TREASURY DEPARTMENT,

Hon. JOSEPH C. O'MAHONEY,

United States Senate, Washington 25, D. C.

ASSISTANT SECRETARY, Washington, February 15, 1952.

MY DEAR SENATOR: Reference is made to your telephone request of February 13, 1952, for information regarding the status of this Department's consideration of the applicability of countervailing duties to imports of wool tops because of exchange rates made applicable to them by Argentina and Uruguay.

As you know, section 303 of the Tariff Act in substance places two responsibilities upon the Secretary of the Treasury. He must determine whether a bounty or grant is in fact being conferred upon any product and, if so, he must determine or estimate the net amount of each such bounty or grant and levy countervailing duties accordingly. These responsibilities often present a number of complex questions. The cases to which you refer are particularly difficult because they involve the problem of indirect bounties or grants which may result from the presence of multiple exchange practices.

In some cases multiple export rates may have economic effects similar to those of bounties, but in other instances they may not. For example, some countries apply lower export rates on some commodities than on others as a technique of deriving tax revenue from the exportation of the commodities subject to the lower rates. In some countries multiple rates may be resorted to as a means of avoiding the political and other difficulties involved in a devaluation of their currencies.

Therefore, the task of determining whether a particular rate is in fact as subsidy rate is obviously not an easy one nor is it a task which can usually be accomplished quickly. When the question of the exchange rates of Argentina and Uruguay was previously considered, the Department reached the conclusion in December 1950 that their application to the export of wool tops did not give rise to a bounty or grant within the meaning of section 303 of the Tariff Act of 1930. This Department is, however, again giving careful and active consideration to the specific cases to which you referred. Indeed, steps were taken some weeks ago to obtain directly from the United States Embassy in Argentina some of the information which is required for an adequate reexamination of this problem.

very truly yours,

JOHN S. GRAHAM, Assistant Secretary of the Treasury.

The CHAIRMAN. Mr. Beiter. You may have a seat, Mr. Beiter, and identify yourself for the record.

STATEMENT OF ALFRED F. BEITER, NATIONAL PRESIDENT, NATIONAL CUSTOMS SERVICE ASSOCIATION

Mr. BEITER. My name is Alfred F. Beiter, and I am president of the National Customs Service Association.

The CHAIRMAN. I beg your pardon for mispronouncing your name. Mr. BEITER. That is all right, Senator.

Mr. Chairman, I represent the customs service employees. Our members consider themselves shareholders in the customs service. As career customs officers we have a strong interest in the improvement of customs administration. I use the word "career" advisedly since the personnel turn-over in our service is relatively small. A very large percentage of our members have had 20 years and more in the Government service. Customs is their life work, they are proud of it, and anxious to maintain its present high standard of perform

ance and even improve on it. Our continuing interest in better administration of the tariff and related laws causes us to welcome and appreciate this opportunity to make this statement.

Generally speaking, we believe the proposed legislation will make · for improved customs administration and eliminate many of the uncertainties and hardships which plague those doing business with customs. Our comments on the present bill are more limited than on the original measure presented in the House-H. R. 1535-since H. R. 5505 is a considerably improved bill.

We are in complete sympathy with the objectives of this legislation and our comment, therefore, is in the nature of friendly observations on selected portions of the bill which we feel will fall short of achieving the maximum improvement possible, or which will expedite handling or diminish the custom workload at the sacrifice of proper controls.

Section 13. Value: Subsection (A) amending section 402 (c) (1) Tariff Act of 1930, as amended, provides that in computing United States value on nonpurchased goods allowance shall be made for any commission paid or to be paid. Allowing deduction of the full commission without limitation would make it possible for foreign suppliers through the medium of owned or controlled subsidiaries in the United States, to land their merchandise in this country at substantially lower prices than other importers of competitive merchandise.1 This could be added by a further proviso that the commission allowed shall in no case be greater than that which is usual in the market for merchandise of the same class or kind as that undergoing appraisement.

The same subsection amending section 402 (e) (2) outlining constructed value stipulates that the addition for general expenses and profit shall equal that usually added by producers in the producing country who export to the United States on their sales in the usual wholesale quantities and in the ordinary course of trade, of merchandise of the same class or kind as that undergoing appraisement.

Since one of the major objectives of the customs-simplification proposal has been to avoid as far as possible having customs valuation dependent on circumstances peculiar to foreign market sales, it is fair to assume that this addition for general expenses and profit is intended to be based on export sales to the United States. While it is quite probable that such would be the interpretation placed on the language, it might be advisable to specify that the addition for general expenses and profit is to be predicated on the export market to the United States. Heavier distribution costs, selling and advertising expenses, commonly require foreign sellers to make competitive consigned merchandise being appraised on United States value basis of some gross selling price, with importer A receiving a standard 10 percent

1 This would be accomplished by paring the profit margin which normally remains in the dutiable value of the merchandise and paying the difference as added commission. Since the agent would be wholly owned by the manufacturer no appreciable loss would thereby result to the seller. As an illustration, assume his selling price to the point of driving A out of competition, or at least securing the lion's share of the available trade.

commission and importer B an inflated but actual commission of 40percent, the computation would be approximately:

As an initial consequence, B would pay less duty than A, though commercially and saleswise the merchandise is approximately the same. The probability is also that B, using the advantage given him by this lower duty liability, would reduce substantially larger additions for general expenses and profits for home-trade sales than for export transactions.

Pro

Section 21. Customs supervision: It is our sober judgment that this provision in its present form should not be enacted. Its avowed purpose is to avoid the possibility that the courts may interpret_tariff requirements for customs supervision as demanding direct and continuous supervision when the nature and purpose of the assignment would make that sort of supervision a wasteful employment of customs manpower. There can be no quarrel with such an objective, but section 21, in avoiding that danger, creates a far greater one. ponents of this section will not deny the sweeping and all-embracing character of the language used. To protect importers who have acted in good faith requires no more than a provision that any action or thing done or maintained in good faith by an importer, or other person, under the supervision of customs officers, and in compliance with the principal customs officer concerned, may not thereafter be questioned administratively or otherwise.

It most certainly does not require that we abandon a standard for customs supervision and substitute therefor in many cases the day-today makeshifts of hard-pressed local customs officers.

Section 21 abandons principle and enthrones expediency. The true standard for customs supervision, implied but inflexible, is that it be of such a nature and extent as to effect the supervision intended within reasonable limits, dictated by the importance, revenuewise, or enforcementwise, of the task. The determination of what measure and kind of supervision, spot check, continuous observations, et cetera, is an administrative application of this general principle or standard to a specific control or enforcement problem.

Under section 21, in the many instances where there is no regulation of the Secretary prescribing the nature and extent of the supervision to be exercised, this specific local determination of what form the supervision should take becomes not the application of the standard but the standard itself; and it is evident, when local officers all over the country are making such determinations almost daily, there no longer is any real standard of supervision. Such a situation is obviously fraught with disagreeable consequences. But, quite apart

from its undesirability from a philosophical point of view, as a matter of system, it is especially dangerous in view of the current circumstances of the customs service.

In recent years, in almost all customs activities, there has been a pronounced weakening of controls. This has been due, we think, to two factors. The minor one has been a certain overenchantment in high administrative circles with theoretical rather than practical measures. The recent change in the draw-back regulations is a case in point. But the major factor, and the one which has created a favorable climate for the other, has been the terrific squeeze on customs manpower. The steady rise in the customs workload on a static, everdiminishing force has posed fearful problems for customs administration in the field and in the Bureau. Ofttimes, Customs does not have the personnel to perform the tasks imposed on it. Consequently, all sorts of short cuts and makeshift arrangements may be called into play to prevent a breakdown in customs operations. However, these makeshifts are now approached cautiously and reluctantly, with full appreciation of their shortcomings. But in the field of customs supervision, if section 21 is enacted, the make-do approach becomes the accepted norm.

Uneasiness in the employment of makeshifts will no longer be quite as prevalent, nor will continuing concern whether the supervision exercised is consonant with the importance of the assignment and adequate for reasonable effectiveness be quite so justified. The enactment of this section will tend to lessen the responsibility of field officers, and doing the best that can be done with the forces available at a given time will be a full discharge of duty, since there will no longer be an absolute standard geared to the importance and difficulty of the task. Local circumstances, though they vary from day to day, can conceivably govern. The effect is that the law sanctions a wideopen policy on those aspects of customs supervision which cannot be covered by department regulation.

The Customs Bureau is and has been, one of the preeminent agencies of the Federal Government. It has earned a reputation for technical competence, efficiency, and performance of a markedly high order. Much of this is due, of course, to the high type of personnel the Bureau has been able to attract and retain. But a large measure of its reputation is the fruit of basic customs concepts through the years which have, by and large, made customs decisions, rulings, determinations, et cetera, rest on facts rather than assumptions; first-hand information rather than documents; realities rather than probabilities. Section 21 contains the seeds of destruction of much of the effectiveness which has characterized the operations of the Customs Bureau, and we urge its rejection in its present form.

The CHAIRMAN. Any questions of the witness?

Thank you very much, Mr. Beiter, for your appearance here.

2 Simply stated, draw-back is the system whereby customs duties on imported merchandise may be refunded if the merchandise is used or consumed in the domestic manufacture of other merchandise subsequently exported from the United States.

Two elements are required to establish the right to the duty refund. The imported material must, in fact, be used or consumed (with a limited possibility for substitution) in the manufacture of the domestic merchandise; and this, in turn, must be exported from the United States. Great care is taken by Customs to verify the first element. Specially trained personnel verify formulas, check manufacturing methods, et cetera. Yet the coequal element of exportation, a fact much more readily established at first hand, may now be established by affidavit filed after the exportation is claimed to have taken place. And this is an operation paying out some $8,000,000 annually.

Your statement will be placed in the record.

You are speaking from the standpoint of the career people who administer, who handle, the customs problems?

Mr. BEITER. That is right, Senator; and we think this section is broad enough to permit the relaxation of all types of customs supervision.

The CHAIRMAN. Yes, sir. Well, thank you very much.

Mr. BEITER. Thank you, sir.

The CHAIRMAN. Mr. Armstrong, I believe you are to be called next. You may be seated, and you may identify yourself for the record.

STATEMENT OF IAN ARMSTRONG, ASSISTANT TO THE PRESIDENT, ELDORADO OIL WORKS

Mr. ARMSTRONG. I am Ian Armstrong, of the Eldorado Oil Works, San Francisco, representing the Eldorado Oil Works and also the National Institute of Oilseed Products.

The CHAIRMAN. Yes, sir. You may be seated.

Mr. ARMSTRONG. That is in San Francisco.

I have here a brief written statement which I can

Senator KERR. Generally, what are the products?

Mr. ARMSTRONG. Oilseed products. It is largely vegetable oil-bearing products.

Senator KERR. Illustrate.

Mr. ARMSTRONG. Copra, soybeans, cottonseed.

Senator KERR. Yes; all right.

Mr. ARMSTRONG. Imported sesame seed, and things of that sort. They take oil out to make the oils, and the residue is in cattle food. The CHAIRMAN. You have a written statement?

Mr. ARMSTRONG. I have a written statement which I would read briefly. It will not take long. It is more or less a condensation of our views on the situation, and gives you a broad picture of it; and, if any time is saved in my presentation, I would like it granted to Mr. John Gordon, who follows me, and who has a statement in greater detail with more precise figures than I have here.

The CHAIRMAN. Yes.

Mr. ARMSTRONG. If that is possible.

The CHAIRMAN. You may put your entire statement in the record if you wish to.

Mr. ARMSTRONG. Yes. Well, I would like to just get this off my chest.

Let me, first of all, explain that copra, which is what we are particularly interested in, is the dried meat of the coconut, which is produced all over the Orient. Owing to preference in taxation, the supplies for this country are mainly imported from the Philippine Islands.

Copra contains two-thirds coconut oil and one-third coconut meal. Copra traditionally is duty-free, but a tax of 3 cents per pound it at present paid by the first domestic processors of the oil

Senator KERR. By what?

Mr. ARMSTRONG. The first domestic processor of the oil. It is a processing tax; that is, the soap maker or the refiner or whoever uses the oil, he pays that tax when he processes the crude oil which he gets

from us.