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47–769 CC



before the


of the





MARCH 11, 1997

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Serial 105–16

Printed for the use of the Committee on Ways and Means


BILL ARCHER, Texas, Chairman

BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
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J.D. HAYWORTH, Arizona

ROBERT T. MATSUI, California
WILLIAM J. COYNE, Pennsylvania
JIM McDERMOTT, Washington
RICHARD E. NEAL, Massachusetts
JOHN S. TANNER, Tennessee

A.L. Singleton, Chief of Staff

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Janice Mays, Minority Chief Counsel

Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
WALLY HERGER, California
ROBERT T. MATSUI, California
RICHARD E. NEAL, Massachusetts
JIM McDERMOTT, Washington

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. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records.
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    Advisory of February 13, 1997, announcing the hearing


    Office of the U.S. Trade Representative, Hon. Jeffrey M. Lang, Deputy U.S. Trade Representative
    U.S. Customs Service, Hon. George J. Weise, Commissioner
    U.S. International Trade Commission, Hon. Marcia E. Miller, Chairman
    U.S. General Accounting Office, Norman J. Rabkin, Director, Administration of Justice Issues, General Government Division; accompanied by Walter Raheb, Los Angeles Field Office
    U.S. General Accounting Office, JayEtta Z. Hecker, Associate Director, International Relations and Trade Issues, National Security and International Affairs Division

    Industry Functional Advisory Committee on Customs Matters, and International Business-Government Counsellors, Inc., James B. Clawson
    National Customs Brokers and Forwarders Association of America, Inc., Harold G. Brauner
    National Treasury Employees Union, Robert M. Tobias


    Border Trade Alliance, Phoenix, AZ, statement
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    Collier, Shannon, Rill & Scott, PLLC, statement


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

    The Subcommittee met, pursuant to notice, at 10:05 a.m., in room 1100 Longworth House Office Building, Hon. Philip M. Crane (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]



CONTACT: (202) 225-6649


February 13, 1997
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No. TR–2

Crane Announces Hearing on Budget

Authorizations for Fiscal Years 1998 and

1999 for the U.S. Customs Service, the

U.S. International Trade Commission, and the

Office of the United States Trade Representative
    Congressman Philip M. Crane (R–IL), Chairman, Subcommittee on Trade of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the President's fiscal year 1998 budget proposals for the U.S. Customs Service, the U.S. International Trade Commission (ITC), and the Office of the United States Trade Representative (USTR). The hearing will take place on Tuesday, March 11, 1997, in the main committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m.
    In view of the limited time available to hear witnesses, oral testimony at this hearing will be heard from invited witnesses only. Witnesses will included representatives from Customs, ITC and USTR. Testimony will also be received from the U.S. General Accounting Office, and from representatives from business and industry. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.
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    On February 6, 1997, President Clinton submitted his fiscal year 1998 budget to the Congress. The submitted budget included proposals for Customs, ITC and USTR.
    The hearing will focus on budget authorizations for fiscal years 1998 and 1999 for the aforementioned trade-related agencies.
    Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement and a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of hearing noted, by the close of business, Tuesday, March 25, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Trade office, room 1104 Longworth House Office Building, at least one hour before the hearing begins.
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    Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
    1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same time written statements are submitted to the Committee, witnesses are now requested to submit their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
    2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
    3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
    4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record.
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    The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.

    Note: All Committee advisories and news releases are available on the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/'.



    Chairman CRANE. Welcome to the Trade Subcommittee's hearing on budget authorizations for fiscal years 1998 and 1999 for the U.S. Customs Service, International Trade Commission, and the U.S. Trade Representative.
    The Office of the U.S. Trade Representative, USTR, is responsible for developing, coordinating, and advising the President on U.S. trade policy. USTR experts and consultants conduct our international trade negotiations, including our affairs relating to the World Trade Organization, WTO. We should be impressed by the breadth and detail of the negotiations undertaken by the professional staff at USTR whose dedication to free trade negotiations transcends changes in administration.
    It is fitting that this Subcommittee should also review the budget of the Customs Service for the agency's history as closely intertwined with that of the Committee on Ways and Means.
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    At the time the Committee and the U.S. Customs Service were created by the first Congress in 1789, Customs revenues were the sole source of revenue for our Nation. Today, we rely on Customs to guard our borders, interdict illegal narcotics, and enforce over 700 trade laws.
    However, as testimony by the General Accounting Office, GAO, and members of the trade community will show, Customs must be more responsive to the trade community by reducing the regulatory burden on the American economy. Customs should also be weary of using the regulations to amplify or limit congressional intent. The best way to reduce these regulatory burdens is for Customs to automate its processes.
    In overhauling the regulations and its automated systems, Customs must contemplate a larger role for industry than it has previously thought possible. In the area of Customs enforcement, we must acknowledge that protecting our families from the threat of drugs means more than policing the border. Customs must make drug-smuggling unprofitable by dedicating more of its resources to antimoney-laundering investigations, and we should support Customs initiatives to break the drugs-to-dollar chain.
    We also will receive testimony today from GAO and the National Treasury Employees Union, NTEU, who will discuss the status of the partnership agreement governing labor-management relations at Customs.
    I am concerned that 3 years into this relationship, Customs and the NTEU have not completed any comprehensive evaluation of the partnership agreement which can be shared with this Subcommittee.
    I am also concerned that the partnership agreement may lead to inefficient staffing of inspectors and possibly corruption along the border.
    Customs is not a worker-owned enterprise, and the partnership agreement should not mean comanagement for inspectors.
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    Last, we will receive testimony from the International Trade Commission, ITC. 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 with the Commission.
    I now recognize our distinguished Ranking Member, Mr. Matsui, for any statement he would like to make.
    Mr. MATSUI. Thank you very much, Mr. Chairman. I congratulate you on holding this hearing today on the budget authorizations for the major trade agencies within the jurisdiction of our Committee.
    A timely Committee and hopefully early House and Senate actions on the authorizations will provide necessary guidance for the appropriations process.
    While Congress and the administration seek to balance the budget, we also need to ensure that the Customs Service, USTR, and the International Trade Commission have sufficient resources to carry out their statutory functions and the essential programs and activities which Congress and the private sector expect them to perform.
    These hearings also provide an opportunity for the Subcommittee to oversee and review the activities and programs of these key trade agencies.
    I look forward to the testimony. In particular, I welcome the Commissioner of Customs, George Weise, and USTR Deputy Lang back to the Subcommittee, and Marcia Miller in her first appearance as the ITC Chairman before this Subcommittee.
    Again, thank you, Mr. Chairman.
    Chairman CRANE. Today, we will hear from a number of distinguished witnesses, and in the interest of time, I ask that you keep your oral testimony to 5 minutes. We will include longer written statements in the record.
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    Our first witness will be our good friend, George Weise, Commissioner of Customs. I was proud to be the primary sponsor of the Customs Modernization Act, which provided the legal framework within which Commissioner Weise is streamlining Customs processes and preparing the agency for the next century.
    Commissioner Weise, welcome back to the Committee.

    Mr. WEISE. Thank you very much, Mr. Chairman. It may be a trite phrase, but we often say it is great to be here. In this case, having spent 9 years with this Committee and this group, it is a real pleasure to be back where I spent so much time helping to formulate with you some of the policies that I have now been responsible for implementing.
    I want to introduce to my right, Sam Banks, who is the Deputy Commissioner of U.S. Customs, a person who I couldn't get along without, and I have some of the executive staff behind me.
    I very much appreciate the opportunity to have my full statement submitted for the record, and I will be very brief, if I can, in summarizing some of the key points.
    I think it is important that we reflect back today on what we have been able to accomplish in the U.S. Customs Service with the great support of this Subcommittee and the Committee on Ways and Means. I want to make it absolutely clear how grateful I am and how it is impossible for us to have come as far as we have without your help, and I think we are moving in the right direction. We have come a long way, and I would like to just summarize some of the areas where we have made some progress and talk about where we need to continue our efforts because we have a long, long way to go in order to complete this process.
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    Before getting into that, I would like to also make it clear on the public record because, you know, so often, when you become a Commissioner of Customs, people attempt to label you and judge you before you get into the position as to whether you are going to be a facilitator or an enforcement person, and that happens regardless of what we have to say about it.
    I was labeled as a facilitator because of my long experience with this Committee and the trade policy arena. The one thing I want to make absolutely clear is that, I took this position with a clear mission of trying to be as balanced as I possibly could. One of the things that became absolutely clear to me very early in my process, Customs has a tremendously diverse mission, and numerous responsibilities we enforce. It is almost a trite phrase, over 400 laws for 40 different agencies, but as far as I am concerned, there is no responsibility that we have that exceeds the importance of our responsibility of keeping drugs off our streets and away from our children. This is something that we have tried very hard to do, and I think we have been successful in the course of the last 4 years.
    We have major operations, Operations Hard Line and Gateway, which have met with great success. In the past year, for example, we have seized over 1 million pounds of narcotics, which is a record for the Customs Service. It is probably a record that, on the one hand, you can be proud of. On the other hand, it is an indication of how serious the problem is and how much is left to be done. So I wanted to make that absolutely clear.
    But in the commercial arena as well, I think we have come perhaps even further than could have been expected. We are, as you mentioned, the oldest organization in all of the Federal Government, and I would venture to guess that if you put up the last 4 years in terms of the changes that we have embarked upon and compare that to any 4-year period in the history of the U.S. Customs Service, there wouldn't be any comparison whatsoever.
    Take a look back, just briefly, where we were 4 years ago. We were facing the prospect of trade continuing to grow at astronomical levels. Budgets were getting tighter and tighter. We had a commitment that ultimately was reached between the administration and the Congress that we were going to balance the fiscal deficit in a 7-year period. It became clear to us that we weren't going to be seeing additional resources in great numbers coming our way.
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    We had, in effect, a lot of distrust in the Congress about the U.S. Customs Service. We had a provision that wasn't in a Ways and Means provision bill, but in an annual appropriation bill, there was a provision that forbade the Customs Service from even looking at whether or not we could streamline our organization and consolidate our offices. That was the level of distrust that existed in the Congress because the fear was that if they gave us the flexibility to study our reorganization or study an organization, the changes that we would make would be irresponsible and perhaps adversely impact certain Members' districts over others.
    We were facing a number of archaic laws and regulations. We were burdened with paper requirements. We had an automated system that was well over a decade old and was in substantial need of revamping, and the other thing that was really a problem that I wasn't as aware of until I got down there, our own financial house was in chaos.
    We had under the Chief Financial Officers Act an attempt in 1993 to audit our books, and our books were in such bad shape that they said, ''We can't audit your books. We gave you what is called a complete disclaimer. Your books are in such bad shape, we can't audit them,'' and I will tell you, Mr. Chairman, that I was called in to meet with the Secretary of the Treasury, along with the Commissioner of the IRS, because they had a similar report by the GAO under the Chief Financial Officers Act. I was told in no uncertain terms, ''You will make this better,'' and I promised the Secretary that within a 4-year period, we will get a clean audit from the Chief Financial Officers Act.
    Yesterday morning we met with our examiners from the Treasury Inspector General's Office. As of last year, we had come to the next-to-the-last step of getting a clean audit. We had a qualified opinion.
    Yesterday, I was informed that we have a complete unqualified clean audit of our financial records, and that is something that I am very, very proud of.
    The last thing in terms of what we were facing 4 years ago was labor-management unrest. Frankly, we had very poor relations with our union, as you have made reference to, and I know that there will be witnesses from the General Accounting Office later to talk about our partnership that we formed with the NTEU. Your points are very, very valid. We are not looking to have our management, and our labor unions comanage our organizations. I don't believe that is what is being achieved, but I think we have come a long, long way in creating some of those partnerships.
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    Since that situation we were facing 4 years ago, today, we not only have had the ability to reorganize, but we have fully implemented a complete reorganization where we have reduced the size of our headquarters operation. We have eliminated the regions and districts. We put more frontline troops into the field.
    We have taken a fresh look at every single process that the Customs Service is involved in and reexamined it and tried to improve it. We are working to move away from a transaction-by-transaction basis to an account-based system, and we are able to do this because of the leadership of this Committee.
    You gave us the tools to do it when you passed the Customs Modernization Act, and we have taken it a long, long way.
    The concept of partnership, is part of our reorganization blueprint, which is looking at not only our structure, but the way we do business. We call it People, Processes, and Partnership, and we are working very closely through that concept of partnership with the business community.
    For the first time in the history of the Customs Service, we actually can measure the level of compliance. For many, many years, we worked on the basis of intuition. We thought certain importers, perhaps, were highly compliant, others not so compliant, others were very bad, but we have been able to put in place in the last 4 years a system that measures the level of compliance. We have demonstrated over the course of the last year that we have been able to work with the business community through the concept of informed compliance, helping to educate them on what is expected of them, what the law says, what the regulations are, and what their expectations should be. As a result, we have been able to increase the overall level of compliance by 2 percent, from 80 to 82 percent.
    That shows we still have room for improvement. But, the one thing that I think ought to be noted as well, even though we only have an 82-percent compliance rate, we have a 99-percent revenue collection rate. That means we have a revenue gap of only 1 percent that we have been able to measure and document.
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    So, of all the revenues that are due the Customs Service, we are collecting 99 percent of what is due us. We still have room for improvement. We have got to get that 82-percent compliance rate up, and we have got to get that 99-percent rate of duty payment up. We are going to do it. We are working very hard to do it.
    We are also working on a number of improvements in our automated systems. As I said, they are very archaic. Through the tools that you have given us and the Customs Modernization Act, we are looking to completely revamp our automated collection system. It is called an automated collection environment. We are looking at an automated export system, a national account basis, and all of these things are taking much longer than I personally would have liked. One of the reasons that they are taking longer is that when I sat in the chair of the people behind you for 9 years, one of the biggest complaints I heard from the business community was that Customs has a long history of moving too swiftly to implement systems before they laid the foundation for those systems and that they haven't worked to closely coordinate with the business community's automated system, so that they have compatibility.
    We are perhaps taking a little longer than many would like because of two reasons. One, we aren't making that mistake again. We are working closely with the business community to make sure we are getting their input, to make sure that our systems are going to be compatible with theirs, but also, we are in the midst of completely changing the whole fundamental process. The current system, ACS, was a manual system that we put on a computer, we are trying to have this new system designed and the automation of it designed concurrently so that they fit more closely together. We are making good progress on this.
    As I said, Mr. Chairman, earlier, we have come a long, long way. There is no question in my mind that we have a long way to go, and with the continuing support of this Committee, I am confident that we are moving in the right direction.
    We continue to be open to ideas and to constructive suggestions. We work closely with Members of this Committee and with your staff. We welcome the opportunity for the General Accounting Office to come in and take a look at our programs.
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    I can tell you that I have looked at the report on the NTEU partnership. There are some constructive points in there that we are going to take very seriously, we are going to pay close attention to, and we are always looking to work in cooperation with this Committee and this Congress.
    I am proud of the accomplishments that the people of the Customs Service have achieved over the course of the last 4 years. I am committed to continuing to work with you and to move this organization forward.
    Mr. Chairman, I could either talk a little bit about the budget, but since you have the budget request before you, I can still discuss the budget at this point, or turn it over to you for questions and answers.
    [The prepared statement follows:]

Statement of Hon. George J. Weise, Commissioner, U.S. Customs Service

    Mr. Chairman and Members of the Committee, it is a pleasure to be here today to discuss the activities of the Customs Service and to present our authorization request. Once again, I am looking forward to working with this Committee and am confident that Customs will continue to enjoy the same high level of support it has received in the past. Accompanying me today are members of Customs executive management team.
    Our resource requests, our priorities, and our commitment all, of course, are derived from our mission which is to ensure that goods and people entering and leaving this country conform to all applicable laws. In FY 1998, while challenges facing Customs will continue to grow in complexity and scope, our greatest operational priority will continue to be drug interdiction and the dismantling of drug smuggling organizations. In FY 1996, Customs cocaine seizures increased approximately 15 percent from the previous year, heroin seizures increased approximately 29 percent and marijuana and hashish seizures increased approximately 23 percent. Overall, Customs seized approximately one million pounds of narcotics—more than all other Federal law enforcement agencies combined. This is a new milestone for the agency.
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    As you are aware, however, the job is not finished. Illegal narcotics and other contraband continue to find their way into the United States. To meet the drug challenge and our projected workload, we are proposing a budget of $1.7 billion for FY 1998 which includes funding for anti-smuggling operations, land border automation, laboratory upgrades, personnel relocation and vehicle replacement. These resource increases, which I will discuss in more detail later in this statement, will contribute to refining our core processes and strategies.


    The U.S. Customs Service is accountable for the screening of all commercial movement of cargo across our borders. Last year, the Customs Service collected about $22 billion in revenue for the United States in the form of duties, taxes, and fees. The Customs Service applied hundreds of laws and regulations concerning tariff and trade to over 16 million entry summaries which involved nearly $800 billion of trade. Additionally, Customs performs the initial checks, processes, and enforcement functions for over 40 federal agencies. Customs performs these tasks by covering over 7,000 miles of land border and servicing over 300 ports of entry.
    Customs will have to address increasing workload requirements as the number of passengers and conveyances crossing our land borders or entering through our airports and seaports grows. In FY 1997, it is estimated that there will be 372 million land border passenger arrivals, 71 million air passenger arrivals, and 8 million sea passenger arrivals. Customs also estimates that 125 million vehicles, 713,000 aircraft, and 110,000 vessels will enter our ports. As trade and traffic increase, Customs must remain ever vigilant against drug smuggling attempts.

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Processes and Strategies

    The Customs Service reorganized in FY 1995 with the principles outlined in their report, ''People, Processes and Partnerships: A Report on the 21st Century.'' This effort, which was recognized by the General Accounting Office (GAO) as a model in their guide ''Effectively Implementing the Government Performance and Results Act,'' provided the framework for Customs to develop the processes and strategies it will need to adapt to the changing demands of its mission.
    Customs has three core operational processes: Trade Compliance, Passenger Processing, and Outbound. The goal of the Trade Compliance process is to maximize compliance with Customs trade laws while decreasing the cycle time for releasing legitimate cargo in an environment in which our workload is expected to triple. Customs expects to achieve this through a balance of informed compliance and targeted enforcement that will allow us to focus resources on violators of import laws and regulations. The goal of Passenger Processing is to ensure compliance with Federal laws and regulations by targeting, identifying, and examining high-risk travelers, while expediting low-risk travelers. The Outbound Process is responsible for the enforcement of laws concerning the export of undeclared currency, the illegal export of stolen vehicles, munitions, dual use materials with military applications, and precursor materials. Outbound is also charged with the high profile responsibility to enforce embargoes against countries sanctioned for supporting terrorism. Other responsibilities of Outbound include the maintenance of the Office of Defense Trade Control (ODTC) munitions license program, and the collection of outbound trade statistics and harbor maintenance fees on exports. Inherent in Customs processes are the Narcotics and Money Laundering strategies which deal with those who willfully violate the law.

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Customs Narcotics Strategy

    Customs goal is to prevent the smuggling of narcotics into the U.S. by creating an effective interdiction, intelligence, and investigation capability which also helps to disrupt and dismantle smuggling organizations. Proactively, Customs developed four objectives as part of its overall narcotics strategy. The purpose of these objectives is to provide to Customs enforcement officers the tools and systems they need to improve their ability to interdict narcotics. Through the various initiatives and programs which I will highlight, it is clear that Customs is making progress in its efforts to combat the illegal flow of drugs.
    Customs first objective is the development, collection, analysis and dissemination of actionable intelligence throughout all levels of federal, state, and local narcotics enforcement agencies. Customs has been at the forefront in developing more useful intelligence, especially as it relates to the Southwest Border.
    A second objective of our narcotics strategy is the development and dissemination of information to trade and carrier communities to prevent the use of cargo containers and conveyances by smuggling organizations. One program which is helping Customs meet this objective is the Business Anti-Smuggling Coalition (BASC). In March 1996, BASC, a business-led, Customs-supported alliance, was created to eliminate the use of legitimate business shipments by narcotics traffickers to smuggle illicit drugs. BASC is currently being prototyped at the ports of San Diego, Miami, and Laredo. The Border Trade Alliance, Mattel and 32 other companies in San Diego, as well as Sara Lee and other businesses in Miami, have been working with Customs in developing the program. Mattel, setting an example for others, has already developed a comprehensive anti-drug program that has been incorporated into its daily business practices. BASC was recognized in the Vice President's report to the President on the National Performance Review as a shining example of how government and industry can work together.
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    Two other programs which Customs has employed are the Carrier Initiative Program and the Land Border Carrier Initiative Program which enhance the movement of legitimate cargo while bolstering Customs enforcement posture. These programs encourage air, sea, and land border carriers to improve their security practices to prevent narcotics from getting onboard their conveyances. Participation in both programs is encouraging. As of January 1997, 105 air carriers, 2,870 sea carriers, and 800 land border carriers have agreed to participate. Over the last two fiscal years, participants in the Carrier Initiative Program have provided Customs with information that led to seizures totaling 18,437 pounds of narcotics, as well as initiating their own foreign interceptions totaling 59,181 pounds of narcotics.
    Customs third narcotics strategy objective is the development and introduction of technologies to identify smuggled narcotics and to force smuggling organizations to resort to higher risk methods. Customs recognizes that technology plays a significant role in our ability to remain effective while thwarting smuggling efforts between some of the ports by aircraft and boats. Customs employs a wide range of technological tools to protect our borders.
    This year, we look forward to further enhancing the effectiveness and quality of support provided by our Air Program through a variety of initiatives. By the end of FY 1997, Customs will have integrated seven maritime search and surveillance-configured C-12 aircraft into our fleet. These aircraft will be deployed to our Aviation Branches in Puerto Rico, Miami, and San Diego.
    Consistent with direction set forth in our FY 1997 appropriations, Customs assumed the air support requirements of the Bureau of Alcohol, Tobacco, and Firearms. Three new Customs Air Units have been established in Sacramento, California; Cincinnati, Ohio; and Kansas City, Missouri; to ensure our support is comprehensive and timely. Also this year, funding was made available to retrofit two Navy P-3 aircraft to Airborne Early Warning (AEW) configuration for incorporation into our fleet, during FY 1999.
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    New and emerging land border technologies, such as truck x-ray systems and License Plate Readers (LPRs), coupled with skilled inspectors and National Guard personnel, provide effective enforcement systems for identifying and isolating the smuggler or contraband, while expediting the flow of legitimate trade and travelers. The LPRs will enable our inspectors to accomplish their work without being distracted by entering license plate numbers into our automated law enforcement system. The first truck x-ray system continues to be successful at Otay Mesa, California. This prototype has contributed to the seizure of 17,765 pounds of drugs, most of which were concealed in false compartments and other hiding places in the vehicles, not in the cargo.
    In support of examination technology, Customs has developed the Automated Targeting System (ATS). ATS is an expert, rule-based system with artificial intelligence principles. Commercial transactions will be run against approximately 300 rules developed by field personnel, inspectors, and analysts in order to separate high-risk shipments from legitimate ones.
    Customs involvement in various multi-agency operations has helped us maximize our narcotics interdiction results and meet the fourth objective of our narcotics strategy—the implementation of various proactive, reactive, and multi-agency covert and overt narcotics investigative programs. As a natural evolutionary by-product of Operation HARD LINE, Customs is increasing its investigative emphasis in staging and distribution cities such as Los Angeles, Houston, Miami, Chicago, and New York. These efforts will do even more to disrupt the highly complex and sophisticated smuggling organizations that challenge our borders. These investigative efforts will also add to our body of knowledge, allowing Customs to interdict more at the border based on prior information. This full circle approach is what we call the ''Investigative Bridge'' and it seeks to go beyond border interdiction and capitalize on the intelligence and information developed through investigations of smuggling organizations. This information then feeds our border interdiction efforts resulting in additional seizures and the cycle begins again.
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    Two other effective vehicles for accomplishing this fourth objective are the High Intensity Drug Trafficking Areas (HIDTA) sponsored by ONDCP and the Organized Crime Drug Enforcement Task Force (OCDETF) sponsored by the Department of Justice. The HIDTA program identifies those geographic areas in the U.S. that are responsible for the majority of importation and/or distribution of much of the Nation's drug supply. OCDETF investigations also target major narcotics organizations. Frequently, these investigations link organization cells that span across the entire United States as well as source and transit countries.

Operation HARD LINE

    Over the course of several months during 1994, our Nation's Southwest Border ports of entry experienced a dramatic escalation of violence associated with narcotics smuggling attempts. Drug traffickers known as ''port runners'' were recklessly crashing narcotics-laden vehicles through Customs checkpoints along the entire land border with Mexico. These incidents of port running were often successful, and always posed great danger to border officers and innocent civilians. In February 1995, Customs began Operation HARD LINE in an attempt to permanently harden our ports of entry against border violence and to deny smugglers the use of commercial cargo as a means of introducing narcotics into the United States.
    Since the inception of Operation HARD LINE, we have fortified our port infrastructure, expanded our investigative activities, and enhanced our intelligence gathering and analysis efforts. As a result, our personnel are safer, better equipped, and in greater number at the ports of entry along the Southwest Border. Additionally, the highest threat areas have benefitted from the acquisition of sophisticated detection technologies.
    HARD LINE has proven to be successful thus far. Port running is down over 56 percent from 1994 levels. In FY 1996, narcotics seizures on the Southwest Border increased 29 percent by total number of incidents (6,956 seizures) and 24 percent by total weight (545,922 pounds of marijuana, 33,308 pounds of cocaine, and 459 pounds of heroin) when compared to FY 1995 totals. The total weight of narcotics seized in commercial cargo on the U.S.-Mexico border in FY 1996 increased 153 percent (56 seizures totaling 39,741 pounds) over FY 1995.
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Operation GATEWAY

    The Caribbean area, specifically Puerto Rico and the U.S. Virgin Islands, has emerged as a vital strategic location for the introduction and transshipment of narcotics into the U.S. and Europe. The Puerto Rico area, according to Customs intelligence reports, has the highest rate of non-commercial maritime and airdrop smuggling activity of any Customs area.
    On March 1, 1996, Customs initiated Operation GATEWAY. The mission of Operation GATEWAY is to achieve a complete and unified securing of Puerto Rico, the U.S. Virgin Islands, and their surrounding waters and airspace from narcotic smugglers. It is a cooperative plan that commits a sizable investment of funds, personnel, and equipment by Customs, with support from the Government of Puerto Rico. It is part of Customs overall plan to secure the Southern Tier of the U.S., from San Juan to San Diego.
    Since the initiation of Operation GATEWAY, Customs narcotic enforcement activities in Puerto Rico have increased dramatically. In comparing March 1 through the end of December 1996, to the same nine months in 1995, cocaine seizures have risen 44 percent. Reflecting our enforcement initiatives, we have increased the number of examinations of full inbound containers by 143 percent.

Challenges for Customs

    While Customs has experienced much success in its drug interdiction efforts, challenges will continue to surface. As long as drug smugglers are flexible, greedy, and have almost unlimited resources to draw upon, we must be prepared to meet all challenges.

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Money Laundering

    Although drug interdiction remains our highest priority, it is by no means the only challenge facing Customs at our borders. Customs also focuses on the most significant international criminal organizations whose corrupt influence impacts global trade, economic and financial systems. Our efforts are not limited to drug-related money laundering but the financial proceeds of all crime.
    Customs has implemented an aggressive strategy to combat money laundering. Customs money laundering investigations yielded $258 million in currency seizures in FY 1996. Customs also made the largest cash seizure to date at the U.S. border—$15 million in Miami, Florida.
    Through our strategy, we will continue to enhance our asset identification and forfeiture capabilities with advanced training and the use of more sophisticated computer software for analytical purposes. Customs will also continue to develop information through interaction and training with foreign law enforcement personnel, prosecutors, judges, and legislators through domestic and international anti-money laundering awareness seminars. Finally, Customs will proceed to develop information on international money laundering organizations by participating in long-term advisor programs and cross-border reporting and information exchange programs pertaining to the movement of monetary instruments. Again, the focus will be on detecting the movement of all illicit proceeds, not just narcotic proceeds.
    In addition, Customs is currently working with the Financial Crimes Enforcement Network on a regulatory initiative to make foreign bank drafts reportable. This would curtail a frequently used money laundering technique and help investigators trace criminal proceeds that have been reinvested or repatriated back to the U.S.

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Border Corruption

    Customs knows all too well that the agency is vulnerable to the threat of corruption by the very nature of its work. Customs is dealing with an enemy that has vast resources at its disposal-organized drug cartels.
    Fortunately, Customs has been able to effectively counteract criminal threats by two means: first, the vast majority of dedicated Customs employees will not and cannot be corrupted, and second, through the commitment of the Office of Internal Affairs (IA) to effectively pursue all allegations of corruption in a timely, professional and responsible manner.
    Incidents of corruption are isolated situations and represent a very small percentage of Customs employees—approximately 0.3%. But Customs will never be complacent about the threat of corruption. The Office of Internal Affairs assesses all allegations that are received and conducts investigations based on analysis and the content of the allegation. The Customs Service is proud of its ability to detect and ferret out corruption within its ranks, yet in balance, a number of high profile investigations and special projects have consistently shown that widespread corruption does not exist in Customs.
    In one significant investigation on the Southwest border, both Customs IA and the Treasury Inspector General found the reported corruption allegations to be unsubstantiated. In breaking new ground, the Customs Service requested the Federal Bureau of Investigation, as an independent entity, to conduct an objective outside investigation of existing information, reports and intelligence regarding alleged Customs corruption in the San Diego area of Southern California. The Customs Service provided complete support throughout the 17-month investigation. On August 22, 1996, the U.S. Attorney formally cleared Customs officials of allegations that they collaborated with drug traffickers at the Mexican border. A public announcement was made at the end of the investigation because of continuing media reporting of widespread corruption in Customs. The result of the FBI investigation revealed there was no basis for criminal prosecution.
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    The Office of Internal Affairs training staff prepared an integrity/ethics course for approximately 60 train-the-trainer personnel. These 60 employees then provided the ethics course to approximately 5,800 Customs employees along the Southwest border, South Florida, and Puerto Rico.
    The Office of Internal Affairs is continuously reevaluating security controls, has initiated proactive integrity programs, and conducts operational investigations to minimize risks and to decisively deal with corruption issues. IA is further in the process of data base enhancements which will allow for more precise trend analysis, and adoption of an early assessment system to detect potential corruption indicators. Joint office integrity initiatives also include: the proper recruitment and selection of highly qualified individuals as Customs officers; full field investigative screening; rigorous training which includes integrity training and agency expectations of stringent standards of conduct, supported by a clearly defined table of offenses and penalties; and in-service ethics/integrity/ bribery awareness training.
    We understand the American people expect all of its public officials and law enforcement personnel to have integrity and be deserving of their complete trust and confidence. Customs will continue to do everything it can to assure that this trust and confidence are not shaken. The Customs Service places the highest value on integrity, and no amount of corruption, when detected, is tolerated.

Internal Conspiracies

    Customs has recently been confronted with an emerging smuggling threat relating to ''internal conspiracy'' organizations who attempt to circumvent Customs targeting and examination processes by removing narcotics from cargo containers prior to inspection. There are virtually thousands of individuals, employed by the carriers, ports, freight forwarders, and contractors, who obtain certain information as to how, why, where, and when Customs examines cargo. These people are also knowledgeable about all the associated documentation, from entry through liquidation. They are the resident experts at all ports of entry and, if corrupt, are extremely valuable to any smuggling organization.
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    Smugglers, working through an internal conspiracy, are able to modify their mode of operation each and every day depending upon what they see Customs doing. These criminals tailor their methods and techniques port-by-port. The cost to business and industry is in the hundreds of millions of dollars; the cost to the American people is even greater.
    There have been several recent Customs investigations whereby personnel who are working for airlines, steamship companies or seaport terminals have used their position and unrestricted access in ports of entry to engage in drug smuggling activities and/or conspiracies. When they successfully apply their knowledge in furtherance of criminal activity, i.e., drug smuggling, our border security and control is most vulnerable. In these types of conspiracies, the drug or other contraband is removed prior to our border searches. Customs is currently involved in several major initiatives focused on internal conspiracies in various areas of the country.

Meeting the Demands of Increased Trade

    In order to face the challenges of growing trade and reaching higher levels of compliance, Customs has undertaken innovative efforts in automation, outreach programs, and planning. These efforts are described below:

Information Technology

    Information technology has become a critical enabler for Customs in serving the public and addressing the international trade and enforcement issues facing our Nation. Some notable initiatives implemented over the past year include the Automated Targeting System (ATS) pilot in Newark, the Trend Analysis Prototype (TAP) interface pilot in Savannah, Los Angeles and Seattle, and the Remote Entry Filing prototype. In addition, drawback claims can now be submitted electronically using the Automated Broker Interface (ABI). Other initiatives include the expansion of the Advance Passenger Information System (APIS) and the acquisition of non-intrusive Truck X-Ray Systems and Automated License Plate Reader Systems for installation at southern tier ports of entry.
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    As successful as the Automated Commercial System (ACS) has been over the years, it is just not robust enough to serve the processing needs of an increasingly complex trade environment. As a result, Customs has been working to replace the older system with a new, more sophisticated system called the Automated Commercial Environment (ACE).
    The hallmark of ACE is that it moves from a transaction-based approach to an account-based system founded on compliance measurement and predicated on reengineered ways of doing business. Companies cooperating with Customs achieve mutually beneficial outcomes including raised compliance, trade providing minimal data at time of release, and ability to make payments on a periodic basis. As compliance increases, the cost to Customs and to trade will decrease. The benefits of this approach will include uniform treatment, shorter processing time, more efficient information collection and dissemination, and greater opportunities to fulfill our enforcement mission. A full scale implementation plan for the roll out of ACE in its entirety is due in November of this year.

Trade Outreach Efforts

    Since passage of the Customs Modernization Act in December 1993, the Customs Service has engaged in extensive efforts to consult with the trade on how to improve Customs trade processes. All proposals to implement the Modernization Act are first put on the Customs Electronic Bulletin Board for informal comment. When needed, public meetings are held to explain proposals and solicit comments and suggestions. All of this routinely occurs before the formal Notice of Proposed Rulemaking is published in the Federal Register. The early consideration of trade concerns has resulted in better formal proposals. Drawback and record keeping are just two examples in which trade concerns resulted in vastly different formal proposals than originally contemplated. In addition, Customs has engaged in a major effort to improve the trade's compliance with Customs laws and regulations. These informed compliance efforts have included public meetings and seminars at the port and national levels, informed compliance publications on a variety of valuation and classification topics, videos on the textile rules of origin and compliance and a very informative Internet World Wide Web site and Electronic Bulletin Board. Our Website has been visited by over 5000 users in a single day. The Textile Origin video has been purchased by over 300 members of the trade. Over 250 copies of the Compliance video have been requested.
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Trade Enforcement Plan (TEP)

    Since December 1993, all trade-related activities of Customs have been driven by the Customs Modernization Act, which mandated shared responsibility between Customs and the importing community for achieving maximum compliance with U.S. trade laws and regulations. Each year, Customs prepares a Trade Enforcement Plan (TEP), which describes the role Customs will play in furthering the goal of maximum compliance. To create this plan, Customs assesses the principal threats to compliance with U.S. trade laws, develops a coordinated approach to confront those high impact national threats, and defines targeted areas, strategies, priorities, and intra-agency responsibilities and time lines for accomplishing these goals.
    Customs most recent TEP builds on compliance measurement results and some compliance assessment results, which forms an integrated compliance system to assess the principle threats to compliance. This analysis aids Customs focus on high-priority or ''Primary Focus'' industries (PFIs) and issues that have a significant economic impact on the Nation.
    In FY 1996, the compliance rate for overall importation increased from 80 percent to 82 percent. Duty collections on imports remained in excess of 99 percent. Of particular note is that higher value importations had a significant increase in compliance, to a rate of over 86 percent. The cooperative effort with the importing community and domestic industry to address compliance issues can be credited with the improved performance of major importers.

Primary Focus Industries (PFIs)

    PFIs are commodity areas that will attract significant attention from Customs in every regard. By establishing a national focus on these product sectors, they will receive the level of attention which they warrant. Eight PFI's were determined by use of a number of factors, including strategic importance, international trade agreements concerns, quotas, duty, public health and safety, Intellectual Property Rights (IPR), and Gross Domestic Product/economic impact. The eight PFIs are: Advanced Information Displays (e.g., cathode ray tubes, flat panel displays); Agriculture; Automobiles and Automobile Parts; Critical Components (e.g., fasteners, bearings); Production Equipment; Steel Mill Products; Telecommunications; and Textiles.
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Priority Commercial Issues

    Because not all important trade issues confronting Customs can be identified by industry sectors, additional specific and cross-cutting trade priorities were identified. Many of these were derived from earlier versions of annual Trade Enforcement Strategies, and others have been identified by various customers. The 12 priority issues are: Anti-Dumping and Countervailing Duty; Classification; Trade Statistics; Country of Origin Marking; Embargoes and Sanctions; Intellectual Property Rights; Trade Agreements; Public Health and Safety (pending other government agency participation); Transshipment; Quota Evasion; Revenue; and Valuation.
    Clearly, many of these are cross-cutting over a range of products or source countries. Others link closely with the priority industries—textiles with quotas and transshipment, for instance. A few issues such as embargoes and convict labor are country-specific.
    A new priority area, Revenue, has been added for the 1997 TEP. Concerns over the gap between revenues due and revenues collected, and our new ability to use compliance measurement to project a measurement of that gap, have enabled us to identify the scope of the issue and develop a Revenue Gap Subplan to address it.

North American Free Trade Agreement (NAFTA)

    The NAFTA trade enforcement Sub-Plan will form the basis for Customs efforts in assuring the highest level of compliance possible for NAFTA transactions in the coming year. The specific goals of this initiative are the development of a national plan for NAFTA compliance for U.S. Customs; avoidance of using NAFTA enforcement as an unintended non-tariff barrier; the effective use of the experience and knowledge of all Customs Officers; and the integration of Customs NAFTA efforts into a single effective process. Components of the 1996–97 NAFTA Sub-Plan include audit; compliance measurement; informed compliance; interventions and investigations; port-initiated verifications; and the Strategic Trade Centers.
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    Additionally, Customs ports have local initiatives for verifying the NAFTA claims for companies and commodities not selected nationally. Informed Compliance for NAFTA is being achieved through information dissemination by the Dallas NAFTA Center, video broadcasting, and port outreach.

Changes In COBRA User Fees

    The NAFTA Implementation Act includes a provision to restore the Air and Sea passenger processing fee to $5.00 per entry, a reduction of $1.50 per entry, and again exempt passengers arriving from Canada, Mexico, and certain Caribbean Nations. These changes will take effect in FY 1998. Customs estimates that the fee reduction and the restored exemptions will result in a $187 million decrease in collections from this fee.

FY 1998 Budget Request

    Customs proposed appropriation for FY 1998 totals $1,690,602,000 and 17,193 Full Time Equivalent (FTE) positions and reflects our highest budget priority for FY 1998—ensuring adequate funding for effective operation of our programs within a constrained budget environment. Customs ability to perform its enforcement functions and collect revenue depends on a well-equipped, reliable infrastructure. The resources identified below are necessary to meet the broad and diverse mission requirements of the Customs Service and accept the realities of a growing workload.


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    •  Our Anti-Smuggling Initiative will provide the necessary resources for Customs to counter the increasing threat of narcotics smuggling in cargo shipments through South Florida and other high-risk ports of entry. The $23.4 million ($8.4 million and 119 FTE in Salaries and Expenses and $15 million from the Violent Crime Reduction Trust Fund) requested will provide us with the human and technological resources vitally necessary to continue the successes seen in Operation HARD LINE on the Southwest Border and Operation GATEWAY in Puerto Rico, the U.S. Virgin Islands, and the Caribbean.
    •  The Land Border Passenger Automation Initiative of $11.5 million requested for FY 1998 is a joint undertaking between Customs and the Immigration and Naturalization Service to provide both agencies with the technological tools to increase inspector effectiveness and safety, and expand the use of automated data capturing for query against enforcement databases. It will also provide valuable intelligence to federal law enforcement agencies on the movement of vehicles across our borders, and provide expanded service at low-risk ports through remote processing, offering the potential for a redirection of resources to higher risk activities.
    •  This year's budget request also includes $5.5 million for a hangar to house the two new P-3 aircraft in Corpus Christi, Texas. We are also requesting $2.5 million to fund 27 additional FTE for the aircrew and related support personnel that will be needed to support these new aircraft.
    •  To assist in the apprehension of individuals involved with the removal of unreported currency, weapons of mass destruction, and precursor chemicals, Customs requests $1.1 million from the Violent Crime Reduction Trust Fund to construct canopies for detailed inspection of suspect outbound vehicles at selected crossings. This enhancement will also provide our inspectors with some measure of safety from traffic flow while they concentrate on this important effort.
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    •  Our Operational Support Initiative is comprised of three components: Laboratory Modernization, Vehicle Replacement, and Agent Relocation. We are requesting an additional $5.7 million to enable Customs to upgrade its laboratories with state-of-the-art analytical instrumentation based on contemporary scientific approaches, required to adequately support the Customs mission; to develop analytical methods for the determination of country of origin of agricultural, petroleum, and textile products; and to maintain a continuous and intensive laboratory research program. Customs must successfully meet the new examination requirements of expanded international trade (textile transhipment, trade and narcotic enforcement, criminal investigations, forensic work, anti-dumping violations and compliance measurements). Laboratories, with modern, sophisticated analytical instrumentation, are especially important for protecting our Nation's trade interests. Additional resources requested for Operational Support will also benefit our enforcement activities by replacing severely worn-out vehicles. By FY 1998, approximately 83 percent of Customs vehicles will be eligible for replacement in accordance with General Services Administration replacement criteria. Without adequate funding, our vehicles will be potentially unsafe, inefficient, and very costly to maintain. We are requesting $10 million for this portion of the initiative.
    Lastly, the Operational Support Initiative includes funding for agent relocation. This funding is requested to allow Customs to relocate agents to high-threat areas as criminal activities dictate. Customs is currently only able to fund relocations at the expense of other priorities and has not been able to implement a comprehensive relocation program like other enforcement agencies. If this continues, Customs ability to respond to changing threats will be hindered, the morale and effectiveness of our agents will likely deteriorate, and the public's and Congress' perception of Customs ability to perform its mission will likely be damaged. Funding for this portion of the initiative, $4 million, is requested from the Violent Crime Reduction Trust Fund.
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    This concludes my statement for the record. Thank you again for this opportunity to appear before the Committee. You have provided tremendous support to the Customs Service in the past and I look forward to a very productive future working with you and your staff.



    Chairman CRANE. All right, George. First of all, I want to congratulate you and your staff for the clean audit you folks just received. Keep up the good work.
    I have concerns about Customs ability to develop and coordinate this mosaic of potential and perhaps irreconcilable computerized projects and systems, and in light of the colossal failure of the IRS tax modernization system, how will Customs ensure that problems resulting from past deficiencies in the automated systems design processes are not repeated?
    Mr. WEISE. Well, Mr. Chairman, we are very much aware of the problems that the Internal Revenue Service, IRS, has had, and we are doing everything we can to try to avoid some of those same problems.
    One of the things that we are doing now is we have outside consultants that are coming in and taking a look at everything that we have been doing, including taking a look at our overall architecture, that is, how the whole thing fits together. They are going to complete that analysis by June of this year, and based on the input that we have been receiving from these outside consultants, I don't feel that we are making the same kinds of mistakes that were made by the Internal Revenue Service.
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    Certainly, we can do a better job of coordinating many of these automation initiatives, and I think that we are moving in the right direction.
    We have recently put Ed Kwas, who is with me today, in as the Assistant Commissioner for that position. Ed Kwas has demonstrated over many years with the Customs Service his ability to pull things together and to deliver a finished product, one that makes sense. I am very confident that under his leadership we are going to be able to achieve that, but we are very cognizant of mistakes that others have made, and we are going to work very closely with the General Accounting Office, with this Committee, and with these outside consultants to make sure that we don't make those same mistakes. So I am optimistic and very confident that we are going to make these systems work and work well.
    Chairman CRANE. Good to hear.
    We understand that due to cost constraints in its agreements with the National Treasury Employees Union that Customs is limited in its ability to reallocate inspectors to meet the shifting drug threat. Is this correct, and if so, what impact have these limitations had on Customs drug enforcement efforts along the Southwest border?
    Mr. WEISE. Well, I don't think it is correct, Mr. Chairman. The partnership itself is basically a change in our relationship and the way we are working with one another.
    I think the fundamental rights of members of the NTEU existed prior to partnership, and certainly, an employee, an inspector, or a canine enforcement officer is brought on with a different expectation than a criminal investigator who signs an agreement right up front that you can and may be moved for the good of the Service.
    Most of the inspectors and canine enforcement officers did not sign a similar commitment that they will move at the whim of the organization. So there are differences in the way they are treated.
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    I will tell you, as far as the partnership is concerned, there is a lot that we can talk about. My fundamental philosophy is that if we are going to maximize our performance as an organization, we need to have the constructive input at every level of our organization, and having started my career at a very low level in the Customs Service, one of the things that frustrated me is that no one ever asked for my input. They asked me about my particular job I was doing, but never asked me about the processes I was working on.
    One of the things that we are attempting to achieve through this partnership is having constructive input from our workers to help us have the input necessary to make the best decisions possible for the organization. Does that mean that they get to vote on the decisions and share in decisionmaking? No. It is not comanagement. The managers continue to have the responsibility to make the final decisions that impact us as an organization, but having that input is something that I continue to believe is the right thing to do.
    Is our partnership perfect? It is far from it. We are learning as we go. This is a completely new experience, trying to deal with an official partnership, but we are making strides, and I am very much looking forward to continuing to work with the General Accounting Office, looking at the report, looking at the ideas that they have suggested.
    Certainly, we need to have measurements. How do you measure the success of the partnership? That is something in everything we do. Under the Government Performance Results Act or GPRA, we are going to try to find a basis to measure our success.
    If you just look at intangibles, you can see that there have been some successes in the partnership. If you look at the number of grievances being filed and things like that, those are going down.
    I will tell you that we took 6 months, from beginning to end, to prepare our reorganization plan blueprint. It took us almost another 12 months to get the approvals of the Department of Treasury, but within 18 months, we had it fully implemented. My recollection from the old days is, whenever Customs would start a new initiative that they didn't do in partnership, we would have the Customs testimony before us, and then we would have the NTEU testimony coming later, and they would tell us why everything Customs was doing was wrong, and we as a Congress would be concerned about moving forward.
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    That partnership has already delivered something very tangible in allowing us to move our organization forward. It can be better. It will be better. We are working to improve it, and that is all I can say on that. I believe the partnership is the right direction for us to take.
    Chairman CRANE. Well, we are impressed with your performance, George, and just keep up the good work.
    Mr. Matsui.
    Mr. MATSUI. Thank you, Mr. Chairman.
    Commissioner Weise, you have been Commissioner now for 4 years. In terms of the issue of drug interdiction, particularly with Mexico, how would you describe your working relationship with Mexican officials, and how would you describe their level of cooperation?
    Mr. WEISE. Mr. Matsui, I will have to put a caveat on that. I will give you my own personal experience, but obviously, the Customs Service is the organization responsible at the ports of entry, at the border.
    I don't have the same degree of involvement, as other organizations, like the Drug Enforcement Administration, for example, that has a number of people in Mexico, or the State Department that works directly with the Mexican authorities.
    I will tell you about my limited realm of experience. We work very closely with our counterparts from the Mexican Customs Administration, and we meet several times a year as part of an aftermath of the North American Free Trade Agreement, NAFTA, with Mexican and Canadian Customs Administrations. Some of the issues concerning the tremendous increase in violence at the border had us very, very concerned several years ago. We asked our Mexican counterparts to help us in this regard because frequently instances would occur where Mexican citizens would come across, create some havoc on our side of the border, and then quickly run back and then not see anything happen to them.
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    They did put together some teams—they are called beta teams—to help address that particular problem, and that is something that was very, very constructive with us.
    Also, in terms of our air program, we have a program in place where we work with the Mexican authorities. We have two citations on the ground in Mexico where we work to train the Mexican pilots, and that has been a positive and constructive interaction that we have had with the Mexican authorities.
    The one issue that I think has concerned us—and this is not something that really developed in the last 4 years, but it goes back to 1990 or 1991, where Customs in the past had the ability to have confidential informants within a 26-kilometer radius on the Mexican side of the border. That was tremendously helpful for us to have intelligence that we could use to really target shipments that were coming across and help us catch those goods and seize those drugs before they cross the border.
    In 1990 or 1991, there was a change in that practice and policy that forbade us to do that without very close interaction with Mexican authorities. We have been working through the State Department and through DEA and others to try to get that position turned around, and thus far, we have not been able to get it turned around, but in general, my own experience is—and in the sphere in which I operate—the cooperation has been generally good.
    Mr. MATSUI. The last question is related to the transfer of Hong Kong to China on July 1 of this year, obviously, the issue of transshipments, particularly of textiles and other products as well, will perhaps be much more difficult to deal with, although I guess we are not quite sure yet.
    Are you beginning the process of preparing for that at this time, and what are you doing that is obviously not of a confidential nature?
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    Mr. WEISE. Well, Congressman Matsui, I can state on the public record that we have had a long history of trying to work very closely with the Government of Hong Kong in terms of dealing with the transshipment problem.
    This year has been a particularly busy year for us where we have had an opportunity to work very closely with the authorities of Hong Kong Customs. They have been very concerned, even before the Chinese takeover, about their sovereignty and about allowing U.S. Customs officers on soil in Hong Kong going into plants because we have had this kind of arrangement with other countries. They have been very adverse to giving us free reign to go into Hong Kong manufacturing facilities to confirm that products are actually being produced there.
    We have worked with the Hong Kong Customs authorities over the course of the last year or so. They have allowed our people to go in and observe the Hong Kong Customs authorities looking at these plants, and what we have seen from that is that they have a better understanding of the magnitude of the problem than they had in the beginning.
    I think in the initial stages of our interaction with them, they were in denial saying that we have already policed ourselves very well, there is not a serious transshipment problem in Hong Kong, and I think what they have learned from this experience is that, indeed, there is a serious transshipment problem of textiles through Hong Kong. We are working to create a mechanism where we can work closely with them and feel confident that their systems will work.
    Now, what is going to happen when that transfer takes place with China? That still is an uncertainty for us as well, and we are trying to work closely with both the Hong Kong Government as well as the Government of China to make sure that there isn't anything that undermines our ability to enforce our laws.
    Mr. MATSUI. Do you think that you will have something in place in your negotiations with the Hong Kong authorities by July 1?
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    I think, obviously, it takes two to negotiate and two to come up with an agreement. On the other hand, if, in fact, we don't have this issue at least somewhat close to resolution, this could create problems and a backlash, among other backlashes that may occur in terms of the transfer.
    Mr. WEISE. Well, we are working on two, Congressman Matsui. We are working with the Chinese Government directly, and we do have an office in Beijing as well, and we are working with the Hong Kong Government. We are working to try to coordinate that when this transition takes place, there will be nothing that will undermine the arrangements that are already in place.
    Up until now, we have seen no indication that any of these arrangements will be undone by that transition taking place, but obviously, we are going to be working very, very hard and very closely with both authorities and with USTR and others to ensure that we are comfortable that nothing has taken place that undermines our ability to enforce U.S. laws.
    Mr. MATSUI. As the Chairman indicated, I also want to thank you and your fine staff for the work you have been doing over the last years, and we really enjoy working with you, and we obviously will continue to do so.
    Mr. WEISE. Thank you. Thank you very much, Congressman Matsui.
    Chairman CRANE. Mr. Thomas.
    Mr. THOMAS. Thank you very much, Mr. Chairman.
    Hi, George. As you know, I wear another hat sometimes. It is Chairman of House Oversight, and in the 104th Congress, we initiated a first-ever audit of the House of Representatives. So I share with you the movement from a qualified to a clean audit. You are a little bit ahead of us, and people don't realize how difficult it is when you haven't had the standards that you are now trying to meet. So I applaud you in that regard.
    I have submitted a number of written questions, as you might guess, based upon our long experience together. They focus on agriculture and some of the concerns given all of the various tariff classifications and what is and is not going on in the way in which Customs is approving products and how other countries are doing it as well.
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    I would ask you for a minute or so, since both the gentlemen from—Mr. Matsui is from California, as am I. We have seen, as we expected, an increase in the commercial traffic across the border, and California is one of the key States that has felt it.
    Just set aside the question of illegal for a moment. Everybody moves directly to that. How are we in terms of our projections on the increased traffic? How are we managing it? Where are we going with our projections, and how are we going to plan on managing the projected growth? Because my assumption is, it is, in fact, projected growth.
    Mr. WEISE. Well, Congressman Thomas, in terms of the U.S. Customs Service, there is no bigger challenge that we face than the Southwest border, one, because of the sheer increase in volume of trade that you have alluded to because of NAFTA, currency devaluation, and a whole host of reasons, but also, the combination of that with the threat that is continuing to be alleged that up to 70 percent of the cocaine entering the United States is crossing that border.
    I can tell you that over the period of the last 4 years, which have been rather austere times for the Customs Service, our budget in terms of salaries and expenses has grown from maybe $1.3 billion to $1.5 billion, in that timeframe. The consequence of that has really been an erosion of our base resources of roughly $100 million.
    That being said, the only place where we have been significantly increasing staff has been the Southwest border. We have been taking positions as they become vacant from other locations across the country, making sure that they are reinvested on the Southwest border, but that isn't going to solve the problem alone.
    We know that technology has to be part of the solution, and we are looking at a number of things. Otah Mesa, California, as I am sure you are aware, we have experiments with a prototype of a full container x-ray machine that is much akin to a car wash. The entire truck can drive through it. It doesn't have the capacity or sufficient power to look through the merchandise which is in the boxes and in the trucks. It does, however, have the capacity to see the cavities, the compartments in the front or the rear or the ceiling or the floor, and the tire wells. We have had tremendous success with that technology.
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    We are moving to implement that technology along that border with 11 more of those x rays over a period of the next several years.
    We are also, as I am sure you are aware, experimenting with a commuter lane. We are working very closely with the Immigration and Naturalization Service. We have a great deal of concern about whether we can have a commuter lane that works properly that doesn't undermine our enforcement effectiveness. But again, we use technology with a combination of things, like license plate readers and other devices where we do a prescreening of the individuals before they are eligible, and there is a photographic match that comes up on the computer screen to show that the individuals who we have prescreened are the individuals that are in that vehicle, and that vehicle has been cleared, and all sorts of technology like that. We are moving to use that as well.
    So it is a combination of a number of things that we are using, resources and technology, to try to meet that tremendous demand that we are going to be facing in the years to come, Congressman Thomas.
    Mr. THOMAS. Are you optimistic?
    Mr. WEISE. I am guardedly optimistic, shall we say, because I really do feel that we as an organization have squeezed almost as much as we can out of the existing resources, and one of the things that has been frustrating to some of the people in Customs is our budget has gone from—again, I am talking salaries and expenses—over the same 4-year period as our budget went from $1.3 to $1.5 billion, the Immigration and Naturalization Service, our sister organization, and border patrol, have gone from about $1.3 to $3.1 billion. They virtually double us.
    As they put more border patrol people between the ports of entry, that puts additional pressure or additional stress at the ports of entry, and I think at some point in the not-too-distant future, we are going to be reaching the point where without a significant increase of staffing, we are going to be in trouble.
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    Thank you.
    Mr. THOMAS. Thank you, Mr. Chairman.
    Chairman CRANE. Mr. Jefferson.
    Mr. JEFFERSON. Thank you, Mr. Chairman.
    I suppose we are all focusing on just about the same general subject, at least in part, and that is the issue of narcotics trafficking.
    I am from Louisiana, and we have experienced a tremendous explosion of drug activity, crime-related drug activity now, in our State and particularly in my city, and it is more than how many tons were intercepted at the border and how good the effort is.
    The fact of it is, we have more of the stuff on our streets than we ever had before, more crime related to it than ever before, and the community is far less safe than it has ever been.
    I don't know. It obviously doesn't all rest with Customs. There are other agencies that are involved. You just mentioned one of them, but with respect to your agency, if you had your way and you could propose the kind of cooperation that you want to get from the Mexican Government today for your agency to do a better job, what would those things be?
    Mr. WEISE. Well, again, I will use the same caveat that I used before, and I am in a bit of a limited sphere, and I think that you ought to ask that same question of other witnesses, State Department, and DEA because there are other issues, extradition of criminals and things of that nature that are very important to the U.S. Government, but from the U.S. Customs perspective——
    Mr. JEFFERSON. That is why I wanted to just limit it to your agency.
    Mr. WEISE. Right, right.
    Mr. JEFFERSON. I understand others have to——
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    Mr. WEISE. From the U.S. Customs perspective, there is no issue that would help us more than the issue that I alluded to before. Having the ability to go back to the old way where we could within the 26-kilometer radius inside the Mexican border be able to work confidential informants and be able to get information, where we could pay for the information as we do confidential informants on this side of the border to help us get the information as early as possible.
    The difficulty we face, when you have 8.5 million trucks crossing that border every year, it is very, very difficult to determine which are the right trucks to really examine.
    Having the ability to have those informants working in Mexico would give us that capacity to really——
    Mr. JEFFERSON. Well, what would prevent you from doing that now, from getting this agreement?
    Mr. WEISE. At this point, it was an actual change as far as the U.S. Embassy was concerned. The U.S. ambassador to Mexico, in the aftermath of the Camarena killing and the kidnapping of one of the alleged perpetrators, there was some friction that took place between the United States and Mexico; the U.S. ambassador, the one that preceded the existing ambassador, in effect, ceased that policy.
    We have the support of Ambassador Jones to try to change that policy back, but right now, we are trying to get the acquiescence of the Mexican authorities to allow that policy to be reinstated.
    There are discussions that are taking place, that I am not directly privy to, but I understand that it is an issue that is on the agenda and it has been discussed at very senior levels. General McCaffrey has discussed it, and the State Department, DEA, and others. But thus far, we have not gotten that——
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    Mr. JEFFERSON. You are saying our officials changed that to begin with, and now we are trying to get the Mexican Government to agree to have it reinstated.
    Mr. WEISE. We are working on Mexican soil. We have to be cognizant of their sovereignty. So there is a very delicate issue that needs to be worked through.
    Mr. JEFFERSON. The request that you make in your budget for the salaries and expense accounts for several issues, including agent relocation to high-threat drug zones and antismuggling initiatives, can you elaborate on how these programs are going to help reduce the flow of illegal drugs into bordering States?
    Mr. WEISE. Once again, the Customs responsibility is to basically stop the flow at the border. There are a number of other organizations; the Drug Enforcement Administration, that is concerned about stopping it at its source, as well as getting it once it gets into the country, but what we are attempting to do is get the combination that we need of people and technology in place so that if it gets through all the other systems, that we make sure it doesn't get by us at the ports of entry.
    As I mentioned before, with the sheer volume of trade that we are dealing with coming across that Mexican border, we need more people. We need more x-ray equipment. We need a combination of the two to make sure that we are doing everything we can to minimize the risk that the goods are going to be——
    Mr. JEFFERSON. Are you saying the emphasis will be placed on increasing favors? Mexico has increased the opportunity for contraband to come into our country.
    Mr. WEISE. I wouldn't necessarily say it increased the opportunity. It certainly makes our job a little more challenging because we are looking at more trucks, but frankly, as I understand the economics of this—and I am a lawyer and not an economist—that much of the increase in trade that has taken place up until now has been more related to the currency devaluation than it has been to NAFTA. So it is not any direct policy of increasing trade, but the point is, we don't see any more smuggling taking place because of increased trade. It just means the risk is spread over a wider range of possibilities. It means that we have to work a little smarter. We have to work with the business community, for example, to identify legitimate trade from the higher risk trade, and one of the things that we have done in that regard is work through an initiative. The acronym is called BASC, but it is the Business Anti-Smuggling Coalition, asking the legitimate business community to take upon more responsibility to ensure that they are not inadvertently being used by drug smugglers, doing background criminal checks on the people that are loading their merchandise, having a secure environment where their merchandise is being loaded.
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    What we often see in Customs is that unbeknownst to legitimate trade on either side of the transaction are smugglers in between who put the drugs on the back of the truck, take it off before it gets delivered to the ultimate consignee. That is something we can address by getting the legitimate business community to take more steps to minimize the risk of that, and we are seeing some initiative on their part as well.
    Mr. JEFFERSON. You have answered the question earlier, Mr. Thomas' question dealing with this issue, and you mentioned technology as a major emphasis. Does your budget call for more support, more help in that area?
    Mr. WEISE. Well, in the budget, we are going to be investing more in terms of that x-ray equipment that we talked about.
    We are working very closely with the Department of Defense and looking at new technology that we are not really ready to make a commitment to because it has not developed to the point where it really resolves our issues. However, we do have some dollars in our budget to allow us to continue this process of the x-ray technology that we have already experimented with, and we are also trying to invest dollars that we currently have in research and development, along with the Department of Defense, to find the new technology that will help us more in the future.
    Mr. JEFFERSON. I am trying to figure out how we measure the success you are having against what the threat is now. Let's say you have seized 1 million tons of illegal drugs. If the drug traffic hasn't increased from whatever period you are measuring against, then perhaps that is
informative to us.
    If the drug trafficking, however, has increased tremendously and you are just catching a smaller percentage of it that is coming in, even though it amounts to 1 million tons, it still doesn't represent any real progress. Which one of these are we to read into this million-ton figure here?
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    Are we getting more coming across and we are just kind of catching a part of it? Our overall percentage outcome isn't any better, or is it better?
    Mr. WEISE. I am as frustrated as you are as to how difficult it is to measure what success is in this arena because there is no question that drug smugglers are very savvy businesspeople and they write off losses. They expect to have a certain percentage of their merchandise seized, and they will produce more to try to offset that.
    We estimate based on the volume—we are told—we are not the ones that calculate this, but based on the volume that is produced, we are seizing roughly 20 percent that is coming into the United States.
    Do I think that is a good enough figure? Absolutely not. It does disrupt to a certain extent. It may drive up some of the cost. It may cause them to change their approaches, but my sense is that we can never solve this problem through interdiction alone. Interdiction has to be an important piece of the solution, but being a free society, of the ingenuity of the smugglers and the vast spaces through which they can smuggle, we have got to have a whole combination of things to address the problem.
    We have got to be working in cooperation with other law enforcement organizations, like the border patrol, which is largely responsible for the area between the ports of entry. We are responsible at the ports of entry. We have got to be working with the Drug Enforcement Administration, but we also need to be working on the demand side of this. There has got to be a comprehensive approach, and we are going to continue to try to do better.
    We are looking to try to find more effective measures of what success is. Seizures in and of themselves, I think, are very unsatisfactory because, ultimately, if we in the Customs Service are able to harden the ports of entry to make it virtually impossible to smuggle through a port of entry, our seizure numbers are going to go way down. Based on the traditional measure of success, people are going to say you are failing at Customs at a time when perhaps you are achieving your greatest success, but what may happen, as we succeed at the ports of entry with seizures going down, the seizures may be taking place in a different location, crossing between the ports of entry. So it has to be a comprehensive solution to a very difficult problem.
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    Mr. JEFFERSON. Mr. Chairman, I suppose I will suspend.
    Chairman CRANE. Mr. Nussle.
    Mr. NUSSLE. Thank you, Mr. Chairman.
    I just have a question concerning, first of all—what is the Customs strategic trade center, and what does it do?
    Mr. WEISE. The Customs strategic trade centers were created out of our new reorganization. There are five strategic trade centers placed around the country, and basically, what we have attempted to do through the Office of Strategic Trade, which is headquartered in Washington with these five centers around the country, is for the first time in our history really take a strategic focus on commercial trade problems.
    Historically, before we had anything called a strategic trade center, we would look at individual transactions, and they would be all over the country, documents they would be looking at. What this is doing is trying to take a step back from that and really try to focus in the longer term, in the future, pulling together resources from what we call import specialists, all around the country, criminal investigators, other disciplines, and intelligence officers. Each of those strategic trade centers has a different focus in terms of geographic area, types of issues, whether they look at textiles or steel, looking at our core industries that we have decided are our priority areas that, from a national policy perspective, really need to be focused on. We then really try to do a more effective job of coming up with approaches that can be implemented at the ports of entry throughout the country. It allows us to do better strategic analysis, better intelligence gathering, and get better tactical intelligence to our operational people so that we can be more effective in carrying out our commercial enforcement responsibilities.
    Mr. NUSSLE. One of the things that I understand that it does, is it investigates agricultural commodities. Is that a correct understanding?
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    Mr. WEISE. The term ''investigates'' is not an appropriate one. What it does is gather information and set strategies for investigating agricultural products, but the actual investigations are carried out by other organizations.
    We have an Office of Investigations, with our criminal investigators and intelligence officers and others, and we have import specialists and inspectors in other disciplines.
    The Office of Strategic Trade creates the approach, the strategy, but it is carried out by other operational units.
    Mr. NUSSLE. How do you determine—on what criteria or basis do you determine that a commodity needs to be investigated?
    Mr. WEISE. Well, if you are talking about the Office of Strategic Trade, they are looking at overriding, cross-cutting major issues. Textile transshipment is an example. The Office of Strategic Trade in New York is a data center trying to gather as much information as we can on the generic problem of textile transshipment, focusing on countries like Hong Kong, Macau, China, where a lot of this is taking place. We gather much intelligence and information that then can be translated to individuals who are going to be looking at actual transactions.
    If you are looking at how you decide when you investigate just an individual case, the Office of Strategic Trade is not likely to be directly involved in that, and a whole host of factors go into that.
    We have an import specialist who has some commodity expertise on the product with which he is dealing. He should know the company he is dealing with. He has a good idea of the products he deals with. If he sees something that looks a little amiss, like the value of the merchandise seems out of sorts with what his experience has been, he may ask some additional questions, or if he really has information that he may get from some source, based on looking at the transaction, he can turn it over to a criminal investigator to actually investigate that.
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    Our Office of Investigations gets tips, just like with any other criminal matter. They have informants. They have people that say maybe as a competitor of a company, I know this company is dual-invoicing, to try to get away with paying less duty. If you look into it, you will find something. So there is a whole host of reasons why we would decide to investigate an individual case.
    Mr. NUSSLE. How does that rise to the level of a million-dollar investigation, and what criteria goes into making that determination between one importation and another?
    Mr. WEISE. Well, in a case with garlic, I can tell you in terms of the outcome. In that case, two importers actually pled guilty to having tried to circumvent the law with regard to that. So it was a good outcome.
    I think that as far as what we had there, it was a dumping order on the part of the Commerce Department that imposed a very significant duty, a duty in the amount of 376 percent, which is obviously almost a prohibitive duty, one would think, which would create an incentive to try to circumvent paying that duty.
    The dumping order applied to garlic from China. So if you suddenly see shipments from China declining and shipments of garlic from adjoining countries increasing, what you really want to do is investigate that.
    In this particular case, I am also told that the domestic garlic industry, who is often more familiar with what is going on in their business than we are, they also were very helpful in helping to point out this problem.
    Mr. NUSSLE. Do you know how much money is spent by the Customs Service on money-laundering activities and antimoney-laundering activities?
    Mr. WEISE. Let me see if I have it.
    I would like to ask if I could respond for the record for that.
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    Mr. NUSSLE. Sure.
    [The following was subsequently received:]

    Customs spent approximately $42 million from the Salaries and Expenses appropriation on its money-laundering enforcement strategy in FY 1996, and anticipates about the same level of spending in FY 1997 and FY 1998.



    Mr. WEISE. Certainly, it is a significant issue for us.
    Mr. NUSSLE. You don't have a ball park or anything?
    One of our concerns is we would obviously like to see—maybe I am just not sensitive to garlic importation, but looking at the prioritization of the many things you have to deal with, it is just, I guess, a question that arises. You were able to tell me right away about garlic, and money laundering seems to me to be—maybe that is—
    Mr. WEISE. I will guarantee you we spend an awful lot more on money laundering than we do on garlic. I can say that unequivocally for the record. I just don't have it at my fingertips the amount that we are spending on money laundering. It is one of the most significant activities we have in our Office of Investigation. It is very complementary of our antismuggling initiatives, and I think that you will find when I do respond for the record, you will see that it is a significant investment of our capital in that area.
    One of the challenges we face in the Customs Service is that we share responsibility on a number of important law enforcement issues, such as money laundering, such as narcotics, but when it comes to commercial fraud, we are the only game in town. If we don't investigate it, it just won't get investigated, and we have a responsibility to a domestic industry.
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    I can tell you, as far as the domestic garlic industry is concerned, this was a very big issue to them and to the livelihood of the workers in those plants. So it was an important issue to them, and we try our best to try to be balanced in our approach and not have one area of responsibility suffer because we are spending some effort on other areas as well. It is a difficult balancing act.
    Mr. NUSSLE. That is part of the reason why I asked because I note from, again, what I am told, your budget allocation for the Office of Investigations seems to be decreased every year in stopping drugs, worrying about commodities such as garlic, money laundering, whatever it is. With the budget in that particular area being decreased by the administration, year after year, that is one of those areas that then raises some concern with Members, and that is the reason I bring it up, just to find out how you balance because there is obviously lots of priorities, many priorities that you have to deal with.
    Mr. WEISE. It is always a challenge, and we try to do the best we can to balance those.
    One thing I would point out to the Committee, and I know based on your obvious interest, Mr. Nussle, was that the actual authorization bill that is before this Committee actually puts a ceiling on the dollars that we can expend for the noncommercial area and puts a floor on what we should spend for the commercial area. So that, again, shows there has been an interest expressed on the part of this Committee to ensure that we don't go too far in the other direction to the enforcement arena.
    So we are often criticized for the way we spend our dollars, whether it should have been more of this or more of that, but we are constantly striving to try to make what we think is the right allocation of our resources. It will never satisfy everyone, but I think we are doing a good job at it.
    Mr. NUSSLE. Well, you have satisfied me with an answer, and that is what I was looking for, not to be critical, but to increase my awareness of what kinds of things you are doing.
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    I am sure my time has run out, and I will yield back to the Chairman. Thank you.
    Chairman CRANE. Well, we want to express appreciation to you, George. You are doing a great job. Congratulations, and we look forward to continuing to work with you and this Committee, and with that, we will let you depart.
    Mr. WEISE. Thank you very much, Mr. Chairman. It is always a pleasure to be here.
    Chairman CRANE. Our next witness will be Deputy USTR Jeff Lang.
    Ambassador Lang, I would like to personally thank you and your staff, again, for concluding the basic telecommunications agreement, which will open markets abroad and greatly benefit U.S. businesses and consumers.
    Your written statement will be a part of the record, and if you could confine your oral testimony to 5 minutes, we would appreciate it.

    Mr. LANG. Thank you, Mr. Chairman.
    Let me just briefly say a couple of things about the authorization request and then about some of the program implications of that, and then I will submit to questions.
    The Administration is seeking a 2-year authorization for the Office of USTR which would cover fiscal years 1998 and 1999. We are just seeking a straightforward extension of the existing budgetary authorities. The amount for fiscal year 1998 would be $22,092,000, and for fiscal year 1999, it is such sums as may be necessary.
    We proposed to continue in fiscal year 1998 the two specific limitations that have been in our budget for some years. One is a representational ceiling of $98,000, and the other is the carryover authority of $2,500,000.
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    If you look at the mission of USTR, it really is quite daunting. We develop and coordinate U.S. international trade commodity and trade-related direct investment policy, of course. We articulate that trade policy for the administration. We consult both with the Congress and the private sector.
    We coordinate the interagency policy on trade negotiations, and we lead the negotiations in most cases, and we run enforcement operations.
    The Committee has obviously been critical in both establishing all of these functions for us and giving us the support we need to carry them out.
    In the 50 months since January 1993, something more than 200 trade agreements have been entered into. You mentioned the telecommunications agreement. There is the International Trade Administration, ITA, recently. The Uruguay round is only one of those agreements.
    These are pretty substantial accomplishments for any organization, but we have 164 full-time equivalents at USTR with $2.25 trillion of trade. So we think of ourselves as being pretty productive in carrying out our statutory mission.
    Our funding request is 3 percent above the fiscal year 1997 appropriation level and 1.6 percent, or about $350,000, above the fiscal year 1997 program operating level, that is, the obligations level, and I just wanted to point out the three areas of higher expenses.
    One is $762,000 for employee salary benefits and other similiar costs. That is to meet both the 1997 and 1998 pay raises. It also will fund our authorized ceiling of 164 full-time equivalents, FTEs, and we have some higher payments to the Civil Service Retirement Fund.
    The second element is $192,000 for inflation-driven cost, mostly in travel, some in telecommunications, supplies and equipment, and there are some other services we receive that are sensitive to inflation, and $25,000 is for higher State Department charges for diplomatic telecommunication services at our Geneva office.
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    There are some offsets against that. We will complete the rewiring of the Winder Building. That was $560,000, and it is a nonrecurring expense, and we are saving about $50,000 in the improving exchange rate for our Geneva expenses, and we are lowering our transportation expenses significantly.
    I would like to say that, in that regard, I looked into the use of our frequent flyer miles. We are paying for about 8 percent of our travel with frequent flyer miles. So we are trying to be as efficient as possible in using the money that you are giving us.
    I don't know if there is much more to say about the 1999 request, except that the carryover limits and the representational amounts are upper limits. We usually don't spend all of that amount, but it is important to have the flexibility because we don't know where these international meetings will take place, and we can't predict with precision exactly when these negotiations will heat up.
    Now, there is a great deal in my testimony about our program priorities, and the Committee is fully aware of them. So I won't go into them in detail, but just let me mention a couple of things which I think are important going into this period we are entering.
    One is, a lot of these agreements require a great deal of followup. If you take the telecommunications agreement you mentioned, we are going to have to devote just about as much resources to making sure that agreement is implemented in accordance with its terms as we did in negotiating the thing in the first place.
    We have 70 countries who are going to be implementing some obligations that have no precedent at all in the WTO. The same will be true of ITAs. Agriculture is a continuing monitoring and enforcement problem of tremendous dimension for us, and in addition to that, we need to be preparing both in the short term and in the long term to be in a leadership position in these negotiations because, without that leadership, our competitors will divert those negotiations into directions that are not in our interest.
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    The short-term agenda, of course, is things like financial services, the rule of origin organization, and other immediate priorities, but if you look out for the 2 years that this budget addressees, fiscal year 1998 and fiscal year 1999, you are coming into the era of the built-in agenda of the WTO when we are going to have to deal with the preparation for important negotiations, like services, agriculture safeguards, and I can't emphasize enough the importance of the preparation of those kinds of negotiations. That doesn't even mention all the work that will be necessary in Asia-Pacific Economic Cooperation Forum, APEC, in the free trade agreement, FTA, in the Trans-Atlantic Initiative, in the Bilateral Investment Treaty negotiations, in intellectual property rights or IPR enforcement, and bringing online the obligations of developing countries, which begin in the year 2000, but obviously, there has to be an enormous buildup to get those developing countries to the point where they actually put those obligations into effect on time.
    So there is an enormous budget implication for all of this. It is obviously a very challenging workload. We are looking forward to it. I can assure the Chairman and the Members of the Subcommittee that we are ready to accept the challenges.
    USTR is a small agency, but it is efficient. It has a dedicated staff. They work tirelessly in the interest of the country, and I have the greatest respect for them, and I hope that we can continue the traditions that have been established by them and our predecessors in the future with your help.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement by Hon. Jeffrey M. Lang Deputy, U.S. Trade Representative, Office of the U.S. Trade Representative

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    I welcome this opportunity to appear before the Subcommittee today to present the budget authorization request for the Office of the United States Trade Representative.
    The Subcommittee has consistently supported USTR's mission to open markets, to expand trade throughout the world, and to enforce trade laws and agreements. We look forward to your continued support in the years ahead.

Two-Year Authorization Request

    The Administration seeks a two-year authorization for the Office of the United States Trade Representative, covering FY 1998 and FY 1999. We are seeking a straightforward extension of existing budgetary authorities under the Trade Act of 1974. For FY 1998, the requested authorization level is $22,092,000 and for FY 1999 it is ''such sums as may be necessary.''
    The authorization request also proposes to continue in both FY 1998 and FY 1999 the legislative authority allowing USTR to carry over up to $2,500,000 of its annual appropriation from one fiscal year to the next. Further, we seek to continue the $98,000 annual spending limit for representation expenses for each year.

FY 1998 Request Level

    The Office of the United States Trade Representative has an enormous mission. That mission is to develop and coordinate U.S. international trade, commodity and trade-related direct investment policy, to articulate trade policy for the Administration, to lead negotiations with other countries and organizations on these matters and to enforce trade agreements.
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    With the support of this Committee and the Congress, USTR has been very successful in carrying out this mission. In the fifty months since January 1993, more than 200 trade agreements have been concluded, with the Uruguay Round and the North America Free Trade Agreement representing only two of the 200. We have also enforced our trade agreements with renewed vigor, filing 21 new enforcement cases in 1996 alone, which is more than the combined total filed in the previous five years.
    These accomplishments are substantial for any organization, but are particularly impressive for an agency with 164 Full Time Equivalent staff and a budget of barely 22 million dollars. These results are made possible by an extraordinarily industrious and dedicated USTR staff, who tackle their jobs with enthusiasm and competence. In carrying out our statutory mission, we also draw on program and trade experts detailed to USTR from other Federal agencies, and we use students and volunteer interns.
    For FY 1998, the budget request proposes a 164 Full Time Equivalent staff and $22,092,000 in new budget authority. This represents the same number of staff as authorized in FY 1997, and an increase of $643,000 above the FY 1997 appropriation.
    Our funding request for FY 1998 is 3 percent above the FY 1997 appropriation level and 1.6 percent, or $347,000, above the FY 1997 program operating level, which is also referred to as the level of budgetary ''obligations.''
    The $347,000 rise in obligations is a net increase that results from offsetting factors. First, there are three areas where we will have higher expenses in FY 1998:
    •  $762,000 for employee salary and benefit costs, including amounts needed to finance the costs of the January 1997 and January 1998 pay raises, to fully fund USTR's authorized staffing ceiling of 164 FTEs, and to meet higher USTR payments to the Civil Service Retirement Fund, consistent with the Administration's proposal to put that retirement system on a sounder financial footing; and
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    •  $192,000 in inflation-driven cost increases for travel, telecommunication, supplies, equipment, and other services that are sensitive to inflation; and
    •  $25,000 is for higher Department of State charges for Diplomatic Telecommunications Services at our Geneva Office location.
    Offsetting the total of $979,000 in higher costs, we expect to realize a total of $632,000 through lower costs or in budget savings in FY 1998, which are:
    •  $560,000 in nonrecurring expenses from completion of the Winder Building fiber optic cable installation;
    •  $52,000 in savings from an improvement in the exchange rate in Geneva; and
    •  $20,000 from lower transportation expenses in FY 1998.
    USTR's budget policy for FY 1998 is to sustain the record of accomplishments that the agency has achieved over the last four years, while continuing to reduce overhead, streamline operations and improve effectiveness, in furtherance of the President's goals for a smaller and more responsive Federal Government.

FY 1999 Request Level

    For FY 1999, we are proposing a budget authorization of ''such sums as may be necessary.'' The ''such sums'' language is consistent with the Administration's general policies for FY 1999 authorizations, and is intended to preserve flexibility in establishing the budget level in that year.
    The Administration is also requesting continuation in FY 1999 of the $2,500,000 Carry Over authority and the $98,000 Representation limitation. These upper spending limits have proved sufficient in the past and we urge that they be sustained at their current levels during the next two years.
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Program Priorities

    Over the two year authorization period, USTR's program priorities are to build on the progress achieved during President Clinton's first term. As Ambassador Barshefsky stated in her February confirmation hearing, USTR will pursue market opening opportunities, wherever possible, and we will continue to be vigilant and aggressive in our insistence that our trading partners live up to the agreements they have made with us.
    We will continue to advance U.S. interests through the World Trade Organization, and where it serves our interests we will move forward on a regional and bilateral basis with agreements that further open international markets.
    Two recently negotiated trade agreements hold great promise for opening markets in high technology areas in which the United States leads the world and which are of substantial commercial and strategic importance. First, the Information Technology Agreement (ITA) would eliminate tariffs on all information technology products, including semiconductors, computers, telecommunications equipment, and software. The goal of the ITA is to phase out tariffs on information technology products by the year 2000.
    Second, the Basic Telecommunications Services Agreement ensures that U.S. companies can compete against and invest in all existing telecommunications carriers. It covers over 95 percent of world telecommunications revenue and was negotiated among 70 countries. The services and technologies covered by the agreement range from submarine cables to satellites, from wide-band networks to cellular phones, and from business intranets to fixed wireless for rural and under served regions. This agreement will save billions of dollars for American consumers.
    To gain the full benefit of this agreement, we will have to work closely with our industry and other agencies to assure full implementation by our trading partners. This will have a resource impact.
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    We also have a full agenda of WTO accession negotiations. The process of accession offers an opportunity to help ground new economies in the rules-based trading system, and we are pursuing high standards for accession in terms of adherence to the rules and market access. We intend to take every opportunity to pursue American interest with the 31 applicants that are now seeking WTO membership, and to give leadership to the process. While China's and Russia's accessions have attracted the most attention, we are also excited about the accession prospects of many of the former Soviet Republics, and the Baltic states. Others, like Saudi Arabia and Vietnam, are also becoming more active.
    We continue to make slow but steady progress in the Asia Pacific Economic Cooperation (APEC) forum toward the goal of free and open trade and investment. We will continue to encourage APEC, as an institution, to accelerate the opening of its diverse markets and its adoption of rules for fair trade. This past year, APEC members tabled credible individual action plans for the first time, thereby defining the baseline for their individual contributions to APEC's liberalization program that extends to 2010 for industrialized members and 2020 for developing countries.
    Latin America has been the second fastest growing region in the world. Moreover, it is a natural market for the United States. Trade implementation authority would provide a real boost to America's efforts in the hemisphere immediately and in the near future. Two years after the first Summit of the Americas in Miami and with the second Summit approaching in March 1998 in Chile—the immediate objective of the Administration is to ensure that, at the upcoming Belo Horizonte Ministerial meeting, the Trade Ministers decide on how and when to launch negotiations so that the 34 countries achieve concrete progress by 2000 and conclude FTAA negotiations by 2005—the commitment of the President and his democratically-elected counterparts.
    As we pursue these and other trade objectives over the next two years, the Administration will ask the Congress to give the President a new grant of trade agreement implementing authority. New ''Fast Track'' negotiating authority would give USTR the negotiating credibility we need to negotiate comprehensive trade agreements and to take full advantage of the opportunities that a dynamic and fluid global economy may present. We expect to submit the Administration's Fast Track legislation within the month. And we look forward to working with the Subcommittee and the Congress on it.
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    The work that lies ahead is challenging. I can assure the Chairman and the Members of the Subcommittee that we stand ready to accept these challenges. USTR remains a small, efficient and highly effective agency, focused on achieving the missions that the Congress and the President have assigned to us. Our budget authorization request continues the 35-year tradition of a small but dedicated team, committed to meeting the trade goals of the Congress and the President. With approval of our authorization request and the continued support of the Subcommittee, I am confident that we can carry out our missions and meet the challenges we face over the next two years.
    This concludes my formal statement. I would be pleased to answer any questions you may have.



    Chairman CRANE. Well, thank you very much, Ambassador Lang.
    You touched upon the request for a budget increase in fiscal year 1999. I was wondering if you could outline some of the major features of this request.
    Mr. LANG. Well, let me say, Mr. Chairman, that the operational—the assumptions we are operating under are essentially straight-line operations. So we try to fit our objectives into essentially a straight-line budget, which we have done for a number of years.
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    We have had essentially a flat budget since 1991. The average annual increase over that period is less than 1 percent. So we are continuing to assume that will be the predictable future.
    Chairman CRANE. During Ambassador Barshefsky's tenure as the Acting USTR, the number of political appointees has declined from 38 to 28, and do you know whether these political appointees got jobs elsewhere, and if so, where?
    Mr. LANG. Yes, sir. I don't know exactly where all of them are. Some of them went with Ambassador Kantor to the Commerce Department.
    I think there is one person who was previously in a professional position, was then in a political position, and has now returned to a professional position within USTR, and there may be—let me see if I have any other information. Oh, one has moved to Treasury. I am sorry. Eight to Commerce, one to Treasury, and one has returned to the line office of USTR.
    Chairman CRANE. Do you know whether Ambassador Barshefsky intends to reduce the number of political appointees further?
    Mr. LANG. I don't know that, Mr. Chairman.
    I know she is sensitive to the problem of the number of political appointees at USTR. On the other hand, the agency functions under the statute as a full-fledged member of the cabinet. So we have all of the responsibilities of the big agencies with tens of thousands of employees in terms of public relations and private sector liaison and coordination with other cabinet agencies and so on. So there is a certain minimum, given our statutory assignments and the positions that are created by statute, in terms of these political appointees, but we are certainly prepared to work with you on making sure that is kept to a minimum and still be able to carry out our responsibilities.
    Chairman CRANE. Thank you, Ambassador.
    Mr. Matsui.
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    Mr. MATSUI. Thank you, Mr. Chairman.
    I would like to also thank you, Ambassador Lang, and please give my regards to Ambassador Barshefsky and good wishes for her Senate confirmation. She will get through the House today, I am sure, at 2 p.m. this afternoon.
    Mr. LANG. We look forward to that.
    Mr. MATSUI. I am sure you all do. We do, too.
    Let me follow up on the question the Chairman raised in terms of the number of political appointees you have in your operation.
    It is my understanding that when Ambassador Hills was the USTR, there were approximately 24 political appointees. Now there are 27, I believe, in the current staffing at USTR?
    Mr. LANG. I understand that this morning, there are 28. These numbers do move around a little bit——
    Mr. MATSUI. Right.
    Mr. LANG [continuing]. Because people leave and depart, but I checked this morning, and the number was 38.
    Mr. MATSUI. I do understand that about 1 year ago, it was somewhere in the range of midthirties, from what I understand, anyway.
    Mr. LANG. Yes, sir.
    Mr. MATSUI. One of the things that I think has been happening, and you correct me if I am wrong about this, is that there are many more, now, interagency meetings going on because of the obviously dramatic attention on trade issues, be it the Summit of the Americas or be it APEC. Obviously, with the WTO now in existence, with the NAFTA legislation having passed, and with many of the panels that obviously have to be on—is it my understanding that you need to have attending these meetings on behalf of the U.S. Trade Representative offices, senior staff, essentially people that are appointees of the President, Presidential appointees that obviously have some policymaking position? Is that correct?
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    Mr. LANG. Yes, sir, it is.
    There are several factors to this. One is, I think, just the generally higher profile of these trade issues compared to 20 years ago when George Weise and I were attorneys at the ITC. It is just a much higher profile matter, something like China, for example, and you have to have a political-level person working on that kind of issue.
    In addition, we have so many more layers to our trade policy than we had before. We don't just have the multilateral and bilateral. Now we have all of these regional arrangements, and we have to be able to send ranking people to those meetings internationally, as well as domestically.
    Finally, I would say that we have a great deal to respond to in the private sector and from the press. This area of activity used to be, 20 years ago, something like 10 or 11 percent of gross national product. Today, it is close to 31. It is a huge amount of economic activity, and the demands, particularly in a small agency for those kinds of noncareer interventions, are significantly increased. So I think the premise of your question is correct.
    Mr. MATSUI. Let me move over to another area. The new enforcement unit that was, I believe, announced in 1996—I guess it was the spring, about a year ago.
    Mr. LANG. Yes, sir. It may have been late 1995. I can't recall when.
    Mr. MATSUI. Could you tell me how that is going and what kind of effort is being made within that unit of your agency?
    Mr. LANG. Yes, sir. It has been very successful.
    We have an experienced person, with Geneva experience as well as outside legal experience, a former White House fellow, in charge of the operation. It is very small and obviously depends on other offices and, indeed, on other agencies to coordinate moving ahead, but we have brought more cases in the WTO in the last, I think, 15 or 16 months than in the previous 5 years, if I remember the statistics correctly, and it is essential that we do that.
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    If we don't get across the message to our trading partners that we are prepared to use the statutory resources and the international agreement resources available to us to enforce agreements, quite naturally, they will get the impression that that isn't a high priority for us.
    So I think the end priority has been appropriate, especially in the wake of the Uruguay round, and it continues to be a focus of both high-level attention, and it has been very useful to have this separate office.
    Mr. MATSUI. Again, I would also like to reiterate my appreciation of you and your agency. Obviously, you have had a lot of work and a lot of successes over the last few years, and again, congratulations, and we look forward to working with you.
    Mr. LANG. Thank you very much, sir.
    Chairman CRANE. Mr. Jefferson.
    Mr. JEFFERSON. Thank you, Mr. Chairman.
    Good morning, Mr. Ambassador.
    Mr. LANG. Good morning, sir.
    Mr. JEFFERSON. I want to ask you about the budget line item for $50 million for WTO-related expenses.
    Does this bring the United States up to date with this WTO expense obligations, or are further payments required to do to accomplish that?
    Mr. LANG. The budget of the WTO is something like—$83, $84 million, and our contribution is not paid for out of the USTR budget. It is paid for out of the State Department budget for international organization support.
    We have been working closely with the State Department to make sure we are up to date on our contributions, and I believe we are.
    Our State pays, I am told—expects to pay about $15 million toward that WTO budget in fiscal year 1998, and that would keep us——
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    Mr. JEFFERSON. Did you say $15 million or $50 million?
    Mr. LANG. Yes, sir, $15 million.
    Mr. JEFFERSON. I am asking about a different $15 million in my question, am I?
    Mr. LANG. I think you asked me—maybe you were asking me what is the cost of the USTR operation in Geneva.
    Mr. JEFFERSON. No. I was asking you—that was included in your fiscal year 1998 request, a request for $15 million by the Department of State for the U.S. share of expenses, and I was asking whether that brought it up to date, and I think you are saying it does.
    Mr. LANG. Yes, sir.
    Mr. JEFFERSON. So we were on the same question.
    There is a bill that we have around here. We just put it in. The bill calls for an African trade and investment bill for Sub-Sahara and Africa. It calls for a specific individual to be housed in USTR as an assistant secretary. Of course, the bill hasn't passed. We just started with it.
    I wanted to know what staff members now are devoting time with negotiations or policies on this question, and how do you see this blending in, assuming it was successful with this bill the next time to further emphasize this area?
    Mr. LANG. Currently, with respect to Africa, Ambassador Barshefsky has asked me to be in charge of that matter. So I am personally and directly involved in such matters as preparing the Africa report that is required by the law and in preparing the USTR portion of the Administration's Africa initiative and in the interagency coordination process, and we have part time, two other staff people. Plus, we borrowed someone from the International Trade Commission to work on the Africa report with us.
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    In the future, Ambassador Barshefsky does have under consideration how to give the area the appropriate leadership at the working level. She hasn't made any final decisions on that, pending her confirmation. She has tried to postpone as many of these organizational decisions as possible, but we recognize the Committee's interest in that matter, and we will continue to work with you as you go forward on this Africa policy. It is very important in the Administration.
    Mr. JEFFERSON. Unrelated to your testimony today on the budget issue, but since you are here——
    Mr. LANG. It happens.
    Mr. JEFFERSON. Before, we talked about the rum question. The Virgin Islands, I understand, has been worked out.
    Mr. LANG. Yes, sir.
    Mr. JEFFERSON. Could you tell me just what the details of that area are?
    Mr. LANG. Yes, sir. The basic mechanism is to set price breaks in the tariff schedules of both the European Union and the United States, so as to assure that the product, particularly in our case of the Virgin Islands and to some extent in our case the Caribbean Basin Initiative, CBI, beneficiaries, from the European point of view, it is all a down-island benefit. It is not subject to the duty reductions in the agreement.
    That number for us, I believe, is 69 cents per proof liter. I may be wrong about the specific number, but anyway, we coordinated closely with Congresswoman Christian-Green and with the Government of the Virgin Islands and the Government of Puerto Rico and other governments in the region.
    In addition to that, we were concerned that the European Union wanted to exempt from the agreement other rum quantities in the more expensive category. That was of importance to us because our producers produced more expensive branded goods that are supposed to benefit from the agreement, and I am happy to say that after some difficult negotiations, an arrangement was made for a tariff rate quota which starts with a large enough base and expands quickly enough and ends quickly enough, that there should be very little, if any, restriction on the benefit of access to the European Union for our producers of expensive branded rums who had depended on that aspect of the agreement.
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    So I am hoping that under the circumstances, everyone is reasonably pleased with the subject. I have discussed it with Congresswoman Green, and I have discussed it with the Governor of the Virgin Islands. I think everybody is comfortable so far, but anyway, that is how the arrangement works at this point.
    Mr. JEFFERSON. I thank you for your attention to that matter.
    Mr. LANG. I appreciate your interest in the matter.
    Chairman CRANE. Well, we want to express appreciation to you, and hopefully, we will have our Ambassador's uncertainties resolved by 2:30 p.m. at the latest, and with that, I would like to now invite our next witness, the ITC Chairman, Marcia Miller.
    She is well versed in the ways of Congress, and we look forward to working with her in the coming years to further develop a close working relationship between the Commission and the Committee on Ways and Means, and I believe, Marcia, that Vice Chairman Lynn Bragg and Commissioner Carol Crawford are here in the Committee room.
    Ms. MILLER. Yes, Mr. Chairman. Commissioner Crawford is here, and Vice Chairman Bragg is here as well, although I haven't spotted her in the audience at the moment. Oh, yes, there she is.
    Chairman CRANE. Well, we might invite you to come up here and sit, and after Commissioner Miller is finished, if you have any comments you would like to make, too, we would welcome any input you have.
    With that, you may proceed.

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    Ms. MILLER. Thank you, Mr. Chairman, and I appreciate your kind comments. This is my first time appearing before the Subcommittee in my new capacity at the International Trade Commission. Having worked with the Subcommittee for 10 years in my role at the Senate Finance Committee, it certainly is an honor to appear before you today.
    I am very pleased to be accompanied by two of our Commissioners, Vice Chairman Lynn M. Bragg, and Commissioner Carol T. Crawford. In addition, I am accompanied by a number of members of the senior staff of the Commission, including Queen E. Cox who is our director of Finance and Budget, to address specific questions on budgetary issues before us today.
    Let me say a few words about the Commission. First, particularly for the benefit of the new Members of the Subcommittee, I would note two items of importance to me as I joined the Commission. One, it is an independent agency. There are six Commissioners appointed for 9-year terms, subject to confirmation by the Senate.
    As an independent agency, our budget is submitted without alteration. It does not undergo the review by the Office of Management and Budget that occurs for other executive branch agencies.
    The Commission is also a nonpartisan agency. No more than three Commissioners, may be of the same political party.
    I mention these two points because I believe that the Commission's greatest value to the Congress and to the executive branch is due to its reputation as an independent, unbiased, analyst and decisionmaker. That is the key ingredient that the International Trade Commission has to offer to the policymakers.
    The Commission is not a trade policymaking agency in and of itself. Our role is twofold. First to implement certain laws that are important to U.S. trade policy. As such, the Commission acts as decisionmaker in cases concerning the antidumping and countervailing duty laws; and it makes recommendations to the President in cases regarding import relief under section 201 and decisions subject to disapproval by the President under section 337 related to unfair practices in import trade, most often involving intellectual property violations.
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    The Commission also supports the trade policymaking functions of the Congress and the President. We do so through providing independent advice and information, upon which that policy may be based through studies, which have often been requested by the Committee, as well as, the Senate Finance Committee and the President.
    Turning to the Commission's budget request for fiscal years 1998 and 1999, let me first put these requests into some context. The Commission has made a conscious effort during the nineties to reduce its staff levels, consistent with the desire and trend toward government downsizing.
    I will admit that it was a surprise to me when I joined the Commission to learn just how large the downsizing had been. In fiscal year 1992, the Commission funded 472 full-time permanent positions. This year, we are funding 378 positions. That is a decrease of 94 positions, or roughly, more than 20 percent, a sizeable reduction, I think, by any analysis of the Commission's staffing levels.
    Two-thirds of those cuts were purely voluntary, achieved, basically, through attrition. However, last year in response to a $2.5 million cut in the Commission's appropriation, the Commission implemented a reduction in force, RIF, of 34 employees. Frankly, in many ways, that 34 number understates the effect of the RIF and the budget situation last year. Threats of deeper cuts at one point forced the Commission to issue RIF notices to 125 employees in the Commission, and that is essentially one-third of the agency.
    In the end, you had a situation where we lost about 70 staff between August 1995 and April 1996 because the threat of the RIFs resulted in a number of staff leaving the agency voluntarily. The uncertainty created by those 125 RIF notices prompted our well-qualified staff to go out and look for other positions that they could rely on.
    The point is that the end result today is that the Commission is really staffed more for the troughs and less for the peaks in its workload. That is not a problem, currently, because we are in a trough in our workload.
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    The caseload in general has been relatively low, and meanwhile, we have worked to become more efficient and reduce costs wherever possible, so that we could manage that workload with our lower level of resources.
    Let me make one note. I heard mention earlier about clean financial audits at the Customs Service. The Commission is quite proud to say that we have had four—most recently, this month—the fourth consecutive ''clean'' 2-year audits on our financial operations, and we are quite proud of that.
    The Commission's budget request for fiscal year 1998 amounts to $41,980,000. That is a 2.8-percent increase over our fiscal year 1997 appropriation. It essentially will provide for the current staffing level of 378 full-time permanent positions.
    Over 95 percent of the increase that we are requesting will cover increases in nondiscretionary personnel cost, such as the required increases in salaries and benefits. Seventy-two percent of the Commission's budget goes for personnel expenses.
    So, whenever we talk about the Commission's budget, we are basically, mostly, talking about people.
    We have looked for ways to absorb some of the nondiscretionary cost increases in personnel and nonpersonnel areas. We believe this to be quite a moderate request. We work to keep our costs down and to do as much as we can with the resources that we have today and with the resources that we are proposing for fiscal year 1998.
    Let me then turn to the Subcommittee's request for a budget proposal from the Commission for fiscal year 1999. Frankly, this is a difficult assignment for us at this point, and let me explain why.
    As a result of the Uruguay round, change was made to U.S. law requiring that all antidumping and countervailing duty orders be reviewed every 5 years. Under the Uruguay round, antidumping and countervailing duties will be terminated after 5 years unless the revocation of the duty would be likely to lead to the continuation or recurrence of the dumping or the subsidy and of the material injury.
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    The first determination regarding dumping is to be made by the Commerce Department. The second determination regarding injury will be made by the Commission. These are commonly known as sunset reviews. This Committee is certainly familiar with them, having had to write the law that implements this requirement of the Uruguay round. It is a new obligation on the Commission.
    Under the Uruguay round implementing legislation, these sunset reviews on old orders must begin in July 1998 and be completed by July 2001. There are about 315 such orders on the books, and we will have a 3-year period, a 3-year transition period, to review all of them in addition to our normal workload.
    This is an enormous task, of course, with many uncertainties. We can't say at this time exactly how many of these cases will require a review, how much information will be required, the rate of appeal, and a number of other uncertainties. The bottom line is that we do know this means, by our fairly conservative estimates, a doubling of our caseload and a tripling in our litigation workload.
    Some of this activity will begin in fiscal year 1998, but we have not requested a corresponding budget increase in fiscal 1998. We believe we can manage in fiscal 1998 with the existing resources.
    The bulk of the increase really begins to hit us hard in the year 1999. My prepared statement—and I am just summarizing the highlights for you—addressees how we have estimated the resources that we will need in fiscal year 1999. We believe it to be a conservative estimate. It assumes that our normal caseload will continue at lower-than-average rates. It assumes that we will be able to package cases along product lines to increase our efficiency. It assumes that the cases will take no more time or work than a normal antidumping investigation in the final phase, and we are assuming that even though they frankly involve a very new and unique analysis for the Commission. Most importantly, it assumes that the Commerce Department will initiate the cases in a steady manner over the 3-year transition period.
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    Even with these conservative assumptions, frankly, we cannot see how we can manage the increased caseload without an increase in our resources. Thus, we are proposing a fiscal year 1999 budget of $46,125,400. That is an increase of about 9.9 percent over our 1998 request.
    A 10-percent increase may strike this Committee as rather extravagant in an era of budget reductions. I can tell you, frankly, from my perspective since joining this Commission, this has been of concern to us, but in effect, we are proposing to perform double the work with about a 10-percent increase in our budget.
    Frankly, I think that is more of a bargain than anything extravagant. Moreover, we are assuming that we will be able to absorb some of the mandatory personnel increases that we would expect in fiscal year 1999, and that we won't have to increase our resources greatly in other program areas at the Commission.
    If anything, Mr. Chairman, frankly, you might question whether we are being too conservative, but let me assure you as Chairman at this particular period of time, it is my intention to do everything that I can to make sure that the Commission is ready for the workload increase that it will see in fiscal year 1999.
    I will not be Chairman by that point in time, but I recognize that it is my responsibility now to make sure that we are ready for it. So that is what we are undergoing and preparing for at the Commission. Let me just stop at this point and offer to answer any questions that you may have.
    [The prepared statement follows:]

Statement of Hon. Marcia E. Miller, Chairman, U.S. International Trade Commission

    Mr. Chairman and Members of the Subcommittee, I am pleased to have this opportunity to meet with you today to discuss the U.S. International Trade Commission's budget authorization requests for fiscal years 1998 and 1999. The Commission appreciates the Subcommittee's continued strong interest in, and support of, the Commission's work.
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The Commission's Role in U.S. International Affairs

    Since the work of the International Trade Commission is familiar to the Subcommittee, let me briefly describe the agency and its mission. The International Trade Commission is an independent, nonpartisan, quasi-judicial agency, widely recognized as an investigative and research resource on matters of international trade and competitiveness. As an independent agency, the Commission is a unique source of fact-finding, technical, and legal assistance to those charged with the responsibility of making trade policy, namely the President and Congress.
    The Commission is not a trade policy agency, yet it plays an essential role in supporting U.S. trade policy. First, the Commission acts as decision maker in implementing important U.S. trade laws. In antidumping and countervailing duty investigations, the ITC determines whether certain imports are materially injuring, or threatening to injure, U.S. industry. In Section 337 investigations regarding unfair practices in import trade, such as patent infringement, the Commission determines whether unfair methods of competition or unfair acts are occurring in the importation of articles into the United States. The Commission is also charged with making recommendations to the President concerning whether domestic industries are being seriously injured by increasing imports (Section 201 escape clause investigations) and whether agricultural imports are interfering with U.S. Department of Agriculture (USDA) farm programs (Section 22 investigations). It is responsible for maintaining the Harmonized Tariff Schedule of the United States and providing technical assistance to eligible small businesses seeking remedies under U.S. trade laws.
    Secondly, the Commission provides the Congress and the President with independent, expert fact-finding and technical advice to assist in the development and implementation of U.S. trade policy. At the request of the President or the Congress, the ITC undertakes comprehensive studies on key issues relating to international trade and economic policy matters. Its fact-finding reports (Section 332 investigations) are provided to the President and the Congress and become part of the information upon which U.S. trade policy is based. The Commission, upon request, also monitors import levels and provides other information and technical advice to the President and Congress on tariff and trade matters and proposed legislation.
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Budget Request

    For fiscal year (FY) 1998, the budget request approved by the Commission totals $41,980,000, and represents an increase of $1,130,000, or 2.8 percent, over the agency's FY 1997 appropriation of $40,850,000. The requested funding would maintain the Commission for FY 1998 at its current post-reduction-in-force staffing level of 378 full-time permanent positions. Over 95 percent of the requested increase is for nondiscretionary salary costs. The balance of the increase provides for the rising costs of maintaining the current level of support services.
    At the request of the Subcommittee, the Commission has also estimated its funding needs for FY 1999. We propose an FY 1999 authorization level of $46,125,000, an increase of $4,145,400, or 9.9 percent, over our FY 1998 request. This amount represents the funding necessary to meet the significant workload increase the Commission anticipates beginning in late FY 1998 and continuing into FY 1999 through FY 2001 as a result of the Uruguay Round Agreements Act. The increase will result from the Act's requirement to undertake ''sunset'' reviews of all outstanding antidumping and countervailing duty orders, discussed more extensively later in this statement.
    Given the fact that approximately 315 outstanding orders were in place as of the date of enactment of the Uruguay Round, we estimate that the Commission's antidumping and countervailing duty caseload will, at a minimum, double during this time. To meet this new responsibility, we estimate that the Commission will need to allocate an additional 59 work years per year to these investigations over FY 1997 levels. Nineteen of those work years would come from internal reassignments, but given our relatively low staffing level, the remainder would come from new hires, mostly of temporary employees. The proposed increase for FY 1999 relates solely to sunset needs—the personnel, space, and equipment needed in FY 1999 to undertake this enormous three-year task. The Commission has not requested additional funds for mandatory pay increases or the inevitable increased costs for services, equipment, and supplies. All such costs will be absorbed by the Commission. In essence, the Commission is proposing to manage a doubling of its caseload and all increases in its base costs with an increase to its authorization of less than 10 percent.
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    In developing this authorization request, the Commission examined its needs with special care. The Commission has made, and is continuing to make, a deliberate effort to improve utilization of resources and limit the growth in its budget as much as possible. In this regard, the Commission has demonstrated its willingness to streamline its procedures and reduce its costs by reducing its staffing levels, its space requirements, and other costs considerably in the last few years. However, my colleagues and I agree that, while the Commission's restraint over the last four years has resulted in an agency that is relatively lean and flexible, additional caseload of the magnitude the Commission is facing cannot be managed without an increase in resources. The request before you simply recognizes that an increase is required to ensure adequate resources to allow the Commission to accomplish its mission.
    I note at this point with some pride that the Commission's achievement in fiscal responsibility is recognized in its record of audits on its financial operations. Three consecutive audits conducted on the agency's operations by independent auditors have resulted in ''clean'' or unqualified opinions, and a fourth is anticipated this month. Each of the audits, covering two fiscal years, determined that the Commission had sound financial management and internal controls. Of all Federal agencies, the Commission is among the best in financial operations.

Impact of Prior Budget Reductions

    Over the past four years, the Commission's workforce has decreased by approximately 100 full-time permanent employees. This represents a downsizing of over 20 percent. Nearly two-thirds of the staffing reduction was achieved prior to FY 1997 through voluntary efforts by the Commission, reflecting its compliance with Government streamlining. Approximately one-third of that number resulted from a reduction-in-force (RIF) that was implemented in January 1996. Restructuring following the RIF resulted in the consolidation of four liaison offices into one, now known as the Office of External Relations. Total staff resources in the combined office were significantly reduced. Important reductions were also achieved in nonpersonnel expenditures and in various administrative and support functions, as the Commission sought to reduce costs while at the same time preserving its capability to perform its statutorily-mandated core functions. The Commission continues to maximize the efficient use of its existing resources in order to limit to an absolute minimum the need for additional support to meet the significantly expanding responsibilities it anticipates in late FY 1998 and FY 1999.
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Statutory Investigations

    The Commission's investigative work was relatively low in FY 1996 with 57 cases instituted, including the first safeguard investigation under the North American Free Trade Agreement Implementation Act (NAFTA). We project a moderate workload (86 cases annually) during FY 1997 and FY 1998, although caseload so far in FY 1997 shows a strong upward trend. It should be noted that the number of cases instituted alone is not a completely accurate measure of workload; the complexity of the investigation and the demands on staff are other important considerations in assessing resource demands. Petitions filed with the Commission often involve diverse and complex industries and may have far-reaching significance involving large volumes of imports. Recent investigations have covered products as varied as vector supercomputers, large newspaper printing presses, pasta, and crawfish. As previously stated, with the commencement of the sunset cases in late FY 1998, the agency's caseload will rise dramatically.
    The volume of Section 337 cases continues to grow each year. The Commission expects that in FY 1997 and FY 1998 its Section 337 docket will continue to be dominated by complex patent-based investigations, involving a variety of sophisticated technologies particularly those that are computer-related. Given the complexity of Section 337 investigations, most of those cases filed in FY 1997 are expected to require substantial work in FY 1998.
    Section 332 research studies represent some of the Commission's most important and demanding tasks. The Commission is currently receiving a significant number of requests from the President and the Congress to conduct fact-finding evaluations of various aspects of trade. These are particularly relevant for policymakers who need an expert independent analysis of specific international trade issues. At the moment, the Commission has over 20 fact-finding or monitoring reports in process. During FY 1996 and FY 1997 to date, the Commission has undertaken Section 332 studies on these subjects, among others: an assessment of U.S. interests in trade liberalization by members of the Asia-Pacific Economic Cooperation Forum (APEC), several analyses of U.S.-Africa trade, an examination of the commitments of foreign countries under the General Agreement on Trade in Services (GATS), several studies concerning U.S. rules of origin, two probable economic effect studies related to the Generalized System of Preferences (GSP), and several industry competitiveness studies. We expect such requests to increase, as the United States continues to pursue trade liberalization initiatives.
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Sunset Reviews

    A major change that the Uruguay Round Agreements Act (URAA) made to U.S. antidumping and countervailing duty law was the creation of a new procedure commonly known as the ''sunset review.'' This new procedure was needed to implement provisions in the Agreements on Antidumping and Subsidies and Countervailing Measures, two of the series of Uruguay Round Agreements establishing the World Trade Organization. These provisions state that antidumping or countervailing duties must be terminated after five years unless the member state authorities that imposed the duties determine that the revocation of the duty would be likely to lead to the continuation or recurrence of dumping or subsidy, on one hand, and injury on the other. Previously, antidumping or countervailing duty orders generally could be maintained indefinitely. Indeed, several orders have been in effect for over 20 years.
    The URAA sunset review provisions direct the Department of Commerce to consider whether revocation of an outstanding antidumping or countervailing duty order or suspension agreement will likely lead to continuation or recurrence of dumping or subsidy, and the Commission to consider whether such revocation will be likely to lead to continuation or recurrence of injury. The determination is to be made within five years of issuance of the order or agreement. If both agencies answer their questions concerning continuation or recurrence in the affirmative, the order or agreement under review will be continued. If either agency answers its inquiry in the negative, the order or agreement will be revoked.
    The URAA imposes detailed and specific requirements concerning both the information the Commission must generate in its reviews and the factors that it must consider in making its determinations. The statute directs the Commission to consider in a sunset review at least as many, if not more, factors as it does in an original antidumping or countervailing duty investigation, and to consider them over additional periods of time. The Commission must consider industry conditions as of the time of the original order, the effect of the order on the industry, the industry's current condition, and the industry's likely condition in the reasonably foreseeable future if the order or agreement under review is revoked.
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    The Commission must make ''sunset'' determinations not only with respect to orders issued after the URAA went into effect, but also with respect to all orders and suspension agreements that were outstanding at the time the United States entered the Uruguay Round agreements. There are approximately 315 such outstanding orders (dating back to 1966), known as ''transition orders,'' that the Commission must review. These transition orders cover an extremely diverse range of commodities, encompassing agricultural products, minerals, metals and chemicals, manufactured goods, consumer goods, and high technology products. Reviews of the transition orders must all be initiated between July 1, 1998 and December 31, 1999, and must all be completed no later than June 30, 2001. The Department of Commerce, and not the Commission, will determine the sequence and timing of initiation of the transition orders. In addition, beginning in the year 2000, the Commission will be required to conduct a review of all five-year-old orders.
    As a result, the Commission is expected to at least double its current caseload during the transition period. To put this in perspective, the amount of work involved in each of these reviews will roughly correspond to that in a final injury investigation, each of which is approximately four to six months in length. At the same time the Commission will be handling its customary docket as well, including new antidumping and countervailing duty cases, Section 337 investigations, and Section 332 fact-finding studies.
    The Commission also anticipates a dramatic increase, perhaps a tripling, in court litigation, corresponding to the caseload increase, as parties appeal sunset decisions and seek clarification of new statutory terms. Virtually all sunset review determinations will be appealable, unlike current Commission investigations which, for example, include preliminary affirmative determinations which are not subject to appeal, and because the rate of appeal from new, untested procedures has been higher historically. In addition, these determinations will be subject to appeal in the World Trade Organization as well.
    At this point in time, it is difficult for the Commission to develop an estimate of the costs of the sunset reviews since there is still substantial uncertainty about the requirements on the Commission in these investigations, ranging from the amount of information necessary for an historical analysis of the products involved to how many cases will be appealed. As a result, the resource projections in our request rely on a number of conservative assumptions, all of which are beyond our ability to control.
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    First, the Commission's workload over the last five years has been about 50 ''packaged'' antidumping and countervailing duty investigations per year. ''Packaging'' refers to the fact that, when cases are filed on one product from several countries, the Commission conducts the investigations as one. It is this ''packaged'' count that best indicates Commission resource expenditures and requirements. The authorization request before you assumes that the number of new investigations in each sunset year will be about 20 percent below this level (or 40 per year). The second assumption is that the approximately 315 sunset reviews can be ''packaged'' along product lines to reduce the number of cases by about one-half (consistent with historic ''packaging'' rates). This will allow the Commission to handle the caseload in the most efficient manner. The third assumption is that each sunset review will consume about the same amount of Commission resources as a four-month ''final'' antidumping and countervailing duty investigation. The final assumption, a critically important one for our request, is that the Department of Commerce will initiate the transition sunset reviews in a fairly steady manner between July 1998 and December 1999, so that the Commission can maintain an even pace over the three-year period allowed for their completion.
    As stated earlier, these assumptions led the Commission to conclude that it will require a budget increase of $4,145,400 in FY 1999. The Commission projects an additional 59 work years per year to meet its sunset responsibilities. We estimate that 19 of those work years could be met by reassigning existing staff internally, as necessary, during the transition period. However, given our relatively low staffing level, the remainder would need to be new hires, predominantly temporaries. Reclaiming some office space given up last year will also be necessary, as well as providing equipment and other support to the new staff. The Commission also estimates higher costs for computer software support, security, utilities, and other support functions for existing staff.
    To accommodate these internal transfers, the Commission may need to drop certain programs or temporarily curtail them in scope, such as optional publications like the Commission's Industry and Trade Summaries. We will endeavor to use every resource we have as wisely and economically as possible to meet this upcoming challenge.
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    The Commission has strongly emphasized the need for fiscal restraint in developing its budget request. My colleagues and I are making a deliberate effort to use our existing resources effectively and limit the growth in the budget as much as possible. The Commission's FY 1998 budget request is essentially a request to fund existing programs at current levels. FY 1998 is expected to be an active year, but it is anticipated that any increased demands can be met through reallocation of existing resources. In FY 1999, the Commission will see its workload expand dramatically. We have proposed a budget increase that is small in comparison to the task at hand. We have estimated our needs prudently and believe that this authorization request is the minimum necessary to meet our responsibilities.



    Chairman CRANE. Well, we thank you very much, Madam Chairman. Again, I want to express appreciation to Vice Chairman Bragg and Commissioner Crawford for attending the hearing today. Again, I make the offer, Ms. Bragg. If there is anything that you would like to volunteer on top of what Madam Chairman has offered, please do so.
    Mr. BRAGG. Thank you, Mr. Chairman and Members of the Committee. I have no prepared statement at this time. I think the Chairman has very thoroughly covered the issues the Commission will be facing during the next 2 fiscal years. I am also available for any questions you may have. Thank you.
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    Chairman CRANE. Thank you very much.
    One of the questions I do have for you, Madam Chairman, is the budget projection for fiscal year 1999. It calls for a $4,145,400 increase, which is a 9.99-percent increase, and it has been described as being mostly for salaries and equipment, but I was wondering, does that include additional full-time employees?
    Ms. MILLER. That does assume that we will need to add additional full-time employees to accomplish the sunset workload.
    We have estimated that to meet the sunset requirements, it will take about 59 additional work years at the Commission. About 19 of those, we believe we can absorb internally by transferring, moving staff around. The remainder, we believe, we would have to meet—essentially about 40—positions by hiring new staff.
    We would look to do that by hiring temporary staff to the degree that we can, because this is a temporary bulge in our workload. So rather than bringing on 40 additional permanent staff, we would look to meet some of that need in extra work years by hiring temporary staff.
    Chairman CRANE. The checks and balances in the ITC statutory authority allows, I understand, a majority of Commissioners to override any administrative decision made by the Chairman. How many overrides were there last year, and what were the nature of the decisions that were overturned?
    Ms. MILLER. Mr. Chairman, I am not aware that there were any.
In fact, it has been confirmed that there have not been any.
    I think the fact of that override authority means that the Chairman works very hard to assure that there is support of an adequate number of Commissioners on any administrative decision that the Chairman makes.
    Chairman CRANE. You are very collegial.
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    I will yield to Mr. Matsui.
    Mr. MATSUI. Thank you.
    I want to thank you, Madam Chairwoman, you and your Commissioners, for all the work that you are doing.
    You are kind of caught in dilemma because, the way I see it, you are coming to us seeking a 10-percent increase, which I believe is very reasonable, and at the same time, you indicated your caseloads on antidumping, countervailing duty actions will double, and also, you had these sunset reviews coming up under the WTO legislation, implementing legislation in 1994.
    I question whether you are going to be able to really do the job, even with the assistance of the Commerce Department, and my fear, obviously, is a parochial one. I think we are going to get a lot of calls from a lot of industries that will be complaining to us that those that are proponents and opponents will be depending upon where they stand on these reviews. They will be very unhappy, and I could see a situation, perhaps in 1998—in an election year, it's kind of interesting—in which you will see a lot of complaints.
    I am not suggesting that it is your fault. I am suggesting that we are caught in this dilemma, in this trap.
    In addition to that, I recall the 1981 bill and then the 1996 bill. These are two tax bills. There was talk about contracting out some of the work, and of course, we were mortified over that because you allow attorneys on K Street to make decisions on regulations. You can almost imagine the special interest and conflict of interest that might be involved.
    One of the concerns I have with temporary employees is that they may be caught in the same kind of dilemma making decisions on sunset reviews and things of that nature. I understand your problem, and undoubtedly, you have talked about this. So you have had to have all had that kind of discussion, but perhaps you could give me some assistance with that. The worst thing is when these lobbyists come to visit us and start complaining about unfair treatment and how the wrong people are making these decisions.
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    Well, you were at the Senate Finance Committee. You know better than I do about some of these problems.
    Ms. MILLER. Absolutely, and I wish I felt that I could be 100-percent reassuring in this matter.
    Mr. MATSUI. I am not asking you because I know how difficult it would be.
    Ms. MILLER. It is a very fair question. Our resources will be tight.
    I think at this point in time, we are still formulating the ways in which we can go about doing these cases in the most efficient manner without creating the kind of complaints that you may hear about in the future.
    All I can say is I think we will work to make our staff as flexible as possible. I have great confidence in the ability of the staff at the Commission from my experience on the Finance Committee, and even more so from my experience since I arrived at the Commission, that the staff will do its best to do these cases in a very complete and thorough manner.
    I think it is important that we continue to stay in touch with the Subcommittee and come back to you if we find that we have underestimated our ability to do this job with a 10-percent increase in our resources. As you have correctly pointed out, we recognize that looking for this kind of funding increase in the current budget climate is not a particularly popular or advisable thing to do. We have tried to make our assumptions honest and fair down the line. We will do our best to look for every way we can to save money to have the necessary resources to do the job well.
    Mr. MATSUI. I do want to thank you and also indicate that I am very sympathetic.
    You probably would like to seek more, but undoubtedly, you would be attacked if you should seek more resources, and so you are caught, as I said, in a dilemma.
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    I think your suggestion to come to us, if, in fact, you find that you are unduly constrained could be helpful to us, particularly before a potential crisis should occur. I think we would try to find some way to be of assistance, although certainly none of us could assure you that we would be able to come up with some supplemental in 1998, but I think it is a serious enough problem because going through the implementation of legislation and how different groups throughout the country rightfully were very concerned about when the sunset would occur and things of that nature, it would indicate that there will be a lot of interest in this, once those dates begin to come up.
    Again, thank you very much for your testimony, and obviously, we look forward to working with you.
    Ms. MILLER. Thank you.
    Mr. HERGER. Thank you, Mr. Matsui.
    Madam Chairman, both the ITC and Department of Commerce and the International Trade Administration have industry analysts—how do the functions of the ITC industry analysts differ from the industry analysts in Commerce?
    Ms. MILLER. I think the greatest value of the industry analysts that you have at the International Trade Commission comes from both the independence of the agency and their longstanding and considerable expertise in their various areas.
    Prior to working for Congress, I had experience with ITC analysts when I was working for the textile industry. The industry analysts at the Commission were valued for their independent expertise and turned to more often than were people in the textile industry to find the answers on different industry questions. It was an independent expertise, and I emphasize the independence. I think the independence of the agency allows our industry experts to give an impartial and objective assessment that perhaps is unmatched in the executive branch. I think that is really the greatest value of our industry experts, and distinguishes them from those who may be elsewhere in the executive branch.
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    Mr. HERGER. Thank you.
    As a participant in the executive branch, interagency process, ITC employees are privy to sensitive information about government policymaking. Could you tell me what percentage of employees have secret and top secret security clearances?
    Ms. MILLER. Mr. Herger, I am not sure I know the answer to that question right off the top of my head. I may have to answer it for the record, but let me just see if there is anybody with me that would know the answer.
    The Commissioners are the only ones that have top secret clearances at the Commission. My understanding is, that just about all of the Commission staff do have secret clearances for their work within the Commission and with other government agencies.
    Mr. HERGER. Could you tell me how this compares with several years ago before the downsizing? Is that basically the way it was then?
    Ms. MILLER. Yes.
    Mr. HERGER. Good. Thank you.
    Ms. MILLER. Thank you.
    Mr. HERGER. Those are all my questions.
    Chairman CRANE. Thank you very much.
    Maybe we will have the next panel up, please. Norm Rabkin, Director of Administration of Justice Issues, General Government, U.S. General Accounting Office; JayEtta Hecker, Associate Director of International Relations and Trade Issues, National Security and International Affairs, U.S. General Accounting Office; and Robert M. Tobias, president, National Treasury Employees Union.
    All right. Mr. Rabkin.
    And other panelists, if you can confine your oral presentations to 5 minutes, please do so, and any printed statement will be made a part of the permanent record.
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    We will start with Mr. Rabkin.

    Mr. RABKIN. Thank you, Mr. Chairman.
    With me this morning is Walter Raheb of our Los Angeles Field Office, who was instrumental in designing and carrying out the work that we have done for the Subcommittee on the labor-management relationship between Customs and the National Treasury Employees Union.
    Today, I would like to discuss the nature of that relationship and some views we have heard from Customs managers and supervisors and union members during our recent visits to 11 ports of entry around the country and our work at Customs and NTEU here in Washington.
    I would also like to discuss the need for Customs and NTEU to evaluate the results of that relationship.
    It is no secret to anyone who has studied the Customs Service that until recently, it was characterized by divisive internal competition, highly visible turf battles with other agencies, a controlling management style, and an adversarial relationship with its employees' union.
    When Commissioner Weise took over in 1993, he tried to focus on improving Customs relationships with its partners, including its employees. His vision was outlined in a 1994 report, People, Processes and Partnerships. The strategy for dealing with Customs employees was very consistent with the principles of President Clinton's Executive Order 12871.
    The order required the head of each Federal agency to create labor-management councils to help involve employees and their union representatives as full partners to identify problems and craft solutions to better serve the agency's customers and accomplish its mission.
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    In June 1994, the Customs and NTEU entered into a partnership agreement which states that NTEU will participate in agency operational meetings and decisions that affect the work force.
    Last month, Customs and NTEU implemented a new national contract that follows the principles of this partnership agreement.
    Similarly, at each of Customs 20 management centers at 301 ports, management and union representatives were supposed to establish local councils and operate under the partnership concept.
    Now I would like to relate to you what we heard from managers and employees at Customs and at NTEU headquarters, 5 management centers, 7 NTEU chapters, and 11 ports of entry. We asked them to compare the labor-management relationship at the time of our visits with the relationship before the partnership agreement. Most of them said the relationship was better.
    We also asked them about advantages and disadvantages they saw in the new concept. Concerning the advantages, they generally agreed that it has resulted in faster resolution of problems, a reduction in the number of grievances filed, improved communications between management and the union, and mutual involvement in decisions.
    Our analysis of the comments about the disadvantages of the partnership concept and how it was being implemented at the ports we visited did not show any clearly stated views. Managers and supervisors generally stated that they believed that all issues must be bargained with the union before any action could be taken by management; the concept required too many meetings and too much of management's time; there was no union accountability; and the union would only bargain on issues that addressed union interests and not on those that addressed the needs of the Customs Service.
    Union officials generally stated that the concept was not clearly understood by management; that managers wanted to choose when they included the union in making decisions and when they did not; that managers were not fully trained in the concept; and that managers did not want to involve union representatives in the decisionmaking process.
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    Now I would like to address the issue of evaluating the success of this partnership arrangement. Executive Order 12871 and Customs agreement with NTEU call for evaluating improvements in the agency's performance resulting from the partnership concept. To a limited extent, Customs has begun that effort by looking at how well the process is working. For example, in 1996, it surveyed its employees about their perceptions of the partnership concept.
    However, Customs and NTEU have not yet begun to focus on how to evaluate the effect that the partnership arrangement has had on Customs organizational performance. Measuring performance and attributing change to the partnership concept will not be easy. Cultural changes, such as those promised by the partnership concept, do not occur quickly. Nevertheless, given that Customs and NTEU have been in this new relationship for almost 3 years, we believe that it is not too soon to develop a formal plan for how they will evaluate whether this labor-management partnership has improved Customs performance.
    This completes my statement, Mr. Chairman. I think Ms. Hecker has one, also.
    [The prepared statement follows:]

Statement of Norman J. Rabkin, Director, Administration of Justice Issues, U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to discuss labor-management activities within the U.S. Customs Service. The Subcommittee asked us to review, among other topics, the history of union activity at Customs and the effect that the partnership agreement between Customs and the National Treasury Employees Union (NTEU)—the exclusive representative of Customs' bargaining unit employees—had on Customs' ability to establish and achieve its mission-related goals. To date, we have performed preliminary work at Customs headquarters, 5 Customs Management Centers (CMC), 11 ports of entry around the country, the NTEU national office, and 7 local NTEU chapters (see the appendix for a list of the CMCs, NTEU chapters, and ports we visited). My testimony will cover information we have obtained on the new relationship between Customs and NTEU; Customs' management, supervisors, and NTEU views concerning the relationship; and our observations on evaluating this relationship.
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    We judgmentally selected the ports for our review focusing on the southern border and those ports where Customs headquarters officials told us that labor-management relations were strong and effective and where there were less effective relationships. At these locations, we interviewed Customs managers and first-line supervisors as well as NTEU chapter presidents and representatives. We asked a series of questions designed to gauge the extent of respondents' satisfaction with and identify their views on the advantages and disadvantages of the new relationship. The information provided represents the views and opinions of only the Customs officials and NTEU representatives we interviewed; it is not statistically projectable to the entire Customs Service.


    The Customs Service is responsible for ensuring that all goods and persons entering and exiting the United States do so in accordance with all U.S. laws and regulations. As of January 1997, Customs' workforce included about 19,500 personnel, approximately 11,200 of whom were eligible to join NTEU. Approximately 7,200 (65 percent) of those eligible to join NTEU had done so.
    In September 1994, Customs' report, ''People, Processes and Partnerships,'' provided a blueprint of its plans to transform itself into an agency prepared to meet the demands of the 21st Century. The report proposed in general terms the agency's vision and a three-part process to achieve this vision: (1) organizational change, (2) reengineered business processes, and (3) cultural conversion.
    Customs has made progress in implementing its reorganization plan. Two years ago we reported(see footnote 1) that Customs had started to downsize its headquarters and was planning to close its 7 regional offices and 42 district offices, replacing them with 20 CMCs. Many functions formerly performed by the regions and districts, such as hiring and assessing fines and penalties on companies violating trade laws, were to be transferred to the ports. CMC and port directors we spoke with told us that the transition of responsibility to the ports was proceeding as planned. Customs was also proceeding with the redesign and development of performance standards for its core business processes.
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    One element of Customs' process to achieve its vision is its plan to change its culture, including its relationship with NTEU. According to its September 1994 report, Customs has historically been characterized by divisive internal competition, highly visible turf battles with other agencies, a controlling management style, and an adversarial relationship with its employee union. To help change this relationship, Customs and NTEU created a labor-management partnership.

The New Labor-Management Partnership: How It Came About and What It Is

    On October 1, 1993, the President issued Executive Order 12871, which called for creating cooperative labor-management relations throughout the federal government and setting up a national council to promote partnership. The Order required the head of each agency to create labor-management councils at appropriate levels to help involve employees and their union representatives as full partners with management representatives to identify problems and craft solutions to better serve the agency's customers and accomplish its mission. The Order further required agencies to bargain with unions on issues formerly bargained on only at the agency's discretion. These issues include ''numbers, types and grades of employees or positions assigned to any organizational subdivision, work project, or tour of duty, or on the technology, methods, and means of performing work.'' It also called for agencies to evaluate the progress and improvements in organizational performance resulting from the labor-management partnerships.
    In June 1994, Customs and NTEU entered into a partnership agreement that established 19 specific goals. These include involving employees (through NTEU) before final decisions are made and managing conflict to settle or resolve disputes faster. The agreement established a National Partnership Council at Customs Headquarters as well as local partnership councils at CMCs and ports. The partnership agreement states that NTEU will participate in agency operational meetings and groups to ensure NTEU involvement in decisions that affect the workforce. NTEU may also appoint representatives to all task forces and groups formed by Customs for the purpose of improving or changing work processes and procedures.
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    In February 1997, Customs and NTEU implemented a new National Agreement.(see footnote 2) Key provisions in the new agreement include (1) alternative dispute resolution procedures that attempt to resolve conflicts informally at the lowest level possible to replace the old grievance procedures; (2) involvement of NTEU as an observer in the promotion process; and (3) nine new issues to be negotiated locally, such as uniforms and a pilot alternative work schedule program.

Management and NTEU Views Regarding Partnership Relations

    Our limited work at Customs and NTEU headquarters, 5 CMCs, 7 NTEU chapters, and 11 ports of entry revealed a variety of opinions regarding Customs-NTEU relations since the partnership concept had begun. When asked to compare NTEU-management relations at the time of our visits with the relationships before the partnership agreement, CMC directors we interviewed characterized the relationship with the seven NTEU chapters as better than before partnership with five, about the same with one, and worse with one.(see footnote 3) Six of the seven NTEU chapter presidents also said that the relationship was better than before partnership; one chapter president said that the relationship was worse. In addition, 7 of the 11 port directors characterized the relationship with NTEU chapters as better than before, 2 said it was about the same, and 2 said it was much worse.

    In addition to interviewing Customs management officials and NTEU representatives, we asked 55 first-line Customs supervisors at the 11 ports we visited how they would characterize the relationships at the time of our visits between management and NTEU at their ports compared to the relationships before the partnership agreement. Their views were more evenly distributed among the range of responses from much better to much worse than were those of the Customs managers and NTEU chapter presidents.(see footnote 4) One supervisor told us that labor-management relations were 100-percent better now and that problems were handled informally at the supervisor-subordinate level with less confrontation. Another supervisor stated that in his 22 years with the Customs Service, he had never seen better management-labor relations. On the other hand, several supervisors described the management-NTEU relationship under the partnership concept as ''us against them.'' One supervisor told us that implementation is one-sided. Another supervisor stated that NTEU does not compromise unless it is to its advantage.
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    Our limited work also identified a variety of views from managers, supervisors, and NTEU representatives regarding the advantages and disadvantages of the partnership concept. While our results cannot be generalized to all of Customs, they can be summarized and characterized in terms of the managers, supervisors, and NTEU representatives we interviewed at the locations we visited.
    A few clearly shared views emerged. Managers, supervisors, and NTEU representatives provided similar comments identifying advantages of the partnership concept. They generally stated that the concept has resulted in
    •  faster resolution of problems;
    •  a reduction in the number of grievances filed;
    •  improved communications between management and the union; and
    •  mutual involvement in decisions.
    NTEU representatives we interviewed believed that these factors had contributed to improved operational efficiency at the Customs Service.
    Our analysis of the comments about the disadvantages of the partnership concept and how it was being implemented at the ports we visited did not show any clearly shared views. While individual managers, supervisors, and NTEU representatives told us that some managers did not understand the concept of partnership, the underlying reasons differed significantly. Managers and supervisors generally stated that:
    •  all issues must be bargained with the union before any action can be taken by management;(see footnote 5)

    •  the partnership concept requires too many meetings and too much of management's time;
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    •  while managers remain accountable for actions and results at their ports, there is no union accountability; and
    •  the union will only bargain on issues that address union interests and not on those that address the needs of the Customs Service.
    NTEU officials generally raised the following concerns:
    •  the partnership concept is not clearly understood by management; managers want to choose when they include NTEU in making decisions and when they do not;
    •  managers are not fully trained in the partnership concept; and
    •  managers do not want to involve union representatives in the decisionmaking process; they continue to want to make unilateral decisions.

GAO Observations On Evaluating Customs' and NTEU'S Implementation of the Partnership Concept

    In our January 1995 testimony on Customs' reorganization, we concluded that Customs' efforts to date had the potential to position Customs to meet its future challenges. We encouraged Customs to continue discussing both its progress and results with this Subcommittee. Among the issues we encouraged Customs to explore was identifying what indicators or measurements it should use to determine the success or effectiveness of the new relationship.
    Customs' partnership agreement with NTEU and Executive Order 12871 call for evaluating the progress of and improvements in the agency's performance resulting from the partnership concept. To a limited extent, Customs has begun that effort.
    A working group met in October 1995 to review and analyze data on partnership activities. The group questioned the accuracy of the information it had gathered and recommended that on-site surveys be conducted. In a memorandum to the Commissioner shortly after the working group report, the Assistant Commissioner for Human Resources Management concluded that Customs needed an effective way to monitor partnership performance.
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    In April 1996, the Commissioner and the President of NTEU jointly sent all Customs employees an ''organizational climate survey'' that included questions about the partnership concept. Customs has compiled and analyzed the results of that survey, and intends to use the data as a baseline against which to measure the results of future surveys.
    However, neither of these efforts has set the groundwork for the kind of comprehensive evaluation envisioned by the Executive Order and partnership agreement. In our work thus far at Customs' headquarters and several field locations, we have not seen any plans for an evaluation of the impact of the partnership approach on Customs' mission.
    Cultural changes such as those promised by the partnership concept do not occur quickly. The Commissioner told us that he expects it to take at least 5 years for partnership to become part of the normal operating environment throughout Customs. Nevertheless, given that Customs and NTEU have been in this new relationship for almost 3 years, it is not too soon to develop a formal plan for the evaluation of progress and improvements in organizational performance resulting from this labor-management partnership. Some of the critical questions to be answered include:
    •  What performance measures should be used?
    •  What factors in addition to the partnership concept may be affecting organizational performance?
    •  How often should an evaluation be conducted?
    •  Should the focus of an evaluation be at the national or the port level or both?
    Developing a plan that addresses these questions will be difficult and will present Customs with significant challenges. It is reasonable for Customs and NTEU not to have completed any comprehensive evaluation at this point. However, it is also reasonable to expect that they would have begun developing and sharing with this Subcommittee their plan for carrying out that evaluation.
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    Mr. Chairman, this completes my statement. I would be pleased to answer any questions.

Table 1



    Chairman CRANE. Thank you.
    Ms. Hecker.

    Ms. HECKER. Thank you, Mr. Chairman.
    I will just very briefly walk through the highlights of my statement. Basically, we cover four points at your request, what the Office of Rulings and Regulations or OR&R does within Customs, how they measure performance, how they really do in meeting any areas where they have timeliness targets, and finally, what the industry views are about their performance.
    Our approach here, basically, was to work with Customs officials in New York and Washington to dig into their data files, the databases as well as the raw files, and, of course, to talk with industry officials across the country.
    In the first area, what OR&R does, it basically is the legal and technical support for a lot of the work that the Customs Service does.
    Now, one of the more important functions was to provide advance rulings to help the industry meet their new obligations for informed compliance. This would basically be to help and affirm, assess what it really needed to do in terms of the classification, the evaluation, and other characteristics of what they would be importing in advance, so that it would be processed in a timely way when the actual commodity came in. So these binding rulings are not the only thing that they do, but it is something very important.
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    The second question is how they measure performance. Now, as you heard from Commissioner Weise this morning, there is an ambitious effort overall in Customs to measure performance and to implement actually on an early basis the GPRA. That calls for setting priorities, having objectives, having measurement targets, and tracking the performance by those targets.
    OR&R is, as we understand it, the only office in the Customs Service that does not participate in that. It doesn't have priorities. It doesn't have explicit objectives under GPRA. Clearly, it doesn't have priorities and targets to measure them.
    Now, at your request, we did hone in on a couple of areas where OR&R does have a couple of timeliness targets. One has been in place since 1989, and this is for binding rulings that I was telling you about that cover the classification area, and the target there is for these rulings to be done within 120 days.
    More recently, with NAFTA and concerns about rules of origin and the importance of those cases, they set an even shorter target of 30 days to process those binding rulings requests.
    Now, the third issue was how often they meet these targets. Well, we had hoped to just go into their databases and be able to tell you this very quickly, but unfortunately, we found that Customs Service doesn't track whether it meets those goals at all, even though it is part of a formal directive in place since 1989. There is a data system that is mandated to be used to be able to track them, and it is not in use. It is not being used to monitor compliance.
    As I said earlier, we dug into the files. We went into the raw, you know, huge files, case by case to actually find out whether and how often they met these targets.
    The 120-day target, they did not meet 53 percent of the time. Now, this is after correcting when the clock gets restarted, when there are reasons that they have to delay it. For example, when there are acknowledged delays like lab tests or other critical factors that need to occur.
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    When they correct for that, they still only meet the target of 120 days, 47 percent of the time. The average is 147 days. The range is actually—of the ones above 120-days—from 200 to 500 days.
    The 30-day target, they didn't meet 59 percent of the time. Now, the bottom line of this is that, obviously, this is very important to the industry, and OR&R is not really meeting their needs. Industry needs to have these rulings on a very early basis to be able to make timely decisions about imports.
    The fourth area when we met with industries, was that OR&R delays in issuing rulings was the main concern they have. Generally, they think OR&R does a very good job, they issue good rulings that are complex, and there are thousands of them, not just the ones that go to OR&R, but they are done at the ports and they are done by the specialists in New York. However, industry said these complex rulings are taking way too long, and this is really impeding their making timely decisions about whether to import something, and if so, what price they would charge because they may not know what the tariff will be.
    That concludes the summary of the remarks, Mr. Chairman.
    [The prepared statement follows:]

Statement of JayEtta Z. Hecker, Associate Director, International Relations and Trade Issues, National Security and International Affairs, Division U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to discuss several key issues regarding the management of the U.S. Customs Service's Office of Regulations and Rulings (ORR). Specifically, I will address (1) what this office does; (2) how it measures its performance; (3) the extent to which it is meeting its internal timeliness goals; and (4) industry views regarding its performance. Our observations are based on (1) work at Customs offices in Washington, D.C. and New York; (2) visits to the ports of Los Angeles and Baltimore; (3) discussions with a limited selection of representatives of the international trade community, including importers, brokers, and attorneys; and (4) analysis of the timeliness of key ORR rulings using Customs' automated system and case files. Before I get into our specific observations, let me provide a brief summary.
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    ORR facilitates the entry of goods into the United States, valued at over $800 billion in 1996, by (1) drafting regulations implementing U.S. trade laws, (2) issuing rulings on the proper classification, valuation, country of origin and marking of imported goods, and (3) providing guidance to the trade community and other Customs' units on their compliance responsibilities under Customs' regulations and related laws.
    While ORR's legal and technical analysis and advice are critical to the furtherance of Customs' trade administration mission, Customs has not included ORR in its annual plans identifying goals and performance measures. As a result, unlike other Customs' units, ORR has not prioritized its work, set office-wide objectives, or established how to measure its overall performance as envisioned in the 1993 Government Performance and Results Act (GPRA) (Public Law 103–62). ORR's only performance-related measure is set forth in a 1989 directive issued by the Commissioner of Customs which covers a limited but important segment of ORR's work. The directive requires that certain legal decisions, or rulings, that deal with the classification of merchandise be issued within 120 days of receipt by the Customs Service. In addition, ORR recently set a goal of 30 days for a limited number of rulings dealing with the country of origin of textile and apparel imports.
    We found ORR has made no effort to determine whether it was meeting the timeliness requirements established in the 1989 directive regarding classification rulings. Based on our analysis, we learned that ORR did not meet the requirement to issue rulings within 120 days for 53 percent of the classification cases closed in 1996 that we reviewed. Further, ORR did not to meet its internal 30-day target to issue rulings on country of origin cases for 59 percent of the cases we reviewed. By not tracking whether it is meeting its timeliness targets and by having performance measures on only a limited segment of its work, ORR is not able to measure its overall effectiveness. If Customs were to include ORR in the annual planning process, ORR would assess its overall work load and priorities, and then be able to determine whether its current timeliness goals for classification rulings are appropriate or whether changes are needed in its processes and de facto priorities.
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    Overall, representatives from the trade community we interviewed, including importers and trade attorneys, were generally pleased with the quality of ORR's services. They indicated that, by and large, ORR rulings provided important analyses and information about the duties they should expect to pay on the goods they import; they noted that the rulings were crucial to their ability to make effective business decisions and comply with Customs' regulations. The only concern they cited was the timeliness of ORR's decisions.


    The U.S. Customs Service is a key agency for enforcing the nation's trade laws and policies. In addition to preventing imports of goods that threaten our health and safety, it prevents the illegal export of protected technologies, stolen merchandise, currency, and other contraband. In the course of enforcing U.S. trade laws, Customs collects duties on imported merchandise. ORR plays an important role in carrying out Customs' trade mission by providing legal and technical support regarding payment of duties to Customs' officers at the ports and at headquarters, and guidance to the trade community on Customs' regulations and related laws.
    ORR is headed by an Assistant Commissioner and has offices in Washington and New York. Its staff of 248 consists mainly of attorneys and specialists in commodity classification. For fiscal year 1997, out of Customs' total budget of $1.6 billion, ORR's budget is $16.38 million, of which $15.2 million is for salaries.

What ORR Does

    ORR carries out its principal mission by (1) drafting regulations implementing U.S. trade laws, (2) issuing rulings on the proper classification, valuation, country of origin and marking of imported goods, and (3) providing guidance to the trade community and other Customs units on their compliance duties under Customs' regulations and related laws. ORR informs the trade community primarily through its rulings, which affect the duty an importer will pay. These rulings advise importers on how they can be in compliance with Customs' laws, and help importers make marketing and pricing decisions by providing information on the cost of importing their goods. For example, ORR's prospective classification rulings give both the requesting importer and importers of similar goods vital information to help them determine the amount of duties and fees they will be charged when they eventually enter their merchandise at a port. Customs officers, at any port, will accept the merchandise under the classification contained in the ruling. Importers can use duty information to help weigh whether to import a new line of merchandise.
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    ORR also handles importers' applications for further review protesting the duties they have paid. For example, an importer who believes he or she has been charged too much duty by a Customs port official can protest the official's decision on the duty owed. If the protest cannot be resolved at the port, the importer can seek relief from ORR. Also, a Customs port inspector deciding whether to seize a shipment for a Customs law violation can call ORR for guidance on the law and policy regarding the classification, value, admissibility, entry, and detention or seizure of merchandise.
    Under the Customs Modernization and Informed Compliance Act of 1993 (Public Law 103–182), responsibility was shifted from Customs to importers for assuring that shipments are in compliance with Customs' classification, duty, and reporting requirements.(see footnote 6) Because of this additional responsibility, importers are relying more than ever on ORR's rulings and educational activities. Under the act, importers are expected to use reasonable care to enter, classify, and value imported merchandise and submit any information necessary for Customs to properly assess duties.

How ORR Measures Its Performance

    As we noted in a 1996 report,(see footnote 7) the Customs Service as an organization has been in the forefront, in some areas, of the effort to improve government performance. While Customs as a whole and other Customs units have developed a strategic management framework that integrates planning, budgeting, and performance measurement, ORR does not have such a system in place. The Office has not established any overall goals, priorities, or specific performance measures in order to prepare to meet the implementation requirements of GPRA.(see footnote 8) Establishing a strategic management framework, as envisioned in GPRA, could help ORR assess its priorities and determine what goals are feasible and responsive to the business needs of the trade community.
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    ORR's only performance-related measure was set forth in a 1989 directive issued by the Commissioner of Customs. The directive specifies timeliness requirements for a limited segment of ORR's work; it requires that certain rulings that deal with the classification of merchandise (those done by about 30 of ORR's headquarters attorneys) be issued within 120 days of receipt by Customs of a request for such a ruling.(see footnote 9) ORR, however, does not consider the directive's requirements to be related to GPRA. In addition, the Assistant Commissioner informed us in writing that ORR has no specific performance measures in relation to the annual plan; rather, he said, ORR provides support and technical assistance to the strategies and processes outlined in the plan. Because ORR provides a direct service to the trade community by issuing rulings, it does appear that having performance objectives for issuing these rulings would be appropriate.

ORR's Timeliness On Classification Rulings

    ORR was unaware of whether it was meeting its 1989 directive's timeliness goals for issuing classification rulings. The directive requires issuance of classification rulings referred to ORR headquarters within 120 days from the date of their receipt by the Customs Service. While Customs has an automated tracking system, called the Legal Case Inventory System (LCIS), to monitor rulings subject to the directive and is required to do so by the directive, we found that ORR makes little if any effective use of the system for that purpose. Finally, we found that ORR has not consistently met the directive's timeliness requirements on its 1996 classification rulings.(see footnote 10) ORR told us that its ability to issue timely rulings was affected by uncontrollable events, and by a heavier work load coupled with diminished staffing resources. We were not able to verify whether these factors contributed to delayed rulings.
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ORR Unaware of Whether It is Meeting Timeliness Goals

    We found that ORR did not know whether it was meeting the timeliness goals set forth in its 1989 directive. ORR lacks crucial information to make this determination because it is not effectively using LCIS to monitor these rulings, as required under the directive. The directive states that LCIS ''will be the backbone for controlling the timeliness of rulings.'' However, ORR's Assistant Commissioner told us that ''to use the LCIS to determine that the self-imposed time frames are met is an improper use of the system. Rather, LCIS 'red flags' a matter for the OR&R first line managers to review the file and discuss it with the case handler.''
    We found that, although ORR enters case information into LCIS, it is not separating out the rulings subject to the directive. ORR informed us that its regular reports do not include this information. Thus, ORR could not readily provide the necessary information for us to do an analysis of its performance regarding timeliness. Ultimately, ORR had to request special programming from Customs' Office of Information Technology to provide us with the data we needed to conduct this analysis.

ORR's Inconsistent Application of Directive Renders LCIS Data for Measuring Performance Inaccurate

    ORR is not consistently calculating the 120-day processing period according to its directive. As a result, key LCIS data elements ORR uses to calculate the 120-day period are inaccurate.
    ORR told us it calculates what it calls the ''days in process'' from the LCIS ''assigned date''—the date the case was assigned to a case handler, to the LCIS ''closed date''—the date the ruling is issued. The Assistant Commissioner of ORR wrote us that ''the date received in the first Customs office and the 'assignment date' data element were originally intended to be the same * * * The foregoing is how it should be, but, clearly with automated systems the data is only as good as what is entered and there will be cases where the above was not adhered to.''
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    ORR also told us that it factors into its calculation of the number of days in process certain events beyond its control that could delay its issuance of the ruling. The directive states that a ruling may be delayed only for required laboratory analysis or when other agency consultation is needed. In calculating the 120-day processing days,(see footnote 11) ORR's policy is to adjust the assignment date when the case is considered to be in process to the date when any delay has been removed.(see footnote 12)

    Of the 189 rulings we examined subject to the directive and closed in 1996, ORR had not consistently adjusted the assignment date according to our review of LCIS data relative to data in the actual paper case files. We found that 53 percent of the ''assigned'' dates on LCIS were incorrect,(see footnote 13) with 25 percent of those off by 3 months or more. The ''closed'' date, on the other hand, had an error rate of 3 percent for the same set of cases.

ORR Did not Meet Timeliness Goals in Directive

    We corrected the relevant LCIS data and found that ORR did not consistently meet the 1989 directive's timeliness goals. Specifically, ORR achieved the directive's 120-day goal in 47 percent of the 81 cases that involved providing a ruling on classification of merchandise under chapters 1–97 of the HTS. The average number of days for classification cases in process was 147. Figure I shows the extent to which classification cases fell below or above the 120-day goal. In about 25 percent of the cases, the days in process ranged from about 200 to over 500 days.

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    Regarding textile country of origin cases, ORR told us it had set a special goal of 30 days or less to issue these rulings.(see footnote 14) Figure II shows the distribution of country of origin cases below and above 30 days. For over half of the country of origin cases, the days in process ranged from about 40 to about 190 days.

Industry Views Regarding ORR's Performance

    Overall, industry representatives we interviewed, including importers, brokers, and trade attorneys, were generally pleased with the quality of ORR's services. They indicated, that while they did not always agree with ORR rulings and decisions, these rulings and decisions generally provided important analyses and information about the duties they should expect to pay on the merchandise they import. They said that ORR's services were critical to their ability to make effective business decisions and comply with Customs' regulations.
    The key concern industry representatives cited regarding ORR's performance related to the timeliness of its decisions, including rulings and decisions regarding protests and penalties. They indicated that delays in ORR decisions could sometimes adversely affect their ability to make plans to import and price their products. For example, a toy company representative told us that a 1-year delay in an ORR classification ruling hampered his company's ability to import and sell a particular product. Specifically, the ruling was to determine whether a toy set including a miniature piece of luggage should be classified as a toy or a luggage item; the ruling was significant as toys have no duty while luggage has relatively high duties. Due to the potential effect on the item's price of no duty versus a substantial duty, the company had to withhold its importation of the item until it received the ORR ruling.
    ORR's Assistant Commissioner acknowledged that delayed rulings can negatively affect importers, particularly those importing seasonal goods, holiday items, or items subject to fashion trends.
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    Mr. Chairman and Members of the Subcommittee, this concludes my prepared remarks. I will be glad to answer any further questions you may have.



    Chairman CRANE. Well, thank you both for your testimony.
    Mr. Rabkin, we have all heard about corruption along the Southwest border, and is it the role of Customs Office of Internal Affairs to prevent and stop such corruption?
    Mr. RABKIN. Yes, sir. That is part of their responsibilities.
    Chairman CRANE. As the NTEU and local managers negotiate agreements about work processes, what role does the Office of Internal Affairs play to ensure that these agreements wouldn't increase the opportunity for corruption?
    Mr. RABKIN. It is our understanding that at the national level, the Office of Internal Affairs was not involved in the arrangement, and at the ports we visited, that was also the case that they were not involved.
    Chairman CRANE. In discussions with GAO staff, we asked for information on official time. What have you found regarding the use of official time?
    Mr. RABKIN. I would like to ask Mr. Raheb to present some of the data that we found, but before he does, I would like to caveat that the GAO has looked at official time charges in a number of other agencies and found that the data are really not very reliable.
    We found the same thing at the Customs Service, and we will explain why we think that the data that we have is understating the amount of official time that has actually been spent, but I will let Mr. Raheb give you the statistics.
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    Mr. RAHEB. Mr. Chairman, we can also submit some of this in writing for your inspection.
    Chairman CRANE. Thank you.
    Mr. RAHEB. We have seen that starting in fiscal year 1992, Customs in April 1993, actually, started tracking this information so they could tell what are the numbers of hours charged for official time, and official time is just that time charged by union representatives for what is classified under the law as official time.
    We found that in fiscal year 1992, about 10,000 hours of official time was charged, reaching about 62,000 hours in fiscal year 1995, with a decline in fiscal year 1996 to about a little less than 50,000 hours.
    The problem we have, though, is that we haven't been able to accurately state what is the true amount of official time. Customs has not done in the past a very good job of recording that, and as we have tracked official time, we found some location such as L.A., Long Beach Seaport, as well as LAX, one of your largest ports in the country, showed 8 hours of official time over a 4-year period. Now we know that isn't exactly correct.
    So we tend to believe these numbers underrepresent the amount of time spent or charged to official time. We think Customs is trying to correct that to provide a more accurate accounting for time being charged, and they have devised a system so they can track how many hours are being charged for representational activities, how many hours are being charged for grievances, how many hours are being charged for partnership activities.
    We certainly believe the amount of time, if it was accurately recorded, would be larger than the numbers that we have here, but because we don't know truly what is being recorded, we can't tell you what that information represents, only what information we have currently, and we will be glad to provide that to you, Mr. Chairman.
    Chairman CRANE. Thank you.
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    What role did the Office of Internal Affairs play in the development of the new national contract between Customs and NTEU?
    Mr. RABKIN. The Office of Internal Affairs?
    Chairman CRANE. Right.
    Mr. RABKIN. It is our understanding that they did not play any role in the development of that contract.
    Mr. RAHEB. They were not involved in any of the contract negotiations that we are aware of.
    Chairman CRANE. We have asked you about grievances. What can you tell us about grievances.
    Mr. RABKIN. One of the expectations under partnership is that the number of grievances would go down. Unfortunately, Customs doesn't collect that information nationally. They only maintain it at each port. At most of the ports, in fact, it has gone down.
    About half of the grievances that have been filed over the last couple of years have been in one port, in El Paso, and in the last year, the number of grievances from 1995 to 1996 went down there.
    Walter, do you have those specific numbers?
    Mr. RAHEB. In fiscal year 1995, for the Custom Management Center, CMC, which includes El Paso, it is probably the largest number of grievances for that Customs management center were filed there.
    There were 397 grievances in fiscal year 1995, 280 grievances in fiscal year 1996. Now, that represents about half of all the grievances that we have been able to identify filed through the Customs Service.
    The next largest number of grievances at any location is 40.
    Chairman CRANE. Ms. Hecker, did GAO talk with importers in conducting the review?
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    Ms. HECKER. Yes, we did. We spoke with a number of importers, not a representative sample. We just had a limited time here, but we spoke mostly with large importers who had a significant amount of experience, submitting rulings and for many sectors, automobiles, textiles, toys, and really got a range of experience with different categories of importers.
    Chairman CRANE. Did any of the importers that GAO talked with identify problems with delays in the Office of Rules, Regulations and Decisions?
    Ms. HECKER. They all represented that that was a significant concern. At the same time, they all appreciated the quality of rulings that generally came out of OR&R. So there was an appreciation that they had a complex job, but they felt that their businesses had been definitely disadvantaged by these significant delays that were only documented by our work. OR&R knew that there were delays, but I don't think they had any idea that they didn't meet the 120-day goal half the time consistently.
    Chairman CRANE. In your discussions with representatives of the trade community, did they comment on the quality beyond what you were just saying? The quality of OR&R's work?
    Ms. HECKER. Well, of course, they don't always agree with them. So, while there was generally the view of quality, we did get some firms who would talk about a difference of views, and I think that was to be expected.
    Chairman CRANE. Finally, you mentioned in your testimony the 120-day timeliness goal. Does Customs consider that to be an adequate measure of performance for OR&R?
    Ms. HECKER. Well, that is one of the things that really concerned us, that they said no, this is not one of the overall goals of the office. They have not participated in the Government Performance and Results Act, GPRA, or general performance review and evaluation that has been going on across the Customs Service where they have set out goals and priorities and track them.
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    The 120-day goals go back to a 1989 directive, and OR&R says it has nothing to do with its overall measurement of performance. So it is really on a separate track. It is not in sync, and I think our main observation is that this is an office that needs to get on board with analyzing where they are going, what their priorities are, and what are some really achievable targets.
    Chairman CRANE. Well, finally, will GAO, Mr. Rabkin, continue to monitor the progress made by Customs and communicate that progress to the Subcommittee?
    Mr. RABKIN. At your request, sir, we certainly will.
    Chairman CRANE. Well, we deeply appreciate it, and we appreciate all the work you have done. Thank you so much.
    Mr. RABKIN. Thank you.
    Chairman CRANE. Our next panelist is Mr. Tobias, president of the National Treasury Employees Union.
    Anything beyond 5 minutes of oral testimony, if you have written testimony, it will be made a part of the permanent record.

    Mr. TOBIAS. Good morning, Mr. Chairman. I very much appreciate the opportunity to testify in the Customs budget. The fiscal year 1998 budget request provides for $1.69 billion and 17,193 FTEs for the U.S. Customs Service, an increase of $52.2 million and 119 FTEs over fiscal year 1997 levels.
    NTEU supports this request as the minimum funding necessary to support the rapidly increasing demands placed on the Customs Service for illegal narcotics and drug interdiction, trade law enforcement, revenue collection, and export enforcement.
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    Mr. Chairman, the U.S. Customs Service was extraordinarily successful last year in accomplishing every facet of its multifaceted mission. Operation Hard Line, the South West border, interdiction initiative, continues to yield impressive results. Narcotics seizures measured by total number of incidents increased by 29 percent and 24 percent when measured by total weight. The total weight of narcotics seized increased 153 percent.
    A little more than a year ago, Customs initiated Operation Gateway to enhance drug enforcement capabilities in Puerto Rico, the U.S. Virgin Islands, and their surrounding waters. Compared to the same 9-month period in 1995, Operation Gateway increased Customs cocaine seizures by 44 percent and the number of examinations of inbound containers by 143 percent.
    Given the success of Operations Hard Line and Gateway, the Customs Service has requested $23.4 million for new antismuggling initiatives to respond to increased smuggling activity in southern Florida. Cocaine seizures increased in this area doubled in fiscal year 19996 to 75,000 pounds, approximately 40 percent of Customs cocaine seizures nationwide.
    Well, as was discussed by Commissioner Weise, Customs drug seizures amounted to more than 1 million pounds in fiscal year 1996. Customs continued to meet its money-laundering and trade-environment responsibilities in the face of record number of passenger, vehicle, artifact, and vessel arrivals. In fiscal year 1996, Customs sees $258 million in currency, including a record U.S. border seizure of $15 million. In fiscal year 1997, Customs estimated it will process 372 million land border passenger arrivals, 71 million air passenger arrivals, and 8 million sea passenger arrivals.
    Customs estimates that 125 million vehicles, 713,000 aircraft, and 110,000 vessels will enter our ports during the current fiscal year. That is a lot of folks and a lot of trade and a lot of cargo.
    Customs inspectors and canine enforcement officers' responsibilities also include the inspection of high-risk shipments to assure proper manifest recording, duty payment, resolution of discrepancies related to inbound shipments, trade enforcement at bonded warehouses and foreign trade zones, nonproliferation—related export enforcement, antimoney laundering enforcement and the protection of domestic intellectual property rights.
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    Despite this record of unparalleled achievement in so many law enforcement areas, it is important to note that the vast majority of frontline Customs employees still do not qualify for law enforcement status. NTEU urges that Congress recognize that the brave men and women at the U.S. Customs Service deserve the same employment rights of other Federal employees who risk their lives every day to combat the trafficking of drugs and other dangerous, illegal important activity.
    In addition, we would urge this Committee to increase the overtime cap from $25,000 on annual overtime wages to $30,000.
    We urge this be done to make sure that there are a sufficient number of Customs employees to do the work that I have just described.
    Mr. Chairman, thank you, and Members of the Committee, again, for the opportunity for our union to present its views on the proposed Customs budget for fiscal year 1998.
    I would be happy to answer any questions you might have.
    [The prepared statement follows:]

Statement of Robert M. Tobias, National President, National Treasury Employees Union

    Chairman Crane, Ranking Member Matsui and Members of the Subcommittee, my name is Robert M. Tobias, and I am the National President of the National Treasury Employees Union (NTEU). Speaking for the more than 150,000 federal government employees represented by NTEU, I would like to thank you for this opportunity to present our Union's views on the proposed fiscal year 1998 budget for the U.S. Customs Service.
    The President's FY 1998 budget request provides $1.69 billion and 17,193 FTE's for the U.S. Customs Service, an increase of $52.2 million and 119 FTE's over FY 1997 levels. NTEU supports this request as the minimum funding necessary to support the rapidly increasing demands placed upon Customs for illegal narcotics and drug interdiction, trade law enforcement, revenue collection and export enhancement. The new positions requested for FY 1998 will be used to strengthen the Custom Service's interdiction abilities along the Southern Tier of the United States, from San Juan to San Diego.
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    Operation Hard Line, the Southwest border interdiction initiative, continues to yield impressive results. In FY 96, narcotics seizures measured by total number of incidences increased 29 percent (6,956 seizures) and 24 percent when measured by total weight (545,922 pounds of marijuana, 33,308 pounds of cocaine and 459 pounds of heroin) when compared to FY 1995 totals. The total weight of narcotics seized in commercial cargo increased 153 percent (56 seizures totaling 39,741 pounds).
    A little more than a year ago, Customs initiated Operation Gateway to enhance drug enforcement capabilities in Puerto Rico, the U.S. Virgin Islands, and their surrounding waters. Compared to the same nine-month period in 1995, Operation Gateway increased Customs cocaine seizures by 44 percent and the number of examinations of full inbound containers by 143 percent.
    Given the success of Operations Hard Line and Gateway, the Customs Service has requested $23.4 million for a new Anti-Smuggling Initiative to respond to increased smuggling activity in Southern Florida. Cocaines seizures in this area doubled in FY 1996 to 75,000 pounds, approximately 40 percent of Customs cocaine seizures nationwide.
    As the following data clearly shows, the U.S. Customs Service is more than just the front line of the Nation's anti-drug smuggling efforts. While Customs drug seizures in FY 1996 amounted to more than one million pounds (more than the total drug seizures of all other federal agencies combined), Customs continued to meet its money laundering and trade enforcement responsibilities in the face of record numbers of passenger, vehicle, aircraft and vessel arrivals. Customs seized $258 million in currency in FY 1996, including a record U.S. border seizure of $15 million. In FY 1997, Customs estimates it will process 372 million land border passenger arrivals, 71 million air passenger arrivals and 8 million sea passenger arrivals. Customs estimates that 125 million vehicles, 713,000 aircraft, and 110,000 vessels will enter our ports during the current fiscal year.
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    Customs Inspectors and Canine Enforcement Officers responsibilities also include the inspection of high-risk shipments to assure proper manifest recording and duty payment; resolution of discrepancies related to in-bound shipments; trade enforcement at bonded warehouses and foreign trade zones; non-proliferation related export enforcement; anti-money laundering enforcement, and the protection of domestic intellectual property rights.
    Despite this record of unparalleled achievement in so many law enforcement areas, it is important to note that the vast majority of front line Customs employees still do not qualify for federal law enforcement status. As in past years, NTEU will continue to its efforts to enact legislation to end this disparity in this new Congress. While we appreciate the significant budget implications, we believe that denying the brave men and women of the Customs Service the same employment rights of other federal employees who risk their lives every day to combat the trafficking of drugs and other dangerous illegal import activity is unjust.
    In addition, NTEU believes that Congress should increase the $25,000 cap on annual overtime wages to $30,000. This $5,000 increase would equalize overtime wage treatment of Customs employees with the Immigration and Naturalization Service employees who work along side Customs officials at all ports of entry. As the Members of this Committee know, Customs staffing levels have not kept pace with the ever increasing workloads imposed upon them. As such, the proposed overtime cap increase would help adjust the cap for inflation and restore parity in levels among port of entry employees.
    Lastly, NTEU believes that Congress should restore the premium pay differentials for Treasury Department employees on leave status. The pay differential prohibition contained in Section 630 of the FY 1997 Treasury, Postal Service and General Government Appropriation bill, Public Law 104–208, unfairly alters the annual earnings of those who regularly work and depend upon the compensation premium provided for working Sundays and night shifts. NTEU pledges to work with the Members this Committee and others toward a reasonable accommodation of the concerns of Members and the legitimate rights of federal employees to be fully compensated for working these unusual hours and days on a regular basis.
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    Mr. Chairman, thank you and the Members of the Committee again for the opportunity for our Union to present its views on this proposed Customs budget for fiscal year 1998. This concludes my testimony. I would be happy to answer any questions you may have.



    Chairman CRANE. Thank you very much, Mr. Tobias.
    You mentioned raising that cap on the annual overtime wages from $25,000 to $30,000 to equalize overtime wage treatment for Customs inspectors and INS inspectors. Yet, INS inspectors work under the Federal Employees Pay Act, FEPA, while Customs inspectors work under the Customs Overtime Pay Reform Act, COPRA.
    Are you suggesting that your members would also be willing to work under FEPA, the Federal Employees Pay Act?
    Mr. TOBIAS. Well, the fact of the matter is that Immigration and Naturalization Service have a special overtime payment act in addition to FEPA overtime.
    At one point in time, Customs worked under something called the 1911 Overtime Act. INS had a special overtime act, which still is in place. Now Customs has COPRA, and what we are talking about is the amount of overtime, whether or not there is an overtime cap or not.
    INS has $30,000. The Customs Service has $25,000, and the impact of that is that it provides real inconveniences to passengers and carriers because ports, particularly private flights, aren't staffed for the number of hours that they would otherwise be staffed. I think that it compromises on service quality because what happens is, since the higher paid Customs inspectors reach the cap earlier in the year, in the latter part of the year, we have less experienced, lower paid inspectors who are working many hours because no one else is available.
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    The cap at $25,000 unduly increases the cost of monitoring to ensure that people don't go over it, and I think that the cap which was installed, I think in fiscal year 1982, hasn't been increased over time, even though the basic pay has been increased over time.
    So, for these reasons and others, we believe that increasing the cap to $30,000 makes a lot of sense.
    Chairman CRANE. In your written testimony, you also suggested that Congress restore the premium pay differentials for Treasury employees on leave status. As I understand it, this would mean that Customs employees scheduled to work overtime would receive that overtime even when on vacation, provided they were actually scheduled to work during the vacation.
    Are you suggesting that Customs inspectors be paid overtime during vacation?
    Mr. TOBIAS. Well, what we are suggesting is consistent with the prior law that they be paid for the time—that they would be paid an amount equal the time they would have been paid.
    So, if I am regularly scheduled to work from 10 p.m until 6 a.m. and that results in premium pay for me, and I take a vacation, I believe that people should be entitled to get their base pay, plus the applicable premium pay when they are on vacation because it was a regularly scheduled day of work.
    Chairman CRANE. Well, I want to express appreciation to you, Mr. Tobias, for coming here before the Committee, and we look forward to working with you to improve conditions for all of the people that are in the frontlines, and thank you so much for your testimony.
    Mr. TOBIAS. Thank you, Mr. Chairman.
    I am prepared, if you wish, to talk about the Customs-NTEU partnership and its impact on the efficiency and effectiveness of the Customs Service, if you wish.
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    Chairman CRANE. Well, we are contemplating an oversight hearing on that subject later in the year, and since we are under some tight time constraints because we have to be over on the floor for Charlene Barshefsky's waiver legislation, I think we had better delay it, but we look forward to you coming back before the Committee again.
    Mr. TOBIAS. Thank you.
    Chairman CRANE. Thank you.
    Our final panel is composed of industry representatives who will give their views on the pace and progress of the Customs Modernization Act, including Customs attempts to overhaul its regulations and automated systems.
    The panel is made up of Jim Clawson, chairman of the Industry Functional Advisory Group on Customs, or IFAC, and Harold Brauner, chairman of the board of National Customs Brokers and Forwarders Association.
    Please proceed, gentlemen.

    Mr. CLAWSON. Thank you, Mr. Chairman. It is a pleasure, as usual, for me to be here. I will keep it short. You have a written testimony. Let me just make some summary comments, if I can do that for you.
    Obviously, part of the reason that I am here is my personal interest in Customs and things that they do and have done for the last 30 years, but I am here specifically as chairman of the Industry Functional Advisory Committee for Customs Purposes, where I have been a member for over 9 years. This is the advisory committee that gives advice to the U.S. Government about Customs matters internationally.
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    It is composed of 27 members representing the specific sectors and customs experts, and for reasons that always escape me, I am considered one of those customs expert people that gets asked to participate.
    I have served as chairman for the last 6 years and was reelected for another 2-year term. So it is a privilege for me to be here, and I want to, first of all, tell you how much we appreciate in the business community the developing and passage and now the monitoring of the Customs Modernization Act.
    For us, this legislation may be the single most important action to set the stage for international merchandise trade in the 21st century. It is changing the attitudes, the processes and the effectiveness of the U.S. Customs Service to finally be what we got the name to be in the seventies, the Customs Service.
    The old Customs system of ''gotcha enforcement'' is being replaced with a partnership that is encouraging cooperation and problem-solving and obtaining high levels of compliance. The People, Processes, and Partnership Report sets forth the plan, and while we are concerned about the length of time it is taking to implement many of the procedures that have been set forward, we believe that in the long run, it will be better for us to do it together and do it right than to come back and have to fix it.
    There are a few areas where we don't understand the delay. One that is still a sore thumb to us is this informal entry. You, Mr. Chairman, have even intervened on its behalf, and 3 years later, Customs has still not been able to get out of their processes, the regulations to increase the informal entry to the 2,500, which was authorized by the statute. This is really unacceptable to the private sector.
    On the other hand, we have some other developments with regard to new regulations that have been a joint process. We applaud the idea that has been implemented of putting out concept papers. The trade community can comment on those before we get draft regulations. So nothing is put out as a 'fait de accomplis.' We are happy with such things as the compliance assessment process where they put out a kit that told the private sector what questions were going to be reviewed and asked during audits.
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    We cover such things as drawback and the entry processing, and we know where we are going, and there is a lot of cooperation. We just have to work faster and smarter to get the job done.
    I fully support the purpose of this hearing, the continuing authorization for the people and the process and the materials that are needed to complete the implementation of the act, and along with that, we think that there ought to be—it got started a couple of years ago and then has been put on the back burner—a complete review of all of the regulations to make them accurate, consistent, and up to date. These are the rules or the guidelines that the private sector works by, and they really need to be fully updated across the board.
    In this customs process, one of the points that we want to make, is that the United Nations conducted a study that concluded that somewhere between 15 and 17 percent of the cost of goods, the cost of goods traded, is related to Customs clearance procedures. The act seriously addresses that waste.
    We in our advisory Committee have looked at some of these processes, and I won't go into all of the details, but in our written testimony, we have identified some of the things that need to be done, including in the U.S., to continue and improve that process.
    We have a strong belief in the shared responsibility, that more can be accomplished when we do that. When we have competition with ourselves, it slows the process. We have a few suggestions here that we want to make, particularly with regard to automation which is going to be about this process of cooperation.
    If we are going to have better compliance, if we are going to have better informed compliance from our private sector, we really have to have better automation systems. To attain this level, right now, we think the resources and the allocation of resources being expended within the Customs Service to bring about the national entry processing is not adequate to bring us to where we want to be.
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    We need to at least triple what is currently being provided, whether it is done within the Treasury budget or whether there are new moneys allocated, so that we can hire people who think outside of the box, outside of the normal status quo thinking. Whether they would be former systems engineers who can do a better and quicker job, whether we contract out with what needs to be done, or whether we consider in the private sector, some organization of private sector resources to come to bear to work with the Customs Service to bring about this partnership we need to get on with the full automation of the international transaction.
    Again, I am happy to be here, happy to answer any questions that you may have, and look forward to working with this Committee and the Customs Service in the future.
    [The prepared statement follows:]
Statement of James B. Clawson, Chairman, Industry Functional Advisory Committee, Customs Matters; and Executive Vice President, International Business-Government Counsellors, Inc., Washington, DC

    Mr. Chairman, members of the committee, it is a privilege to come before this committee to share some of my views about the activities of the U.S. Customs Service. It has been an honor for me to serve as a customs expert member of U.S. Government Industry Functional Advisory Committee number one for Customs matters for more than nine years. IFAC I is composed of 27 members representing specific sectors of the U.S. economy and as experts in the field of international customs issues. I have served as Chairman for the last six years and was re-elected for another two year term.
    This hearing is to review the activities of the trade agencies to make important decisions about budget authorizations. While I work closely with all three agencies, because of time constraints and the role in which I am appearing today, I will confine my remarks to the U.S. Customs Service. Furthermore, my role with IFAC concerns the commercial side of the U.S. Customs mission so I do not feel competent to comment on the drug and other contraband enforcement mission. I will obviously speak to the commercial enforcement issues.
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Modernization Act

    Let me begin by again thanking this committee for the work in developing, passing, and now monitoring implementation of the Customs Modernization Act. This legislation may be the single most important action to set the stage for international merchandise trade in the 21st Century. In my opinion, the Modernization Act is changing the attitudes, processes, and effectiveness of U.S. Customs to finally be what its name implies—Customs Service. The old custom's system of ''gotcha'' enforcement is being replaced with a partnership encouraging cooperation in problem solving and obtaining high levels of compliance.
    The People, Processes and Partnership report of 1994 set forth the plan. While it is taking much longer to implement than any of us in the private sector anticipated, we believe that it will be better for our future for us to work together to do it right in the first instance than to rush action. There are a few areas where we do not understand the delays. For example, the increase in the dollar level for which an informal entry can be used was one of the simple directives in the statute. Raising the level from $250 to $2500 was really just keeping up with inflation and will significantly relieve Customs from unnecessary administrative costs. Mr. Chairman, even after you intervened to move things along, the level has still not been increased. This is unacceptable.
    On the other hand, the development of the new regulations has been a joint process. We applaud the approach taken by Customs in presenting concept papers to the public for review and comment. From recordkeeping to drawback, we believe the process has fully included those elements of the trading community who wish to participate. For the Compliance Assessment process, Customs has published a kit which includes all of the questions that the audit will cover. Such actions by Customs are a vast improvement. We have had our say, we now need to get on with full implementation, with regulations and process. We support authorization for people and process to complete the implementation of the ModAct. Along with the issuance of the new regulations, all customs regulations should be reviewed for consistency, accuracy and even gender.
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Customs Process

    The United Nations conducted a study about the costs to industry for the clearance of goods. That study concluded that 15 to 17 percent of the cost of goods traded is related to customs clearance procedures, 4 to 7 percent being related to paper documentation. The Mod Act seriously addresses this waste.
    One of the most recent activities of our Advisory Committee has been to review the many customs processes from entry to post audit. Working with the World Customs Organization and the International Chamber of Commerce, U.S. companies and the U.S. Customs Service have developed a list of ''best practices'' or customs guidelines that would epitomize the model customs service. We expect our customs service to provide all of these best practices. It cannot happen overnight but we must be moving in that direction.
    A list of those practices is attached to this statement for reference. Some of those selected by our Committee are:
    •  provisional release of goods prior to completing paperwork and payment of duties,
    •  use automated selectivity or statistically valid compliance measurement systems, and
    •  rely on post audits to verify compliance.
    The principal reason for our review is to give guidance to our government during their negotiations with countries that are candidates for World Trade Organization membership. We want to develop a minimum list of those practices that we believe are necessary to facilitate trade in the next century.
    Let me be clear, this is not our wish list! This is a list of minimum processes. If more can be attained, we want it—we need it. Similar discussions about customs process are taking place in the Asia Pacific Economic Conference, the Free Trade for the Americas meetings and the G–7 economic meetings. It seems that after 20 years of preaching about the importance of customs process, it is now being realized as the significant non-tariff trade barrier that it has always been.
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Shared Responsibility

    The early Greeks enjoyed a government that provided many services and regulated much of their life. Edith Hamilton, in writing about these issues in her work, ''The Echo of Greece''(see footnote 15) stated,

''What the people wanted was a government which would provide a comfortable life for them, and with this as the foremost object, ideas of freedom and self-reliance and service to the community were obscured to the point of disappearing. Athens was more and more looked on as a co-operative business possessed of great wealth in which all citizens had a right to share. * * * Athens had reached the point of rejecting independence, and the freedom she now wanted was freedom from responsibility. There could be only one result.
If men insisted on being free from the burden of a life that was self-dependent and also responsible for the common good, they would cease to be free at all. Responsibility was the price every man must pay for freedom. It was to be had on no other terms.''
    More than two thousand years later, our societies are still trying to resolve how to share the responsibility for governance. The Mod Act illustrates the importance of reaching an accommodation between government and industry in sharing the responsibility for compliance with the rules of importing and exporting goods. It is the stated goal of the U.S. international trading community to increase the level of compliance while decreasing the intrusive nature of traditional customs regulatory practices.

Competition or Cooperation
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    Several years ago, a number of U.S. companies determined that too many resources and too much energy were being expended by the U.S. Customs Service and U.S. companies in attempting to understand and comply with the growing complexity of customs regulations. In an environment of increasing trade volumes and decreasing numbers of employees in both government and industry, something had to give. Customs officials were not able to keep up with the demands of industry to respond timely to ruling requests covering marking, classification and value. Entries were delayed while routine data was verified at the port of entry. Insufficient numbers of inspectors at ports severely delayed ''just-in-time'' inventory deliveries to waiting production lines. In an effort to keep up with these demands, Customs automated its processes to increase efficiencies. However, the automation was still based on individual transactions while industry was automating its purchasing and inventory controls by account, time period and production needs. The competing systems were not compatible.
    In the economic realm, competition is the means whereby the self-interest of buyers and sellers acts to serve the needs of society as well as those of individual market participants. Society is served well when the maximum number of goods is produced at the lowest possible prices. In the political realm, competition between government and private industry has the opposite effect. Society is not served well. When the government regulators and service providers measure success in competition with their private industry customers to see how many they can ''catch'' as not in compliance, while the ''customer'' measures success in the competition by seeing how it can violate the rules without being caught, society suffers. In such a competitive atmosphere, unnecessary resources are expended in an attempt to ''enforce'' compliance or ''evade'' compliance. Customs and industry officials were competing with one another.
    Cooperation on the other hand, brings about a more efficient use of resources and a higher level of compliance. Cooperatives are known as a system of economic action and business enterprise, characterized by the absence of the profit motive and involving, as its primary function, the distribution of goods and services. Traditionally, it is a movement of consumers who unite on the basis of their mutual interest in reducing living expenses and benefiting from the ownership and control of production facilities and of accommodations shared by all. The cooperative principle applies to the customs-industry transaction.
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    Both customs and industry are a type of consumer—particularly of each others' information. While there is no real ''profit motive,'' there is protection of the state's revenue on the government side and enormous costs associated with competitive compliance on the industry side. In the customs and industry cooperative model, the ''consumers'' unite on a mutual interest in reducing those expenses and benefiting society through voluntary compliance. The customs-industry cooperative can exist.
    It is my view that these cooperative principles can also apply to the government-industry relationship. J.G. Holland said that ''Responsibility walks hand in hand with capacity and power.'' If the U.S. industry wishes to increase its capacity and power with U.S. Customs, it has to increase its own responsibility to be in compliance. One of the original captains of U.S. industry, John D. Rockefeller Jr., believed ''that every right implies a responsibility; every opportunity, an obligation; every possession, a duty.'' Our right to import and export carries those responsibilities.
    So, in order to bring about a cooperative partnership with the U.S. Customs Service, industry believes it has to accept a much greater responsibility to be informed and to be in compliance with the rules and regulations. Henry D. Moyle said it best when he observed that, ''Each man must learn his duty fast. Each has his responsibility and is answerable for what he does.'' U.S. industry has learned what the early Greeks failed to understand. Edward Gibbon in his writings about the Athenians believed that,
    ''In the end more than they wanted freedom, they wanted security. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for was freedom from responsibility, then Athens ceased to be free.''
    In order to be free of restrictive and intrusive customs regulatory action, industry has to accept greater responsibility for compliance.
    Abraham Lincoln said it best when he said, ''You cannot escape the responsibility of tomorrow by evading it today.'' Thus came about this agreement between U.S. Customs and industry, established by you through statute, to share the responsibility with government to be informed, exercise reasonable care in conducting international transactions and voluntarily comply with all rules and regulations. In return, the Customs Service, agreed to inform business about the laws, regulations, and controls concerning international trade established by customs and other government agencies, encourage voluntary compliance, and enter into a ''cooperative'' relationship to ensure that compliance. The agreement is working. We must reward this change in attitude by continuing the authorization for sufficient staff to perform as Account officers, automation systems engineers, and information managers.
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    To attain this level of partnership and compliance, we must have new automation systems. U.S. industry is beginning to share with its customs regulators information about its international transactions not previously made available. This voluntary disclosure, in advance of transactions, can only occur in an automated environment. Such information increases the level of comfort for U.S. Customs authorities so that it can apply sampling and other measurement techniques to benchmark the levels of compliance. A company with good systems, tested by U.S. Customs, will be trusted to make the right choices until proven otherwise. In this way, U.S. Customs can apply its scarce resources to those importers and exporters who do not have a good record.
    However, for this to work properly and efficiently, U.S. Customs must have the necessary resources available to develop and maintain state of the art computer systems, capable of handling the ever increasing volumes of merchandise transactions. I will not attempt to cite statistics or parade the horrors that will occur if the Newington computer facility were to fail, for any reason—internal or external. What I wish to point out to the members of this committee is that the current level of resources, human and material, dedicated to this critical function that supports this shared responsibility, is not adequate.
    Not unlike the Internal Revenue system, hardware, systems design and capacities are severely limiting the ability of the U.S. Customs Service to implement the Mod Act as it was intended. We hear that the pilot program for the Automated Commercial Environment, the replacement for the Automated Commercial System, will begin in November, almost four years after passage of the Mod Act. Full implementation may not occur for another three years or more. That is not good enough. Even though Customs automation staff seem to be doing their best with what they have to work with, much more is needed. Just as the top political figures in the G–7 and APEC countries have identified customs as in need for attention, I believe this Administration, Treasury and even the Congress must back up with resources what it has identified as in need of fixing. Customs needs more qualified systems designers who fully understand today's information technology environment, and more importantly, tomorrow's! That costs money. More should be allocated to this critical function.
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    We just read last week about a glitch some bright university computer buffs discovered in an important Microsoft program. Microsoft engineers worked over a weekend and had the necessary patch in place for its customers to download from its Internet sight. I can assure you none of those engineers left work to catch their carpool. I don't know the number but I can assure you that there was a big dollar number attached for those that were able to fix the problem.
    We need to create incentives for our automation designers to deliver a workable product in a timely manner. Under the existing government rules and regulations, that does not seem to be possible. I suggest that some of us begin to approach this automation issue by thinking outside of the box. Perhaps some special legislation could be passed that would temporarily exempt a group of special customs systems engineers to be hired and paid outside the normal government systems. There are any number of defense systems experts who have been downsized out of their jobs that would be candidates for the right price. The current $15 million per year authorization is nowhere near enough for this job. It should be doubled or tripled. We need to create significant bonuses or other incentives that will attract the best and the brightest.
    Maybe we should approach the private sector, in this environment of shared responsibility, to set up a ''techy taskforce'' that would make some of its high powered systems engineers available to the government. Or even make contributions to the cause since the benefits will accrue to them. Or maybe there is some defense contractor in need of additional work to supplement what it is already doing for the government to reach sufficient economies of scale. I don't have an answer but I believe smart people, if challenged, can find one.


    This automation issue needs your attention. I am far from an expert, but I am a user who has seen the benefit of new uses of high technology in the customs area. For years the business community has complained about the lack of timely information from the Office of Rulings and Regulations. Ruling requests take months, and for some, years to obtain. Quota status, country of origin rulings, classification rulings, and other notices were sometimes published in the Customs Bulletin—most often not. It takes weeks and months to get information, if at all.
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    First, Customs established its electronic bulletin board where much of this information was supposed to be available. While some of the good stuff about ModAct implementation was included, rulings remained painfully slow. Stu Seidel, recognizing the importance of following the ModAct mandate to inform, built the Home Page that anyone can now access. From the tariff schedules to quota status to recent rulings, this important information can now be available to anyone. Not just those big companies that could afford to hire attorneys or consultants to keep them informed. What is needed now is for there to be more timely rulings.
    From the industry perspective, we do not wish to see the same fate for our societies as that of the Athenians. Freedom to conduct our business is critical to the economic success of our societies. Industry should be prepared in the 21st Century to accept the responsibility that travels with this freedom. Government must be prepared to join in the cooperative effort and reduce competition. It is really a small price to pay for such a great return.



    Chairman CRANE. Thank you very much.
    Mr. Brauner.

    Mr. BRAUNER. Thank you. I am Harold Brauner, president of Brauner International Corp. and chairman of the board of the National Customs Brokers and Forwarders Association of America (NCBFAA). It is a privilege to appear before you today.
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    Customs house brokers are well known to the Trade Subcommittee. We have always been considered an extension of the Customs Service, performing duties for which they had insufficient resources.
    First, let me make it plain that the NCBFAA supports full funding of the U.S. Customs Service. In fact, were we unaware of the scarcity of federal resources, we would advocate substantially increased funding.
    Customs generates substantially more income than it consumes in appropriated funds and an added investment can yield better than a dollar-for-dollar return. Theirs is a complex and difficult task, enforcing the law and determining the precise amount of duty owed the government for each shipment, yet they have been up to this challenge.
    Through the professionalism of their people and the application of technology, they perform their mission well, but we know it is unrealistic to talk of authorizing increases as we strive for a balanced budget. If anything, the Customs Service must learn to use its resources more efficiently than any other time in their history. It must establish its priorities carefully, implement its programs with the zeal to be expected of a guardian of public funds, and it must work smarter.
    It cannot, for example, as it does in recently proposed regulations, suggest to the public that collection of duty under $20 is not worth the trouble. In this instance, Customs has the authority from Congress to waive collection of duties in order to avoid expense and inconvenience to the government, disproportionate to the revenue collected.
    Yet, Customs employing an electronic filing can collect small amounts of duty at far less cost and administrative inconvenience than were they to waive the duty, which requires a labor-intensive manual release.
    Yet, it is here. Where common sense beckons and opportunity stares Customs in the face, that they sometimes fail to meet expectations or miss the point.
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    Of more immediate concern to us, as Customs brokers, is the manner in which Customs is presently implementing its national and port account programs. This is the vehicle through which Customs will view the importer as an account, focusing on all his transactions, rather than an entry-by-entry basis as in the past.
    While we cannot argue with this approach, we are mystified by the fact that the broker is largely being ignored in this process.
    The broker is authorized through power of attorney to represent the importer in all phases of the customer's transaction and is the importer's designated representative. He is the person that prepares the entry, and he is the one that the importer relies on to ensure the accuracy of its entries. He is the equivalent of the accountant which acts for the importer in tax matters.
    The broker is also the person that is most familiar with the language of business and that of the Customs Service and is particularly equipped to obtain the information needed by either of these parties. Except in those cases where the importer expressly requests for Customs to sweep past the broker and go directly to the importer, is not only a waste of time and money, but a disservice to the public.
    The problems in this approach are now only beginning to surface. The Journal of Commerce recently chronicled the story of Nike and its months of effort, thus far unsuccessful, to be qualified.
    Further, while the hardened criminal gets Miranda rights, Customs intends to approach importers without a suggestion that the expertise of his professional broker might be desirable. Please reflect for a second the cost of this effort to the Customs Service in resources. Diverting its best Customs important specialists and auditors to a labor-intensive dialog with thousands of importers represents a complete failure to take advantage of its most valuable resource, the broker.
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    As one large broker said, ''I serve 70,000 importers. Isn't it better to go just to one point of contact for most of this information?'' A Customs broker is truly a force multiplier. He or she multiplies manyfold the ability of each Customs officer to gather information and effect informed compliance.
    How, indeed, can Customs do a credible job managing a vast number of accounts? Why doesn't the Service use the broker as an extension of its resources? That is the broker's role, but Customs seems to have ignored the cost and been blind to good sense.
    Customs needs the automated resources of the custom house broker as an extension of theirs. NCBFAA has recently recommended to the Commissioner that the most efficient way for Customs to communicate with the importer is electronically, through its computer link, with the broker. In turn, the broker will assume the responsibility of ensuring that the importer gets the message, and hopefully, Customs will get a prompt response.
    We sincerely hope that they will adopt this simple suggestion as a way to save both time and money.
    Thus, NCBFAA urges the Committee to provide the U.S. Customs Service with authority for acquiring as many Federal dollars as are available for performing its mission. Yet, recognizing that formal levels will not be enough, NCBFAA asks the Committee to urge Customs to take greater advantage of its most valuable, but least expensive ally in the area of compliance, the licensed customs broker.
    We thank the Committee for their attention.
    [The prepared statement follows:]

Statement of Harold G. Brauner, Chairman of the Board, National Customs Brokers and Forwarders Association of America, Inc., New York, New York

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    Mr. Chairman: I am Harold Brauner, President of Brauner International, Inc., and Chairman of the Board of the National Customs Brokers and Forwarders Association of America. It is a privilege to appear before you today.
    Customshouse brokers are well-known to the Trade Subcommittee. We are private sector intermediaries between the United States Customs Service and the nation's importing public, ensuring that duties are collected and that all laws of the United States are observed. Our role is unique, a fact which you have recognized in statute where you have empowered only the importer or his customs broker to file an ''entry'' with the Customs Service. Until 1985, when you limited our regulation by Customs to only those elements of our business involving the agency, U.S. Customs had regulatory supervision over every element of our business. In fact, we have always been considered an extension of the Customs Service—performing duties for which they had insufficient resources.
    First, let me make it plain that NCBFAA supports full funding of the United States Customs Service. In fact, were we unaware of the scarcity of federal resources, we would advocate substantially increased funding. Customs generates substantially more income than it consumes in appropriated funds and an added investment can yield better than a dollar-for-dollar return. And, theirs is a complex and difficult task: enforcing the law and determining the precise amount of duty owed the government for each shipment. Yet, they have been up to this challenge. Through the professionalism of their people and the application of technology, they perform their mission well.
    But, we know it is unrealistic to talk of authorizing increases as we strive for a balanced budget. If anything, the Customs Service must learn to use its resources more efficiently than any other time in their history. It must establish its priorities carefully, implement its programs with the zeal to be expected of a guardian of public funds, and it must work smarter. It cannot, for example, as it does in recently proposed regulations, suggest to the public that collection of duty under $20 is not worth the trouble. [In this instance, Customs has the authority from Congress to waive collection of duties in order to avoid expense and inconvenience to the government disproportionate to the revenue collected. Yet, Customs employing electronic filing can collect small amounts of money at far less cost and administrative inconvenience than were they to waive the duty, which requires a labor-intensive manual release.]
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    Yet, it is here, where common sense beckons and opportunity stares Customs in the face, that they sometimes fail to meet expectations or miss the point.
    Of more immediate concern to us, as Customs Brokers, is the manner in which Customs is presently implementing its ''national and port account programs.'' This is the vehicle through which Customs will view the importer as an ''account,'' focusing on all its transactions, rather than on an entry-by-entry basis, as in the past. While we cannot argue with this approach, we are mystified by the fact that the broker is being largely ignored in this process.
    The broker is authorized through power of attorney to represent the importer in all phases of the customs transactions and is the importer's designated representative. He is the person that prepares the entry and the one that the importer relies on to insure the accuracy of its entries—the equivalent of the accountant, which acts for the importer in tax matters. The broker is also the person that is most familiar with the ''language'' of business and that of the Customs Service and is particularly equipped to obtain the information needed by either of these parties. Except in those cases where the importer expressly requests it, for Customs to sweep past the broker and go directly to the importer is not only a waste of its time and money, it is a disservice to the public.
    The problems in this approach are only now beginning to surface. The ''Journal of Commerce'' recently chronicled the story of Nike and its months of effort—thus far unsuccessful—to be ''qualified.'' Further, while the hardened criminal gets Miranda rights, Customs intends to approach importers without a suggestion that the expertise of his professional broker might be desirable. But, please reflect for a second the cost of this effort to the Customs Services in resources—diverting its best Customs import specialists and auditors to a labor-intensive dialogue with thousands of importers represents a complete failure to take advantage of its most valuable resource—the broker. As one large broker said, ''I serve 70,000 importers—isn't it better to go to just one point of contact for most of this information.'' A customs broker is truly a ''force multiplier''—he or she multiplies manyfold the ability of each Customs officer to gather information and affect informed compliance. How indeed can Customs do a credible job managing a vast number of accounts? Why doesn't the Service use the broker as an extension of his resources? That is the broker's role, but Customs seems to have ignored the cost and been blind to good sense.
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    A second example where Customs seems prepared to squander resources rather than turn to the customs broker is in the area of automation. The customs broker is a highly automated ally who often has state-of-the-art equipment, sophisticated programs, and a vast body of information that can be made available. Yet, as Customs reautomates and reautomates, they seem prepared to work in a vacuum. Indeed, how can Customs afford to build so many new programs, from the ground up? How can they embark in the design stage without the benefit of the expertise and resources of their commercial sector partners, the customshouse broker? At what price will they proceed without partnering with the one entity that understands both commercial realities and Customs operation? We say this entirely without rancor, but yet with some frustration. Customs needs our automated resources as an extension of theirs.
    NCBFAA has recently recommended to the Commissioner that the most efficient way for Customs to communicate with the importer is electronically, through its computer link with the broker. In turn, the broker will assume the responsibility for insuring that the importer gets the message and, hopefully Customs will get a prompt response. We sincerely hope that they will adopt this simple suggestion as a way to save both time and money.
    Thus, NCBFAA urges the Committee to provide the U.S. Customs Service with authority for acquiring as many federal dollars as are available for performing its mission. Yet, recognizing that formal levels will not be enough, NCBFAA asks the Committee to urge Customs to take greater advantage of its most valuable but least expensive ally in the area of compliance—the licensed broker.



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    Chairman CRANE. Thank you so much.
    Mr. Clawson, what is Customs' role in selecting members of the IFAC, and is it a fair and equitable process?
    Mr. CLAWSON. To my knowledge, Customs does not have a role. The IFAC actually reports to the Commerce Department and to the USTR, and the selection process is done by the Trade Representative and the Commerce Department, but I am sure that if Customs Treasury wanted to have someone on, they could do so. I don't anticipate that as a problem.
    Chairman CRANE. Do you have any recommendations for improving the performance of the Office of Rules and Regulations.
    Mr. CLAWSON. Yes. One of the things that is in my written testimony that I didn't highlight here is that, aside from the automation that they are doing with regard to the home page and things that they are doing, they really need to do two things, from my point of view.
    One is to hold to the timelines, the 120 days that they have set for themselves, and really do it, and that is partly the people themselves and their dedication to get the work done, and if, in fact, they are short-handed, be able to come forward and prove that they are.
    The second is to use, I think, more of what is available to us today, information in the electronic age, to do a better job. It is not just automation, but what is out there and the dissemination of their rulings and what they can do internally in communicating with themselves and with others in the field.
    Both of those things need to be done in a more efficient manner.
    Chairman CRANE. We have heard today from a number of witnesses about Customs reorganization and Mod Act implementation. Do you have the sense that the partnership agreement and the Customs organization have improved service to the trade community?
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    Mr. CLAWSON. My personal assessment is that they have not improved significantly, but they haven't deteriorated.
    We were on a downhill slide with services being—they were deteriorating every year. We were getting great complaints. What the Mod Act and reorganization have done is stem the tide. I think we have set the stage for that improvement, and in my view, it hasn't really occurred yet. But it has stopped what was the deteriorating process and is now being turned around.
    Chairman CRANE. Mr. Brauner, should Customs issue a separate permit for each port, or should there be a national permit?
    Mr. BRAUNER. Our association believes under present circumstances there should be a permit in each port, or as they have now, any district, using the old district system.
    Chairman CRANE. Well, how is supervision and control to the Customs brokers changed under the Mod Act? Are brokers permitted to operate along CMC geographic lines as they were under districts?
    Mr. BRAUNER. No. The old district boundary still applies to Customs brokers, but we have a dual system under that.
    Chairman CRANE. And Customs' position with regard to defining the meaning of Custom's business divides the question between Customs work related to entry and all other Customs work. Do you believe this is a false dichotomy?
    Mr. BRAUNER. No, because there are particular areas where the broker exercises his power of attorney on behalf of the importers, and there are other areas where he simply uses business judgment and makes business decisions on behalf of the importer.
    Chairman CRANE. Well, gentlemen, I appreciate your testimony today, and we look forward to working as cooperatively as we can with you in the future, enjoying an exchange of communication.
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    With that, our hearing is concluded, and the record will be open until Tuesday, March 25.
    Mr. BRAUNER. Thank you, Mr. Chairman.
    Mr. CLAWSON. Thank you.
    Chairman CRANE. Thank you.
    This meeting is adjourned.
    [Whereupon, at 12:30 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of the Border Trade Alliance

    The BTA appreciates the opportunity to share with the Committee its perspectives regarding Customs' U.S. Southern border operations. The goal of the BTA is the expeditious movement of legitimate cargo and people across that border. Because our members live at or near and/or do legitimate business on both sides of the U.S.-Mexico border, we have a unique point of view about how many of the border-related federal programs are working (perhaps more correctly described-could be improved) and, in particular, the impact of Customs' labor-management relations.
    We readily acknowledge that in the course of the last few years, some things have improved. However, a number of problem areas persist. The most pressing concerns for the BTA currently are:
    (1) The lack of adequate training of first and second line supervisors;
    (2) The lack of tangible incentives for those supervisors to manage;
    (3) Customs originally had a point system in its union contract. It was removed some time ago. Ostensibly this point system is no longer an official or unofficial basis for personnel evaluation. Nonetheless, it still appears that those who generate the most enforcement activity seem to be the ones who are most often promoted;
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    (4) Customs is struggling with how to tangibly acknowledge its employees for successful efforts at trade facilitation. The current view is to approach it as quantifying the increased compliance of the users of the system, e.g. importers, brokers, carriers, etc.;
    (5) Customs is taking a long time to implement a lot of its reforms, regulatory and otherwise, due in large part to the fact that it is called upon by groups, with often conflicting priorities, to do so many things all at the same time. An additional delaying factor is that, in the case of its regulatory reform packages, Customs has elected to seek input from the trade before, rather than after, it finalizes proposed regulations, a vast improvement over previous practice;
    (6) Customs has implemented objective performance criteria for its personnel and has now also started to hold its people to those criteria, including discipline by reassignment;
    (7) Drug interdiction:
    •  Customs has always been a law enforcement agency. However, how it characterizes that obligation has changed from time to time, often in response to political pressure which, in our opinion, may be overstated. We recognize the obligation of Customs to enforce, not only drug-related laws, but hundreds of other laws on behalf of over sixty (60) other federal agencies. We are concerned that efforts at drug interdiction are being highlighted by certain elements without a full understanding that Customs is expected to enforce a number of serious criminal statutes, but only receives about seven (7) percent of the drug budget.
    •  We are also troubled by the unverified statistic that 70% (now sometimes quoted as 75%) of all drugs enter the U.S. across the Mexican border and in commercial cargo. The best information we have been able to develop through a variety of sources (including law enforcement) is that there is no ''hard'' evidence to support this conclusion. Nonetheless, it persists and so must be addressed.
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    As the discussion about drug interdiction continues, it should also be pointed out that if the Southern land border is cut off as an access point, drug smuggling through the U.S. coastal borders will increase. There has already been evidence of this discovered by Customs and other agencies.
    It is also not enough to address drug interdiction. A lessening of the demand for drugs will only come when the social issues underlying its use are addressed, e.g. lack of quality education, unemployment and lack of job opportunities, to name a few causes.
    •  In response to the perception that vast quantities of drugs are coming across the U.S.-Mexico border in commercial cargo, the BTA has been an early and strong supporter of the Business Anti-Smuggling Coalition (BASC). BASC is a public-private partnership in which large companies take special security measures to reasonably insure that their legitimate cargo is free of narcotics and other illegalities. While BASC is still in the early stages of formulation, it allows industry to step in and take an active role in monitoring itself, thereby working with Customs to insure compliance with the law. Lest its approach be misunderstood, it is important to emphasize that there is nothing in BASC which causes a company's goods to be subject to any fewer inspections, nor is an individual inspector barred from following the dictates of his experience if something in a shipment seems suspicious. In fact, some BASC members request inspections when shipments are delayed without satisfactory explanation.
    Clearly the motivation for most companies to be in compliance is the admittedly negative publicity a major company would suffer if drugs were found in its shipments. Nonetheless, BASC allows member companies to take extra steps to seek compliance with the law. It should also be mentioned that one of the issues with which the BTA is struggling is ways in which this program can be made affordable for smaller shippers.
    One last point on the drug topic is the apparent confusion by many observers of Customs' operations between the clearance of commercial cargo and that of passengers. Often complaints, such as inspectors not stopping automobiles with drivers who fit a given profile, are really directed at Customs clearance in the non-commercial setting. The information we have indicates that most of the border smuggling and integrity problems discovered to date relate to passenger crossings. We readily admit, however, that there have been a few drug seizures in commercial cargo. It is not our position that all commercial cargo is 100% pure, only that the 100% pure level is the goal of every legitimate shipper. Against this backdrop, our observation is it would be helpful if those who criticize the agency had a better understanding of the difference between commercial and non-commercial transactions.
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    (8) BTA advocates the ability of private industry (in concert with Customs and related federal agencies) to build border crossing facilities. We do so because in an environment of ever-shrinking budgets, it is clear the federal government cannot adequately respond to the need.
    (9) For similar reasons, BTA advocates Unified Port Management. It seems patently obvious that one agency needs to be in charge for administrative, not substantive, purposes at the ports of entry. Many of the problems encountered in clearing commercial goods arise from the fact that different federal agencies have different hours of operation and/or staffing levels. In the passenger context, the problem is even more dramatic.
    Border-wide, the number one complaint we hear is the rudeness of the Customs people who engage passengers during crossing. While the complaint is directed against Customs, in many instances the individuals involved are from other agencies. BTA contends that uniformity of hours and staffing border-wide for comparably situated ports of entry would greatly facility the expeditious movement of legitimate cargo but also the movement of legitimate travelers. A sub-set of the rudeness issue is another problem we hear border-wide, which is the overreaching of Customs during the traveler clearance process. Inspectors are prying into people's personal business by asking questions such as who the individual was meeting with in Mexico and what was discussed. Additionally, inspectors are threatening individuals with criminal action over traffic related issues such as failure to use seat-belts or broken tail lights!
    In trying to address these issues, we have now finally obtained copies of the port level labor-management contracts. We were shocked to learn that comparably situated ports operate differently in terms of hours of operation and staffing levels by contract.
    This lack of uniformity is itself causing problems. Why should two (2) people per lane be sufficient in one port while another similarly situated port requires four (4)? We think some of the disparity arises from the recent reorganization by Customs. As the Committee is aware, the concept behind the reorganization was empowerment of the ports. It appears to us that in some instances the Customs personnel negotiating with the local chapter of the National Treasury Employees Union may have had little, if any, labor-relations training prior to the commencement of negotiations. This fact itself has contributed to the problem.
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    Regarding the lack of uniformity and its impact on crossings, we offer the following example. In San Diego K-9 units walk through the non-commercial lanes of traffic sniffing for drugs, whereas in El Paso there is a specific trunk opening contract between Customs and the NTEU. This difference in approach obviously causes traffic to flow more quickly through San Diego while the back-up in El Paso is legendary.
    We previously mentioned our concern that Customs was being asked by often conflicting interest groups to do too many things all at the same time. Examples of these sometimes conflicting goals seem to fall into the following discreet areas:
    •  NAFTA implementation,
    •  Reorganization,
    •  Mod Act implementation,
    •  NATAP, and
    •  International application of NATAP.
    While there are many things about the way in which Customs operates which have improved as the result of the Mod Act and the reorganization, it is clear to our members that many of the logistics problems which remain to the clearance of legitimate goods and people are directly related to the lack of uniformity regarding hours and staffing, issues which we think can be substantially improved upon by the establishment and implementation of national standards for similarly situated ports of entry.
    We would be happy to provide more detailed information should the Committee require it. Again please accept the thanks of the BTA for the opportunity to provide testimony. We look forward to working with the Committee on this matter in the future.
    Thank you.

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Statement of Collier, Shannon, Rill & Scott, PLLC

    Collier, Shannon, Rill & Scott, a Washington, D.C.-based law firm with an extensive practice before the U.S. International Trade Commission in the area of antidumping and countervailing duty investigations, submits this statement in response to the request by the Subcommittee on Trade for comments regarding budget authorizations for fiscal years 1998 and 1999 of various trade-related agencies. As detailed below, Collier Shannon supports the International Trade Commission's request for additional funding for fiscal years 1998 and 1999 in order to devote sufficient resources to the ''sunset reviews'' that are mandated by the Uruguay Round Agreements Act (URAA).
    Under the URAA, the Department of Commerce and the International Trade Commission must now conduct reviews of outstanding antidumping and countervailing duty orders and suspension agreements to determine whether such orders or agreements should be terminated or extended. By law, an order or agreement must be terminated after five years unless the agencies conclude that the revocation of the order would be likely to lead to the continuation or recurrence of dumping or subsidization and injury to the U.S. industry. 19 U.S.C. § 1675a(a)(1). Because this ''sunset'' provision is new in U.S. law, the Commerce Department and the International Trade Commission will be required in a very abbreviated time to review all outstanding antidumping and countervailing duty orders that have been in existence for over five years. The sunset review proceedings of these longstanding orders must begin between July 1, 1998 and December 31, 1999, and must be completed not later than June 30, 2001. At present, more than 300 outstanding orders and agreements exist that are subject to this sunset review process.
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    Given the structure of the law, the major investigative burden in these sunset reviews will fall on the International Trade Commission. According to the statute and the Statement of Administrative Action, the Commerce Department must issue a finding of whether dumping or subsidies would be likely to continue or recur based largely on information that the Department will already have gathered on trade practices by the foreign producer. The International Trade Commission, on the other hand, will be required to gather substantial, additional information to address the various statutory questions regarding the likelihood of continuation or recurrence of injury.
    In particular, Congress envisioned that the Commission would adopt a new analysis in a sunset review as compared to an original injury investigation and would collect information not normally collected in standard material injury or threat of material injury investigations. SAA at 883. In an original investigation, the Commission must focus on the condition of the domestic industry and determine whether, given the industry's condition, the volume and price of the imports have had an adverse impact on the industry. This examination is retrospective in nature and centers primarily on information in the hands of the domestic industry.
    The injury analysis of a sunset review, however, is not focused on the past condition of the domestic industry and the impact of imports on that industry but rather on a projection of what the likely result would be of the elimination of an order or the termination of a suspension agreement. The Commission, therefore, must expand its analysis beyond a focus on the condition of the domestic industry and the volume and value of imports. Information on the foreign producer's capacity, capacity utilization, exports to third-country markets, capital expenditures and financial condition will all be relevant to the question of what is likely to happen if the antidumping or countervailing duty order is revoked. Thus, in addition to seeking information from the domestic industry on its condition, the Commission will need to devote significant resources to gathering information from foreign producers that is pertinent to a sunset inquiry.
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    Moreover, given the heightened importance of foreign producer data in a sunset review, the Commission must undertake verification of selected foreign producer questionnaire responses as an integral part of ensuring the accuracy of its evidentiary base. In original investigations, the Commission has conducted verification of selected domestic producer responses, but has simply accepted the information submitted by foreign producers without conducting any independent verification of the data. Bald assertions by foreign producers as to their ''plans'' for the future are an inadequate basis for the Commission to determine whether revocation of an order is appropriate. It is critical that the Commission be provided sufficient funds to conduct verification of selected foreign producers during sunset reviews to ensure as best as possible the accuracy of the data on which the Commission's decision to revoke or to continue an order will be based.
    Accordingly, in appropriating funds to the Commission for fiscal years 1998 and 1999, Congress should be aware of not only the substantial, additional workload that will be imposed on the Commission to conduct sunset reviews in those years but also the additional funding the Commission will need to adequately address the statutory factors presented by a sunset review. The Commission must devote significant, additional resources to collection of data from foreign producers and to verification of selected data on-site in the relevant foreign countries. These additional, investigative efforts will require significant appropriations to enable the Commission to carry out its statutory mandate. Therefore, Collier Shannon respectfully urges that adequate funding be provided to the U.S. International Trade Commission for fiscal years 1998 and 1999 to permit the types of inquiries identified above for sunset reviews.

(Footnote 1 return)
''Customs Management: Status of Reorganization and Modernization Efforts'' (GAO/T–GGD/AIMD–95–70, Jan. 30, 1995).

(Footnote 2 return)
This agreement, also known as the ''contract,'' replaced the prior labor-management agreement dated May 19, 1991. As distinguished from the partnership agreement and the 19 goals, the contract sets out 44 articles governing items such as travel, attire and appearance, adverse actions, and arbitration.

(Footnote 3 return)
Three CMC directors work with one NTEU chapter each, and two CMCs work with two NTEU chapters each.

(Footnote 4 return)
Fifteen percent said it was much better, 29 percent said it was better, 33 percent said it was about the same, 11 percent said it was worse, 9 percent said it was much worse, and 4 percent had no basis to judge.

(Footnote 5 return)
While this was a perception of some managers and supervisors, 5 U.S.C. 7101–35 contains specific provisions related to which issues are and are not bargainable.

(Footnote 6 return)
Informed compliance attempts to maximize importers' voluntary compliance with Customs' laws and regulations by keeping them clearly and completely informed of their legal obligations.

(Footnote 7 return)
Executive Guide: Effectively Implementing the Government Performance and Results Act(GAO/GGD-96–118, June 1996.)

(Footnote 8 return)
GPRA requires all U.S. government agencies to set goals, measure performance, and report on their accomplishments. As a first step, the act states that agencies must develop strategic plans by the end of fiscal year 1997. In addition, the Office of Management and Budget required agencies to submit major parts of their strategic plans by June 1996.

(Footnote 9 return)
Classification rulings that involve interpretation of the Harmonized Tariff Schedule (HTS), but no legal analysis, are the responsibility of ORR's National Commodity Specialist Division located in New York City. The HTS is an extension of the 6-digit Harmonized Commodity and Coding System, the internationally recognized system for classifying commodities. The 1989 directive requires that the division issue classification rulings within 30 days. ORR told us that the New York division consistently met this target. However, we were unable to verify that this was the case. Although we requested information on this division's performance in a January 28th letter, ORR has not provided the data.

(Footnote 10 return)
We reviewed 55 percent, rather than our intended 100 percent, of the cases closed in 1996. We requested from ORR case files for all classification and country of origin cases closed in 1996 and subject to the directive. ORR provided us with 83 classification cases and 108 country of origin cases it identified as the complete set. We eliminated 2 classification files due to incomplete information. Therefore, we reviewed a total of 189 files. In verifying the automated data ORR provided us, we discovered that ORR should have included an additional 154 cases. ORR could not adequately explain this discrepancy.

(Footnote 11 return)
ORR also considers delaying events to include meetings initiated by a ruling requester, new information affecting the case, other ruling cases pending, proposed changes in rulings, pending court cases, and requests for confidentiality.

(Footnote 12 return)
For example, if the delay were due to the need for a laboratory analysis, the new assignment date would be the date that ORR received the laboratory results. For cases with multiple delaying events, the new assignment date would be the date when the last source of delay was eliminated.

(Footnote 13 return)
We defined an ''incorrect'' assignment date as follows: (1) cases with no delays outside ORR's control—-the assignment date was not the date the ruling request was received in the first Customs office or (2) cases with such delays—-the assignment date was not adjusted according to ORR procedures.

(Footnote 14 return)
ORR set this goal because of the effect on its work load of new rules of origin for textile and apparel products effective July 1, 1996. ORR textile country of origin rulings had been delayed due to the need to research and analyze the new rules. Thus, ORR made these rulings a top priority. ORR told us that its 30-day goal for textile country of origin rulings ''was not in effect until February or March of 1996.'' We based our analysis on the cases ORR provided us, namely—108 textile country of origin rulings closed throughout the entire 1996 calendar year. Only 8 of the 108 cases we reviewed were closed prior to April, 1996.

(Footnote 15 return)
''The Echo of Greece'', chapter 2, p. 47 (1957).