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same thing, except that the fixed mark-ups are eliminated. The mark-ups for overhead and profit are made to be the mark-ups actually experienced instead of the arbitrary minimums which you will find in the present section 402.

We hope that constructed value will be made use of in very few instances because we hope that the other methods, which are preferable and more commercially realistic, will be available in the overwhelmingly largest number of cases.

Mr. REED. It struck me that subsections (d) and (e) in section 402 were quite a radical change from the existing provisions of section 402 of the Tariff Act. It instructs the appraiser in very definite language what he must do.

Mr. NICHOLS. We submit, Mr. Reed, that the language in this bill is very definite. We think it will be easy for the appraisers.

Let me say that the customs appraisers also assisted us in framing this bill, and the customs appraisers were of the opinion that it would afford them a definite and specific guide for action in the cases that came under them.

Mr. REED. Did the importers and domestic exporters or any Government officials urge this change?

Mr. NICHOLS. Is your question whether any importers' groups urged this change?

Mr. REED. Yes.

Mr. NICHOLS. May we inquire and put that information into the record? I know that after having seen it in the bill they have approved it. Whether they urged it prior to inclusion in the bill I do not know.

(The information is as follows:)

Assuming that Mr. Reed's question relates to subsections (d) and (e) of the proposed amendments to section 402 of the Tariff Act of 1930, which are set forth in section 13 of the bill, the answer is that some importers' groups urged action along the general lines of these two subsections, but the specific proposals before the committee were worked out by the Treasury Department.

Mr. JOHNSON. Mr. Reed, every provision originated with the Treasury Department. There were some comments offered by importers, I believe, but I do know that the framework of this was originated by the technical customs officers.

Mr. REED. Of course, the Treasury Department did call in the importers and exporters, as you have said. I was wondering if this particular provision was brought up with them, because it looks to me as though they were making, perhaps, a drastic change. I do not know, but it looks like you are making quite a drastic change with relation to a very technical and complicated system which has been in operation for a long time, and under which the courts have tried to clarify the whole procedure.

I am wondering to what extent this would create a lot of confusion and a large amount of litigation, to work out this whole situation. Mr. NICHOLS. This whole provision was gone into extensively, after it had been drafted, by representative importers, and we are of the opinion and of the impression that it is approved by the overwhelming majority of importers and persons experienced in customs procedure. We believe that any objections to it are relatively scattered. Mr. REED. Do you consider that this section

The comparative value of imported merchandise shall be the equivalent of the export value as nearly as such equivalent may be ascertained or estimated on the 87474-51-5

basis of the export or United States value of other merchandise from the same country which is comparable in construction and use with the merchandise undergoing appraisement, with appropriate adjustments for differences in size, material, construction, texture, or other differences-

delegates excessive discretion?

Mr. NICHOLS. We consider that the scope of discretion of the provision you mentioned, Mr. Reed, is extremely narrow, and furthermore we consider that this provision involves a situation where, under the present law, you have to determine value according to the cost of production which would be much harder to ascertain, and less certain than under this section.

Mr. REED. Yes; I agree with you that the cost of production has been more or less a thorn in our side in determining value. Mr. NICHOLS. We are glad to have your agreement, sir.

Mr. REED. I have had some experience with that.

Mr. NICHOLS. This bill does not repeal the provisions of section 501 of the Tariff Act.

There is no provision in the bill to affect the review by the customs court. That review would be conducted just as it is at present.

Mr. REED. That is, the courts will not review a discretionary act on the part of an official; is that right?

Mr. NICHOLS. That is not exactly the way I would say it, sir. When an appeal to reappraisement is taken the court itself makes the appraisal. It is not a question of reviewing anything.

Mr. JOHNSON. Mr. Reed, may I suggest as to this question of discretion, that I believe the particular language which would be introduced in section 402 is more in relation to 402 together with the existing provisions of section 500 of the Tariff Act, which contains, and has for many years, this identical description of the function of the appraiser which you have suspected to be discretionary. It is not new to the Tariff Act. It is a mere restatement here of some of the material that is already in section 500 for the purpose of correlation.

Mr. REED. It is really a principle of law, is it not, that the courts should not review discretionary acts of an official of the Government, unless there is some gross abuse involved? I can see where they might under this circumstance.

Mr. JOHNSON. Mr. Reed, in appraisement litigation the court starts out with the statutory presumption of the correctness of the appraiser's action. Then it receives evidence, and if there is any evidence at all it considers that evidence to make

Mr. REED (interposing). To overcome the presumption?

Mr. JOHNSON. To make an original finding of value, not a review of the appraiser's finding. So, this question of reviewing discretionary actions I do not think arises in appraisement litigation at all, Mr. Reed.

Mr. REED. Does the principle that you have set forth apply to the appraisement under section 213 (d)?

Mr. JOHNSON. Yes, sir.
Mr. REED. It would?

Mr. JOHNSON. Yes, sir.

On appeal the customs court would make a determination of value if there was any evidence whatsoever to make a prima facie case against the presumption of correctness created by the statute for the appraiser's finding.

Mr. REED. I do not want to consume, Mr. Chairman, too much time here. There are a lot of these provisions here that I would like to review and go into, but I would like to see somebody else have an opportunity to inquire of the witness.

The CHAIRMAN. You may proceed, Mr. Reed.

Mr. REED. That is all for the present, Mr. Chairman. Maybe I will ask some additional questions later.

The CHAIRMAN. Mr. Secretary, I want to compliment you and those testifying with you on your splendid statement in presenting an explanation of this bill.

If I gather correctly your testimony is to the effect that the present law is either so incomplete or ambiguous that the administration of the law is quite difficult, and consequently the expense of administration has increased, and likewise the number of controversies between the importers and the Government has also increased?

Mr. GRAHAM. I would say that is substantially correct. That meets our general purpose of trying to ask your committee and the Congress to unfetter the hands of customs and the importer in certain respects which we think would be of material benefit to both parties. That is the broad objective of this bill, Mr. Chairman.

The CHAIRMAN. Do the customs appraisers act for the Government and for the importer?

Mr. GRAHAM. The customs appraiser, sir, I believe since about 1842 has been a Government officer. Prior to that time, I think the system was to have what was called a merchant appraiser, whereby a merchant in private industry or private business was called in and asked his opinion, and that change was made a little more than 100 years ago, if I remember my customs history, sir.

The CHAIRMAN. The importer is not represented by the appraiser, is that right, it is just the Government?

Mr. GRAHAM. Well, the appraising officer is a Government officer who sets the value. It does not mean that importer always agrees with him, sir. That is why we have legislation.

The CHAIRMAN. Yes; I understand that.

Mr. GRAHAM. Yes, sir.

The CHAIRMAN. But the person who does the appraising is a Government official?

Mr. GRAHAM. Yes, sir; that is correct.

The CHAIRMAN. And he is not connected in any way with the importer, and in no way does he represent the importer?

Mr. GRAHAM. That is correct, sir.

The CHAIRMAN. Now, suppose the Government is not satisfied with the appraisal, can the Government take an appeal from that appraisal? You have the Customs Court, do you not, where disputes as to appraisals are settled?

Mr. GRAHAM. Part of the judicial system of the United States, sir, consists of the Customs Court, that is correct, sir.

The CHAIRMAN. What appeal is there from a decision of the Customs Court?

Mr. GRAHAM. I think it is only in a very limited number of cases that an appeal is taken. May I ask Mr. Johnson to answer that?

Mr. JOHNSON. Mr. Chairman, answering your second question first, there is an appeal from the United States Customs Court, first within the court itself, because an appraisal case is first heard by a

single judge. From his decision there is an appeal by either the Government or the importer to a board of three judges, and from the decision of that board of three there is an appeal on questions of law only, and not on questions of fact, to the United States Court of Customs and Patent Appeals.

On your first question, if the Government is dissatisfied with an appraiser's action the collector has 60 days from the date the appraisal is reported to file his appeal for reappraisement, and that is done, not nearly as often as importers appeal, but it is not an unusual appeal.

The CHAIRMAN. Give us some idea, then, of the number of these appeals, and the delay which is caused by the appeals before they can finally be settled. When there is a disagreement of this kind, what becomes of the goods until the disagreement is settled, and when is the duty paid?

Mr. JOHNSON. Before an importer can receive any of his goods he is required to deposit an amount of duty estimated by himself in the first instance, and approved by a Government officer. Until he has deposited the full amount demanded by the Government as estimated duties he cannot receive any of his goods.

The CHAIRMAN. Where is that deposit held pending decision of the appeal?

Mr. JOHNSON. It is held in the general fund of the Treasury.
The CHAIRMAN. In the general fund of the Treasury?

Mr. JOHNSON. Yes, and any refund is made from a special appropriation.

The CHAIRMAN. So, the Treasury has the benefit of the use of the fund until the dispute is adjudicated or settled?

Mr. JOHNSON. Yes, sir.

The CHAIRMAN. The extraordinary number of cases you have is occasioned by the condition of the present law?

Mr. JOHNSON. My last information, up to a year or so ago, on the average number of reappraisement cases filed per year was about 6,000. I think it would be well to check that figure and give you the exact statistics for a few recent years, Mr. Chairman.

The CHAIRMAN. Do you have any idea what percentage that is of the total importations?

Mr. JOHNSON. Might we insert that in the record too, sir?
The CHAIRMAN. Certainly.

(The matter referred to is as follows:)

Statistics of entries received by Customs, 1947-51, and of appeals to reappraisement received by U. S. Customs Court during same period

Mr. JOHNSON. I think we should limit the percentage relationship to formal entries, because that is the exclusive field of these appeals for reappraisement.

The CHAIRMAN. You say some of them go up to one man, and some go to a three-man board. On the average, how long does it take to dispose of those cases?

Mr. JOHNSON. They have lasted as long as 10 years.

The CHAIRMAN. Ten years?

Mr. JOHNSON. Yes. The average is probably two and a half to

three years.

The CHAIRMAN. Thank you.

Mr. JENKINS. Then what becomes of the goods over which they litigate in the meantime?

Mr. JOHNSON. The goods have been released with the possible exception of a sample.

Now, samples are not kept in all cases because in many cases the character of the merchandise is not very material to the case. It is seldom that the quality is the question in litigation or the character of the goods themselves. It is the custom of the trade and the prevailing circumstances in the trade rather than the character of the goods themselves which are usually involved in appraisement litigation.

Mr. JENKINS. I expect that 10 years is the limit of the time that those cases are in litigation. What would be a fair average?

Mr. JOHNSON. I think the average would be two and a half or three years.

Mr. JENKINS. Anyhow, it takes 3 or 4 months to get the papers filed and to get the appeal perfected.

Mr. JOHNSON. Yes, sir.

GENERAL DISCUSSION

Mr. JENKINS. Now, let me ask you one or two other questions. You provide in this bill for radical changes in the laws. As Mr. Coolidge used to say, "What is it going to cost?" Will it cost any more?

Mr. GRAHAM. Mr. Jenkins, the main objective of this bill is to unfetter the hands of Customs in certain cases, and it is our hope and belief that a reduction in some of the work would result from the passage of this bill and that there would be a monetary saving in cost. If I may repeat for just a moment, these provisions, generally speaking, are the outgrowth of a management engineering survey which was made by McKinsey & Co. of New York pursuant to the funds appropriated by the Eightieth Congress in 1947 for us to do this work, and the majority of these recommendations are to carry ont what they say and what we concur in as being desirable reforms. Mr. JENKINS. In other words, you have had an engineering survey made with the idea of saving money and saving time and rendering better service; is that right?

Mr. GRAHAM. We wanted to render improved service to the public at the least possible cost, and if this bill is enacted it will help us to accomplish that purpose, and we believe that there will be monetary savings made in the customs administration.