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estimate the total number of licensed customs brokers, many of whom are employed by our members or affiliates, at more than 3,000 individuals.

Our National Association testified in August of 1976 before the Committee during hearings on H.R. 9220, the “Customs Modernization Act.” We are here again to voice our opinions on a new bill, H.R. 8149, Title I of which is called the “Customs Procedural Reform Act of 1977” and Title II of which is called “Customs Simplification Act of 1977".

There are many similarities between the 1976 bill and the one before us today. There are also many improvements in the new bill for which we applaud the proponents. We are pleased to note that several of our comments and suggestions have been utilized in the new bill's wording and structure.

We would like to express briefly our views on the bill's contents at this time, although a written statement has been prepared for the record to set forth in greater detail our objections and/or suggestions.

There are five main issues in the bill which concern us. They are:

(1) The implicit authority for Customs to institute without further Congressional action a customs entry procedure known as “Duty Assessment by Account”, or DABA, for short ;

(2) New procedures governing customhouse brokers ;

(3) An increase in the monetary limitation on informal entries from $250 to $600 ;

(4) An extensive re-writing of the provisions of Sec. 592; and,
(5) Section 520.
Mr. Shayne will speak on the first point.

Mr. Chairman and honorable members of the Subcommittee on Traffic and Trades, my name is Leonard M. Shayne and I am Chairman of the Board of the National Customs Brokers and Forwarders Association of America, Inc.

H.R. 8149 Sections 102, 103, 104 and 110 propose to change the fundamental procedures under which imported merchandise is entered into the commerce of the United States and to grant to the Secretary of the Treasury great latitude to establish entirely new rules as to where documents for entry must be filed, when they must be filed, when duty must be paid and where duty must be paid. Also changed by the proposed statute is the very critical criteria as to the effective date of the applicability of rates of duty, and by consequence of this change, the assignment of quotas, the applicability of countervailing and dumping duties, the availability of trade statistics, and many other important matters that affect the competitive relationship between imports and domestic interests.

Frankly, we believe that the procedures under current law are very well adaptable to computerization and would permit sufficient improvement in the efficiency and speed of customs clearance without tinkering with these fundamental concepts which have been fully tested and defined by the Customs Courts after decades of litigation. However, if the Congress wishes to establish new effective dates for duty rates in the manner provided in this Bill, we are more than willing to cooperate to try to make this new idea effective. If it is intent of Congress to permit importers to pay duties and taxes considerably after they obtain the release of the goods they import, we are obliged to state that we do not consider such extension of interest free credit a prerequisite for the improvement of customs procedures as claimed by Customs nor in fact do we consider it good business on the part of the government.

However, and most importantly, we strongly urge this Committee and the Congress which it represents, not to relinquish at this time its authority to determine where entry documentation should be filed as provided for in Sec 103. This would delegate to the Secretary of the Treasury the authority to make that decision. This is the key point to implementation of the system of Duty Payment by Account (DABA) which was a fundamental part of the proposed HR 9220 in the preceding Congress. We testified to that Congress that this system would in effect transfer from the private sector, namely us, to the Customs, much of the work that we now perform for importers and the Customs. Of course this would hurt our industry greatly as would the fact that the system would encourage many importers, especially the larger ones, to take advantage of the additional services to be provided them by the government, and to deal directly with Customs themselves, thus ceasing to use our services. When we pointed out to the Congress at the hearings on HR 9220 the many inefficiencies and weaknesses of the DABA system, the then Commissioner of Customs Vernon Acree testified to this Committee that DABA

would not be necessary if the Automated Merchandise Processing System then being implemented by Customs worked. This system (AMPS) is presently being further extended by Customs, and we have fully supported it in every stage of its development because we believe it is the best way for Customs to improve its operations.

Under these circumstances we feel that it is unwise to include in HR 8149 authority to the Secretary of the Treasury to implement DABA or any version of it which Sec 103 does by permitting him to prescribe the place at which entry shall be filed. We believe that the only efficient place is where imported goods are released by Customs, and historically that would be in the inland port of entry or at the port of arrival, wherever the importer chooses to have his goods transported for his use and at which he seeks release from customs custody. Thus we recommend to the Congress that it reserve its right to determine whether DABA should be established. This could be accomplished by inserting in proposed Sec 103 (a), amending 484 (a) the following words after “in writing and at such place": (Page 2 line 16) "in the Customs District where the articles are released from customs custody, or if under bond, in the Customs District where the goods are designated for release from customs custody. We recommend that there also be a change in Sec 104 (a) which provides for the place where duty must be paid by inserting after “the appropriate customs officer” on line 8 page 3 the words “in the Customs District where the entry is filed". When and if needed, Congress could easily enact a bill just to remove these words to permit Customs to proceed with DABA, although frankly AMPS is an enormous investment and should be given a reasonable trial. Also, we think this Committee would be well advised to consider other improvements in our Customs laws that have to do with substance, such as the valuation of imports for tariff purposes, rather than relying upon procedural changes of questionable value.

We recommend that Sec. 116 of H.R. 8149 be amended as follows: 1. The provisions conferring license renewal authority in subparagraphs (1) and (2), pages 18 and 19, should be deleted. The license of a customhouse broker should be permanent, subject only to suspension or revocation. If the objective of Customs is to use the license renewal power to ascertain whether a licensee is still in business, such purpose can better be served by requiring an annual report of licensees with the power in Customs to impose a reasonably penalty for not filing or filing late.

We suggest the following further amendments to Section 641 of the Tariff Act of 1930 (19 U.S.C. 1641) :

1. After the second sentence in subsection (a) of Section 641 the following sentence should be inserted :

"No person licensed as a customhouse broker shall serve as an officer of more than one such corporation or association or as a member of more than one such partnership unless such corporation, association or partnership is under common ownership or control.”

The purpose of this amendment is to eliminate the practice of a licensee of "selling" his license by allowing it for a fee to be used to qualify more than one firm for a license. A licensee should, however, be permitted to qualify more than one firm if it is part of an affiliated organization.

2. Insert the following new undesignated paragraph after the addition to subsection (b) of Section 641 provided by paragraph (4), pages 18-19, of the bill :

"The Secretary of Treasury may impose a monetary penalty upon any customhouse broker not to exceed $500.00 for each willful violation of the rules and regulations issued under this section and not to exceed $5,000 in total. Before any penalty is imposed, the customhouse broker shall be served with a written notice of the allegations or complaints against him by an officer of customs designated for that purpose by the Secretary of the Treasury and he shall have thirty days to respond in writing to such allegations or complaints. Thereafter, said officer shall consider the allegations or complaints and any response made by the said broker and issue a written decision, provided, however, that upon the written request of said broker, the determination of the issues raised by the allegations or complaints and the recommendations concerning the monetary penalty to be imposed, if any, shall be made, after hearing, by an advisory hearing board as above provided with a review of the record by the Secretary of Treasury as provided in the first paragraph of subsection (b).”.

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The purpose of this section is to provide for a means to discipline a customhouse broker for a violation of rules and regulations issued by the Secretary of Treasury or his designee. Such an offense does not merit punishment as severe as the suspension or revocation of a license. Allowing for the decision with respect to a violation at the option of the customhouse broker to be made by the advisory hearing board assures that the proceeding will be independent and impartial. See Twigger v. Schultz, 484 F.2d 856 (1973).

3. Insert the following additional new undesignated paragraph after the paragraph suggested in paragraph “2” above:

“No privilege generally conferred upon a customhouse broker under regulations issued by the Secretary of the Treasury shall be revoked or suspended unless the customhouse broker is (a) served with a written notice of the reasons for a revocation or suspension and (b) afforded an opportunity to be heard in accordance with the procedure set forth in this subsection for the revocation or suspension of a licensee."

Customhouse brokers are currently granted by U.S. Customs Immediate Delivery (“ID”) privileges, that is, the right to obtain delivery of the importation prior to the filing of a formal entry. Without such privilege, the customhouse broker is unable to conduct his every-day business. At the present time, the practice of U.S. Customs is to suspend or revoke the ID privilege without affording the broker the due process right of notice and hearing. Because the ID privilege is essential to a broker, he is entitled to the constitutional safeguard of adequate notice and an opportunity to defend.

4. Insert after the word “necessary" in subsection (d) the following: “relating to a customs transaction".

U. S. Customs is currently auditing and seeking to regulate services unrelated to the entry and clearance of merchandise or the collection of duties thereon. These are the so-called “accessorial services", such as arranging for insurance, cartage, warehousing, etc., where the broker is competing for the business with non-brokers. It is the practice of many customs brokers to charge an overall fee for such services, which fee consists of the cost to the broker of obtaining the service and his gross profit for arranging the service. Reversing 40 years of policy to the contrary, Custom is currently insisting that the cost and service fee be separately shown on the invoice to the importer. The non-broker, however, rendering the same service need not make such a disclosure to the customer.

The Customs position is an unwarranted intrusion upon the non-customs activities of a broker. The rendering of accessorial services does not relate to matters pertaining to the enforcement of our customs laws. In our opinion U. S. Customs lacks the authority to audit or regulate such service. See our May 31, 1977 memorandum, attached. In order to avoid prolonged controversy, the rulemaking authority of the Secretary of Treasury should be confined to a "customs transaction”, that is, "an act or activity to which the Customs and related laws apply". (See 19 C.F.R. $177.1(3)).

5. Add a subsection (e) to Section 641 to read: “Whomever transacts business as a customhouse broker without a license granted in accordance with the provisions herein and the regulations issued hereunder shall be subject to a civil penalty not to exceed $5,000.00 for each such violation".

The current law has no penalty for the unauthorized carrying on of the business of a customhouse broker. To deter unlicensed persons from engaging in such business and punishing those that do, a specific penalty provision is necessary.

Section 211 of HR 8149 would amend the present law to increase from $250 to $600 the maximum value of a shipment which may be entered pursuant to the customs regulations of the U.S. through informal entry procedures. In our opinion raising the limit to $600 would be detrimental to the best interests of the country.

We go beyond the proposals respecting personal non-commercial shipments in that we feel such shipments should be facilitated in every way possible. The personal exemption for returning U.S. residents should be increased as proposed but there should be no limit on the value of accompanied goods under Sec 205. We also believe that informal entry procedures should be allowed on all personal non-commercial shipments regardless of value. We see no need to put a $600 or any ceiling on such shipments.

Commercial shipments however are a different matter entirely. We believe that raising the limit to $600 would not only fail to achieve the expected

economies in governmental handling costs, but on the contrary would actually result in additional costs possibly in the millions of dollars.

Many articles lend themselves to shipment by mail, being small in size, such as watches, jewelry, electronic parts, gems, certain wearing apparel and mail order goods. These are presently handled entirely by government personnel. Customs officers open the parcels, examine the contents for compliance with the customs and other U.S. laws, make appraisement and classification, compute the entered value and duties, and prepare the actual informal entry documents. The post office then delivers the parcels with a C.O.D. collection for the duty amount (if any).

In far too many instances however, dutiable merchandise is released to the importer by U.S. Customs without collection of the duties or without being opened and inspected for compliance with the law. Most customs brokers can personally attest to clients continually reporting the receipt of mail parcels of dutiable goods where Customs released them free of duty. We brokers have filed many written complaints with Customs because clients continually receive dutiable goods without having to pay duties on mail shipments, which gives us reason to believe that untold thousands of other dutiable packages are being released directly to the public without the collection of duties. It should be equally obvious that these informal shipments are not being properly screened for compliance with all applicable U.S. laws, i.e., Pure Food & Drug Laws, Copyright, Marking, etc. The U.S. consumer is therefore being deprived of the protection which the Congress envisioned when enacting these laws. (Of course others are also disadvantaged competitively such as American producers, and labor, as well as other importers.)

At the present time, on shipments over $250 importers or brokers prepare and present entry documents, and Customs need only verify the correctness of the documents. If the informal entry limit is increased to $600 a veritable deluge of additional informal shipments valued between $250 and $600 can be expected to descend upon the Customs officers who handle mail entries and indeed also air, truck and sea entries within these values. These shipments would have to be handled fully by Customs personnel with all documentation being prepared by U.S. Customs officers instead of merely verifying the accuracy of the documents.

Thus Customs would have to dramatically increase its staff at international airports and seaports, and at all border crossings.

Following are 1976 statistics provided by the U.S. Customs at the port of New York, and our estimates of probable increases in informal entries and Customs personnel in this region alone, needed to handle this traffic in 1978 if the proposal is adopted. We think the estimates are conservative. We are unable to project personnel increases for the great increase in workload we anticipate will fall upon inspectors at piers, airlines and inland stations :

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We expect the amount of individual clearances (informal) to at least double if the limit is raised to $600, thus requiring the addition of approximately 100 Customs employees to handle these mail clearances. Based on an average government employee's salary of $14,000 the tab at the port of New York alone could amount of $1,400,000 and untold millions nationally. It is proposed that all necessary statistics be compiled on informal entries valued between $250 and $600. This certainly would be wise because on some articles the amount imported by informal entry will substantially affect the statistics, but this requirement will add to the burden on Customs personnel who on informal entries must prepare the statistics and write out the entry documents in lieu of this being done by the importer or his broker.

We do not see how the proliferation in informal entries, even with a decline in formal entries, could permit a reduction in the personnel presently handling formal entries. The present Customs Commodity Teams are structured not on the basis of the amount of clearances handled, but rather on the various statutory functions of the team, such as missing document follow-ups, fraud investigations, etc. These functions continually increase in numbers and complexity.

Customs is permitting under current regulations, one mail importation per importer per day informally, if under the statutory value limit. On the basis of the proposed $600 limit one importer could import 260 shipments aggregating $156,000 yearly. If only 1,000 importers import this much by mail, the yearly value comes to $156,000,000 representing 260,000 shipments to be handled by Customs personnel for them.

In conclusion, on the basis of the reasons stated above, we ask that the portion of this bill proposing to raise the informal entry limit to $600 be changed to apply to personal non-commercial shipments only. Commercial importers should be limited to one such importation every 30 days, and this would accommodate the small importer. This is similar to the duty free allowances for tourists. A general increase in the informal entry limit to $600 would be a serious mistake.

THE SECTION 592 PENALTY PROVISIONS OF H.R. 8149 The following changes are regarded by our National Association as amendments of importance that should be made in the portions of H.R. 8149 that pertain to Section 592 penalties, from pages 9 through 17. Material that we regard as appropriate for a deletion has been crossed out and proposed amendments are set forth in parentheses.

Page 9 Line 18 through 23:

“(a) Seizure-Any consignor, seller, owner, importer, consignee, (see Note 1) or other person (who may profit from the violation) (see Note 2) (hereinafter in this section referred to as a “person") who by fraud, gross negligence or (pattern of negligent conduct) (see Note 3) enters or introduces or attempts to enter or introduce any merchandise into the commerce of the United States by means of—"

Notes 1 and 2.—Only those persons who may profit from a violation (other than the consignor, seller, importer or consignee) should be subject to the liabilities of Section 592. While the language in the remaining portion of this paragraph limit “the other person” to those who act through fraud, negligence, etc., there should be no room for doubt about the liability of “other persons": Such “other persons” act with innocence for another guilty party. They should not be held responsible for the acts or omissions of the guilty party, nor should such innocent party be cited in a Notice of Penalty as a contingency against the principle claim. The term “agents" is usually interpreted by Customs as referring to customhouse brokers. Such brokers should not be subject to liabilities unless they are culpable. There is no need to specify “agents” since they fall squarely within the meaning of “other persons”.

Note 3.—Common or ordinary negligence can normally be readily explained and is in the same class or category as clerical errors, inadvertences, etc. No person should be liable to Section 592 penalties for such errors unless it appears that the person frequently is careless and his pattern of negligent conduct warrants appropriate punishment.

Page 10—Lines 3 through 6 plus :

“(2) any act or omission which is material, whether or not the United States is or may be deprived of the lawful duties, or any portion thereof, shall

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