Statement of the Joint Industry Group
To

The United States Senate Committee on Finance
Customs Oversight Hearing

The Honorable William V. Roth, Chairman

May 28, 1999

INTRODUCTION

On behalf of the Joint Industry Group (JIG), these comments are submitted to the United States Senate Finance Committee in response to the May 13, 1999, US Customs Service oversight hearing. JIG is a coalition of more than one hundred and fifty members representing Fortune 500 companies, brokers, importers, exporters, trade associations, and law firms actively involved in international trade. JIG membership represents over $350 billion in annual trade. The JIG enjoys a close and cooperative relationship with the US Customs Service and frequently engages Customs on trade-related issues that affect the growth and strength of American imports and exports.

These comments address the position of the Joint Industry Group regarding the Customs Service's dual mission of effective border enforcement and trade facilitation promotion. This statement also comments on Customs' efforts to modernize its aging automated processing systems with a modern, efficient system which is vital to the continued strength and stability of the US economy.

We commend the US Customs Service for its continued efforts in satisfying its two main missions of border enforcement and the facilitation of international trade. The success of Customs' enforcement programs such as Operation Brass Ring demonstrate Customs' capabilities in preventing the movement of illegal drugs and contraband into the United States without causing costly delays in time and money to the vast majority of importers and exporters who comply with Customs regulations.

JIG also continues to support Customs successful work to ensure that its computerized systems are Year 2000 compliant. Although small, localized problems resulting from the changeover to the Year 2000 are likely to occur, we are confident that the Customs Service is sufficiently prepared to address and quickly solve any difficulties that arise.

CUSTOMS MODERNIZATION ACT

For several years since passage of the Customs Modernization Act (Mod Act), JIG has worked closely with the Customs Service as it has developed new programs and initiatives to fully implement Mod Act legislation. Passed in 1993, the Mod Act placed added compliance responsibility on industry. This included industry accepting the responsibility for classifying goods, exercising reasonable care, developing corporate account-based systems, assigning merchandise value, determining the country of origin, and identifying duty rates of imported products. The Administration, through the Customs Service, agreed to provide methods to facilitate the process by enhancing automation systems to accommodate the new requirements. This added new meaning to the term "trade facilitation." It was not a term that indicated a regress of Customs enforcement policies, rather it alluded to the Customs side of the agreement. While industry has fulfilled its side of the Mod Act, at a cost of tremendous additional resources and expenditures, the Customs Service has been unable to provide the most important component of its side of the agreement -- automation. At this point, industry can only continue to hope that the Automated Commercial System will last long enough for Customs to develop its successor.

AUTOMATED COMMERCIAL SYSTEM (ACS)

JIG membership continues to be concerned about the aging Automated Commercial System (ACS). ACS is more than 16 years old and is experiencing brownouts, delays, and declining service with increased frequency. A major blackout or "crash" of the system will have devastating effects on companies, the environment, and the economy.

For many of our member companies, a one-day shut down of ACS will cause disruptions. A prolonged ACS blackout of more than a day or two would halt production lines and cause serious delays in shipping needed goods to customers. An inactive assembly line is a scenario that will face many of JIG’s manufacturing company members. General Motors, DaimlerChrysler, and Ford Motor Company will be forced to shut down production lines at a much earlier date than most companies because of their high volume just-in-time-delivery procedures. In fact, miles of trucks backed-up across the Texas, California, New York, and Michigan borders is certain to occur during a major shut down of ACS. Imagine the potential impact to the US economy and US workers if production comes to a halt in our major US manufacturing companies.

THE AUTOMATED COMMERCIAL ENVIRONMENT (ACE)

The system intended to replace ACS, the Automated Commercial Environment (ACE) has been scrutinized for years. JIG members have taken an active role in ACE development and funding since the passage of the Mod Act. Our organization has participated in the Customs Service's Trade Support Network Conferences (TSN 's) that have given industry an opportunity to ensure that each sector’s automation needs are addressed. Industry advised Customs to adopt a modular approach to the ACE design, and Customs has done so. We suggested that Customs outsource the construction of ACE to an information technology firm specializing in automated systems. Customs has concurred and is preparing a request for proposal with the help of a Federally Funded Research and Development Contractor (FFRDC). Overall, we have been pleased with the Customs approach to this point.

CUSTOMS SERVICE FY 2000 BUDGET

The President’s proposed FY2000 budget for Customs Service automation systems is a misguided attempt to further tax US business. The proposed new tax, termed a "user fee" by the Administration, is illegal under the NAFTA agreement with Canada and Mexico. It conflicts with the Treasury Department’s own mission of reducing the amount of data required for imports under the International Trade Data System (ITDS). ITDS seeks to reduce the amount of data required, while the proposed budget taxes the amount of data sent. The two objectives are contradictory.

The tax would place an additional burden on an industry that has already contributed $800 million a year for the last ten years in Merchandise Processing Fees (MPF). A portion of the MPF should have been used to build and implement Customs' automated systems. Furthermore, the President’s budget proposes to fund automation at a level that is less than half of the amount genuinely needed. We are disappointed in the Administration’s inability to assume a leadership role in the development of mission critical Customs systems.

JIG is pleased with the recent passage in the House of Representatives of HR 1883, the Trade Agency Authorizations, Drug Free Borders, and Prevention of On-Line Child Pornography Act of 1999, which authorizes $150 million in both FY2000 and FY2001 for ACE development. While this is only an authorization for a portion of the required funds, it is movement in the right direction.

This bill will now come to the Senate and this Committee where funding must also be authorized. We are confident that the Senate Finance Committee agrees with this authorization, but it is also our hope that the Senate can be persuaded to double the authorization to $300 million annually. Customs estimates that ACE development will cost $1.2 billion over the next four years. To satisfy funding requirements, $300 million needs to be authorized and appropriated for FY2000 and continued annually through FY2003.

While funding ACE is of utmost importance, funding should be authorized by this Committee to ensure that ACS remains operational until ACE is fully developed. Current funding for needed ACS maintenance and upgrades is not sufficient. In FY2000, a minimum of $79 million is necessary just to maintain ACS. The President’s budget proposed $35 million with an additional $32 million in base funds. This represents a deficit of $12 million. We urge the Committee to authorize these funds in addition to the money needed for ACE development.

CONCLUSION

In FY1998 the Customs Service processed over 20 million shipments of import merchandise with a value of nearly $1 trillion. From these imports, the government has collected over $800 million annually through the Merchandise Processing Fee. Industry has already paid many times over for an automated processing system, provided for in the Mod Act, that should already be built and operational.

With the amount of trade volume expected to double by 2005, time is short to develop funding solutions sufficient to bring ACE fully operational. Processing the increased volume of trade efficiently while at the same time enforcing US border regulations can only occur if funding for needed automation systems begins now. We are confident that ACE is the long-term solution to this problem, but will only become a reality if Congress and the Administration can fully fund its development in a four-year timeframe.

The Joint Industry Group and its membership thank the Senate Finance Committee for the opportunity to submit these comments.

Material Copyright © 1999 Joint Industry Group