International Trade
Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but Concerns about Uneven Implementation and Effects Remain Gao ID: GAO-07-50 October 18, 2006Since 2003, the Department of Homeland Security's U.S. Customs and Border Protection (CBP) has been unable to collect at least $480 million in antidumping (AD) and countervailing (CV) duties. In July 2004, CBP revised its policy regarding the continuous bonds (CB) that importers post. The policy potentially significantly increases the amount of the bonds for affected importers. Following the application of the policy to imports of shrimp as a "test case," U.S. importers and trading partners initiated legal action to prevent CBP from continuing to apply the policy. GAO examined why and how CBP revised its CB policy, how CBP implemented the revised policy, and the effects of the revised policy.
CBP revised its CB policy to reduce the risk of uncollected AD/CV duties. CBP determined that the traditional bond formula provides little protection of duty revenue. In addition, time lags and duty increases associated with the U.S. AD/CV duty system heighten the risk of importers' bonds being insufficient, which led to large amounts of uncollected duties. CBP developed the revised CB policy internally, and then conducted some outreach prior to applying it to imports of shrimp as a "test case." An internal CBP working group identified options for improving collection of AD/CV duties and recommended revising the CB policy. The revised policy significantly increased bond amounts for some shrimp importers. Before implementing the policy, CBP conducted outreach, but some importers criticized CBP's outreach as insufficient. CBP's implementation of the revised CB policy lacked transparency and consistency. CBP implemented the policy in February 2005 and required shrimp importers to obtain larger bonds. According to CBP, many importers inquired about lowering their bond requirement, and CBP lowered bond requirements under certain circumstances. However, CBP's procedures for adjusting bond requirements were not formally written and were not public. GAO's review of CBP and importer records showed that CBP set bond requirements on the basis of different data time periods for different importers and used inconsistent criteria when considering bond requests. The revised CB policy is expected and reported to have a variety of effects on revenue protection, importers, and imports. CBP reports that the revised CB policy protects additional revenue, but the degree of success cannot be known yet. Importers report facing higher costs as a result of the revised policy, which they say leads them to change business practices and has reduced profitability. Trade data show that some import patterns shifted after the AD petition but before the revised CB policy was announced.
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-07-50, International Trade: Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but Concerns about Uneven Implementation and Effects Remain
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Report to the Chairman, Committee on Ways and Means, House of
Representatives:
United States Government Accountability Office:
GAO:
October 2006:
International Trade:
Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but
Concerns about Uneven Implementation and Effects Remain:
International Trade:
GAO-07-50:
GAO Highlights:
Highlights of GAO-07-50, a report to the Chairman, Committee on Ways
and Means, House of Representatives
Why GAO Did This Study:
Since 2003, the Department of Homeland Security‘s U.S. Customs and
Border Protection (CBP) has been unable to collect at least $480
million in antidumping (AD) and countervailing (CV) duties. In July
2004, CBP revised its policy regarding the continuous bonds (CB) that
importers post. The policy potentially significantly increases the
amount of the bonds for affected importers. Following the application
of the policy to imports of shrimp as a ’test case,“ U.S. importers and
trading partners initiated legal action to prevent CBP from continuing
to apply the policy.
GAO examined why and how CBP revised its CB policy, how CBP implemented
the revised policy, and the effects of the revised policy.
What GAO Found:
CBP revised its CB policy to reduce the risk of uncollected AD/CV
duties. CBP determined that the traditional bond formula provides
little protection of duty revenue. In addition, time lags and duty
increases associated with the U.S. AD/CV duty system heighten the risk
of importers‘ bonds being insufficient, which led to large amounts of
uncollected duties. CBP developed the revised CB policy internally, and
then conducted some outreach prior to applying it to imports of shrimp
as a ’test case.“ An internal CBP working group identified options for
improving collection of AD/CV duties and recommended revising the CB
policy. The revised policy significantly increased bond amounts for
some shrimp importers. Before implementing the policy, CBP conducted
outreach, but some importers criticized CBP‘s outreach as insufficient.
CBP‘s implementation of the revised CB policy lacked transparency and
consistency. CBP implemented the policy in February 2005 and required
shrimp importers to obtain larger bonds. According to CBP, many
importers inquired about lowering their bond requirement, and CBP
lowered bond requirements under certain circumstances. However, CBP‘s
procedures for adjusting bond requirements were not formally written
and were not public. GAO‘s review of CBP and importer records showed
that CBP set bond requirements on the basis of different data time
periods for different importers and used inconsistent criteria when
considering bond requests. The revised CB policy is expected and
reported to have a variety of effects on revenue protection, importers,
and imports. CBP reports that the revised CB policy protects additional
revenue, but the degree of success cannot be known yet. Importers
report facing higher costs as a result of the revised policy, which
they say leads them to change business practices and has reduced
profitability. Trade data show that some import patterns shifted after
the AD petition but before the revised CB policy was announced.
Figure: Shrimp Imports from AD Countries Dropped after AD Petition
Filed, but before Announcement of Revised CB Policy:
[See PDF for Image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of Figure]
What GAO Recommends:
GAO recommends that the Commissioner of CBP (1) conduct a formal review
of the lessons CBP has learned from implementing the revised CB policy
on shrimp imports and (2) develop clear and consistent guidance for
implementing the policy and take steps to inform covered importers of
the basis upon which CBP will reduce importers‘ bond requirement. The
Department of Homeland Security agreed with GAO‘s recommendations and
provided technical comments. The Department of Commerce also provided
technical comments.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-50].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4347 or YagerL@gao.gov.
[End of Section]
Contents:
Letter:
Summary:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Briefing Slides from the October 10, 2006, Briefing to the
House Committee on Ways and Means:
Appendix II: Scope and Methodology:
Appendix III: Comments from the Department of Commerce:
Appendix IV: Comments from the Department of Homeland Security:
GAO Comment:
Appendix V: GAO Contact and Staff Acknowledgments:
Abbreviations:
AD: antidumping:
CD: continuous bond:
CV: countervailing:
CBP: U.S. Customs and Border Protection:
DDP: delivered duty-paid:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 18, 2006:
The Honorable William M. Thomas:
Chairman:
Committee on Ways and Means:
House of Representatives:
Dear Mr. Chairman:
Since 2003, the Department of Homeland Security's U.S. Customs and
Border Protection (CBP) has been unable to collect more than $480
million in antidumping (AD) and countervailing (CV) duties, a problem
we have previously blamed for undermining the effectiveness of U.S.
trade remedies.[Footnote 1] Congress has expressed ongoing concern
about CBP's problems in collecting AD/CV duties, most recently by
enacting legislation to close a legal loophole some believe contributed
to a large amount of uncollected duties.[Footnote 2] In an effort to
address the underlying causes of its problem in collecting AD/CV
duties, in July 2004, CBP revised its continuous bond (CB) policy. The
policy significantly increases the amount of the bonds required for
some affected importers.[Footnote 3] Following the application of the
policy to imports of shrimp, U.S. importers and trading partners
initiated legal action to prevent CBP from applying the policy.
CBP assesses importers' estimated duties on goods brought into the
United States on the basis of declarations by importers at the time
that the products enter the country. CBP then reviews the importer's
declarations and determines whether the importer's estimates of import
duties and fees were accurate or whether additional (supplemental)
duties are owed. To help protect the government's interests against
loss if importers do not pay the full amount of duties owed, CBP
requires importers to maintain bond coverage.
In addition to standard duties, some imports are subject to AD/CV
duties to remedy the adverse impact of unfair trade practices, namely
dumping (i.e., sales at less-than-normal value) and foreign government
subsidies, on domestic industries and workers. Imposition of these
duties requires two separate investigations by U.S. government
agencies: one by the Department of Commerce, which determines if
dumping or subsidies are occurring, and the other by the U.S.
International Trade Commission, which determines whether a domestic
U.S. industry is materially injured by such imports. If both agencies
make affirmative determinations, CBP is directed to collect additional
duties at a rate that Commerce determines.
Given the importance of collecting AD/CV duties without unnecessarily
burdening U.S. importers or international trade, we reviewed the
development, implementation, and effects of CBP's revised CB policy as
applied to shrimp imports. Specifically, we reviewed (1) why CBP
revised its continuous bond policy; (2) how CBP developed the revised
policy; (3) how CBP has implemented the revised policy; and (4) the
effects of the revised policy on revenue, imports, and importers. It
was not our objective to assess or comment, nor should this report be
construed as assessing or commenting, on the arguments raised in
ongoing litigation relating to the revised CB policy. On October 10,
2006, we briefed your staff on the results of our analysis. This report
formally conveys the information provided during the briefing (see app.
I).
To determine why and how CBP developed its revised CB policy, we
reviewed the July 2004 revised policy and the related August 2005
policy clarification. We also reviewed relevant laws and regulations
and publicly available documents that CBP submitted to the U.S. Court
of International Trade pursuant to ongoing litigation regarding the
revised CB policy. In addition, we interviewed CBP officials who
participated in developing the revised policy. We did not independently
verify the analysis CBP used to develop the revised CB policy. To
identify how CBP implemented the revised policy, we reviewed publicly
available documents that CBP submitted to the U.S. Court of
International Trade pursuant to ongoing litigation, interviewed CBP
officials responsible for implementing the policy, and reviewed
selected documentation related to CBP's decisions regarding setting
individual companies' bond amounts. We also interviewed and obtained
documents from U.S. shrimp importers, which are the first and only
importers subject to the revised policy, to obtain information on their
experiences with CBP's implementation of the policy. To determine the
effects of the revised CB policy, we reviewed economic literature and
analysis. In addition, we interviewed industry representatives, surety
companies and associations, and importers. Our interviews with 15 U.S.
shrimp importers subject to the revised policy included companies that
were both large and small; that are party to and are not party to
ongoing litigation regarding the revised policy; that imported shrimp
from a variety of countries; and that ranged from almost exclusively
relying on shrimp to having shrimp as one of many commodities they
import. We also spoke with several domestic producer interests. We
conducted our work from April 2006 to September 2006 in accordance with
generally accepted government auditing standards. (For additional
details regarding our scope and methodology, see app. II.)
Summary:
In summary, we found the following in examining why and how CBP revised
its CB policy, how CBP implemented the revised policy, and the effects
of the revised policy:
* Why CBP revised the CB policy. CBP revised its CB policy to reduce
three risks of uncollected AD/CV duties that it identified. First, the
traditional bond formula provided little protection of duty revenue. It
is set at the greater of $50,000 or 10 percent of an importer's bill
for duties and other CBP charges from the previous year, which often
resulted in an insufficient bond. Second, multiple agencies are
involved in a complex AD/CV duty investigation process,[Footnote 4]
final AD/CV duty bills are generated long after products enter the
country,[Footnote 5] and AD/CV duty rates on a product can increase
dramatically. This often creates a need for CBP to go back to importers
to collect additional duties and a risk that CBP will not be able to
collect the full amount owed. In early 2004, CBP determined that the
vast majority of outstanding duty bills were due to increases in AD/CV
duty rates, and that insufficient bonds were the key reason CBP was
unable to collect these duties when importers were unwilling or unable
to pay. Third, CBP analyzed the uncollected AD/CV duties and determined
that large portions were attributable to imports from China and to
agriculture/aquaculture products. CBP then determined that importers of
agriculture/aquaculture products shared certain characteristics, such
as low capitalization, that made them a high risk for being unable to
pay the full amount of AD/CV duties owed.
* How CBP developed the revised CB policy. CBP developed a revised CB
policy internally after factoring in several considerations and then
conducted some outreach prior to applying the policy to shrimp
importers. An internal CBP working group identified potential options
for protecting future AD/CV duty revenue, and determined that revising
the CB policy was the best mechanism to use because CBP concluded that
the revision was within its legal authority and would be less
burdensome on importers than other options. CBP decided that imports of
warmwater shrimp, which were undergoing an AD investigation, would be a
suitable test case for the revised bond policy, primarily because (1)
warmwater shrimp shared characteristics with other agriculture/
aquaculture products that indicated a risk that CBP may not be able to
collect the full amount of duties owed; (2) it represented a large
volume of imports and faced potentially high AD duties; and (3) shrimp
imports were duty-free, therefore, most shrimp importers had no history
of normal duty payments and had minimum $50,000 bonds. CBP's goal was
to balance its interest in ensuring that AD/CV duties were collected,
with its interest of not imposing an "unnecessarily excessive burden on
importers or international commerce." However, while CBP analyzed
possible bond premium increases that shrimp importers might incur, it
did not consult with its own Customs Surety Executive Committee about
the proposed policy. Moreover, CBP did not consider the additional
collateral requirements that surety companies could impose to
underwrite sizable increases in CB amounts in its analysis, in part
because such business decisions reflect each surety's own evaluation of
risk. CBP then conducted outreach with certain agencies and groups,
such as shrimp importers, before implementing the revised policy.
However, certain importers have criticized CBP for, among other things,
not providing adequate notice or soliciting formal public comments on
the draft policy and for applying the policy to shrimp, where there was
no demonstrated duty collection problem, but not to other cases--such
as crawfish tail meat--where tens of millions of dollars in AD duties
were uncollected.
* How CBP implemented the revised CB policy. CBP's implementation of
the revised CB policy lacked transparency and consistency. CBP
implemented the policy in February 2005 by calculating the initial
revised bond requirements for each shrimp importer using the company's
imports from the prior year, and by sending certain shrimp importers
letters demanding that they post higher bond amounts within 30 days.
Some importers complied with the CBP demand as written. Hundreds of
other importers, however, requested lower bond amounts. Although CBP
officials told us that initially these appeals were routinely denied,
they responded to importer calls for greater flexibility by developing
internal, unwritten procedures and adjusting some bond amounts. In
August 2005, CBP publicly clarified the bond policy appeal procedures,
but did not explain what evidence its officials would accept from
importers to justify reducing bond amounts. Moreover, our interviews
with CBP officials and documentation we reviewed showed that how CBP
defines the criteria it considers in making bond adjustments is neither
formally written down nor made publicly available and, in practice, is
significantly narrower than the August 2005 policy clarification. In
addition, CBP based bond requirements on different data time periods
for different importers and rescinded some bond increases on the basis
of 1 month of import data. CBP has identified additional products to
which it might apply the revised CB policy. However, CBP officials told
us any decision to apply the revised policy to additional products,
while supported by some U.S. producer interests, is on hold pending
domestic and international legal challenges to the policy.
* Effects of the revised CB policy. Our analysis, interviews with
importers, and the limited data available show that the revised CB
policy could be expected to have and is having a range of effects on
revenue protection, shrimp imports, and importing firms. However, these
effects cannot be isolated from the effects of other changes that
occurred during the same time frame. Moreover, the small amount of time
that has lapsed, Commerce's ongoing review of AD rates for shrimp
imports, and other factors make it premature to draw definitive
conclusions.
* CBP estimates indicate that more revenue is protected as a result of
the new bond policy. Based on the value of actual bonds obtained after
implementation of the revised policy, CBP reported in December 2005
that the revised bond policy would ensure collection of revenue up to
an increase of 85 percent in final AD duty rates, versus the
traditional bond formula, which would only cover a 28 percent increase.
While the revised CB policy protected additional revenue, CBP's degree
of success in protecting revenue will depend on a variety of factors.
For example, the extent to which revenue will need to be protected will
remain uncertain until final duty bills are determined and will be
significantly affected by various factors, such as recent settlements
between shrimp exporters and the domestic industry aimed at
forestalling reviews by Commerce that could have changed duty rates.
* In addition to the AD duties imposed, shrimp importers told us the
costs associated with higher bond amounts are substantial. Importers
now pay higher premiums and typically must also post the 100 percent
collateral required by surety providers before the sureties will write
the larger bonds. Importers with whom we spoke reported a range of
effects arising from these higher costs on import flows, their sourcing
patterns, and their business practices. Many importers emphasized that
the collateral requirement is particularly onerous because it restricts
the funds available to operate the business, and that this constraint
results in lost or forgone business opportunities.
* The concurrent imposition of AD duties and other factors affecting
the shrimp industry limit the conclusions that can be drawn about the
effects of the revised CB policy on imports. However, data we reviewed
suggest that while the overall quantity and value of U.S. shrimp
imports have not changed significantly since the AD petition (request
to impose AD duties) was filed, the amount of shrimp imported from AD
duty versus nonduty countries changed significantly, and the changes
varied by country. These shifts in sourcing patterns began after the AD
petition was filed but before the July 2004 announcement of the revised
CB policy. Importers reported that the higher bonds and collateral
requirements were negatively affecting many smaller shrimp importing
businesses, causing them to stop importing or to exit the industry. The
data we reviewed did not show substantial change in the number of
shrimp importers since the AD petition was filed, but the data do
suggest a recent trend toward the top-ranking importers' gaining market
share relative to the rest of the shrimp importing industry. The data
also show declines in the number of shrimp exporters and gains in
market share by the top-ranking exporters relative to the rest of the
shrimp exporting industry. Moreover, some importers now require their
foreign suppliers to ship on a delivered, duty-paid basis. This
requirement makes the foreign-based supplier the U.S. importer of
record and shifts the burden of higher bonds to them. CBP acknowledges
that such importers without assets accessible to CBP represent a
potential collection risk.
Conclusions:
The revised CB policy significantly increased bond requirements for
some importers, and some key lessons can be learned from CBP's
application of the policy to shrimp as its "test case." Given concerns
about the policy's implementation and effects, recent legislation on
other, related aspects of the collections problem, and the prospect of
expanding the CB policy to other products, these lessons are timely and
apply to both of CBP's goals for the revised CB policy: protecting
revenue and not placing an unnecessary burden on importers or
international trade. Regarding revenue protection, the revised CB
policy likely led to additional revenue protection. However, an
evaluation of the lessons learned in this area should consider the
policy's indirect effects on revenue and the unique circumstances
present in this "test case." Regarding not placing an unnecessary
burden on importers or international trade, CBP's outreach efforts
during the development and implementation of the policy could have been
more effective. In addition, shrimp importers have expressed
significant concerns regarding the onerous cost and other negative
effects they attribute to the revised CB policy.
Given the importance of the policy to CBP's revenue collection efforts,
the policy's reported effects on importers, and the scrutiny the policy
has received, it is critical that the policy be applied in a
transparent and consistent manner. The revised CB policy represented a
significant change from CBP's traditional method of setting bond
amounts. However, the importers we interviewed were often unclear about
the basis upon which CBP would consider reducing companies' bonds. CBP
has not publicly explained a major part of the criteria it considers
when adjusting bond amounts, which has contributed to a perception
among some importers that the CB policy is being inconsistently
implemented. Our review of CBP records confirmed this perception and
showed that CBP lacks clear and transparent guidance for making bond
adjustments, which led to inconsistent implementation.
Recommendations for Executive Action:
We are making two recommendations to the Commissioner of U.S. Customs
and Border Protection. To ensure that CBP's goal of ensuring collection
of AD/CV duties without imposing an excessive burden on importers or
international trade and commerce is achieved, the Commissioner of CBP
should conduct a formal review of the lessons CBP can learn from
implementing the revised CB policy on shrimp imports. Given CBP's
stated desire not to unnecessarily burden importers, this review should
include specific steps to systematically obtain importers' views on the
policy. Moreover, the review should examine whether the policy
appropriately addresses the underlying risks to CBP's collection of AD/
CV duties. To ensure full transparency and remedy inconsistent
implementation of the CB policy, the Commissioner of CBP should develop
clear and consistent guidance for implementing the policy, take steps
to inform covered importers of the basis upon which CBP will reduce
importers' bond requirement, and ensure the guidance is uniformly
applied.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of Commerce,
Homeland Security, and the Treasury and to the Office of the U.S. Trade
Representative. Commerce provided comments, which are contained in
appendix III, and additional technical comments, which we incorporated
where appropriate. Homeland Security agreed with our recommendations
and intends to take appropriate action to implement them. Its comments
are contained in appendix IV.
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 interested congressional committees, the Secretaries of Commerce and
Homeland Security, the U.S. Trade Representative, and other interested
parties. We will also make copies available to others upon request. In
addition, the report will be available at no charge on GAO's Web site
at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or YagerL@gao.gov. Contact points for our
Offices of Congressional Relations and 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 V.
Sincerely yours,
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendix I: Briefing Slides from the October 10, 2006, Briefing to the
House Committee on Ways and Means:
International Trade: Customs' Revised Bonding Policy Reduces Risk of
Uncollected Duties, but Concerns about Uneven Implementation and
Effects Remain:
Briefing for the staff of the House Committee on Ways and Means:
October 10, 2006:
Background:
U.S. Customs and Border Protection (CBP) is responsible for collecting
import duties; CBP collected more than $28 billion in FY05 revenue:
Antidumping (AD) and countervailing (CV) duties are imposed to protect
U.S. industry from unfair imports;[Footnote 6] from FY03 through FY05,
CBP collected $5.6 billion worth of such duties:
From FY03 through FY05, CBP reported to Congress that it had been
unable to collect at least $480 million in AD/CV duties:
Importers are required to post bonds to help ensure that duties
(including AD/CV duties) are collected:
In July 2004, CBP revised its bonding policy, increasing the amount of
security that importers of certain agriculture/aquaculture products
subject to AD/CV duties must provide in addition to cash deposits of
estimated AD/CV duties:
Since applying the policy to shrimp imports, concerns about the revised
continuous bond policy, its implementation, and effects have been
raised to Congress and the courts:
* Two separate legal cases have been filed in U.S. courts:
* Two countries have requested formal dispute settlement consultations
within the World Trade Organization; one of them has now requested a
panel be established to adjudicate the case:
Objectives:
I. Why did CBP revise its continuous bond (CB) policy?
II. How did CBP develop the revised CB policy?
III. How has CBP implemented the revised CB policy?
IV. What are the effects of the revised CB policy on revenue, imports,
and importers?
Key Findings:
CBP Revised the CB Policy to Reduce Risk of Uncollected Duties:
CBP Developed Revised CB Policy Internally, Then Conducted Some
Outreach Prior to Implementation:
CBP's Implementation of the Revised CB Policy Lacked Transparency and
Consistency:
Revised CB Policy Reported to Have a Variety of Effects; Some Import
Patterns Shifted after AD Petition, but before Revised CB Policy
Announced:
I. CBP Revised the CB Policy to Reduce Risk of Uncollected Duties:
I.1 Traditional Bond Formula Provides Little Protection of Duty
Revenue:
I.2 Time Lags and Potential Duty Increases Associated with U.S. AD/CV
Duty System Heighten Risk of Insufficient Bonds:
I.3 Insufficient Bonds Led to Large Amount of Uncollected Duties:
I.4 CBP Data Showed That One Country and Sector Accounted for Most
Uncollected AD/CV Duties:
I.1 Traditional Bond Formula Provides Little Protection of Duty
Revenue:
Importers pay estimated duties when products enter the United States:
To cover additional duties owed, importers frequently provide a
continuous bond equal to the greater of $50,000 or 10% of the duties,
taxes, and fees paid the prior year:
In some cases, this bond amount does not sufficiently protect duty
revenue if importers are unwilling or unable to pay additional duties:
I.2 Time Lags and Potential Duty Increases Associated with U.S. AD/CV
Duty System Heighten Risk of Insufficient Bonds:
CBP cannot collect AD/CV duties until other agencies complete lengthy
AD/CV investigations and administrative reviews:
Retrospective nature of U.S. AD/CV system involves risk of uncollected
duties:
* AD/CV duties on given imports are often changed years later as a
result of after-the-fact "administrative reviews" by Commerce:
* If Commerce increases AD/CV duties, CBP issues "supplemental duty
bills" for the additional amount and goes back to the importer to
collect:
Significant increases in AD/CV duties can occur between the estimated
rate at entry and the final rate:
* In the cases that it examined, CBP determined that AD/CV duty rates
increased 33% of the time:
* In some cases, the increase was more than double:
I.3 Insufficient Bonds Led to Large Amount of Uncollected Duties:
Almost all delinquent duty bills in 2002 and 2003 were supplemental
duty bills, which CBP linked to the AD/CV duty process:
CBP reported $130 million in uncollected AD/CV duties in 2003:
Bonds were insufficient for 83% of the delinquent duty bills in the
write-off process:
I.4 CBP Determined One Country and Sector Accounted for Most
Uncollected AD/CV Duties:
CBP analyzed the $130 million in uncollected AD/CV duty bills from 2003
and determined:
Imports from China accounted for $104 million (80% of the total):
Agriculture and aquaculture sector had the highest amount ($95 million,
or 73% of the total); crawfish imports alone accounted for $85 million:
CBP concluded that agriculture/aquaculture importers shared certain
high-risk characteristics:
* Low capitalization, many small firms:
* Highly leveraged, depend on borrowing:
* Fluid market, many entrants and exits:
* Most importers had 5 years or less in the industry:
Timeline of Development and Implementation of Revised CB Policy:
[See PDF for image]
Source: GAO analysis of CBP documents.
[End of figure]
II. CBP Developed Revised CB Policy Internally, Then Conducted Some
Outreach Prior to Implementation:
II.1 CBP Working Group Proposed Increasing the CB for Shrimp Imports:
II.2 Revised CB Policy Significantly Increases Bond Amounts for Some
Importers:
II.3 CBP Conducted Some Outreach Prior to Implementation of the Revised
CB Policy:
II.1 CBP Working Group Proposed Increasing the CB for Shrimp Imports:
An internal CBP working group identified potential options for
addressing problems collecting AD/CV duties and chose to focus on the
CB because:
Setting the CB requirement is within CBP's authority:
Increasing the CB would be less onerous on importers than other
options, such as holding merchandise or requiring single-entry bonds:
Early in the development of the revised CB policy, CBP targeted shrimp
as a test case primarily because it:
Was an aquaculture product undergoing an antidumping investigation:
Represented a large value of imports (approximately $3 billion):
Proposed estimated dumping duties ranging from 26% to 349%:
Was duty- free, so had no history of normal duty payments:
75% of shrimp importers had the minimum $50,000 CB:
CBP's stated goals for the policy were to:
Ensure that AD/CV duties are collected (by protecting CBP up to a
doubling of AD/CV duties):
Not impose "unnecessarily excessive" burden on importers or
international trade and commerce:
CBP analyzed potential costs to importers, such as bond premium
increases to obtain larger CBs, but:
Did not consult its Customs Surety Executive Committee about the
proposed policy:
Did not consider the additional significant collateral requirements
that sureties could impose to reflect business' exposure:
II.2 Revised CB Policy Significantly Increases Bond Amounts for Some
Importers:
Announced in July 2004, the revised policy potentially increases
agriculture/aquaculture importers' CB by an amount equal to the duty
rate set by Commerce times importer's imports from the previous
year.[Footnote 7]
For example, if an importer has imported agriculture/aquaculture
merchandise subject to the antidumping case with a value of $1 million
during the previous 12 months, and the AD duty rate is 40%, the
importer's CB amount will be increased by $400,000.
Thus, if an importer previously had the minimum $50,000 bond, under the
revised CB policy, it would need to post a bond 9 times the size of its
previous bond ($400,000 + $50,000 = $450,000):
II.3 CBP Conducted Some Outreach Prior to Implementation of the Revised
CB Policy:
Before applying the requirements to shrimp, CBP took steps to inform
other agencies and importers, including:
Meeting with congressional staff and officials from Commerce:
Meeting with representatives of shrimp importers:
Sending explanatory letters to shrimp importers in December 2004
outlining the new bond formula and indicating importers might need to
obtain larger bonds:
Some importers have criticized CBP's outreach because:
CBP did not solicit formal public comments on the revised CB policy:
Some importers told us they were unaware the policy at plied to them
until CBP notified them that their bond was insufficient he July 2004
policy and the December 2004 letter were broadly worded and did not
specify that shrimp importers would be a covered case):
CBP's basis for choosing to apply the policy only to shrimp was not
clear to shrimp importers:
III. CBP's Implementation of the Revised CB Policy Lacked Transparency
and Consistency:
III.1 CBP Set Initial Bond Amounts on the Basis of Prior Year's
Imports, and Some Importers Complied:
III.2 CBP Bond Adjustment Criteria Are Not Transparent or Consistently
Applied:
III.3 CBP Monitors Bond Sufficiency and Considers Possible Future
Covered Cases:
III.1 CBP Set Initial Bond Amounts on the Basis of Prior Year's
Imports, and Some Importers Complied:
In February 2005, CBP implemented its revised CB policy for importers
of shrimp from six countries[Footnote 8] subject to AD duties:
CBP calculated revised bond amounts using the revised CB formula by
multiplying each shrimp importer's imports for the previous 12 months
by the applicable AD duty rate set by Commerce for each AD country and
exporter:
CBP officials told us they sent letters to about 200 importers with
insufficient bonds, demanding that they post higher bonds within 30
days:
* The letters referred importers to general bonding requirements, but
did not specify whether or on what basis an importer could request that
CBP lower the bond requirement:
According to CBP, most importers did not obtain bonds on the basis of
this initial request:
III.2 CBP Bond Adjustment Criteria Are Not Transparent or Consistently
Applied:
CBP said it initially denied all appeals:
Faced with calls to show flexibility, CBP made bond adjustments for
some of the numerous importers who inquired about lowering bond
amounts:
According to CBP officials, they reduced bond amounts in some cases,
notably if:
the initial calculation was incorrect or:
an importer shifted its sourcing patterns:
In August 2005, CBP issued a policy clarification that:
Contained appeal procedures:
Specified factors CBP would consider in adjusting bond amounts
including a likely reduction in an importer's duty liability, but did
not clearly explain how an importer could demonstrate this:
Identified the policy as potentially applying to all AD/CV cases:
Specified that only imports of shrimp were currently covered:
GAO's review of selected CBP and importer records showed that:
How CBP defines the criteria it considers in making bond adjustments
are:
* Neither written nor public and:
* significantly narrower than those listed in the August 2005 policy
clarification:
CBP set bonds on the basis of different data time periods for different
importers:
* Following importer appeals, CBP rescinded some bond increases based
on as little as 1 month of import data:
III.3 CBP Monitors Bond Sufficiency and Considers Possible Future
Covered Cases:
According to CBP officials, they monitor imports subject to AD/CV
duties to ensure importers' bonds are sufficient:
Importers are notified when a bond is "fully saturated"
Some delays in posting bonds or import disruptions may occur:
CBP officials considering applying the revised CB policy to other
cases:
Where problems collecting AD/CV duties were experienced:
Holding off pending resolution of legal challenges:
Some domestic producer interests support wider application:
IV. Revised CB Policy Reported to Have a Variety of Effects; Some
Import Patterns Shifted after AD Petition, but before Revised CB Policy
Announced:
IV.1 Revised CB Policy Expected to Affect Revenue, Imports, and
Importers:
IV.2 CBP and Importers Report Variety of Effects of Revised CB Policy:
IV.3 Some Import Patterns Shifted after AD Petition, but before Revised
CB Policy Announced:
IV. 1 Revised CB Policy Expected to Affect Revenue, Imports, and
Importers:
Effects of revised CB policy for shrimp imports cannot readily be
isolated from other changes occurring at the same time, such as the
imposition of AD duties:
Economic theory suggests that revised CB policy would:
Reduce risk that CBP will not be able to collect AD/CV duty revenue:
Increase costs for importers:
Cause importers to change business practices:
Reduce imports from countries subject to AD/CV duties:
IV.2 CBP and Importers Report Variety of Effects of Revised CB Policy:
Revenue:
CBP says revised CB policy protects additional revenue:
CBP estimates that without the revised CB, bonds would have covered an
increase in the AD duty rate of up to 28%:
Following the revised CB policy, CBP received bonds equal to $146
million, which covers an increase in the AD duty rate of up to 85%:
Adequacy and appropriateness of the level of protection provided by the
revised CB policy, and the actual amount of revenue protected will
depend on a variety of factors, such as whether:
The revised CB policy as implemented addresses the risks of Commerce
increasing the AD duty rates on given exporters:
* Degree of success in protecting revenue with the revised CB policy
will not be known until final duty rates are set:
Exporters that made agreements with domestic shrimp producers to be
removed from the administrative review would have seen their AD duty
rates (and thus expected government revenue) increase or decrease:
Importers shift to lower duty exporters:
Imports by importers without assets accessible to CBP (which CBP sees
as a potential collections risk) increase:
Exporters illegally circumvent AD duties:
Importers Report Facing Higher Costs:
AD duties and higher bond premiums increase costs:
Sureties' view many shrimp importers as a risk and now require them to
typically post 100% collateral, which causes most significant negative
effects by:
* Reducing the amount of funds available to operate the business:
* Tying up collateral for several years:
* Straining the borrowing capacity of some importers:
Importers we interviewed report changing business practices, such as:
Adjusting purchasing amounts:
Altering sourcing patterns:
Losing or forgoing business opportunities:
Shifting risk to exporters by buying on a delivered duty paid (DDP)
basis:
Importers we interviewed report that increased costs reduce
profitability and impact market structure:
Smaller importers having harder time competing:
Some importers exiting the industry:
Well-capitalized importers gaining market share:
Number of foreign importers of record increasing:
IV.3 Some Import Patterns Shifted after AD Petition, but before Revised
CB Policy Announced:
Imports:
Since AD Petition Filed, Shrimp Import Quantities Level Off and Total
Import Value Declines:
[See PDF for image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of figure]
After Preliminary Shrimp AD Determination, "Implied" (Unit) Prices
Consistently Lower for AD Countries:
[See PDF for Image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of Figure]
Shrimp Imports from AD Countries Dropped Significantly after AD
Petition Filed, but before Announcement of Revised CB Policy:
Quantity (pounds in millions)
[See PDF for image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of figure]
AD Countries Overall Lose Market Share:
Percentage of U.S. shrimp imports; (quantity).
[See PDF for image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of figure]
U.S. Shrimp Imports from Some Countries Shift Substantially:
Percentage of U.S. shrimp imports (quantity) 40:
[See PDF for image]
Source: GAO analysis of official trade statistics from the Department
of Commerce, U.S. Census Bureau.
[End of figure]
Largest Shrimp Importers Gain Market Share Recently:
Total number of Shrimp Importers;
2003 (full year): 722;
2004 (full year): 772;
2005 (full year): 770;
2005 (through June): 553;
2006 (through June): 550.
Cumulative Share of Total U.S. Shrimp Imports (Percentage of Quantity):
Top 5 Importers;
2003 (full year): 8.4%;
2004 (full year): 7.4%;
2005 (full year): 8.9%;
2005 (through June): 9.4%;
2006 (through June): 9.9%.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 15 importers;
2003 (full year): 18.0;
2004 (full year): 16.6;
2005 (full year): 19.4;
2005 (through June): 19.3;
2006 (through June): 22.5.
Cumulative Share of Total U.S. Shrimp Imports (Percentage of Quantity):
Top 25 Importers;
2003 (full year): 24.7;
2004 (full year): 22.9;
2005 (full year): 25.9;
2005 (through June): 26.3;
2006 (through June): 30.9.
Cumulative Share of Total U.S. Shrimp Imports (Percentage of Quantity):
Top 50 importers;
2003 (full year): 36.8;
2004 (full year): 35.0;
2005 (full year): 37.9;
2005 (through June): 40.3;
2006 (through June): 45.2.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 100 importers;
2003 (full year): 53.0;
2004 (full year): 52.3;
2005 (full year): 54.3;
2005 (through June): 59.8;
2006 (through June): 62.7.
Source: GAO analysis of CBP data.
[End of table]
Number of Shrimp Exporters Declines; Largest Exporters Gain Market
Share:
Total Number of Shrimp Exporters;
2003 (full year): 2,743;
2004 (full year): 2,469;
2005 (full year): 2,162;
2005 (through June): 1,462;
2006 (through June): 1,346.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 5 Exporters;
2003 (full year): 3.1%;
2004 (full year): 4.3%;
2005 (full year): 5.2%;
2005 (through June): 6.0%;
2006 (through June): 6.2%.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 15 Exporters;
2003 (full year): 6.7;
2004 (full year): 8.9;
2005 (full year): 9.9;
2005 (through June): 12.0;
2006 (through June): 14.0.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 25 exporters;
2003 (full year): 9.6;
2004 (full year): 11.8;
2005 (full year): 12.9;
2005 (through June): 16.2;
2006 (through June): 18.3.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 50 exporters;
2003 (full year): 14.7;
2004 (full year): 17.5;
2005 (full year): 19.1;
2005 (through June): 24.1;
2006 (through June): 26.9.
Cumulative Share of Total U.S. Shrimp Imports (percentage of Quantity):
Top 100 exporters;
2003 (full year): 22.2;
2004 (full year): 25.9;
2005 (full year): 28.4;
2005 (through June): 34.5;
2006 (through June): 38.5.
Source: GAO analysis of CBP data.
[End of table]
Conclusions:
Revised CB policy significantly increased bond requirements, and key
lessons can be learned:
Regarding CBP's goal of revenue protection:
* Revised CB policy likely led to some protection of revenue:
* Shrimp did not have history of uncollected duties, but exhibited some
characteristics that could make it a collections risk:
* Indirect effects on revenue and unique case characteristics are
important to consider:
Regarding CBP's goal of avoiding unnecessary burden:
* Outreach to importers and other stakeholders could have been more
effective:
* Importers have significant concerns regarding the higher cost and
other negative effects on their business, which they attribute to the
policy:
Revised CB policy represented significant change from prior policy,
thus making clear communication and preparation critical:
CBP lacks clear and transparent guidance for making bond adjustments:
Lack of clear and transparent guidance led to uneven implementation:
Recommendations for Executive Action:
We are making two recommendations to the Commissioner of U.S. Customs
and Border Protection:
To ensure that CBP's goal of collecting AD/CV duties without imposing
an excessive burden on importers or international trade and commerce is
achieved, the Commissioner of CBP should conduct a formal review of the
lessons CBP can learn from implementing the revised CB policy for
shrimp imports. Given CBP's stated desire not to unnecessarily burden
importers, this review should include specific steps to systematically
obtain importers' views on the policy. Moreover, the review should
examine whether the policy appropriately addresses the underlying risks
to CBP's collection of AD CV duties.
To ensure full transparency and remedy inconsistent implementation of
the CB policy, the Commissioner of CBP should develop clear and
consistent guidance for implementing the policy, take steps to inform
covered importers of the basis upon which CBP will reduce importers'
bond requirement, and ensure the guidance is uniformly applied.
Scope and Methodology:
To determine why and how CBP developed its revised continuous bond
policy, we reviewed the revised policy and the related August 2005
policy clarification. We also reviewed relevant laws and regulations
and publicly available documents submitted by CBP to the U.S. Court of
International Trade pursuant to ongoing litigation. In addition we
interviewed CBP officials who participated in he development of the
revised policy and the agencies they sought to involve in this process.
We did not independently verify or evaluate CBP's analysis used as the
basis for developing the revised CB policy.
To identify how CBP has implemented the revised policy, we reviewed
publicly available documents submitted by CBP to the U.S. Court of
International Trade pursuant to ongoing litigation and interviewed CBP
officials responsible for implementing the policy. In addition, we
requested additional documents from CBP and reviewed correspondence
provided by CBP regarding its communication with shrimp importers
concerning bond adjustments. We also interviewed and obtained documents
from U.S. importers that are subject to the policy to obtain their
experiences with CBP s implementation of the policy.
To determine the effects of the revised CB policy, we reviewed economic
literature and analysis regarding the expected effects of the policy.
In addition, we interviewed industry representatives surety companies
and associations, and importers. Our interviews with 1 importers
subject to the revised policy included companies that were both tar e
and small; were party to and were not party to ongoing litigation
regarding the revise policy; imported shrimp from a variety of
countries; and ranged from almost exclusively relying on shrimp to
having shrimp as one of many commodities they import. We also obtained
and analyzed publicly available official data on shrimp imports from
the Department of Commerce as well as additional data from CBP. The
results of this analysis provided valid insights, but cannot be
considered definitive due to several limitations. We conducted our work
from April 2006 to September 2006 in accordance with generally accepted
government auditing standards.
[End of section]
Appendix II: Scope and Methodology:
To determine why and how the Department of Homeland Security's U.S.
Customs and Border Protection (CBP) revised its continuous bond (CB)
policy, we reviewed the revised policy and the subsequent August 2005
policy clarification. We also reviewed relevant laws, regulations, and
legal precedents and interviewed officials at CBP, the Department of
Commerce, and the Department of the Treasury. In addition, we reviewed
publicly available documents that CBP submitted to the U.S. Court of
International Trade pursuant to ongoing domestic litigation regarding
the revised CB policy. Furthermore, we interviewed CBP officials who
participated in the development of the revised policy and the agencies
they sought to involve in this process. We did not independently verify
or evaluate CBP analyses used as the basis for developing the revised
CB policy, because this matter is presently under litigation.
To identify how CBP implemented the revised CB policy, we reviewed
publicly available documents that CBP submitted to the U.S. Court of
International Trade pursuant to ongoing domestic litigation and
interviewed CBP officials responsible for implementing the policy. In
addition, we requested and reviewed other documentation from CBP,
including correspondence between CBP and 39 shrimp importers that CBP
selected as representative examples of how they handled bond adjustment
requests. We also obtained documentation of importer/CBP bond
adjustment discussions from 5 shrimp importers. In addition, we also
interviewed 15 U.S. companies that import shrimp (importers) that are
subject to the policy, including those that sent us documentation of
CBP communication, to obtain information on their experiences with
CBP's implementation of the policy. More details on how this sample of
15 importers was selected are discussed later in this appendix. Lastly,
given that antidumping (AD) and countervailing (CV) duties are imposed
to remedy injury to domestic producers, we interviewed representatives
of U.S. shrimp producers as well as representatives of producers in
industries where CBP has experienced problems collecting AD/CV duties.
To analyze the effects of the revised CB policy on duty collections,
imports, and importers, we first reviewed relevant economic and related
literature on tariffs and AD duties to determine the expected effects
of CB policy, which we used as a guide to the interpretation of
importer interviews and our data analysis. We then gathered relevant
information from shrimp industry officials, shrimp importers, and
government reports to ascertain reported effects on importers and to
examine U.S. shrimp importing trends. This information is factual in
nature, but it does not represent a definitive determination of the
effects associated with the revised CB policy, which would be premature
at this time. While we consider the information presented relevant and
instructive, it has known limitations resulting from such factors as
the continued flux in important variables that could affect revenue and
imports, such as Commerce's AD duty rates; the difficulty in
distinguishing the policy's effect from other changes occurring at the
same time (notably the imposition of AD duties); the short amount of
time the policy has been in effect; and the limited availability of
data.
To examine the implications of the CB policy for revenue collection, we
obtained CBP data regarding the amount of cash deposits obtained for
shrimp imports and the amount of continuous bonds that CBP received
since the policy was implemented. To examine the effects on imports and
importers, we obtained and analyzed official U.S. trade statistics from
the U.S. Census Bureau as well as additional data from CBP. We have
done a detailed data reliability assessment for U.S. trade data on past
engagements. On the basis of these reviews, we concluded that there are
no specific biases or limitations in these data that significantly
impair their use, and that these data are sufficiently reliable to show
the import trends in shrimp products.
To further examine the effects of the AD and bond policies on imports
and importers, we interviewed shrimp industry representatives, surety
companies and associations, and a selected group of U.S. shrimp
importers. In selecting importers to interview, we judgmentally chose
importers on the basis of their size and referrals from shrimp industry
representatives and other shrimp importers. The importers we
interviewed included companies that:
* were both large and small (annual shrimp imports ranged from a few
million dollars to over $100 million);
* were party to and were not party to ongoing litigation regarding the
revised policy;
* imported shrimp from a variety of countries; and:
* ranged from almost exclusively relying on shrimp to having shrimp as
one of many commodities they import.
We conducted our work from April 2006 to September 2006 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix III: Comments from the Department of Commerce:
United States Department Of Commerce:
International Trade Administration:
Assistant Secretary For Import Administration:
Washington, D.C. 20230:
OCT 6 2006:
Ms. Kim Frankena:
Assistant Director:
International Affairs and Trade:
U. S. Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Frankena:
Thank you for providing us with your draft report on Customs and Border
Protections' revised bonding policy. We appreciate the opportunity to
comment on GAO's report and understand the importance of this issue.
Enclosed is an attachment with specific comments relating to the text
of the report.
Sincerely,
Signed by:
David M. Spooner:
[End of section]
Appendix IV: Comments from the Department of Homeland Security:
Note: GAO comment supplementing those in the report text appears at the
end of this appendix.
U.S. Department of Homeland Security:
Washington, DC 20528:
October 10, 2006:
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-07-50, International Trade: Customs' Revised
Bonding Policy Reduces Risk of Uncollected Duties, but Concerns about
Uneven Implementation and Effects Remain (GAO Job Code 320392):
The Department of Homeland Security and Customs and Border Protection
(CBP) officials appreciate the opportunity to review and comment on the
draft report referenced above. The Government Accountability Office
(GAO) recommends that the Commissioner of Customs and Border Protection
(1) conduct a formal review of the lessons CBP can learn from
implementing the revised continuous bond policy on shrimp imports; and
(2) develop clear and consistent guidance for implementing the policy,
taking steps to inform covered importers of the basis upon which [CBP
officials] will reduce importers' bond requirement, and ensure it is
uniformly applied.
Customs and Border Protection officials agree with the recommendations
and intend to take appropriate action to implement them. It should be
emphasized, however, that CBP personnel revised the continuous bond
(CB) policy in order to enforce the United States antidumping and
countervailing duty law within the legal authority afforded the
component. CBP officials welcome GAO's findings that the revised CB
policy had its intended effect of reducing the risk of uncollected
duties and that the collateral requirements imposed by the sureties,
which cause the most significant negative effects, are based on the
sureties' own evaluation of risk and their determination that many
shrimp importers are a risk.
GAO's first recommendation that the Commissioner of CBP conduct a
formal review of lessons learned from implementing the revised CB
policy on shrimp is consistent with normal CBP procedure, which is to
conduct a review of lessons learned when applying policy revisions to
test cases. In this case, as part of the lessons learned process, CBP
officials intend to seek comments within 60 days from stakeholders on
the revised CB policy via a Federal Register Notice. These comments
along with CBP's review and evaluation of the policy's implementation
will provide the basis for the consistent, transparent application of
the revised CB policy to future cases. CBP personnel will evaluate the
policy's effectiveness in protecting the revenue once Department of
Commerce officials complete the administrative review process in 2007.
GAO also recommends that the Commissioner of CBP develop clear and
consistent guidance for implementing the policy and take steps to
inform covered importers of the basis upon which it will reduce
importers' bond requirement. To promote clear and consistent guidance
for implementing the policy, as noted in the response to the first
recommendation, CBP personnel will publish a Federal Register Notice
outlining the revised CB procedures and formulas and seek public
comments on these procedures from interested parties such as importers,
sureties, trading partners and domestic stakeholders. In addition, CBP
personnel will conduct an internal review of the policy and its
implementation.
We have two general comments on your findings. With regard to GAO's
finding that importer's criticized CBP's outreach as insufficient, it
should be noted that during the drafting stage and prior to
implementation, CBP officials met with Hill staff and officials from
the Department of Commerce and reached out to officials at the United
States Trade Representative. CBP personnel also met with sureties,
shrimp importers and major associations representing shrimp importers.
Prior to the policy being implemented, CBP officials sent letters to
all known shrimp importers of record explaining the new bonding
requirements and their responsibility to comply with these
requirements.
GAO also found that CBP used inconsistent criteria when considering
bond requests. It should be noted that CBP was consistent in applying a
single criteria to reduce bond demands and a single criteria to rescind
bond demands.
Thank you again for the opportunity to comment on this draft report.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
See GAO comment.
The following is GAO's comment on the Department of Homeland Security
letter dated October 10, 2006.
GAO Comment:
CBP's publicly available August 2005 clarification listed seven factors
that CBP would at least consider in adjusting bonds for individual
importers. Our interviews with CBP officials and review of CBP records
show that CBP (1) applied only one of the seven criteria, (2) applied a
narrow interpretation of that criterion, and (3) was not transparent.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager (202) 512-4347:
Staff Acknowledgments:
In addition to the individual named above, Kim Frankena (Assistant
Director), Jason Bair, Ken Bombara, Grace Lui, and Don Morrison made
key contributions to this report. Tim Wedding, Mark Speight, Martin de
Alteriis, Casey Keplinger, Stephen Lawrence, and Christine San provided
professional support and technical advice. Karen Deans and Jeremy
Sebest provided editorial assistance and graphics support.
FOOTNOTES
[1] CBP reported that it was unable to collect $130 million in AD/CV
duties in fiscal year 2003, $260 million in fiscal year 2004, and $93
million in fiscal year 2005.
[2] Section 1632 of Pub. L. No. 109-280 requires reports on collections
problems, and temporarily suspended the new shipper bonding privilege,
which CBP and others said was contributing to the problems CBP has
experienced in collecting AD/CV duties. For a description of the new
shipper bonding privilege, see GAO, International Trade: Issues and
Effects of Implementing the Continued Dumping and Subsidy Offset Act,
GAO-05-979 (Washington, D.C.: Sept. 26, 2005), 26, footnote 37.
[3] Currently, the revised CB policy is only being applied to imports
of shrimp from six countries that are subject to antidumping orders:
Brazil, China, Ecuador, India, Thailand, and Vietnam.
[4] The AD/CV duty investigatory process includes Commerce's
investigation into whether imports are being sold at unfairly low
prices or benefit from subsidies and the U.S. International Trade
Commission's investigation into whether such imports are causing or are
likely to cause injury to the domestic industry.
[5] Specifically, according to Commerce, after its preliminary
determination, cash deposits will be collected by CBP or bonds may be
posted by the importer on entries of merchandise being investigated.
After the investigation is complete and an order is issued (as a result
of affirmative determinations by the U.S. International Trade
Commission and Commerce), importers are required to pay cash deposits
on entries--however, AD/CVD duties are not assessed. AD/CVD duties are
not assessed until after the conclusion of an administrative review by
Commerce (unless no review is requested, in which case the entries are
liquidated at the rate in effect at the time of entry). If, because of
litigation, there is an injunction prohibiting liquidation following
the publication of the final results of administrative review, the
injunction must lift before final AD/CVD duties are assessed.
[6] imports found to be dumped or subsidized that cause injury or
threaten material injury to U.S. industry.
[7] Shrimp was not specified. New importers' requirement is based on
the importer's estimate.
[8] These six countries are Brazil, China, Ecuador, India, Thailand,
and Vietnam. 18:
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Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
