1956. 1957

Reimbursement to Bureau of Customs

Increase (+) decrease (−).

$750,000 950, 000 +200, 000

The export-control work of the Bureau of Customs on behalf of the Bureau of Foreign Commerce comprises two major categories. First, is the receipt, checking, and authentication of shippers export declarations. With a few minor exceptions, every export from the United States must be covered by an export declaration. Each such declaration must be filed with a collector of customs and must be authenticated or approved by him prior to lading of the merchandise for export. In general terms, such authentication involves the determination by the collector that each export is properly licensed under the regulations of the Bureau of Foreign Commerce. Such licensing may be "general" or "specific". Various "suspect" lists, and other collateral checks are also made. This part of the work is a paper check on exporters' compliance with Commerce regulations. It may be noted that all export declarations must be checked, and the fact that the merchandise may be generally licensed or specifically licensed causes only slight variation in the amount of work involved in checking. Therefore, even a significant decrease in the number of positive list commodities requiring specific license does not materially reduce Customs workload or manpower requirements for checking export declarations.

The second phase of Customs' export-control enforcement activity involves the actual inspection of out-going shipments to assure that the merchandise to be exported conforms to the descriptions shown on the export declarations. Such inspection of all export merchandise is obviously impractical and this work is carried out on a small sample or spot-check basis.

In addition to the above major activity fields, customs agents (criminal investigators) investigate actual or possible violations for criminal prosecution purposes. Close liaison is also maintained between the two Washington headquarters offices on this program.

The following estimates of Customs' financial requirements follows the above operations breakdown in its development.

A. EXPORT DECLARATION EXAMINATION, OR "INSIDE" WORK

Prior to the beginning of fiscal year 1956 it was agreed that a reasonable average production for an export declaration license examiner was 150 declarations per man-day at seaports and 200 declarations per man-day at border ports.

These standards were developed by a joint survey of Customs and Bureau of Foreign Commerce liaison officers and were based on actual field operating conditions. The following estimates of manpower requirements are based upon these standards divided into the average daily receipts during the first 8 months of the current fiscal year (July 1955 through February 1956). The comparison table shows the actual 1956 manpower assignments and the resulting production rates per day. It will be noted that at present rates of export declaration filing, and with the manpower presently financed from the Commerce transfer, an average of nearly 240 declarations must be processed per man-day. This means that, on the average, each export declaration and license examiner must process one declaration every 2 minutes, in addition to discussing export-control problems with the public, and answering telephone inquiries. It is obvious that such checking is in many cases cursory, and that there is significant danger that an unlicensed or improperly licensed export may be inadvertently passed.

Customs believes the present rate is much too high for satisfactory checking, and recommends that manpower be financed to bring the average much nearer the 150 standard.

It has been agreed between Customs and the Bureau of Foreign Commerce that 4 percent of the outgoing shipments should be opened and inspected. For convenience the number of export declarations filed is used as the number of shipments, although it is recognized that more than one shipment is often made against a single declaration.

During the first 8 months of fiscal year 1956, as shown by the preceding table, an average of 16,450 shipments per day were processed. Four percent of such shipments would be 660. At an agreed standard of 16 shipments to be opened per man-day, the equivalent of 41.25 verifiers would be required. The number of verifiers financed from the 1956 Commerce allocation is 44, which number takes into consideration the rounding of port requirements to full-time employees. This number will be required again in 1957. The presently assigned number of 43 inspectors is also felt to be the minimum number with which an adequate job can be done. The estimated average salary of export control verifiers for 1957 is $3,600, while that of inspectors is approximately $5,700.

In summary, it is believed that the following manpower and related requirements are those which will enable the Bureau of Customs adequately to carry out its assigned responsibilities in fiscal year 1957 under the Export Control Act of 1949, as amended, assuming the services required are not significantly changed in the extension of the act.

The above estimate compares with $750,000 for the current fiscal year of 1956 ($700,000 transferred, plus $50,000 pay increase supplemental due), and is an increase of $200,000. As is shown in the presentation, the increase is entirely on the inside work, which Customs believes is presently being handled very inadequately. The 8 months workload data, if projected to an annual basis, also indicates that the 1956 volume of declarations filed will exceed the 1955 figure of 4,133,000 by about 4 percent for a total of 4,300,000. There is every reason to believe that the number will be as large or large in 1957.

Senator HOLLAND. Mr. Chairman, the extension of this program for 2 years has been authorized in H. R. 9052, the same bill which I previously mentioned, relating to the request for funds for the scrap

survey.

Mr. Marshall Smith, the Deputy Assistant Secretary for International Affairs, is here with us this morning, and I ask that he first proceed.

PREPARED STATEMENT

Mr. SMITH. Mr. Chairman, Senators, I have a statement for the record which I will not burden you with reading. If you prefer I will be very glad to briefly summarize it.

Senator HOLLAND. Mr. Chairman, I suggest that the full statement be included in the record and that the summary be briefly made by the witness.

Chairman HAYDEN. Very well.

(The statement referred to follows:)

STATEMENT OF MARSHALL M. SMITH, DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS, ON FISCAL 1957 BUDGET ESTIMATE FOR ADMINISTRATION

OF EXPORT CONTROLS

The House of Representatives, on May 21, upon recommendation of the Banking and Currency Committee, voted to extend the Export Control Act for another 2 years, from June 30, 1956. The appropriation request here involved, in the amount of $3 million, is to cover the export control personnel and administrative expense requirements in the Department of Commerce and the Bureau of Customs of the Treasury Department during the next fiscal year.

It seems almost too obvious for me to tell you that the Government must continue effectively to control exports in the interest of national security. There is no evidence that the underlying pattern of Soviet hostility has changed, and the ease with which the Soviet bloc changes its focus of activity from one area of the world to another makes it necessary that the Government remain constantly alert and prepared to counter such moves.

It is clear that we must continue to take special precautions to see that United States goods of strategic significance do not go unchecked to the trouble spots of

the world. And, in particular, of course, we want to deny strategic goods to the European Soviet bloc and to implement the Government's policy to embargo all goods to Communist China and North Korea.

The Export Control Act also authorizes the imposition of export controls whenever there is an unusual foreign demand which may seriously drain our supplies of important commodities. The only commodities which are now subject to short-supply controls to the free world, as well as to security controls to the Soviet bloc, are aluminum and aluminum scrap, copper and copper scrap, industrial diamonds, iron and steel scrap, nickel and nickel scrap, Salk vaccine, and selenium.

In connection with security export controls, our main job, of course, is to prevent the Soviet bloc from obtaining United States goods of strategic importance. Problems in administering export control of strategic goods arise, of course, not so much from shipments declared to be destined to the bloc but rather from shipments declared to be for use in other friendly countries. We must always be alert to the possibility that even where United States goods are shipped to friendly countries ostensibly for use there, they may be intended to be resold and shipped to the Soviet bloc.

Since the vast preponderance of applications for friendly countries are for strategic materials, we do not approve a license if we have reason to believe that the goods may be diverted to the Soviet bloc. Obviously, there cannot be complete certainty in this business. We have, however, devised a number of procedures and checks which are used both in licensing and postlicensing and are intended to verify proposed exports and assure that they will be carried through as represented. It includes the checking of license applications against intelligence information concerning the parties involved in the proposed transaction; prechecking through the Foreign Service of selected applications for the purpose of determining the reliability of the consignee and the bona fides of the transaction; inspection of shipping documents and, on a spot-check basis, physical inspection of actual shipments at the ports of exit; tracing the arrival and disposition of selected shipments for compliance with the terms of the licenses; and a variety of documentary requirements calculated to put foreign importers and freight forwarders, as well as our own businessmen, on notice of our export regulations.

The operating staff for export control administration is divided mainly between the Bureau of Customs in the Treasury Department and our Bureau of Foreign Commerce. It is our part of the job, generally, to determine what commodities should be controlled and to what destinations; to promulgate the necessary regulations; to process license applications; and, of course, to enforce the regulations and prosecute violators. It is the job of customs to administer the controls at the ports of exit-to examine and validate export declarations in conformity with our rules, and to inspect actual export cargoes on a spot-check basis to assure compliance with licenses and shipping documents.

For the coming year, we are requesting a modest increase in funds in order to provide for better enforcement right down the line, at the levels of licensing, policing at the ports of exit, and investigation and prosecution of violations. I am not going to repeat the details of the budget estimate which has already been furnished to you. I want, however, to emphasize certain main points.

The total budget estimate for next year is in the amount of $3 million, as compared to $2,836,000 appropriated last year. You will recall that the amount appropriated last year was considerably below our budget estimate and our then current employment. A substantial reduction-in-force was made early in the fiscal year in order to operate within these reduced funds. However, it actually developed that our workload did not fall off, and as a matter of fact, license application intake during the year has exceeded by 12 percent the estimates which entered into the determination of our last year's budget.

This increase in volume of applications resulted from the fact that we had to increase our so-called positive list of controlled commodities, mainly to include certain new products of strategic significance and also certain items previously regulated by the Atomic Energy Commission, but now taken over by us at their request. Also, there has been a marked increase in applications for direct shipments to the Soviet bloc. We, therefore, propose in this budget to add a few positions above our current employment in the licensing staffs in order not to fall behind in the essential work of processing applications, and more importantly, not to diminish the carefulness of our scrutiny of such applications. We also require an increase of a few positions to provide staff for checking on new commodities for their possible strategic significance and new adaptations of commodities to strategic uses. The enforcement significance of this work is, I believe, readily apparent.

The workload of our enforcement staffs-investigations and legal-in terms of caseload per man-has risen to the highest level in several years with a resulting slowdown in prosecuting of known violations and in investigating newly reported irregularities. On a calendar-year basis, the current annual caseload per investigator is over 50, and cases assigned to the lawyers for possible prosecution average 20 per man. This serious situation was noted in the report of the House Banking and Currency Committee which urged that speedy and effective attention be given to this phase of export control. We, therefore, propose some increases in both of these staffs above current employment in order to bring the workload per man closer than at present to a manageable level.

Finally, I should like to make note of the need for a substantial increase in the personnel of the Bureau of Customs assigned to export control enforcement. As I said earlier, their work falls into two categories: Checking and authentication of export documents for compliance with export licensing requirements, and actual inspection of outgoing shipments for conformity to such documentation. The witness from the Customs Bureau will be able to explain in more detail why they are not able, with their present staff, to maintain acceptable standards of performance of these important tasks. I should simply like to emphasize the great value of this work in our enforcement program and to assure you that the requested increased funds for this purpose are, in our judgment, necessary to achieve a minimum satisfactory level of enforcement.

EXTENSION OF EXPORT CONTROL ACT

Mr. SMITH. The Congress passed and sent on June 28 to the President a bill to extend the Export Control Act for 2 years from June 30. The appropriation request involved here in the amount of $3 million is to cover the export control personnel, administrative expense requirements in the Department of Commerce, and the Bureau of Customs of the Treasury Department, during the next fiscal year.

The operating staff for export control administration is divided mainly between the Bureau of Customs and the Bureau of Foreign Commerce. It is a part of our job generally to determine what commodities should be controlled and to what destination, to promulgate the necessary regulations, to process license applications, and to enforce the regulations and prosecute violators.

The job of the Customs Bureau is to administer the controls at the port of exit, to examine and validate export declarations in conformity with our rules and to inspect actual export cargoes on a spot-check basis to assure compliance and conformity with the licenses as issued and the shipping documents as submitted to the Customs Bureau.

REQUEST FOR INCREASE IN FUNDS

For this coming year we are requesting a modest increase in funds in order to provide for better enforcement right down the line at the levels of licensing and policing at the ports of exit and the investigation and prosecution of violations.

I don't think it is worth while at this time to go into the details of the budget estimate which has been furnished to you, but we think that certain points should be emphasized and clarified. The total budget estimate is in the amount of $3 million as compared to $2,836,000 appropriated during the current fiscal year.

You may recall that the amount appropriated last year was considerably below the budget estimate and then current employment. A substantial reduction in force was made early in this fiscal year in order to operate within these reduced funds. However, because of the fact that we did not receive our appropriation early enough the reduction in force was not effective as of July 1, and we were therefore