CUSTOMS ADMINISTRATIVE ACT OF 1937

WEDNESDAY, MAY 26, 1937

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

Washington, D. C.

The committee met at 10 a. m., Hon. Robert L. Doughton (chairman) presiding.

The CHAIRMAN. The committee will be in order. You may proceed, Mr. Hester.

STATEMENTS OF CLINTON M. HESTER, ASSISTANT GENERAL COUNSEL; WILLIAM R. JOHNSON, CHIEF COUNSEL, BUREAU OF CUSTOMS; AND STEPHEN J. SPINGARN, OFFICE OF GENERAL COUNSEL, TREASURY DEPARTMENT-Resumed

Mr. HESTER. The next section is section 26 of the bill, which appears on page 28 of the bill.

The purpose of this section is to amend the existing law so as to permit the Secretary of the Treasury to take bonds to insure compliance with laws other than customs laws, which the customs officers are required to enforce for other departments of the government. It also provides express authority for taking a consolidated bond where more than one law or regulation is to be enforced.

Another provision of the section would amend existing law so as to permit the Secretary to remit penalties in cases where he finds merely a technical violation of the law without any intent to violate the law. At the present time, the law requires the Secretary to exact something in satisfaction of that penalty.

That is the purpose of this section.

The next section is section 27, which I will ask Mr. Johnson to explain.

Mr. JOHNSON. Section 27 appears on page 31 of the bill.

This section relates to bonded wool and hair used in the manufacture of carpets, other floor coverings, press cloth, camel's hair belting, and fulled lumbermen's socks.

The provision appeared first in the act of 1922 and since that time has occasioned a great deal of difficulty for the Customs Service.

It provides rates of duty for certain classes of wool, with a proviso that these classes of wool may be entered free of the duty under a bond conditioned upon proof within 3 years that the wool has been used in the manufacture of the designated articles; that is, floor coverings, camel's hair belting, press cloth and fulled lumbermen's socks.

It has been found, in the administration of the law, that there are two principal difficulties. First, the practical impossibility of identifying the articles made from particular lots of imported wool or hair so that the time limitation for proof of use, which is in the statute, can be observed; and, secondly, the difficulty of determining whether certain products resulting from the processing of the imported wool or hair into carpets or other enumerated articles are normal wastes so that the wool or hair represented by such products may be considered to have been used in the manufacture of these enumerated articles in compliance with the conditions of the bonds.

We have carried on recently very detailed investigations and have found it to be commercially impossible to establish by any practical system of records that a given carpet or other article was manufactured from a stated lot of imported wool, because wools from many importations are blended in the regular course of business into an unavoidably commingled factory stock. As the wool passes through the various stages of manufacture, it is mixed and separated and remixed from time to time, with the result that it is soon impracticable to identify any pound of wool with a particular importation or group of importations. The identification is further complicated by the fact that the wool or hair frequently passes through the hands of several different processing plants before it is made into finished carpets or other enumerated articles.

As the wool or hair passes through the various processes incident to the manufacture of the enumerated articles, wastes and residues result some of which may compete with imported wools upon which duties must be paid, and with similar domestic products. It is difficult to ascertain with any reasonable certainty whether all such wastes and residues are normally incidental to the manufacture of the enumerated articles so that the bonded wool or hair represented by such wastes and residues must properly be considered to have been used in the manufacture of which the wastes are incidental results.

In order to solve these two major administrative difficulties, it is proposed to eliminate from the law the time limitation upon proof of use and without any restriction or expansion of the tariff privileges now accorded carpet wools, to substitute for this proof-of-use provision a new administrative system under which by bonds, penalties, and regulations of the department, any use of the wool or hair otherwise than in the manufacture of the designated articles for which free entry is authorized will be prevented.

To eliminate the controversies and difficulties about whether certain incidental products arising in the manufacture of the articles are normal wastes, it is intended to give them all the same treatment as though they were abnormal; that is, give them the same tariff treatment as though they were originally imported in the condition in which they are diverted from the bonded plant into the manufacture of articles for which the free entry of wool is not authorized, except that a special treatment of noils begun under the Tariff Act of 1922 will be continued and no duty would be assessed on any waste which cannot be used in producing carpets or other of the enumerated articles. The CHAIRMAN. You may proceed with the next section.

Mr. HESTER. Section 28, which appears on page 34 of the bill, amends the existing law so as to eliminate the requirement that American goods returned from abroad shall not be entitled to the

privileges of the free list unless they are imported by or for the account of the exporter. This requirement was incorporated in the 1922 Tariff Act to prevent injury to American manufacturers which might have otherwise resulted from the duty-free return of war supplies that they had sold abroad during the war.

Under that provision, they were not entitled to the free privileges unless they were returned for the account of or by the exporter who had sold them abroad.

Section 28 also amends existing law with respect to the free return of containers of merchandise so as to extend similar treatment to certain kinds of new containers of foreign origin, provided that they have once been imported with the payment of duty. This is in the interest of consistency and equality of treatment to American products. Section 28 also eliminates a special requirement of existing law that domestic bags which are imported empty or as containers of merchandise subject to an ad valorem duty, shall be free only if returned to the exporter. That is similar to the first provision I discussed.

Section 28 also changes existing law so as to provide that domestic products exported with the benefit of drawback may be returned under conditions no less favorable than those applicable to like articles of foreign origin.

Mr. DINGELL. Does that pertain to containers? Is there anything in this section that pertains to containers?

Mr. HESTER. Yes.

Mr. DINGELL. I did not quite catch it.

Mr. HESTER. This extends the present law to containers that have once paid the duty, so that they will not have to pay the duty a second time.

Mr. DINGELL. I have a bill to cover milk bottles, as you are perhaps aware; or rather one of my colleagues from Michigan has. I do not see why it would be necessary to act separately on such a resolution. Why should it not be possible to include that here in the provision that is before us?

Mr. JOHNSON. I am familiar with that bill (H. R. 4397) and this proposed legislation will authorize free entry for the bottles in question. Mr. DINGELL. Without any further modification or change?

Mr. JOHNSON. Yes, sir.

Mr. DINGELL. You are certain on that point?

Mr. JOHNSON. That is my considered opinion.

Mr. DINGELL. Milk bottles are sent into Windsor, Ontario, from Detroit by Detroit creameries. They may be brought back under this provision?

Mr. JOHNSON. I understand that the bottles are returned by persons other than the exporter. They would then be free of duty under this proposed amendment.

Mr. DINGELL. This is intended for the benefit of the exporter. We want the exporter who ships the bottles containing milk to Windsor to have the privilege of bringing the bottles back for his

own reuse.

Mr. JOHNSON. That is taken care of in this bill; yes, sir.

Mr. HESTER. Section 28 also amends existing law so as to permit the free return of articles exported to be altered. The present law works a substantial hardship in cases where duty-paid articles must be adjusted or otherwise altered, such as footwear and artificial

limbs. When they are exported for such adjustment or alteration at the present time, they are required to pay a second duty when reimported.

Mr. COOPER. What do you mean by footwear? You do not mean shoes?

Mr. HESTER. Yes.

Mr. COOPER. What do you mean by "altered"?

Mr. HESTER. Mr. Johnson suggests, for instance, the stretching of a shoe or some adjustment or readjustment of an artificial limb. Mr. COOPER. Do you mean that a pair of shoes would be sent to this country from a foreign country and then sent back over there to be stretched?

Mr. HESTER. That is right.

Mr. COOPER. That seems to me just plain foolishness.

Mr. HESTER. Mr. Johnson says that there are actual cases of that kind, Mr. Cooper.

Mr. DINGELL. That only pertains, however, to shoes of crippled people, as I understand it, is that right?

Mr. JOHNSON. It refers to very expensive, custom-made shoes, principally.

Mr. DINGELL. Where they are specially designed or for the use of some badly crippled foot?

Mr. JOHNSON. Yes, sir; and very expensive riding boots, for example, that are imported from a foreign country, and various custommade shoes that cost up to $40 a pair.

The CHAIRMAN. Proceed with your next section.

Mr. HESTER. Section 29 appears on page 37 of the bill. It will amend existing law relating to the free entry of articles not exceeding $100 in value brought in by returning residents.

The situation is this: At the present time a person may leave the United States and if he satisfies the customs authorities that he has purchased, as an incident of his journey abroad, although it might even be just across into Canada, for an hour or so, $100 worth of personal effects, he may bring that into the United States free of duty and free of internal-revenue taxes.

Let me explain first that he can only do that, however, once every 30 days. Up until about a year ago Canada did not extend any such exemption to her residents, but within the past year Canada has enacted a similar provision, except that Canada has provided that the person who comes into the United States must be here at least 48 hours, must be abroad on his journey at least 48 hours before he can take advantage of the exemption; and then they can only do it once every 4 months.

The purpose of this section of the bill is to leave in the 30-day provision, which is in the 1930 Tariff Act, but to insert the 48-hour provision. If this should be enacted into law, a citizen going abroad, could not have the benefits of this exemption unless he had been abroad 48 hours.

The provision would also amend existing law so as to authorize the customs to require returning residents of the United States to declare, at the time they disembark, whatever merchandise they intend to include within the $100 exemption.

At the present time, when they come in, they may declare a part of the merchandise, and then later on, perhaps several months, merchandise may come in from abroad, which they are having sent in

by mail. It is often difficult to determine whether or not they had purchased those goods abroad before they left the foreign country for the United States. The purpose of this law is to amend that provision. Mr. DINGELL. How does this make the distinction?

Mr. HESTER. They will have to declare, at the time they disembark, the merchandise that they want to include within the exemption, or they cannot take advantage of it. That is a fair provision, because if I have been abroad and have made purchases abroad, I will know about them at the time that I disembark.

Mr. Buck. You have been considering this from the foreign-importation angle. Has your department taken into consideration the case of a tourist that is passing through San Diego or El Paso, along the Mexican border, who goes over there for a day, or only for 12 hours, perhaps only has dinner over on the other side, something of that kind. There are no hotel accommodations across the border from El Paso where a man could reasonably be entertained for 48 hours. Are you going to subject every traveler who goes across the border to the necessity of declaring even a few souvenirs that he may purchase over there?

Mr. HESTER. There is a section in this bill which gives discretionary authority to collectors to permit the entry of goods for personal use without the payment of duty if their value is less than $5.

Mr. BUCK. Well, they might spend more than $5 over there. They might want to bring back a bottle or two of some of this high-powered Mexican liquor.

Mr. HESTER. This would prevent them from doing that.

Mr. Buck. I am going to say very frankly that I think this might not be a very good provision.

Mr. HESTER. Mr. Johnson suggests that that liquor is only 40 cents a bottle.

Mr. BUCK. I am not interested in that so much. What about the people who might go over to Canada from New York-let us say to Montreal, and who would be there less than 48 hours?

Mr. HESTER. They would not be permitted to take advantage of the exemption. Incidentally, the gentleman from Detroit who appeared here, Mr. Boyd, incorporated in the record a very interesting statement of statistics with respect to Detroit, showing the number of purchases made abroad by people who just travel back and forth seemingly for that purpose.

Mr. Buck. Of course, your 30-day provision takes care of those. If you can catch the man, through your administrative officers, who habitually goes across for that purpose, and brings in those importations, you will take care of that.

Mr. HESTER. It is difficult to do that, because if they went over there to visit and then made the purchase as an incident of their journey, they are entitled to the exemption, but not if they went across to shop. You would have to be satisfied in every case that the person went abroad, purposely crossed the border, to make the purchase.

Mr. BUCK. But he would have to wait 30 days to make another purchase.

Mr. HESTER. That would be a hundred dollars' worth every 30 days. Canada only permits that to be done once every 4 months and they have the 48-hour limitation, too.