9. Penal duty for undervaluation: Remission.

10. Amendment of protests.

11. Goods in bonded warehouse: Abandonment or exportation.

12. Nonmarking penalty.

13. Damage due to casualty.

14. Assessment on less than entered value.

15. Reappraisement above appraised value without appeal by collector. 16. Customs regulations should not be mandatory upon courts.

17. Abandoned merchandise.

18. Clerical errors.

19. Unnecessary transmission of protests to customs court.

20. Repeal and saving clauses.

21. Inconvenient arrangement of administrative statutes.

Some of the recommendations are particularly in the interest of importers at Pacific ports. Many of them, indeed, were suggested by misfortunes of my clients.

They have been submitted to criticism of numerous individuals, official and unofficial, who are experts in customs law, and are offered to the committee with such modifications as the resulting suggestions seemed to require.

The need of amending the present law in some particulars is urgent. Though in general the best customs administrative law yet enacted, it is not complete. nor is it as clear and simple as desirable. Importers frequently suffer from technicalities which, without safeguarding revenues or benefiting customs administration, obstruct importation and cause vexation, delay, loss, litigation, and expense. In other words, the importer often endures hardships for which he has either no remedy or none that is satisfactory.

The current slogan, "More business in government," is not inapplicable to customs matters. A progressive and fair-minded administration by the Treasury Department has been conspicuous during the past decade or two, and has developed in the field service to a marked degree, an admirable spirit of reasonableness and cooperation. Nevertheless the administrative hand is often tied by statute and can be freed only by legislative initiative.

If business in general were carried on with the formality and technicality which attend customs clearance of imported merchandise, one can only conjecture the strangulating effect upon commerce. The business of importing makes such progress as it can through a maze of regulation, litigation, penalties, bonds, declarations, certificates, petitions, protests, appeals, affidavits, notices, and other impediments. Even the transfer of title to real estate is hardly subject to such hidering formalities. While there is concededly an irreducible minimum of technicality with respect to customs entry of merchandise this minimum has not been achieved. The celerity and simplicity with which parcel-post importations are handled suggest interesting possibilities as to other classes of shipments.

Whatever may have been the standards of earlier generations, present-day importers are as a class honorable and law-abiding and disposed-many of them to the point of eagerness-to meet fully every customs requirement. It has been an almost daily experience of the writer to observe some misfortune, occasionally calamitous in effect, which through ignorance or adverse circumstance has befallen an innocent importer and which the most sympathetic customs administrator is without discretion to relieve. This is generally because of unduly severe mandatory provisions that have survived from earlier enactments, when legislative policy seems to have been to punish extravagantly every deviation from the narrow path of conformity to the strict letter of the law. It is high time that the remnants of this harshness be succeeded by less vindictive

measures.

In general, I would urge that so far as possible procedural provisions be directory rather than mandatory, and details of administration left to Treasury regulation rather than statutory prescription. As above indicated, the Treasury Department is always disposed to facilitate customs business and to relieve hardship, and may be counted upon to amend or waive an onerous regulation, where it would be powerless in presence of an inflexible statute.

Respectfully submitted.

FRANK L. LAWRENCE.

PROPOSED AMENDMENTS TO CUSTOMS ADMINISTRATION ACT

With a view to simplifying existing provisions of customs administrative statutes, to removing or ameliorating drastic and obstructive features of the law, to clarifying and expediting remedial procedure, and to eliminating vexatious and burdensome technicalities, the following suggestions are made:

1. Increased duty rates-30 days of grace inadequate. It has long been Treasury policy to delay for 30 days the application of increased rates of duty, this period running from date of promulgation to date of importation. This obviously just and considerate policy gives importers with outstanding commitments some opportunity for adjustment.

The Treasury bases this practice upon the 30-day clause in section 516 (b), tariff act of 1922. However, that clause seems to apply only to cases where complaints against lower rates have been filed by domestic interests. If so, importers have no enforceable rights in other cases.

Moreover, the 30 days of grace is frequently inadequate, especially at Pacific ports. For instance, more than 30 days nearly always elapses between shipment at European, South American, or Indian Ocean ports, and arrival on the Pacific coast or at Honolulu. It often results that goods actually laden and perhaps contracted to be sold at a figure based upon the lower rate can be entered only at a ruinously higher rate.

Therefore, it is recommended:

(a) That this valuable privilege be removed from a doubtful, apparently extra-legal status to that of a statutory, judicially enforceable right by an amendment analogous to the 30-day clause in section 516 (b) supra.

(b) That the 30-day period run to date of exportation rather than of importation.

Inasmuch as date of exportation is ascertained by the customs for purposes of appraisement and of currency conversion, this latter suggestion would involve no added administrative effort. Recent proposals by the French Government for higher duties on American exports are based on date of exportation from America rather than of importation into France. This indicates that the French Government recognizes the superiority of the suggested method.

2. Flexible tariff-30-day notice of change: The recommendation made above applies to the same 30-day period of grace specified by section 315 (a) with respect to new rates proclaimed by the President at the instance of the Tariff Commission. California importers have found 30 days too short and suffered accordingly, as in the recent increase of 50 per cent in the duty on Swiss cheese. 3. Shipments of bonded importations to insular possessions: Double duty. Though the Virgin Islands and the islands of Guam and Tutuila are under the American flag, they have their own separate customs tariffs. As a result, imported merchandise shipped to those islands from our customs bonded warehouses is required to pay our customs duties plus such duty as may be collectible at destination. On the other hand, withdrawals for foreign countries are expressly exempted from duty by section 557. This discrimination against our insular possessions is made because the term "exportation" in said section has been held not to cover withdrawals from Guam; for instance, a San Francisco concern recently learned this to their sorrow upon shipping bonded rice to Guam. Owing to its nearness to Guam and Tutuila, this disadvantage must be especially great for Honolulu merchants.

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This unnecessary and unjust burden may be removed by inserting after “ portation," in section 557, the phrase, "to a foreign country or to the Virgin Islands and the islands of Guam and Tutuila."

4. Vessel equipment and repairs: Section 466 authorizes remission of the duty of 50 per cent imposed upon equipments and repairs of any vessel documented under the laws of the United States, provided that the vessel

"While in the regular course of her voyage was compelled by the stress of weather or other casualty to put into such foreign port and purchase equipments, or make such repairs to secure the safety of the vessel to enable her to reach her port of destination."

This does not literally cover the case of a San Francisco oil tanker which recently had to make repairs at an Australian port on account of a casualty that occurred while the vessel was preparing to leave port, but which obviously did not "compel " it to "put into" that port or any other. Nor would it strictly cover the case of a vessel damaged while en route to a destined port, because as the vessel was going there anyway, it was not "compelled" to go by reason of the damage.

It has been held by the Customs Court that it does not have jurisdiction of cases of this type, because the authority to remit duties assessed on repairs seems to be vested wholly in the Secretary of the Treasury. The language suggested below would permit litigation of this class of cases to be brought before the court.

It is recommended that such cases brought within the letter as well as the spirit of the law by an amendment reading as follows:

"If the owner or master of such vessel, however, furnishes good and sufficient evidence that, while in regular course of voyage it became necessary for proper navigation or operation of the vessel to purchase equipments or make repairs, then under regulations of the Secretary of the Treasury such duties may be omitted or refunded; and such vessel (Continue as in present statute.)

5. Errors in appraisement: Occasionally an appraisement will be obviously erroneous, through oversight or other mischance. The only legal means for correcting such mistake is through appeal to the Customs Court.

It is therefore recommended that section 501 be amended by inserting before the third sentence the following:

"The appraiser, if satisfied that the appeal is well taken, wholly or in part, may modify his appraisement accordingly, the right remaining to either party, however, to appeal from such modified appraisement in the same way as from the original appraisement."

6. Appeals from appraisement when entry is incomplete: Section 501, second sentence, reads as follows:

"No such appeal filed by the consignee or his agent shall be deemed valid unless he has complied with all the provisions of this act relating to the entry and appraisement of such merchandise."

Appeals may be taken by the collector, however. This provision is probably a survival from days when drastic revenue laws were supposed to have some peculiar virtue. There is as much reason for correct appraisement of merchandise where the entry is defective as where it is complete, and regardless of whether it is the consignee or the collector who desires to appeal.

It is recommended that the sentence above quoted be deleted.

7. Re-reappraisement by one tribunal instead of three: Under sections 501 and 518 reappraisement decisions by single justices of the customs court are appealable to any one of three appellate terms or divisions of that court, each of which is composed of three justices and each of which has jurisdiction concurrent with that of the other two. Conflicting decisions necessarily result, for while to a large extent cases relating to one class of commodities are assigned to one division of the court, such segregation of issues is not possible as to general questions, such as dutiability of export tax, internal tax, and other foreign imposts, or as to points of evidence or procedure.

Therefore it is recommended that there be but one division of three justices having jurisdiction over re-reappraisements. This does not mean that the same three justices would sit in all such cases, any more than in Federal circuit courts of appeal. In the latter there is a constant shifting of personnel from day to day, or even from case to case, according to the convenience, absence, disqualification, or seniority of eligible jurists. Yet in practice there are one or two judges who generally are continually present, with the result that conflicting decisions are much less likely than if there were several appellate courts in each circuit.

8. Decisions by single justices of customs court in protest and remission cases. In close connection with the previous topic is the recommendation that in the customs court all cases except re-reappraisement appeals be heard and decided by single justices. This would apply to protests under section 514-516, to petitions for remission under section 489, and to claims for damage allowance under section 563. Tens of thousands of civil cases of all kinds, including suits at common law, equity, and admiralty, and patent cases, as well as many classes of criminal cases, are decided every year by single judges in State courts and ordinary Federal courts; and there is no reason for a different rule for customs justices, especially in view of their very great familiarity with their subject. Reappraisement cases have been handled in this way very satisfactorily ever since organization of the court in 1890. They are equal in importance and difficulty to the other classes of cases coming before the court, and there is no reason why all should not be treated alike.

This would result in a great saving of time of the court. One justice would be sitting, instead of three, and very likely many of the simpler issues would be

expeditiously disposed of by an oral decision rendered at end of trial, the same as with many reappraisements. There would be saving also in regard to conferences and in consideration of briefs, records, etc.

That the Customs Court is overworked and in need of the relief suggested can hardly be denied, in face of the fact that, according to the writer's own recent experience with 71 contested issues, an average of more than 18 months elapsed between trial and decision, with many of the cases still undecided. A large part of the delay is because the court's stenographic force, though competent, is notoriously insufficient, so that in cases in which testimony is taken transcripts are generally not available for three or four months. Several months additional are required for briefs, which rarely, if ever, are filed by both sides at the same time, the Government brief being filed almost always in reply to the importer's brief, a practice which has the obvious advantage of inducing discussion of the same points by each side.

If the 18-month period could be cut about 50 per cent by means of an enlarged stenographic force and a lessened number of issues to be considered by each justice, the number of protests accumulating during pendency of an issue would be reduced accordingly, with benefit not only to the court and its clerical staff, but to local port officials where the protests arise, and to protestants themselves. 9. Penal duty for undervaluation-remission: Present provision of a penal duty for undervaluation of imported goods, amounting to 1 per cent for each per cent of advance by appraising officers, is salutary in its undoubted tendency to discourage fraud, and very likely should be retained, though there are those, both within and without the Customs Service, who consider it unnecessary under present conditions.

Shocking injustices arose under former statutes because the penalty was applied inexorably, regardless of guilt, innocence, or ignorance of the importerand he was generally innocent. In 1922 Congress went far toward curing this defect by allowing remission of penalty when the Customs Court was satisfied of the good faith of the importer. This, however, besides requiring expensive and troublesome litigation, fails to remedy former injustices entirely, because as the statute is worded the courts have been unwilling to hold that an importer who was careless, hasty, or lacking in diligence or intelligence did not intend to defraud. Often a guiltless importer is unable to satisfy the court of his good faith because there are no circumstances of an affirmative character susceptible of ready proof.

It is recommended:

(a) That good faith shall be presumed in the absence of facts to the contrary. Surely mere undervaluation, with no other incriminating circumstances, does not justify a penalty, especially one of thousands of dollars. While this would virtually transfer the burden of proof to the Government, the measure of proof would still be less than that in criminal cases, where proof beyond reasonable doubt is required.

(b) That remission cases be sent to the Customs Court only when local customs officers are not satisfied as to the importer's good faith. This would, at least so far as San Francisco is concerned, eliminate the great majority of remission cases now sent to the overworked Customs Court. Why require litigation where there is really no controversy between those immediately concerned?

(c) That where the court, though not satisfied as to the good faith of the importer, is of opinion that in any case the duty levied for undervaluation constitutes an excessive penalty, the amount of such duty may be reduced appropriately. In some instances penalties of thousands of dollars have been assessed for undervaluation and have not been remitted by the Customs Court, though there were no circumstances indicating fraudulent intent or bad faith, but merely failure to prove good faith. Criminal courts rarely impose fines of such large sums, even where fraud is proved beyond reasonable doubt and actual loss to the one defrauded has occurred. It is not only incongrous for a civil court to uphold penalties much more severe than would be imposed in criminal cases involving moral turpitude, but it is exceedingly unjust for the law to permit it merely for the negative reason that the court is not convinced that entry was not made in good faith.

10. Amendment of protests: Section 514 authorizes the Customs Court to permit amendment of protests against excessive duties "at any time prior to the first docket call thereof." This limitation is unsatisfactory, because the necessity for amendment often does not develop until after "the first docket call."

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No such restriction is imposed on cases pending in courts of general jurisdiction; there is no good reason why it should be made in customs litigation, and it is obviously unjust.

It is recommended that the words following the phrase "at any time" be expunged; also that a clause be added permitting amendment before the case reaches the Customs Court; that is, while the papers are still in the hands of the collector of customs.

11. Goods in bonded warehouse-abandonment or exportation: Under sections 557 and 563 (second proviso) merchandise entered under bond may within three years after importation be exported, destroyed, or abandoned, and without liability for duty. But under section 559, if it remains in bond more than three years after importation, it can not be exported or destroyed, but is considered abandoned to the Government and must be sold at auction at the importer's expense, and duty liability continues. If proceeds do not equal duty, the luckless importer or his bondsman must make up the deficiency.

The grotesque severity of section 559 suggests the Middle Ages. The penaltives of forfeiture plus possible duty deficiency for keeping merchandise in bond over three years make section 559 virtually a criminal statute. If an importer, after paying storage and insurance for three years, plus original cost and transportation, is unable to sell the goods for enough to pay the duty, why add to his misfortune?

It is recommended:

(a) That for the three-year limitation in section 557 and in related sections there be substituted a provision that three years after importation and upon at least 90 days' notice the importer be required to choose withdrawal for consumption, exportation, destruction, or abandonment to the Government.

(b) That liability of importer and bondsman for the difference between proceeds of sale and assessed duty be canceled. That is, let the goods be security for duty up to their value in this market, but not beyond.

12. Nonmarking penalty: Section 304 (a) imposes a surtax of 10 per cent on articles which are not marked at time of importation "so as to indicate the country of origin." This probabiy has been the most unpopular and

unsatisfactory of all innovations in the tariff of 1922. A San Francisco rug house was mulcted more than $2,000 on this account, without recourse; and this was through neglect of shippers and not their own neglect. Commissioner of Customs Camp has already testified convincingly before the subcommittee as to defects in this law; so no space need be here devoted to those phases of the subject.

However, it is urged that it would be even better to remove this surtax entirely or to reduce it to a rate that would not be burdensome, say 2 per cent. Total elimination of surtax would be better. The law requires goods to be marked here, if not marked properly prior to importation, and this in itself constitutes a severe penalty, especially for small articles, as to which it is necessary to open each case and carton or other individual inner container, and after marking, to repack. Under these conditions no importer intentionally fails to comply with the law, and noncompliance is therefore generally due to ignorance of unanticipated judicial interpretations of the law, which have been numerous, and difficult to apply in principle. So any surtax is unnecessary to produce compliance with law.

13. Damage due to casualty: Section 563 authorizes abatement of duty upon merchandise damaged by "casualty," but only upon proof satisfactory to the Customs Court; action by the local customs is not allowed. Further, this abatement does not extend to damage prior to arrival, as upon the voyage of importation. Damage by mold, or by water due to leakage, is not regarded as due to "casualty."

Four recommendations are made:

(a) In nearly every case of this type there is no dispute as to facts; the appraiser reports a certain percentage of damage by fire, and that is all there is to it. There being no dispute, there is no need of judicial intervention. Therefore, references in section 563 to procedure before the customs court (Board of General Appraisers) should be expunged, and the matter left to local customs officers. Should there be a dispute in an exceptional case, it could be carried to court by protest against the decision of the collector, the same as other controversies.

(b) Damage by water or mold should be stated as grounds for allowance. A Los Angeles importer lost thousands of dollars assessed upon tobacco trans