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Senator BUTLER. I get the impression that the wool trade industry, which centers in Boston, the manufacturing industry, is quite interested, and apparently they are of the opinion that I have been trying to give here, that the Treasury has been very delinquent in imposing countervailing duties up to date.

Senator HOEY. Any further questions?

Senator BUTLER. That is all I have, Mr. Chairman.

Senator HOEY. Thank you, Mr. Southard.

Mr. Graham, would you like to proceed with anything further? Mr. GRAHAM. Mr. Chairman, following Mr. Southard's observations about the injury aspects, if it meets with your approval and pleasure, I would like to read and submit for the record the following

statement.

Senator HOEY. You may proceed.

Mr. GRAHAM. Mr. Chairman and members of the committee, you may have noted that the United States Tariff Commission has submitted to this committee a memorandum analyzing the various provisions of H. R. 5505. A similar memorandum was submitted to the Committee on Ways and Means of the House of Representatives. In both these papers the Tariff Commission points out that the requirement that the Treasury Department should determine whether particular imports cause injury to domestic industry is an unusual provision. In all other cases where a determination with respect to the economic effect of imports upon domestic production is required to be made the findings is made by the Tariff Commission.

Subsequent to the time of the hearings, the Treasury Department has been in contact with the Tariff Commission to further explore this subject, which, on its face, has considerable merit. These discussions, in our opinion, have been helpful and fruitful. We have reached an informal agreement with the Tariff Commission which, we believe, can be formalized into appropriate language and, with your approval, could be considered during these hearings as amendment to section 2 of H. R. 5505. The net effect of the proposal is that the Tariff Commission would be responsible for establishing injury to domestic producers in cases involving either antidumping or countervailing duty statutes. On the other hand, the Secretary of the Treasury would continue to be responsible for determining whether or not a bounty exists in countervailing duty cases, the extent of such bounty, if any, as well as the determination whether or not a sale is made at less than fair value in antidumping cases.

Senator HOEY. Have you any further statements, Mr. Graham?
Mr. GRAHAM. I do not, Mr. Chairman.

Senator HOEY. At this time?

Mr. GRAHAM. Not at this time.

(The prepared statement of Mr. Graham is as follows:)

STATEMENT OF ASSISTANT SECRETARY GRAHAM

Mr. Chairman and members of the committee, I appreciate the opportunity which you have afforded the Treasury to present its views on H. R. 5505, the proposed Customs Simplification Act of 1951.

H. R. 5505 is sponsored by the Treasury Department. It has to do with procedure in administering the customs laws and not with rates of duty, and it is not intended to effect any substantial change in customs revenue. We believe that its enactment will enable customs to render improved service to the public and to reduce its own operating costs. We further believe that the net effect of the

enactment of H. R. 5505 would be to remove many unnecessary procedural restrictions on imports.

Most of the provisions of H. R. 5505 relate to the commercial importation of merchandise from foreign countries. Therefore, I should like to mention, in layman's language, the process which is involved in a commercial importation. This not only will help to identify the steps which must be taken by the importer and by customs, but also will clarify some of the terminology which is used in customs commercial transactions.

Let us assume that the importer has purchased merchandise in Europe which will require the payment of duties after it has been landed in the United States. Let us further assume that the merchandise is on a ship arriving at the port of New York. The master of the vessel has already prepared a manifest, which is a list of the articles of merchandise. This serves as the first paper control of the merchandise coming into the United States.

After the vessel arrives at New York, the importer, or a customhouse broker acting for him, files an entry at the customhouse. This entry is a list of the merchandise which the importer wants to clear through customs. It contains detailed information concerning quantities, value, country of exportation, and other information which will be needed by customs. This entry also has the importer's estimate of the amount of customs duties which will have to be paid on the merchandise. The entry officer examines these computations and, if the estimated amount appears to be correct, that amount of money is collected from the importer. If obvious errors have been made in estimating the amount of duty due, the entry officer requires the form to be revised and the correct estimated amount of duty is collected. On the basis of this entry, a permit is issued which tells the customs employees on the dock what merchandise may be immediately released to the importer and which packages are to be held for opening and detailed physical examination. Generally speaking, the numbers of packages to be retained for physical opening and inspection would be no more than 1 package out of each 10 of a similar lot. The customs employees checks to see whether the number of packages landed from the vessel agrees with the number shown on the manifest and listed by the importer on the entry. Those packages which have not been selected for examination are usually immediately released to the importer, after their number has been verified, and go immediately into the course of trade.

The packages selected for examination are, in most cases, carted to the appraisers' stores. This is a building which has both office space and warehouse space in which the packages are opened and the contents are counted to see that the quantity and kind of items indicated to be contained in a particular package are actually in it.

Many rates of duty are stated as a percentage of value, and we call them ad valorem duties. To assess an ad valorem duty, customs must appraise, or value, the merchandise. Records have been carefully kept of previous shipments of the same or similar articles. Through an information exchange, value information has also been secured from the other ports throughout the United States as to the values declared by importers at those ports for like items.

In connection with the present shipment, the importer has arranged, through his foreign representative or the company from which he procured the merchandise, for an invoice. This means that the merchandise being exported from the foreign country has been described and listed and information concerning the value of the articles being exported is contained on the invoice. In many cases this invoice is a consular invoice, which is required to be certified by an American consul, who makes such verification of the information as he considers necessary. These certified consular invoices are then sent to the American importer, who supplies this value information and any other information he has concerning value to the appraiser, who, in this example, is in New York.

The valuation of merchandise is not, however, a simple process. Under the present law, which provisions of this bill would amend, there are several methods of valuing merchandise, depending on a large number of factors. The principal methods of valuation, however, are foreign value, or export value, whichever is higher. This means that, at the present time, not only must the foreign shipper and the American importer furnish information concerning both values of merchandise, but customs must make both determinations in order to value the importations at the higher of the two figures. Briefly, foreign value is the price at which the specific commodity is offered for sale in wholesale quantities on the home market, that is, in the country from which it is shipped. Similarly, the export value is the price at which this commodity is offered for sale in wholesale quantities for export to the United States. In cases where there is a doubt

as to the correctness or sufficiency of the information available, a detailed investigation by customs representatives in the foreign country is required.

The appraiser reports his findings to the collector who uses them, together with information on quantities, weights, et cetera, to make a final determination of the duties owed by the importer. If, at the time of entry, a larger payment - was made than is finally determined to be due, a refund is given the importer. If, however, more duties are owing the Government, collection is made from the importer of the increased amount.

In the example which I have given, all went well. The importer did not encounter the impediments which we are trying to minimize and some of which will be mentioned in this statement.

This proposed legislation is part of the over-all management improvement program of the Department which was instituted by Secretary Snyder when he became Secretary of the Treasury.

The Secretary desired that an outside management firm of industrial engineers make an evaluation of the customs service. The Congress concurred, and the Eightieth Congress, first session, appropriated a specific sum of money for this purpose in 1947. After careful study the firm of McKinsey & Co., of New York, was selected to do this work. In the letter of authorization the objectives of the survey were stated to the management firm as follows:

"To study the operations of the Bureau of Customs and the customs service with a view to promoting the efficiency of operations to the end of performing the duties and responsibilities with which the customs service is charged by law and in a manner that will protect the revenues and afford the greatest degree of service to the public. The end objective is to accomplish these results with the greatest degree of economy and the least possible cost to the Government.

McKinsey & Co., after completing their study, made a report which stated, among other things, that "all things considered, the customs service is as well operated as the average business concern. However, we believe it can be improved." The report made many suggestions and recommendations. For statistical purposes we considered that the report contained 178 recommendations. The majority of these recommendations, or 142 in number, were termed administrative. That is to say, the recommendations, if approved, could be placed in effect by order of the Secretary, or the Commissioner of Customs, as the case might be. On the other hand, the recommendations which would require changes in existing law, were termed "legislative." There were 36 such recommendations. A steering committee was appointed by the then Under Secretary A. L. M. Wiggins, consisting of men selected from the Department, the Bureau, and the field, to direct the study. The report was then divided into 15 functional areas, and a task force leader was assigned to each area. Qualified people were then chosen from both the headquarters and field offices to assist the leader.

A majority of the administrative proposals were accepted and put into effect. Some were found to be undesirable. Many required a partial modification of the proposal so as to be more practicable or workable. A box score of the administrative recommendations follows:

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With respect to the 36 legislative proposals contained in the McKinsey & Co. -study, the following tabulation shows the action taken:

Incorporated in H. R. 5505_--

Became effective due to passage of other legislation after the McKinsey report-

Covered by pending legislation, other than H. R. 5505_

Existing laws permit accomplishment.

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Under study

Rejected

Total

36

As you know, the customs laws are usually specific and detailed as to what can be done by a customs officer in administering the Tariff Act. Therefore, it

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is generally conceded that there is a great deal of technicality involved in customs, and the Treasury and customs people are here to assist in answering any questions which you may have in mind. However, I believe that your valuable time will be better served if I may confine my comments to the more general features of H. R. 5505, from the customs viewpoint.

Section 13 is undoubtedly the most important single provision of this bill. It amends section 402 of the Tariff Act which tells the customs appraiser how to find the value of imported merchandise. As I already have explained, many duties are stated as a percentage of the value, so that the value has to be known before the duty can be assessed.

The appraiser, in determining value under the present statutory alternatives, must first ascertain both the foreign value and the export value and then appraise the merchandise according to whichever is higher. It will be observed that this valuation is made with reference to prices in both the home market and the export trade, of the particular country from which the merchandise is shipped to the United States. Generally speaking, the value of the bulk of all dutiable imported merchandise is determined in this manner rather than by value in the United States.

Often there are various technical restrictions involving either the "foreign value" or "export value" determinations, and, if the appraiser cannot ascertain such values, he must then appraise according to "United States value." In essence, this value is based on offers of the imported product in the United States. If this method does not produce the determination of value, then the appraiser must resort to what the present statute terms "cost of production." We are suggesting a change of name to constructed value as more descriptive of the process of determining this type of value in the foreign country.

It will be noted that the appraiser must know a great deal about offers to sell or sales of the same or like merchandise in the home markets of the country from which the merchandise is shipped, in order to determine "foreign value." In order to secure this information, there is often involved a large expenditure of time and effort on the part of the importer in finding out about transactions in a foreign country which he may know nothing about. Likewise, there is an obvious and inherent difficulty in requiring an American customs official, or an importer, to obtain detailed information as to business operations in a foreign country.

Furthermore, the "foreign value" standard sometimes produces the inequitable result that exports from a small country have a higher valuation for customs purposes than the same exports from larger countries. This happens because the home market in small countries is not large and the usual wholesale prices in that country may not reflect the discounts available for large-quantity sales to importers in the United States. Another difficulty is that the prices in the home market are frequently enhanced by internal taxes which do not apply to the merchandise when exported, and recent court decisions do not completely remove the doubt as to when these taxes have to be added in order to arrive at the dutiable value.

The bill proposes to meet these problems by making the so-called export value the method which the appraisers must employ whenever they are able to do so. Failing in this, they are to use the United States value. We propose to eliminate the foreign value as a method of appraisement entirely. This change was strongly recommended by McKinsey & Co. The advantage of this will be that the information necessary to make an appraisement will usually be available to the appraiser in the United States. Either the very merchandise he is appraising will have been freely offered so that the sale will be a satisfactory basis for appraisal or he will have knowledge of the prices paid for similar merchandise imported by other parties.

Section 13 contains a number of other technical provisions which are designed to make it easier to find a value and to make the value when found more commercially realistic. One of the main objections to our present value method is that it takes so long to find the value, and we are confident that if this bill is enacted appraisements will be made much more rapidly.

Next I would like to invite your attention to section 17 of the bill, which deals with the amendment of entries and undervaluation duties. Under present law, whenever the appraiser finds a value in excess of the value at which the importer entered his merchandise there must be assessed under valuation duties, which are measured by the difference. They are heavy monetary exactions and, from the importer's point of view, actually penalties, although not so designated in the statute. Under present law, the importer has a chance to escape the undervalua

tion duties if the appraiser tells him what advance he proposes to make in the value and if the importer amends his entered value to correspond. Customs regulations permit appraisers to furnish this information if the importer has cooperated by supplying all the information in his possession which will help the appraiser. Furthermore, even after the undervaluation duties are assessed the importer can petition the Customs Court, which will remit them if the importer has acted in good faith.

The trouble with this procedure is that the provisions to protect the innocent importer are not sufficient to prevent undervaluation duties from being assessed in many cases where they are not deserved. To avoid them the procedure is extremely cumbersome and roundabout and involves a lot of unnecessary paper work in amending entries, which is a burden both on the importer and on the collectors of customs.

Section 17 seeks to eliminate both the amendment of entries and the circumstances which now make amendments necessary. The importer who cooperates by supplying all information in his possession or available to him will be no longer subject to undervaluation duties, even if the appraiser has advanced the entered value. Furthermore, if the appraised value should happen to be less than the entered value, he will get the benefit of the difference. Under present law, if the entered value exceeds the appraised value, the entered value governs and the importer gets no benefit from the lower appraisement. Therefore, amendment of entries under the bill ceases to have any legal consequence and can be done away with as unnecessary.

Section 17 further provides that when undervaluation duties are assessed they are subject to protest and review procedure the same as any other duties. Consequently, if the importer believes that the appraiser has been arbitrary in his demands for information, he can obtain administrative and judicial review. The bill also eliminates the presumption of fraud which arises under present law if the undervaluation is 100 percent or more. We believe that such undervaluations are frequently innocent and result from misunderstanding of the applicable metho of valuation, and therefore no presumption is justified. Of course, if there is actual fraud, other provisions of the customs laws can be invoked.

We believe that there will be three principal advantages to be derived from these provisions. First, the customhouses will not be cluttered up with useless amendments of entries. Second, importers will not be assessed undervaluation duties unless they have in some way been derelict in performing their obligations under the law. Third, in cases of doubt the question whether or not undervaluation duties have been incurred will be determined much more quickly and cheaply. The final word still remains with the Customs Court.

Another provision of the bill, section 3, deals with certain special marking requirements. There is a provision of the customs laws which requires that all imported merchandise be marked to show the country of origin, with certain obvious exceptions such as bulk goods. We are not recommending any change in this provision. Elsewhere in the customs laws there are certain additional requirements. For example, let me invite your attention to paragraphs 354 and 355 of the Tariff Act of 1930. They require that most knives when imported be marked with the name of the maker or purchaser, and beneath the same, the name of the country of origin, die sunk conspicuously and indelibly on the blade, or on the shank or tang. It is not sufficient if the name of the maker be on the other side of the blade from the country of origin, nor may these markings be added after importation. In actual practice these provisions have been found to constitute traps for inexperienced importers seeking to market new lines of merchandise in this country. Moreover, they serve little useful purpose because the general marking requirements would insure that consumers would know what was the country of origin. These special marking requirements have no provision for unusual or hardship cases. Consequently, they often produced irritating wrangles such as occur when an American doctor orders specially designed surgical instruments abroad and then finds that the special marking requirements prevent their coming in.

The next section I would like to discuss is section 15, certified invoices and informal entries. I have already explained what an entry is in customs language. Present law permits the entry of a shipment valued at $100 or less to be "informal," which means that it is on a special simplified form and is filled out by the customs inspector for the importer. The proposed bill would increase the dollar ceiling on such informal entries to $250, and, by an amendment introduced in the House, would permit informal entries for certain importations for schools, churches, and libraries, principally of books and pictures, without limitation as to

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