FROM THE OFFICE OF PUBLIC AFFAIRS

Chairman Baucus, Ranking Member Grassley, and Members of the Committee. Thank you for the opportunity to testify before you today on this matter of national urgency.

Last month, the President announced a comprehensive plan to create a Department of Homeland Security to respond to the new and ominous threat of terrorism. Among other things, President Bush’s proposal would move, in their entirety, the U.S. Customs Service and the U.S. Secret Service from the Department of Treasury into the new Department. As Secretary O’Neill testified last week, we in the Treasury Department fully support the President’s proposal. Though it has been both an honor and a pleasure to serve alongside the dedicated Customs and Secret Service employees, we believe that consolidation within the new Department of Homeland Security will substantially enhance our ability to safeguard the American people.

The need for this new Department is clear. Today, responsibility for homeland security is scattered among many different government agencies. Lines of communication are not always open; lines of authority are not always sharply defined; and redundancies and inefficiencies are built in. The new Department, however, will have primary responsibility for all homeland security matters. It will consolidate within one Department the key entities for securing and policing our borders, ports, airports, and territorial waters.

Such a Department must include the Customs Service -- an agency whose mission is entirely border-related – and an agency who plays a front-line role in guarding our borders and confiscating illegal contraband. By consolidating these entities within the new Department, we can ensure that we have a unified, coherent plan for protecting our citizens and our borders against the new breed of threats.

But this consolidation must also be a matter of substance and not just form. I want to echo Secretary O’Neill’s statements before the House Select Committee last week: to make this enterprise worthwhile, it is imperative that you grant the new Secretary substantial flexibility. We need a Department that is both accountable and creative, and this requires a new structure allowing flexibility. This structure needs to not only address the current threat, but must also be capable of adjusting as necessary when new and as-yet unforeseen threats appear. Simply rearranging current functions among departments will not capture the essential value-added that is at the heart of the President’s proposal. We need flexibility to respond quickly to changing threats.

The necessity for the new Secretary to have that kind of flexibility becomes obvious when we consider numerous changes that have been implemented within the Customs Service since September 11. Customs has made averting terrorism its top priority, while still moving goods and people efficiently across the border. With their existing statutory flexibility, Treasury and Customs have been able to rearrange resources and engage in fresh thinking to address these twin objectives.

This was especially true along the Northern Border. Because we had the flexibility to reassign resources, Customs was able to immediately make nonpermanent redeployments of personnel. This ability to move manpower and resources quickly, without restrictive requirements, has been an essential element of our response effort to date, and will continue to be so. It is crucial that the Secretary of Homeland Security have similar freedom to manage throughout the new Department.

The flexibility also allowed us to develop new programs in response to the new threats. On April 16^th of this year, Governor Ridge, Secretary O’Neill, and Commissioner Bonner announced the Customs-Trade Partnership Against Terrorism (C-TPAT) in Detroit. C-TPAT is a unique partnership with U.S. importers, carriers, brokers, and others to improve security along the entire supply chain while expediting the flow of legitimate commerce into the United States. Over 300 companies currently participate in the program, including some of the nation’s largest. We are working to increase that number and have opened participation to air, sea, and rail carriers. It makes a real difference. For example, at the Ambassador Bridge in Detroit, it can take up to an average of 54 minutes for a non-participating importer to be cleared across the bridge. Because of the existing flexibility to redesign processes, now, for a C-TPAT participant, the average time is 17 seconds. This benefits the importers by allowing them to have their goods processed more quickly, and benefits government by getting greater security and allowing Customs to focus on higher-risk shipments.

With the Container Security Initiative (CSI), Customs is working with foreign seaports to prescreen sea containers, targeting potentially risky containers before they are shipped to our ports. Governments in the Netherlands, Belgium, and France have formally agreed to participate in CSI. Singapore, which operates one of the largest ports in Asia, has indicated that it will also participate. In four of the top 20 mega-ports -- Rotterdam, Antwerp, LeHavre, and Singapore -- U.S. Customs and the host government soon will be prescreening all cargo containers bound for the United States.

I anticipate agreements with additional governments in the near future.

In both cases, Customs has leveraged its broad duties and flexibility to make immediate changes. These programs underscore how Customs can make trade-offs and reach agreements that increase security at the borders while facilitating the flow of trade into and out of the United States.

These are important interim steps, but they are not enough for the long term. The new Secretary, with the flexibility envisioned in the President’s plan, needs to be able to create even larger and more dynamic synergies to respond to the changing threats. This need is not be limited to the Customs Service, but should extend to the entire approach to border security -- the President’s goal of "one face at the border" – one-stop shopping for shipments and people seeking to enter the United States.

This illustrates the essential point behind creating a new cabinet Department. There is no other option. We cannot respond to the terrorist threats simply by rearranging the deck chairs. The dramatic reality requires a dramatic transformation in our homeland defense: one based on flexibility, consolidation, and integration of functions.

Without question, major change is never easy. Some have suggested that critical functions, particularly trade, ought to be walled off in the new Department and kept separate from other functions. The worry is that, in a department dedicated to homeland security, trade and other vital functions may get short shrift. And that's a healthy reminder for all of us: even as we secure the home front, we must also guarantee the American people that the myriad current tasks performed by the agencies moving to Homeland Security will continue.

I understand the instinct to wall off some of these vital non-security functions, or to keep them out of the new Department altogether--but such approaches ultimately miss the mark. Rather, such an approach would unduly limit the latitude and accountability of the new Secretary's ability to manage the new Department. It would also diminish the effectiveness of the non-security functions, trade or otherwise, that originally give rise to the concern, by locking current inefficiencies into place. Clearly we must find some middle ground.

Customs’ widely varied trade and enforcement functions remain broad, yet wholly intertwined. Customs inspectors, import specialists, and special agents work closely together to enforce trade and anti-smuggling laws.

The same is true in border-related enforcement matters. Collaboration between inspectors on the border and special agents in the field operates more smoothly as a result of Customs’ dual missions. In intellectual property piracy, for instance, what begins as an infringement identification often becomes an investigative effort.

Given this vast array of functional interconnectedness, we face the substantial danger of undermining current synergies and successes if some Customs functions are split off from the others.

Instead, to protect these working relationships, the President proposed that the entire Customs Service be transferred into the new Department of Homeland Security. Such a transfer will permit these close working relationships to continue and allow Customs to perform the tasks it has carried out so ably over the years. It will protect our borders from terrorists, administer and enforce our Customs laws, and assist the flow of legitimate commerce. No mission will be left behind. The President’s plan strikes the appropriate balance between enforcement and trade facilitation, both of which are critical to our nation’s economy and security.

We know that you in the Congress face an exceedingly difficult task under a tight timeframe. We want to work closely with you as you develop the legislation. During the past few weeks, we have worked with several House Committees. The President’s proposal will provide the Secretary of Homeland Security enough flexibility to leverage the strengths of the many component parts, provide accountability through clear and workable lines of authority, and create the most efficient possible structure. We will continue to offer our guidance, to share our experience, and to provide any assistance we can.

Thank you again, Mr. Chairman and the members of the Committee, for this opportunity to testify. I am happy to answer any questions you may have.