Part 26
When merchandise is brought into the country under a warehouse entry, the major part of the merchandise is sent to a Customs bonded warehouse for storage. No duties are deposited when the papers are filed except for that portion of the merchandise which is to be taken immediately by the importer. In other words, the importer is permitted to place his goods in storage without payment of duties and then is permitted the privilege of making partial withdrawals from the warehouse, paying duties on whatever he draws for consumption.
There is a continual movement of merchandise from one bonded warehouse to another. This is particularly true in movements of liquor from one part of the country to another. Liquors may move across the country and may be in six or a dozen different bonded warehouses before they are withdrawn for consumption and taxes are paid. This system permits merchants to move their merchandise freely to meet shifting consumer demands.
The normal period for bonded storage is three years, but this period may be extended. If no extension is granted and the goods still remain in a bonded warehouse beyond the three-year period, they are considered unclaimed and abandoned to the government. The government then puts the merchandise up for public auction.
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A point of constant friction in the field of imports is the law which requires that imports shall be marked “legibly and conspicuously” with the name of the country of origin. It has been the Customs Bureau’s position that if the marking can be reasonably expected to remain on the article until it reaches the ultimate purchaser, then that is all that the laws requires. But there are many exporters and importers who disagree with the Customs interpretation of the law.
As one Customs veteran explained: “The domestic people, of course, would like to have great big red letters 40 feet high on a 20-foot article spelling out the name of the country of origin. Of course, it frequently happens that the importer would like to have this name about as small as the Lord’s Prayer on the point of a pin.
“The markings from some countries increase the value of the article. Chinaware from England, for example. The English are very happy to put their marking under the glaze, where it will remain. There are other countries that are just as happy to put this identification on by paper sticker, which may come off in the rain. So we always are in the middle in the argument over markings on imports.”
The purpose of the law, of course, is to inform the ultimate buyer of the country from which the merchandise came. Normally the ultimate purchaser is considered to be the man who buys it across the counter--the last person to receive the article in the condition in which it was imported.
A great deal of merchandise is permitted into the country under what is known as the “informal entry procedure.” The informal entry is used where the value of a shipment does not exceed $250. The entry was devised for the benefit particularly of persons passing across the borders of the United States from Canada and Mexico.
In such border crossings, there is no formal appraisement. The Customs officers on duty write up the entries, take a look at the merchandise and decide themselves whether the value is correct. Then the duty is paid on the spot and the merchandise is released.
This informal entry procedure is also used at the airfields to expedite shipments of merchandise by air. It is used in the clearing of baggage through Customs when travellers arrive from overseas, and in the clearance of non-commercial shipments which include personal and household effects.
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In the vast majority of importations, the broker plays an important part. The broker may be an individual, a partnership, corporation, or association. In any case, those acting as brokers must be licensed by the Customs Bureau, meet certain standards, and submit to Federal regulation of their operations.
Applicants for individual broker’s licenses must undergo an examination at the headquarters port in the Customs district in which the broker intends to operate. The purpose of this examination is to determine the applicants knowledge of Customs laws and procedure and his fitness to render a service to importers and exporters. This knowledge must necessarily be quite broad in scope, and a grade of 75 per cent is required for passing.
However, those applying for a broker’s license as a corporation, partnership, or association do not take an examination. Their applications are forwarded by the Collector to the Supervising Customs Agent, who conducts an investigation and then makes a report and recommendation. The agents verify the correctness of the statements made in the applications and the qualifications of the person or persons who will actually handle the customs business. The government requires that each broker keep current records reflecting his financial transactions as a broker, and these records must be available for government inspection at any time.
The Customs Service has no part in fixing the fees charged by customs brokers for their services. However, if a complaint is made against an individual broker or a brokerage house, then the complaint is investigated by Customs Service agents and if the fees charged by the broker are found to be excessive or “unconscionable,” then action is taken by the Service to correct the situation. In cases where investigation discloses irregularities, the Secretary of the Treasury has the authority to suspend or revoke the license of a broker. Such action is taken, however, only after a quasi-judicial hearing in which the accused broker has the right of cross-examining witnesses. If the decision goes against him, then the broker may, if he wishes, appeal his case to a U.S. Circuit Court of Appeals.
The broker plays a prominent role as the middle man in the import-export business, but this does not mean that an importer must necessarily seek the services of a broker in bringing merchandise into the country. Under the law, any citizen may act as his own agent in clearing his own imports through Customs and no license is required.
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One of the ancient devices to aid the importer is known as the “drawback” privilege. “Drawback” is a word which is found in customs language through the centuries, and it is another word for “refund.”
In brief, the drawback works in this fashion: an importer brings merchandise into the United States to be used in the manufacture of certain articles. At the time of importation, he pays the normal duty. After the articles are manufactured, they are exported to another country. It is then that the manufacturer is entitled to a refund on that part of the imports which he shipped back out of the country.
The drawback plays an important part in the manufacturing operations of all nations. It enables manufacturers to meet competition in the export market. For example, an automobile manufacturer in the United States imports a large amount of steel to be used in the manufacturing of his automobiles. Ten per cent of this steel is used in cars which are shipped overseas. Thus the manufacturer is entitled to a drawback or refund of 10 per cent of the duties he paid on the imported steel.
Congress has liberalized the drawback provisions so that a manufacturer does not necessarily have to use the imported materials in his exports in order to qualify for a refund of duties. An automobile manufacturer may export automobiles made entirely of domestic steel. But if the steel he used in the exports is of “the same kind and quality” as the imported steel, then he is allowed to obtain a refund on that quantity of steel used in the exported automobiles.
Virtually every manufacturer who is in the export business takes advantage of this drawback material, and its value to the manufacturing industry in the United States is realized when it is noted that the refunds paid in recent years have been running about $9 million annually.
Oddly enough, there are some American manufacturers who do not even know that they have the privilege of a duty refund. They have been importing materials for years, paying duties, and then exporting the finished products without making any claim for a refund of duties on the materials shipped back overseas. One midwestern manufacturer in recent years discovered that he had paid the government in excess of $1,500,000 in duties--and he was entitled to a refund of the entire amount.
This situation developed as a result of the Korean War. Because of the tremendous devastation in Korea, the U.S. government entered into a program of rebuilding the Korean economy. The midwestern manufacturer obtained orders from the government to supply a quantity of heavy machinery and equipment, the contract running into many millions of dollars.
In that period during and after the Korean War, there was a shortage of domestic steel. For that reason the manufacturer imported virtually all the steel used in the machinery manufactured for the Korean government. When he discovered that he was due a refund of duties, he obtained all his records over the past years, and submitted them to the government. These records were verified and the manufacturer was paid more than $1,500,000.
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The maze of tariff laws which has grown up over the years has developed some peculiar situations, and one of the oddest of these involves the Virgin Islands, the insular possession which has attracted many manufacturers in recent years.
One reason that the Virgin Islands is proving attractive to new industries is that under the present laws, manufacturers operating in the Virgin Islands pay an import duty of only 6 per cent on merchandise brought into the Islands for use in manufacturing. Their finished products are permitted into the mainland free of any duty--provided the foreign materials used are less than 50 per cent of the total value.
This quirk in the law has created extreme problems for some American industries, such as the watch industry. For example, a manufacturer in the Virgin Islands will import various watch parts from France or Japan and pay only a 6 per cent duty on these imports. The parts will be assembled into a finished watch, and if the watch meets the requirements fixed by law, then it enters the United States free. In other words, the manufacturer in the Virgin Islands pays a 6 per cent duty on watch parts on which the American manufacturer is required to pay a 50 per cent duty. And this variance extends to other fields of manufacturing.
There has been, in recent years, a growing opposition to the duty differential which is permitted manufacturers in the Virgin Islands. Discussing this situation before Congress in September, 1960, Representative Eugene J. McCarthy of Minnesota voiced the views of many when he said: “In recent months there has been a growing tendency for companies to establish themselves in U.S. insular possessions on a basis that results in their escaping the proper payment of duty on products they wish to import into the United States. Section 301 of the Tariff Act of 1930, as amended, was intended to promote the development of employment opportunities in our insular possessions.... (Instead, it) has become an avenue for the avoidance of very substantial amounts of duty....”
The McCarthy argument is disputed by the Virgin Island manufacturing interests, but nevertheless the situation underscores the complexity of the laws by which the Customs Bureau is bound.
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In the fourteenth and fifteenth centuries, free-trade zones were common throughout the world. There were no customs requirements, and merchandise moved through these ports with no restrictions. Gradually the free-trade ports disappeared as the various countries imposed tariffs on imports and exports for revenue and for protection purposes.
The nearest thing to the old free-trade port that exists in the United States today is the foreign-trade zone. It is a sort of No Man’s Land which has been described as “a neutral stockaded area where a shipper may put down his load, catch his breath, and decide what to do next.”
There are four of these zones in the United States, located at New York, New Orleans, San Francisco and Seattle. They are fenced and guarded areas into which importers may bring merchandise without payment of duties--excepting prohibited merchandise such as narcotics, subversive or immoral literature, or lottery matter. The merchandise may remain in the zone indefinitely, and once it is there it may be manipulated, processed or manufactured without being subject to any Federal or state controls.
The foreign-trade zones are used for many operations such as assembling machinery, dyeing and bleaching materials, bottling, weaving, printing, extracting oils and other components from raw materials, and for cleaning, grading, sorting, and repackaging materials for a specific market.
It is only when the finished product is removed from the zone that it becomes subject to commodity quotas, commodity standards, labelling and marketing requirements, licenses, fees, controls and taxes that normally apply to all imports. However, if it is to his advantage, the importer may ask for an earlier determination of the duties and taxes due--before the processing changes the classification of the goods involved.
The foreign-trade zones are intriguing areas because although they are physically within the United States, for all practical commercial purposes they remain outside the United States--reminders of an earlier day when trade through many ports of the world was unfettered.
22
THE RESTLESS AMERICAN
Inspector Leonard Simon, a tall man with faint crinkles about his eyes, stood at his post in the Customs baggage examination area late one August afternoon at New York’s Idlewild International Airport. He was waiting for the rush of travellers who then were disembarking from a huge Pan American Boeing 707 jet which had just completed its swift flight from Paris.
Simon had arrived on the job early that morning and this was one of the few times he had been able to relax. Tourists returning from Europe had been pouring through the airport in droves. And before the day was ended, he and his fellow inspectors would have examined the documents and the luggage of passengers disgorged from more than 100 airliners--a restless army arriving from all parts of the world.
At the peak of the traffic, as many as 1,000 persons moved through the inspection lanes each hour. Fifteen years earlier--in the postwar years--only a handful of officers was needed to handle the international air traffic. The jet age had changed all this. A force of 248 men was now required, and each year travel by air was increasing.
They came in waves from the planes, laden with boxes, bundles, bags and cases--impatient to clear this last official hurdle which stood between them and their destination. There was a certain air of resentment about some of them when they entered the inspection lanes, as though they were being forced to undergo an unpleasant inoculation which was entirely unnecessary. Some showed their nervousness with self-conscious titters. Some were openly hostile to the inspectors. And some viewed the routine with bored resignation.
Nevertheless, most of the travellers accepted the examinations with good grace, answering with candor the routine questions about their purchases abroad, and paying any duties assessed without complaint when the purchases exceeded the duty-free exemption of $100.
A few of the travellers had voiced complaints, as did the fat, perspiring man who demanded in a loud voice, “Why is it that our government is the only one which treats a citizen as if he might be a criminal?” He looked about belligerently to see if anyone would take exception to the statement, but the inspectors acted as though they had not heard the remark. None of them was in the mood for an unnecessary argument.
With minor variations, the scene had been replayed over and over throughout the day. Now, as the crowd from the 707 jet moved toward the inspection lanes, Simon ground out his cigarette in an ash tray and nudged a fellow inspector. He said, “Here comes trouble.”
“Which one?” the man asked.
“The Duchess,” Simon said, the crinkles deepening about his eyes. “The tall woman with her nose in the air. I’ll bet she comes to my station.”
Sure enough, The Duchess bustled into Simon’s lane and fixed him with a beady stare. “Young man,” she said with a heavy British accent, “can you tell me why I must go through with this nonsense of having my luggage examined?”
“I’m sorry,” Simon said, “but it’s a routine precaution we must take with all travellers unless they have the immunity of a diplomatic passport. I’m just doing my duty.”
The woman glared. “I still think it’s a lot of nonsense. It’s most inconvenient. What do you think I’m carrying that is illegal?”
Simon said seriously, “We were informed that you were smuggling twenty small Russians into the country in your suitcases. I’ve got to see if it’s true.”
It was a corny gag but, unexpectedly, The Duchess laughed. “All right, young man,” she said. “Get on with your job and I’ll not trouble you again.”
The visitor from Britain had hardly left Simon’s station when he looked up and saw a well-known film star entering his lane. He knew her immediately from her pictures in the newspapers and from the film he had seen a few days earlier at a neighborhood theater. The papers had said she would be returning to Hollywood from Europe, where she had been working for several months on a new picture.
There had been stories of her appearances in Paris, Rome, Madrid and Monaco, and the usual gossip about the men with whom she had been seen. Now here she was in person--dressed in a fetching suit which had a made-in-Paris look to it. She carried a handsome Italian-made handbag. On her wrist was a watch which Simon saw at a glance was worth several hundred dollars, because it was encrusted with small diamonds.
The actress handed Simon her declaration. It was signed with a carefree flourish--but there were no purchases listed, only personal belongings. Simon felt like groaning when he saw the declaration. It simply didn’t make sense for a well-known actress to be in Europe for six months without making a single purchase of clothing or jewelry.
Simon said, “You are certain you understand the regulations? A good many people don’t know that the declaration must include any wearing apparel purchased abroad, even though it has been worn.” Simon was trying, tactfully, to suggest that if she had any undeclared purchases, she still could “remember” them and amend the declaration without penalty. He didn’t want to make trouble for her because, as he explained later, “I really liked her pictures.” And there was the chance that she didn’t understand the regulations.
The actress snapped, “Of course, I understand. I took these things with me when I left the country.”
It was the tone of voice that did it. Simon shrugged and asked her to open her suitcases. The top layers of clothing were dresses with California designers’ labels attached, and Simon saw they were genuine California models.
Beneath these dresses there were other gowns with no labels on them. But Simon didn’t have to rely on a label to know that these were creations from the houses of Dior and Balenciaga. He recognized their Paris origin from the distinctive stitching and from other small peculiarities of design which were more reliable identifications than labels. A label might be changed or removed--but the work of the French seamstresses could not be altered.
Simon had only to glance through the suitcases to see that the matter had gone beyond his authority. He signalled for one of his superiors. The actress was asked to step into a private room for questioning and for a more thorough examination of her luggage. She was found to be carrying undeclared clothing and jewelry worth $10,800. She was not subjected to criminal prosecution, but she paid into the Treasury the value of the purchases in addition to the stiff penalty for the smuggling attempt. She left New York for Hollywood a much wiser young woman, although she would never feel moved to voice any praise for the Customs Bureau and its employees.
The case of the Hollywood actress is only one minor example of why the Bureau requires that travellers’ luggage be examined upon arrival in the United States. Each year roughly 150 million persons and 43 million vehicles cross and recross the borders. Among those millions are cheats, smugglers and conspirators seeking to evade the payment of duties on imports or trying to bring contraband into the country.
Baggage examinations have been made since the Republic was in its infancy. The system has been continued simply because no one yet has devised a better way to protect the Treasury from those who seek to avoid the payment of legitimate duties. The system remains much the same as it was in the days of George Washington--and without doubt just as annoying to travellers.
There is an old story that Napoleon once assembled his marshals, just before launching a long-planned campaign, to deliver a stirring address on the brilliance of his strategy, the weaknesses of the enemies, and the indomitable spirit of the Napoleonic legions.
“Nothing,” thundered the little emperor, “can stop our march!”
Then a voice piped up from the rear: “Sire, you forget the French Customs!”
The U.S. Customs Service in its more than 170 years of operation has never achieved a position of such bureaucratic eminence as the anonymous storyteller attributed to the French Customs--even though some tired and disgruntled travellers returning from abroad might feel inclined to dispute this point. But there is no doubt that among governmental agencies, the Customs Service has--in Madison Avenue terms--projected a poor image of itself and the importance of the role it plays in protecting the Treasury.
Smuggling and attempts at fraud continue to be big-money problems. During the fiscal year 1960, Customs agents and inspectors made 13,531 seizures of merchandise, narcotics and other imports worth $8,238,649. From these seizures, the Treasury received a total of $1,402,084.24 in fines and penalties--of which $896,159.42 was collected by Customs agents.
While the value of the seizures reported by Customs in one year may seem high, Customs officers are certain that they intercept only a part of the contraband that is brought into the United States. They are equally certain that diligent inspection and enforcement work slow down the operations of the underworld operators, the one-shot smugglers, and the chiselers who--if this deterrent did not exist--would flood the country with illegal imports.
Unfortunately, there is no way in looking at passengers arriving by plane or by ship to separate the honest from the dishonest. The little gray-haired lady with a shawl about her shoulders, wearing steel spectacles and a shy, grandmotherly smile, may have two pounds of heroin concealed beneath her petticoat. And the square-jawed, blue-eyed, All-American business executive with the firm handclasp may be trying to bring into the country a diamond ring and several watches.