Antidumping and Countervailing Duties
Congress and Agencies Should Take Additional Steps to Reduce Substantial Shortfalls in Duty Collection Gao ID: GAO-08-391 March 26, 2008U.S. Customs and Border Protection (CBP) has been unable to collect hundreds of millions of dollars in antidumping (AD) and countervailing (CV) duties. The Department of Commerce imposes these duties to remedy injurious unfair foreign trade practices (unfairly low prices or subsidies). The noncollection of AD/CV duties means that the U.S. government has not fully remedied the unfair trade practices and bears a substantial loss of revenue. GAO was asked to examine the (1) nature and extent of uncollected AD/CV duties, (2) factors contributing to uncollected AD/CV duties and steps taken to address these factors, and (3) options for aiding duty collections. To analyze these issues, GAO reviewed CBP data for fiscal years 2001 through 2007, agency documents and reports, and interviewed government officials and private sector representatives
While over $600 million in AD/CV duties dating back to 2001 remain uncollected, they are highly concentrated among a few products, countries of origin, and importers. For example, four products account for about 84 percent of the total amount of uncollected AD/CV duties. Also, a relatively small number of importers owe the vast majority of these uncollected duties. In addition, half of the 23,000 unpaid AD/CV duty bills are less than $309, but the average duty bill is more than $26,000 due to a relatively small number of very large bills. According to CBP officials, prospects for collecting a sizeable portion of these bills are slim, because many of the importers have disappeared, have no assets, or have declared bankruptcy. CBP reporting on uncollected AD/CV duties has been critical to congressional and public oversight of CBP's efforts to collect AD/CV duties. However, the law generating this reporting has been repealed. Four key factors contribute to uncollected AD/CV duties, a few of which the U.S. government has partially addressed. First, because the U.S. AD/CV duty system involves the retrospective assessment of duties, the final amount of AD/CV duties an importer owes can significantly exceed the initial amount paid when the goods entered the country. Second, companies that did not previously export products subject to AD/CV duties, i.e., "new shippers," pose two types of risks for collections. For example, new shippers can be assigned an AD/CV duty rate based on as few as one shipment, which can significantly underestimate the final duty rate. Also, importers purchasing from new shippers were able to provide a bond in lieu of a cash payment to cover the initial AD/CV duties assessed. Congress addressed this risk by temporarily requiring all importers to pay initial AD/CV duties in cash. Third, all importers must provide a general bond to secure the payment of all types of duties, but CBP's standard practice for setting the amount of this bond inadequately protects AD/CV duty revenue. CBP addressed this by revising its bonding formula for products subject to AD/CV duties, but the revision has been tested on only one product and faces domestic and international legal challenges. Fourth, CBP collects minimal information regarding importers and does not conduct background or financial checks, which creates challenges to locating importers and collecting AD/CV duties. Two sets of options exist for improving AD/CV duty collection, each of which involves potential advantages and disadvantages. One set of options involves revising U.S. law to eliminate the retrospective component of the U.S. AD/CV duty system by assessing final duties when the product arrives in the United States (i.e., a prospective system). But there would be trade-offs. For example, under a retrospective system, the amount of duties finally assessed reflects the actual amount of dumping by the exporter for the period of review. Under a prospective system, the amount of duties assessed may not match the amount of actual dumping or subsidization. However, in practice, a substantial amount of AD/CV duty bills are not collected under the U.S. retrospective system. The second set of options involves making adjustments within the existing system. For example, Congress could revise the standards for new shipper reviews and CBP could examine the option of revising bonding requirements to protect additional AD/CV duty revenue.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-391, Antidumping and Countervailing Duties: Congress and Agencies Should Take Additional Steps to Reduce Substantial Shortfalls in Duty Collection
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
March 2008:
Antidumping And Countervailing Duties:
Congress and Agencies Should Take Additional Steps to Reduce
Substantial Shortfalls in Duty Collection:
GAO-08-391:
GAO Highlights:
Highlights of GAO-08-391, a report to congressional requesters.
Why GAO Did This Study:
U.S. Customs and Border Protection (CBP) has been unable to collect
hundreds of millions of dollars in antidumping (AD) and countervailing
(CV) duties. The Department of Commerce imposes these duties to remedy
injurious unfair foreign trade practices (unfairly low prices or
subsidies). The noncollection of AD/CV duties means that the U.S.
government has not fully remedied the unfair trade practices and bears
a substantial loss of revenue.
GAO was asked to examine the (1) nature and extent of uncollected AD/CV
duties, (2) factors contributing to uncollected AD/CV duties and steps
taken to address these factors, and (3) options for aiding duty
collections. To analyze these issues, GAO reviewed CBP data for fiscal
years 2001 through 2007, agency documents and reports, and interviewed
government officials and private sector representatives.
What GAO Found:
While over $600 million in AD/CV duties dating back to 2001 remain
uncollected, they are highly concentrated among a few products,
countries of origin, and importers. For example, four products account
for about 84 percent of the total amount of uncollected AD/CV duties.
Also, a relatively small number of importers owe the vast majority of
these uncollected duties. In addition, half of the 23,000 unpaid AD/CV
duty bills are less than $309, but the average duty bill is more than
$26,000 due to a relatively small number of very large bills. According
to CBP officials, prospects for collecting a sizeable portion of these
bills are slim, because many of the importers have disappeared, have no
assets, or have declared bankruptcy. CBP reporting on uncollected AD/CV
duties has been critical to congressional and public oversight of CBP‘s
efforts to collect AD/CV duties. However, the law generating this
reporting has been repealed. Four key factors contribute to uncollected
AD/CV duties, a few of which the U.S. government has partially
addressed. First, because the U.S. AD/CV duty system involves the
retrospective assessment of duties, the final amount of AD/CV duties an
importer owes can significantly exceed the initial amount paid when the
goods entered the country. Second, companies that did not previously
export products subject to AD/CV duties, i.e., ’new shippers,“ pose two
types of risks for collections. For example, new shippers can be
assigned an AD/CV duty rate based on as few as one shipment, which can
significantly underestimate the final duty rate. Also, importers
purchasing from new shippers were able to provide a bond in lieu of a
cash payment to cover the initial AD/CV duties assessed. Congress
addressed this risk by temporarily requiring all importers to pay
initial AD/CV duties in cash. Third, all importers must provide a
general bond to secure the payment of all types of duties, but CBP‘s
standard practice for setting the amount of this bond inadequately
protects AD/CV duty revenue. CBP addressed this by revising its bonding
formula for products subject to AD/CV duties, but the revision has been
tested on only one product and faces domestic and international legal
challenges. Fourth, CBP collects minimal information regarding
importers and does not conduct background or financial checks, which
creates challenges to locating importers and collecting AD/CV duties.
Two sets of options exist for improving AD/CV duty collection, each of
which involves potential advantages and disadvantages. One set of
options involves revising U.S. law to eliminate the retrospective
component of the U.S. AD/CV duty system by assessing final duties when
the product arrives in the United States (i.e., a prospective system).
But there would be trade-offs. For example, under a retrospective
system, the amount of duties finally assessed reflects the actual
amount of dumping by the exporter for the period of review. Under a
prospective system, the amount of duties assessed may not match the
amount of actual dumping or subsidization. However, in practice, a
substantial amount of AD/CV duty bills are not collected under the U.S.
retrospective system. The second set of options involves making
adjustments within the existing system. For example, Congress could
revise the standards for new shipper reviews and CBP could examine the
option of revising bonding requirements to protect additional AD/CV
duty revenue.
What GAO Recommends:
GAO suggests matters for congressional consideration to: improve
reporting on uncollected duties; adjust requirements for new shipper
reviews; and aid its consideration of options for improving the AD/CV
duty system. GAO also makes recommendations for executive action,
including reviewing CBP‘s standard practice for setting bond
requirements for importers. The Departments of Commerce and Homeland
Security generally agreed with our recommendations.
To view the full product, including the scope and methodology, click on
GAO-08-391. For more information, contact Loren Yafer at (202) 512-4347
or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Uncollected AD/CV Duties Are Substantial and Highly Concentrated:
Four Key Factors Contribute to Uncollected AD/CV Duties; the Government
Has Addressed Some of These Factors:
Although Improvements Made, Weaknesses in Interagency Communication
Impede Processing of AD/CV Duties, but the Overall Revenue Effect
Appears Minimal:
Options for Improving the Collection of AD/CV Duties Have Potential
Advantages and Disadvantages:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Examples of the Calculation of AD/CV Duties in the United
States, Australia, Canada, and the European Union:
Appendix III: Illustration of the Process and Maximum Time Frames for
Collecting AD/CV Duties:
Appendix IV: Comments from the Department of Commerce:
Appendix V: Comments from the Department of Homeland Security:
Appendix VI: Comments from the Department of the Treasury:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Distribution of Uncollected AD/CV Duties by Importer, as of
September 2007:
Table 2: International Trade Compliance Analyst Caseload, by Fiscal
Year:
Figures:
Figure 1: Amount of Uncollected AD/CV Duties Owed for the Fiscal Year,
as of September 30, by Fiscal Year:
Figure 2: Illustration of the Process and Maximum Time Frames for
Collecting AD/CV Duties:
Figure 3: Uncollected AD/CV Duties, by Industry, Product, Country of
Origin, and Exporter's New Shipper Status, as of September 2007:
Figure 4: Distribution of Uncollected AD/CV Duty Bills, by Decile, as
of September 2007:
Figure 5: Uncollected AD/CV Duties, by Change in Rate (0-250 percentage
points), as of July 2007:
Figure 6: Percentage of Entries Subject to AD/CV Duties Liquidated from
September 2000 through July 2007, by Number of Months Between Entry and
Liquidation:
Figure 7: Authorized vs. Actual Staffing Levels for International Trade
Compliance Analysts (first quarter, fiscal year 2004 to January 2008):
Abbreviations:
ACE: Automated Commercial Environment:
ACS: Automated Commercial System:
AD: antidumping:
CBP: U.S. Customs and Border Protection:
CDSOA: Continued Dumping and Subsidy Offset Act of 2000:
CV: countervailing:
Commerce: Department of Commerce:
Justice: Department of Justice:
ITC: International Trade Commission:
Treasury: Department of the Treasury:
WTO: World Trade Organization:
United States Government Accountability Office:
Washington, DC 20548:
March 26, 2008:
The Honorable Robert C. Byrd:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Committee on Appropriations:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
Since fiscal year 2001, U.S. Customs and Border Protection (CBP) has
been unable to collect antidumping (AD) and countervailing (CV) duties
imposed to remedy injurious unfair foreign trade practices totaling
hundreds of millions of dollars.[Footnote 1] These include AD duties
imposed on products exported to the United States at unfairly low
prices (i.e., dumped) and CV duties on products exported to the United
States that were subsidized by foreign governments. This substantial
amount of uncollected duties has caused concern on the part of Congress
and the domestic industries affected by the dumped or subsidized
products. The noncollection of those duties means that the U.S.
government has not fully remedied the unfair trade practices and has
lost out on a substantial amount of revenue.
The process for assessing and collecting AD/CV duties involves two key
agencies and can take several years. The Department of Commerce
(Commerce) is responsible for calculating the appropriate AD/CV duty
rate.[Footnote 2] CBP is then responsible for completing the processing
of duties (technically called "liquidating"), which may result in
providing importers with a refund or sending an additional
bill.[Footnote 3]
To help reduce uncollected AD/CV duties, you asked us to examine the
reasons why the duties are uncollected and what the U.S. government has
done to address this problem. In addition, you asked us to identify
options for improving the AD/CV duty system. Specifically, we examined
(1) the extent and nature of uncollected AD/CV duties; (2) the key
factors contributing to uncollected AD/CV duties and the steps taken to
improve the collection of AD/CV duties; (3) interagency communications
that affect the processing of AD/CV duties; and (4) potential options
for improving AD/CV duty collections.
To meet these objectives, we analyzed U.S. government data and reports
and interviewed officials from relevant government agencies and the
private sector. To describe the extent and nature of uncollected AD/CV
duties, we reviewed CBP data on all open, unpaid AD/CV duty bills for
fiscal years 2001 through 2007, as of September 2007.[Footnote 4] To
identify the key factors affecting CBP's ability to collect AD/CV
duties and the steps taken to improve collection, we analyzed CBP data;
reviewed relevant statutes, regulations, and agency reports; and
interviewed agency officials. We also analyzed CBP records documenting
its efforts to collect AD/CV duties, reviewed agency reports and
legislative changes, and interviewed agency and private sector
representatives. To determine whether interagency processes inhibit the
collection of AD/CV duties, we analyzed documentation related to
interagency communications regarding AD/CV duties and interviewed
agency officials. To identify and analyze potential options for
improving AD/CV duty collection, we interviewed agency officials and
private sector representatives and reviewed academic literature. In
addition, we obtained information from several foreign governments to
understand how their AD/CV duty systems operate. We determined that the
data presented in this report are sufficiently reliable for the purpose
for which they are presented. Appendix I provides additional
information regarding our scope and methodology. We conducted this
performance audit from June 2007 to March 2008 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Results in Brief:
Over $613 million in AD/CV duties from fiscal years 2001 through 2007
were uncollected as of September 2007, with the uncollected duties
highly concentrated among a few industries, products, countries of
origin, and importers. The agriculture/aquaculture industry represents
87 percent of the total amount of uncollected AD/CV duties. In
addition, four products are responsible for approximately 84 percent of
the total amount of uncollected AD/CV duties.[Footnote 5] Also,
importers purchasing products from China are associated with 90 percent
of the total amount of uncollected duties. Further, a relatively small
number of importers owe the majority of uncollected AD/CV duties. Of
the nearly 27,000 importers subject to AD/CV duties since fiscal year
2001, less than 2 percent have open, unpaid bills for AD/CV duties.
Four companies account for more than one-third of the total amount of
uncollected AD/CV duties, and 20 companies account for 63 percent of
the total. Moreover, importers purchasing from companies undergoing a
special "new shipper" review accounted for about 40 percent of
uncollected AD/CV duties. Half of all uncollected AD/CV duty bills are
less than $309; however, a relatively small number of much larger bills
increases the average duty bill to over $26,000. The extent of
uncollected AD/CV duties is affected by unresolved legal protests,
which account for about 43 percent of the value of uncollected AD/CV
duties. According to CBP officials, most of the nearly $290 million
referred to its Office of Chief Counsel will be written off.[Footnote
6] According to CBP officials, prospects for collecting these duties
are slim, because many of the importers involved have disappeared, have
no assets, or have declared bankruptcy. CBP's problems collecting AD/CV
duties were first widely recognized following reporting based on the
Continued Dumping and Subsidy Offset Act (CDSOA) of 2000.[Footnote 7]
Private sector representative and congressional staff have found CBP's
detailed reporting on uncollected AD/CV duties critical to conducting
oversight of CBP's collection efforts. However, the law generating this
reporting has been repealed.[Footnote 8]
Four key factors contribute to uncollected AD/CV duties, a few of which
the government has addressed. First, the retrospective component of the
U.S. AD/CV duty system creates the risk of uncollected duties because
the final amount of AD/CV duties an importer owes can exceed the amount
it paid when goods entered the country. While AD duty rates typically
stay the same (60 percent of the time) or decline (24 percent of the
time), when they increase (16 percent of the time), they can go up
significantly.[Footnote 9] While half of rate increases are 4
percentage points or less, the average rate increase is 62 percentage
points, and some increases exceeded 200 percentage points. The long lag
times between the entry of goods and the assessment of final duties
also increase the risk of uncollected duties. On average this process
takes more than 3 years, during which importers could cease operations
or become unable to pay additional duties. Second, Commerce's reviews
of companies that did not previously export products subject to AD/CV
duties ("new shippers") pose two risks. One risk is related to
importers' ability to provide a bond in lieu of cash payment to cover
the estimated AD/CV duties required at the time of importation. In
response, Congress temporarily suspended the bonding privilege and
required all importers to pay estimated AD/CV duties in cash.[Footnote
10] The other risk is related to the low levels of exports necessary to
be eligible for a new shipper review, which can lead to a significant
underestimate of the amount of AD/CV duties owed. Third, all importers
must provide a general bond to secure the payment of all types of
duties, but CBP's standard formula provides little protection of AD/CV
duty revenue because it often sets bond requirements at a low level.
CBP addressed this by revising its standard bond formula, but the
revision has been tested on only one product and has been challenged in
domestic courts and internationally.[Footnote 11] Fourth, CBP collects
minimal information regarding importers and does not conduct background
or financial checks, which can contribute to challenges in locating and
collecting AD/CV duties.
Despite some improvements, weaknesses in interagency communications
impede CBP's ability to process the appropriate amount of AD/CV duties
within the required 6 months.[Footnote 12] In recent years CBP and
Commerce have taken several steps to improve communication regarding
AD/CV duties. For example, Commerce established a Customs Unit to serve
as the focal point for CBP on customs issues. However, remaining
weaknesses in the interagency liquidation process can impair CBP's
ability to collect AD/CV duties. For instance, during the liquidation
process, untimely action by Commerce and CBP's need to seek
clarification from Commerce regarding liquidation instructions present
challenges to completing the process within the statutory 6-month
deadline.[Footnote 13] Many entries are not addressed in the time
allowed, but the overall effect on revenue appears minimal. According
to Commerce officials, human capital challenges affect the department's
ability to effectively perform its role in the liquidation process. For
example, as of January 2008, Commerce had less than half (103 of 211)
of the staff authorized to perform responsibilities related to AD/CV
duties. However, Commerce lacks a strategy or plan for understanding
and addressing these human capital challenges.
Two sets of options exist for improving AD/CV duty collection, each of
which involves potential advantages and disadvantages. One set of
options involves revising U.S. law to eliminate the retrospective
component of the U.S. AD/CV duty system by assessing final duties when
a product arrives in the United States. Other major U.S. trading
partners have AD/CV duty systems that, although they operate
differently from one another, are fundamentally prospective in that AD/
CV duties assessed at the time a product enters the country are
essentially treated as final. The advantages and disadvantages of
prospective and retrospective AD/CV duty systems differ and depend on
specific design features, such as (1) timing for determining and
collecting final AD/CV duties, (2) "accuracy" of AD/CV duties paid, and
(3) administrative simplicity for customs officials. The second set of
options involves making adjustments within the existing system and
includes four types of changes. First, the process or standards for
assigning AD/CV duty rates for "new shippers" could be revised. Second,
the requirements for becoming an importer of record could be
heightened. Third, CBP's bonding requirements could be revised. Each of
these adjustments would impose additional costs on both legitimate and
illegitimate companies. Fourth, U.S. law could be changed to lengthen
the time that CBP has to liquidate entries subject to AD/CV duties.
Such a change could reduce the amount of foregone revenue, but could
make collections more difficult in some situations.
In this report, we suggest three matters for congressional
consideration and make three recommendations for executive action. We
suggest that Congress require the Secretaries of Commerce, Homeland
Security, and the Treasury to conduct an analysis and report to
Congress on the relative advantages and disadvantages of prospective
and retrospective AD/CV duty systems. We also suggest that Congress
require CBP to publicly report on an annual basis on all uncollected
AD/CV duties. We further suggest that Congress consider providing
Commerce with the authority to establish, at its discretion, a minimum
amount or value of exports from companies requesting a new shipper
review. To increase the amount of AD/CV duty revenue protected by
general bonds, we recommend that the Secretary of Homeland Security
work with other relevant agencies to re-examine the current formulas
for setting bond requirements. To improve the liquidation process, we
recommend that the Secretary of Commerce work with the Secretary of
Homeland Security to identify ways to improve the clarity of Commerce's
liquidation instructions. To ensure that the Import Administration has
sufficient human capital to issue timely and clear liquidation
instructions to CBP, we recommend that the Secretary of Commerce
develop a strategic human capital plan encompassing its AD/CV duty
operational offices.
We provided a copy of this report to the Departments of Commerce,
Homeland Security, Justice, and the Treasury, as well as the United
States International Trade Commission (ITC) and the Office of the U.S.
Trade Representative. The Departments of Commerce, Homeland Security,
and the Treasury provided formal comments. The Departments of Homeland
Security and Commerce generally agreed with our recommendations and
indicated a willingness to take steps to address them.
Background:
The process for importing products into the United States involves
several different private parties as well as the U.S. government.
Exporters are companies that ship goods manufactured or produced in
foreign countries to the United States. Importers may be companies that
purchase the products from exporters or simply may be responsible for
the facilitation of the importation of the goods. Importers are
responsible for paying all duties, taxes, and fees on those products
when they are brought into the United States. Importers also are
required to obtain a general bond to secure the payment of their
financial obligations. CBP is responsible for, among other things,
collecting the duties, taxes, and fees assessed on those products and
setting the formula for establishing importers' bond amounts.
The United States and many of its trading partners have established
laws to remedy the unfair trade practices of other countries and
foreign companies that cause injury to domestic industries. U.S. law
authorizes the imposition of AD/CV duties to remedy these unfair trade
practices, namely dumping (i.e., sales at less than normal value) and
foreign government subsidies.[Footnote 14] While AD/CV duties are
intended to protect U.S. industries and workers from unfair foreign
trade practices, they also have become a substantial source of revenue
for the U.S. government. CBP is the U.S. agency responsible for
collecting all import duties, which amounted to over $98 billion from
fiscal years 2003 through 2006.[Footnote 15] A portion of these duties
are AD/CV duties, of which CBP collected $8 billion in cash deposits
(or 7 percent of the total). A recent Department of the Treasury
(Treasury) analysis estimated that for fiscal years 2003 through 2006,
the overall collection rate for all duties exceeded 99 percent and the
collection rate for AD/CV duties was somewhat lower (96
percent).[Footnote 16] However, Treasury also reported that the
collection rate for AD duties owed as a result of an administrative
review by Commerce was less than 50 percent. Treasury estimated that
approximately $589 million in total duties went uncollected during the
period. Uncollected AD/CV duties represented 87 percent of that amount.
Figure 1 shows the amount of uncollected AD/CV duties owed for entries
liquidated during each fiscal year, as of September 30. For example,
for fiscal year 2007, CBP reported $237 million in uncollected AD/CV
duties for entries liquidated during the year, as of September 30,
2007. The amount of uncollected duties for entries liquidated during
fiscal year 2007 could decrease based on additional collections made in
subsequent years.
Figure 1: Amount of Uncollected AD/CV Duties Owed for the Fiscal Year,
as of September 30, by Fiscal Year:
This figure is a vertical bar graph showing the amount of uncollected
AD/CV duties owed for the fiscal year, as of September 30, by fiscal
year. The X axis is the fiscal year, and the Y axis is the amount of
uncollected AD/CV duties (dollars in millions).
Fiscal year: "2003";
Amount of uncollected: 130.403.
Fiscal year: "2004";
Amount of uncollected: 260.072.
Fiscal year: "2005";
Amount of uncollected: 93.254.
Fiscal year: "2006";
Amount of uncollected: 146.391.
Fiscal year: "2007";
Amount of uncollected: 236.948
[See PDF for image]
Source: CBP, CDSOA Annual Reports fiscal years 2003 through 2007.
Note: The sum of these data exceeds the total amount of uncollected AD/
CV duties as of the end of fiscal year 2007 because these data
represent a snapshot of the amount of uncollected AD/CV duties at the
end of each fiscal year. As noted above, the amounts shown in this
figure could decrease based on additional collections in subsequent
years.
[End of figure]
According to government officials and private sector representatives,
the substantial shortfalls in collecting AD/CV duties were first widely
publicized after the enactment of CDSOA (also known as the Byrd
Amendment) in 2001, which provided for the distribution of AD/CV duties
to the injured domestic industries, instead of, as in the past, going
to Treasury.[Footnote 17] Following the repeal of CDSOA in 2006 after a
decision by the World Trade Organization (WTO) that the law violated
WTO rules, AD/CV duties collected will again be paid to Treasury.
The process for investigating, calculating, and assessing AD/CV duties
can be a lengthy process and involves three key agencies. Commerce is
responsible for determining whether the imports at issue are being sold
at less than fair value (dumped) or are being subsidized by a
countervailable subsidy.[Footnote 18] The ITC is responsible for
determining whether an industry in the United States is being injured
by the imports at issue.[Footnote 19] Both ITC and Commerce must make
affirmative determinations in their respective investigations for AD/CV
duties to be imposed.[Footnote 20] Commerce also sets the AD/CV duty,
which is equal to the amount of dumping or subsidization. [Footnote 21]
CBP is then responsible for collecting the AD/CV duties.[Footnote 22]
At the completion of its investigation, Commerce issues an AD/CV duty
order, which specifies the products for which importers must pay AD/CV
duties, and indicates the rates applicable to several specific
exporters and a catch-all rate for all other exporters that did not
receive a specific rate.[Footnote 23] The AD/CV duty order also
instructs CBP to collect cash deposits at the time of importation at
those rates on all merchandise subject to the order. As shown in figure
2, the merchandise also can be subject to an administrative review by
Commerce 12 months after the issuance of the AD/CV duty order.[Footnote
24] During the administrative review, Commerce analyzes previous
imports to determine the actual level of dumping or subsidization for
those imports. At the conclusion of the administrative review
(typically about 18 months after the review's initiation), the
liquidation rate (i.e., the final duty rate) for the merchandise is
established. Commerce communicates the final duty rate to CBP through
liquidation instructions and CBP instructs staff at each port of entry
to assess final duties on all relevant entries (i.e., applying the rate
to the value of goods imported). The liquidation process is complete
when CBP refunds money (if the cash deposit rate was higher than the
liquidation rate) or issues a supplemental bill (if the liquidation
rate is higher than the cash deposit rate). If the cash deposit rate is
equal to the liquidation rate, CBP does not issue a refund or a
supplemental bill and the entry is liquidated "as entered." These
actions must be completed by Commerce and CBP within 6 months.[Footnote
25] (App. III provides additional information regarding the AD/CV duty
collection process.)
Figure 2: Illustration of the Process and Maximum Time Frames for
Collecting AD/CV Duties:
This figure is a flowchart showing the process and maximum time frames
for collecting AD/CV duties.
[See PDF for image]
Source: GAO analysis of information from Commerce and CBP.
Note: This figure depicts the maximum lengths of time allowed by law,
regulation, or agency practice for specific steps in the AD/CV duty
process.
[End of figure]
To collect additional AD/CV duties an importer owes, CBP sends the
importer a monthly bill. An importer has 6 months from the date of
liquidation or reliquidation to protest the bill amount.[Footnote 26]
After the protest period has expired, if an importer has not paid the
bill, CBP requests payment from the surety (insurance) company that
underwrote the bond the importer provided when the products entered the
United States.[Footnote 27] According to CBP officials, if CBP does not
receive full payment of the bill within 8 months of sending the first
bill, it "sanctions" the delinquent importer. CBP officials also
explained that importers that have not been sanctioned are allowed to
have their merchandise released from the port of entry without paying
all estimated duties, taxes, and fees so long as they commit to make
such payment within 15 days.[Footnote 28] When importers are
sanctioned, CBP revokes this privilege and requires the full payment of
all estimated duties, taxes, and fees before products can leave the
port of entry. If CBP does not receive payment within 1 year of issuing
the first bill, CBP's Revenue Division (which is responsible for
collecting payment) refers the case to CBP's Office of Chief Counsel,
which determines the next course of action. In addition, the Office of
Chief Counsel determines whether the bill should be written
off.[Footnote 29]
While the time frames for completing each step in the process for
assessing and collecting AD/CV duties are established by law, AD/CV
duties also are subject to judicial review, which is not subject to
time frames. According to CBP and Commerce officials, importers and
surety companies frequently obtain legal injunctions or file protests
related to the application of AD/CV duties. In instances where
litigation occurs, the process can take months or years longer than
described here.
Uncollected AD/CV Duties Are Substantial and Highly Concentrated:
Uncollected AD/CV duties from fiscal years 2001 through 2007 amount to
over $613 million and are highly concentrated among a few industries,
products, countries of origin, and importers. For example, uncollected
AD/CV duties are highly concentrated in four products from one country.
In addition, a relatively small number of large AD/CV duty bills and
unresolved legal protests accounts for a sizeable portion of the
uncollected AD/CV duties. According to CBP billing records, about $350
million worth of AD/CV duty bills are in various stages of the
collection process. Of those bills, CBP officials expect that most of
the nearly $290 million referred to its Office of Chief Counsel will be
written off. Private sector representative and congressional staff have
found CBP's detailed reporting on uncollected AD/CV duties critical to
conducting oversight of CBP's collection efforts. However, the law
generating this reporting has been repealed.[Footnote 30]
Uncollected AD/CV Duties Are Highly Concentrated:
Data on all open, unpaid bills for AD/CV duties as of September 2007
(which amounted to more than $613 million) show that uncollected AD/CV
duties are highly concentrated in five ways: by (1) industry, (2)
product, (3) country of origin, (4) exporter's new shipper status, and
(5) importer.[Footnote 31] In this report we use the phrase
"uncollected AD/CV duties" to mean the sum of all open, unpaid bills
for AD/CV duties issued by CBP, which includes those currently under
protest.[Footnote 32] Nearly 100 percent of these uncollected duties
are AD duties. [Footnote 33]
As shown in figure 3, uncollected AD/CV duties are highly concentrated
in four ways:
* By industry. The agriculture/aquaculture industry accounts for 87
percent of the total, and the steel industry accounts for 7 percent.
* By product. Since fiscal year 2001, CBP has assessed AD/CV duties
related to 597 AD/CV duty orders on specific products. Of those, as of
September 2007, 120 duty orders have some amount of uncollected duties.
Approximately 84 percent of the total amount of uncollected AD/CV
duties is associated with four products, all from China: crawfish tail
meat, garlic, honey, and mushrooms.
* By country of origin. Importers purchasing from China are responsible
for 90 percent of all uncollected AD/CV duties.
* By exporter's "new shipper" status. Importers that purchased goods
from companies undergoing a special "new shipper" review account for a
substantial amount of uncollected duties. As will be discussed in more
detail later in this report, under U.S. law, these importers were
allowed, until recently, to pay estimated AD/CV duties by posting a
bond instead of paying in cash as other importers are required to
do.[Footnote 34] Importers that purchased goods from companies
undergoing a "new shipper" review are responsible for approximately 40
percent of uncollected AD/CV duties.[Footnote 35]
Figure 3: Uncollected AD/CV Duties, by Industry, Product, Country of
Origin, and Exporter's New Shipper Status, as of September 2007:
This figure is a combination of four pie charts showing uncollected
AC/CV duties, by industry, product, country of origin, and exporter's
new shipper status, as of September 2007.
By Industry:
Dollars in millions.
Agriculture/aquaculture ($531): 87%;
Steel ($43): 7%;
All others ($40): 7%.
By Product:
Dollars in millions.
Crawfish tail meat from China ($354): 58%;
Honey from China ($43): 7%;
Mushrooms from China ($41): 7%;
Garlic from China ($75): 12%;
Other ($100): 16%.
By Country of Origin:
Dollars in millions.
China ($551): 90%;
Argentina ($11): 2%;
Vietnam ($12): 2%;
All others ($40): 7%.
By Exporter's New Shipper Status:
Dollars in millions.
Not a new shipper ($198): 60%;
New shipper ($130): 40%.
[See PDF for image]
Source: GAO analysis of CMB data.
Note: The analyses by industry, product, and country of origin are
based on a total of $613 million in uncollected AD/CV duties. The
analysis by exporter's new shipper status is based on $328 million of
uncollected AD/CV duties for which it was possible to determine the
exporter's new shipper status.
[End of figure]
Uncollected AD/CV duties also are highly concentrated among a group of
importers. CBP data show that from October 2000 through July 2007,
about 27,000 importers were subject to AD/CV duties. Of those, 520 (or
less than 2 percent) had uncollected AD/CV duties as of September 2007.
Among those importers that owe AD/CV duties, the majority of the amount
of uncollected AD/CV duties is owed by a relatively small number of
companies. As shown in table 1, the top 4 importers that owe the most
AD/CV duties account for more than one-third of the total amount of
uncollected AD/CV duties, and the top 20 importers account for 63
percent. For example, as of September 2007, "Importer 1" had 133
outstanding AD/CV duty bills amounting to $122 million, which was
secured by a bond of $700,000.
Table 1: Distribution of Uncollected AD/CV Duties by Importer, as of
September 2007:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: According to CBP, publishing the names of these importers is
prohibited under both the Trade Secrets Act (18 U.S.C. § 1905) and the
Privacy Act (5 U.S.C. § 552a). According to CBP, as of January 2008,
none of the 20 companies were active importers.
[End of table]
Most AD/CV Duty Bills Are Small, but a Few Are Very Large:
As shown in figure 4, most AD/CV duty bills are small, but a relatively
few large bills skew the average bill amount. Our analysis of CBP
billing records shows that for the approximately 23,000 open, unpaid
AD/CV duty bills as of September 2007, the median bill amount was $309,
which means that half of AD/CV duty bills were less than $309 and half
of the bills were more. However, a relatively small number of bills for
more than $1 million increased the average (mean) bill amount to more
than $26,000.
Figure 4: Distribution of Uncollected AD/CV Duty Bills, by Decile, as
of September 2007:
This figure is a vertical bar graph showing distribution of uncollected
AD/CV duty bills, by decile, as of September 2007. The X axis
represents the bill decile, and the Y axis represents the percentage of
uncollected AD/CV duties.
$1-$60: 0.02%;
$61-$110: 0.03%;
$11-$218: 0.06%;
$219-$268: 0.09%
$269-$309: 0.11%;
Median bill amount ($309) is between deciles 5 and 6.
$310-$560: 0.14%;
$561-$1,921: 0.42%;
$1,922-$6,969: 1.37%;
Mean bill amount ($26,616) is in decile 9.
$6,970-$46,455: 8.54%;
$46,456-$7,167,653: 89.23%.
[See PDF for image]
Source: GAO analysis of CBP data.
Note: Each bill decile includes 2,306 bills.
[End of figure]
Unresolved Protests Affect the Amount of Uncollected AD/CV Duties:
Unresolved protests of AD/CV duty bills substantially affect the
collection of AD/CV duties. After the completion of Commerce's
administrative review, importers and surety companies can protest the
amount of duties CBP has assessed. As of September 2007, approximately
$265 million (or 43 percent) of the total amount of uncollected AD/CV
duties was subject to protests. These protests affect the extent of
uncollected AD/CV duties in two key ways. First, until the protest is
decided, CBP does not take additional collection action. According to
CBP officials, delays in its ability to take collection action can
impair their ultimate ability to collect the full amount of duties
owed. Second, if an importer or surety prevails in its protest, the AD/
CV duty bill is reduced or eliminated.
A Sizeable Amount of AD/CV Duty Bills Is Likely to Be Written Off:
According to CBP billing records, about $350 million worth of AD/CV
duty bills are in various stages of the collection process.
Approximately $290 million of these unpaid AD/CV duty bills has been
sent to CBP's Office of Chief Counsel to determine the appropriate
legal action. The Office of Chief Counsel may take additional
collection action such as sending importers and sureties formal demands
for payment or referring the case to the Department of Justice
(Justice) for litigation. In cases where at least one viable party is
located, the case is referred to Justice for litigation unless the cost
of collection is anticipated to exceed the amount recoverable. The
Office of Chief Counsel reports that it is currently working with
Justice to collect over $80 million in outstanding AD/CV duties from
two sureties that are undergoing insolvency proceedings.[Footnote 36]
CBP officials expect that most of the nearly $290 million referred to
its Office of Chief Counsel will be written off after proper legal
review. From fiscal years 2001 through 2007, CBP wrote off
approximately $34 million in AD/CV duties, most of which ($28 million)
was written off in fiscal years 2006 or 2007.[Footnote 37] The Office
of Chief Counsel cited several reasons for writing off outstanding
bills, including (1) CBP is unable to locate the debtor(s), (2) the
importer has no assets, (3) the debt against the debtor has been
discharged in bankruptcy, and (4) the cost of collection is anticipated
to exceed the amount recoverable.[Footnote 38]
Law Which Generated CBP Reporting on Uncollected AD/CV Duties Has Been
Repealed:
According to private sector representatives from industries receiving
payments under CDSOA, the reporting required by CDSOA allowed them for
the first time to easily identify the amount of money collected for
each AD/CV duty order. Though not required by CDSOA, in fiscal year,
2003 CBP began publicly reporting the amount of uncollected duties.
This reporting included detailed data on the amount of AD/CV duties
uncollected for each product subject to AD/CV duties. According to
private sector representatives and congressional staff, such reporting
has been critical to oversight of CBP's efforts to collect AD/CV
duties.
However, in February 2006, CDSOA was repealed.[Footnote 39]
Nonetheless, ensuring that Congress and the affected domestic
industries have access to detailed data on uncollected AD/CV duties is
critical to the oversight of CBP's collection efforts. For example,
representatives of the crawfish and steel industries (for which some
imports are subject to AD/CV duties) indicate that detailed reporting
on uncollected AD/CV duties is necessary to ensure that injured U.S.
industries are receiving the full amount of protection intended by the
imposition of AD/CV duties.
Four Key Factors Contribute to Uncollected AD/CV Duties; the Government
Has Addressed Some of These Factors:
Four key factors contribute to uncollected AD/CV duties; the U.S.
government has addressed some of these factors. First, the
retrospective component of the U.S. AD/CV duty system creates the risk
of uncollected duties because the final amount of AD/CV duties an
importer owes can exceed the amount it paid when goods entered the
country. Second, "new shipper" reviews pose two types of risks for the
collection of AD/CV duties. Congress addressed one of these risks by
temporarily suspending importers' ability to post bonds and requiring a
cash payment to cover the estimated AD/CV duties owed at the time of
importation when purchasing from a new shipper.[Footnote 40] Third, all
importers must provide a general bond to secure the payment of duties,
but CBP's standard bond formula provides little protection of AD/CV
duty revenue because it sets bond amounts at a low level. CBP addressed
this by revising its standard bond formula for imports subject to AD/CV
duties, but the revision has only been applied to one product and faces
challenges in domestic courts and internationally.[Footnote 41] Fourth,
CBP collects minimal information regarding importers and does not
conduct background or financial checks, which creates challenges to
locating and collecting AD/CV duties.
Retrospective Component of U.S. AD/CV Duty System Creates Risk for Duty
Collection:
Two aspects of the retrospective component of the U.S AD/CV duty system
create risk for duty collection. First, under the U.S. AD/CV duty
system, the amount of duties owed (determined through an administrative
review by Commerce) can exceed the amount of estimated AD/CV duties an
importer paid at the time of importation. Second, the long lag time
between the time of importation and the time when final AD/CV duties
are assessed creates a risk that CBP will be unable to collect the full
amount of AD/CV duties owed. During this time, importers may disappear,
cease business operations, or declare bankruptcy, which has created
challenges to CBP's ability to collect AD/CV duties owed.
Retrospective Calculation of Final Duties Creates Risk of Uncollected
Duties:
Under the U.S. AD/CV duty system, importers must pay estimated AD/CV
duties at the time of importation,[Footnote 42] but the final amount of
duties is not determined until later. [Footnote 43] As a result, after
Commerce conducts an administrative review to establish final AD/CV
duty rates, the final amount of duties owed can exceed the estimated
amount of duties the importer paid at the time of importation. In these
cases, CBP must attempt to collect the duties from importers who are,
at times, unable or unwilling to pay. According to a 2007 Treasury
report on major duty collection problems, these situations create the
most significant collection problems.[Footnote 44] Some importers are
unable to pay the additional amount because it exceeds their available
assets. Others, such as illegitimate importers, expect that their final
assessment will exceed their cash deposit and plan to avoid their final
duty obligation, according to Treasury officials.
Final AD duty rates are lower or the same as the estimated duty rates
the vast majority of the time. However, in some cases, final duty rates
are significantly higher. In analyzing more than 6 years of CBP data
covering over 900,000 entries subject to AD duties, we found that duty
rates went up 16 percent of the time, went down 24 percent of the time,
and remained the same 60 percent of the time.[Footnote 45] In instances
when rates increased, the median increase was less than 4 percentage
points, meaning that half of the time the rate increased less than 4
percentage points.[Footnote 46] However, because of some large
increases, the average rate increase was 62 percentage points, and some
exceeded 200 percentage points.[Footnote 47] When there was a rate
decrease, the median decline was 7 percentage points, meaning that half
of the time the rate decreases were less than 7 percentage
points.[Footnote 48] However, some larger decreases caused the average
rate decrease to be 21 percentage points.[Footnote 49]
When these rate changes were applied to each entry, CBP provided
refunds or issued supplemental bills to the importers. In part because
there were more refunds than supplemental bills, on balance, the
average result was a refund of $324. For the 24 percent of the entries
that had a rate decrease, the average refund amount was $2,733. For the
16 percent of the entries that had a rate increase, the average
supplemental bill was $2,137, but one was more than $7 million.
Notably, the majority (58 percent) of uncollected duty bills over
$500,000 are attributed to rate increases greater than 150 percentage
points. Figure 5 shows the amounts of uncollected AD/CV duties by
various levels of rate increases.
Figure 5: Uncollected AD/CV Duties, by Change in Rate (0-250 percentage
points), as of July 2007:
This figure is a dot graph showing uncollected AC/CV duties, by change
in rate (0-250 percentage points), as of July 2007.
[See PDF for image]
Source: GAO analysis of CBP data.
Note: This figure depicts the distribution of approximately 18,000
open, unpaid AD/CV duty bills for which the estimated AD/CV duty rate
was between 0 and 250 percentage points lower than the final AD/CV duty
rate. It excludes 23 AD/CV duty bills with rate increases greater than
250 percentage points, which accounted for $3.3 million in uncollected
duties. This figure also excludes 22 AD/CV duty bills for more than
$750,000--all of which were related to an AD order on crawfish tail
meat from China--totaling $55.7 million.
[End of figure]
Long Lag Times Increase the Risk for Uncollected AD/CV Duties:
Long lag times between initial entry of a product and final assessment
of duties further increase the risk of uncollected duties, especially
when dealing with illegitimate importers. According to CBP officials,
the more time that elapses between the entry of goods and the
assessment of final duties, the lower the likelihood they will be able
to collect any additional duties owed because importers may disappear,
cease business operations, or declare bankruptcy. As seen in figure 6,
half of all entries subject to AD/CV duties took 29 months (about 2.4
years) or less to liquidate (i.e., close the entry or issue a bill or
refund). For one entry, however, more than 18 years elapsed between the
entry of the goods and when the entry was liquidated. On average, this
process took about 3.3 years.
Figure 6: Percentage of Entries Subject to AD/CV Duties Liquidated from
September 2000 through July 2007, by Number of Months Between Entry and
Liquidation:
This figure is a vertical bar graph showing percentage of entries
subject to AD/CV duties liquidated from September 2000 through July
2007, by number of months between entry and liquidation. The X axis
represents months between entry and liquidation, and the Y axis
represents percentage of entries.
Months between entry and liquidation: "8";
Percentage of entries: 0.76.
Months between entry and liquidation: "16";
Percentage of entries: 2.46.
Months between entry and liquidation: "24";
Percentage of entries: 1.69.
Months between entry and liquidation: "32";
Percentage of entries: 1.56.
Months between entry and liquidation: "40";
Percentage of entries: 0.97.
Months between entry and liquidation: "48";
Percentage of entries: 0.60.
Months between entry and liquidation: "56";
Percentage of entries: 0.48.
Months between entry and liquidation: "64";
Percentage of entries: 0.34.
Months between entry and liquidation: "72";
Percentage of entries: 0.28.
Months between entry and liquidation: "80";
Percentage of entries: 0.30.
Months between entry and liquidation: "88";
Percentage of entries: 0.40.
Months between entry and liquidation: "96";
Percentage of entries: 0.33.
Months between entry and liquidation: "104";
Percentage of entries: 0.35.
Months between entry and liquidation: "112";
Percentage of entries: 0.35.
Months between entry and liquidation: "120";
Percentage of entries: 0.18.
Months between entry and liquidation: "128";
Percentage of entries: 0.16.
Months between entry and liquidation: "136";
Percentage of entries: 0.16.
Months between entry and liquidation: "144";
Percentage of entries: 0.08.
Months between entry and liquidation: "152";
Percentage of entries: 0.02.
Months between entry and liquidation: "160";
Percentage of entries: 0.02.
[See PDF for image]
Source: GAO analysis of CBP data.
[End of figure]
According to CBP and Treasury officials, some importers attempting to
avoid AD/CV duties take advantage of the long lag times created by the
system to deliberately evade paying AD/CV duties. Since, on average,
more than 3 years elapse between the entry of the goods and the final
assessment of duties, importers can bring in a large volume of
merchandise subject to AD/CV duties before final duties are assessed.
New Shipper Reviews Enhance Risk for Uncollected AD/CV Duties; Congress
Has Partially Addressed This Risk:
U.S. law pertaining to the application of AD/CV duties to "new
shippers" poses two types of risks related to the collection of these
duties. The first risk is linked to the ability of importers purchasing
from new shippers to post bonds instead of having to pay cash deposits.
In the course of an AD/CV duty investigation, Commerce typically
determines an AD/CV duty rate applicable to a good associated with
several specific manufacturers and exporters as well as a rate for all
those manufacturers and exporters of the good not individually
investigated. After the conclusion of an AD/CV duty investigation, some
exporters who are not individually investigated may request a review in
order to receive their own rates because they believe they could
receive a lower rate. A "new shipper" (a manufacturer/exporter) who did
not export the subject merchandise during the initial period of
investigation and is not affiliated with any exporter who exported the
subject merchandise can request that Commerce conduct a review to
establish the shipper's own individual AD/CV duty rate. Once Commerce
initiates a new shipper review, importers purchasing from the
manufacturer/exporter undergoing the review used to have the option of
paying estimated AD/CV duties by providing a bond in lieu of paying
cash. As discussed earlier in this report, importers that were allowed
to provide bonds in lieu of cash deposits are responsible for about 40
percent of the amount of uncollected AD/CV duties.
Congress has partially addressed this risk of uncollected AD/CV duties
associated with new shipper reviews. In August 2006, Congress
temporarily suspended the "new shipper bonding privilege" that allowed
importers who purchased from companies undergoing a new shipper review
to provide a bond, instead of cash, to cover the estimated AD/CV duties
due at entry.[Footnote 50] As a result, all importers must now provide
a cash deposit to cover the estimated duties at entry until July 2009.
This new policy eliminated the risk of uncollected AD/CV revenues when
the final duty amounts were assessed at the cash deposit rate or less
because CBP does not have to issue a bill for the bonded amount.
However, supplemental duties due to rate increases remain unprotected.
The new law also required CBP to apply the revised policy retroactively
to April 1, 2006.[Footnote 51] Thus, those importers who already had
obtained bonds for AD/CV duties on shipments from new shippers during
the approximately 4.5 months preceding the legislation were required to
make cash payments for these shipments. CBP identified $96 million
worth of such bonds that needs to be replaced with cash. While CBP has
taken steps to collect this money, as of January 2008, it had collected
only approximately $100,000 in total.[Footnote 52]
The second risk is linked to the level of imports required to obtain an
AD/CV duty rate as a result of a new shipper review. U.S. law does not
specify any minimum amount of exports or number of transactions that a
manufacturer or exporter must make to be eligible for a new shipper
review.[Footnote 53] As a result, an exporter can be assigned its own
individual AD/CV duty rate based on a very minimal amount of exports.
For example, a new shipper can purposely make one commercial shipment
to the United States at a relatively high price for which the importer
would pay a relatively high AD/CV duty rate,[Footnote 54] then request
a review of that shipment. Commerce's review (based on the one
shipment) will determine that the new shipper was not dumping the
product in the United States and assigns a 0 percent AD/CV duty deposit
rate. Once Commerce assigns the new shipper a 0 percent AD/CV duty
rate, the AD/CV duties the importer paid on the one commercial shipment
are refunded, with interest. In addition, no AD/CV duty deposits are
collected on future shipments, but additional duties may be owed if
those shipments are determined to have been dumped or subsidized when
an administrative review is completed in approximately 12 to 18 months.
CBP's Standard Bond Formula Provides Little Protection of AD/CV Duty
Revenue; CBP Has Taken Steps to Address This Risk, but Faces
Challenges:
CBP's standard bond setting formula provides little protection for
securing AD/CV duty revenue when the final amount of AD/CV duties owed
exceeds the amount paid at the time of importation. To ensure payment
of unforeseen obligations to the government, all importers are required
to post a security, usually a general obligation bond, when they import
products into the United States.[Footnote 55] This bond is an insurance
policy protecting the U.S. government against revenue loss if an
importer defaults on its financial obligations. CBP determines the
appropriate amount of a bond required for each importer. In general,
the importer is required to obtain a bond equal to 10 percent of the
amount the importer was assessed in duties, taxes, and fees, over the
preceding year (or $50,000, whichever is greater).
As seen in table 1 earlier in this report, CBP's standard bond formula
is insufficient to protect AD/CV duty revenue in some cases. Table 1
presents data on the top 20 importers with uncollected AD/CV duties and
their bond amounts, which are insufficient to protect AD/CV duty
revenue for all 20 importers. When AD/CV duties are retrospectively
increased, the standard bond formula can be insufficient to cover the
importer's new obligation. If an importer fails to pay the supplemental
AD/CV duties, CBP can collect from the surety, up to the amount of the
bond that was provided at the time of importation. However, CBP
frequently faces a lengthy process of trying to collect from bonding
agents who can, and often do, protest CBP's decision to collect the
bond amount. According to Treasury's analysis, if an importer defaults
and the amount of the bond is insufficient to cover the importer's new
obligations, duties due in excess of the bond coverage are often
uncollected.
In July 2004, in response to problems collecting AD duties, CBP
announced a revision to its standard bond policy for bonds covering
certain imports subject to AD/CV duties. The revised bond formula was
intended to reduce the risk of uncollected duties, but CBP has tested
it on only one product subject to AD duties. The revised policy
requires importers to obtain a bond equal to 100 percent of the
estimated AD/CV duties for items imported over the previous 12
months.[Footnote 56] Essentially, the new requirement doubles the AD/CV
duty revenue protected in that CBP now receives a cash deposit, plus an
increased bond approximately equal to the cash deposit. In February
2005, CBP applied the revised policy to imports of shrimp from six
countries subject to AD duties as a "test case" before applying the
policy more broadly.
In October 2006, we reported on the implementation of the test case and
its effects.[Footnote 57] We found that the revised bonding requirement
achieved its goal of increasing the amount of AD duties secured. CBP
data showed that the policy increased the amount of duty revenue
protected by 85 percent, but that the costs imposed on shrimp importers
as a result of the revised policy are substantial. For example, shrimp
importers must pay higher premiums and often are required by sureties
to provide 100 percent collateral. According to shrimp importers, this
reduced the amount of funds available to operate their business, tied
up collateral for several years, and strained the borrowing capacity of
some importers.
While the policy has protected revenue and had some negative impacts on
importers, it is not possible to assess its full effects on AD/CV duty
collections for three reasons. First, it has been applied to one
product, shrimp, which has little history in terms of duty collections.
Second, the domestic shrimp industry and over 100 shrimp exporters
reached agreements to not request that Commerce conduct administrative
reviews.[Footnote 58] In exchange for cash payments from exporters and
the cooperation of the exporters on issues related to illegal
antibiotics and circumvention, the domestic industry agreed not to
request an administrative review of these exporters. This eliminated
the possibility of duty rate increases which can result in uncollected
duties. Thus, it is not possible to separate the effects of the policy
from the effects of the agreements. Third, some U.S. importers and WTO
members have challenged the legality of the policy.[Footnote 59] The
U.S. Court of International Trade has issued an injunction on the
implementation of the policy for some importers,[Footnote 60] and a WTO
dispute settlement panel issued a report in February 2008 indicating
that the revised policy as applied to imports of shrimp from India and
Thailand is inconsistent with WTO rules.[Footnote 61] The policy is
currently still being applied to most shrimp importers, but it has not
been applied to importers of other products.
CBP Collects Little Information Regarding Importers of Record, Creating
Challenges to Locating Debtors and Collecting Duties:
CBP collects a minimal amount of information from companies applying to
be importers of record, which challenges its ability to subsequently
locate and collect duties from delinquent debtors. Aside from basic
information such as an importer's name and its mailing address, CBP
requires one additional unique identifying number. This number can be
an Internal Revenue Service Taxpayer Identification Number (for a
company) or a Social Security number (for an individual). In addition,
applicants can request that CBP assign them a unique number for CBP's
tracking purposes. Companies seeking to avoid paying AD/CV duties can
easily drop identification numbers and obtain new ones, making the
numbers an ineffective tool for enforcement. Regardless of the type of
unique identifying number the importer uses, the company (or
individual) is not subject to any credit or background checks before
being allowed to import products into the United States. With such
limited information about importers, locating them can be difficult,
especially if they are trying to evade duties. According to CBP
officials responsible for attempting to collect delinquent AD/CV
duties, their collection efforts often are ineffective because by the
time they are able to attempt to collect, importers have ceased
business operations.
CBP officials pointed out that foreign companies and individuals are
allowed to be importers, and that CBP's ability to collect from such
importers, especially illegitimate ones, is very limited. According to
CBP officials, the number of nonresident importers (i.e., foreign
importers of record) seems to be growing and poses unique issues when
it comes to collecting AD/CV duties. CBP officials indicated that if
foreign importers of record do not pay supplemental duties, the cost of
attempting to collect the duties would be high and would likely exceed
the amount collected.
Although Improvements Made, Weaknesses in Interagency Communication
Impede Processing of AD/CV Duties, but the Overall Revenue Effect
Appears Minimal:
Despite some improvements, weaknesses in interagency communications
impede CBP's ability to process the final amount of AD/CV duties within
the required 6 months. In recent years, CBP and Commerce have taken
several steps to improve communication regarding AD/CV duties, but
untimely action by Commerce and CBP's need to seek clarification from
Commerce during the liquidation process present challenges to
completing the process in the time allowed. Many entries are not
addressed within the statutory 6-month period,[Footnote 62] though the
overall effect on revenue appears minimal. Human capital challenges at
Commerce affect its ability to effectively perform its role in the
liquidation process, but Commerce lacks a strategy for addressing these
challenges.
Agencies Have Taken Steps to Improve Communication:
In recent years, agencies have taken steps to improve communication
related to processing AD/CV duties. First, Commerce established a
Customs Unit within the Import Administration in January 2005 that
provides essential customer services and information to both government
and private sector stakeholders involved in the AD/CV duty process. The
Customs Unit serves as the focal point for CBP on customs issues,
maintains a call center, and fosters communication daily with CBP via e-
mail and telephone. Both CBP and Commerce officials agree that the
formation of the Customs Unit has improved their interagency
communication. Commerce also has taken steps to improve the template it
uses to guide the development of liquidation instructions. In addition,
according to Commerce, officials from Commerce, CBP, Immigration and
Customs Enforcement,[Footnote 63] and occasionally the Department of
Justice or U.S. Attorney's Office attend a monthly trade enforcement
meeting at which they discuss AD/CV duty collections, including open
and potential fraud cases.
CBP and Commerce also have taken steps to improve their handling of the
protests filed by importers and surety companies regarding the amount
of duties owed. For instance, according to Commerce officials, in 2006,
Commerce increased the number of staff processing protests from one to
five, enabling the agencies to reduce the backlog of 250 protests. In
addition, CBP enhanced its tracking system to monitor the status of the
protests it sends to Commerce for advice on how to resolve the protest.
Also, CBP is in the process of clarifying instructions to its ports on
procedures for handling AD/CV duty-related protests.
CBP is undertaking steps to improve its data systems for processing AD/
CV duties, as part of the agency's larger project to replace its 20-
year-old data system--called the Automated Commercial System (ACS)--
with the Automated Commercial Environment (ACE). CBP is building a
separate AD/CV duty module within ACE, soliciting input from Commerce
officials throughout the project. According to CBP officials, ACE will
enhance its ability to handle more AD/CV duty tasks automatically.
Currently, thousands of entries subject to AD/CV duties require manual
entry for liquidation, which is resource and time intensive. According
to CBP officials, the AD/CV duty module in ACE is expected to be
completed sometime after January 2011.
Weaknesses in Interagency Communication Create Impediments, Impairing
CBP's Ability to Process AD/CV Duties:
Communication weaknesses in the interagency process for liquidating
entries subject to AD/CV duties impede CBP's ability to process AD/CV
duties in a timely manner. This process involves action by both
Commerce and CBP and is governed by statutory and self-imposed
deadlines. However, untimely and unclear communication creates
impediments to completing the process within these time frames. Many
entries are not liquidated within the specified time frame, though the
amount of revenue lost or gained appears to be minimal. Human capital
challenges at Commerce contribute to these weaknesses, but Commerce
lacks a strategy for addressing these challenges.
Liquidation Process Involves Action by Commerce and CBP and Is Governed
by Statutory and Self-Imposed Deadlines:
Commerce and CBP must take several steps in order to liquidate an entry
subject to AD/CV duties that has undergone an administrative review.
Under U.S. law, this process must be completed (by sending a bill or
refund or closing the transaction) within 6 months of Commerce
publishing a notice in the Federal Register specifying (1) the final
AD/CV duty rates or (2) a final court decision to liquidate entries
that were enjoined subject to litigation, whichever comes
later.[Footnote 64] There are three basic steps in the liquidation
process.
First, after concluding an administrative review, Commerce publishes
the review's final results in the Federal Register, and commits to
sending specific instructions to CBP within 15 days after the notice in
the Federal Register or the lifting of any injunction. Commerce often
prepares these liquidation instructions using a template. Commerce then
sends the instructions to CBP headquarters to liquidate the covered
entries at the final AD/CV duty rate determined by the administrative
review. Second, CBP headquarters reviews the instructions sent by
Commerce to ensure they are sufficiently clear. CBP headquarters then
forwards the instructions to each port of entry. Third, CBP staff at
ports of entry liquidate the entries in one of three ways: (1)
refunding the difference to the importer when the final duty liability
is lower than the cash deposit collected at the time of importation;
(2) issuing a bill to the importer for the difference when the final
duty liability is higher than the cash deposit collected at the time of
importation; or (3) closing the entry when the cash deposit is the same
as the final duty liability.
Untimely and Unclear Liquidation Instructions Create Impediments to
Liquidation:
We identified two main impediments to CBP's ability to liquidate
entries subject to AD/CV duties. One impediment is untimely liquidation
instructions from Commerce. Specifically, we identified instances where
Commerce failed to send the liquidation instructions within its self-
imposed 15-day deadline. Since approximately January 2006, CBP has been
documenting "message logs" for the purpose of tracking the timeliness
of Commerce's delivery of liquidation instructions. In reviewing these
logs for a 4-month period, we determined that Commerce sent the
liquidation instructions to CBP headquarters within 15 days of
publishing the relevant Federal Register notice approximately 20
percent of the time.[Footnote 65] In addition, almost 30 percent of the
instructions were sent more than 100 days after the Federal Register
notice was published. After reviewing the instances we identified where
instructions were sent more than 100 days after the Federal Register
notice, Commerce officials determined that such a delay was often
(about 70 percent of the time) beyond their control. For example,
Commerce officials noted that some cases are subject to legal
injunctions or North American Free Trade Agreement rules which allow
longer time frames for the issuance of liquidation instructions.
However, they also noted that some liquidation instructions are sent
more than 100 days after the publication of the Federal Register notice
or the lifting of any injunction because of administrative oversight
due primarily to heavy workload.
According to Commerce officials, they recognize the importance of
sending liquidation instructions in a timely manner, but lacked a
mechanism for ensuring that this occurred. After we made Commerce
officials aware of the untimely liquidation instructions we identified,
in December 2007, the Deputy Assistant Secretary for AD/CV Duty
Operations sent a memo to each of the nine Office Directors responsible
for AD/CV duty operations reiterating the need to ensure that
liquidation instructions are timely. He also announced a plan for
tracking the timeliness of liquidation instructions, including a
requirement that each of the Office Directors report quarterly on their
office's efforts to meet the goal of issuing instructions 15 days after
the pertinent notice in the Federal Register or the lifting of any
injunction.
A second impediment to the timely liquidation of some entries subject
to AD/CV duties is a lack of clarity in Commerce's liquidation
instructions and the extra time taken by CBP to obtain clarification.
CBP and Commerce officials acknowledge that liquidation instructions
can be complicated and difficult to draft and may be very detailed.
However, according to CBP headquarters officials, they are unable to
send liquidation instructions to field offices to act upon in a
significant percentage of cases because Commerce's instructions are
unclear.
Commerce communicates its instructions to CBP through ACS. If CBP needs
to clarify or correct liquidation instructions, it will return the
instructions back to Commerce through ACS. Our analysis of CBP's log of
instructions returned to Commerce for clarification found that CBP
sought clarification for approximately 21 percent of liquidation
instructions that Commerce sent within the 7-month period we
reviewed.[Footnote 66] Further, CBP's log noted that several
instructions were sent back for clarification for a second or third
time.
Many Entries Not Liquidated Within 6-Month Deadline, but Revenue Lost
or Gained Appears Minimal:
We identified over 37,000 entries out of a total of approximately 3.1
million entries (approximately 1 percent) subject to AD duties
liquidated from October 2004 through June 2007 that were "deemed
liquidated" (i.e., CBP failed to complete the liquidation process
within the 6-month period). If CBP cannot complete the liquidation
process within 6 months of Commerce's notice in the Federal Register,
it may not collect the appropriate amount of AD/CV duties. When CBP
fails to complete the liquidation process within 6 months, an entry is
"deemed liquidated" and the entry is liquidated at the rate asserted by
the importer at the time of entry (e.g., the cash deposit
rate).[Footnote 67] This precludes CBP from attempting to collect any
supplemental additional duties that might have been owed because of an
increase in the AD/CV duty rate. Similarly, it means that CBP does not
refund money owed to importers as a result of a decrease in the AD/CV
duty rate.[Footnote 68]
The potential revenue lost or gained on entries deemed liquidated
appears minimal. In the vast majority of the 37,000 cases of deemed
liquidation we identified, no revenue appears to have been lost or
gained as a result of the deemed liquidation. We identified 507 entries
which should have resulted in the collection of additional revenue, but
were deemed liquidated. Our analysis showed that the United States did
not receive approximately $106,000 in revenue for these entries. More
significantly, we identified 171 entries which should have resulted in
approximately $1.5 million of refunds to importers, but were deemed
liquidated.
Human Capital Challenges at Commerce Affect Liquidation Process, but
Commerce Lacks a Strategy for Addressing the Challenges:
Commerce officials acknowledge that human capital challenges limit
their ability to draft clear and timely liquidation instructions in
some cases, but they have no clear strategy for addressing these
challenges. They attribute these human capital challenges to a hiring
freeze that has been in place since January 2006, which affected the
hiring of International Trade Compliance Analysts who are responsible
for drafting AD/CV duty liquidation instructions. According to Commerce
officials, the AD/CV duty operations offices have lost 46 International
Trade Compliance Analysts since January 2006, and they had been unable
to refill these positions due to the hiring freeze. As a result, as
shown in figure 7, as of January 2008, the Import Administration had
less than half (103 of 211) of the International Trade Compliance
Analysts which it was authorized.
Figure 7: Authorized vs. Actual Staffing Levels for International Trade
Compliance Analysts (first quarter, fiscal year 2004 to January 2008):
This figure is a combination vertical graph showing authorized vs.
actual staffing levels for international trade compliance analysts
(first quarter, fiscal year 2004 to January 2008).
Fiscal year 2004: Q1;
Number of analysts (actual): 159;
Number of analysts (authorized): 7.
Fiscal year 2004: Q2;
Number of analysts (actual): 157;
Number of analysts (authorized): 54.
Fiscal year 2004: Q3;
Number of analysts (actual): 162;
Number of analysts (authorized): 49.
Fiscal year 2004: Q4;
Number of analysts (actual): 167;
Number of analysts (authorized): 44.
Fiscal year 2005: Q1;
Number of analysts (actual): 170;
Number of analysts (authorized): 41.
Fiscal year 2005: Q2;
Number of analysts (actual): 160;
Number of analysts (authorized): 51.
Fiscal year 2005: Q3;
Number of analysts (actual): 156;
Number of analysts (authorized): 55.
Fiscal year 2005: Q4;
Number of analysts (actual): 155;
Number of analysts (authorized): 56.
Fiscal year 2006: Q1;
Number of analysts (actual): 150;
Number of analysts (authorized): 61.
Fiscal year 2006: Q2;
Number of analysts (actual): 149;
Number of analysts (authorized): 62.
Fiscal year 2006: Q3;
Number of analysts (actual): 140;
Number of analysts (authorized): 71.
Fiscal year 2006: Q4;
Number of analysts (actual): 131;
Number of analysts (authorized): 80.
Fiscal year 2007: Q1;
Number of analysts (actual): 127;
Number of analysts (authorized): 84.
Fiscal year 2007: Q2;
Number of analysts (actual): 122;
Number of analysts (authorized): 89.
Fiscal year 2007: Q3;
Number of analysts (actual): 114;
Number of analysts (authorized): 97.
Fiscal year 2007: Q4;
Number of analysts (actual): 109;
Number of analysts (authorized): 102.
Fiscal year 2008: Q1;
Number of analysts (actual): 102;
Number of analysts (authorized): 109.
Jan-08;
Number of analysts (actual): 103;
Number of analysts (authorized): 108.
[See PDF for image]
Source: GAO analysis.
[End of figure]
Despite the substantial decline in the number of staff, there has been
only a slight decline in caseload since fiscal year 2004. As shown in
table 2, the caseload per analyst has increased substantially since
fiscal year 2004. According to Commerce officials, this growth in
caseload for International Trade Compliance Analysts is a key reason
that some liquidation instructions are not sent in a timely manner.
Table 2: International Trade Compliance Analyst Caseload, by Fiscal
Year:
Number of analysts (3rd qtr);
FY04: 162;
FY05: 156;
FY06: 140;
FY07: 114;
Estimated FY08: 114.
Number of AD/CV duty determinations;
FY04: 308;
FY05: 398;
FY06: 359;
FY07: 336;
Estimated FY08: 380.
Determinations per analyst;
FY04: 1.9;
FY05: 2.6;
FY06: 2.6;
FY07: 2.9;
Estimated FY08: 3.3.
Source: GAO analysis of Commerce data.
Note: "Number of determinations" is a measure used by Commerce to
assess workload. It included the number of AD/CV duty determinations
issued within the statutory and/or regulatory deadline.
[End of table]
Commerce has taken some steps to improve its human capital, but lacks a
clear strategy for addressing its human capital challenges. For
instance, Commerce officials report that the agency released a job
announcement for the International Trade Compliance Analyst position to
support the nine AD/CV duty operational offices, and they have hired
nine new analysts since September 2007. They also have requested
additional funding to establish an additional office to focus on CV
duty investigations involving nonmarket economies. However, according
to Commerce officials, they have not conducted a comprehensive analysis
to understand its human capital challenges and have no formal human
capital plan to address these challenges.
Options for Improving the Collection of AD/CV Duties Have Potential
Advantages and Disadvantages:
Congress and the relevant agencies face two sets of options to consider
in attempting to improve the collection of AD/CV duties. Each set has
both potential advantages and disadvantages. One set of options would
be for Congress to fundamentally alter the U.S. AD/CV duty system by
eliminating its retrospective component and making it prospective. The
other set of options involves adjusting specific aspects of the current
U.S. AD/CV duty system while retaining its retrospective nature. This
set includes such options as adjusting the requirements for "new
shippers," heightening the requirements for becoming an importer of
record, revising the bond requirements for importers, and lengthening
the statutory deadline for assessing final AD/CV duties. Consideration
of any option should include analysis of whether the change would be
consistent with international trade agreements, including WTO rules.
Congress Could Eliminate the Retrospective Component of the U.S. AD/CV
Duty System:
U.S. law could be changed to eliminate the retrospective component of
the U.S. AD/CV duty system and, instead, treat AD/CV duties assessed at
the time the product enters the country essentially as final. Under the
current U.S. AD/CV duty system, when Commerce issues an AD/CV duty
order, it establishes estimated AD/CV duty rates. Commerce then
instructs CBP to collect estimated duties at those rates from importers
when products subject to the order enter the country. However, as
discussed earlier, Commerce often conducts an administrative review,
during which it analyzes additional imports (typically 1 year of
entries) and calculates the final duty rates (and thus the amount of
duties owed by the importer). In this way, the U.S. system is
retrospective in nature, in that the final amount of duties is based on
the actual amount of dumping or subsidization for that year.
The Prospective AD/CV Duty Systems of Other Countries Present
Alternatives:
Other countries we reviewed do not determine their final AD/CV duties
by calculating actual amount of duties owed after products enter the
country. While each country's AD/CV duty system operates differently,
major U.S. trading partners such as Canada, Australia, and the European
Union have AD/CV duty systems that are fundamentally prospective. Under
these countries' systems, the AD/CV duties assessed at the time a
product enters the country are essentially treated as final.[Footnote
69] App. II provides illustrative examples of the calculation of AD/CV
duties under different scenarios. If and when the AD/CV duty rate is
changed, it is applied only to future imports and has no effect on the
amount of duties owed for previous imports.[Footnote 70] As a result,
other countries reported that they have no major problems collecting
AD/CV duties.
Canada's AD duty system often is referred to as a prospective normal
value system.[Footnote 71] Canadian officials conduct investigations to
determine whether imports are being dumped or subsidized and whether
they are causing injury to Canadian industry; if so, they impose AD/CV
duties. According to Canadian officials, when the government finds that
dumping is occurring, the Canadian government calculates a "normal
value" for the product, which is used to calculate the amount of AD
duties applicable on all future shipments to Canada.[Footnote 72] For
all future imports, if the normal value of the goods exceeds the export
price, the importer owes AD duties in an amount equal to the difference
between the two prices. Thus, the amount of duties owed, if any, varies
based on the export price. The lower the export price, the greater the
duties owed, and vice versa. If the export price is equal to or higher
than the normal value, the importer owes no AD duties.[Footnote 73]
Officials stated that this normal value is used until the Canadian
government conducts a review to update it, which typically occurs
annually. These reviews are initiated either by the government or at
the request of an importer or exporter based on market or price
changes. Following the completion of a review, the new normal value is
used for all future imports, but is not used to recalculate the amount
of duties owed on prior imports (unlike in the U.S. system). Officials
further explained that under Canadian law, importers and certain
exporters (for example, those from the United States and Mexico) also
may request a redetermination of the normal value or export price after
duties have been assessed on a transaction for the purpose of obtaining
a refund. Any duties found to have been paid in excess as a result of
the redetermination will be refunded to the importer. As of November
2007, Canada imposed AD duties on 17 products and CV duties on 6
products. In 2006, Canada collected approximately $24 million in AD/CV
duties.
Australia's AD duty system also is prospective and the duties are
assessed based on the normal value calculated during an investigation
of unfairly priced imports. However, as Australian officials explained,
the AD duties owed may have two components: one fixed and one variable.
The fixed component is the difference between the normal value and the
export price during the AD duty investigation. This amount is assessed
on all future imports on a per-unit basis. The variable component is
the additional duties that will be assessed if an exporter lowers its
price for an individual transaction below what it charged during the
investigation. The additional duties will be assessed at an amount
equal to the difference between the two prices.[Footnote 74] Like the
Canadian system, Australia periodically reviews the normal value and
makes any adjustments on a prospective basis. As of October 2007,
Australia imposed AD duties on 35 products and CV duties on 1 product.
The European Union's (EU) AD/CV duty system also is prospective, with
the amount of the duties based on the amount of dumping or
subsidization applied on an ad valorem (percentage) basis.[Footnote 75]
EU officials stated that they conduct an investigation to determine
whether imports are being dumped or subsidized and whether they are
causing injury to a European industry. If so, they then establish the
normal value for the product and compare this to the export price.
Officials further explained that they calculate the percentage
difference between these two prices and set this as the AD/CV duty
rate. This rate is then applied to all future imports of the product.
As a result, the amount of the AD/CV duties owed is a simple percentage
the current export price. Thus, the lower the export price, the lesser
the amount of duties owed; the higher the price, the greater the amount
of duties owed.[Footnote 76] According to EU officials, EU regulations
allow for the periodic review of AD/CV duties as well as for the refund
of any duty paid determined to be in excess of the actual margin of
dumping and/or subsidization of the exporter concerned. Officials
stated that these periodic reviews have a prospective effect, that is,
the new rate of duty will affect only future imports (contrary to the
U.S. system, the amount of duty cannot be increased retrospectively).
Separately, importers have the opportunity to request a refund review,
which would concern past imports. As of December 2006, the European
Union had 134 AD measures and 2 CV measures in force. The AD measures
covered 59 products and 32 countries, while the CV measures covered 10
products and 5 countries.
Trade-Offs Involved When Considering Prospective and Retrospective AD/
CV Duty Systems:
Prospective and retrospective AD/CV duty systems differ in a variety of
ways, and the specific design features of each system influence their
relative advantages and disadvantages.[Footnote 77] The types of trade-
offs associated with each system can be illustrated by comparing three
specific characteristics:
* Timing for determining and collecting final AD/CV duties. In
prospective AD/CV duty systems, the amount of AD/CV duties paid by the
importer at the time of importation is essentially treated as final.
This eliminates the risk of being unable to collect AD/CV duties.
Establishing the final amount of AD/CV duties owed at the time of
importation also creates certainty for importers. This enables
legitimate importers to plan their business operations. In addition,
some prospective AD/CV duty systems and retrospective systems assess
AD/CV duties that increase or decrease as the degree of dumping or
subsidization increases or decreases, which can provide exporters an
incentive to eliminate or reduce dumping. For example, under Canada's
"prospective normal value" AD/CV duty system, Canada's investigation
results in establishing a normal value which is known to all parties.
Exporters can then raise their prices up to that normal value, thereby
eliminating their dumping and avoiding any AD/CV duties.[Footnote 78]
In a retrospective AD/CV duty system, the amount of AD/CV duties owed
is not determined until well after the time of importation.
Importantly, our analysis showed that, in the U.S. system, final duties
are assessed, on average, more than 3 years after importation. This
time lag, which often is the result of the time required to conduct the
administrative review necessary to calculate final AD/CV duties and any
judicial review of the results of the review, has several potential
implications. First, the threat of an administrative review can deter
some companies from dumping. An administrative review could result in
AD/CV duty rates being increased from the estimated rate paid at the
time of importation, which could mean significant new duty liability
for an importer. As such, since legitimate importers seek price
certainty, they may be less inclined to purchase from exporters whose
AD/CV duty rates fluctuate substantially over time. Second, the time
lag creates collection risks for the U.S. government. As discussed
earlier, the long lag times between entry and final duty assessments in
the U.S. system increase the risk of uncollected duties, as importers
may become unable or be unwilling to pay the final amount of AD/CV
duties when they are assessed. Third, the time lag can result in "bad
actors," those importers who intentionally avoid paying required
duties, not being identified until they have been importing for a long
time. Only after its collections efforts are unsuccessful does the
government clearly know that duties owed by this importer are at
serious risk for noncollection. During this time lag, the importer may
continue to import dumped or subsidized products into the country, thus
incurring additional duty liability and increasing the U.S. government
risk for noncollection.
* "Accuracy" of AD/CV duties paid. Under a prospective AD/CV duty
system, the amount of duties assessed may not match the amount of
actual dumping or subsidization. Under some prospective systems, the
amount of AD/CV duties an importer is assessed is based on dumping or
subsidization that occurred in a previous period. As a result, if the
amount of dumping or subsidization changes, the amount of duties paid
in the current period may not equal the amount of dumping or
subsidization that is currently occurring. However, the government is
able to collect the full amount of AD/CV duties assessed because the
duties are paid at the time of importation.
Under a retrospective AD/CV duty system, the amount of duties assessed
reflects the actual amount of dumping by the exporter for the period of
review. The amount of the final AD/CV duty liability may not be
established until the government reviews all the imports for a given
period and calculates the amount of dumping or subsidization that has
occurred. As a result, a retrospective system can assess duties that
exactly reflect the amount of dumping or subsidization. However, in
practice, a substantial amount of retrospective AD/CV duty bills are
not collected. This gap between the amount of duties assessed and the
amount collected means that the government is not fully remedying the
unfair trade practice. This suggests that assessing a more accurate
duty rate does not necessarily result in receiving more accurate duty
amounts from importers. It also raises concerns about the equity of the
system, as those who evade AD/CV duties gain a competitive advantage at
the expense of those companies that pay the full amount of duties owed.
* Administrative simplicity for customs officials. Both prospective and
retrospective AD/CV duty systems may involve complex processes for
determining appropriate AD/CV duty rates. However, they differ with
respect to their simplicity for customs officials responsible for
collecting AD/CV duties.
Prospective AD/CV duty systems create a smaller burden for customs
officials because the full and final amount of AD/CV duties is assessed
at the time of importation. For example, according to Canadian customs
officials, its AD/CV duty system places little burden on customs
officials. Since all duties are paid when products enter the country,
customs officials face little, if any, additional work to process
imports subject to AD/CV duties.
Retrospective AD/CV duty systems can create a substantial burden for
customs officials. According to CBP officials, the U.S.'s retrospective
AD/CV duty system places a unique and significant burden on its
resources. For example, it creates a considerable amount of
administrative duties related to identifying, tracking over time, and
properly processing entries subject to AD/CV duties. When CBP needs to
collect additional duties beyond those paid at the time of importation,
additional resources also are needed to attempt to collect those
duties, which can involve attempting to locate importers that have
disappeared or collecting from importers that have declared bankruptcy,
and may also necessitate working with other agencies such as Justice.
According to CBP officials, the retrospective AD/CV duty system
increases workload and diverts focus from other priority trade issues.
Congress and Agencies Could Adjust Specific Aspects of the Current U.S.
AD/CV Duty System:
Adjustments to specific aspects of the U.S. AD/CV duty system could be
made without altering its retrospective nature. We identified four
types of changes. One type of change includes revising the requirements
related to "new shippers." A second adjustment involves heightening the
requirements for becoming a U.S. importer. A third type of change
includes revising the bond requirements for importers. Each of these
changes would impose additional costs on both legitimate and
illegitimate companies. A final change includes lengthening the amount
of time CBP is provided to make a final assessment of AD/CV duties.
Such a change could reduce the amount of foregone revenue, but could
make collections more difficult in some situations.
Congress Could Make Adjustments to the Requirements for New Shipper
Reviews:
Requirements for new shipper reviews could be adjusted in two different
ways. First, Congress could extend or make permanent its suspension of
the new shipper bonding privilege. Doing so would require all importers
to pay estimated AD/CV duties in cash at the time of entry, thus
eliminating the need to attempt to collect from surety companies.
Second, Congress could revise the level of exports required for
exporters applying for "new shipper" status to potentially reduce the
risk of uncollected duties.[Footnote 79] As discussed previously, under
U.S. law, a company applying to be a new shipper is entitled to an
expedited review of its exports for the purpose of establishing an AD/
CV duty rate to that company's exports in the future.[Footnote 80]
According to Commerce officials, since such companies typically have
exported only one shipment of the goods subject to AD/CV duties, which
is almost always at a relatively high price, they typically calculate a
cash deposit rate of 0 percent. As a result, importers purchasing from
these companies pay no AD/CV duties at the time of importation.
However, Commerce may later determine that the exports were dumped or
subsidized, and therefore retrospective bills would be issued. As
described earlier, these retrospective bills are a key factor
contributing to uncollected AD/CV duties. To mitigate this risk,
Congress could choose to provide Commerce the discretion to require
companies applying for a new shipper review to have a greater volume of
imports before establishing an individual AD/CV duty rate. According to
Commerce officials, such discretion would be useful because it could
help mitigate the risks posed by establishing an AD/CV duty rate based
on one shipment.
Revising the requirements for new shippers could reduce the risk of
uncollected duties by making it harder for exporters to manipulate new
shipper reviews and evade duties. However, a large volume of imports
may be required to prevent some exporters from intentionally
manipulating the new shipper review process. In addition, requiring a
greater volume of imports could unfairly burden legitimate new shippers
by requiring them to export more than they otherwise might before they
could obtain an individual cash deposit rate.
Requirements for Becoming an Importer of Record Could Be Heightened:
CBP or Congress could heighten the requirements for a company applying
to be an importer of record to potentially reduce the likelihood that
importers would prove unable to pay their duty liabilities. As
discussed previously, the requirements for becoming an importer in the
United States are minimal and do not involve any financial or
background checks. Heightened requirements might include mandatory
financial or background checks. However, according to CBP officials,
performing financial checks would provide a limited assessment of
importers' future ability to pay additional AD/CV duties because their
financial situations can change quickly. Additionally, a financial
check does not address a company's willingness to pay additional AD/CV
duties. It also would create a significant new burden on CBP, which
would need to conduct or oversee these financial or background checks.
For example, CBP data indicate that from fiscal years 2005 through
2007, there was an average of over 350,000 importers of record. Of
those, about 130,000, on average, were new importers each year.
Moreover, these financial or background checks would need to be updated
periodically, which would compound the resource requirements over time.
In addition, it is possible that the heightened requirements would be
imposed on all importers to be fair. Given that the vast majority of
importers comply with customs laws and pay their duty liabilities, such
a broad approach may not be a cost-effective way to improve the
collection of AD/CV duties.
CBP Could Revise Its Bonding Requirements:
Bond requirements could be modified to provide additional protection in
the case that importers are unable or unwilling to pay their duty
bills. One option would be for CBP to expand the application of its
revised bond policy for imports subject to AD/CV duties. As explained
earlier, this policy was established in July 2004, and significantly
increased the value of bonds required of importers. At the time it was
initially implemented, CBP officials envisioned applying the policy to
shrimp imports as a test case and subsequently applying the policy to
additional imports they believe pose a significant risk for uncollected
AD/CV duties. To date, the policy has been applied only to imports of
shrimp from six countries subject to AD/CV duties. As we have
previously reported, this policy effectively doubled the amount of
revenue protected by requiring (in addition to the cash deposits
required at the time of entry) a continuous bond essentially equal to
the cash deposits.[Footnote 81] However, expanding the application of
the policy entails substantial drawbacks. For example, some importers
covered by the expanded policy would face a significant increase in
their costs. Shrimp importers reported that they experienced increased
costs due largely to substantial collateral requirements needed to
obtain the bonds. According to importers, these costs reduced their
profitability and forced some importers to exit the industry. In
addition, the revised continuous bonding policy has been challenged in
U.S. court and at the WTO.[Footnote 82] The U.S. Court of International
Trade has issued an injunction on the implementation of the policy for
some importers,[Footnote 83] and a WTO dispute settlement panel issued
a report in February 2008 indicating that the revised policy as applied
to imports of shrimp from India and Thailand is inconsistent with WTO
rules.[Footnote 84]
CBP also could set new bond requirements based on its assessments of an
importer's likely ability to pay AD/CV duties. CBP could create a set
of criteria to judge each importer's ability to pay and require larger
bonds of companies judged to have a lower likely ability to pay, which
would increase the amount of AD/CV duty revenue protected. Such an
approach could allow CBP to target importers considered to be at high
risk for uncollected AD/CV duties and require them to provide larger
bonds. However, performing such analyses of individual importers'
likely ability to pay retrospective AD/CV duties, like background and
financial checks, would create a substantial administrative burden for
CBP. Such analyses would create a substantial new workload because of
the likely complexity of the analyses, the large number of importers
(approximately 350,000), and the need to regularly update the analyses.
CBP also could require importers to provide an additional bond for each
entry subject to AD/CV duties in addition to the already required
continuous bond. Some representatives from surety companies said that
this requirement could protect additional revenue while creating only a
minimal burden on CBP. They suggest that this type of requirement would
allow surety companies to identify, in advance, when they are insuring
the payment of AD/CV duties, which are at greater risk of nonpayment by
importers. Since they face a greater risk of having to pay out on bonds
related to AD/CV duties, surety companies would likely increase the
cost to importers of obtaining the bond, perhaps through increased
premium rates or collateral requirements. These increased costs could
deter malfeasance by illegitimate importers by increasing the cost of
importing merchandise subject to AD/CV duties. However, it may impose
costs on legitimate importers that pose little risk of failing to pay
retrospective AD/CV duties. At the same time, competition among surety
companies could force them to offer better bond prices for lower-risk
importers, reducing the costs for importers not at risk of uncollected
duties.
Congress Could Extend the Length of Time Allowed for CBP to Liquidate
Entries Subject to AD/CV Duties:
Congress could choose to extend the time frame allowed by law for CBP
to liquidate entries subject to AD/CV duties.[Footnote 85] As discussed
earlier, CBP has 6 months to liquidate entries subject to AD/CV duties
from the time that Commerce publishes a notice in the Federal Register
establishing (1) the final AD/CV duty rates or (2) the lifting of an
injunction against liquidation, whichever comes last. According to CBP
officials, this 6-month deadline can be very hard to meet, especially
when a large volume of imports needs to be liquidated or a case is
extremely complex. According to CBP officials, for most imports, the
Harmonized Tariff System code for a product determines the applicable
duty. However, in some AD/CV duty cases, no Tariff code exists for the
specific products that Commerce investigated and imposed duties on. An
example is wooden bedroom furniture from China. According to CBP
officials, there is a Tariff code for wooden furniture, but there is
not one for wooden bedroom furniture, for which there is an AD order in
effect. As a result, CBP needs to examine the invoices for every entry
of wooden furniture from China to see if it falls within the scope of
the AD order. This is very labor intensive and creates an opportunity
for companies to circumvent the duties. Extending the amount of time
for CBP to liquidate entries subject to AD/CV duties could reduce the
potential for entries to be "deemed liquidated," which can lead to
foregone revenue if additional duties should have been paid. However,
extending this time frame could delay refunds to some importers. As
discussed earlier, the more time between a product's entry into the
country and when entries are liquidated, the greater the chance duties
will be uncollected.
Conclusions:
The existence of a substantial amount of uncollected AD/CV duties
undermines the effectiveness of the U.S. government's efforts to deter
unfair foreign trade practices and reduces the amount of revenue
available to the U.S. government. With more than $600 million in AD/CV
duties currently uncollected, a large portion of which is likely to be
written off, the U.S. government's efforts to remedy injurious unfair
trade practices also has been seriously compromised. This problem was
first widely recognized after 2000, and has gained increased prominence
and visibility based on annual public reporting by CBP. However, a
recent change in U.S. law[Footnote 86] eliminated the legal requirement
that generated CBP's reporting on uncollected AD/CV duties.
While Congress and the relevant agencies have taken some steps in
recent years, they have not yet fully addressed the factors
contributing to uncollected AD/CV duties, and serious risks remain.
Some of these factors stem from shortfalls in the capabilities and
operation of the relevant agencies. For instance, human capital
deficiencies at Commerce and untimely or unclear liquidation
instructions have hampered the imposition and collection of AD/CV
duties. Increased attention and interagency coordination in these areas
could help ensure the steps in the AD/CV duty process are completed in
a timely manner.
Taking additional steps to mitigate the risk to AD/CV duty collections,
however, requires consideration of additional options and evaluation of
their relative advantages and disadvantages. Certain adjustments could
be made within the existing framework of the U.S. AD/CV duty system to
further protect AD/CV duty revenue. Adjustments such as altering
importers' bond requirements would protect additional revenue, but also
could have significant implications for the trade community and our
trading partners, which would need to be carefully considered.
Providing Commerce with the discretion to establish a minimum level of
exports needed to qualify for a special new shipper review could reduce
the possibility of uncollected AD/CV duties and would affect both
legitimate and illegitimate importers and exporters. On the other hand,
additional analysis is required to determine whether eliminating the
retrospective aspect of the duty collection process could help achieve
the AD/CV duty system's intended purposes more effectively. Such
fundamental alteration of the system would entail weighing the
implications for a variety of stakeholder groups including affected
domestic producers, exporters, importers, and the relevant federal
agencies.
Matters for Congressional Consideration:
In order to help reduce the amount of uncollected AD/CV duties,
Congress should consider taking the following three actions:
First, Congress should require the Secretaries of Commerce, Homeland
Security, and the Treasury to work together to conduct an analysis and
report to Congress on the relative advantages and disadvantages of
prospective and retrospective AD/CV duty systems. The report should
address the extent to which each type of AD/CV duty system would likely
achieve the goals of remedying injurious dumping or subsidized exports,
minimizing uncollected duties, reducing incentives and opportunities
for importers to evade AD/CV duties, effectively targeting high-risk
importers, and creating a minimal administrative burden. To ensure the
report is completed in a timely manner, Congress should establish a
specific date by which the report is to be delivered.
Second, Congress should require CBP to publicly report on an annual
basis regarding the amount of uncollected duties for that year for each
AD/CV duty order. In addition, the report should indicate the total
amount of all open, unpaid bills for each AD/CV duty order.
Third, Congress should consider providing Commerce with the authority
to establish, at its discretion, a minimum amount or value of exports
from companies requesting a new shipper review.
Recommendations for Executive Action:
In order to help ensure the full collection of AD/CV duties and improve
the liquidation process, we make the following three recommendations
for executive action:
First, the Secretary of Homeland Security, in consultation with other
relevant agencies, should determine whether CBP can adjust its bonding
requirements to further protect revenue without violating U.S. law or
international obligations and without imposing unreasonable costs upon
importers.
Second, the Secretary of Commerce should work with the Secretary of
Homeland Security to identify opportunities to improve the clarity of
liquidation instructions. The Secretary of Commerce should report to
Congress within 1 year on the steps it has taken to improve the clarity
of liquidation instructions.
Third, to ensure that the Import Administration has sufficient human
capital to issue timely and clear liquidation instructions to CBP, the
Secretary of Commerce should develop a strategic human capital plan
encompassing its AD/CV duty operational offices.
Agency Comments and Our Evaluation:
We provided a copy of this report to the Departments of Commerce,
Homeland Security, Justice, and the Treasury, as well as the U.S.
International Trade Commission and the Office of the U.S. Trade
Representative. The Department of Commerce's comments are contained in
appendix IV. The Department of Homeland Security's comments are
contained in appendix V. The Department of the Treasury's comments are
contained in appendix VI. The Departments of Homeland Security and
Commerce agency generally agreed with our recommendations. In addition,
we received technical comments from the Departments of Commerce,
Homeland Security, and Justice, as well as the United States
International Trade Commission and the Office of the U.S. Trade
Representative. We have incorporated these comments as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time we will send copies of this report
to the appropriate congressional committees as well as the Secretaries
of Commerce, Homeland Security, Justice, and the Treasury, the Chairman
of the U.S. International Trade Commission, and the U.S. Trade
Representative. We will make copies available to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report or need
additional information, please contact me at (202) 512-4347 or
YagerL@gao.gov. Contact points for our offices of Congressional
Relations or Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in appendix VII.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To help reduce uncollected antidumping (AD) and countervailing (CV)
duties, the Senate Appropriations and Finance Committees asked us to
review the reasons why the duties are uncollected and what the U.S.
government has done to address this problem. In addition, they asked us
to identify options for improving the AD/CV duty system. Specifically,
we examined (1) the extent and nature of uncollected AD/CV duties, (2)
the key factors contributing to risks for uncollected AD/CV duties and
the steps taken to improve the collection of AD/CV duties, (3)
interagency communications that affect the processing of AD/CV duties,
and (4) potential options for improving AD/CV duty collections.
To analyze the extent and nature of uncollected AD/CV duties, we
analyzed data received from U.S. Customs and Border Protection's (CBP)
Office of Finance. They include all open, unpaid bills for AD/CV duties
as of September 30, 2007. These data include key characteristics like
the bill amount, whether or not the bill was under protest, and the
importer number. The bill amount includes the principal amount of the
bill, but not any accrued interest. While we include in our reporting
uncollected AD/CV duties subject to ongoing protests, we also analyzed
bills not subject to protests. The results from both analyses were
similar. We assessed the reliability of the data by (1) performing
electronic testing of required data elements, (2) reviewing existing
information about the data and the system that produced them, and (3)
interviewing agency officials knowledgeable about the data. Based on
our data reliability assessment we deleted less than 1 percent of the
original cases. Our analysis consisted of 120 unique AD/CV duty orders
and more than 23,000 individual bills. We determined that these data
were sufficiently reliable for the purposes of this report.
To identify new shippers with open, unpaid bills; new shippers with
bills under protest; and differences between estimated and final duty
rates, we merged two data sets received from CBP. One data set included
all open, unpaid AD/CV duty bills since fiscal year 2001, as of
September 30, 2007, and indicated whether the bills were under protest.
The other data set included all entries subject to AD/CV duties that
were liquidated between October 2000 and July 2007, the AD/CV duty
order date, and whether the estimated AD/CV duties paid at entry were
secured using cash or a bond. We identified entries involving a company
undergoing a new shipper review as those where the importer was allowed
to post a bond to secure AD/CV duties after the AD/CV duty order was
issued. In addition, we needed to select only those entries involving
one entry line because CBP's data regarding open, unpaid bills do not
separate out the amount attributable to individual AD/CV duty orders if
multiple orders were involved. Our analysis of new shippers consisted
of 559 orders and approximately 1.4 million entries.
To analyze the differences between estimated and final AD/CV duty
rates, we needed to select only those entries involving one AD/CV duty
order because CBP's data do not separate out the liquidation rate
applicable to each order if multiple orders were involved. Once we
selected those records with only one AD/CV duty order, we calculated
liquidation rates by dividing the liquidation amount by the line value.
We are not reporting results related to changes in CV duty rates
because one case (softwood lumber from Canada) accounted for the vast
majority of entries in our data set, and thus would have unreasonably
biased the results. We also excluded the AD order on softwood lumber
from Canada from our analysis because the liquidation rate for those
entries were set as a result of a binational political agreement, which
is outside the typical practice.
We assessed the reliability of the data by (1) performing electronic
testing of required data elements, (2) reviewing existing information
about the data and the system that produced them, and (3) interviewing
agency officials knowledgeable about the data. We determined that these
data were sufficiently reliable for the purposes of this report.
To identify the key factors that contribute to uncollected AD/CV duties
and the steps taken to improve the collection of AD/CV duties, we
reviewed reports and documents related to AD/CV duty collections from
CBP and the Departments of Commerce and the Treasury. We further
reviewed reports from the Congressional Research Service as well as
legal journals. To determine the length of time it took Commerce to
send AD/CV liquidation instructions to CBP, we analyzed CBP's internal
"message log" spreadsheets for the period of April 2007 through July
2007. These spreadsheets indicated the dates CBP received and posted
liquidation instructions from Commerce. To determine reasons why
Commerce sometimes delayed sending instructions to CBP, we requested
that Commerce analyze the circumstances of 63 entries where it took
Commerce more than 100 days to send AD/CV duty liquidation instructions
to CBP. We analyzed CBP's internal "reject log" spreadsheets from
January 2007 through July 2007, which logged the instructions that CBP
sent back to Commerce for clarification. We additionally analyzed data
from Commerce related to the authorized versus actual staffing levels
for the International Trade Compliance Analyst position from fiscal
year 2004 through January 2008. We further examined Commerce data to
assess caseload growth for this Analyst position. In addition, we
interviewed a variety of Department of Homeland Security officials.
This included officials from CBP's Offices of International Trade,
Finance, and Field Operations. We interviewed officials from
Immigration and Customs Enforcement's Office of Commercial Fraud
Investigations. Additionally, we interviewed officials from the
Departments of the Treasury, Justice, and Commerce. To obtain
information on private sector views on the factors contributing to
uncollected AD/CV duties, we interviewed officials from domestic trade
industries as well as importer and surety associations.
To determine the steps the U.S. government has taken to improve
collection of AD/CV duties, we analyzed CBP policies and procedures for
collection of duties. We interviewed CBP officials in the Office of
Technology, Office of International Trade, and Office of Field
Operations, as well as its Debt Management Branch in Indianapolis. We
also interviewed officials at the Department of Commerce International
Trade Administration's Customs Unit and the Department of the Treasury.
We requested and reviewed documentation from the Department of Commerce
and CBP regarding steps they have taken to improve the collection of
AD/CV duties. In addition, we reviewed the Department of the Treasury's
July 2007 report on major duty collection problems. We interviewed
representatives of domestic industries and importers affected by AD/CV
duties and trade lawyers and academics with expertise in AD/CV duty
issues. We reviewed governmentwide guidance on debt collection,
including OMB Circular A-129--Policies for Federal Credit and Non-Tax
Receivables and segments of the Debt Management Improvement Act. Our
analysis included reviewing our prior report on CBP's revised
continuous bonding policy.[Footnote 87]
To identify and analyze potential options for improving AD/CV duty
collections, we reviewed academic literature regarding the operation of
various countries' AD/CV duty systems and their relative advantages and
disadvantages. Additionally, we obtained information from the
governments of Australia, Canada, and the European Union regarding how
their AD/CV duty systems operate and whether lessons could be learned
from the operation of their systems. We did not independently analyze
the laws and regulations of Australia, Canada, or the European Union.
We also interviewed agency officials, including officials from CBP and
the Department of Commerce's Trade Remedy Compliance Staff, which are
responsible for helping U.S. exporters understand other countries' AD/
CV duty systems. We interviewed private sector representatives
including both domestic producers and importers in a variety of
industries such as steel and agriculture/aquaculture. In addition, we
interviewed representatives from an association of retailers and the
surety industry.
We conducted this performance audit from June 2007 to March 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Examples of the Calculation of AD/CV Duties in the United
States, Australia, Canada, and the European Union:
Table: Assumptions: Normal value calculated during investigation =
$110; average import price calculated during investigation = $100:
[See PDF for image]
Source: GAO analysis of information from Commerce and the governments
of Australia, Canada, and the European Union.
[A] This reflects the amount of duties assessed under each system. As
discussed in the body of the report, in the United States, there can be
a substantial difference between the amount of duties assessed and the
amount paid.
[B] According to Australian officials, if the importer in this scenario
made a duty assessment application, all other things being equal, it
would be entitled to a $10 refund as the export price of $115 is above
the normal value calculated during the investigation.
[C] The United States would have refunded $11.50 to the importer.
[End of table]
[End of section]
Appendix III: Illustration of the Process and Maximum Time Frames for
Collecting AD/CV Duties:
Figure:
This figure is a flow chart of the illustration of the process and
maximum time frames for collecting AD/CV duties.
[See PDF for image]
Source: GAO analysis of information from Commerce and CBP.
[End of figure]
[End of section]
Appendix IV: Comments from the Department of Commerce:
United States Department Of Commerce:
International Trade Administration:
Assistant Secretary For Import Administration:
Washington. D.C. 20230:
March 10, 2008:
Dr. Loren Yager:
Director:
International Affairs and Trade:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Dr. Yager:
Thank you for providing us with the draft report on under-collection of
antidumping (AD) and countervailing duties (CVD), and recommended steps
to reduce shortfalls in duty collection. Commerce finds the report both
timely and helpful. The ability of AD and CVD duties to remedy unfairly
traded imports that injure American companies and workers is obviously
diminished if the duties are not fully collected. Moreover, significant
public and private resources are expended to ensure the accuracy of AD
and CVD duty rates, but the value of this accuracy is reduced if there
is under-collection.
Commerce carefully reviewed the report's analysis of the amount and
causes of AD and CVD duty under-collection. Commerce agrees that the
amount of AD and CVD duty under- collection is a problem that needs
resolution. However, the cited amount of over $600 million in
uncollected duties since 2001 may be overstated to the extent that this
amount reflects duties currently under proper review through litigation
or the protest process. In addition, the report found that uncollected
duties are highly concentrated in a few industries, products, countries
of origin, and importers, representing well over 80 percent of
uncollected duties in almost all of those categories. Thus, while there
are some systemic causes for under-collection, the fact that under-
collection is concentrated in a few circumstances indicates that
factors unique to those cases are the cause of under-collection.
Indeed, most likely only two of the four key factors identified in the
report as contributing to under-collection, i.e., the insufficient
amount of continuous bonds and minimal information regarding importers,
apply to the circumstances representing the vast majority of under-
collected duties. The GAO may want to recommend that further analysis
be conducted on these cases to determine why they represent such a
large portion of uncollected AD and CVD duties.
Moreover, the report's limited analysis of why the vast majority of
under-collection occurred in a few industries, products, countries of
origin, and importers contrasts with the sections of the report devoted
to other factors that are much smaller causes for under-collection. For
example, the report analyzes in-depth how the issuance of untimely and
unclear liquidation instructions can result in an import subject to AD
or CVD duties being liquidated at a "deemed" rate less than the amount
of the applicable AD or CVD duty rate. Commerce agrees that issuing
timely and accurate liquidation instructions should be a priority, as
demonstrated by Commerce's past and on-going efforts to improve its
issuance of liquidation instructions to Customs and Border Protection.
However, the report found that entries from September 2004 through July
2007 that were "deemed" liquidated at a rate different from the
applicable AD or CVD rate resulted in the relatively minimal under-
collection of $106,000.
Commerce has no objections to the report's suggested three matters for
Congressional consideration and three recommendations for executive
action. Specifically, should the Congress so decide, Commerce is
prepared to analyze and study the relative advantages and disadvantages
of prospective and retrospective AD/CV duty systems. However, the GAO's
recommendations on the scope of any Commerce study of prospective and
retrospective systems appear to range far beyond an assessment of the
problems and possible solutions specifically related to the under-
collection of AD/CV duties. Therefore, Commerce would want to consult
closely with its Congressional oversight committees to establish an
appropriate scope and purpose for any study of prospective and
retrospective duty collection systems that the Congress may decide to
request. Commerce agrees that requiring the annual public reporting of
uncollected AD and CVD duties would be a useful metric to measure
progress in minimizing under-collection. Commerce would also welcome
working with the Congress in considering whether the requirements for
requesting a new shipper review should be revised in a manner
consistent with the United States' international obligations.
Commerce would be willing to provide any relevant information or
assistance to the Department of Homeland Security (DHS) and the
Treasury Department if those Departments were to re-examine the current
formula for setting bond requirements. Commerce would also continue to
work with DHS to improve the liquidation process and the clarity of
liquidation instructions. As the report points out, Commerce and DHS
already work together closely to better the timeliness and accuracy of
liquidation instructions, but both Departments need to take further
action to improve the situation. Finally, Commerce notes that a
strategic human capital plan for Import Administration's AD/CVD
Operations offices is already in the planning stages and will be
developed as part of an upcoming independent review of Import
Administration programs. Given the potential role of limited human
resources affecting other agencies' ability to implement the timely
collection of AD and CVD duties, the GAO may want to consider
recommending similar human capital plans for other agencies involved in
the collection of AD and CVD duties.
Thank you again for the opportunity to comment on the draft report.
Enclosed is an attachment with specific technical comments relating to
the text of the report.
Sincerely,
Signed by:
David M. Spooner:
[End of section]
Appendix V: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
[hyperlink, http://www.dhs.gov]:
Homeland Security:
March 14, 2008:
Mr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
RE: Draft Report GAO-08-391, Antidumping and Countervailing Duties:
Congress and Agencies Should Take Additional Steps to Reduce
Substantial Shortfalls in Duty Collection (GAO Job Code 320465)
The Department of Homeland Security (DHS) appreciates the opportunity
to review and comment on the draft report referenced above. We
generally agree with the two recommendations that involve DHS.
The report highlights two options to address the four factors
contributing to uncollected antidumping and countervailing duties
(AD/CVD). The four factors are identified as (1) the retrospective
component of the United States AD/CVD system, (2) new shippers who only
need to bring in one shipment to receive a separate rate, which is
usually zero percent, (3) inadequate bond coverage to address large
rate increases, and (4) importers of record for which minimal
information is required.
The first option, preferred by U.S. Customs and Border Protection (CBP)
officials, would be for Congress to fundamentally alter the United
States system by eliminating its retrospective component and making it
prospective. This approach would:
* Benefit importers (and by proxy consumers) who would know with
certainty the cost of the goods they are selling at the time they are
sold rather than at some point in the future after an administrative
review of an AD/CVD order is conducted.
* Alleviate the collection issues faced by CBP due to substantial rate
increases since the amount of duty assessed at entry would be the final
amount owed.
* Substantially reduce the administrative burden on CBP resources
associated with a retrospective system such as the processing of AD/CVD
entries; the issuance and sufficiency review of bonds; review, posting,
and processing of liquidation instructions; the collection or refund of
monies resulting from rate fluctuations; the processing of protests
arising from these activities; and the need for management oversight of
these processes.
Allow CBP resources to more fully focus on AD/CVD enforcement issues,
such as circumvention of the AD/CVD law to avoid paying duties.
The second option is to adjust specific aspects of the current
retrospective system such as adjusting requirements for new shippers,
heightening the requirements for becoming an importer of record,
revising bond requirements for importers of goods subject to an AD/CV
duty order, and lengthening the statutory deadline for assessing final
AD/CVD. The majority of these options would perpetuate and exacerbate
the shortcomings of the U.S. retrospective system, which burdens CBP
resources with conducting manual processes and administrative tasks to
the detriment of identifying and addressing circumvention schemes. They
also would place an additional burden and cost on all importers and new
shippers, not just those who intend to evade AD/CVD.
A retrospective system is more accurate than a prospective system if
all importers abide by the rules and pay bills issued to them resulting
from rate increases. However, all importers do not abide by the rules
as GAO's draft report highlights:
However, in practice, a substantial amount of retrospective AD/CV duty
bills are not collected. This gap between the amount of duties assessed
and the amount collected means that the government is not fully
remedying the injury caused by dumping or subsidies. This suggests that
assessing a more accurate duty rate does not necessarily result in
receiving more accurate duty amounts from importers. It also raises
concerns about the equity of the system, as those who evade AD/CV
duties gain a competitive advantage at the expense of those companies
that pay the full amount of duties owed.
As noted, moving to a prospective system would allow CBP to focus its
resources more fully on identifying and addressing those seeking to
circumvent the AD/CVD law, rather than the administrative tasks
inherent in a retrospective system.
The report highlights that uncollected duties are concentrated by
country of origin (China), industry (agriculture/aquaculture), product
(crawfish, honey, mushrooms, and garlic), exporter's new shipper status
and importer of record. While in absolute amounts, the majority of
uncollected duties are concentrated in these areas, tens of millions of
dollars go uncollected from other areas as well. For example, GAO
reported that $613 million in AD/CVD went uncollected as of September
2007. However, $62 million did not pertain to imports from China; $82
million were in industries other than agriculture/aquaculture; and $100
million were in products other than the four mentioned above. In those
instances where GAO could identify the exporter's new shipper status
only 40% of uncollected duties ($130 of $328 million) were associated
with new shippers.
In addition, the danger with painting too narrow a picture of the non-
collection issue is that the countries, industries, products, and
importers that pose a revenue risk currently may not be the same ones
that will pose a revenue risk at some point in the future. CBP
continues to refine its risk management techniques to ensure it is
identifying and addressing the greatest risk of revenue loss before it
occurs.
The report contains three matters for Congressional consideration and
two recommendations that are addressed to or otherwise involve the
Department of Homeland Security.
Recommendation for Congressional Consideration 1: GAO recommends that
Congress require Commerce in consultation with DHS and Treasury to
conduct an analysis and report to Congress on the relative advantages
and disadvantages of prospective and retrospective AD/CVD systems.
We agree with this recommendation. Specifically, CBP would welcome the
opportunity to work with Commerce and Treasury to draft a report to
Congress that highlights the relative advantages and disadvantages of
prospective and retrospective AD/CVD systems.
Recommendation for Congressional Consideration 2: Require CBP to
publicly report on an annual basis on all uncollected AD/CV duties.
CBP agrees with GAO's recommendation. Since 2003, CBP has made this
information publicly available via its website even though it has not
been required to do so. In addition, CBP provides this information to
Congress to fulfill an annual Congressional reporting requirement. CBP
will continue to publicly report on all uncollected AD/CVD on an annual
basis by AD/CVD case number via its website.
Recommendation for Congressional Consideration 3: Congress should
consider providing Commerce with the authority to establish, at its
discretion, a minimum amount or value of exports from companies
requesting a new shipper review.
Although the recommendation is not directed to the Department of
Homeland Security, CBP supports increasing the requirements for new
shippers to address the collection risk associated with exports from
these companies.
Recommendation for Executive Action 1: DHS in consultation with
Treasury should determine whether CBP can adjust its bonding
requirements to further protect revenue without violating U.S. law or
international obligations and without imposing unreasonable costs upon
importers.
CBP remains committed to utilizing its bonding authority to address
revenue risk. However, a re-examination of the current formulas for
setting bond amounts to address the risks associated with the United
States' retrospective AD/CVD system will need to take into
consideration the outcome of legal challenges before the Court of
International Trade and the World Trade Organization.
Recommendation for Executive Action 2: Commerce should work with DHS to
identify opportunities to improve the clarity of Commerce's liquidation
instructions.
DHS agrees with this recommendation. The focus should be on improving
both the clarity and timeliness of liquidation instructions. As the
report highlights, CBP and Commerce have taken steps to improve the
clarity and timeliness. CBP will continue to do so.
Technical comments have previously been provided. These comments
correct specific inaccuracies in the draft. We trust that they will be
considered in finalizing the report.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix VI: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
March 13, 2008:
Mr. Loren Yager:
Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
Thank you for the opportunity to comment on the Government
Accountability Office (GAO) Report on Antidumping and Countervailing
Duties. The report is a thoughtful treatment of an important topic,
with implications beyond tariff administration.
Should Congress decide to follow your recommendation and ask for a
report on the relative advantages and disadvantages of prospective and
retrospective antidumping and countervailing (AD/CV) duty systems, the
Department of the Treasury will he happy to participate. We also are
planning to work with the Department of Homeland Security on reviewing
bonding requirements for AD/CV duties. We would offer the following
comments on the four key factors that GAO identified as contributing to
uncollected AD/CV duties.
First, we agree with the GAO conclusion that "the retrospective
component of the U.S. AD/CV duty system creates the risk of uncollected
duties." If there were no retrospective component to the U.S. AD/CV
duty law, we would expect the duty collection rate to be similar to
that for other duties, over 99 percent.
Second, while we agree that "new shipper" reviews have posed two types
of risks for the collection of AD/CV duties, we believe that the first
type the GAO identified, the risk related to the former ability of new
shippers to post bonds instead of having to pay cash deposits,[Footnote
88] is minimal. The added risk is equal to the probability of default
by a surety, which is low.
We believe the second type of risk that you identified, that new
shippers can take advantage of the current system, is more significant.
As the report describes, new shippers "can purposely make one
commercial shipment to the United States at a relatively high price,"
which can lead to a low or zero percent AD/CV duty rate being applied
to subsequent shipments by that new shipper. If it is subsequently
determined through administrative review that additional duties are to
be retrospectively assessed on those shipments, a collection risk is
created because the retrospectively assessed duties will not be secured
(by bond, cash deposit, or other means). In sum, an unscrupulous new
shipper can by design obtain a low AD/CV rate and then strip at that
rate until additional duties are retroactively assessed through
administrative review and then abscond when billed for retrospectively
assessed duties.
Third, with regard to the bond policies administered by Customs and
Border Protection (CBP), we agree that "when AD/CV duties are
retrospectively increased, the standard bond formula can be
insufficient to cover the importer's new obligation." We note, however,
that CBP's current enhanced bond policy, which was intended to address
particular AD/CV duty collection problems, has been found by a World
Trade Organization (WTO) dispute settlement panel to be inconsistent
with our WTO obligations. Moreover, because there is no limit on the
possible retrospective increase of AD/CV duties, no finite bond amount
can be guaranteed to cover a final AD!CV assessment.
Fourth, and finally, the report notes that CBP collects little credit
or financial information about importers. Such information may well be
useful in identifying those importers subject to AD/CV duties who are
most likely to meet retroactively assessed obligations, and therefore
may not need to post additional security in order to satisfactorily
guarantee payment. However, requests for credit checks have not been
needed to secure duties that are not retroactively assessed, and should
not be required from the general importer population.
Sincerely,
Signed by:
Timothy Skud:
Deputy Assistant Secretary:
Tax, Trade, and Tariff Policy:
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager (202) 512-4347or yagerl@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Christine Broderick (Assistant
Director), Jason Bair, Joseph Brown, Deborah Owolabi, Lisa Mirel, Karen
Deans, Etana Finkler, Grace Lui, Michael Hoffman, and Ken Bombara made
key contributions to this report. Stephen Caldwell, Thomas Costa, Lucia
DeMaio, Ian Ferguson, Laurie Hamilton, Elisabeth Helmer, Evelyn Logue,
Jackie Nowicki, Michael Rohrback, Ellery Scott, and Jena Sinkfield also
contributed to the report.
[End of section]
Footnotes:
[1] In this report we use the phrase "uncollected AD/CV duties" to mean
the sum of all open, unpaid bills for AD/CV duties issued by CBP, which
includes those currently under protest. We include the principal amount
of the bill, but not any accrued interest. This amount does not include
revenue that is written off or foregone when CBP is unable to issue
duty bills within statutory deadlines.
[2] 19 U.S.C. §§ 1671d, 1673d.
[3] 19 U.S.C. § 1500.
[4] Due to limitations in CBP data, we were unable to calculate the
amount of AD/CV duties collected for bills issued during this time
period. The numbers presented in this section of the report are based
on data received from CBP's Office of Finance. They include all open
unpaid bills for AD/CV duties as of September 30, 2007. These data
include key characteristics like the bill amount, whether or not the
bill was under protest and the importer number. We assessed the
reliability of the data by (1) performing electronic testing of
required data elements, (2) reviewing existing information about the
data and the system that produced them, and (3) interviewing agency
officials knowledgeable about the data. Based on our data reliability
assessment we deleted less than 1 percent of the original cases. Our
analysis consisted of 120 unique AD/CV duty orders and more than 23,000
individual bills. We determined that the data we analyzed were
sufficiently reliable for the purposes of this report.
[5] These four products, all from China, are crawfish tail meat ($354
million), garlic ($75 million), honey ($43 million), and mushrooms ($41
million).
[6] CBP data show that another approximately $21 million (in addition
to the nearly $290 million referred to CBP's Office of Chief Counsel)
are prepared to be written off.
[7] 19 U.S.C. § 1675c. CDSOA authorized the distribution of AD/CV
duties collected to the domestic industries injured by the dumping or
subsidization.
[8] Pub. L. No. 109-171, § 7601(a).
[9] To perform the rate analysis, we needed to select only those
entries involving one AD/CV duty order because CBP's data do not
separate out the liquidation rate applicable to each order if multiple
orders were involved. Once we selected those records with only one AD/
CV duty order, we calculated liquidation rates by dividing the
liquidation amount by the line value. We are not reporting results
related to changes in CV duty rates because one case (softwood lumber
from Canada) accounted for the vast majority of entries in our data
set, and thus would have unreasonably biased the results. We also
excluded the AD order on softwood lumber from Canada from our analysis
because the liquidation rate for those entries was set as a result of a
binational political agreement, which is outside the typical practice.
[10] Pension Protection Act of 2006, Pub. L. No. 109-208, § 1632(a),
120 Stat. 780, 1165.
[11] Seafood Exporters Ass'n of India v. United States, 479 F. Supp. 2d
1367 (2007); Nat'l Fisheries Inst., Inc. v. United States, 465 F. Supp.
2d 1300 (2006); United States - Customs Bond Directive for Merchandise
Subject to Anti-Dumping/Countervailing Duties, WT/DS345; United States
- Measures Relating to Shrimp from Thailand, WT/DS343.
[12] The liquidation process involves actions by Commerce and CBP and
culminates in the assessment of final AD/CV duties. This process is
required by statute to take no longer than 6 months. See 19 U.S.C. §
1504(d).
[13] 19 U.S.C. § 1504(d).
[14] The authority for the imposition of these duties was created by
the Tariff Act of 1930, June 17, 1930, c. 497, Title VII. AD duties are
authorized in 19 U.S.C. § 1673 and CV duties are authorized in 19
U.S.C. § 1671.
[15] Legal authority over customs revenue functions is vested in the
Secretary of the Treasury and, under Treasury Order 165, was delegated
to the U.S. Customs Service. In March 2003, the U.S. Customs Service
was transferred to the Department of Homeland Security, and authority
over customs revenue functions was delegated to the Department of
Homeland Security. 68 Fed. Reg. 10777-01 (Mar. 6, 2003).
[16] Department of the Treasury, Duty Collection Problems FY2003-2006
(Washington, D.C., 2007).
[17] A provision repealing CDSOA, but providing for the distribution of
"duties on entries of goods made and filed before October 1, 2007," was
enacted in the Deficit Reduction Act of 2005, Pub. L. No. 109-171, §
7601(a).
[18] 19 U.S.C. §§ 1671, 1673.
[19] 19 U.S.C. §§ 1671, 1673. We use the term "injured" to encompass
material injury, threat of material injury, or material retardation of
the establishment of an industry.
[20] 19 U.S.C. §§ 1671, 1673.
[21] 19 U.S.C. §§ 1671d, 1673d.
[22] 19 U.S.C. § 1500.
[23] 19 U.S.C. §§ 1671e, 1673e.
[24] An administrative review may be requested by exporters subject to
the AD/CV duty order, importers, the U.S. domestic industry, and the
government of producing or exporting countries if they believe the rate
to be incorrect. 19 C.F.R. § 351.213(b); 19 U.S.C. § 1677(9)(B). If no
administrative review is requested, the estimated AD/CV duties
importers paid when merchandise entered the country become the final
duties, and CBP liquidates the entry. 19 U.S.C. § 1675.
[25] 19 U.S.C. § 1504(d).
[26] 19 U.S.C. § 1514.
[27] In addition to paying estimated duties, taxes, and fees when
products enter the country, importers also are required to provide a
bond to help ensure that the government can recover additional duties,
taxes, or fees that may be owed. See 19 C.F.R. § 142.4. Most importers
obtain continuous bonds, which are bonds used to secure all of an
importer's shipments for the year.
[28] For importers that participate in CBP's Periodic Monthly Statement
program, this period may be as long as 45 days.
[29] 31 U.S.C. § 3711 provides CBP's statutory authority to write off
duty bills. The statute provides several conditions under which CBP may
write off duty bills.
[30] Pub. L. No. 109-171, § 7601(a).
[31] The numbers presented in this section of the report are based on
data received from CBP's Office of Finance. They include all open,
unpaid bills for AD/CV duties as of September 30, 2007. These data
include key characteristics like the bill amount, whether or not the
bill was under protest, and the importer number. We assessed the
reliability of the data by (1) performing electronic testing of
required data elements, (2) reviewing existing information about the
data and the system that produced them, and (3) interviewing agency
officials knowledgeable about the data. Based on our data reliability
assessment, we deleted less than 1 percent of the original cases. Our
analysis consisted of 120 unique AD/CV duty orders and more than 23,000
individual bills. We determined that the data we analyzed were
sufficiently reliable for the purposes of this report.
[32] We also analyzed bills not subject to ongoing protests. The
results from both analyses were similar.
[33] Of this amount, less than 0.1 percent ($280,000) is CV duties.
[34] See 19 U.S.C. § 1675(a)(2)(B) and Pub. L. No. 109-280, § 1632(a).
[35] To identify new shippers with open, unpaid bills and the amount of
those bills identified by CBP as being under protest, we merged two
data sets received from CBP. One data set included all open, unpaid AD/
CV duty bills. The other data set included all entries subject to AD/CV
duties that were liquidated between October 2000 and July 2007, the
order date, and whether the estimated AD/CV duties paid at entry were
secured using cash or a bond. We identified entries as involving a
company undergoing a new shipper review as those where the importer was
allowed to post a bond to secure AD/CV duties after the AD/CV duty
order was issued and the entry date was before April 2006. In addition,
we needed to select only those entries involving one entry line because
CBP's data regarding open, unpaid bills do not separate out the amount
attributable to individual AD/CV duty orders if multiple orders were
involved. Our analysis of new shippers consisted of 559 orders and
approximately 1.4 million entries. Approximately 33 percent of the
amount of uncollected AD/CV duties owed by importers purchasing from
new shippers is currently under protest. We assessed the reliability of
the data by (1) performing electronic testing of required data
elements, (2) reviewing existing information about the data and the
system that produced them, and (3) interviewing agency officials
knowledgeable about the data. We determined that the CBP data we
analyzed were sufficiently reliable for the purposes of this report.
[36] CBP's Office of Chief Counsel reports that, over the past 5 years,
it has received judgments or settlements in excess of $14 million
through litigation and has collected additional money through the
bankruptcy process.
[37] The products with the greatest amount of AD/CV duties written off
include crawfish tail meat from China (approximately $10 million),
manganese metal from China (approximately $5 million), and carbon steel
plate from Germany (approximately $4 million).
[38] When the delinquent importer is a foreign importer of record, the
option of pursuing litigation presents certain challenges. According to
Justice officials, before pursuing litigation in a foreign country,
they consider the ability to collect, the likelihood of success, and
the cost of collection efforts versus the amount of debt. Justice also
must consider whether the nature of the proposed action is one that can
be the subject of a lawsuit in a foreign court. Because foreign courts
generally do not enforce taxes or duties imposed by other countries, in
the case of a collection action based upon delinquent duties owed by a
foreign entity, Justice would have to be satisfied that the foreign
court would be willing to hear such an action or enforce a judgment
that might otherwise be obtained. In addition, it would be particularly
challenging to bring any CV duty cases because, by definition, the
foreign government caused the unfair trade by providing a
countervailable subsidy. Justice officials stated that given those
challenges, it is unlikely that collection actions based upon
delinquent duties can be successfully brought in foreign courts. For
that reason, Justice officials were not aware of any referrals from CBP
to initiate legal cases brought in foreign courts against foreign
importers of record that owed AD/CV duties.
[39] Pub. L. No. 109-171, § 7601(a).
[40] Pub. L. No. 109-280, § 1632(a).
[41] Seafood Exporters Ass'n of India, 479 F. Supp. 2d 1367; Nat'l
Fisheries Inst., Inc., 465 F. Supp. 2d 1300; United States - Customs
Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing
Duties, WT/DS345; United States - Measures Relating to Shrimp from
Thailand, WT/DS343.
[42] 19 U.S.C. § 1505.
[43] 19 U.S.C. § 1675.
[44] Department of the Treasury, Duty Collection Problems FY 2003-2006
(Washington, D.C., July 2007).
[45] To perform the rate analysis, we needed to select only those
entries involving one AD/CV duty order because CBP's data do not
separate out the liquidation rate applicable to each order if multiple
orders were involved. Once we selected those records with only one AD/
CV duty order, we calculated liquidation rates by dividing the
liquidation amount by the line value. We are not reporting results
related to changes in CV duty rates because one case (softwood lumber
from Canada) accounted for the vast majority of entries in our data
set, and thus would have unreasonably biased the results. We also
excluded the AD order on softwood lumber from Canada from our analysis
because the liquidation rate for those entries was set as a result of a
binational political agreement, which is outside the typical practice.
We further excluded those entries for which it was impossible to
calculate the percentage change in the AD/CV duty rates because they
had an initial rate of 0.
[46] The median percentage increase was 3 percent; this reflects the
difference between the estimated duty rate and the final duty rate,
divided by the estimated duty rate.
[47] The mean percentage increase was 8 percent; this reflects the
difference between the estimated duty rate and the final duty rate,
divided by the estimated duty rate.
[48] The median percentage decrease was 1 percent; this reflects the
difference between the estimated duty rate and the final duty rate,
divided by the estimated duty rate.
[49] The mean percentage decrease was 1 percent; this reflects the
difference between the estimated duty rate and the final duty rate,
divided by the estimated duty rate.
[50] Pub. L. No. 109-280, §1632(a).
[51] Pub. L. No. 109-280, §1632(a).
[52] Because these entries were not liquidated by the end of fiscal
year 2007, they are not included in the total amount of uncollected AD/
CV duties cited elsewhere.
[53] According to Commerce officials, the new shipper review provisions
do not provide them the discretion to create any such requirement. 19
U.S.C. § 1675(a)(2)(A)-(B)(i).
[54] For that shipment, the importer must pay a cash deposit at the
"all others" AD/CV duty rate if the entry is made before importers are
allowed to post bonds in lieu of cash deposits.
[55] 19 C.F.R. § 142.4.
[56] See Amendment to Bond Directive 99-3510-004 for Certain
Merchandise Subject to Antidumping/Countervailing Duty Cases (July 9,
2004).
[57] See GAO, International Trade: Customs' Revised Bonding Policy
Reduces Risk of Uncollected Duties, but Concerns about Uneven
Implementation and Effects Remain, GAO-07-50 (Washington, D.C.: Oct.18,
2006).
[58] According to CBP officials, these exporters accounted for the
majority of U.S. shrimp imports.
[59] Seafood Exporters Ass'n of India, 479 F. Supp. 2d 1367; Nat'l
Fisheries Inst., Inc., 465 F. Supp. 2d 1300; United States - Customs
Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing
Duties, WT/DS345; United States - Measures Relating to Shrimp from
Thailand, WT/DS343.
[60] Nat'l Fisheries Inst., Inc., 465 F. Supp. 2d at 1337.
[61] United States - Customs Bond Directive for Merchandise Subject to
Anti-Dumping/Countervailing Duties, WT/DS345/R; United States -
Measures Relating to Shrimp from Thailand, WT/DS343/R. Under WTO rules,
any party to the dispute has the right to request that the Appellate
Body review the case.
[62] 19 U.S.C. § 1504(d).
[63] U.S. Immigration and Customs Enforcement, within the Department of
Homeland Security, is the federal agency responsible for investigating
alleged schemes by U.S. importers to avoid the payment of AD/CV duties.
It works with CBP and Commerce to investigate and refer substantial
violators for criminal and civil actions.
[64] 19 U.S.C. § 1504(d).
[65] Commerce officials noted that CBP does not always review and act
on Commerce's instructions in a timely manner. According to the 1988
Memorandum of Understanding between Commerce and CBP, CBP agrees to
"review and act on" instructions received from Commerce "within 24
hours of receipt." According to Commerce, there are numerous instances
where CBP did not review and act on Commerce's instructions within the
agreed-upon time frame. For instance, beginning in October 2007, a
number of the instructions sent to CBP were "backlogged."
[66] Commerce officials acknowledged that some instructions are
legitimately rejected by CBP because they are unclear or inaccurate;
however, these officials also believe that CBP unnecessarily rejects
some instructions.
[67] 19 U.S.C. § 1504(d).
[68] According to CBP, in accordance with the decision of the Court of
Appeals for the Federal Circuit--in Koyo Corp. of U.S.A. v. United
States, 497 F.3d 1231 (Fed. Cir. 2007), CBP is granting properly filed,
valid protests of deemed liquidations, filed by importers seeking
refunds based on the final results rate, provided that the protests do
not raise nonprotestable claims of errors by Commerce.
[69] WTO members are required to allow importers to request reviews of
the amount of AD duties they have paid if they believe they are owed a
refund. WTO Antidumping Agreement Art. 9.3.2
[70] According to Commerce officials, some U.S. exporters complain that
other countries' prospective systems do not regularly conduct reviews
to adjust AD/CV duty rates.
[71] CV duties also are imposed prospectively, but are based on
calculated amounts of subsidy rather than normal values.
[72] The "normal value" is based on the price at which the exporter
sells like goods for domestic consumption.
[73] Because the amount of the duty increases with the degree of
dumping, the Canadian system provides a direct financial incentive for
firms to reduce or eliminate dumping.
[74] As such, the Australian system provides only limited financial
incentive for firms to discontinue dumping.
[75] If the European Union determines that the injury caused by the
unfair imports can be remedied with a lesser amount of duties than the
margin of dumping or subsidization, it imposes duties at a lower rate.
[76] As such, the EU system provides no direct financial incentive for
firms to discontinue dumping.
[77] For ease of discussion, we have grouped together a variety of
systems and categorized them as "prospective" systems. As discussed
with regard to the Canadian, Australian, and EU AD/CV duty systems,
each system is prospective, but the specific design characteristics of
each system (and thus the relative advantages and disadvantages) vary.
[78] The Australian and EU AD/CV duty systems, while eliminating
uncertainty in duty rates, provide little or no direct financial
incentive for firms to reduce dumping.
[79] According to Commerce officials, they do not have the legislative
authority to create any such requirement.
[80] 19 U.S.C. § 1675(a)(2)(B).
[81] GAO-07-50.
[82] Seafood Exporters Ass'n of India, 479 F. Supp. 2d 1367; Nat'l
Fisheries Inst., Inc., 465 F. Supp. 2d 1300; United States - Customs
Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing
Duties, WT/DS345; United States - Measures Relating to Shrimp from
Thailand, WT/DS343.
[83] Nat'l Fisheries Inst., Inc., 465 F. Supp. 2d at 1337.
[84] WT/DS345/R; WT/DS343/R. Under WTO rules, any party to the dispute
has the right to request that the Appellate Body review the case.
[85] This time frame is set out in 19 U.S.C. 1504(d).
[86] See Pub. L. No. 109-171, § 7601(a).
[87] GAO-07-50.
[88] As the report notes, the option of providing a bond has been
temporarily suspended. P.L. No. 109-280, §I632(a).
