Ways & Means Letter on FY2000 Treasury Budget

February 18, 1999

Mr. A. L. Singleton
Chief of Staff
House Committee on Ways & Means
US House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

On behalf of the Joint Industry Group (JIG) and its membership, these comments are submitted to the House Committee on Ways & Means regarding the Clinton Administration’s proposed US Treasury Department budget for fiscal year 2000.

JIG is a member-driven coalition of over one hundred-forty Fortune 500 companies, brokers, importers, exporters, trade associations, and law firms actively involved in international trade. We both examine and reflect the concerns of the business community relative to current and proposed international trade-related policies, actions, legislation, and regulations and undertake to improve them through dialogue with the Executive Branch and Congress. JIG membership represents more than $350 billion in trade.

The Joint Industry Group is appalled that the Clinton Administration has continued to be negligent in its federal budget decisions by allocating $0.00 for essential enhancements to Customs automated processing systems. Instead, the President proposes an additional "user fee" that industry will pay for the "privilege" of using Customs automated systems to process its commercial entries. To assuage opponents of this new tax on imports, the Administration proposes using $163 million of the monies collected from the tax to be used to offset the costs of modernizing Customs automated commercial operations and to develop Treasury’s International Trade Data System (ITDS). Such a tax could collect hundreds of millions more than the $163 million proposed allocation for automation programs.

JIG and its members, who represent a wide cross-section of American industries, staunchly oppose any proposed new "user fee" or tax to continue funding Customs automation programs.

Since 1994, the Customs Service has collected $800 million annually through the Merchandise Processing Fee (MPF). The MPF is assessed on the value of the imported good at a rate of 0.21 percent ad valorem. The money collected through the MPF is supposed to fund Customs automation programs, but is deposited into the general treasury fund. Although the government claims the MPF is a "user fee" to finance Customs operations, it is simply another tax on imports. The money collected through the MPF could have been used to finance Customs automation and would have avoided the present automation crisis that currently exists.

Customs estimates that $1.2 billion is needed to fund the development of the Automated Commercial Environment (ACE) over a period of four years. ACE is the system that will replace the overburdened and aging Automated Commercial System (ACS), the automated system responsible for processing $900 billion in imports every year and collecting over $23 billion in taxes. Failure to replace ACS with ACE prior to its eventual collapse will shut down the import process and thereby harm all US importers and manufacturers, particularly those who rely on just-in-time delivery systems. Importers will be forced to file import entry information through a time consuming paper process rather than through quick and efficient electronic means. The loss of revenue to the government will be staggering.

Instead of creating a new tax, JIG supports the allocation of funds collected through the current MPF to fund ACE development. Other Customs operations should be fully funded in the FY2000 budget. We note media reports of the Treasury Department’s intention to spend $1 billion over the next five years in replacing its internal communication systems. We believe that ACE funding is more important to US industry and the American people than the Treasury Department’s internal communications system.

In previous policy statements, JIG has expressed its support for Treasury’s ITDS program. JIG continues to support the concept for ITDS as the "front-end" interface that the government will use to gather and distribute a minimal amount of international trade data from industry. JIG is concerned, though, that too much emphasis is focused on ITDS development at the expense of ACE. As the "functional" part of the government’s automated processing system, it is more important to develop ACE now rather than designing a data interface system. If no "functional" module operates, the development of the "front-end" interface is irrelevant.

More importantly, however, ITDS lacks trade community support because it is a program developed by the government and would only satisfy internal government needs for information. It will continue to delay the development of ACE, add to its costs, and provide few tangible benefits to its users – the trade community. Thus, ITDS is an unnecessary distraction from the more important issue of ACE development.

We are also concerned that the dividing of responsibilities for development of the import and export automated systems between the government agency responsible for the physical control and clearance of the goods and government agencies that have some regulatory responsibility for those goods is a mistake and will result in added costs to all parties.

Despite on-going criticisms of the Customs Service’s plans for ACE development, particularly from the Government Accounting Office, we commend Customs for working with industry to develop automated processing systems that provide benefit for both government and trade. We believe that given the needed funding Customs will design and implement, with the assistance of outside contractors and consultants and its private sector customers, an automated system that will continue to promote the continued efficient processing of imports and will be

able to adapt to future changes in government and private sector needs. This can only occur, however, if the Administration and Congress come to the realization that funds are currently available to develop ACE in a timely and efficient manner. Continued delays in appropriating this money only brings closer the day when Customs’ archaic systems fail and the slowdown in US imports incurs a damaging effect to the strength of the US economy.

The Joint Industry Group and its members thank the House Committee on Ways & Means for its attention in considering our comments.