Within the last few days I have had presented to me one more of these marking difficulties. An importer brought in 300 dozen household knives marked "Elosi" and below marked "Solingen, Germany." Unfortunately, Elosi is neither the name nor the trade name of the manufacturer or importer; so importation is prohibited under the special marking requirement. The importer will now be put to the expense of returning the knives to Germany or exporting them to Canada for additional marking and return to this country. I think you will agree this is a hardship on a United States importer which should not be continued.

Section 4 also contains a new provision which will permit the Secretary of the Treasury, in his discretion, to grant relief in hardship cases under the general marking requirement. If articles are not properly marked before importation and the failure to mark was not due to any intent to avoid compliance with the marking laws and the articles cannot be marked after importation except at an expense which is economically prohibitive, the Secretary could permit the importation. At the present time the Treasury Department is without authority to grant relief to innocent importers in such situations.

Section 2 of the Jenkins bill will facilitate the modernization of the internal accounting procedures of the Bureau of Customs, by removing certain restrictive statutory provisions relating to accounting and recordkeeping functions. These statutory functions are vested mainly in the comptrollers of customs and require too much detailed review and checking. As a result, repetitive accounts have to be maintained and certain accounting processes which are performed in the offices of the collectors of customs have to be duplicated. These statutes are so restrictive that they preclude some of the procedures which should be a part of the modern program of internal audit.

The way has been paved for the removal of these obsolete accounting functions by the following action: First, in January 1949, the Comptroller General of the United States, the Director of the Bureau of the Budget, and the Secretary of the Treasury inaugurated the joint accounting program for the improvement of accounting in the executive branch of the Government. A primary objective of this program is to strengthen the financial control of management by improving the systems of accounting and internal control of various agencies in the Government through the application of modern methods and techniques of accounting and internal audit. As a part of this program, the accounting system of the Bureau of Customs was studied, and the abolition of the statutory provisions proposed by section 2 of the bill is consistent with this study.

During the 81st Congress, the Budget and Accounting Procedures Act of 1950 was passed and under this act the Secretary of the Treasury, like the head of every other executive agency, is required to maintain an effective system of internal control, including appropriate internal audit procedures. The act also provides the Comptroller General with authority to conduct his external audits at the site of operations. Such audit would, of course, evaluate the effectiveness of the accounting system and the internal control of the agency being audited. This type of "site audit" has been instituted for the Bureau of Customs.

Although the joint accounting program has been helpful to customs, the removal of statutory restrictions, as proposed by section 2, will

result in further substantial improvements. Of particular importance is the necessity to remove the statutory requirement that the comptroller of customs must verify all assessment of duties and allowance of drawback claims which have been acted upon by the collector of customs regardless of the monetary size of either the entry or the drawback claim. Under existing law, even if there is no money at all involved in the transaction, as, for example, when the merchandise is entitled to free entry under the law, or if the declaration of a returning resident is within the exemption limits set by law, the comptroller of customs must verify the action taken by the collector. We believe that 100 percent verification of such documents by the comptroller is an unnecessary duplication of the work previously performed by the collector's office, which does not afford commensurate protection to the revenue. A selective examination system could be developed which will provide adequate safeguards in an internal audit program. In summarizing this section, it should be emphasized: (1) Customs will continue to have an internal audit program, but it will be more flexible and useful, as well as less costly; (2) the Comptroller General will continue to provide the external audit program, including a check upon the effectiveness of the customs accounting system and internal audit and control.

Another important section of H. R. 5106 is section 22 relating to the conversion of currency for customs purposes. The section will make substantial changes in the existing procedure but the result aimed at is the same as under present law. The section is designed to get rid of an archaic statutory provision which is almost entirely useless today, to restate the rules for conversion in terms of international financial relationships as they exist in the world today and to simplify the day-to-day computations of customs duties. The section maintains the principle that commercial rates of exchange should govern the calculation of customs duties.

Since 1894, the Secretary of the Treasury has been required to proclaim quarterly the value of the standard coins in circulation of the various nations of the world, based upon estimates of the Director of the Mint. These proclamations now serve little function since customs duties are rarely based upon these values. The proclaimed list has shrunk from year to year as some foreign countries do not reply to the Bureau of the Mint's routine questionnaire and other countries no longer have a legally defined gold content of their coin. Section 22 would repeal that requirement and would provide in lieu thereof that the Secretary of the Treasury publish a list of par values which he finds are maintained by foreign countries for their respective currencies. These par values would be used whenever for customs purposes it is necessary to convert into an amount in United States currency any amount expression foreign currency, except when there are one or more rates of exchange which vary by more than 5 percent from the par value. In cases in which there is no par value or there are rates of exchange which vary by more than 5 percent from the par value the rate used would be that certified daily by the Federal Reserve Bank of New York based upon market rates in New York. That is the process today.

Section 22 would continue to permit the recognition of multiple rates of exchange and would continue to permit multiple certification by the Federal Reserve Bank with the application of the rate among

those certified which reflects the commercial value of the foreign currency as related to the import in question. This would be consistent with the decision of the Supreme Court of the United States in Barr v. United States.

Section 13 of the Jenkins bill relates to administrative exemptions. The present law permits customs officers to disregard differences of $1 or less between the estimated duties and taxes deposited on entry, and the final amount as ultimately liquidated. It allows collectors, in their discretion, to let persons entering the United States bring with them goods up to $5 in value duty free and to give free entry to other imports aggregating not over $1 in value. The purpose of these provisions is to avoid waste of customs manpower in determining and collecting trivial amounts of money. Section 13 would amend section 321 of the Tariff Act to (1) increase from $1 to $3 the amount of difference between deposited or assessed duties and actual duties which may be disregarded; (2) permit free entry of bona fide gifts from persons outside the United States to persons inside the United States up to $10; (3) allow persons to bring with them articles up to $10 in value for their personal use; and (4) allow free entry up to $3 in other cases. However, the Secretary would be enabled to reduce these amounts if he finds it necessary to protect the revenue. The basic traveler exemptions contained in paragraph 1798 of the Tariff Act would not be affected by these administrative exemptions.

The Treasury Department believes that the change in value amounts in the section approximate the change in purchasing power since the enactment of section 321 of the Tariff Act. Further, we believe that the gift provisions which would be added by this section will tend to alleviate the great administrative burden experienced by customs at Christmas time.

These sections when taken together with the other provisions of the bill will, in the opinion of the Treasury Department, go far to remove the more serious obstacles in our Tariff Act to the increase of international trade, other than those represented by the tariff rates and the complexities of classification in the tariff structure. As the committee knows, the Treasury Department has been carrying on a continuing study of ways to simplify customs procedures and I believe that the Jenkins bill incorporates most of the best current thinking of the Treasury Department for simplifying customs procedures. I earnestly urge that the committee give favorable consideration to the Jenkins bill.

I would like to add, Mr. Chairman, that the provisions of this bill represent in addition to the Treasury point of view those of the other interested agencies of the Government as cleared by the Bureau of the Budget. I believe the statements are being submitted here on behalf of the Commerce Department and the State Department and MSA. If they have not been, they will be.

Our thought, however, was that in view of the fact that the committee had considered a so closely similar bill so extensively at the previous Congress that it was not necessary or desirable for the Government presentation to take up more time than would be required by the Treasury Department, in order to leave the maximum time for comment by interested industry and private business to express their point of view.

Mr. JENKINS. In that connection, Mr. Secretary, would it be your idea to insert in the record at this time the report of the Department of State. The report has come in. I think it would be well to have it inserted at this time.

Mr. ROSE. I think that would be very helpful, sir.

Mr. JENKINS. If there is no objection, it will be so ordered. (The report is as follows:)

Hon. DANIEL A. REED,

Chairman, Committee on Ways and Means,

House of Representatives.

MAY 26, 1953.

MY DEAR MR. REED: The Department would like to take this opportunity of submitting its views on H. R. 5106, the customs simplification bill. The Department strongly recommends enactment of this legislation. Simplification of United States customs procedures and regulations will facilitate the healthy development of a mutually profitable trade which not only could assist other countries to earn their own way, but also could lessen, to some extent, the extraordinary demands on American taxpayers for foreign aid.

It is difficult to emphasize sufficiently the importance which other countries place on United States action to simplify customs procedure. Foreign countries have strongly urged that we simplify our customs procedures. Canada has already taken some steps to simplify its procedures and is now waiting for us to do likewise. Our ability to get other countries to modernize their procedures and to reduce their customs barriers against American goods will depend greatly on what the United States is itself prepared to do.

American traders have long complained about what they term the unnecessary red tape of customs regulations. Many of the leading business organizations in the United States are urging the simplification of our customs procedures along the lines proposed by H. R. 5106.

H. R. 5106 will contribute toward meeting the needs of this Nation for a simpler, more efficient, and more equitable customs administration. For these reasons the Department strongly recommends its passage.

Sincerely yours,

THRUSTON B. MORTON, Assistant Secretary (For the Acting Secretary of State).

Mr. JENKINS. I understand it is very favorable to the position of your Department.

Mr. ROSE. Yes, sir. The provisions which are contained in the bill have been specifically cleared with the State Department, and represent their views also.

Mr. JENKINS. Any questions? Mr. Simpson will inquire.

Mr. SIMPSON. Mr. Rose, with respect to section 15, if an exporter chooses to export to this country, from, for example, France, on what value would the duty be levied?

Mr. Rose. Under the law as it is now?

Mr. SIMPSON. Yes.

Mr. ROSE. The general system of valuation is the higher of the socalled foreign value or the so-called export value. The foreign value is technically defined, and the gentlemen with me can correct me if I misstate it in trying to generalize, but in general it is the wholesale value for the French wholesale market, or the value at which goods are sold in usual wholesale quantities for home consumption. That is foreign value.

The export value is the value at which goods are sold in the foreign market in usual wholesale quantities for export to the United Statesfreely offered is the technical term-and the higher of the two is the basis.

Mr. SIMPSON. So under the law as it is today, a foreign country which sold the article domestically for a price higher than it was willing to sell it into the United States would have a duty levied on the price at which it sold the goods to its own citizens.

Mr. ROSE. That is correct.

Mr. SIMPSON. What change is made in section 15?

Mr. ROSE. Of course, we have stated only a part of the present formula.

Mr. SIMPSON. Will you tell me the circumstances under which that part would be applicable?

Mr. Rose. If foreign value or export value can be determined, then they are applicable under the law as it now stands.

Mr. SIMPSON. You mean readily determinable. We determine them today one way or another?

Mr. ROSE. The circumstances in which they are not determinable requires a little more analysis, and I think is one of the objectionable features of the present method of determining value. For instance, the term "freely offered" is in both these definitions. Freely offered is defined by court decisions as offered without any restriction at all. If, for instance, an exporter in France has a system of distribution whereby he sells only to one distributor in a particular city, then his offers are not governing because the legal construction is that he has not freely offered, and therefore you abandon his offers of determining value.

Mr. SIMPSON. What do we do then?

Mr. ROSE. We go to the next method of determining value, which is United States value, which broadly speaking is the value at which goods are freely offered in usual wholesale quantities in the United States. This value is then figured back to the value in the foreign country by subtraction of commission, for instance, and cost of transportation and duty. Then if you cannot determine that value for any one of the same kind of reasons, it is determined on the cost of production. That is the present system.

To go back to your question, which is what change does this proposal make in the first bracket of the present method of determining value, the foreign or export value, whichever is higher: The proposal is to eliminate foreign value as a criterion and to make export value the preferred method of determining value wherever it can be ascertained.

In addition the proposal defines certain of the terms in the definition of export value to permit the use of what would be, I think, regarded as a normal commercial value. To explain that a little more I think that commercially speaking, people do not regard a price as unrealistic, or as a price which ought to be abandoned as a method of determining value, because of some of these usual commercial restrictions. For instance, if a man does follow a system of distribution of distributing to only one retailer per town, and that is his normal method of doing business, there is not any reason why that fact ought to eliminate his going price as the basis for determining value.

There are various changes of that kind which are made in the method of determining export value.

Mr. SIMPSON. He might, for example, want an exclusive outlet here. Mr. ROSE. Exactly.