Part 69

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.

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?”