Hearing of the Senate Finance Committee - Oversight of Trade Functions: Customs and Other Trade Agencies -

Statement

We have distinguished witnesses that are going to help us answer a lot of questions, be of tremendous help as we proceed with our bipartisan effort to reauthorize customs and trade functions. These functions are more important than ever because of the necessity now of being more concerned about our economic security. The proper administration of our customs and international trade laws is essential to maintaining the competitiveness of U.S. businesses in the global economy.

We have very many important issues to cover. One of the most important implementation issues is the status of the automated commercial environment and its interface with the international trade data system. This system will serve as the central data collection point and improve communication and cooperation among trade-related agencies. It's essential that we get the international trade data system fully implemented as soon as possible.

There are also a number of technical issues that we must be concerned about; the proposed elimination of the first sale rule has generated some controversy, as evidenced by the chairman already bringing it up. This proposal appears to counter an established practice of two decades on the part of Customs, yet the agency did not consult this committee before proposing a change of such magnitude, and that's not acceptable. In fact, it led Congress to legislate in the recently enacted farm bill. As a result, I understand that Customs will take no action to implement this proposal until 2011 at the earliest, and not until there has been adequate consultation with committees of jurisdiction.

Another technical issue that we need to review is the implementation of the 10 plus 2 initiative, particularly with respect to 24-hour advance submission of data. But more broadly, I'm interested in hearing from the commission on how the agency is managing and prioritizing commercial mandates.

Congress established by law an Office of International Trade within the agency. How is the commissioner utilizing the office? Are there any additional steps that Congress can take to ensure that our vital economic interests are fully met by the Customs and Border Protection agency?

I'm going to put the rest of the statement in the record, Mr. Chairman.

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SEN. GRASSLEY: Thank you.

Commissioner, I'm concerned about the fact that Customs has recently taken steps to alter long-standing administrative practices without consulting the committee. And I think that these actions have broad repercussions within the trade community. Why hasn't your agency engaged us with those issues? Do you consider part of your agency's mission to keep the Finance Committee very fully informed on such matters?

MR. BASHAM: Are we talking, Senator, about the First Sale particularly here or just in general?

SEN. GRASSLEY: In general but First Sale is the one I mentioned in my opening statement.

MR. BASHAM: Well, I would agree, Senator, that on the First Sale, the interpretive rule, that we did not in fact do the proper consultation. I have said that to COAC, the Commercial Operations Advisory Committee. I say that you to here in this committee that we learned a lesson, although I will say that the NPIR, the interpretive rule, we had thought that would start that dialogue. And we obviously did not realize what kind of complications that was going to present.

But we will in the future make sure that if we are going to propose a change of that magnitude that we will consult with the committee prior to putting those sorts of rulings out.

SEN. GRASSLEY: To you again, how are you utilizing the International Trade Committee that we established in the SAFE Port Harbor Act? How regularly does the committee convene? And how has the committee helped you in leading the agency?

MR. BASHAM: How has this committee helped me in leading the --

SEN. GRASSLEY: No, the International Trade Committee that was set up in the SAFE Port Act.

MR. BASHAM: Yes.

SEN. GRASSLEY: Does it meet regularly or how regularly? And has the committee helped you in leading the agency?

MR. BASHAM: Absolutely it has helped in terms of --

SEN. BAUCUS(?): Dick just asked a question.

(Off mike commentary.)

Dan Baldwin is ahead there.

MR. BASHAM: But we have worked very closely with them in terms of developing ACE, the Modernization Act requirements. We've worked with them very closely on, as I spoke a few moments ago, about developing a trade strategy and a plan as we move forward. We've worked with them on human capital, on staffing issues. So it's been a consultive process and been very helpful.

SEN. GRASSLEY: How regularly does that committee convene?

MR. BASHAM: Every month, Senator.

SEN. GRASSLEY: What is the current status then of ACE? Have sufficient resources been authorized for its implementation? And are ACE resources being diverted to any other purposes? And when can we expect it to be up, completely running?

MR. BASHAM: We are on course with ACE, and we expect to be fully implemented by the year 2011. We have sufficient funding to meet that requirement. And to my knowledge, no funds have been diverted to any purpose other than what it was intended for.

Mr. Skud, in your testimony, you address the current status of the ongoing implementation of the International Trade Data System. Do participating government agencies have the resources to implement it? And how will the Treasury Department ensure that participating government agencies prioritize the complete implementation of the International Trade Data System?

MR. SKUD: Well, Mr. Chairman, let me put this in the context of the funding model for ITDS. There's basically two parts to ITDS when you look at it from a funding perspective. There's the joint effort, the interagency effort that is funded out of CBP appropriations. And then there's individual agency appropriations to take care of hardware, software, training needs on the agency side. Frankly, Senator, I've got to defer to the individual agencies about their own specific funding for their side of that divide.

On the joint part of the effort that's funded out of CBP funds, we think funds are sufficient. But we also think that, well, frankly, large IT projects have a long history of going off the track. So the ITDS board monitors expenditures and the program progress very vigilantly working cooperatively with CBP.

SEN. GRASSLEY: Okay.

Senator Stabenow, and when you're done, Senator Stabenow, it's Senator Bunning and then Senator Salazar and then Senator Snowe just in case the chairman and I are previously engaged.

So Senator Stabenow.

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SEN. GRASSLEY: Okay. I suppose we -- let's see; the chairman will be back in just a minute.

Please describe -- Mr. Skud, please -- I want you to describe the relationship between Treasury and DHS with respect to the promulgation of customs regulations. Is the delegation of authority from Treasury to Homeland Security working properly? And have there been any lapses in coordination? Specifically, why hasn't Treasury been more involved with respect to Customs' recent efforts to change the first sale rule and the operation of Heading 9801 of the harmonized trade tariff schedule?

MR. SKUD: Thank you for the question, Senator.

I'd say that, in general, the relationship between Treasury and DHS, CBP in particular, is working amazingly well. Our delegation -- all day-to-day operations are delegated to the Department of Homeland Security. As I mentioned earlier, we retain the sole authority to approve regulations, and we review certain rulings.

I talk to people at Customs, several people, every day at Customs, from a wide variety of offices in Customs, from the Office of International Trade and the Office of -- the CIO's office and the finance office and the chief counsel's office. We work quite closely and, I think, quite successfully together.

With respect to the first sale notice, well, this has been a CBP concern for a number of years. It was first formally presented to Treasury over five years ago in the form of a draft regulation, and Treasury did not go forward with that rule at the time.

The reason is, from a policy perspective, we see the issue as a trade-off between administrative efficacy, collecting the right amount of duties efficiently, against the potential duty increase.

But frankly we didn't have the data available to evaluate the scope and impact of that duty increase or the administrative benefits. So we didn't go forward with the proposal then.

Earlier this year when CBP told us about the proposal, frankly, I counseled them that it would be controversial. But I also realized that the process of going out in notice and comment could generate the information needed to make an informed decision.

With respect to the 9801 issue, this is a proposal that's under review at the Treasury Department. But I also understand that there's a proposal to include language in the miscellaneous tariff bill that would make this issue moot.

SEN. GRASSLEY: Oh. Well, I hope you can move. You can't count on a miscellaneous tariff bill --

MR. SKUD: Well, not counting on it, but we haven't made a decision on 9801 on its merits at this time. If the miscellaneous tariff bill doesn't move, of course, we'll have to.

SEN. GRASSLEY: Yeah.

Mr. Commissioner, the trade community has voiced great concern about the implementation of the 10-plus-two rule. Some companies had indicated that they won't be able to comply, while others have indicated compliance will cost millions.

How will 10-plus-two improve the security of the nation? Would it be appropriate to begin with a pilot program before requiring widespread implementation? And how is Customs working with the trade community to minimize costs?

MR. BASHAM: Senator, 10-plus-two was as a result of the Safe Port Act that required CBP, Customs, to collect additional information, advance information, on products that were coming into the country prior to its loading on board ships overseas.

We sat with -- worked with, over the past several years, with our partners in COAC, the Commercial Operations Advisory Committee, and looked at hundreds, literally hundreds of data elements to determine which of those would be the most useful in developing our targeting tools to determine what -- would be a threat that would be coming to this country in the way of maritime cargo.

And we agreed upon 10 of the elements from the import community and two from the shipping community. And we have -- currently the rule is at the Department of Homeland Security. We hope to have it to OMB by the end of the week and then, hopefully, by the end of the summer have that rule out.

And over the next year, or whatever time it takes, we will be working with trade to make sure that they are fully capable of providing this information, as we have done in many other cases in the past, working with them to ensure that they're prepared to provide that information to us.

And that's our way forward.

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