C.

5.

directly from a beneficiary developing country into the Customs
territory of the United States; and (2) if the sum of (A) the cost
or value of the materials produced in the beneficiary developing
country or any two or more countries which are members of the same
association of countries which is treated as one country under
$502(a)(3) [19 USC §2462(a)(3)], plus (B) the direct costs of
processing operations performed in such beneficiary developing
country or such member country or such member countries is not less
than 35% of the appraised value of such article at the time of its
entry into the Customs territory of the United States

Regulation: 19 CFR $10.176. "Country of origin criteria.

(a) Merchandise produced in a beneficiary developing country or any

two or more countries which are members of the same association Merchandise which is (1) the growth, product,

of countries.

manufacture, or assembly of (1) a beneficiary developing

country or (ii) any two or more countries which are members of
the same association of countries and (2) imported directly
from such beneficiary developing country or member countries,
may qualify for duty free entry under the generalized system of
preferences ('GSP'). However duty free entry under GSP may be
accorded only if: (1) The sum of the cost or value of the
materials produced in the beneficiary developing country or any
two or more countries which are members of the same association
of countries which is treated as one country

plus (ii)

the direct costs of processing operations performed in any such beneficiary developing country or member countries, is not less than 35% of the appraised value of the article at the time of its entry into the Customs territory of the United States.

6

(b) Merchandise grown, produced or manufactured in a beneficiary Merchandise which is wholly the growth,

and

developing country.
product, or manufacture of a beneficiary developing country, or
an association of countries treated as one country
manufactured products consisting of materials produced only in
such country or countries shall normally be presumed to meet
the requirements set forth in this section."

a.

Statute: 19 USC 2703. "Eligible articles. (a)(1) unless otherwise excluded from eligibility by this title, the duty free treatment provided under this title shall apply to any article which is the growth, product, or manufacture of a beneficiary country if

(A)

that article is imported directly from the beneficiary country into the Customs territory of the United States; and

(B) the sum of (1) the cost or value of the materials produced in a
beneficiary country or two or more beneficiary countries, plus
(ii) the direct cost of processing operations performed in a
beneficiary country or countries is not less than 35% of the
appraised value of such article at the time it is entered.

For purposes of determining the percentage referred to in
subparagraph (B), the term 'beneficiary country' includes the
commonwealth of Puerto Rico and the United States Virgin Islands.
If the cost or value of materials produced in the Customs territory
of the United States, other than the commonwealth of Puerto Rico) is

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included with respect to an article to which this paragraph applies, an amount not to exceed 15% of the appraised value of the article at the time it is entered that is attributed to such United States cost

or value may be applied toward determining the percentage referred to in subparagraph (B)."

b.

Regulation: 19 CFR $10.195.

"Country of origin criteria.

CBI.

(a) Articles produced in a beneficiary country. Any article which
is either (1) wholly the growth, product, or manufacture of the
beneficiary country or (2) a new or different article of
commerce which has been grown, produced, or manufactured in a
beneficiary country, may qualify for duty free entry under the
However, no article or material shall be considered to
have been grown, produced, or manufactured in a beneficiary
country by virtue of having merely undergone (1) simple
combining or packaging operations, or (ii) mere dilution with
water or mere dilution with another substance that does not
materially alter the characteristics of the article.
duty free entry under the CBI may be accorded to an article
only if the sum of the cost or value of the materials produced
in a beneficiary country or countries, plus the direct cost of
processing operations performed in the beneficiary country or
countries, is not less than 35% of the appraised value of the
article at the time it is entered.

Moreover,

(d) Articles wholly grown, produced, or manufactured in a

beneficiary country. Any article which is wholly the growth, product, or manufacture of the beneficiary country, including

articles produced or manufactured in a beneficiary country
exclusively from materials which are wholly the growth,

product, or manufacture of the beneficiary country or countries
shall normally be presumed to meet the requirements set forth
in paragraph (a) of the section."

MLS: 1474K

(3) Wholly the growth, product, or manufacture of the beneficiary

manufacture of a beneficiary country' refers both to any

article which has been entirely grown, produced, or
manufactured in a beneficiary country or two or more

beneficiary countries and to all materials incorporated in an
article which have been entirely grown, produced, or
manufactured in any beneficiary country or two or more
beneficiary countries, as distinguished from articles or
materials imported into a beneficiary country from a
non-beneficiary country whether or not such articles or

materials were substantially transformed into new or different
articles of commerce after their importation into the

beneficiary country."

STATEMENT OF ARTHUR J. FRITZ, JR., PRESIDENT, NATIONAL CUSTOMS BROKERS AND FORWARDERS ASSOCIATION OF AMERICA, INC.; AND PRESIDENT, FRITZ CO., INC., SAN FRANCISCO, CA

Senator DANFORTH. Mr. Fritz.

Mr. FRITZ. Mr. Chairman, I am Arthur J. Fritz, Jr., president of the National Association of Customs Brokers and Freight Forward

ers.

We are concerned that the Customs Service makes policy determinations and implements them through its own procedural means, ignoring its own laws and regulations as well as congressional intent. Mismanagement by directive disregards the Administrative Procedure Act which provides the public the rights of adequate notice and ample opportunity to comment.

Numerous examples are cited in my written submission. I will comment on two of the most blatant.

The first involves the intention by Customs to eliminate the present inbond system created by Congress to promote and ensure the viability of inland ports, such as Chicago, Dallas, Denver, and St. Louis, and with deregulation extended to seaports, such as Portland, New Orleans, Houston, and Boston, where up to 80 percent of the cargo arrives in bond.

This intent is evident from Customs' 5-year plan which states all merchandise will be cleared at the first port of arrival regardless of where the entry is filed.

This clearly violates U.S. law and Customs regulations which require the entry to be filed in the same district in which the merchandise is released. It also violates laws requiring merchandise to be_within the legal confines of a port before entry may be made. Realizing such a program would be politically unpopular as well as illegal, Customs is avoiding the law by characterizing it as a test. This test began almost 2 years ago between Savannah and Atlanta. The most recent draft directive calls for implementation nationwide.

How long and extensive can a test be before results are evaluated and regulatory and legal requirements complied with?

Customs justifies many of its actions with the contention that automation requires change. While this sometimes is true, this does not justify a deviation from proper rulemaking procedures. Moreover, automation, while beneficial, is not the panacea Customs envisions, which brings me to the second example.

A major and essential element of Customs automation is the automated broker interface, wherein licensed brokers input data electronically to Customs. I emphasize the word "broker" because our industry in reliance on Customs promises has expended millions of dollars to prepare for automation. Customs still has not provided the anticipated benefits.

Nevertheless, it has opened its system to ports, carriers and other unregulated entities in contravention of the Customs Broker Act of 1984 that Customs helped enact to regulate our industry and ensure a high level of professional expertise.

Again, in the name of automation, law and congressional intent is summarily brushed aside.