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34–363—PDF 2006

S. HRG. 109–862

AUTHORIZATION OF CUSTOMS

AND TRADE FUNCTIONS

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

APRIL 26, 2006

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 3

WITNESSES

Duntley, Marian, chair, American Association of Exporters and Importers,

Washington, DC ................................................................................................... 4

Cook, Jerry, vice president, government and trade relations, Sara Lee Branded Apparel, Winston-Salem, NC ......................................................................... 6

Powell, Peter, H., Sr., chairman, National Customs Brokers and Forwarders

Association of America, Washington, DC ........................................................... 8

Monks, Brian, director of anti-counterfeiting operations, Underwriters Laboratories and board of directors, International Anti-Counterfeiting Coalition, Washington, DC ........................................................................................... 9

Dinsmore, Mic, CEO, Port of Seattle, Seattle, WA ............................................... 12

Koplan, Hon. Stephen, Chairman, U.S. International Trade Commission,

Washington, DC ................................................................................................... 20

Myers, Hon. Julie, Assistant Secretary, U.S. Immigration and Customs Enforcement, Department of Homeland Security, Washington, DC .................... 22

Ahern, Hon. Jay, Acting Commissioner of Customs, U.S. Customs and Border

Protection, Department of Homeland Security, Washington, DC .................... 24

Skud, Hon. Timothy, Deputy Assistant Secretary of Tax, Trade, and Tariff

Policy, Department of the Treasury, Washington, DC ...................................... 27

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Ahern, Hon. Jay:

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 35

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 46

Cook, Jerry:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 47

Responses to questions from committee members ......................................... 53

Dinsmore, Mic:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 54

Responses to questions from committee members ......................................... 56

Duntley, Marian:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 61

Responses to questions from committee members ......................................... 88

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Koplan, Hon. Stephen:

Testimony .......................................................................................................... 20

Prepared statement .......................................................................................... 94

Responses to questions from committee members ......................................... 105
Page

IV

Monks, Brian:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 108

Responses to questions from committee members ......................................... 114

Myers, Hon. Julie:

Testimony .......................................................................................................... 22

Prepared statement .......................................................................................... 116

Powell, Peter H., Sr.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 136

Skud, Hon. Timothy:

Testimony .......................................................................................................... 27

Prepared statement .......................................................................................... 142

Responses to questions from committee members ......................................... 147

COMMUNICATIONS

National Retail Federation ..................................................................................... 151

National Treasury Employees Union ..................................................................... 157
(1)

AUTHORIZATION OF CUSTOMS

AND TRADE FUNCTIONS

WEDNESDAY, APRIL 26, 2006

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:06 a.m. in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Thomas, Bunning, and Baucus.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Thank you all for being patient. The hearing will

come to order. Of course we welcome everybody, and particularly

those who took a lot of time to travel or to be here, and took a lot

of time out of their busy schedule to prepare for this.

The purpose of our hearing today is to review the operations of

customs and trade functions of our government. This review will

assist the committee in preparing legislation to reauthorize these

functions.

There is considerable history in this committee, the Finance

Committee, related to Customs. For most of that 200-year history,

the customs authority was exercised by the Department of Treasury, and hence the oversight by this committee. The Homeland Security Act of 2002, however, moved the United States Customs

Service out of the Treasury Department and into the Department

of Homeland Security. This committee retains jurisdiction over the

customs and commercial trade facilitation functions exercised by

the Department of Homeland Security. There are other senate committees of course with interest in the Department of Homeland Security, even when it comes to the narrow issue of port security.

I look forward to working with my colleagues in this committee

and other committees to develop good legislation that fully addresses our collective concerns going forward.

The Homeland Security Act provided that Treasury would retain

jurisdiction over customs and revenue functions, but that Treasury

could delegate some or all of those functions to the Department of

Homeland Security.

That Act, now 4 years old, also authorized the Secretary of

Homeland Security to reorganize the department. In January,

2003, the Secretary announced the reorganization that merged the

Customs Service with other functions to create the Bureau of Customs and Border Protection.
2

The investigative function, however, was taken out of Customs

and added to the newly created Bureau of Immigration and Customs Enforcement. One of the questions before the committee is

how well that division of responsibility to enforce our customs laws

is working, and hence one of the reasons for this hearing.

In May, 2003, Treasury delegated authority over customs revenue functions to Homeland Security, with certain exceptions. The

main exception is that Treasury retained authority to approve certain types of regulations. Another question before the committee

today is how well that delegation of authority works.

In July, 2005, then Secretary of Homeland Security announced

the second reorganization of the department. As a result, the Commissioner of Customs and the Assistant Secretary for Immigration

and Customs Enforcement now report directly to the Secretary and

Deputy in Homeland Security.

Now, that is where we stand today. Customs and trade facilitation are critical to the health and growth of our economy. But that

is just one side of the coin. The other side is trade security.

The task that we face is finding the right balance to ensure that

the dual demands of facilitating the smooth flow of international

trade and securing our borders are fully manned.

Now, to remind you again, the Finance Committee has a long

history of deliberating that balance in its oversight of Customs.

Some may think the answer is 100-percent physical inspection of

all cargo entering the United States. Some argue that is not feasible.

Then trade security becomes a function of balancing the most appropriate data collection and targeting systems. That is also the

basis for facilitating the smooth flow of international trade across

our borders.

Our success in achieving each objective comes down then to the

reliability of the data that are being collected and the analysis of

that data. I will turn to that point when we have questioning of

witnesses.

To help ensure that the right balance is struck, the Homeland

Security Act provided that there be no reduction in staffing customs revenue functions within the Department of Homeland Security. Yet between March of the year 2003 and March of this fiscal

year, staffing levels have declined in key job categories at Customs

and Border Protection as much as 16 percent.

That is not to say that the management of customs revenue functions cannot change over time, but it does raise a concern that our

customs revenue and trade facilitation needs are not being fully

met.

Similarly, the time spent on commercial investigations in the Bureau of Immigration and Customs Enforcement is projected to be

down over 15 percent from fiscal year 2004 through this fiscal year.

This raises a concern that our trade enforcement needs are not

fully being met.

Today’s hearing presents an opportunity to explore these concerns. We will also hear from industry experts who share their perspectives on these issues. Separately we are going to hear from the

Chairman of the International Trade Commission regarding the

Agency’s fiscal 2007 budget request.
3

The Commission’s work is very important. Its independent analysis informs us about our developments of good trade policy, and

the Commission also facilitates a rules-based system of international trade by administering a portion of our trade laws.

In accomplishing its mission, the Commission has demonstrated

sound management of its resources. So we look forward to hearing

the Chairman’s testimony. Now I call on the ranking Democrat, a

person who is very familiar with this work as former chairman of

the committee. We worked together on this hearing and have

worked together on most everything that comes before our committee. Senator Baucus?

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you very much, Mr. Chairman.

It had been a costly war. A revenue bill was on the floor, and

one member of Congress said, ‘‘We hear much said about taxes,

about our funds being pledged to the public creditors, and about

the national faith being violated.’’

The war was the War of 1812. The Congressman was John Randolph of Virginia, and the bill was the Tariff Act of 1816. It was

nearly 200 years ago. The Senate had just established this committee, the Committee on Finance. The very first thing that it did

was to consider and pass that bill.

That bill dealt with the duties of the United States Custom Service. We are here today to carry on that long tradition of overseeing

Customs. We are here to discuss the customs and trade functions

of the Bureau of Customs and Border Protection, the Bureau of Immigration and Customs Enforcement, and the International Trade

Commission.

This committee has many times considered legislation to authorize Customs’ commercial functions. In 1994, the Finance Committee authorized the National Customs Automation Program.

Once fully implemented, that program will allow importers to file

papers electronically.

In the wake of 9/11, the Finance Committee wrote the Trade Act

of 2002. Among other things, that law requires shippers to file

their entire cargo manifest with Customs 24 hours prior to loading

the goods at foreign ports.

Customs has a difficult job. On the one hand, it is responsible for

facilitating international commerce. Our Nation’s economic health

depends on it; trade accounts for one in ten American jobs, and

trade accounts for one-quarter of our economic growth.

On the other hand, Customs must weed out shipments of counterfeit goods, illegal drugs, and instruments of terror. An attack on

our international trade system could cause untold pain and suffering. It could also be economically devastating.

For example, the shutdown of a handful of west coast ports in

2002 labor disputes cost the economy $1 billion a day. To its credit,

the Bureau of Customs and Border Protection has worked hard to

adjust to the threat of terrorism, while also discharging the historical duty to facilitate trade. Yet the pressure is tremendous to focus

on security at the expense of trade.
4

I am concerned that from personnel to ports, our customs infrastructure may not be keeping pace with the growth in trade. The

Bureau of Customs and Border Protection has added much-needed

officers, but it has far fewer staff allocated to trade facilitation than

it did 10 years ago.

This committee should examine whether our port infrastructure

can keep pace with the massive increase in shipments from abroad,

but we also should examine the customs strategy to push our borders out and collect information and cargo before it ever leaves a

foreign port.

That could make targeting of legitimate or harmful shipments

more effective. That could ensure that the movement of legitimate

cargo is more efficient.

When we think of international trade movements, we tend to

think of enormous container ships. But there is more to trade than

that. Three hundred trucks cross the border every day at the Port

at Sweet Grass, MT. That may not sound like much, but in Montana, we depend on those 300 trucks.

In Montana, we have a hard time getting and keeping experienced customs personnel who know the trade coming in from Canada. States like mine need Customs and Border Protection to secure the northern border, but we also need customs solutions that

work for small and medium-sized businesses reliant on cross-border

trade.

Thanks for coming today. I look forward to what each of you has

to say as we move to reauthorize Customs. I look forward to our

continuing nearly 200 years of this committee’s work to balance the

interest of trade and security in our great Nation.

The CHAIRMAN. Thank you very much, Senator Baucus.

The first panel is already at the table: Ms. Marian Duntley,

chairman of The American Association of Exporters and Importers;

Mr. Jerry Cook, vice president, government and trade relations,

Sara Lee Branded Apparel; Mr. Peter H. Powell, chairman, National Customs Brokers and Forwarders Association of America;

Mr. Brian Monks, director of anti-counterfeiting operations, Underwriters Laboratories and board of directors, the International AntiCounterfeiting Coalition; and last, Mr. Mic Dinsmore, CEO, Port of

Seattle, Seattle, WA.

We will have you testify in the order that I introduced you. I

know that all of you probably have longer statements. Without asking, those will be incorporated in the record if you want them to

be, and then you summarize in the 5 minutes that have been allotted to you. Ms. Duntley?

STATEMENT OF MARIAN DUNTLEY, CHAIR, AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS, WASHINGTON,

DC

Ms. DUNTLEY. Thank you. Chairman Grassley, Ranking Member

Baucus, and members of the Senate Finance Committee, my name

is Marian Duntley. I am the corporate customs manager at Toyota

Motor Sales, here today representing the American Association of

Exporters and Importers, AAEI, as chair of its board of governors.

We thank you for the invitation to join you today, and appreciate

the opportunity to share some of our observations, comments, and
5

suggestions for your consideration as you reauthorize U.S. Customs

and Border Protection.

The time is now for CBP to reestablish a productive balance between trade security and trade facilitation. Our written testimony

fully discusses these trade security related matters, as well as several trade facilitation and operations issues.

Today I will be talking about five issues: C-TPAT development

and evolution; U.S. business data confidentiality; International

Trade Data System; improving coordination between Federal agencies; and, if time permits, paying for trade security and trade facilitation; a study of customs fees; and AAEI’s tax policy initiative.

Regarding C-TPAT, businesses are not required to participate in

C-TPAT. However, those businesses who choose to apply are making a substantial commitment to work toward the goal of creating

a more secure and efficient supply chain in partnership with CBP.

AAEI has been outspoken in our appreciation of CBP’s extraordinary sense of commitment in attempting to incorporate a multiplicity of commercial realities, retaining the program’s voluntary

nature, and avoiding the fundamental error of imposing a ‘‘one size

fits all’’ mandate.

AAEI greatly appreciates the improvements that have been made

to the C-TPAT program, such as the move to a 3-tiered benefit

structure. However, to encourage companies to join or to continue

their membership in C-TPAT, CBP must clarify and expand upon

the benefits, especially for Tier 3 participants.

C-TPAT membership must provide U.S. businesses with a measurable return on investment. Otherwise, U.S. businesses will be reluctant to undertake additional expenses to exceed CBP’s minimum

security criteria and standards.

Our concerns regarding U.S. business data confidentiality are

driven both by private sector competitive issues and international

business ownership and management. We would ask that the committee carefully examine the concerns we conveyed today and support further study of the area.

The expanded use of proprietary cost data does not increase

CBP’s ability to target shipments with certain anomalies and characteristics. In short, the collection and storage of the increasingly

detailed trade data may become alarming to the U.S. trade community when such data are exchanged with other Federal agencies

without adequate protections, as well as foreign governments.

However, the apparent lack of controls or restrictions upon many

of these foreign governments necessitates AAEI’s concern. U.S.

businesses must have better assurances that information supplied

to foreign governments for security purposes would not be used

against them in a competitive business context.

At present, AAEI member companies are not sufficiently convinced that their proprietary data are secure. Regarding the International Trade Data System, AAEI strongly supports the creation

of ITDS to improve upon the improvements that have already been

made through the Automated Commercial Environment.

Participation is necessary by all of the approximately 79 Federal

agencies that depend upon electronic data for international commerce. The ACE/ITDS window promotes information-sharing within a single system between all levels of government.
6

This streamlined sharing of information will accelerate border

clearance times, reduce costs, and cut down on inefficient paperbased systems by eliminating redundancies and increasing efficiencies. ACE and ITDS are taxpayer-friendly, to be sure.

Federal agencies will have a much easier time spotting anomalies and trends in the electronic context than is ever possible in a

paper-based solution. Similarly, it would allow Federal agencies to

spend money more wisely and improve targeting of high-risk shipments, as well as travelers, thereby facilitating the flow of legitimate cargo and people. ACE/ITDS will also ensure that the U.S. remains a leader in the increasingly competitive world of global

trade.

Regarding improving coordination between Federal agencies, our

member companies have been at the forefront of cooperating with

CBP by joining its trade security and trade facilitation partnerships, such as C-TPAT and ISA. Yet many members do not receive

the full benefit of these programs because they are regulated by

other Federal Government agencies. We are proud to be working

with several of those, including the FDA, to build upon some of the

benefits that we have gotten through the C-TPAT program.

Lastly, AAEI supports the concept of providing tax incentives to

private investment for investments in security, and we would be

happy to discuss this with the committee at a later time.

[The prepared statement of Ms. Duntley appears in the appendix.]

The CHAIRMAN. Thank you very much. Now I move on to Mr.

Cook.

STATEMENT OF JERRY COOK, VICE PRESIDENT, GOVERNMENT AND TRADE RELATIONS, SARA LEE BRANDED APPAREL, WINSTON-SALEM, NC

Mr. COOK. Thank you, Mr. Chairman. Mr. Chairman, Ranking

Member Baucus, and Senator Bunning, I want to thank the Finance Committee for its active support of the trade and customs

operations.

My name is Jerry Cook, and I am vice president of Sara Lee

Branded Apparel. Sara Lee Branded Apparel is one of the largest

U.S. apparel companies in the world with our brands, including

Bali, Playtex, Wonder Bra, and Hanes.

Sara Lee has been a dedicated partner in the trade community’s

effort to work with the Federal Government to provide security to

the Nation while continuing to facilitate international trade.

Sara Lee is one of the seven founding member companies of

C-TPAT. My remarks today will address commercial processing and

security measures, the inter-related disciplines between government and trade.

Congressional support is needed to deliver an enhanced system

of commercial processing which builds upon the evolving concept of

trusted accounts, or green lanes, to build upon the realities along

with the inherent differences in trade that comes in by land, sea,

air, as well as the types of cargo and point of shipment.

CBP has addressed the high priority security issues while challenged with increased cargo imports by over 754,000 different consignees. The five cornerstones of this process are advanced mani-
7

fest information, CSI, C-TPAT, risk management, and new technology.

These initiatives have allowed CBP and the trade to use their resources effectively and to take into account the needs for U.S. trade

to remain efficient and competitive. It is also important to recognize the continued need for understanding, oversight, and commitment of the resources and sound policy directions necessary for

CBP and its partners in the trade community to meet the everchanging needs to compete in the global economy and achieve a

safe and secure Nation.

CBP has moved in the right direction by embracing the emerging

concept of trusted accounts. Trusted accounts are companies that

have made the commitment to invest in personnel, procedures, and

to assure that goods are properly documented with CBP and are

produced and transported under circumstances that assure that

goods and their shipping conveyances have not been converted into

a terrorist threat.

They should be given priority at the port’s arrival for immediate

release, 24 hours, 7 days a week, to maximize infrastructure, utilization of inventory, and port security.

The streamlining of the entry process is an important companion

to the efforts to focus CBP and trade resources on the immediate

security issues raised by cargo movement. A truly streamlined

entry process will allow importers to be treated by CBP as an account.

By reducing and eliminating less critical commercial requirements, those resources can be better diverted to advanced data

transmission and targeting of inbound cargo. The streamline entry

process is dependent upon the new automated programs of ACE

and ITDS, as well as continued updates of the legacy system which

still drives most of the customs transactions.

CBP has clearly and consistently followed the policy of consultation with the trade to avoid the mistakes that a dialogue should

be able to anticipate. ACE is the program that we hope will generate the integrated information systems for all Federal agencies

involved in the import and export process.

CBP has done the major work, but the other government agencies have not delivered their portion of the needed product. We recognize that the security initiatives are not temporary measures imposed on the global trade process. Therefore, it is paramount that

these rules be crafted to match the real world and to be capable

of evolving to match the changes in our trading systems.

Neither terrorists nor commercial competitors are waiting in the

corner for the bell to ring. We are already in the ring, and we need

to make adjustments to meet these challenges. The need today is

to assure that we have focused on security in a way that does not

allow traditional compliance issues to burden the security effort,

and to ensure that we have streamlined the entry and the compliance process so that it does not drain resources away from the security effort, that we have provided the clarity, the predictability,

the efficiencies needed for both government and the trade to foster.

The efforts to date by CBP with the support of the trade demonstrate that the programs in place have achieved success and will

continue to do so with proper oversight and flexibility.
8

CBP has achieved its highest level of revenue collection while the

overall duty rate has dropped, accompanied by 2/3 of all the imported trade arriving as duty-free. CBP’s compliance measurements

for non-security issues are at an all-time high.

Our efforts should be mutually aligned and not at cross-purposes.

In closing, we have a challenging environment in which we must

all work together to succeed. We value this partnership with CBP,

and we appreciate the committee’s time today to make incremental

progress for the future.

[The prepared statement of Mr. Cook appears in the appendix.]

The CHAIRMAN. Thank you very much, Mr. Cook. Now Mr. Powell.

STATEMENT OF PETER H. POWELL, SR., CHAIRMAN, NATIONAL

CUSTOMS BROKERS AND FORWARDERS ASSOCIATION OF

AMERICA, WASHINGTON, DC

Mr. POWELL. Mr. Chairman, distinguished members of this committee, I am Peter Powell, CEO of the C.H. Powell Company,

Westwood, MA, here today as chairman of the Board of the National Customs Brokers and Forwarders Association of America.

I do appreciate the opportunity to testify before you and comment on Customs authorization legislation.

First, let me say we are grateful for the support that the Committee on Finance has provided the international trade community

over many years. Your special focus on trade and revenue gives you

a unique appreciation for the commercial operation responsibilities

of Customs and Border Protection.

You have shown that you are willing to hold CBP in strict account when the Bureau vows to balance commercial and security

operations. Despite its promise, the truth is that CBP is not balancing its twin responsibilities of security in commercial operations.

Resourcing for trade facilitation has dramatically diminished as

the agency has scrambled to meet criticism of its performance in

the security realm. When the Government Accountability Office

pointed to disappointing output in Customs Trade Partnership

Against Terrorism validations, CBP quickly moved import specialists into these areas of responsibility, leaving a skeleton crew to

serve the needs of U.S. trade.

The attention of CBP to its trade mission has rapidly diminished

as it gives priority to the security programs. The answer? Congress

must insist that CBP dedicate sufficient personnel to conduct its

commercial trade mission.

Congress should set a floor for import specialists and other commercial operations personnel, fencing off those assets from diversion elsewhere.

CBP recently informed the Bureau of Census that they were

withholding approval on their long-awaited automated export system regulations until Census relented on an unrelated matter. CBP

wants to constrain what is called ‘‘Option 4,’’ which is an expedited

processing of exports for trusted American companies, and CBP

wants to provide sensitive export data to overseas governments per

its negotiations at the World Customs Organization.
9

Census feels bound by statutory constraints that require it to

protect American export information. For its part, American exporters are opposed to providing information to overseas governments that might filter through to their competitors.

Our view? NCBFAA feels strongly that the wholesale delivery of

export information to foreign nationals runs counter to our international trade interests. At a time when we are struggling with

trade deficits, the United States should not be undermining the

competitive standing of the very exporters that must bring these

statistics more into balance.

Small and medium-sized businesses encounter an uneven playing

field when CBP focuses on the needs of the 50 largest importers.

There are hundreds of thousands of small business importers, a

large percentage of which have limited experience and resources. It

is they who need the availability of import specialists and client

representatives most. In many circumstances, it takes only one inefficient shipment to back up the entire flow of goods.

Our answer, Mr. Chairman, is for Congress to insist that Customs develop separate and independent strategies for incorporating

small and medium-sized businesses into its programs.

Finally, I must address the International Trade Data System.

Customs has promised a reward for low-risk C-TPAT members to

expedite processing, and this carrot for enhanced supply chain security is meaningless if Federal agencies other than CBP do not cooperate.

In other words, CBP can clear products quickly for C-TPAT

members, but the entire shipment could be brought to a dramatic

halt if it is not cleared by FDA or USDA.

One essential element is that all appropriate agencies agree to

participate. One fundamental defect: CBP has no authority over

agencies in other departments. How can this impasse be solved?

NCBFAA believes that the Office of Management and Budget,

which has previously had a significant role in Federal data management, has the capability to overcome this problem.

We believe that Congress should designate OMB as the chair of

the multiagency board that directs the ITDS project, and, in consultation with other departments, OMB should evaluate what

agencies are necessary to the success of ACE and direct, on a

phased-in basis, the participation of those still uninvolved in ITDS.

This should be completed concurrent with the completion of ACE

in the year 2010. Mr. Chairman, this concludes my remarks.

[The prepared statement of Mr. Powell appears in the appendix.]

The CHAIRMAN. Thank you, Mr. Powell.

Mr. Monks?

STATEMENT OF BRIAN MONKS, DIRECTOR OF ANTI-COUNTERFEITING OPERATIONS, UNDERWRITERS LABORATORIES

AND BOARD OF DIRECTORS, INTERNATIONAL ANTI-COUNTERFEITING COALITION, WASHINGTON, DC

Mr. MONKS. Thank you, Chairman Grassley, Ranking Member

Baucus, and committee members. Thank you for this opportunity

to appear before you to offer Underwriters Laboratories’ perspective on the critical role of Customs and Border Protection and Im-
10

migration and Customs Enforcement in the fight against counterfeiting.

Electrical product counterfeiting poses a very real threat to

health and safety, undermines the economy, and funds organized

crime and terrorism. Ensuring that adequate resources are dedicated to both CBP and ICE is critical. These agencies are our first

and best line of defense in stopping hazardous counterfeit products

from reaching the United States marketplace.

UL is an independent, not-for-profit product safety testing and

certification organization. For 112 years our mission has been to

protect human life and property from product risks and hazards.

Make no mistake, we are in a battle. Counterfeiting threatens

health and safety, undermines the economy, and electrical products

bearing counterfeit safety marks are particularly egregious because

they lull consumers into a false sense of security.

One Canadian judge described the use of counterfeit safety certification marks as nothing less than despicable fraud on the public. We cannot let these criminals win.

We aggressively protect our mark against counterfeiters as part

of our partnership with CBP and ICE. We have developed a zerotolerance policy towards counterfeiting. We will never consent to

importation or exportation of merchandise that has been seized by

CBP that bears counterfeit UL marks.

The best way to put these crooks out of business is to build a

strong partnership with CBP and ICE. CBP officers are our first

and best line of defense in this fight. Left unchecked, counterfeiters

can and will flood the U.S. market with poor quality, hazardous

electrical products, endangering the lives and property of millions

of consumers—products like this low-cost, high-volume extension

cord.

This cord is sold at retail stores and discount stores across the

country. This is a fire waiting to happen. The copper in there is

very thin. You plug a product in here, and you are going to start

a fire. These counterfeiters did not care. They made their money,

and they are on their way.

CBP seized these products, intercepted them, and destroyed

them. Just to give you an example of how bold these crooks can be,

one individual traveling through the San Francisco International

Airport thought he could clear customs with five suitcases and

nothing to declare.

The CBP officer was curious to see what five suitcases of nothing

to declare looked like. He inspected the bags and found 1,500 counterfeit circuit breakers just like this one. This circuit breaker will

not protect your house wiring, and poses a serious fire hazard. Just

one average shipping container can hold 186,000 circuit breakers.

That is 186,000 potential fires.

UL’s anti-counterfeit program is one of the most successful in the

world. We could not have achieved this success without CBP. Over

the last decade, they have seized more than 1,200 shipments of

products bearing counterfeit UL marks. That is millions of extension cords, power strips, night lights, and other poor quality electrical merchandise that never made it to the marketplace.

In 1995, before UL approached CBP for assistance, seizures of

consumer electrical products were minimal. By 2000, seizures of
11

consumer electronics had climbed to 3 percent of total seizures.

2005 statistics reveal that seizures of consumer electric products

jumped to 9 percent, and are now the fifth most seized product category. These numbers do not surprise UL, as they reflect CBP’s increased vigilance and recognition of the clear and present threat

that counterfeit electric products pose.

This vigilance must be maintained and ideally increased. Why?

Because counterfeiters believe they can flood the American market

with shoddy counterfeits with impunity. More criminals are turning to counterfeiting as a crime of choice. Margins are high, and

risk is low. Counterfeiters know the profit potential for supplying

consumer electronics, and will exploit the potential until it is no

longer lucrative.

Counterfeiters are becoming more and more savvy. They know

our laws and procedures, and they know how to exploit loopholes.

If we lower our guard, then counterfeiters stand ready to take advantage. They can make better-looking copies and can more successfully duplicate security features.

Investing in training will allow CBP officers to stay on top of new

technologies and the ways that counterfeiters try to circumvent the

system. We know that more training equals more seizures.

CBP works to prevent the entry of counterfeit goods. ICE leads

the investigation to catch the counterfeiters red-handed and charge

them criminally. These agencies are most effective against counterfeiters when they are able to work hand in hand. Seizure plus

criminal prosecution and the threat of jail time and deportation

make for a powerful one/two punch.

Shipment seizure alone is not enough to deter these criminals.

To some, a seized shipment is simply the cost of doing business.

They write off the loss and ship to a different port. However, additional staff and adequate training will result in additional seizures.

Prosecution and jail time coupled with the increase in lost shipments will hopefully pose risks that they are not willing to take.

UL was recently involved in a case that highlights just how effective CBP and ICE can be when working in tandem. Following a

2003 CBP seizure, ICE conducted an investigation. The owner was

convicted on six counts of trafficking in counterfeit goods and was

put in jail for 63 months. This is what we have to do to counterfeiters.

Americans understand of course that the 9/11 world is a different

place. UL is certainly cognizant of this fact, and we applaud the

commitment of CBP and ICE to protect the American public

against terrorists and the instruments of terror.

For 112 years, UL has been dedicated to promoting safe living

and working environments. We believe that we all share a common

goal, the safety of the American public. We hope that CBP and ICE

will be granted the adequate staff and resources to remain vigilant

in their protection against a terrorist threat, but also against the

more subtle threats that ultimately jeopardize the same values and

seek to undermine the American way of life.

Thank you again, Mr. Chairman, for giving UL an opportunity

to share our perspectives on this important issue. We would be

happy to serve as a resource to you and your committee colleagues
12

as you consider ways to strengthen anti-counterfeiting efforts of

CBP and ICE. Thank you.

[The prepared statement of Mr. Monks appears in the appendix.]

The CHAIRMAN. Thank you, Mr. Monks. Now Mr. Dinsmore.

STATEMENT OF MIC DINSMORE, CEO,

PORT OF SEATTLE, SEATTLE, WA

Mr. DINSMORE. Thank you, Chairman Grassley, Senator Baucus,

members of the Finance Committee. It is an honor to be here talking about one of my favorite topics, and that is, how do we make

sure we move commerce and trade in and out of this wonderful Nation?

The CHAIRMAN. Mic, I do not know if your microphone is on.

Maybe you can pull it close to you.

Mr. DINSMORE. Thank you. Is that better?

The CHAIRMAN. Yes.

Mr. DINSMORE. A little bit of background ever so briefly. I have

had the good fortune of leading an institution that owns and operates both an airport and a seaport. It is the most trade-dependent

State in our Nation where not one out of ten, but one out of three

jobs relates to the movement of commerce and trade.

Last year, as an example, we moved 30 million people through

our airport, 2 million containers through our seaport. So making

sure that we pay attention to trade is something that the Port of

Seattle is all about.

When I was back here a couple of weeks ago testifying in support

of Senator Murray and Senator Cohen’s green lane piece of legislation—after almost 5 years we are moving forward and helping to

make this Nation safe and secure—it just seemed to me that we

cannot separate safety and security and the movement of commerce

in a cost effective, efficient way.

But when I think of our friends at U.S. Customs and Border Protection, I have not seen in my career a Federal regulator and a

Federal agency respond more significantly, more profoundly positive than post-9/11 with U.S. Customs and Border Protection.

Whether it is their activities, C-TPAT, their activities and operations to save commerce, or their container security initiative, they

have indeed responded very well.

So I ask this committee, Mr. Chairman, as you look at where to

go with appropriation or reappropriation of resources with Customs

and Border Protection, look at where we can make the most profound impact, where we get the best bang for our dollar. I would

suggest the best example is Hong Kong, where they are screening

a lot more containers than any port in the world.

Now, we have technology, we have personnel, we have Customs

offshore working with other governments. I would suggest therein

lies a way to make sure our trade lanes are more safe and secure.

In closing, there is an irony. As I was back here 2 weeks ago testifying, that same day 22 illegal Chinese immigrants landed in Port

of Seattle, obviously without paying a tariff to come across the Pacific Ocean.

The good news is, with Customs and Border Protection and our

law enforcement officers, we caught them. The bad news is they

were already on our shore. Had that been noxious cargo in that
13

container, then it may have been a very, very different outcome.

Thanks again for the opportunity to be here.

[The prepared statement of Mr. Dinsmore appears in the appendix.]

The CHAIRMAN. Thank you, Mr. Dinsmore. I will ask that we

have 5-minute rounds. I will go first, and then Senator Baucus,

and then the Senator from Kentucky, and if other people come, the

order of their coming.

I am going to start with you, Ms. Duntley. Customs and Border

Protection manages a significant amount of data through its trade

partnership programs. What role does the trade community play in

working with the agency to ensure that legitimate data needs are

being met? And then your opinion on your satisfaction with that

current dialogue?

Ms. DUNTLEY. Thank you, Chairman Grassley. CBP works very

closely with the trade through the Trade Support Network, the

TSN. It is a trade group that has been in existence since about

1993. I was one of the original members.

They meet several times a year solely for the purpose of exchanging information about what data are needed. It is a constant dialogue going back and forth between how much data are needed,

and what the government really requires.

I think what the issue is here is not so much the data that are

currently being required for customs purposes. There are data also

being required by many of the other 79 Federal agencies that I

mentioned, sometimes in different formats. Sometimes information

that is not available at the time of shipment or at the time of

entry, and multiple ways of reporting this information to Customs

or to these other agencies are at the heart of at least part of our

concern with the data.

The other concern that I mentioned is the data confidentiality

and whether or not a single collection agency passing on this information to numerous Federal agencies will result in data going to

agencies who are not accustomed to protecting the confidentiality

or to pass that information on to the Federal Government.

The CHAIRMAN. Mr. Cook, your company was one of the first to

participate in the Customs Trade Partnership Against Terrorism

program.

Just not so much on its involvement, although you might want

to comment on that, but if there is need for strengthening and improving the program, emphasis upon that.

Mr. COOK. Certainly. Well, one, our history comes from working

with Customs in a lot of the drug wars from the Caribbean and

Latin America. I think the biggest challenge going forward is how

do you facilitate commerce while you are securing trade?

I think moving and recognizing that companies that have made

that investment moving to the trusted account, the green lane concept, but also delivering a 24-hour, 7 day a week clearance process

through all the ports is going to be extremely critical going forward.

The CHAIRMAN. So that is basically more resources, is that your

point?

Mr. COOK. Yes, resources and priority.
14

The CHAIRMAN. All right. Mr. Powell, in your testimony you described some of the difficulties that small and medium-sized enterprises face with Customs and Border Protection, reducing the resources available for trade facilitation.

You suggest that Customs needs to develop separate and independent strategies for incorporating small and medium-sized enterprises into that program.

Do you have any strategies in mind of how you might suggest addressing the issue?

Mr. POWELL. Well, there has been a severe decrease in the number of import specialists at many, many ports, some by as much as

50 percent. Due to the globalization of trade, many smaller companies that were formerly merely domestic entities are now involved

in the international trade cycle.

Therefore, as they enter into this marketplace, they need resources, assistance, and so forth to get there. Unfortunately, that

is not available because a lot of the import specialists and the Customs reps have been tasked with other responsibilities.

Even in our small port in Boston, we have many major national

importers who do not necessarily just use the Port of Boston for

their products. However, those national importers do take up the

time of the import specialists, therefore not permitting them to be

accessible to the small and medium-sized firms.

So we could say that there could be limits established based upon

the amount of trade. If you said the level should be pre-9/11, then

I think it would be a big step forward to bring us back to where

we were, and to answer these needs.

The CHAIRMAN. All right. Mr. Monks, then I will go to Senator

Baucus. You note in your testimony that an investigation by Immigration and Customs Enforcement normally begins with a seizure

of counterfeit goods by Customs and Border Protection.

Is your company satisfied with how this division of responsibility

between the two agencies works in practice? In other words, do you

have any concerns that we are not doing enough due to the lack

of follow-through either by ICE or by Customs and Border Protection?

Mr. MONKS. What I have noticed with ICE being such a new

agency, prior to 9/11 and homeland security, we worked with Customs agents and officers seamlessly.

We are starting now to develop a relationship with ICE, and I

think they are working well with CBP. We have many seizures

that have been conducted at the ports. Information is being passed

onto the agents who have done criminal cases.

We just did one in Miami. In December, there were five individuals charged with criminal counterfeiting, and $24 million worth of

counterfeit goods were in that seizure.

We would like to see more emphasis put on IP, because what is

happening is I know we are protecting our front doors, which we

have to do, but we are leaving the back door open, and these criminals are coming in. They are making millions and millions of dollars, they are putting unsafe products in the marketplace.

Senator BAUCUS. The back door is what?

Mr. MONKS. Coming in, they can see that we are checking for

weapons of mass destruction, terrorism, illegal aliens, but at the
15

same time I think IP has gotten lower on the scale. These criminals know that.

There is a $600 billion industry in counterfeiting, $200 billion in

the United States alone. So it is a very lucrative business. These

people know that.

I got up this morning, got dressed, came to work. They got up

this morning to figure out how to beat the system. So, working

with CBP and ICE has been a phenomenal relationship. They met

all of our expectations. They are a great partner, and they have

seized millions of products.

I think if they get more resources to be able to do more container

checks—I understand you cannot check 2 million containers, every

container. But checking more containers, talking to each other, and

taking the bout to these counterfeiters, penalizing them, making it

where they go to jail, or they lose money. This is all money. Counterfeiting is just money. The more they can make, the happier they

are.

So Senator, I would say that if we can get more resources to CBP

and have ICE and CBP talk to each other, we have a chance at

beating these counterfeiters.

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you. Well, that is interesting. Basically

you are saying that in this very effort to protect us against terrorism, we are kind of letting down our guard on counterfeiting, intellectual property violations maybe more than ever before. Are you

saying that?

Mr. MONKS. Yes, I am. Years ago—I have been doing this job for

about 11 years, and I know the ports—there was a lot more emphasis on IP. After 9/11, that has reduced. A lot of the officers and resources have been distributed to homeland security and terrorism.

Yes, we are letting our guard down. Counterfeiting, I always

tease people, I will come back in my next life as a counterfeiter because it is a nice business to be in. There is nothing punitive, there

are no penalties, and you make lots of money.

Where there is lots of money involved, there is organized crime,

et cetera. So I am just saying we have to be very diligent and keep

our vigilance up and not let this go on.

Senator BAUCUS. I am sorry. I am also in agreement on this. But

there is no criminal statute here? There are no criminal prosecutions?

Mr. MONKS. There is, and there are some States that have none,

but there are States that have criminal prosecution. There was an

H.R. 32 bill just signed by the President last month.

It is very hard to police. In Washington, children come off the

buses and they have money to go to buy something at the museum,

and there are people trying to sell them fake sunglasses.

Senator BAUCUS. So how should we address this problem? Is it

more people? Is it CBP that is in charge here?

Mr. MONKS. Well, I think both CBP and ICE. I think they are

doing an excellent job. Our program has been phenomenal based on

their work. We just have to do more inspections. We have to look

at these products that are coming in.
16

Senator BAUCUS. But I do not mean to be critical, they are doing

a good job, but on the other hand, there are more violations of intellectual property, more counterfeited goods coming in.

Mr. MONKS. Well, yes. Trade has increased dramatically over the

years. I believe that we need to put more people in place to do

these inspections.

Senator BAUCUS. Is there a conscious effort not to put more people in place? Do they not recognize the problem, or not care? Is the

focus on terrorism? I am just curious what is going on here.

Mr. MONKS. Oh, I do not know about that. I just think there are

resources, only limited resources that can be put onto any one program, so——

Senator BAUCUS. Sure.

Mr. MONKS. We average several seizures a week with CBP.

Senator BAUCUS. Oh, I see. Mic, do you want to address this

question? Maybe letting our guard down a little bit on IP and counterfeiting while we are raising our guard on security? Do you find

that in Seattle or not?

Mr. DINSMORE. Well, we spend, Senator, a whole lot of time on

the safety and security side.

Senator BAUCUS. Right.

Mr. DINSMORE. We care dearly about the IP rules and regulations, but our emphasis is clearly on making sure that no noxious

cargo comes in and out of our ports.

So we would be unaware, I would be unaware of what——

Senator BAUCUS. You mentioned Hong Kong. Why did you mention Hong Kong? Do you think that is a model?

Mr. DINSMORE. Hong Kong, as you know, Senator, is one of the

largest ports in the world: 16, 17 million containers a year. And

about, at today’s date, about 60 percent of those containers coming

out of Hong Kong into the United States do go through a vetting

system where there is both an x-ray, and there is also a——

Senator BAUCUS. Right. Do you think that we should have the

same system set up for the other 40 percent? Is that what you are

suggesting?

Mr. DINSMORE. If we are going to ensure in a more profoundly

positive way that we reduce the potential of noxious cargo coming

into this Nation, it has to be done offshore. By the time they hit

our soil, it does not work.

Senator BAUCUS. Correct. Let me ask an ignorant question. Who

is paying for all that in Hong Kong? The shippers? The Hong Kong

government?

Mr. DINSMORE. Interestingly enough, U.S. Customs and Border

Protection has some folks there, so we are paying, we, this Nation,

some of the fees. The private sector is paying some of the fees, and

I would imagine the Hong Kong/Chinese government is paying

some of the fees.

Senator BAUCUS. Right. Mr. Powell, you were pretty strong in

saying that you think CBP is not striking the right balance. Could

you give us more examples, and also the effects, the adverse effects

that you see because of the improper balance in the system?

Mr. POWELL. Well, I see the redeployment of assets, and I am referring more to personnel. I see the retirement of experienced peo-
17

ple with new inspectors coming on that perhaps do not have full

experience.

I just see both of those factors impacting negatively the flow of

trade. Number one, there is knowledge; number two, our security

regime is based on data elements or provision thereof. However, it

is very difficult to secure from CBP what data elements relative to

security are absolutely necessary because that has not really been

adequately defined.

So when you bring new importers and exporters into this environment and there is this confusion or lack of proper explanation,

or resources are not available, it just is negatively impacting trade.

Senator BAUCUS. Especially medium and small business, in your

view?

Mr. POWELL. Medium and small business particularly, that is

correct.

Senator BAUCUS. Right.

Mr. POWELL. And I believe that there also has been a downside

to compliance as far as the importing community is concerned. I

think, again, security has taken some of that attitude away. No one

is demeaning the importance of security.

Senator BAUCUS. Right. Right.

Mr. POWELL. But also the economy and the financial health of

this country are also equally important, and trade deficits and exports, et cetera, create jobs, which is most important.

Senator BAUCUS. I appreciate that. I have gone beyond my time.

Thank you very much.

The CHAIRMAN. Senator Bunning, and then Senator Thomas.

Senator BUNNING. Thank you, Mr. Chairman. I have a statement

I would like to submit for the record.

[The prepared statement of Senator Bunning appears in the appendix.]

Senator BUNNING. I would like to follow up, Mr. Powell. We are

focusing more on security than what is in the, well, for instance,

the wiring and the other things that come through.

What is the solution, other than more money and more personnel?

Mr. POWELL. Well, I do think one of our major concerns is really

security of the cargo and the container that brings it. What we are

talking here is who is touching it, who has access to it, and how

do we secure this package so that no one can infiltrate it or create

a problem with it.

Now, that requires electronics or technology that today is not

there. So we are focused on data to get an advanced profile of a

transaction, because we do not have that security device that is

going to prevent what we want to prevent.

Senator BUNNING. Well, we are supposed to be doing pre-inspections, and they mentioned in Hong Kong, offshore, that 60 percent

of the stuff, the potential imports, are prescreened before shipping

to the United States. Obviously we cannot possibly screen every

package that comes in here. So prescreening in other ports besides

Hong Kong, any other major ports, is one solution.

But that is not going to pick up, unless we screen 100 percent,

if we have a potential terrorist threat within the cargo, or a terrorist threat in the personnel that are coming on the ship itself,
18

unless we have prescreened pretty well what is coming into this

country.

Mr. POWELL. If you were to say prescreening 100 percent of cargo

is going to give us the reliance that nothing bad is going to happen,

I totally agree with that. But I ask at what cost.

Senator BUNNING. Yes. I mean, it is impossible.

Mr. POWELL. Therefore, we say then what is the middle road and

how do we get to that middle road? We need technological advancement.

Senator BUNNING. How do we do the most we can do? Technological advancement and more dollars spent for that?

Mr. POWELL. Oh, yes.

Senator BUNNING. And more dollars spent for personnel?

Mr. POWELL. Absolutely.

Senator BUNNING. All right.

Mr. POWELL. And the data gathering that is so important, because new entities are entering into the international trade, both

foreign and domestic. What do we know about them? They are new

to government.

So the data issue is equally important, but the security of the

container and the cargo therein is what we are ultimately looking

at, and that requires 100-percent screening.

Senator BUNNING. You also, and some of the other panelists,

spoke of small business. Kentucky is loaded with small businesses

in the import and export business.

I mean, a company with 50 or 100 people is loaded with exports

and imports coming in. I mean, what specific steps can be taken

to better incorporate small business into the Customs Trade Partnership Against Terrorism programs?

Mr. DINSMORE. Senator, if I may, going back to your last question, and then answering that and this question. I think small and

medium businesses as part of the heart of this Nation fit into any

scenario that I am talking about.

In fact, we do have technology that could be used. It is not all

going to be people. Take the Hong Kong model. They are looking

at the image. The image goes into a black box, and does not go to

this Nation where it ought to go, by satellite, and CBP ought to be

looking at that data electronically and matching that data with

electronic manifests, and we could eliminate a lot of the risk factor.

That would have profound impact, constructive impact on small

businesses in Kentucky and around this Nation.

Senator BUNNING. Well, I hope our Chairman and ranking member are listening to that, because that is something that we as a

committee can incorporate into upgrading the customs inspection of

things coming into this country.

What do you see as the major issues importers are experiencing

currently with CBP? Anyone.

Mr. COOK. I think, Senator, probably the largest challenge is the

complexity of the trade in trying to manage each shipment versus

manage the account.

Senator BUNNING. Individual shipments?

Mr. COOK. Yes, sir. If you manage the account, you can facilitate

a tremendous amount of the government work and facilitate small

companies, medium-sized companies and large companies. Allowing
19

and encouraging—facilitating—that trusted account program to

move forward rapidly would greatly alleviate a lot of the congestion; and at the same time, to operate the ports 24 hours a day,

7 days a week so that your inventory is not sitting either as an export or as an import.

Senator BUNNING. Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Bunning.

Senator THOMAS. Thank you, Mr. Chairman. I am sorry I was

not able to be here. We were talking about ethanol in another

meeting. If we can import ethanol, that would be good.

Just broadly, these are the questions I have as Chairman of the

Trade Subcommittee. Do we have a balance? In your view, is there

a balance between national security and efficient trade in the way

we are now? Just a short reaction.

Mr. COOK. I would say that the trade and Customs are seeking

a balance every day. I think there are a lot of things that push that

scale each day more and more towards security and less towards

the commercial reality. There are a lot of ways to get there.

One of them would be to look at what are some of the commercial

requirements today that are not really needed to help bring that

balance back.

Senator THOMAS. Does anyone else want to react? Yes?

Mr. DINSMORE. I would answer it a little differently. I do not

think we do have a balance. Here we are almost 5 years after

9/11, and we still do not have as a Nation a protocol to get seaports

up and running if they go down. If you think about our airports,

we were shut down for 4 days and got our airports up and running.

Senator Baucus alluded to the billion dollars a day. When and

if there is an incident at our seaports, we are talking weeks, not

days, to get our seaports up and running. So I would suggest we

do not have that balance yet.

Senator THOMAS. The balance should be more focused on security?

Mr. DINSMORE. And on trade. I think they are inextricably

aligned. If security brings down trade, then the system is down.

Senator THOMAS. All right. Anyone else?

Ms. DUNTLEY. Yes. I would just like to give one example of how,

although I think CBP has done an excellent job of trying to balance

between security and facilitation, in many cases because of the

complexity of trade—and my example is free trade agreements, of

which we have had quite a number recently—many times the regulations to implement those are slower to come out than perhaps

those of us in the trade would like, because of the emphasis, and

rightly so, on security.

So at times, the commercial side, the facilitation side related to

free trade agreements and things of that nature, does suffer.

Senator THOMAS. One more very broad question. Do you believe

we need to direct more resources to foreign ports, or should we use

these resources domestically?

Mr. COOK. I think one of the programs Customs started, ATDI,

allows for targeting, which is a domestic resource, but it is looking

at all the shipping data coming from abroad. I think we have to

be careful of how we then analyze that data.
20

Once you start targeting, you can then target exactly what you

want abroad. To look carefully at it, I think examining for the sake

of examining may not yield you any benefit, but examining things

that are nominally high-risk targets is where you start getting the

benefit.

Senator THOMAS. Anyone else?

Mr. POWELL. I just think the automated targeting system could

use some enhancements and upgrades. Pretty much what Mr. Cook

just said.

Senator THOMAS. All right. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you. Senator Baucus and I do not have a

second round, because we want to get the next panel here.

Both for those of us who asked questions—and I did not get a

chance to ask Mr. Dinsmore questions—we may submit some questions for answers in writing, please.

And also, more importantly than for us, for members who cannot

be here, you are more apt to get questions in writing. So, thank

you very much.

I will now—while they are coming, they are here in the back

room, I think, the panel—thank you all very much. We appreciate

your testimony.

While they are coming, I am going to introduce the Honorable

Steven Koplan, Chairman of the U.S. International Trade Commission; the Honorable Julie Myers, Assistant Secretary of U.S. Immigration and Customs Enforcement, Department of Homeland Security; the Honorable Jay Ahern, Acting Commissioner of Customs,

U.S. Customs and Border Protection, Department of Homeland Security; and the Honorable Timothy Skud, Deputy Assistant Secretary for Tax, Trade, and Tariff Policy at the Department of

Treasury.

Now, you four are our second panel. If you have long statements,

you will not have to ask for those to be placed in the record. They

will be placed in the record. So, proceed according to the way I introduced you. Mr. Koplan?

STATEMENT OF HON. STEPHEN KOPLAN, CHAIRMAN, U.S.

INTERNATIONAL TRADE COMMISSION, WASHINGTON, DC

Mr. KOPLAN. Thank you very much, Mr. Chairman. I am going

to summarize my statement.

The CHAIRMAN. Thank you.

Mr. KOPLAN. Mr. Chairman and members of the committee, I am

pleased to have this opportunity to discuss our budget request for

fiscal year 2007.

I thank you and Senator Baucus for enabling us to have advanced briefings for a significant number of committee staff. During my nearly 8 years at the Commission, this committee has always been most supportive of our agency.

Our ’07 appropriation request is for $64,200,000. This is a 3.6

percent increase over our ’06 net appropriation of $61,950,000. The

’07 request is actually lower than our original ’06 request. However, during ’05, we revised our request for ’06 by $2,750,000 by a

letter dated May 21, 2005.
21

I have a copy of that letter with me and ask that it be included

in the record of this hearing, along with the full text of my prepared statement.

The CHAIRMAN. And it will be included.

[The letter appears in the appendix on p. 103.]

Mr. KOPLAN. Thank you, Mr. Chairman. The revised request was

primarily the result of a developing surplus in ’05, not a reduction

in our ’06 requirements.

Assuming stable staffing, nearly 93 percent of our budget is, for

the most part, fixed for ’07. It is comprised of salaries, 57 percent,

benefits, 13.8 percent, rent set by GSA, 10 percent, and required

contract support services, 12 percent, such as security services and

network services.

Increased costs in ’07 and beyond for these categories of expenses

are the principal cause of increased budget requirements, and are

driven by external factors over which we have no control.

In ’07, we anticipate that personnel expenses will increase by

$1,385,000, or 3.1 percent. This assumes a Federal pay raise of

about 2.2 percent, the lowest pay raise in at least 5 years. Benefits

will go up by $510,000, which represents an increase of 6.1 percent

due to rising health care costs, and the shifts of employees from

CRS into FERS.

Rent will go up by $260,000 in ’07, an increase of about 4.2 percent, but our lease must be renewed, and we are already on notice

that the cost will increase significantly in August of ’07.

Our ’07 budget request is premised on fairly conservative caseload estimates. We are projecting increases in our caseload over the

current level. While we are prepared to meet the challenge of increased caseload should it arise, the requested funding level does

not allow for additional staff beyond our current staffing plan.

Over 80 percent of our annual costs are attributed directly or indirectly to investigative activity. Only when caseload exceeds our

overall capacity and potential internal reassignments have been exhausted do we hire additional staff.

In those instances, we normally hire 2-year term employees rather than permanent staff. As of today, we have 363 permanent positions occupied. As a result of the second round of transition sunset

reviews of antidumping countervailing duty investigations, the average number of active import injury investigations per month has

increased from the low teens during ’04 to the low 20s for ’05.

The monthly average is expected to remain at that elevated level

through mid-year ’07. While the ’07 request assumes a gradual increase in new filings in the direction of historical average, it does

not provide for increased 2-year term appointments.

Intellectual property-based import investigations and activity levels were already at historically high levels, and new filings surged

in the latter half of ’04. Prior to ’01, we averaged about 15 active

intellectual property import investigations per month for years.

As of the end of March ’06, there were 34 active proceedings

pending. Additional staff has been hired in the affected offices during the last few years. These positions were added without increasing our overall staffing levels.
22

Requests for industry and economic analysis investigations, especially expedited resource-intensive studies related to bilateral free

trade agreements, have increased steadily in the last few years.

Many of these investigations result in the production of national

security information classified materials that are more costly to

process and make timely collaboration more difficult.

Our expenditure plan for ’06 totals $64,145,200. This includes a

net ’06 appropriation of $61,950,000 and an ’05 carryover of

$2,194,000. Our ’07 budget request of $64,200,000 is virtually unchanged from the current level.

Mr. Chairman, I greatly appreciate the opportunity to appear before the committee today to summarize the details of our ’07 budget

request, and I will do my best to respond to your questions.

I note that attached to my testimony is a list of what I identified

as risk items that are not covered in our request. Thank you very

much.

[The prepared statement of Mr. Koplan appears in the appendix.]

The CHAIRMAN. Thank you. Ms. Myers? You did well in a news

conference on C-SPAN last week. I do not often get a chance to

watch news conferences, and usually I shut them off, but you made

this arrest of these illegal aliens, and particularly more importantly, the CEOs of that company. I want to congratulate you.

It is really quite morale-building among the people who think

that this is a country based on the rule of law, and they want people who come here to respect the rule of law.

STATEMENT OF HON. JULIE MYERS, ASSISTANT SECRETARY,

U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, DEPARTMENT OF HOMELAND SECURITY, WASHINGTON, DC

Ms. MYERS. Thank you so much, Chairman Grassley. Our agents

are doing a tremendous job out in the field, really building some

great cases. I think you will see some more great results in the

months and weeks to come.

I also want to thank you for the opportunity to come here today

to discuss with you ICE’s continuing role in investigating violations

of our Nation’s customs and trade laws.

ICE, of course, is the principal investigative agency within the

Department of Homeland Security. Working overseas, along the

physical borders and throughout the Nation’s interior, ICE special

agents investigate violations of the law with a nexus to our borders, including violations of the laws governing trade and commerce.

The lawful movement of goods across our border is a foundational prerequisite for the continuing strength and integrity of our

economy. At the same time, the growth of international trade and

open border policies increase the risk of border security vulnerabilities and transnational economic crime.

ICE continues to aggressively apply its complete set of investigative authorities and capabilities to identify and defeat an array of

threats to the U.S. homeland, and to our economy.

ICE and CBP also work very closely together in a number of

areas. But I must say that nowhere is that cooperation greater

than in our joint cooperation to combat commercial fraud.
23

We are also very grateful to the Congress for the recent passage

and reauthorization of the USA PATRIOT Act. In particular, a new

and needed statute was added criminalizing smuggling from the

United States. In addition, the potential sentence for smuggling

into the United States was increased from 5 years to 20 years.

By providing ICE with these additional tools necessary to more

effectively investigate and combat smuggling and other commercial

fraud violations, Congress has simultaneously strengthened our

ability to combat violent criminal and terrorist organizations.

ICE commercial fraud and IPR investigative priorities are aimed

at stopping predatory and unfair trade practices that threaten our

economic stability, restrict the competitiveness of U.S. industry in

world markets, and place the public health and safety of the American people at risk.

These priorities include intellectual property rights, public health

and safety, textiles enforcement, in-bond diversion, tobacco smuggling, international trade agreements such as NAFTA, anti-dumping, and general revenue fraud violations.

Together, ICE and CBP work to ensure that inadmissible goods

are denied entry into the United States, the proper duties are paid,

and that the trade complies with free trade agreements and legislative initiatives.

ICE also vigorously investigates violations of our Nation’s intellectual property rights laws. Our investigations focus on dismantling the criminal organizations that initiate, support, and sustain

the illegal production and cross-border movement of counterfeit

products.

It is estimated that American businesses lose as much as $250

billion annually to counterfeiting and piracy. I am pleased to report

that we are having some great successes in this area. ICE’s Operation Spring, for example, represents the first joint undercover IPR

investigation conducted in the People’s Republic of China with

their ministry of public safety.

Operation Spring resulted in the arrest in China of Randolph

Guthrie, who industry considered to be one of the most prolific distributors of pirated DVDs in the entire world. In September, 2005,

he was arrested in the United States after being expelled from

China, and just last month he was sentenced to 60 months incarceration.

The illegal cross-border movement of trade and commerce is also

increasingly ripe for exploitation by those seeking to launder illegal

proceeds. This includes the illegal smuggling of currency outside of

the U.S., the preferred method of moving proceeds across our borders.

ICE works closely with CBP, the Department of State, and our

Mexican law enforcement counterparts to stem this cash-smuggling

tide and to tie these seizures to larger investigations in the United

States and Mexico, and throughout Latin America.

Because of ICE’s expertise in customs matters, our special agents

remain highly effective in combating trade fraud and trade-based

money laundering. Trade of course can be used to transfer proceeds

in a variety of ways, including over-valuing the cost of imported

goods to disguise illegal proceeds as legitimate payment for those
24

goods, or by converting proceeds into merchandise that is then

shipped abroad and sold for local currency.

To detect and combat trade-based money laundering, ICE has established a trade transparency unit, or TTU. The ICE TTU analyzes trade and Bank Secrecy Act data to identify anomalies related to cross-border trade that are indicative of money laundering

or trade fraud.

ICE’s commitment to safeguarding the integrity of our Nation’s

commercial trade infrastructure continues. Our special agents are

utilizing the powerful advantages that flow from our unified customs and immigration authorities to secure our economic integrity

and to protect our border, homeland, and national security.

On behalf of the men and women of ICE, I thank the Finance

Committee and its distinguished members for your continued support of our work. Thank you.

[The prepared statement of Ms. Myers appears in the appendix.]

The CHAIRMAN. Thank you, Ms. Myers. Now Mr. Ahern?

STATEMENT OF HON. JAY AHERN, ACTING COMMISSIONER OF

CUSTOMS, U.S. CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF HOMELAND SECURITY, WASHINGTON, DC

Mr. AHERN. Thank you very much, Chairman Grassley. I am

pleased to be here with colleagues today to talk about U.S. Customs and Border Protection security and trade enforcement efforts.

I also come before you this morning mindful that the President’s

nominee for CBP Commissioner, Director Ralph Basham, appeared

before this same committee 3 weeks ago. We are looking forward

to the confirmation of Mr. Basham, and we are hopeful that he will

assume his duties rather shortly.

I also want to thank the committee for your interest and continued support to ensure that CBP has the necessary funding and

tools to carry out our important mission, a mission that both protects our borders and ensures the free flow of travel and trade that

are so important to our country’s economy.

These dual missions are not mutually exclusive. They are in fact

very complementary, and our traditional trade mission of compliance and revenue collection remains very vital in this post-9/11 environment. This committee has been instrumental in formulating

and supporting many of the concepts that have become the basis

of CBP security programs.

You have recognized the necessity of defense and strategy that

pushes our borders out. You have also recognized that security and

trade depend upon commercial data, and you have demonstrated a

continued commitment to developing and refining programs that

secure and facilitate our trade lanes.

Since 9/11, we have developed a layered defense strategy to secure the movement of cargo without stifling legitimate movement

of trade into this country. That strategy, as you know, is built on

five inter-related initiatives, including obtaining advanced information on all cargo shipped to the United States. This is required by

the 24 Trade Act rules.

We assess the risk for terrorism on every cargo shipment headed

to the United States, and we do so through our automated tar-
25

geting system housed at our Nationally centralized national targeting center.

We also just recently provided our import specialists access to

the automated targeting system so that we can use what we have

currently been using for security purposes, and also use it today for

high-risk trade transactions. This is proving to be very successful

in supporting our trade enforcement mission.

CBP also uses cutting-edge technology, large-scale x-ray systems,

as well as radiation detection devices to screen cargo containers

prior to entering into the commerce of this country.

We have also partnered with other countries through the Container Security Initiative to screen high-risk containers before they

are loaded on vessels destined to the United States. Today we have

44 of the largest foreign ports that are actually partnering with us

and account for 75 percent of the cargo containers coming into the

United States.

We also partnered with the private sector in one of the largest

private/public sector partnerships in a post-9/11 environment

through the Customs Trade Partnership Against Terrorism. Today

we have nearly 5,800 certified partners from the private sector

working to increase the supply chain security.

It is important to note that none of these initiatives existed before 9/11.

Now, turning to our trade priorities, we certainly recognize the

changing face of trade and the landscape that it is within with the

enactment of free trade agreements and other trade preference programs that allow access to U.S. markets.

Duty rates continue to decrease, and inventory critical to manufacturing, and the uninhibited flow of legitimate trade across our

borders, is a vital part of this country’s economic growth.

Last year, CBP processed 29.6 million entry summaries, which is

a record high for us. Of this record amount, 96 percent were compliant with trade laws. However, in the last year, the value of imports exceeded $1.7 trillion. With the expansion of this trade

growth also comes concerns about violation of trade laws.

As a result, CBP has identified key areas for trade law enforcement and develops an annual strategy focused on areas of highest

risk, which includes, first, the protecting of American business

from theft of intellectual property.

We devote substantial resources to targeting, intercepting, detaining, seizing, and forfeiting merchandise that violates IPR laws.

Last year, CBP made more than 8,000 trade seizures of merchandise valuing more than $92 million.

Second, we protect American business from unfair trade practices

and enforce trade laws as they relate to admissibility. This includes

enforcing anti-dumping and countervailing duty requirements to

ensure that accurate collection of revenues linked to these trade actions are completed.

Third, we enforce trade laws related to admissibility, including

enforcing anti-circumvention laws, trade agreements, and trade

legislation pertaining to imported textiles. Just since October of

2005, we have seized more than $23 million in textile products that

have been smuggled, misdescribed, or incorrectly claimed as to

country of origin, many of which circumvented the China quotas.
26

It is also important to note that 43 percent of all duties we collect involve textile and wearing apparel goods.

Fourth, we regulate trade practice to ensure strong controls over

the revenue process in collecting the appropriate revenues due to

the United States Treasury. Last year we collected over $28 billion

in revenue; that is up 10 percent from the previous year. Even

though the duty rates are declining for this year, we are expecting

to collect over $31 billion in duties, taxes, and fees.

Lastly, we protect the American public from the intentional or

unintentional introduction of contaminated food products or agricultural products that could cause harm to Americans, to American

agriculture, and to the Nation’s economy.

I think it is also important for me to comment on our trade staffing at this point, Mr. Chairman, and particularly our import specialists. I recognize that there have been many concerns about our

trade staffing levels, and many have been mentioned. At this time

I would tell you that we do not have the numbers that we had in

March of 2003, and we are working towards raising those numbers

up to an appropriate level.

Just for an example, we have personnel actions for 111 import

specialists we are currently undertaking at this point in time, but

our workforce is not static.

We have had retirements, we have natural attrition, but also it

is important for us to continue to assess and align our workforce

to our trade risks and our trade priorities. This year, though, it is important to note that we will spend $36

million more in salary and benefits cost than we did in 2003. That

is $212 million we spent, up by another $36 million. So we are still

putting financial assets into the program.

Also, we would like to turn to the important issue of data as it

relates to cargo security, but also the trade enforcement initiatives.

It depends very heavily on the collection of commercial data.

We have been working and continue to work very closely with

the private sector to determine the best way to approach the vast

amount of data associated with international trade and how that

data can be used to improve the supply chain security and trade

concerns.

Although it is inherently a government responsibility, we continue to work very closely with the trade to determine where the

data now reside, and what is the most efficient and cost-effective

way to access that data.

Our goal is to define a single set of data requirements that reports trade to the United States government one time to satisfy all

the government needs.

Our primary platform for that data collection is the Automated

Commercial Environment. It is through ACE that we have now

also established a monthly payment system. CBP is now able

through accounts to collect fees on a monthly basis.

Since the inception of that part of the program, we have been

able to collect $3.6 billion of duties and fees through the ACE portal. Just last month alone, we were collecting $500 million through

that process.

As we move into the future, ACE will be the only funded, Congressionally approved information management system through
27

which CBP will collect, process, analyze, and report trade data for

both security and compliance purposes.

As I conclude, it is important to state that our country has made

great strides in securing America’s borders, protecting trade, as

well as travel, ensuring the vitality of our economy, and we are

grateful to this committee for your support for this very difficult

but yet very essential dual mission that we have within our organization.

We certainly assure you that, while we work to secure our country against terrorist attacks, we will not and have not forgotten our

trade and revenue responsibilities. Thank you very much for the

opportunity to come before you today. I will be happy to answer

any questions at the appropriate time.

[The prepared statement of Mr. Ahern appears in the appendix.]

The CHAIRMAN. Thank you, Secretary Ahern. Now Secretary

Skud.

STATEMENT OF HON. TIMOTHY SKUD, DEPUTY ASSISTANT

SECRETARY OF TAX, TRADE, AND TARIFF POLICY, DEPARTMENT OF THE TREASURY, WASHINGTON, DC

Mr. SKUD. Mr. Chairman, on behalf of the Treasury Department,

and also on behalf of the many Federal agencies working together

to create an international trade data system, I want to thank you

and the other members of the committee for giving me the opportunity to be here today.

As the committee is well-aware, the Homeland Security Act

transferred the former Customs Service to the Department of

Homeland Security but left the Secretary of the Treasury with the

authority for customs revenue functions.

For necessary operational reasons, that authority has been delegated to DHS, but with the following exceptions: Treasury has retained sole authority to approve regulations on quotas, trade bans,

user fees, marking, labeling, copyright, trademark, entry, entry

summary, duty assessment and collection, classification, valuation,

application of the tariff, preferential trade programs, and recordkeeping requirements.

Treasury also reviews all rulings involving the topics I just mentioned that result in a change in practice or stem from a petition

process.

Finally, Treasury also shares the chairmanship of COAC, the Advisory Committee on Commercial Operations of Customs and Border Protection.

Involvement in customs policy is important to Treasury not only

because revenue collection is a core Treasury function, but also because taxing and regulating international trade has an important

impact on our economy.

We work with DHS and CBP on other areas of mutual concern,

as well as on the International Trade Data System, or ITDS, a

topic which I understand the committee would like me to address.

ITDS is the name given to the process for interagency participation in ACE, the new computer system that CBP is building. The

goal of ITDS is to have commercial reporting on international trade

done through a single electronic filing rather than through separate filings with multiple agencies.
28

Let me describe the current situation. Today many agencies have

reporting and data systems involved in the international trade

process. Exporters and importers deal with numerous paper and

electronic systems, and with redundant and non-uniform requirements, which are a burden on traders and on our economy.

This burden is not imposed as a matter of conscious policy. Rather, laws have been enacted with different goals such as implementing trade agreements, preventing unfair trade, protecting the

environment, ensuring highway safety, and imposing economic

sanctions.

These multiple reporting systems are costly and burdensome,

and they limit the effectiveness of agencies in carrying out their enforcement and regulatory responsibilities. Agencies do not necessarily know what information other agencies collect or know

what actions other agencies have taken. They act in isolation rather than together.

Under the ITDS concept, agencies harmonize their data requirements and eliminate redundancies. Traders submit standardized

electronic import and export data to a single collection point. The

data is then distributed to agencies depending on what information

they need to perform their missions.

Contrary to what the name may suggest, ITDS is not a separate

computer system. The ITDS concept will be implemented as a feature of Customs and Border Protection’s ACE project. Implementation of ITDS is funded and managed by CBP with the collaboration

of 28 other government agencies working through the ITDS board

of directors.

Agencies on the board include Treasury, CBP, FDA, Transportation, Agriculture, Commerce, and ITC.

ITDS will not only reduce the burden of processing trade and improve compliance with laws and regulations that apply at the border, it will also improve risk assessment. By centralizing and integrating the collection and analysis of information, ACE will enhance CBP’s ability to target cargo, persons, and conveyances.

ACE/ITDS will also provide Federal agencies with data that are

more accurate, complete, and timely. It will serve as a common

payment point of taxes and will function as a custodian of records.

One aspect of ITDS is already operational. Sixteen of the participating agencies already have access to data on import transactions

through the web-based ACE portal. All the involved agencies are

harmonizing trade data requirements. These data requirements are

also being aligned with the World Customs Organization Data

Model so that we can harmonize internationally as well as nationally.

That concludes my remarks, Mr. Chairman. I am more than

happy to answer any questions you may have.

[The prepared statement of Mr. Skud appears in the appendix.]

The CHAIRMAN. We will have a few questions. Again, since not

very many members were able to come because of conflicts with

other committee meetings and the floor, you may get questions in

writing. So I would ask you to respond quickly to those.

I am going to start with Mr. Koplan. Obviously this committee

knows that your agency is a valuable asset to Congress and to the

Executive Branch. Describe the steps the Commission has taken to
29

increase flexibility of its workforce in order to better respond to the

demands of probably what we would consider limited resources and

how your agency is generally very efficient to get the job done.

Mr. KOPLAN. Thank you for that question, Senator.

As I indicated in the full text of my statement, which is in the

record, we cross-pollinate. In other words, when we have a sudden

increase in the antidumping area, or because of sunset reviews, we

will detail people from our Office of Industries to assist in those investigations rather than go outside of the agency.

At such times as our workload has increased to levels beyond

that, at most what we will do is hire a 2-year term employee to be

of assistance. But this way we do involve people who would not

normally be assisting in those investigations on a temporary basis

from inside. We always look inside first.

We cannot do that, however, with regard to our intellectual property investigations. Those involve very specialized people, people

with a patent law background, et cetera. And so we have, as indicated, increased some of our staffing there but without increasing

our overall staffing plan.

The CHAIRMAN. Thank you very much.

I am now going to Ms. Myers.

You heard me say in my opening statement that the time spent

by your agency on commercial investigations is projected to decline

by 15 percent between fiscal year 2004 and this fiscal year. I raise

the concern that our trade enforcement needs are not being fully

met, or I should say other people as well have raised that concern.

So you may not agree with the concern, but either way you need

to respond to it. How do you respond to it, and do you expect the

trend to continue?

Ms. MYERS. Thank you, Chairman Grassley.

ICE is committed to its trade enforcement mission. We are monitoring the amount of hours that agents spend on the investigations,

but hours alone, I believe, do not tell the full story.

It is my understanding that the decline that you indicate reflects

an estimate based in part on fiscal year 2006 and the half-year

data.

If we took the same estimate for fiscal year 2006 for arrests and

convictions, we would be on track for a record number of arrests

and convictions. So I think that our agents are delivering results

in terms of arrests and convictions even if some of the hours are

declining, which we will be able to monitor more at the end of the

fiscal year.

I can assure you this is something that I am going to keep my

eye on. If we see over a longer period of time that this is a trend,

this is something that we will evaluate to ensure that we are giving trade enforcement the best resources that we can.

The CHAIRMAN. Thank you. Now Secretary Ahern. I spoke, again,

in my opening statement about staffing levels, in this case, declining in key job categories by as much as 16 percent. The years I

used for that were between the years 2003 and 2006, as opposed

to what I told Ms. Myers for her section.

This raises concern about our trade facilitation needs not being

fully met. Again, how do you respond to that concern? Do you expect it to continue? Let me further ask how these declines in staff-
30

ing then would comport with the requirement that I thought was

pretty firmly stated—and Congressional intent made very clear—

that there be no reduction in customs revenue functions in the new

department.

Mr. AHERN. Thank you very much. As I may have mentioned in

my opening statement also, I did not want to not mention the fact

that we are down on our import specialist category specifically, and

that is one of our largest categories of trade positions.

We are right now in the process of processing actions for 111 personnel actions in the import specialist ranks. We are down in that

category specifically. I am not sure if it equates to 16 percent, but

we are not where we were supposed to be under the Homeland Security Act.

I would also submit that there are many other categories within

our employ that actually provide direct support and assets and

time towards our revenue and our trade function. That is a lot of

our front-line officers.

Through our management inspection systems that we have calculating the hours that they spend, about 5,800 of our front-line officers actually are involved in our trade mission as well, out of our

18,000 uniformed personnel.

The revenue collection is up over the last 2 years; we continue

to see that go up as well. Our trade enforcement is up.

What I believe also would be an important discussion for us to

have with staff perhaps, sir, would be is, if we have an opportunity

to come and talk about it, as we evolve the ACE system and show

how that is going to enhance collection for our entry specialist positions, that there may be a better way for us to utilize our resources

in the most prudent way that we possibly can.

But specifically to your direct question to me, we have taken action to initiate personnel actions for 111 personnel actions within

our import specialist ranks.

The CHAIRMAN. Senator Baucus, could I ask one more question,

and then I will go to you?

Senator BAUCUS. Yes.

The CHAIRMAN. All right. Secretary Skud, in Mr. Cook’s testimony—you remember he was from Sara Lee Branded Apparel—he

stated that few of the agencies involved in the International Trade

Data System have directed the necessary funding or made the commitment to process a program.

In fact, some agencies have proceeded with their own data programs. Why is there not a 100-percent buy-in from government

agencies, and what can we do to make sure we get that buy-in?

Mr. SKUD. Well, Mr. Chairman, I think there is a natural reluctance on the part of agencies to commit to a project that puts part

of their mission in the hands of another agency, particularly when

the technical aspects of the operation and the associated costs remain unspecified.

One of the tasks that the ITDS board of directors has identified

as a priority is identifying the IT costs, responsibilities, and

functionality for each agency, the functionality that is required for

each agency to participate.

Frankly, I do not think we are far enough down the design path

now to be able to specify those costs exactly. Partly because the
31

project is not that far down the project design path, and then partly because of the lack of in-depth agency participation in some

cases that Mr. Cook mentions.

So to address those two things, we are working closely with the

CBP team to accelerate the effort to identify cost and functionality

requirements. At the same time, the ITDS board and the CBP staff

have been approaching agencies about deepening their participation in the project.

One step we are going to take is expanding participation in the

board to include all agencies, to give ITDS a higher profile within

each agency.

The CHAIRMAN. Thank you all very much.

Mr. KOPLAN. Mr. Chairman? Could I make one very brief comment?

The CHAIRMAN. To add to this?

Mr. KOPLAN. Yes.

The CHAIRMAN. Yes.

Mr. KOPLAN. If I could. I appreciate the fact that Mr. Skud acknowledged our role with ITDS. We consider it extremely important. I would just point out that even at this early stage, selected

security-cleared ITC staff have been given access to business confidential trade data via ACE, and this allows our office’s investigations to have on-line access to much more current and detailed materials for anti-dumping and countervailing duty cases than has

otherwise been available.

The CHAIRMAN. Thank you.

Senator BAUCUS. Mr. Ahern, by what date will you have staff

levels up to pre-9/11 levels as required by the law?

Mr. AHERN. As I stated, we have 111 actions in place. A lot of

those are in the early announcement process. We have a hurdle

process involved with interview selections.

It is my goal to have those on by the end of the calendar year.

Senator BAUCUS. By the end of this year?

Mr. AHERN. Yes, sir.

Senator BAUCUS. Good. Very good.

Mr. AHERN. And if I also might add for your benefit, sir, in my

opening statement one of the statements I did make, too, was that

in March of 2003, we were spending $212 million for salaries and

expenses in our trade positions.

Last year we spent $36 million more than that, so we were actually up by $36 million.

Senator BAUCUS. When are you going to adhere to the law? The

law says pre-9/11, you said by the end of this year.

Mr. AHERN. Yes, sir.

Senator BAUCUS. Great. It has been suggested that a lot of information over in Hong Kong goes in a black box, and we do not get

it over here. It sounds like that is a problem.

Mr. AHERN. Well, I would be happy to address what is going on

in Hong Kong directly, because I think that certainly for the last

several weeks——

Senator BAUCUS. There are tons of data. They all scan in, so on

and so forth. It is incredible.

Mr. AHERN. I would be very happy to——
32

Senator BAUCUS. On a real-time basis. So why isn’t the capability put in place so that we in the United States, the appropriate

people, could see it right there real-time what that scan shows?

Mr. AHERN. I would be happy to answer that. I have had an opportunity to go and look at it personally myself, so I am very familiar with what is going on in Hong Kong. I am also very familiar

with what is not going on.

Senator BAUCUS. No you are not. When are we going to get this

done?

Mr. AHERN. Well, one of the things we have to work out is

whether it is actually an effective use of technology. There is the

footprint of technology that is currently there on one lane in one

of the terminals, and an additional lane in another terminal.

So it is not 100 percent of the containers going through there.

Senator BAUCUS. No, but still it is pretty comprehensive.

Mr. AHERN. It is the same technology we use here to scan for radiography of the container, basically x-raying the box, and also

with the capabilities for looking at the radiation emitting from the

box.

We are concerned with what the threshold settings are. Those

are a classified level to make sure that we actually have something

that is a meaningful threshold setting. The alarm itself that is

there is turned off. But what we do see is very great potential as

far as how we could tie that into our CSI team so that if we have

our CSI targeters overseas looking at the manifest information,

scoring those containers for risk, be able to have that information

provided to our CSI officers to make a complete, informed decision

on what is in that box, that could be meaningful.

We have been partnering with the Hong Kong Terminal Operators Association for the last 3 months, as well as the vendor who

actually supplied this technology as a footprint test in that location

to look at over 21,000 data files to see what is the viability of taking that information and integrating it into our system.

We are proceeding in a very prudent way looking forward as far

as whether that is the effective next step.

Senator BAUCUS. Right. Mr. Dinsmore, could you take that chair

right there, please, and just tell us what you think of that response. I mean, you are the one who suggested the problem. What

do you think about all of that? Does that sound good, not good?

Mr. DINSMORE. Well, it actually does sound good. I would ask the

Secretary, sort of, when? I also have seen the process there, and

I am not familiar with the degrees of accuracy, but I would suggest

with some modification, technology already exists to take that information, give it to CBP either there or here, and make it an integral part of a more safe and secure system.

Mr. AHERN. We have a whole program management time line we

would be happy to share with your staff as far as to show what

steps——

Senator BAUCUS. I would like you to do that, please.

Mr. AHERN. Fine.

Senator BAUCUS. I am concerned that, let us say for example, low

and behold, a container contains a very explosive, a very dangerous

device, and blows up in Tucson, AZ, and maybe another one in

some other location about the same time.
33

Do we have the information, the manifest system today to know

where that came from? Is there a way to sort of triage the whole

world transportation system? I am concerned if something blows up

there, low and behold the whole world shuts down because we do

not know where it came from.

It could have come from the east coast, it could have come from

the west coast, it could have come from Hong Kong, it could have

come from Mombai. Who knows where. Do we have a system that

can figure all that out?

Mr. AHERN. If it is a maritime shipping container, yes. As long

as we have that container number, we can actually track it through

our systems, as well as with the carriers that actually own and operate them.

Senator BAUCUS. You are telling me that any container, or let us

take something that is offloaded from a container. It is a minicontainer, some small part of a container in Tucson.

Mr. AHERN. In that scenario, if there is not the shipping container that we used for the tracking purposes at the point of origin

overseas through the transportation process and into the commerce

of the United States, once it gets broken down out of that container, we would not have the visibility of where it was unless

there were specific markings that were made.

Senator BAUCUS. Every container that comes into the United

States is accounted for, as to where it came from?

Mr. AHERN. Yes. Because today, as part of our information, we

have the ability to get every transaction being shipped through the

maritime model 24 hours prior to going overseas, we then run

through the automated manifest system which has the container

number.

Senator BAUCUS. Let me put it this way. I am curious. So does

your agency know, or somebody in the United States know, where

every container is? Does somebody triage this stuff?

Say it came from Mombai. Then what do you do?

Mr. AHERN. We would have the ability for tracking that container if it came through the maritime model.

Senator BAUCUS. My question is would it be shut down?

Mr. AHERN. Your question was whether we would shut down as

a result of that?

Senator BAUCUS. Yes.

Mr. AHERN. I think we would have to look at the set of facts at

that particular time. One of the things that we don’t want to do

is be overreacting and shutting down the global maritime trading

model.

Senator BAUCUS. That is my concern, too.

Mr. AHERN. Right.

Senator BAUCUS. But I have been told by people who think they

know about this that there is not a real system in place here. So

if a couple things go off, the world would be shut down. Airplanes,

ships, you name it. That has absolutely devastating consequences.

Mr. AHERN. What I would think is it would be very prudent for

CBP as well as the members of the department to provide a full

briefing on what is out there for consequence management, and

also for contingency planning through national presidential security directives.
34

Senator BAUCUS. Thank you very much. Thank you.

The CHAIRMAN. I am not going to ask any more questions. Thank

you very much. Good testimony. You know Senator Baucus and I

are working on legislation in this area.

This is kind of a notice that we would like to have members of

the committee submit their questions for the record by tomorrow

at 6 p.m., and then if you could have your responses back by Friday, May 5th, we would appreciate it. Thank you all very much.

[Whereupon, at 11:53 a.m., the hearing was concluded.]
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A P P E N D I X

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Æ