penalties on businesses which were, in good faith, trying to comply with the law.

Related to this problem has been the subcommittee's concern that the tax gap associated with shortcomings in the employment tax area has been growing. (The gap is the difference between what the taxpaying population should be paying and what it is actually paying.) The most recent employment tax figures indicate a gap of approximately $20 billion.

The subcommittee, in a committee approved report, "Improving the Administration and Enforcement of Employment Taxes," House Report No. 102-1060, November 2, 1992, proposed a number of very specific steps to solve the problem. During the first session of this Congress, the subcommittee held a hearing to review the reception of that report and a bill drafted pursuant to it in the 102d Congress, H.R. 5011. The hearing was held on June 8, 1993, and a very wide variety of stakeholders throughout the tax system testified. The subcommittee was interested in reviewing their views and in monitoring changed circumstances since November 1992. For instance, the independent contractor issue has now arisen as part of H.R. 3600, the Health Security Act. The subcommittee is currently drafting a report summarizing the results of the hearing and discussing developments since last year.

b. Benefits. The hearings permitted the subcommittee to develop a more current record on the status of the controversy between IRS and the business community and the possibilities of a solution to close the approximately $20 billion tax gap respecting employment tax collection.

c. Hearings.-A hearing was held on June 8, 1993, entitled "An Updated Review of Tax Administration Problems Involving Independent Contractors."

2. Problems Facing Minority and Women-Owned Small Business in Procuring U.S. Government Contracts and the Adequacy of Relevant Agency Programs.

a. Summary.-The Commerce, Consumer, and Monetary Affairs Subcommittee is examining certain problems and concerns facing primarily minority and women-owned small businesses, especially in procuring U.S. Government construction and other contracts, and the adequacy of Federal agency activity directed to such businesses, using the Chicago area as a case study.

The most important U.S. Government program to assist minority business in obtaining such contracts is the Small Business Administration's section 8(a) program, which promotes the development of small businesses that are owned and controlled by members of socially and economically disadvantaged groups. Under the program, SBA, acting as a prime contractor, enters into contracts with other Federal agencies and subcontracts the performance of the work to firms previously certified for entry into the 8(a) program. Firms in the program are also eligible for financial, technical, and managerial assistance from SBA to aid their development. Much of the technical assistance for firms is provided though SBA's 7(j) program. Also, the SBA has a special surety bond program open to all small business.

The subcommittee's oversight has uncovered serious difficulties facing these small businesses, including problems in obtaining (a) credit from financial institutions, (b) surety bonding for construction and other contracts, (c) U.S. Government contracts, especially under the SBA's section 8(a) program, and (d) SBA financial and technical assistance under the program. Preliminary findings indicate that efforts by some Federal agencies to set aside or otherwise award contracts to such businesses seem inadequate and that SBA minority business development, financial and technical assistance, and surety bond guarantee programs require increased staff and other resources and corrective changes.

Specifically, the subcommittee's hearing examined or uncovered the following:

-special obstacles in obtaining competitively bid U.S. Government contracts and possible ways to overcome these obstacles, including some proposals in recently proposed Federal procurement reform legislation;

-apparent deficiencies in the SBA's section 8(a) contract setaside program, including the adequacy of SBA technical/business development assistance, SBA marketing of 8(a) contractors with Federal agencies, and SBA's activity in resolving contractual conflicts between such businesses and Federal agencies, and SBA's recent (and welcome) commitment to take some corrective action;

-efforts by the SBA, often apparently unsuccessful, to increase Federal agency participation in the section 8(a) program, especially by the Chicago GSA, Veterans Affairs, and HUD offices, by having them make more contracts available to 8(a) small businesses and difficulties encountered by those agencies in utilizing the 8(a) program;

-the success or the failure of various Federal agencies in meeting dollar contracting goals for minority, women, and disabled veteran-owned businesses on competitive (non-8(a)) U.S. Government contracts;

-suggestions for improving the delivery of business development and other technical assistance programs by both the Federal Government and the private sector;

-the roles of the SBA and Minority Business Development Agency and how their efforts compare with those of the private sector, including whether SBA's role should significantly change due to projected significant reductions in SBA funding; and

-a description of those private sector programs which could serve as a model elsewhere in the Nation, including an innovative bonding application and underwriting program for such businesses supported by large surety bonding company.

The subcommittee staff is currently drafting a proposed committee report with findings and recommendations, for consideration during the second session of the 103d Congress.

b. Benefits. The small business community is an essential element of the U.S. economy as the providers and creator of a larger number of jobs, and the same is especially true of minority and women-owned small businesses. Increasing contracting opportunities, especially U.S. Government construction, maintenance, and

material supply contracts for such businesses has the potential of generating new jobs (thereby reducing unemployment) and increasing tax revenues in the inner cities of the Nation.

Placing a dollar value on these benefits is difficult and therefore somewhat speculative. However, for fiscal year 1992, it is known that just the SBA's 8(a) program alone provided to 8(a) firms 5,700 new contracts and 16,600 modifications to new and existing 8(a) contracts, together totaling $3.67 billion. If the U.S. Government were fully committed to these programs, especially in allocating agency staff resources, the benefit in additional tax revenues could probably amount to $1 to $2 billion more over the next several

years.

c. Hearings. "Problems Facing Minority and Women-Owned Small Businesses in Procuring U.S. Government Contracts," July 12, 1993.

3. Oversight of U.S. Customs Service and Textile Transshipments. a. Summary.-As part of its oversight responsibility for the Customs Service and enforcement of international trade laws, the subcommittee held a hearing on October 5, 1993, to review: (i) The implementation by the Customs Service of the Chief Financial Officers Act [CFO] of 1990; and (ii) enforcement of trade laws prohibiting the illegal transshipment of textile and apparel products into the United States. During the hearing, the subcommittee also reviewed on a preliminary basis two National Performance Review [NPR] proposals that apply to the Customs Service. Among the witnesses were agency representatives from GAO, Customs, the U.S. Commerce Department, and Office of the U.S. Trade Representative. In addition, the subcommittee received testimony from labor and business groups in the textile/apparel/fiber industry. The subcommittee is currently drafting a report summarizing its findings and recommendations.

The subcommittee's concern with the implementation of the CFO Act of 1990 grew out of several General Accounting Office [GAO] reports which found significant shortcomings in the operation of the Customs Service. These shortcomings are important because of the critical responsibility with which the Customs Service is entrusted-enforcing U.S. trade laws. In that capacity, it must police our borders to prevent the import of contraband such as drugs, illegal weapons, and transshipped textile products or the illegal export of high technology or military equipment. Customs is also important because among all Federal agencies, it is the second largest generator of revenue for the Treasury. Finally, Customs is responsible for developing trade statistics which are used by a wide variety of governmental and private groups.

Since the GAO found that Customs suffers from significant management problems, GAO refused to express an opinion on the reliability of Customs' financial statement. GAO criticized Customs' "lack of reliable financial information, inadequate financial systems and process, and its ineffective internal control structure." First and foremost, GAO had no assurance that the $20.2 billion in revenues collected by Customs in 1992 was the amount actually owed to the Treasury. GAO found that there are "no significant internal controls to ensure that merchandise entering the United States

was identified and the proper duty assessed. . . ." Second, GAO could not give assurance that the trade statistics produced by Customs were accurate. Third, GAO found serious problems in the procedures for handling seized assets which included firearms and drugs. Fourth, accounting deficiencies were found in the treatment of the capital assets owned by the Customs and the handling of accounts receivable. Fifth, GAO could not give any assurance that the $496 million in drawback claims made in 1992 were valid. Drawbacks are a refund claim for import fees that are paid on imported goods that later are exported outside of the United States or destroyed. Despite Customs awareness of the problems with drawbacks, the Federal agency has given inadequate attention to addressing it. Finally, GAO identified a pronounced and highly inefficient Customs Service practice of overassessing fines. During the last 2 years Customs assessed a total of $7.9 billion in fines but mitigated the assessments to $87 million. After hearing from GAO, the subcommittee gave Customs the opportunity to answer these claims and describe how Customs was resolving the problems.

Aside from the CFO Act, the subcommittee's second major area of inquiry was Customs enforcement of laws prohibiting the illegal transshipment of textile and apparel products into the United States. Transshipment refers to the practice of falsifying the country of origin of goods to circumvent quota restrictions on the producing country. It has been estimated that transshipped items represent as much as 33.5 million textile articles with an annual value of up to $4 billion. China is, by some estimates, responsible for $2 billion in illegal transshipments annually and last July Chinatex America Inc., a major entity of the Chinese Government, and its United States-based sales manager, were convicted of fraud and criminal conspiracy in New York.

During the hearing, the subcommittee examined Customs' current transshipment enforcement activities. One basic Customs enforcement program is the Quota Transshipment Importation Practices or Q-TIP. Q-TIP differs from traditional enforcement programs which focus on goods identification. Instead, Q-TIP determines the productive capacities in the claimed country of origin and develops circumvention cases when inspectors find inadequate production facilities to support the export volume. A small scale program known as ELVIS (Electronic VISA Information System) which provides separate electronic transmission of trade information was also reviewed as a potential method of limiting illegal transshipments. The subcommittee examined other proposals, including licensing arrangements for importers, increased penalties, tougher bilateral treaty language, and different enforcement techniques. The subcommittee gave considerable attention to the inadequate manpower and financial resources available at the Customs Service to enforce textile trade laws. The increased textile/apparel/ fiber trade generated by the North American Free Trade Agreement [NAFTA] is likely to exacerbate this problem of inadequate resources and lead to increased transshipments coming through Mexico.

Finally, the subcommittee briefly reviewed Vice President Gore's National Performance Review recommendations for the Customs Service. The first recommendation was to modernize the Customs

Service and the second was to improve border management by Customs and the Immigration and Naturalization Service. Discussion was limited but the Customs Service did support H.R. 700, which is a bill designed to modernize certain Customs activities. Customs also supported repeal of certain statutory rules that require the agency to staff specific functions.

b. Benefits.-Proper implementation of the Chief Financial Officers Act of 1990 by the Customs Service should result in several important benefits. These benefits should include increased tariff revenue, administrative cost savings and manpower efficiencies, stronger inventory control over seized contraband like drugs and weapons, and more accurate trade data. Currently, Customs collects $20.2 billion on an annual basis without any assurance that these are the revenues it should be receiving. Since it is unlikely most importers are overpaying tariffs, implementing the CFO Act should lead to increased tariff collection. Other management changes, such as increasing the frequency of the audit cycle of large importers from the current 25 years to a 5-year cycle, would also improve the deterrence effect of the Customs Service's operations. Improving the management of the drawback program, seized assets, and owned assets could also improve Customs financial operations and result in additional revenue to the Federal Government.

Stopping the transshipment of illegal textile and apparel products into the United States would save up to 100,000 American textile and apparel jobs. The workers employed in these additional jobs would generate additional millions of dollars in tax revenue for Federal, State, and local governments. These jobs would also save the government millions of dollars in social welfare costs triggered when textile workers lose their jobs and resort to government programs for support.

Based partly on information derived from the October 5 hearing, Subcommittee Chairman Spratt wrote President Clinton on November 10, 1993, requesting additional money and manpower for the Customs Service and tougher penalties against transshippers. On November 16, 1993, President Clinton sent a response in which he committed his administration's support for an additional $15 million for Customs Service funding for textile and apparel enforcement as well as related competitiveness trade matters. The President also pledged to promulgate by April 1, 1994, new regulations providing Customs with broader authority to crack down on transshipments.

c. Hearings.-"Oversight of U.S. Customs Service and Textile Transshipment," October 5, 1993.

4. Trade with and Investment in Russia and the Commonwealth of Independent States [CIS].

a. Summary. This country has an enormous stake in a stable, democratic, and pro-western Russia and CIS. In 1993, the Congress passed and the President signed an assistance package for Russia of almost $2 billion. But, aside from foreign aid, one of the most cost-effective ways we can ensure Russian democracy is to encourage increased trade. Trade creates jobs for Americans while helping to strengthen the Russian economy. The subcommittee set out to