Tuesday, March 03, 2009

Wanted: Commissioner of Customs and Border Protection

Dear President Obama and Secretary Napolitano:

We understand that this is a busy time for both of you.  Nevertheless, we would appreciate just a moment of your time to talk about one important decision you need to make: naming the next Commissioner of U.S. Customs and Border Protection.

Customs and Border Protection can trace its roots to an act signed by President Washington on July 31, 1798 as a means of raising revenue for our new nation through the collection of customs duties.  After the Internal Revenue Code became the main source of tax income , Customs role evolved into one that included trade policy and consumer protection.  In 2003, still in the wake of the attacks of 9/11, the then- Customs Service was transferred to the Department of Homeland Security along with the U.S. Border Patrol and other border enforcement agencies.  Today, CBP is an important agency that plays a complicated role in both America’s national security and its financial well being.  Consequently, the person who assumes the role of Commissioner will need to have his or her feet firmly planted in two different—and sometimes competing—environments.  Given the difficulty of finding just the right person for the task, we respectfully suggest some characteristics to consider.

First, skepticism is a good thing.  It is not enough for a federal agency to have the power to regulate.  It also must have the wisdom to exercise that power for the benefit of the nation.  Before he or she approves a regulation, the new Commissioner should poll the appropriate officials and ask this simple question: Who benefits from this proposal?  If it is not immediately clear that a regulation improves security, facilitates legitimate trade, satisfies some Congressional mandate or is required by a court order, the new Commissioner should be very skeptical.

An example illustrates this point.  Last year, Customs announced an intention to change the way the country of origin of merchandise is determined.  Since 1940, the test applicable in most cases is to identify the country where the merchandise last underwent a change in name, character, or use.   Despite having a well understood test, Customs has proposed to implement a complicated test based upon the tariff classification of the finished good and the materials used to produce it.  This is the test currently used for NAFTA products and textiles.  Customs is now seeking to expand it to all products. 

The question is: why?  Clearly, this is not an issue of national security.  Does it facilitate legitimate trade?  That seems unlikely.  Depending on how Customs chooses to implement the rule, compliance may require that American companies gather significantly more data from suppliers, in some cases that will include the country of origin of production materials used by unrelated exporters.  Also, the proposed test will require changes to the regulations every time the corresponding tariff classifications change (which is not infrequently).  This puts a new burden on Customs.  The new rules will almost never result in higher (or lower) tariff rates, and the notion that there is a serious consumer preference for imports from one foreign source over another is dubious.    Customs says the tariff-shift test is more objective and has more predictable results.  Assuming that is true, which is arguable, is the benefit worth the disruption and expense?

Similarly, Customs announced an intention to prohibit the long-established practice of valuing imported goods based on the sale from a foreign vendor to a foreign re-seller, so-called “first sale valuation.”  Customs asserted that the purpose of this proposal was to conform to a legal interpretation from the World Customs Organization.  But, it is inconsistent with U.S. court decisions stretching back to the 1960s.  Although Customs may well have the power to implement this change, it has not been able to explain who would benefit from it.  The proposal met such vocal objection that Congress stepped in and put a hold on the change until 2011 after the ITC conducts a study.

Next, effective marketing skills are important.  In recent years, Customs has embarked on a number of programs that are designed to improve national security by reducing the risk of weapons of terrorism entering the country.  These programs include the Customs-Trade Partnership Against Terrorism, the Cargo Security Initiative, the 24-Hour Manifest Rule, and the newly rolled out Importer Security Filing.  Each of these programs and others has a role to play in helping Customs target risky imports. 

No one would advocate that Customs be less vigilant in its mission to secure the borders.  On the other hand, Customs needs to recognize that every new program it rolls out raises compliance costs for affected importers and exporters.  Even “voluntary programs” like C-TPAT pose concerns for companies that want to assist Customs in its efforts but face increasingly tight profit margins.  Thus, the new Commissioner should be able to stand in front of the trade with his or her sleeves rolled up, look them  right in the face, and explain why what Customs is asking for makes sense.  If it makes more sense as a security measure than as a business decision, Customs should say so and show that it appreciates the effort businesses are undertaking to assist in its security mission. 

Experience matters.  The last three Commissioners have all had significant law enforcement experience with the Secret Service, New York City Police Department, or DEA.  There is sound reason for seeking law enforcement experience in the top job at Customs.  But it should not trump business and management experience.  Facilitating legitimate trade requires a clear understanding of the pressures companies face in allocating resources to compliance, as well as the critical importance of trade to the country’s economic recovery.

The new Commissioner will be taking on a difficult job.  He or she will be tasked with managing trade and passengers at the nation’s sea ports, international airports, and land crossings.  The new Commissioner will also have to work closely with our trading partners, the U.S. intelligence community, and America’s businesses.  That is a tough job.  Filling it will require much thought and effort.  We all wish you the best of luck in your search.

1 comment:

Wizard said...

Great approach. You can bet you'll get quite a few hits on the blog from CBP on this one! Hope they enjoy as much as I did!