procedure.
    So we do think that once automation is fully implemented and Mod Act provisions are implemented, these trade programs will be easier to avail themselves of.
    Ms. ROS-LEHTINEN. Mr. Kent.
    Mr. KENT. Madam Chairman, when NAFTA is fully implemented, I think we can expect a substantial increase in the volume of trade between the United States and Canada and the United States and Mexico. That being the case, I think we are going to be much more reliant on automated systems, on expedited means of processing at the borders, and implementation of the Mod Act means a sort of solution to that.
    Ms. ROS-LEHTINEN. If the private witnesses could tell me, we have the Commissioner here, what procedure specific to express shipment would you want Customs authorities to implement?
    Mr. SCHENK. Madam Chair, we have a few thoughts on that. Certainly a reduction in paperwork is clearly one of the issues that we have. There are some systems out there that are being tested around the world, that currently work, for example, going back to the U.K. prototype where the manifest information is presented to Customs, they can do their selectivity based on that, and then we turn in the paperwork and the Customs duties 5 days after the month. It does not affect enforcement at all, and, as a matter of fact, some of the successes that have been reported on that have been very good. But it does allow the facilitation of trade in keeping the goods moving.
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    So the more we can do in terms of providing Customs the key information; they need to do their job properly on selectivity, we support that and want to work with that. However, going beyond that into invoice detail and some of those things, they don't do anything to help facilitate trade and they don't help Customs, frankly, in their enforcement process either.
    Ms. ROS-LEHTINEN. Anyone else? Mr. Lane.
    Mr. LANE. I would say the $2,500 exemption might be another area that would help the courier industry.
    Mr. KENT. Although the broker community is not as sold on that.
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Bereuter, do you have any questions for our panelists?
    Mr. BEREUTER. Thank you, Madam Chairman. This is one of those hearings that despite the quality of the witnesses, our floor schedule has created some havoc for us.
    I understand there is someone from the Customs Service here yet to respond. The Assistant Commissioner is here, and I would like to—perhaps the question has been asked, and if it has, could you give me a shortened response, and then I want to get a response from the other panelists here.
    With respect to implementing the provisions of the Mod Act, what steps have you taken to consult with them, to get their input?
    Mr. SEIDEL. I did answer that, but I would be happy to answer it again. We have had numerous consultations with the trade through core group meetings and industry meetings with various associations, and as each proposal goes forward, it is put on the electronic bulletin board in advance with at least a 30-day comment period even before official proposals go forward. Based on those comments, the final design of the program is put into place, and then we work with the industry concerned to evaluate those programs as they are proceeding.
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    Mr. BEREUTER. What has been the volume of responses or the amount of input that you received?
    Mr. SEIDEL. We generally get response to each of the programs from the three groups that are represented here. In addition, depending on the specific program, for example, in drawback, you get the special interest groups that are involved in that particular program also commenting, and large groups of importers will comment.
    Unfortunately, as the representatives here will agree, I am sure, even within organizations there aren't always uniform positions, and sometimes you end up overconsulting instead of implementing because you can never make everybody happy. Remote location filing is one example where some of the groups we have consulted with have actually changed their positions from time to time based on members' concerns, and that always makes it difficult.
    But we are trying to work with the various industry groups and we hope we are doing a good job of that. There is also a trade support network, which is a program that Customs has had for many years, specifically on automation projects, working with various representatives, trying to get the automation programs in sync with what the private industry is doing.
    Mr. BEREUTER. Commissioner, to what extent is it logical to break down the industry's input and their advisory role to you in sectors, and to what extent is that done?
    Mr. SEIDEL. Personally, I think that would be dangerous because if you proceed on one industry's concerns, more than likely you are going to be stepping on the toes of some other industry's concerns. I think what you have to do is you have to get everybody's input and then bounce those concepts off your own people to see which ones are workable and which ones are not, and go back to the trade and present them to the industries.
    Mr. BEREUTER. I suppose I can just assume you are right about that, but I am not going to. Why is it that you think that what you might do in responding to one sector's concerns would likely be or probably could be contradictory to the interest of the other? Give me some examples.
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    Mr. SEIDEL. I think an example would be what Mr. Kent mentioned before on remote location filing. The Customs Service is of the view that not only brokers but also importers who have the capability should be able to file remote location filings. I believe brokers are of the position that that should be done only through brokers, and that is one of the concerns we have.
    In the clearance of facilitated shipments such as courier shipments, over the years there have been differences of opinion in court cases involving the broker's versus the courier's position on how the entries shall be made or facilitated. Rather than taking either side's position, we try to work with both industries involved in coming up with a solution that benefits the entire industry, the trade community and the Customs Service.
    Mr. BEREUTER. To what extent could this Committee learn more about new techniques that Customs will use, techniques that—for example, some of the technology that you use I assume would be classified.
    Mr. SEIDEL. We would be happy to arrange for closed session briefings on some of the new technology. A lot has been presented to various committees in open sessions, some of the X-ray machines and gamma machines have been demonstrated, and we would be happy to give you a presentation on that or have an expert come up and meet with the Committee to discuss some of those.
    Mr. BEREUTER. Commissioner, did you in your oral testimony or in the course of the questions coming to you discuss the fee structure?
    Mr. SEIDEL. No, I did not, sir.
    Mr. BEREUTER. Are there any members of the panel here who would like to comment on the fee structure and whether or not increased productivity should be bringing down fees? Did any of you address that in your testimony, or is there anything you would like to say about that subject?
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    Mr. KENT. Are you referring to merchandise processing fees, the overall flat fee for implementation of merchandise?
    Mr. BEREUTER. The merchandise processing fees, for example.
    Mr. KENT. I can just respond to you, Mr. Bereuter, in that it is our view that this is another means of raising revenue for the government, and a lot of the revenue flows generally into the general Treasury funds and it is diverted away from pure subsidization of Customs services.
    Mr. BEREUTER. Should modernization logically bring those fees down?
    Mr. KENT. If there was a tie, yes, sir. But we believe that there isn't really a tie and the government essentially is hooked on the money.
    Mr. SCHENK. From a carrier's perspective, there is also a different issue; where as express carriers we pay directly reimbursable fees for Customs inspectors working on our facilities. When it first started back in the mid–80's, we agreed to it just to get it going and meet our customers' needs, but we believe this needs to be revisited. We pay many millions and millions of dollars more than what the actual expense is, and we would like to see this addressed in terms of reimbursables.
    Mr. LANE. There are all kinds of fees that industry is paying now, even in the passenger area, and some of those fees have been declared illegal under international agreements, and some are being phased out in NAFTA. So the fee process I would say is a mess right now, and Customs is dependent upon them, at least in the passenger area and some of the areas that the couriers talked about. The industry is paying more fees than they are getting in terms of service, and I know all of the organizations are concerned about the potential for additional fees to handle the problems with automation, and everyone is opposed to it.
    Mr. BEREUTER. Mr. Kent, I assume you have, in your membership, people that operate on both coasts, for example.
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    Mr. KENT. Yes, sir.
    Mr. BEREUTER. Is there any difference in their attitudes about the Customs Service and about the level of staffing, for example, of the Customs Service?
    Mr. KENT. Well, you do periodically hear from certain Customs districts and brokers within the Customs districts that they are understaffed. There is that complaint. By and large, we think the Customs Service treats the country on a pretty even basis, and as a national organization I can't say that we think the allocations are altogether untoward. We think that adjustments can be made, but nothing specific as you are implying, sir.
    Mr. BEREUTER. Mr. Seidel or Mr. Kent or any of the other panelists, has there been a shift in the volume of freight, for example, export freight, import freight, from the Atlantic to the Pacific, in terms of the percentage of the total volume? And I am not ignoring the Gulf, I am just looking at shipping, cargo shipping.
    Mr. SEIDEL. I would have to get those figures for you from the Customs Service. I am not personally aware of whether there has been a shift. As a consumer, I see more goods coming in from the Pacific Rim than I do from Europe these days, but I don't know whether that has had a major change. I will provide those.
    Mr. BEREUTER. Can you also give us an indication, at least on a personal basis, about the Customs personnel, where they are located, Atlantic versus Pacific?
    Mr. SEIDEL. OK.
    Mr. BEREUTER. As a part of that.
    Mr. SEIDEL. Yes, sir.
    Mr. BEREUTER. I appreciate it. Any other panelist have anything to say about this subject? I know you probably have very mixed constituencies on this subject.
    Mr. LANE. Trade in the Pacific Rim is growing substantially. Customs started 200 years ago all on the East Coast, and there has been a gradual shift to more and more out there. West Coast people have complained about the inequity of staffing, and Customs has done a number of things to increase staffing on the West Coast. So there probably is some imbalance there but I don't think it is as great as it was 10 years ago.
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    Mr. BEREUTER. Thank you. I have heard about that, that is for sure.
    I have a question here that relates to the Montreal Protocol 4, and I do not understand the implications of it but I would like to see if you can help me understand the implications of it. We apparently have not ratified it, Montreal Protocol 4 to the Warsaw Convention. What is that all about, Mr. Commissioner?
    Mr. SEIDEL. I will defer to Mr. Schenk.
    Mr. SCHENK. I will go ahead and try to answer that one. One of our members asked we put the comment in there, and to be honest with you, I am not an expert on that particular issue.
    My understanding is what was tying it up, really, was the passenger airline industry. That has been resolved. The issue has been around for years, and what it is is a reduction in information that would be required on air waybills, thus facilitating trade back and forth. My understanding at this point also is, it is a Senate issue on that. We could get some more information to you in writing if you would like, but that is, in a nutshell, all I know about it.
    Mr. KENT. The Senate had a hearing on it in May and it was my understanding it was on the verge of being cleared by the Senate Foreign Relations Committee.
    Mr. BEREUTER. I would like to ask, Mr. Schenk, Mr. Kent and Mr. Lane, if each of you would give me your most important recommendation to the Committee.
    Mr. LANE. I think right now the Joint Industry Group is concerned about funding for Customs automation in addressing the twin problems of the Y2K problem and the $800 million required to maintain their automated systems and develop the systems for the next millennium.
    In addition to that, I think it is getting all of the provisions of the Modernization Act implemented and out, and moving out expeditiously on those things.
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    And if I were to add a third, it would be to participate with the international trade community in standardizing international trade procedures around the world.
    Mr. BEREUTER. Thank you.
    Mr. Kent.
    Mr. KENT. I agree with Mr. Lane that automation has captured our attention recently, partially because it has been such a hot item within the Customs Service. We are not prepared to sign a blank check for it; we are not prepared to recommend to you and to the Congress that they sign a blank check for it. We think the Customs Service has much more to do in going into the details of what it proposes and providing us with those details, and once that happens, I think we can embrace it and we would ask you to also.
    Mr. BEREUTER. Thank you.
    Mr. Schenk.
    Mr. SCHENK. I concur with my colleagues that the automation efforts are very important. We are also concerned about the fees that are out there in terms of what we are paying.
    Going back to your other comment about the East and West Coast, the nature of our business is it changes by the day, literally; that based on the customers' needs, what used to come in on the borders now needs to come in all over the country, and it changes almost on a daily basis, and that is why the automation is so important.
    The other thing to focus on would be the recognition of the lower-risk shipments. We frankly believe that we understand Customs' mission on enforcement, but there is still too much effort placed on letters and documents and low-value shipments that really have little or no danger to the public.
    Mr. BEREUTER. [Presiding.] Thank you very much, gentlemen.
    On behalf of Chairman Ros-Lehtinen, I would like to thank the witnesses in the second panel for your testimony and bearing with us through this difficult vote procedure. We appreciate your testimony very much. And Commissioner Seidel, thank you for remaining for questions and for your earlier testimony and responses to questions. We appreciate it, and we will see what we can do with the information you presented to us.
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    The Subcommittee is adjourned.
    [Whereupon, at 12:12 p.m., the Subcommittee was adjourned.]

A P P E N D I X

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