Mr. JOHNSON. Yes, sir.

Mr. CROWTHER. The basic premise of which was that the duties would be fixed here on the American valuation. We were presumed to take the wholesale price of comparable American merchandise in determining that. So we had the basis here all the time. I agree that it must be extremely offensive to foreign countries to have American agents coming into their plant and trying to determine what their costs are and what their sales are to other countries. We would not tolerate that here. If you or I had a factory and a couple of fellows came here from France or Germany and said that they wanted to camp out in our place for a week, to find out our production costs, we would politely tell them to go where it is much warmer than it is here this morning.

We have given consideration to several other methods. Personally, I think we ought to have our duties levied on an American landed value. That is the system that is largely used by the British Government at the present time.

After all, let us assume that you are a domestic manufacturer and I am an importer located over here in Baltimore. You are not interested in what production costs are of that commodity in France or Germany, or in whatever country it originates. What concerns you as a businessman is what I am able to land that merchandise for on the dock at Baltimore. Do you not think so?

Mr. JOHNSON. I am sorry, I cannot answer that. I have read the report of the Tariff Commission on the subject, but I have never studied the matter with a view to weighing the merits of one proposal or another.

Mr. CROWTHER. We have always had a great deal of difficulty over a determination of foreign value, and I think we might naturally expect to have difficulty in trying to determine that. If the duty were assessed on the American landed value, we would be relieved of the necessity of determining what the foreign value was. And, after all, that is the only thing, in my opinion, that interests our businessmenwhat that competitive merchandise that is landed on the dock here costs the man who is in competition with our domestic manufacturer. Mr. McCORMACK. Is the present law more favorable to the American manufacturer than this proposal?

Mr. JOHNSON. I do not believe there is any material difference. The burden, which was upon the investigating officer of the Treasury Department, would be removed if the proposed amendment is approved by Congress. Of course, as Mr. Hester suggested, there is the opportunity under this court decision of creating fictitious offers of sale to third countries at a lower price than the manufacturer is actually willing to sell for.

Then there are devices whereby under the present law he could shut off the other bases of valuation; for example, selling in a controlled market and obtaining the benefit of a fictitious customs valuation. The effect on the American manufacturer would be to lower the protection.

Mr. McCORMACK. Suppose A country were to sell to B country at a higher price than it sells to a certain importer in the United States. What would be the effect under the present law, from our viewpoint?

Mr. JOHNSON. It is theoretically possible that the effect of the court decision would increase the duty in some cases, but. I do not believe the increased duties could equal the increased cost of investigations.

Mr. McCORMACK. We will assume that it is established that it is at a lower price that it is sold to the United States which gave an advantage to the importer against the American manufacturer or producer.

Mr. JOHNSON. If it is freely sold in the usual course of trade at a higher value to the third country, under this court. decision, we would take that higher value.

Mr. McCORMACK. What would be the effect under this proposal? Mr. JOHNSON. We would ignore the sales to third countries in determining foreign value.

Mr. McCORMACK. You would simply charge customs on the selling price between A country and the importer in the United States? Mr. JOHNSON. If there were no free market value in the A country which is higher than the export value, that would be the case.

Mr. CROWTHER. Of course, the American landed value, taken as a base, is not without its involvements, either, because in that case merchandise might, by the process of consignment, be sent from a foreign country to people here at a much lower price, and they would depend upon getting their profit after the sale of the merchandise here.

There is a good deal of merchandise consigned to agents here at a price lower than they would ordinarily sell it, consigned to their own people, and then they depend on getting the profit back after the sale. None of these methods is without serious involvements that would probably interfere with the practice.

Mr. KNUTSON. According to the Department of Commerce, imports are showing a steady and substantial increase right along. Mr. JOHNSON. I believe that is true.

Mr. DINGELL. Mr. Chairman, before we recess this morning, I have a witness here, Mr. Charles Boyd, secretary of the Detroit Retail Merchants' Association, who is very much pressed for time. He desires to be on record as favoring a certain section of this bill.

I would request of the committee that Mr. Boyd be permitted to file his statement with the committee for the record, to be inserted immediately following the remarks of Mr. Hester.

The CHAIRMAN. Without objection, the request of the gentleman from Michigan will be agreed to.

(The statement referred to appears on p. 168.)

Mr. CULLEN. Mr. Chairman, I move we adjourn.

The CHAIRMAN. Without objection, the committee will take an adjournment until tomorrow morning at 10 o'clock.

(Whereupon the committee adjourned to meet on Friday, May 21, 1937, at 10 o'clock a. m.)

CUSTOMS ADMINISTRATIVE ACT OF 1937

FRIDAY, MAY 21, 1937

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D. C.

The committee met at 10:00 a. m., Hon. Robert L. Doughton (chairman) presiding.

The CHAIRMAN. Mr. Hester, we are ready to proceed with further consideration of H. R. 6738.

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. We are about to take up section 9, which is to be found on page 11 of the bill. Mr. Johnson will explain section 9.

Mr. JOHNSON. Section 9 relates to two provisions in the existing tariff law. The first section, 459, started out many years ago to define certain offenses. The next section, section 460, provided the penalties for those offenses.

In the course of numerous tariff revisions, these sections have become mixed with certain offenses defined in each, and certain penalties in each.

The proposed bill would resegregate these matters into the respective sections, leaving the first one to include the definitions of the offenses and the second to prescribe the penalties.

It will also cover gaps in existing law by prescribing penalties for certain offenses corresponding to those already prescribed for other similar offenses.

The first gap cover provides personal penalties against persons who bring in merchandise from a contiguous country in violation of law and otherwise than in a vessel or vehicle. That is, when a man drives a cow across the border to smuggle it in the animal is subject to forfeiture, but there is no personal penalty, as would be the case under the present law if it is brought in in a vessel or vehicle.

The second provides a personal penalty for those who fail to obtain a permit from customs before proceeding inland.

The third provides a penalty for those who carry passengers beyond a customs station without reporting. The penalty now is for discharging the passenger rather than for carrying him. In a great many cases an automobile gets past the customs line and the customs officer sees the passengers in the vehicle, but cannot establish the fact that he was discharged in the United States.

71

The CHAIRMAN. Have you finished that section?

Mr. JOHNSON. Yes.

The CHAIRMAN. Mr. Thurston.

Mr. THURSTON. In what class would come the violation through the use of the airplane?

Mr. JOHNSON. An airplane is not a vessel or a vehicle within the meaning of the tariff law, but the Air Commerce Act provides that the customs laws relating to vessels and vehicles may be made applicable to airplanes.

Mr. THURSTON. Should that be cleared up by specific provision? Mr. JOHNSON. I do not know of any necessity for that.

Mr. THURSTON. Do you have many complaints of violations through the use of airplanes?

Mr. JOHNSON. I do not recall any in which the penalties are not already provided for.

Mr. JENKINS. Mr. Chairman, may I ask a question?

Am I to understand that you have until now had no penalty against the person, but you had a penalty in rem; in other words, against the thing?

Mr. JOHNSON. Yes, sir.

Mr. JENKINS. And now you are changing that so as to have a penalty provided against the person?

Mr. JOHNSON. Against both now where the new matter relates to merchandise.

Mr. JENKINS. I do not think you get my question. Am I to understand that up until now there has been no in-personam penalty, it has always been in rem?

Mr. JOHNSON. Yes, sir; where merchandise is smuggled from a contiguous country otherwise than in a vessel or vehicle.

Mr. JENKINS. And this law proposes to change that?

Mr. JOHNSON. With respect to these three classes of transactions, it is to supplement rather than to change it, because it will not eliminate the penalty against the goods, but will add to that penalty a second penalty, against the person, as in the case of the offenses similarly covered by the law at the present time.

Mr. JENKINS. Let me ask you this: It is true, is it not, that these penalties are, some of them, very old; that is, the laws relating to them are very ancient?

Mr. JOHNSON. Yes, sir.

Mr. JENKINS. Does this have anything to do with the liquor penalties? The reason I am asking that is this. I remember I had a case once in which the Department of Justice invoked an old in-rem law that had its date back to 1866. They decided that they would invoke the in-rem penalty, because it would take the article away from the individual with the result, in that case, that the man who owned the mortgage on the article lost the article while the person who violated the law it was found could not be reached by the law, because they had no in-personam punishment provided.

Mr. JOHNSON. This would not have been the case here, although these laws are very old, as I said. They have been reenacted from time to time and were last reenacted in 1930.

Mr. JENKINS. A case like that went to the Supreme Court of the United States and the Supreme Court held that the Department of

Justice would be compelled to follow the course in which the proceeding was originated. If the proceeding as originated carried an in-personam punishment, that had to be inflicted instead of an in-rem punishment. So that in that case, and in many other cases similar to it, the person who violated the law was reached.

Under the old law, the person who violated the law was exculpated while the person who owned the property was punished.

Mr. JOHNSON. These are designed in general to reach the person, if he is in the United States, and the goods.

Mr. JENKINS. It looks as though that would be better than the old system.

Mr. JOHNSON. Yes, sir.

Mr. REED. Outside of that change, this is really a codification? Mr. JOHNSON. Yes, sir.

Mr. REED. Codifying the old laws, except for the change mentioned?

Mr. JOHNSON. It is a codification only in the sense that it revises the existing code, but it is not an assembly of scattered laws.

Mr. REED. It is not?

Mr. JOHNSON. No, sir. It is a shifting between two provisions of the Tariff Act of 1930.

Mr. REED. It would be more helpful, as illustrated in a former section; it would harmonize the law with the decisions?

Mr. JOHNSON. I do not know that that situation exists here. We do not have the law outside of the statute to bring in, as we did in connection with the other section.

Mr. JENKINS. In that connection, I have heard-and I suppose everybody else has-that in the admission of goods there is room for a great deal of fraud to be exercised between the importer and the shipper and the Government representative. I take it that this only applies to the shipper and the importer; is that right?

Mr. JOHNSON. This applies to the importer rather than the shipper. Mr. JENKINS. That is because the shipper is outside the jurisdiction? Mr. JOHNSON. The shipper is outside of the jurisdiction. This applies against the smuggler and other violators of our laws.

Mr. THURSTON. Have you any prohibition provided against a constant customs violator who frequently violates the law?

Mr. JOHNSON. There are no graduated penalties. But the original penalties are extremely-I do not like to say severe, but in connection with smugglers, they are heavy penalties. The penalty is the forfeiture of the merchandise and the personal penalty is a penalty, a fine, equal to the value of the merchandise, so the total is twice the value of the merchandise at the time and place of seizure.

Mr. THURSTON. Do you have any trouble with certain groups who make it a business to try to avoid the customs?

Mr. JOHNSON. We break up smuggling rings from time to time. I do not know of any existing at the present time.

Mr. THURSTON. Is there a penalty against persons here in the country who form a conspiracy with importers to avoid the provisions of the customs laws?

Mr. JOHNSON. The general conspiracy statute of the Criminal Code would apply; yes, sir.

Mr. THURSTON. That is all.