CUSTOMS ADMINISTRATION AND PERSONNEL

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON WAYS AND MEANS, Wednesday, February 16, 1927. The subcommittee met at 10.30 o'clock a. m., Hon. Isaac Bacharach (chairman) presiding.

Mr. BACHARACH. This subcommittee has been appointed to investigate the customs service, both as to the administration of the customs laws and the salaries paid its personnel. The cubsommittee is to report back to the whole committee in the next Congress. Its jurisdiction is limited to the matters stated, the whole committee having definitely instructed us to consider "no rates of schedules" of the existing tariff laws.

General Andrews is here this morning and we would be much pleased, of course, to hear from the Treasury Department first. It is agreeable to the committee, General, to hear your witnesses in such order as you may indicate.

STATEMENT OF GEN. LINCOLN C. ANDREWS, ASSISTANT SECRETARY IN CHARGE OF CUSTOMS, COAST GUARD, AND PROHIBITION, TREASURY DEPARTMENT

Mr. ANDREWS. Mr. Chairman, the Treasury Department is particularly pleased to find that Congrss is going to interest itself thus intimately in the administrative and personnel matters of the customs service. I have felt, since I came to this office, in dealing with customs that I was dealing with a very important bureau of the Government, one with very fine traditions and one that has been, you might say, the financial backbone of the Government. I think, since the War, that customs has not had, perhaps, the attention that it might deserve. I think the whole country will benefit from Congress thus taking hold of customs and looking into it with a view to making recommendations for its improvement.

With these introductory remarks, I would like to have the director of customs, Mr. Camp, come before the committee and give the detailed statements as to our personnel, organization, and business, which we would be glad to have you look into.

Mr. BACHARACH. We would be only too glad to hear from him and from any of the witnesses. I thought, General, you desired to place some information in the record with your remarks.

Mr. ANDREWS. Yes. Mr. Camp will have it and Mr. Keddy, from the Bureau of Efficiency.

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STATEMENT OF ERNEST W. CAMP, DIRECTOR, DIVISION OF CUSTOMS, TREASURY DEPARTMENT

Mr. CAMP. Mr. Chairman and gentlemen of the committee, I came here this morning with no very definite idea of the purpose of the meeting, except it is my understanding this subcommittee has been appointed not to consider rates but to consider possible administrative changes and questions of the service in general as distinguished from rates the administration of the customs laws and the machinery for administration, which, of course, includes personnel.

Mr. CRISP. That matter was discussed in the committee and the committee excluded from the jurisdiction of this special committee the question of tariff rates or customs duties.

Mr. CAMP. Yes; that is my understanding.

Mr. CRISP. They referred to us the general matter of administration and personnel.

Mr. BACHARACH. Including salaries.

Mr. CAMP. Yes. I think the administrative provisions very important, and when the rates are being revised the question of administration is lost sight of. I think the necessity for a committee of this kind is particularly urgent at this time because, since the war many new Federal activities have been created and customs, and old service, has not received the consideration and attention that, in my estimation, it merits.

Generally speaking, the administrative provisions of the Tariff Act of 1922 have worked out well, but a number of conditions have arisen, through decisions, interpretations, and so forth, that do work inequalities and it would be a benefit, I am certain, in the collection of the revenues if some of the administrative provisions were now to be amended.

In my estimation, perhaps the drawback provisions, more particularly, require modifications and defining by law rather than by regulation. Formerly the drawback provisions authorized the payment of drawback on the "manufacture" of articles. Later this was changed to "manufacture and production". The Attorney General has placed a very liberal interpretation on the word "production" and, at the present time, many of the processes on which drawback rates are allowed and seem rightfully to be allowed, following the Attorney General's decision, are not what I consider bona fide drawback claims in keeping with legislative intent. A merchant may have merchandise on his shelf on which he desires to have the duty refunded. He can secure the services of people who specialize in drawback claims to devise some process of manufacture that will satisfy the drawback law and, until last year, merchandise many years old and of questionable value has been subjected to dyeing or some other process and exported with benefit of drawback, regardless of the market abroad for such merchandise. The purpose, as I understand it, of the drawback act is to encourage industries in the United States to manufacture for export. This paying back of the duties on shopworn merchandise does not encourage industry in the United States. There is no genuine demand abroad for this kind of merchandise, and after it reaches a foreign country it is not disposed of to any advantage.

Mr. MARTIN. Under what provision of the tariff act have they a right to get this drawback?

Mr. CAMP. The tariff act provides for the payment of drawback on the exportation of merchandise manufactured or produced in the United States with the use of duty-paid imported merchandise. Under the present liberal interpretation an importer may bring in a pair of gloves. The pair of gloves being of foreign origin. The gloves are subjected to some process of so-called "production," under the interpretation of the Attorney General of the word "production."

Mr. BACHARACH. You mean dyeing the gloves?

Mr. CAMP. Dyeing the gloves or sometimes not much more than cleaning. Some process that perhaps does not add to the value of the gloves or their marketability; it is simply a processing to get the duty back. I think what Congress meant was "manufacture," and I think it would be well for this committee to look into the question of drawback.

Mr. BACHARACH. I want to say right there, if I may, there has been a case presented to me (I presume it comes under you) where the Treasury Department did not take up very thoroughly a case of drawback for which they put in a claim to the claims committee for some $20,000. Do you recall any case of that sort?

Mr. CAMP. Which went to the claims committee?

Mr. BACHARACH. Yes. It went in there by reason of the fact your bureau rather stated the drawback could not be allowed, and the claims committee found they were entitled to the claim..

Mr. CAMP. Is it on the exportation of some raw film?

Mr. BACHARACH. Film; that is correct.

Mr. CAMP. Yes, sir. It was not an export drawback.

Mr. BACHARACH. It was taken up with the Treasury Department under that very section. As I understand, the films were supposed to be slow films.

Mr. CAMP. They allege they wanted rapid film, and what was imported was slow film.

Mr. BACHARACH. I understand there is no distinction between films; it is impossible to distinguish between them—that is, they are all about the same sort.

Mr. CAMP. Yes; they allege the physical appearance is identical. Mr. BACHARACH. The Treasury Department did not make a very exhaustive report to the Claims Committee and the committee approved the claim and it is now on the Calendar of the House. The chairman of the committee has since discovered it should not have been approved. What do you know about that?

Mr. CAMP. These films were delivered to the importers and therefore could not be exported with a refund of duties. Merchandise may only be exported with benefit of drawbacks before it leaves customs control. The importers did not desire to bring in this slow film; they ordered rapid film and the examination did not disclose whether it was rapid or slow film. It was entered as film and passed as film.

Customs made no error in the assessment of duties. The films were received by the importers, taken to their own warehouse and, many months later, when they tried to use them they discovered they were of a kind that could not be used in the United States. They had paid the duty. The exporters wanted to exchange and send them the

rapid film. This film did not enter into the commerce of the United States, but under the law customs could not refund the duty nor could it permit the exchange of the merchandise. A series of mistakes were alleged and the Treasury Department considered the case and denied it. The importers had paid a large sum of money in duties, and it was a 100 per cent loss to them, because they shipped the merchandise back finally, regardless of the absence of assurance that they would get the money back.

Mr. MARTIN. They could not recover from the party who sold them the film?

Mr. CAMP. The parties who sold them the film were willing to take it back and send them new film, but they would not pay the duty.

Mr. BACHARACH. I know several members of the Claims Committee feel very strongly that the Treasury Department did not attempt to make a very good statement of the matter. I would like very much for you to investigate that proposition. I have written to the Treasury Department; but have not heard from them and I do not know to whom my letter has been referred.

Mr. CAMP. I think the position of the Treasury Department in that case is entirely defensible. The department has not recommended that this claim should be allowed, nor has it recommended that it should be denied. It has endeavored to state the facts and state that it is a case similar to others that have been denied; that whether the equities were such as to justify making an exception was a matter for Congress to decide.

Further, in connection with the drawback laws, for customs purposes Porto Rico is a part of the United States. The Canal Zone, the Virgin Islands, Guam, Tutuila and Philippine Islands are not. The courts have held, however, that merchandise can not be exported from Porto Rico, with benefit of drawback on the ground that it is not exported from the United States.

Clearly, the drawback should apply to Porto Rico as well as to the continental United States. And the insular possessions that are not a part of the United States are also placed at a certain disadvantage, for merchandise may not be shipped to those possessions from the United States with the benefit of the drawback. Now if they are foreign soil for customs purposes, it seems quite clear that when merchandise is exported to these insular possessions and the drawback claim is filed, the drawback claim should be paid. But the decisions are that the insular possessions are not a foreign country. Mr. CRISP. About what is the average amount paid out yearly on account of drawback, do you know?

Mr. CAMP. Prior to the war, it was about $7,000,000. During the war, when the sugar industry in Europe was pretty well shattered, drawback payments increased very rapidly and reached a total of nearly $40,000,000.

Mr. WATSON. How many years?

Mr. CAMP. One year. And since that time the drawback payments have quite substantially decreased. Last year the drawback payments were about $22,000,000, and this year the drawback payments seem to be running about 60 per cent of what they were last year. I do not think the drawback payments this year will run over $15,000,000 or $16,000,000.

Mr. MARTIN. There is more drawback for sugar than anything else.

Mr. CAMP. When the $40,000,000 was paid, probably in excess of 90 per cent was sugar. At the present time, I imagine 75 per cent is on the exportation of sugar.

Customs has considerable difficulty in administering the marking provision, section 304. The jurisdiction of the United States Customs Court was extended to decisions on marking. The United States Customs Court has interpreted the marking provision very literally and, if the decisions are followed to their logical conclusion, they will cause real embarrassment. The Customs Division endeavored to lay down some general rules to carry out what was conceived to be the intent of Congress; that is, to require the marking of the unit of sale. In the marking of shingles, the department required the marking of the bundle of shingles. The domestic shingle manufacturers stated that was a reasonable requirement. Some bundles of shingles were imported not marked. Customs assessed the additional 10 per cent. A protest was filed; the court overruled the protest, but stated that a shingle was an article capable of being marked without injury and that the individual shingle should be marked. There were many cargoes of shingles on their way to the United States at that time and the possibility of loss was made very apparent. However, the Treasury Department held that this was not a decision on this point; that the question of marking the individual shingle was not before the court and what the court said about the individual shingle was dictum; but, should somebody bring that question before the court, whether or not an individual shingle should be marked, undoubtedly the court would hold that the individual shingle should be marked.

This strict interpretation works a disadvantage in another respect. As an example, baskets of figs were imported. Customs held that the basket of figs could be marked and the marking of the basket was required. The importer protested the decision and the court ruled that figs were the article of importation, not the baskets of figs, and the fig is an article that is not susceptible to marking without injury, within the meaning of the law and, therefore, passed the basket of figs without marking. It seems to me some general provision should be made that will inform the ultimate purchaser of the origin of his merchandise and that it should not be construed in such a strict manner as to interfere with commerce or ridicule the administration of the tariff law.

Mr. WATSON. Have you prepared an amendment?

Mr. CAMP. I have not come here this morning prepared to give any amendments.

Mr. WATSON. Not this morning perhaps, but at any time during our consideration of the bill.

Mr. CAMP. The department will be very happy to cooperate with this committee and prepare amendments. I am only suggesting now a few things that might be looked into by this committee.

Mr. CRISP. I intended to ask you to have the department prepare amendments correcting the evils you find in the administrative features, and you can file them when you correct your testimony or later put them in the record, which will give the department's view of

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