TEI comments on proposed regionalization of customs functions: May 12, 2005

Tax Executive, The, May-June, 2005

On May 12, 2005, TEI President Judith P. Zelisko sent the following letter to Michael Chertoff, Secretary of the U.S. Department of Homeland Security. The letter was prepared under the auspices of the Institute's International Tax Committee, whose chair is John J. Herson of Neenah Paper, Inc. Roger D. Wheeler of General Motors Corporation contributed substantially to the preparation of the letter.

On behalf of Tax Executives Institute, I congratulate you on your appointment as Secretary of Homeland Security. We understand that you are undertaking a comprehensive review of the operations of the Department of Homeland Security (DHS). As an organization of tax and customs professionals, TEI is writing to provide our views on an important organizational issue concerning Custom and Border Protection (CBP).

TEI is the preeminent professional organization of business executives who are responsible for tax matters on an administrative and policy-making level. TEI's nearly 5,700 TEI members are accountants, lawyers, and other corporate and business employees who are responsible for the tax affairs of more than 2,700 leading businesses in the United States and throughout the world, with a significant number of our members also having responsibility for customs matters. TEI is dedicated to the development of sound policy, compliance with and uniform enforcement of those laws, and minimization of administration and compliance costs to the benefit of the government, taxpayers, and importers and exporters.

TEI strongly supports border security initiatives and believes that security and trade facilitation are fully compatible. Many TEI members have worked closely with CBP on numerous security initiatives (such as the Container Security Initiative (CSI), Advanced Manifest Filing, and Customs-Trade Partnership Against Terrorism (C-TPAT)). In working together, government and industry have realized improvements in both security and trade facilitation. For example, security initiatives like CTPAT have accelerated the clearance of cargo that has been pre-screened and confirmed to be low risk.

TEI recognizes the challenge in merging 22 disparate agencies and programs into a cohesive department with centralized leadership. Recognizing that most of the legacy agencies already had regional structures, we acknowledge that moving forward with a single, regional model makes sense. While we do not oppose a regional structure for DHS, we are concerned that the regionalization of Customs could lead to inconsistencies in the application of customs laws, policies, and procedures.

The companies TEI members work for rely on national policies, procedures, systems, and programs in Customs commercial operations. We also count on an effective mechanism to ensure that those national policies and procedures are applied and implemented in a uniform and consistent manner at all ports of entry.

History shows that regionalization poses a threat to uniformity. In the past, Customs regionalization led to significant lack of uniformity. The regional structure in place within U.S. Customs prior to the 1993 Customs Modernization Act (the "1993 Act") resulted in policies, procedures, and regulatory interpretations that could and did differ from region to region and even port to port. For example, cargo screening criteria and admissibility standards varied from port to port, Customs issued binding tariff classification rulings that were not always applied uniformly, and different regions developed different audit programs.

The decentralized, fragmented Customs environment of the 1970s and 1980s imposed a tremendous cost on industry and hence the U.S. economy. Delays and disparate treatment unnecessarily increased costs and created inefficiencies. If Company A's competitor got "special treatment" on its importations through a different region, Company A was comparatively disadvantaged. "Port shopping" and needless administrative disputes also resulted. (The lack of predictability in the movement of goods would be even more damaging in today's just-in-time, low-margin business world.)

Uniformity and consistency can only be maintained through effective centralized leadership, which can be exercised only if CBP headquarters retains direct line authority over the Customs regional function. Customs demonstrated such leadership with the reforms after the 1993 Act and the replacement of the former Customs regions with Customs Management Centers (CMC) (which were under direct control of Customs headquarters). Under such leadership, the impediments to uniformity and consistency were largely eliminated. Care must be taken to ensure that these advances are not lost.

The uniform and consistent implementation of Customs programs will also contribute to enhanced border security and improved trade facilitation. Security programs must be applied uniformly nationwide. Uneven implementation of security initiatives like C-TPAT and Advance Manifest Reporting is clearly undesirable. Likewise, critical commercial programs like Binding Rulings, Remote Filing, and Focussed and Importer Self-Assessments must be administered uniformly. The benefits of such modern, automated systems would be lost if they are applied differently in different parts of the country.