Philip Hughes, UPS Customshouse Brokerage, Inc.

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

Hearing on Oversight of the U.S. Customs Service

May 15, 1997

Thank you, Mr. Chairman and members of the Committee for this opportunity. My name is Philip Hughes. I am here today for the U.S. Transportation Coalition for an Effective U.S. Customs Service. I am Vice President - Customhouse Brokerage, United Parcel Service Airlines. In my capacity as co-chairman with Adi Abel of Sea-Land Service, Inc., I am pleased to testify today on behalf of the Transportation Coalition on the operations of the U.S. Customs Service.

Our Coalition, which represents all modes of transportation, includes: (1) the Air Courier Conference of America; (2) the Association of American Railroads; (3) the Air Transport Association; (4) the American Trucking Associations; and (5) ocean carriers.

Our Coalition came together during legislative consideration of the Customs Modernization Act (the "Mod Act"). We worked closely with this Committee, the Customs Service and the Joint Industry Group to effect this long overdue overhaul of U.S. Customs laws. We recognized at that time that customs modernization and simplification is imperative to both the flow of international trade and drug and commercial enforcement. In addition, we recognized that the partnership between government and the private sector envisioned by the Mod Act is critical to legitimate commerce in our global marketplace.

We want to take this opportunity to commend Commissioner Weise for his extraordinary contribution first as Staff Director of the Trade Subcommittee helping business and government to achieve consensus on this important legislation and then as the head of Customs to implement broad new concepts which allow the Service to develop a fully automated commercial environment that will bring U.S. customs processing into the 21st Century. It is clear that these efforts will serve as a model worldwide as simplification and modernization efforts are proceeding in various international fora such as the WCO, APEC and the Western Hemisphere.

At the same time Customs was charged with the mandate to automate, simplify and modernize its procedures, it became clear that it was necessary to reorganize the over 200-year old agency and to redesign and restructure its core business-related activities. Again, Commissioner Weise rose to the challenge and should be praised for his leadership and vision. The process orientation of the reorganization is a major improvement in customs operations. We have seen good results at the port level but the reallocation of resources must continue to see the full benefits of the redesign.

Commissioner Weise recognized that effective enforcement requires sophisticated techniques such as risk analysis to accommodate legitimate trade vital to our economy. Customs administrations cannot ignore either enforcement or trade facilitation. In fact, to do so would be detrimental to both efforts. In these days of limited resources, Customs administrations must act "smart" to get at the contraband that harms our citizens and commercial fraud that injures our companies. Facilitation of legitimate trade allows Customs to focus its limited resources on these important issues.

It is vital to transportation and our customers, U.S. business and the American public, that these modernization efforts continue without any further delay. Thus, the next Commissioner must appreciate the complex but close interrelationship between enforcement and trade facilitation.

We are finally starting to realize the benefits of the Mod Act, with regulatory packages being put forth and automation efforts proceeding. However, because of the magnitude and volume of changes implementation of the 1993 legislation has been slow and somewhat painful for those who advocated customs reform. Thus, it is crucial that the next Commissioner continue Mr. Weise's good work. Delays or failure to implement the mandate of Congress to modernize and automate customs processing will cost our economy billions of dollars and will even hurt governmental enforcement efforts.

I would now like to address how transportation has worked in partnership with the Customs Service to improve enforcement and achieve high compliance levels and recap the status of the vortation.

Our companies have invested extraordinary sums of money to detect illegal contraband and to ensure proper revenue collection. For example, our express carrier members follow special procedures to provide advance information which allows Customs to utilize its risk analysis techniques prior to the arrival of cargo. Both the express and air carrier members have invested in expensive sophisticated technology including x-ray machines. Our vessel members have long participated in carrier initiatives to address the drug problem. Our trucking members have security measures in place to detect illegal drugs. Our Coalition urges implementation of NAFTA's trucking provisions because it will improve U.S. Customs border operations by simplifying the crossing process and reducing congestion at the border. This is good for Customs and bad for drug smuggling.

While we have expressed concern in the past about the pace of Mod Act implementation, we recognize that the massive overhaul of our Customs laws together with the required reorganization made it difficult to implement the statutory revisions that we strived so hard for. But progress is now being made with regulations being promulgated and automation systems work underway. The next Commissioner must be one who appreciates the significance of these efforts to the operations of the Customs Service and to international commerce.

As to the specific items, there are many ongoing automation initiatives. For many years, transportation has worked closely with Customs to develop these programs. Our concern today is that the various programs, such as ITDS, ACE, AMS, AES, be carefully coordinated to avoid duplication and inconsistency which is costly to both our companies and government. It is also imperative that adequate funding be provided for critical operational systems. We strongly urge that Customs be given access to the user fee trust fund for cargo facilitation programs such as the various automation efforts. Currently, there are many programs that are not being adequately supported, such as split shipments and in-bond. We, along with U.S. exporters, have expressed concern about the requirements of the Automated Export System ("AES"). The timing and quantity of data is not feasible in today's environment and does not improve enforcement of U.S. export control laws.

We are somewhat disappointed, however, about the prospects for certain provisions of interest to transportation. For example, summary manifesting of letters and documents, which would appear to be a non-controversial issue, has not yet been implemented. For some inexplicable reason, the U.S. Customs Service views letter and document shipments as posing significant enforcement risks. We submit that it is time for Customs to implement this Congressional mandate to reduce the manifesting burden for these low risk shipments and turn its attention to the shipments that truly pose a risk to drug enforcement. While we expect a notice of proposed rulemaking raising the dollar limit for informal entry processing for low value shipments, it has taken Customs 3 1/2 years to do so and it will take several more months to finally implement this simple but costs savings provision. Implementation of the $20 duty waiver for de minimis shipments is still in the very early stages of consideration. We have difficulty comprehending why it has taken Customs so long to move these items along.

Important work on recordkeeping is also ahead of us. Customs just published a Notice of Proposed Rulemaking on the subject. The burden of recordkeeping must be recognized and the requirements must be carefully tailored to ensure that the minimum data or records be required to be maintained. The costs of record retention for unnecessary information for unnecessarily lengthy periods of time are astronomical. Statutory revisions to our recordkeeping laws may be required.

The Miscellaneous Trade and Technical Corrections Act of 1996 corrrected an anomaly in the law to allow Customs to provide daytime reimbursable services at courier hubs as is permitted at other courier facilities. Customs is now considering how to implement this correction. We are concerned that Customs is taking this technical correction as an opportunity to expand the range of services that are to be considered reimbursable. This must be carefully monitored. In fact, the entire reimbursable services program should be reviewed for obsolescence in light of just-in-time inventory practices used by business worldwide, which necessitates inspectional services outside normal business hours.

In sum, the Transportation Coalition stands ready to work in partnership with this Committee and the Customs Service to make the efficiencies envisioned by the Mod Act and reorganization a reality. Again, we commend Commissioner Weise for undertaking an ambitious agenda over his four year tenure and ask that the next Commissioner follow in his footsteps.

Thank you again Mr. Chairman for this opportunity to comment on the operations of the U.S. Customs Service.