Senator KERR. All right, Mr. Miller, we will hear Mr. Lerch.
Mr. MILLER. Thank you, sir.

Senator KERR. I understand Mr. Lerch is appearing here on behalf of some eight organizations.

Mr. LERCH. Eight industries; yes, sir, Mr. Chairman.

Senator KERR. Well, I trust that the word you used, "industries," is not entirely different from the word I used, "organizations." Mr. LERCH. Not at all.

Senator KERR. You may proceed.

STATEMENT OF JOHN G. LERCH

Mr. LERCH. Mr. Chairman, my name is John G. Lerch. I am the surviving partner of the firm of Lamb & Lerch, doing business at 25 Broadway, New York City, specializing in the practice of customs law.

I entered the customs field in 1912 as private secretary to the Honorable Eugene G. Hay, a judge of what is now the United States Customs Court. In that capacity, it was part of my duties to assist in the preparation of decisions of customs cases. In 1920 I left Judge Hay and joined the staff of the Assistant Attorney General in Charge of Customs, where for 5 years I was Chief of the Reappraisement Division which had charge of all litigation pending before the customs courts involving the value of merchandise. On January 1, 1926, I left the Department of Justice to establish my present firm. I have been continuously in the practice of customs law since that date.

I am appearing here on behalf of the following industries: Candle Manufacturers Association, 19 West Forty-fourth Street, New York, N. Y.; Twisted Jute Packing and Oakum Institute, 19 West Fortyfourth Street, New York, N. Y.; the Industrial Wire Cloth Institute, 74 Trinity Place, New York; National Building Granite Quarries Association, Inc., 114 East Fortieth Street, New York, N. Y.; the Rubber Footwear Division of the Rubber Manufacturers Association, 444 Madison Avenue, New York, N. Y.; the Toy Manufacturers of the U. S. A., Inc., 200 Fifth Avenue, New York, N. Y.; United States Potters Association, East Liverpool, Ohio, and the Collapsible Tube Manufacturer's Association, 19 West Forty-fourth Street, New York,

N. Y.

May I say at this point, that I testified before the Ways and Means Committee of the House on this bill, and submitted a brief, and that appears at page 319 of the printed record of the Ways and Means Committee hearings. In that brief I touched on various sections, 3, 6, 11, 13, 17, 19, and in my testimony, 20 of the present bill, and rather than go into that all over again, I ask the committee to have reference to that brief as printed in the House record.

Senator KERR. That is different from the statement you will make here?

Mr. LERCH. I am going to touch on some of those points. Senator KERR. If you care to, that may be inserted as part of this record.

Mr. LERCH. I would appreciate it very much.

Senator KERR. Very well.da

(The brief above referred to is as follows:)

Re customs simplification bill, H. R. 1535.
CHAIRMAN, WAYS AND MEANS COMMITTEE,

AUGUST 1951.

House of Representatives, Washington, D. C.

SIR: I testified before your committee on August 14, 1951, and in that appearance I limited my remarks to a few of the sections in the proposed bill which I regarded to be the more important and illustrative of the intent and scope of the revision of the existing law.

Since I appeared, I have heard most of the testimony that has been introduced and it occurs to me that it would be helpful to the committee in the consideration of this bill if a more complete survey was made and the committee shown the actual changes which more of the sections in the bill would accomplish.

I therefore respectfully ask that this memorandum be received and made a part of my original remarks.

REPEAL OF SPECIAL MARKING REQUIREMENTS

Section 3 repeals the special provisions in a number of the paragraphs of the Tariff Act of 1930. The first in the enumeration is paragraph 28. It provides for the deletion of the words "the immediate container and," where they appear in subparagraph (f) of that paragraph. This would leave the only requirement for the identification of a color, dye, stain, etc., that of describing it on an invoice, and would permit the entry into the commerce of the United States of foreignmade products in this paragraph with no identification on the container that reaches the consumer to show its foreign origin. There are many articles under this paragraph where their American origin would be a definite asset in their acceptability. Foreign origin may be a detriment. This same observation could be made as to each of the commodities in the paragraphs enumerated in section 3 (a), and as to which the special marking provision is deleted. Congress, over a period, has seen fit to accord these American industries the protection of having certain competitive foreign merchandise so specially marked that the consumer will know that he is not getting domestic-made merchandise. The removal of this requirement may definitely permit the sale of imported merchandise in this country as American-made goods.

FREE ENTRY PROVISIONS FOR TRAVELERS

Section 6 (c) (A) and (B) of the proposed bill provides for the free entry of merchandise being brought back by American tourists. Subparagraph (A) permits one who has remained abroad for a period of not less than 48 hours to bring back with him $200 worth of merchandise. Subsection (B) permits an American citizen who has been abroad for a period of not less than 12 days, to bring back $500 worth of merchandise.

While it may seem an altruistic attitude toward our citizens on the part of their Government, this provision could very readily work great hardship on some domestic industries. For illustration, English bone china because of arrangements between England and Canada sells in Canada at a very reasonable price over that at which it is sold in this country and over comparable merchandise made in this country. If a traveler to Montreal, let us say, remained there for the 12-day period, he could bring back four or five bone china dinner sets, free of duty under this exemption, and it could develop into a very prosperous industry running these valuable china sets into this country and disposing of them at the prevailing American price to the detriment of the American industry.

While the proposed section provides a penalty for the sale of merchandise brought in by tourists, this provision in practice would be practically meaningless since it would be impossible to check every $500 worth of merchandise brought in by tourists to determine whether it had been sold.

ADMINISTRATIVE EXEMPTIONS

Section 11, among other things, contains a provision which in the language of the Treasury Department analysis of this bill "would allow persons to bring with .them or import by mail up to $10 for their personal use, and would allow free

entry up to $5 in other cases." It is conceivable under the $10 exemption for mail importations that a mail-order house in Canada circularizing the United States could become very prosperous to the detriment of American industry.

While it is true that the present law requires the collection of duty on trivial amounts, yet that might prove a good investment over the injury that may be done by the free entry of merchandise up to $10.

་। ་

VALUE-SECTION 13

I have commented upon this section in my appearance before your committee. In my comments on comparative value, I intimated that the great bulk of imported merchandise subject to ad valorem duties would be appraised on the comparative-value basis which permits an appraiser to arrive at a value for imported merchandise by a system of additions, deductions, and allowances, all of his own making.

That comparative value would be the form most generally used is confirmed in the Treasury analysis at the bottom of page 22 in its explanation as to why constructed value would be so little used "since it would make it possible for appraisers to estimate the comparative value from comparable merchandise in many cases which now must go to 'cost of production.'

On page 23 of the analysis, the following sentence appears:

"Entirely apart from questions of administrative expense and efficiency, the Treasury Department believes that in any system of ad valorem taxation, the value used should be the true value, the market value when the merchandise has a market, and not an arbitrary or fictitious value."

How this language can be applied to comparative value is very difficult to understand since a value arrived at by an appraiser through estimates and allowances must of necessity be more or less arbitrary or fictitious. It certainly does not subscribe to a definition of fair or actual value. Under this system, would not an importer have to be able to read the appraiser's mind to determine what amount of duty he is going to pay when he imports a given shipment?

Furthermore, section 13 contains new definitions. Assuming, which I think is most doubtful, that under the proposed law the right of judicial review of the appraiser's action will remain, it will require decades of litigation in our customs courts before the meaning of these definitions can be definitely ascertained. In the light of the flood of litigation that is certain to occur, can it be said that the work of the appraiser will be simplified, or would it not be more accurate to say it will become uncertain and confused?

As I have said before, there can be no reason for the abandonment of the present system for an entirely new system, except as the Secretary admits on page 24 of the analysis that we pledged ourselves to some such system in article 7 of GATT.

AMENDMENT OF ENTRIES AND DUTIES ON UNDERVALUATION

Section 17 will, from any practical interpretation you can place on it, virtually remove the assessment of additional duties that are now imposed under our law. Existing law, in effect, requires that there be assessed in addition to all other duties a duty of 1 percent for each 1 percent that the appraised value exceeds the entered value.

Over a long experience, this policy was found necessary in order that the importer accurately state on his entry the proper value for duty purposes. This assured the appraiser of the maximum amount of information as to the value of imported merchandise. Under existing law where an additional duty was assessed, it can only be remitted by the United States Customs Court upon a finding that the entry at less than the appraised value was made in good faith and not intended to deceive the appraiser. The proposed section 17, to use the words of the Secretary at page 29 of his analysis, "would provide that the undervaluation duty shall apply only in cases where there is not only an undervaluation but also a failure on the part of the importer to furnish to the appraiser all information available to the importer at the time of entry or within a reasonable time thereafter, which is required by customs and is relevant to the value of the merchandise." [Italics ours.]

The bill also gives discretion to the customs officials to determine whether or not additional duty shall be assessed, and it is only such cases in which the customs official decides to penalize an importer and assess the additional duties that will go to the United States Customs Court as under existing law.

This discretion, coupled with the ability of the appraiser under section 13 of the proposed bill to estimate values, is, as has been said, that it gives too much power to a dishonest man and more power than an honest man would want.

CORRECTION OF ERRORS AND MISTAKES

Section 19 of the proposed bill amends section 520 (a) (3)-clerical error. This subsection permits the correction of a clerical error within a certain time and under certain conditions. The proposed section broadens this provision so as to include:

"(1) A clerical error, mistake of fact, or other inadvertence not amounting to an error in the construction of a law, adverse to the importer and manifest from the record or established by documentary evidence, in any entry, liquidation, appraisement, or other customs transaction, when the error, mistake, or inadvertence is brought to the attention of the customs service

The customs courts have construed existing law to relate only to a clerical error which was manifest from the papers in the case. The decisions also tend to limit this remedy to the invoice and entry papers.

* * *

Under this proposed provision it is made to include a "mistake of fact, or other inadvertence not amounting to an error in the construction of a law, manifest from the record or established by documentary evidence." By this language there is placed in the hands of the Secretary of the Treasury the right to pass upon practically any irregularity that will be alleged to have occurred in the entry, liquidation, appraisement, or other customs transaction.

During the hearings a member of your committee expressed a suspicion that there may be sleepers in this act. If there are circumstances under this act that can be so designated, this is one.

Under existing law, the Secretary is empowered to correct a manifest clerical error. All other jurisdiction he is given by this bill is reserved to the United States Customs Court upon a timely appeal or protest after the action of the administrative Government official has taken place.

Under this provision the Secretary of the Treasury could readily become the court of first instance in cases of this character and if the importer secured the desired redress in this forum obiously he would have no reason to appeal to the customs courts.

Mr. Chairman, I have imposed upon you to the extent of this memorandum in an effort to show what I meant when I testified before your committee that this bill amounted to a tariff revision under an anesthetic.

From the sections that I have reviewed in my testimony and in this memorandum you can readily see that provisions of existing law have been repealed in toto. Entirely new provisions have been substituted. Existing powers of Government officials have been materially extended. Board discretion has been vested in Government officials where it does not now exist. The provisions of this bill may materially change the jurisdiction of the customs courts over some forms of litigation. And, finally, there is grave question under the proposed bill as to whether or not it will not completely divest the court of its jurisdiction on questions of value.

Respectfully submitted.

JOHN G. LERCH.

Mr. LERCH. I have another brief which I am going to ask to be inserted in the record.

Senator KERR. If it is repetitious, then it will not

Mr. LERCH. No; it is not.

Senator KERR. All right.

(The document referred to is as follows:)

APPLICATION OF AD VALOREM RATES OF DUTY

LEGISLATIVE HISTORY, REVIEW OF BASES OF APPRAISEMENT, AND COMMENTS ON SECTION 13, H. R. 5505

(By John G. Lerch, New York)

REVIEW OF LEGISLATIVE HISTORY

In order to more fully understand what we have in the provisions of section 402 of the Tariff Act of 1930, and how section 13 of H. R. 5505 may affect it, it may be well to examine briefly the history of what led to this section.

The preamble to the very first Tariff Act passed by our Congress on July 4, 1789, reads as follows:

"SEC. 1. Whereas it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise imported." That act levied both specific and ad valorem duties. The act based the ad valorem duties on the "value thereof at the time and place of importation." This was substantially the British system of assessing duty on the value of the merchandise on the pier at the time of importation. It has sometimes been called landed value.

In the act of April 20, 1818, apparently the basis of value was changed by section 4 to a form of export value:

"SEC. 4. And be it further enacted, That the ad valorem rates of duty upon goods, wares, and merchandise, shall be estimated by adding twenty per cent. to the actual cost thereof, if imported from the Cape of Good Hope, or from any island, port, or place, beyond the same, and ten per cent. on the actual cost thereof, if imported from any other place or country, including all charges, except commissions, outside packages, and insurance."

In section 9 of this same act of 1818 the appraisers are instructed to find, "to the best of their knowledge and belief, the true value thereof when purchased, at the place or places whence the same were imported."

In section 8 of the Tariff Act of May 19, 1828, we find on value the following: 66* * * and in all cases where there is or shall be imposed any ad valorem rate of duty on any goods, wares, or merchandises, imported into the United States, it shall be the duty of the Collector within whose district the same shall be imported or entered, to cause the actual value thereof, at the time purchased, and place from which the same shall have been imported into the United States, to be appraised, estimated, and ascertained,

*

With this change there would seem to be a shift from export value to foreign value.

Up to this time there seems to have been no attempt on the part of Congress to define or enlarge upon the terms which it used in describing the basis for appraising the value of merchandise. This seems to have begun in the Tariff Act of August 30, 1842.

With the enactment of the foregoing Tariff Act, Congress apparently saw the necessity for a more explicit description of the value basis for ad valorem merchandise. I quote from section 16 of the act of August 30, 1842:

"That in all cases where there is or shall be imposed any ad valorem rate of duty on any goods, wares, or merchandise, imported into the United States, and in all cases where the duty imposed shall by law be regulated by, or directed to be estimated or based upon the value of the square yard, or of any specified quantity or parcel of such goods, wares, or merchandise, it shall be the duty of the collector. within whose district the same shall be imported or entered, to cause the actual market value or wholesale price thereof, at the time when purchased, in the principal markets of the country from which the same shall have been imported into the United States, or of the yards, parcels, or quantities, as the case may be, to be appraised, estimated, and ascertained, and to such value or price, to be ascertained in the manner provided in this act, shall be added all costs and charges except insurance, * *

In the Tariff Act of March 3, 1865, again ad valorem duties were based upon foreign value, but the definition was changed to permit the determination of value "at the period of exportation." I quote:

"That in all cases where there is or shall be imposed any ad valorem rate of duty on any goods, wares, or merchandise imported into the United States, and in all cases where the duty imposed by law shall be regulated by, or directly to be estimated or based unon, the value of the square yard, or of any specified quantity or parcel of such goods, wares, or merchandise, it shall be the duty of the collector, within whose district the same shall be imported or entered, to cause the actual market value, or wholesale price thereof, at the period of the exportation to the United States, in the principal markets of the country from which the same shall have been imported into the United States, to be appraised. (sec. 7).

In the Tariff Act of July 28, 1866, the wording of foreign value, which was the dutiable value, was changed from "period of exportation" to the "time of exportation":

"That in determining the dutiable value of merchandise hereafter imported, there shall be added to the cost. or to the actual wholesale price or general market value at the time of exportation in the principal markets of the country from whence the same shall have been imported into the United States, * * (sec. 9).