oversight

U.S. Customs Service: Office of Regulations and Rulings Has Yet to Establish Performance Measures

Published by the Government Accountability Office on 1997-03-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Trade, Committee on Ways
                          and Means, House of Representatives




For Release on Delivery
Expected at
10:00 a.m., EDT
                          U.S. CUSTOMS SERVICE
Tuesday,
March 11, 1997

                          Office of Regulations and
                          Rulings Has Yet to Establish
                          Performance Measures
                          Statement of JayEtta Z. Hecker, Associate Director,
                          International Relations and Trade Issues, National
                          Security and International Affairs Division




GAO/T-NSIAD-97-115
          Mr. Chairman and Members of the Subcommittee:

          I am pleased to be here today to discuss several key issues regarding the
          management of the U.S. Customs Service’s Office of Regulations and
          Rulings (ORR). Specifically, I will address (1) what this office does, (2) how
          it measures its performance, (3) the extent to which it is meeting its
          internal timeliness goals, and (4) industry views regarding its performance.
          Our observations are based on (1) work at Customs offices in Washington,
          D.C., and New York; (2) visits to the ports of Los Angeles and Baltimore;
          (3) discussions with a limited selection of representatives of the
          international trade community, including importers, brokers, and
          attorneys; and (4) analysis of the timeliness of key ORR rulings using
          Customs’ automated system and case files. Before I get into our specific
          observations, let me provide a brief summary.


          ORR facilitates the entry of goods into the United States, valued at over
Summary   $800 billion in 1996, by (1) drafting regulations implementing U.S. trade
          laws; (2) issuing rulings on the proper classification, valuation, country of
          origin and marking of imported goods; and (3) providing guidance to the
          trade community and other Customs’ units on their compliance
          responsibilities under Customs’ regulations and related laws.

          While ORR’s legal and technical analysis and advice are critical to the
          furtherance of Customs’ trade administration mission, Customs has not
          included ORR in its annual plans identifying goals and performance
          measures. As a result, unlike other Customs’ units, ORR has not prioritized
          its work, set officewide objectives, or established how to measure its
          overall performance as envisioned in the 1993 Government Performance
          and Results Act (GPRA) (P.L. 103-62). ORR’s only performance-related
          measure is set forth in a 1989 directive issued by the Commissioner of
          Customs, which covers a limited but important segment of ORR’s work. The
          directive requires that certain legal decisions, or rulings, that deal with the
          classification of merchandise be issued within 120 days of receipt by the
          Customs Service. In addition, ORR recently set a goal of 30 days for a
          limited number of rulings dealing with the country of origin of textile and
          apparel imports.

          We found ORR has made no effort to determine whether it was meeting the
          timeliness requirements established in the 1989 directive regarding
          classification rulings. Based on our analysis, we learned that ORR did not
          meet the requirement to issue rulings within 120 days for 53 percent of the



          Page 1                                                      GAO/T-NSIAD-97-115
                classification cases closed in 1996 that we reviewed. Further, ORR did not
                meet its internal 30-day target to issue rulings on country of origin cases
                for 59 percent of the cases we reviewed. By not tracking whether it is
                meeting its timeliness targets and by having performance measures on
                only a limited segment of its work, ORR is not able to measure its overall
                effectiveness. If Customs were to include ORR in the annual planning
                process, ORR would assess its overall workload and priorities, and then be
                able to determine whether its current timeliness goals for classification
                rulings are appropriate or whether changes are needed in its processes
                and de facto priorities.

                Overall, representatives from the trade community we interviewed,
                including importers and trade attorneys, were generally pleased with the
                quality of ORR’s services. They indicated that, by and large, ORR rulings
                provided important analyses and information about the duties they should
                expect to pay on the goods they import; they noted that the rulings were
                crucial to their ability to make effective business decisions and comply
                with Customs’ regulations. The only concern they cited was the timeliness
                of ORR’s decisions.


                The U.S. Customs Service is a key agency for enforcing the nation’s trade
Background      laws and policies. In addition to preventing imports of goods that threaten
                our health and safety, it prevents the illegal export of protected
                technologies, stolen merchandise, currency, and other contraband. In the
                course of enforcing U.S. trade laws, Customs collects duties on imported
                merchandise. ORR plays an important role in carrying out Customs’ trade
                mission by providing legal and technical support regarding payment of
                duties to Customs’ officers at the ports and at headquarters and guidance
                to the trade community on Customs’ regulations and related laws.

                ORR  is headed by an Assistant Commissioner and has offices in Washington
                and New York. Its staff of 248 consists mainly of attorneys and specialists
                in commodity classification. For fiscal year 1997, out of Customs’ total
                budget of $1.6 billion, ORR’s budget is $16.38 million, of which $15.2 million
                is for salaries.


                ORR carries out its principal mission by (1) drafting regulations
What ORR Does   implementing U.S. trade laws; (2) issuing rulings on the proper
                classification, valuation, country of origin and marking of imported goods;
                and (3) providing guidance to the trade community and other Customs’



                Page 2                                                     GAO/T-NSIAD-97-115
                   units on their compliance duties under Customs’ regulations and related
                   laws. ORR informs the trade community primarily through its rulings, which
                   affect the duty an importer will pay. These rulings advise importers on
                   how they can be in compliance with Customs’ laws and help importers
                   make marketing and pricing decisions by providing information on the
                   cost of importing their goods. For example, ORR’s prospective
                   classification rulings give both the requesting importer and importers of
                   similar goods vital information to help them determine the amount of
                   duties and fees they will be charged when they eventually enter their
                   merchandise at a port. Customs’ officers, at any port, will accept the
                   merchandise under the classification contained in the ruling. Importers
                   can use duty information to help weigh whether to import a new line of
                   merchandise.

                   ORR  also handles importers’ applications for further review protesting the
                   duties they have paid. For example, an importer who believes he or she
                   has been charged too much duty by a Customs’ port official can protest
                   the official’s decision on the duty owed. If the protest cannot be resolved
                   at the port, the importer can seek relief from ORR. Also, a Customs’ port
                   inspector deciding whether to seize a shipment for a Customs’ law
                   violation can call ORR for guidance on the law and policy regarding the
                   classification, value, admissibility, entry, and detention or seizure of
                   merchandise.

                   Under the Customs Modernization and Informed Compliance Act of 1993
                   (P.L. 103-182), responsibility was shifted from Customs to importers for
                   assuring that shipments are in compliance with Customs’ classification,
                   duty, and reporting requirements.1 Because of this additional
                   responsibility, importers are relying more than ever on ORR’s rulings and
                   educational activities. Under the act, importers are expected to use
                   reasonable care to enter, classify, and value imported merchandise and
                   submit any information necessary for Customs to properly assess duties.


                   As we noted in a 1996 report,2 the Customs Service as an organization has
How ORR Measures   been in the forefront, in some areas, of the effort to improve government
Its Performance    performance. While Customs as a whole and other Customs’ units have
                   developed a strategic management framework that integrates planning,

                   1
                    Informed compliance attempts to maximize importers’ voluntary compliance with Customs’ laws and
                   regulations by keeping them clearly and completely informed of their legal obligations.
                   2
                    Executive Guide: Effectively Implementing the Government Performance and Results Act
                   (GAO/GGD-96-118, June 1996.)



                   Page 3                                                                    GAO/T-NSIAD-97-115
                         budgeting, and performance measurement, ORR does not have such a
                         system in place. The Office has not established any overall goals,
                         priorities, or specific performance measures in order to prepare to meet
                         the implementation requirements of GPRA.3 Establishing a strategic
                         management framework, as envisioned in GPRA, could help ORR assess its
                         priorities and determine what goals are feasible and responsive to the
                         business needs of the trade community.

                         ORR’s only performance-related measure was set forth in a 1989 directive
                         issued by the Commissioner of Customs. The directive specifies timeliness
                         requirements for a limited segment of ORR’s work; it requires that certain
                         rulings that deal with the classification of merchandise (those done by
                         about 30 of ORR’s headquarters attorneys) be issued within 120 days of
                         receipt by Customs of a request for such a ruling.4 ORR, however, does not
                         consider the directive’s requirements to be related to GPRA. In addition, the
                         Assistant Commissioner informed us in writing that ORR has no specific
                         performance measures in relation to the annual plan; rather, he said, ORR
                         provides support and technical assistance to the strategies and processes
                         outlined in the plan. Because ORR provides a direct service to the trade
                         community by issuing rulings, it does appear that having performance
                         objectives for issuing these rulings would be appropriate.


                         ORR  was unaware of whether it was meeting its 1989 directive’s timeliness
ORR’s Timeliness on      goals for issuing classification rulings. The directive requires issuance of
Classification Rulings   classification rulings referred to ORR headquarters within 120 days from
                         the date of their receipt by the Customs Service. While Customs has an
                         automated tracking system, called the Legal Case Inventory System (LCIS),
                         to monitor rulings subject to the directive and is required to do so by the
                         directive, we found that ORR makes little, if any, effective use of the system
                         for that purpose. Finally, we found that ORR has not consistently met the




                         3
                          GPRA requires all U.S. government agencies to set goals, measure performance, and report on their
                         accomplishments. As a first step, the act states that agencies must develop strategic plans by the end
                         of fiscal year 1997. In addition, the Office of Management and Budget required agencies to submit
                         major parts of their strategic plans by June 1996.
                         4
                          Classification rulings that involve interpretation of the Harmonized Tariff Schedule (HTS), but no
                         legal analysis, are the responsibility of ORR’s National Commodity Specialist Division located in New
                         York City. The HTS is an extension of the 6-digit Harmonized Commodity and Coding System, the
                         internationally recognized system for classifying commodities. The 1989 directive requires that the
                         division issue classification rulings within 30 days. ORR told us that the New York division consistently
                         met this target. However, we were unable to verify that this was the case. Although we requested
                         information on this division’s performance in a January 28th letter, ORR has not provided the data.



                         Page 4                                                                          GAO/T-NSIAD-97-115
                           directive’s timeliness requirements on its 1996 classification rulings.5 ORR
                           told us that its ability to issue timely rulings was affected by
                           uncontrollable events and by a heavier workload coupled with diminished
                           staffing resources. We were not able to verify whether these factors
                           contributed to delayed rulings.


ORR Unaware of Whether     We found that ORR did not know whether it was meeting the timeliness
It Is Meeting Timeliness   goals set forth in its 1989 directive. ORR lacks crucial information to make
Goals                      this determination because it is not effectively using LCIS to monitor these
                           rulings, as required under the directive. The directive states that LCIS “will
                           be the backbone for controlling the timeliness of rulings.” However, ORR’s
                           Assistant Commissioner told us that “to use the LCIS to determine that the
                           self-imposed time frames are met is an improper use of the system. Rather,
                           LCIS ’red flags’ a matter for the OR&R first line managers to review the file
                           and discuss it with the case handler.”

                           We found that, although ORR enters case information into LCIS, it is not
                           excluding the rulings subject to the directive. ORR informed us that its
                           regular reports do not include this information. Thus, ORR could not readily
                           provide the necessary information for us to do an analysis of its
                           performance regarding timeliness. Ultimately, ORR had to request special
                           programming from Customs’ Office of Information Technology to provide
                           us with the data we needed to conduct this analysis.


ORR’s Inconsistent         ORR  is not consistently calculating the 120-day processing period according
Application of Directive   to its directive. As a result, key LCIS data elements ORR uses to calculate the
Renders LCIS Data for      120-day period are inaccurate.
Measuring Performance      ORR  told us it calculates what it calls the “days in process” from the LCIS
Inaccurate                 “assigned date”—the date the case was assigned to a case handler—to the
                           LCIS “closed date”—the date the ruling is issued. The Assistant
                           Commissioner of ORR wrote us that “the date received in the first Customs
                           office and the ‘assignment date’ data element were originally intended to
                           be the same. . . . The foregoing is how it should be, but, clearly with


                           5
                            We reviewed 55 percent, rather than our intended 100 percent, of the cases closed in 1996. We
                           requested from ORR case files for all classification and country of origin cases closed in 1996 and
                           subject to the directive. ORR provided us with 83 classification cases and 108 country of origin cases it
                           identified as the complete set. We eliminated two classification files due to incomplete information.
                           Therefore, we reviewed a total of 189 files. In verifying the automated data ORR provided us, we
                           discovered that ORR should have included an additional 154 cases. ORR could not adequately explain
                           this discrepancy.



                           Page 5                                                                           GAO/T-NSIAD-97-115
                      automated systems the data is only as good as what is entered and there
                      will be cases where the above was not adhered to.”

                      ORR also told us that it factors into its calculation of the number of days in
                      process certain events beyond its control that could delay its issuance of
                      the ruling. The directive states that a ruling may be delayed only for
                      required laboratory analysis or when other agency consultation is needed.
                      In calculating the 120-day processing days,6 ORR’s policy is to adjust the
                      assignment date when the case is considered to be in process to the date
                      when any delay has been removed.7

                      Of the 189 rulings we examined subject to the directive and closed in 1996,
                      ORR had not consistently adjusted the assignment date according to our
                      review of LCIS data relative to data in the actual paper case files. We found
                      that 53 percent of the “assigned” dates on LCIS were incorrect,8 with
                      25 percent of those off by 3 months or more. The “closed” date, on the
                      other hand, had an error rate of 3 percent for the same set of cases.


ORR Did Not Meet      We corrected the relevant LCIS data and found that ORR did not consistently
Timeliness Goals in   meet the 1989 directive’s timeliness goals. Specifically, ORR achieved the
Directive             directive’s 120-day goal in 47 percent of the 81 cases that involved
                      providing a ruling on classification of merchandise under chapters 1-97 of
                      the HTS. The average number of days for classification cases in process
                      was 147. Figure 1 shows the extent to which classification cases fell below
                      or above the 120-day goal. In about 25 percent of the cases, the days in
                      process ranged from about 200 to over 500 days.




                      6
                       ORR also considers delaying events to include meetings initiated by a ruling requester, new
                      information affecting the case, other ruling cases pending, proposed changes in rulings, pending court
                      cases, and requests for confidentiality.
                      7
                       For example, if the delay were due to the need for a laboratory analysis, the new assignment date
                      would be the date that ORR received the laboratory results. For cases with multiple delaying events,
                      the new assignment date would be the date when the last source of delay was eliminated.
                      8
                       We defined an “incorrect” assignment date as follows: (1) a case with no delays outside ORR’s
                      control—the assignment date was not the date the ruling request was received in the first Customs
                      office or (2) a case with such delays—the assignment date was not adjusted according to ORR
                      procedures.



                      Page 6                                                                         GAO/T-NSIAD-97-115
Figure 1: Number of Days in Process for ORR Classification Cases Closed in 1996 and Subject to the Directive

540    Days in Process

480

420

360

300

240

180

120

 60

 0

                   10th       20th            30th               40th               50th                60th               70th                80th
                   Case       Case            case               case               case                case               case                case

      cases


                                          Source: Customs’ LCIS.




                                          Regarding textile country of origin cases, ORR told us it had set a special
                                          goal of 30 days or less to issue these rulings.9 Figure 2 shows the
                                          distribution of country of origin cases below and above 30 days. For over
                                          half of the country of origin cases, the days in process ranged from about
                                          40 to about 190 days.




                                          9
                                           ORR set this goal because of the effect on its workload of new rules of origin for textile and apparel
                                          products effective July 1, 1996. ORR textile country of origin rulings had been delayed due to the need
                                          to research and analyze the new rules. Thus, ORR made these rulings a top priority. ORR told us that
                                          its 30-day goal for textile country of origin rulings “was not in effect until February or March of 1996.”
                                          We based our analysis on the cases ORR provided us, namely—108 textile country of origin rulings
                                          closed throughout the entire 1996 calendar year. Only 8 of the 108 cases we reviewed were closed
                                          prior to April 1996.



                                          Page 7                                                                            GAO/T-NSIAD-97-115
Figure 2: Number of Days in Process for ORR Textile Country of Origin Cases Closed in 1996 and Subject to the Directive

       Days in Process
180


150


120


 90


 60


 30


 0

               10th      20th     30th       40th         50th      60th       70th       80th       90th         100th
               Case      Case     Case       Case         Case      Case       Case       Case       Case         Case

      Cases


                                          Source: Customs’ LCIS.



                                          Overall, industry representatives we interviewed, including importers,
Industry Views                            brokers, and trade attorneys, were generally pleased with the quality of
Regarding ORR’s                           ORR’s services. They indicated, that while they did not always agree with

Performance                               ORR rulings and decisions, these rulings and decisions generally provided
                                          important analyses and information about the duties they should expect to
                                          pay on the merchandise they import. They said that ORR’s services were
                                          critical to their ability to make effective business decisions and comply
                                          with Customs’ regulations.

                                          The key concern industry representatives cited regarding ORR’s
                                          performance related to the timeliness of its decisions, including rulings
                                          and decisions regarding protests and penalties. They indicated that delays
                                          in ORR decisions could sometimes adversely affect their ability to make
                                          plans to import and price their products. For example, a toy company
                                          representative told us that a 1-year delay in an ORR classification ruling
                                          hampered his company’s ability to import and sell a particular product.
                                          Specifically, the ruling was to determine whether a toy set including a




                                          Page 8                                                            GAO/T-NSIAD-97-115
           miniature piece of luggage should be classified as a toy or a luggage item;
           the ruling was significant as toys have no duty while luggage has relatively
           high duties. Due to the potential effect on the item’s price of no duty
           versus a substantial duty, the company had to withhold its importation of
           the item until it received the ORR ruling.

           ORR’sAssistant Commissioner acknowledged that delayed rulings can
           negatively affect importers, particularly those importing seasonal goods,
           holiday items, or items subject to fashion trends.


           Mr. Chairman and Members of the Subcommittee, this concludes my
           prepared remarks. I will be glad to answer any further questions you may
           have.




(711219)   Page 9                                                    GAO/T-NSIAD-97-115
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