Chairman PICKLE. Thank you very much, Mr. Shay. We are going to proceed to the next witness, Mr. John Simpson, the Director of the Office of Regulations and Rulings of the U.S. Customs Service. Mr. Simpson. STATEMENT OF JOHN P. SIMPSON, DIRECTOR, OFFICE OF Mr. SIMPSON. Thank you, Mr. Chairman. Although we have had only 2 years of experience with the CBI Program, we have had fairly extensive experience with other tariff preference programs, such as the Generalized System of Preferences in Headnote 3(a) for the insular possessions. Our experience with Caribbean countries under these tariff preference programs has indicated to us that they don't present to us any particular or complex enforcement problems. To the extent that we have had problems with the Caribbean countries, we have found them to be cooperative in enabling us to get the information we needed. Thank you, Mr. Chairman. [The prepared statement follows:] STATEMENT OF JOHN P. SIMPSON SUBCOMMITTEE ON OVERSIGHT COMMITTEE ON WAYS AND MEANS FEBRUARY 25, 1986 Mr. Chairman and members of the Subcommittee, I am John Simpson, and I am director of the Office of Regulations and Rulings of the U.S. Customs Service. I am pleased to have the opportunity to explain to the Subcommittee the role of the Customs Service in administering the tariff preference provisions of the Caribbean Basin Initiative (CBI). Although we have had only two years of experience with the CBI program, we have had extensive experience with similar tariff preference programs under the Generalized System of Preferences (GSP) and Headnote 3 (a), which provides tariff preference for products of U.S. insular possessions. Generally, our experience has been that entries of merchandise from Caribbean countries under these tariff preference programs do not confront us with especially difficult or unusual enforcement or administrative problems. In those situations when it has been necessary for the Customs Service to conduct investigations or to obtain additional information, in order to appraise merchandise properly or to verify entitlement to CBI or GSP duty-free treatment, we have found the governments of the Caribbean Basin countries to be generally cooperative. I understand that the Subcommittee is especially interested in two problems which are of concern to the Customs Service: transshipment of restricted goods such as steel and textile products through CBI beneficiary countries in an unlawful effort to disguise their origin and thereby circumvent the restrictions; and superficial processing of restricted goods in CBI beneficiary countries in order to affect a legal change in their status and to qualify them as products of a beneficiary country, thereby avoiding restrictions and, in some cases, duty. With respect to mere transshipment of restricted merchandise through CBI beneficiary countries for the purpose of unlawfully disguising their origin, the Customs Service recognizes this as a potential area of concern. However, there have been relatively few transshipment problems in the Caribbean countries under the GSP program, and we see no reason to expect a different experience under CBI. Customs is currently investigating a limited number of alleged unlawful transshipments under CBI. These transshipments are -2 alleged to have originated in Asian and South American countries, and have involved shipments through various Caribbean countries. Because these investigation are in progress I am not able to draw conclusions about their results, but certainly to the extent that real violations of U.S. law are uncovered, the Customs Service has adequate statutory authority to impose stiff civil penalties. The second problem which we understand to be of concern to the Subcommittee is that of restricted merchandise which is subjected to some manufacturing or finishing operation in a CBI beneficiary country, and is then sent to the U.S. as a product of the CBI country. Let me provide some background on this problem in order to make it more understandable. The Customs Service is required to determine the country of origin of imported merchandise for several purposes, most important of which for today's hearing is assessment of duties and application of quotas and other country-specific restrictions. There is no statutory definition of origin, but for many years the Customs Service and U.S. courts have taken the position that merchandise is the product of the country in which it is wholly grown or produced, or of the country in which it last underwent processing which substantially transformed it into a new and different article of commerce. This definition of origin has generally served well in making the numerous origin distinctions which Congress has wanted made, and the Customs Service has, particularly in recent years, made a deliberate, and I believe largely successful, effort to prevent superficial processing operations from circumventing origin distinctions which Congress has mandated by law. Our efforts have generally been supported by the Court of International Trade. However, in an opinion issued last year, Torrington Company v. United States, the Court of International Trade has apparently taken the position that a different, more lenient standard for determining origin should be applied to merchandise exported from developing countries. In that case, the Court applied a test for determining origin for the purpose of GSP which it has since rejected for other purposes. Essentially, the Court's opinion held that any article which is unfinished and not completely suitable for its eventual use can become a product of a developing country in which the necessary finishing operations are performed, no matter how insignificant these finishing -3 operations are. The Government appealed this decision, but it was affirmed by the Court of Appeals for the Federal Circuit. The import of this decision is that relatively insignificant processing in developing countries of unfinished articles produced in developed countries may be viewed by our courts as having caused the articles to become products of the developing countries. If our courts do continue to take this view, then country-specific restrictions, such as those imposed by the voluntary restraint agreements governing exports of steel products from developed countries, can lawfully be avoided. Thank you for giving us the opportunity to be here today, Mr. Chairman. My colleagues and I shall be pleased to do our best to answer your questions. Chairman PICKLE. All right, Mr. Simpson. You got to the point. [Laughter.] Thank you. Now we will ask Mr. Thomas Kay, Administrator of Foreign Agriculture Service, U.S. Department of Agriculture. Mr. Kay. STATEMENT OF THOMAS O. KAY, ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE Mr. KAY. Mr. Chairman and members of the subcommittee, I appreciate this opportunity to discuss with you today the Department of Agriculture's role and involvement with the Caribbean Basin Initiative. Mr. Yeutter said earlier in his testimony that the Caribbean Basin Initiative is a mutually beneficial arrangement for the United States and the countries of that region, and for that purpose, an example in 1985, the United States exported 1.1 billion dollars' worth of agricultural products to the Caribbean Basin. Many of those exports were value-added or high value products. In comparison, the CBI beneficiaries exported 1.8 billion dollars' worth of agricultural products to the United States. From the outset, the Department of Agriculture recognized that the ultimate success of the Caribbean Basin Initiative rests on the development of the private sector in the Caribbean countries. Thus, much of the Department's efforts have focused on soliciting the support and participation of the U.S.-private agricultural sector in the CBI effort. Shortly after the inception of the CBI, the Department encouraged the formation of the Agribusiness Promotion Council, drawing from 30 U.S.-private agribusiness leaders as an advisory group to the Secretary of Agriculture. The purpose of this council is to promote U.S. investment in the Caribbean Basin and help beneficiary countries participate in international agricultural trade. I must say that under the leadership of the Office of International Cooperation and Development of the Department of Agriculture, we have had three large agricultural marketing workshops bringing in interested parties from all over the Caribbean. Two were held in Miami, one last year in New Orleans. We have also had many marketing seminars in the various countries of the Caribbean carrying representatives from the Department, from OICD, from the Agricultural Research Service, from the Animal and Plant Health Inspection Service, the Foreign Agricultural Service, Agricultural Marketing Service into these countries, teaching them what we can about agricultural trade, how to market their commodities in this country, and how we can give assistance to them. The closeness of the Caribbean region itself to the United States, and the importance of the movement of people and commodities between the two areas have convinced us that the agricultural health of the Caribbean Basin is closely interwined with that of the United States. And to help promote agricultural health and increase communication, USDA's Animal and Plant Health Inspection Service has several personnel permanently stationed in the Caribbean and in the Central American countries. |