Agencies Believe Strengthening International Agreements to Improve Collection of Antidumping and Countervailing Duties Would Be Difficult and Ineffective
Gao ID: GAO-08-876R July 24, 2008The United States and many of its trading partners have enacted 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 additional duties on importers to remedy these unfair trade practices. Specifically, antidumping (AD) duties are imposed on imports that are "dumped" in the United States (i.e., sales in the U.S. market at less than the market price in the item's home market) and countervailing (CV) duties are imposed on imports that are subsidized by foreign governments. Importers are responsible for paying all duties, taxes, and fees on products when they are brought into the United States (including AD/CV duties). Importers can be located either domestically or overseas. Since fiscal year 2001, U.S. Customs and Border Protection (CBP), which is responsible for collecting import duties, has been unable to collect hundreds of millions of dollars in AD/CV duties. In March 2008, we reported that over $600 million in AD/CV duties were uncollected. Our analysis revealed four key factors contributing to uncollected AD/CV duties: (1) the retrospective component of the U.S. AD/CV duty system, (2) "new shipper" reviews, (3) insufficiency of CBP's standard bond requirements for importers, and (4) minimal information required from importers. We identified two sets of options for Congress and agencies to consider in attempting to improve the collection of AD/CV duties. One option was to eliminate the retrospective component of the U.S. AD/CV duty system and make it prospective; the other was to adjust specific aspects of the current U.S. AD/CV duty system while retaining its retrospective nature. Under the current U.S. AD/CV duty system, importers pay cash deposits equal to the estimated AD/CV duties at the time of importation, but the final duty amount is determined much later and may exceed the amount of cash deposited. On average, this process takes more than 3 years, during which importers could cease operations or become unable to pay additional duties. To address this situation and help improve the collection of AD/CV duties, we suggested several improvements to Congress and executive branch agencies. As a result, this report describes agencies' views on (1) obstacles (if any) to strengthening international agreements to help the United States collect AD/CV duties from importers without attachable assets in the United States and (2) whether strengthened international agreements would improve duty collection.
Agency officials identified two key obstacles to strengthening international agreements to improve collection of AD/CV duties from importers with no attachable assets in the United States. These obstacles are: (1) Finding countries that are willing to enter into negotiations--unlike the United States, other major trading partners have AD/CV duty systems that establish the final amount of AD/CV duties when goods enter the country. As a result, the existence of significant uncollected AD/CV duties is unique to the United States, so other countries do not have a shared interest in improving collections after products have entered the country. (2) U.S. and foreign government practice--according to CBP and Department of Justice (Justice) officials, under the practice of some countries, they will not enforce a claim based upon the revenue laws of another country. According to agency officials, if the United States negotiated an international agreement to strengthen its ability to collect duties owed by importers whose assets are overseas, there may be unintended consequences. For example, since the agreement would likely be reciprocal, some agency officials expressed concern that this could require the United States to enforce decisions it found arbitrary. Our analysis of international agreements to which the United States is a party identified agreements that establish rules for calculating and assessing AD/CV duties and other agreements that outlined mutual assistance between countries' customs administrations, some of which explicitly exclude assistance regarding the recovery of duties. However, consistent with the challenges posed by negotiations and international practice, neither our analysis nor our discussions with agency officials identified any international agreements that facilitate collecting AD/CV duties from importers with no attachable assets in the United States. Agency officials believe that strengthening international agreements would not substantially improve the collection of AD/CV duties. They cited two key reasons why it is likely that this would be ineffective: Retrospective nature of the U.S. AD/CV duty system. Strengthened international agreements would not address a key factor we identified in our March 2008 report as contributing to uncollected AD/CV duties--the retrospective nature of the U.S. AD/CV duty system. Under this system, the final amount of duties owed may exceed the amount of cash deposits the importer paid at the time of entry, and CBP must attempt to collect from the importer long after the products enter the country. By the time CBP is able to take collection action, illegitimate importers (foreign or domestic) may have disappeared in order to evade the duties, and legitimate importers may be financially unable to pay the duties. As a result, Justice has advised CBP that claims involving a foreign company with no discernable U.S. assets may be classified as uncollectible and do not need to be referred to Justice. CBP has not referred any cases to Justice involving the collection of AD/CV duties from importers with no attachable assets in the United States in the past 5 years. High cost of litigation. According to Justice officials, even if international agreements were strengthened, Justice would still likely have to litigate overseas in order to collect duties owed. Conducting litigation in a foreign country can be very expensive because of the need to hire foreign counsel. These high costs need to be weighed against the amount owed and the amount likely to be collected. However, agency officials noted that strong corporate secrecy laws and weak pretrial discovery rules in some countries may make it impossible to know whether the U.S. government would be able to recoup the costs of the litigation.
GAO-08-876R, Agencies Believe Strengthening International Agreements to Improve Collection of Antidumping and Countervailing Duties Would Be Difficult and Ineffective
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GAO-08-876R:
Washington, DC 20548:
United States Government Accountability Office:
July 24, 2008:
The Honorable Robert C. Byrd:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Committee on Appropriations:
United States Senate:
The Honorable David R. Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:
Subject: Agencies Believe Strengthening International Agreements to
Improve Collection of Antidumping and Countervailing Duties Would Be
Difficult and Ineffective:
The United States and many of its trading partners have enacted 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 additional duties on importers to remedy these unfair
trade practices.[Footnote 1] Specifically, antidumping (AD) duties are
imposed on imports that are "dumped" in the United States (i.e., sales
in the U.S. market at less than the market price in the item's home
market) and countervailing (CV) duties are imposed on imports that are
subsidized by foreign governments. Importers are responsible for paying
all duties, taxes, and fees on products when they are brought into the
United States (including AD/CV duties). Importers can be located either
domestically or overseas.
Since fiscal year 2001, U.S. Customs and Border Protection (CBP), which
is responsible for collecting import duties, has been unable to collect
hundreds of millions of dollars in AD/CV duties.[Footnote 2] In March
2008, we reported that over $600 million in AD/CV duties were
uncollected.[Footnote 3] Our analysis revealed four key factors
contributing to uncollected AD/CV duties: (1) the retrospective
component of the U.S. AD/CV duty system, (2) "new shipper" reviews, (3)
insufficiency of CBP's standard bond requirements for importers, and
(4) minimal information required from importers. We identified two sets
of options for Congress and agencies to consider in attempting to
improve the collection of AD/CV duties. One option was to eliminate the
retrospective component of the U.S. AD/CV duty system and make it
prospective; the other was to adjust specific aspects of the current
U.S. AD/CV duty system while retaining its retrospective nature.
Under the current U.S. AD/CV duty system, importers pay cash deposits
equal to the estimated AD/CV duties at the time of importation, but the
final duty amount is determined much later and may exceed the amount of
cash deposited. On average, this process takes more than 3 years,
during which importers could cease operations or become unable to pay
additional duties. To address this situation and help improve the
collection of AD/CV duties, we suggested several improvements to
Congress and executive branch agencies.[Footnote 4] For example, we
suggested Congress consider requiring the relevant agencies to perform
an analysis and report to Congress on the relative advantages and
disadvantages of prospective and retrospective AD/CV duty systems.
The Committees on Appropriations directed us to conduct a comprehensive
review, as described in Senate Report 110-84, of uncollected AD/CV
duties and specified several issues on which we were to report.
[Footnote 5] Our March 2008 report addressed most of the issues, except
how international agreements to which the United States is a party
could be strengthened to improve the collection of AD/CV duties. As a
result, this report describes agencies' views on (1) obstacles (if any)
to strengthening international agreements to help the United States
collect AD/CV duties from importers without attachable assets in the
United States and (2) whether strengthened international agreements
would improve duty collection.
To address these objectives, we obtained and reviewed relevant
documents and interviewed knowledgeable officials from the Departments
of Commerce, Justice, State, and the Treasury, the Department of
Homeland Security's U.S. Customs and Border Protection and U.S.
Immigration and Customs Enforcement, and the Office of the U.S. Trade
Representative. Each has a role in the AD/CV duty process or in
negotiating international agreements. To determine the obstacles to
strengthening international agreements to improve duty collection, we
obtained U.S. agencies' views on whether international agreements could
be strengthened to help collect AD/CV duties. To determine agencies'
views on whether strengthening international agreements would improve
duty collection, we interviewed knowledgeable agency officials and
reviewed prior GAO work regarding uncollected AD/CV duties. We
conducted this performance audit from April 2008 to July 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. (See enclosure I for
additional detail regarding our scope and methodology.)
Results in Brief:
Agency officials identified two key obstacles to strengthening
international agreements to improve collection of AD/CV duties from
importers with no attachable assets in the United States. These
obstacles are:
* Finding countries that are willing to enter into negotiations. Unlike
the United States, other major trading partners have AD/CV duty systems
that establish the final amount of AD/CV duties when goods enter the
country. As a result, the existence of significant uncollected AD/CV
duties is unique to the United States, so other countries do not have a
shared interest in improving collections after products have entered
the country.
* U.S. and foreign government practice. According to CBP and Department
of Justice (Justice) officials, under the practice of some countries,
they will not enforce a claim based upon the revenue laws of another
country.[Footnote 6] According to agency officials, if the United
States negotiated an international agreement to strengthen its ability
to collect duties owed by importers whose assets are overseas, there
may be unintended consequences. For example, since the agreement would
likely be reciprocal, some agency officials expressed concern that this
could require the United States to enforce decisions it found
arbitrary. Our analysis of international agreements to which the United
States is a party identified agreements that establish rules for
calculating and assessing AD/CV duties and other agreements that
outlined mutual assistance between countries' customs administrations,
some of which explicitly exclude assistance regarding the recovery of
duties. However, consistent with the challenges posed by negotiations
and international practice, neither our analysis nor our discussions
with agency officials identified any international agreements that
facilitate collecting AD/CV duties from importers with no attachable
assets in the United States.
Agency officials believe that strengthening international agreements
would not substantially improve the collection of AD/CV duties. They
cited two key reasons why it is likely that this would be ineffective:
* Retrospective nature of the U.S. AD/CV duty system. Strengthened
international agreements would not address a key factor we identified
in our March 2008 report as contributing to uncollected AD/CV duties--
the retrospective nature of the U.S. AD/CV duty system. Under this
system, the final amount of duties owed may exceed the amount of cash
deposits the importer paid at the time of entry, and CBP must attempt
to collect from the importer long after the products enter the country.
By the time CBP is able to take collection action, illegitimate
importers (foreign or domestic) may have disappeared in order to evade
the duties, and legitimate importers may be financially unable to pay
the duties.[Footnote 7] As a result, Justice has advised CBP that
claims involving a foreign company with no discernible U.S. assets may
be classified as uncollectible and do not need to be referred to
Justice. CBP has not referred any cases to Justice involving the
collection of AD/CV duties from importers with no attachable assets in
the United States in the past 5 years.
* High cost of litigation. According to Justice officials, even if
international agreements were strengthened, Justice would still likely
have to litigate overseas in order to collect duties owed. Conducting
litigation in a foreign country can be very expensive because of the
need to hire foreign counsel. These high costs need to be weighed
against the amount owed and the amount likely to be collected. However,
agency officials noted that strong corporate secrecy laws and weak
pretrial discovery rules in some countries may make it impossible to
know whether the U.S. government would be able to recoup the costs of
the litigation.
We provided a draft of this report to the Departments of Commerce,
Homeland Security, Justice, State, and the Treasury, as well as the
Office of the U.S. Trade Representative. The Department of Commerce
provided written comments (reprinted in enclosure III) and agreed with
our overall conclusion that strengthening international agreements
would not substantially improve the collection of AD/CV duties.
However, Commerce disagreed with our conclusion (based on our March
2008 report) that the retrospective nature of the U.S. AD/CV duty
system is a key factor contributing to uncollected AD/CV duties. We
continue to believe that the retrospective nature of the U.S. AD/CV
duty system is a key factor contributing to uncollected AD/CV duties as
we reported earlier because it allows situations where CBP must attempt
to collect large amounts of duties from importers years after they
import products into the United States. However, we modified this
report to provide broader context and additional detail about the key
factors and options identified in our March 2008 report. In addition,
we received technical comments from the Departments of Homeland
Security, Justice, and State, as well as the Office of the U.S. Trade
Representative. We have incorporated their comments as appropriate.
Background:
Under the U.S. AD/CV duty system, all importers (foreign and domestic)
pay cash deposits equal to the estimated amount of AD/CV duties at the
time of importation, but the final amount of duties is not determined
until later, often after the Department of Commerce (Commerce) conducts
an administrative review of the imports. As a result, the final amount
of duties owed can exceed the cash deposit made 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. Some
importers are unable to pay the additional amount because it exceeds
their available assets. Other importers expect that their final
assessment will exceed their cash deposit and plan to avoid their final
duty obligation by disappearing or declaring bankruptcy, according to
officials from the Department of the Treasury (Treasury).[Footnote 8]
To help protect the U.S. government from revenue loss, all importers
are required to post a security, usually a general obligation bond when
they import products into the United States.[Footnote 9] This bond,
which an importer obtains from a surety company, is (in general) 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).
Our March 2008 report found, however, that CBP's standard bond formula
is insufficient to protect AD/CV duty revenue in some cases. For
example, of the top 20 importers with uncollected AD/CV duties, 1
importer had outstanding AD/CV duty bills amounting to $35 million,
which was secured by a bond of $500,000.[Footnote 10]
If CBP does not receive payment within 1 year of issuing the first
bill, CBP's Office of Finance (which is responsible for collecting
payment) refers the case to CBP's Office of Chief Counsel, which
determines the next course of action. According to CBP officials, this
may include taking additional collection action, such as identifying
importers' assets or demanding payment from the surety company that
provided the bond. The Office of Chief Counsel could also refer a case
to Justice for further legal action if attachable assets are
identified. If the Office of Chief Counsel determines that the debt is
uncollectible, it can recommend that it be written off. CBP's Office of
Chief Counsel takes steps to collect all bills referred to it,
regardless of the location of the importer's assets.
As shown in table 1, several U.S. government agencies have roles
related to the AD/CV duty process or the negotiation of international
agreements.
Table 1: Relevant U.S. Government Agencies and Their Role in the AD/CV
Duty Process or in Negotiating International Agreements:
Agency: International Trade Commission;
Role in duty collection: Determines whether an industry in the United
States is being injured by imports.
Agency: Department of Commerce;
Role in duty collection: Calculates estimated and final AD/CV duty
rates.
Agency: Department of Homeland Security's U.S. Customs and Border
Protection;
Role in duty collection: Assesses and collects estimated and final
AD/CV duties from importers based on instructions from Commerce and
identifies/addresses circumvention of the AD/CV duty law by companies
attempting to evade the payment of lawfully owed AD/CV duties.
Agency: Department of Homeland Security's U.S. Immigration and Customs
Enforcement;
Role in duty collection: Investigates alleged schemes by importers to
avoid the payment of AD/CV duties.
Agency: Department of Justice;
Role in duty collection: Represents U.S. government in litigation.
Agency: Office of the U.S. Trade Representative;
Role in duty collection: Negotiates international trade agreements and
represents the United States in the World Trade Organization.
Agency: Department of State;
Role in duty collection: Negotiates international agreements and
maintains records of international agreements to which the United
States is a party.
Agency: Department of the Treasury;
Role in duty collection: Has statutory authority regarding duty
collections (delegated day-to-day operations to the Department of
Homeland Security in 2003; Treasury retains control over regulations
governing the process).
Source: GAO discussions with agency officials.
[End of table]
Agencies Identified Two Obstacles to Strengthening International
Agreements to Improve Collection of AD/CV Duties:
Agency officials identified two key obstacles that would make
strengthening international agreements difficult. These obstacles
relate to finding willing negotiating partners and U.S. and foreign
government practice.
First, some agency officials indicated it may be difficult to find
willing partners to enter into negotiations. Unlike the United States,
other major trading partners have AD/CV duty systems that establish the
final amount of AD/CV duties owed at the time goods enter their
country. As a result, the existence of significant uncollected AD/CV
duties is unique to the United States, so other countries do not have a
shared interest in improving collections after the fact. Therefore, the
United States may need to make concessions to trading partners in other
areas in order for them to be willing to negotiate an agreement related
to collecting AD/CV duties from companies without attachable assets in
the United States.
Second, it would likely be difficult to reach such an agreement because
the United States would be negotiating for provisions that are
different from U.S. and foreign government practice, which could have
unintended consequences. According to officials from CBP's Office of
Chief Counsel and from Justice, under the practice of some countries,
they will not enforce a claim based upon the revenue laws of another
country.[Footnote 11] In the United States, this principle has taken
the form of the "revenue rule," which allows the nonrecognition "of tax
liabilities of one sovereign in the courts of another sovereign, such
as a suit to enforce a tax judgment."[Footnote 12] Since any
international agreement the United States negotiated would likely be
reciprocal, the U.S. courts would likely be required to enforce the
revenue laws and decisions of other countries. Some agency officials
expressed concern that this could require the United States to enforce
decisions it found arbitrary.
Our analysis of international agreements to which the United States is
a party identified agreements that affirm the right of countries to
collect AD/CV duties and establish frameworks for international
cooperation on customs issues. For example, the World Trade
Organization's Antidumping and Subsidies and Countervailing Measures
agreements establish multilateral rules regarding the processes and
standards for calculating AD/CV duties and expressly provide the 152
World Trade Organization members with the right to collect AD/CV
duties. In addition, Chapter 19 of the North American Free Trade
Agreement addresses the review of AD/CV duties and establishes a
process for binational panels to review AD/CV duty determinations
involving goods covered by the agreement. We also identified 37
bilateral agreements regarding mutual assistance between countries'
customs administrations. These agreements typically include commitments
for customs agencies to exchange information to assist in administering
their own customs laws, but some of these agreements specifically
exclude exchanging information for the purpose of duty collection.
[Footnote 13]
In addition, consistent with the challenges posed by international
negotiations and international practice, neither our analysis nor our
discussions with relevant agency officials identified any international
agreements that facilitate the collection of AD/CV duties from
importers with no attachable assets in the United States. Specifically,
we did not identify any agreements that establish a process or a
mechanism for assisting the United States in collecting AD/CV duties
from companies without assets in the United States that are unable or
unwilling to pay them.
Strengthened International Agreements Would Not Substantially Improve
Collection of AD/CV Duties:
Agency officials believe, and our analysis supports, that strengthening
international agreements would not substantially improve the collection
of AD/CV duties for two key reasons--the retrospective nature of the
U.S. AD/CV duty system and the high cost of litigation.
First, strengthened international agreements would not address the
challenges associated with the retrospective nature of the U.S. AD/CV
duty system, in which the final amount of duties owed may exceed the
amount of cash deposited at the time of entry. In those cases, CBP must
often attempt to collect from importers long after they import products
into the country.[Footnote 14] Financially able and willing importers
will pay duties owed regardless of their location. However, legitimate
importers may be unable to pay duty bills, and illegitimate importers
may disappear in order to evade the duties.
In our March 2008 report, we found that about $350 million in AD/CV
duty bills owed by all importers were in various stages of the
collection process as of the end of fiscal year 2007. Approximately
$290 million of the unpaid AD/CV duty bills had been sent to CBP's
Office of Chief Council to determine further collection options, such
as identifying attachable assets (domestic or overseas); however, CBP
officials expected that most of these unpaid bills would be written off
after legal review.
CBP's recent efforts to collect payments from importers located outside
the United States illustrate the difficulty in collecting from those
unwilling to pay their AD/CV duty bills. Since fiscal year 2003, CBP's
Office of Finance referred 570 unpaid AD/CV duty bills (totaling
approximately $20 million, including accumulated interest) involving
importers located outside the United States to the Office of Chief
Counsel for additional collection action.[Footnote 15] As a result, the
Office of Chief Counsel opened 31 cases involving 28 importers--with
many cases involving multiple bills for the same importer. The Office
of Chief Counsel closed 21 of these cases, which involved approximately
$14 million in unpaid bills.[Footnote 16] However, CBP was only able to
collect approximately $600,000, or 4 percent of the amount owed. (See
enclosure II for additional information on the results of these 21
closed cases.)
None of the closed cases was referred to Justice because, according to
CBP's Office of Chief Counsel, Justice has advised CBP that many claims
involving a foreign company with no discernible U.S. assets may be
classified as uncollectible. CBP has not determined whether it will
refer any of the 10 open cases to Justice. According to CBP, it has not
referred any cases to Justice involving the collection of AD/CV duties
from importers with no attachable assets in the United States in the
past 5 years. According to Justice officials, CBP has not referred to
them any cases involving the collection of AD/CV duties in foreign
courts.
A second reason agency officials cited is the high cost of litigation.
According to Justice officials, even if the United States successfully
negotiated an agreement with another country to assist in the
collection of AD/CV duties, they may still have to litigate overseas in
order to collect duties owed. Conducting litigation in a foreign
country can be very expensive because of the need to hire foreign
counsel. These high costs need to be weighed against the amount owed
and the amount likely to be collected. Because of this, Justice would
likely want to ensure that the importer owing the duties can be found
and has sufficient assets to pay the duties if the U.S. government
prevails. However, according to Justice officials, some countries have
strong corporate secrecy laws or otherwise make it very difficult to
obtain the information necessary to make this determination, and
significant costs can be incurred by the government to investigate the
collectibility of the debt from the foreign debtor. Also according to
Justice, even if litigation was initiated, many foreign courts have
very limited ability to discover evidence during the litigation
process. As a result, it may be extremely difficult to determine the
likelihood of recouping the costs of the foreign litigation, even if
the United States prevails.
While agency officials believe strengthening international agreements
would not substantially improve the collection of AD/CV duties, our
March 2008 report included several recommendations to the executive
branch to improve collections under the current U.S. AD/CV duty system:
(1) re-evaluate CBP's bonding requirements, (2) improve communication
from Commerce to CBP, and (3) develop a strategic human capital plan to
ensure that Commerce has sufficient human capital to perform its roles
in the AD/CV duty process. The Departments of Homeland Security and
Commerce generally agreed with our recommendations and indicated a
willingness to take steps to address them. In addition, we suggested
that Congress consider (1) requiring the relevant agencies to conduct
an analysis of the relative advantages and disadvantages of different
AD/CV duty systems, (2) requiring CBP to publicly report annually on
uncollected AD/CV duties, and (3) providing Commerce with discretion to
establish minimum thresholds for the amount or value of exports when
conducting certain AD/CV duty reviews of "new shippers."
Concluding Observations:
Strengthening international agreements does not appear to be a viable
option for substantially reducing the amount of uncollected AD/CV
duties. There are important trade-offs to consider before the U.S.
government undertakes an effort to improve AD/CV duty collection from
importers with no attachable assets in the United States, especially
since it does not appear that such an effort will substantially improve
the U.S. government's ability to collect on unpaid bills. Our previous
work identified four key factors contributing to uncollected AD/CV
duties, including the retrospective nature of the duty collection
process, which makes it difficult for CBP to collect outstanding
duties, regardless of where an importer's assets are located. As long
as the United States maintains a system that involves attempting to
collect duties from importers years after they import products into the
United States, it will have difficulties collecting the full amount of
duties owed. Because of this, agency and congressional efforts to
improve the collection of AD/CV duties should focus on the
recommendations laid out in our March 2008 report.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of Commerce,
Homeland Security, Justice, State, and the Treasury, as well as the
Office of the U.S. Trade Representative. The Department of Commerce was
the only agency to provide written comments, which are contained in
enclosure III. The Department of Commerce agreed with our overall
conclusion that strengthening international agreements would not
substantially improve the collection of AD/CV duties. However, Commerce
disagreed with our conclusion (based on our March 2008 report) that the
retrospective nature of the U.S. AD/CV duty system is a key factor
contributing to uncollected AD/CV duties. Commerce suggests that the
issues faced by CBP in collecting AD/CV duties have unique factors that
contributed to the problem, which could exist under either a
prospective or retrospective AD/CV duty system. We continue to believe
that the retrospective nature of the U.S. AD/CV duty system is a key
factor contributing to uncollected AD/CV duties as we reported earlier
because it allows situations where CBP must attempt to collect large
amounts of duties from importers years after they import products into
the United States. However, we have revised this report to provide
additional context based on our March 2008 report. Specifically, we
added material discussing each of the four key factors we identified as
contributing to uncollected AD/CV duties and the two sets of options
for addressing those key factors. In addition, we received technical
comments from the Departments of Homeland Security, Justice, and State,
as well as the Office of the U.S. Trade Representative. We have
incorporated their comments as appropriate.
We are sending copies of this report to interested congressional
committees; the Secretaries of Commerce, Homeland Security, State, and
the Treasury; the Attorney General; and the U.S. Trade Representative.
We will provide copies to others on request. This report will also be
available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs 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. Other GAO staff who made key
contributions to this report are Christine Broderick (Assistant
Director), Jason Bair, Laura Erion, Ernie Jackson, Grace Lui, Karen
Deans, Martin de Alteriis, Mitchell Karpman, and Marissa Jones.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
Enclosures (3):
Enclosure I: Scope and Methodology:
To determine agencies' views on strengthening international agreements
related to collecting antidumping (AD) and countervailing (CV) duties,
we interviewed officials from the departments with a role in the
antidumping and countervailing duty process or in negotiating
international agreements: Departments of Commerce, Justice, State, and
the Treasury, the Department of Homeland Security's U.S. Customs and
Border Protection (CBP) and U.S. Immigration and Customs Enforcement,
and the Office of the U.S. Trade Representative. To identify
international agreements that relate to the collection of AD/CV duties,
we reviewed the agreements in the Department of State's Treaties in
Force (2007), which lists international agreements to which the United
States is a party.[Footnote 17] We then sent the list of agreements we
believed were potentially relevant to agency officials to verify.
Finally, we reviewed the full text of the 54 agreements deemed to be
potentially relevant to determine the extent to which each agreement
related to the collection of AD/CV duties from importers without assets
in the United States.
To determine agencies' views on the extent to which strengthening
international agreements would improve duty collection, we interviewed
relevant agency officials and reviewed prior GAO work analyzing
uncollected AD/CV duties.[Footnote 18] To describe CBP's recent
experiences attempting to collect AD/CV duties from importers located
outside the United States, we reviewed CBP data on the cases referred
to the Office of Chief Counsel since fiscal year 2003. CBP identified
importers located outside the United States by using their unique
importer number and address of record. We determined that these data
are sufficiently reliable for the purposes of this report.
We conducted this performance audit from April 2008 to July 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 enclosure]
Enclosure II: Results of Cases Closed by CBP's Office of Chief Counsel:
Table 2: Outcomes of the 21 Closed Cases Involving Importers Located
Outside the United States Owing AD/CV Duties (since fiscal year 2003)
(Dollars in thousands):
Full amount of duty collected following demand on surety/importer[A];
Number of cases: 10;
Number of bills: 43;
Amount of bills: $120;
Amount paid: $120;
Loss: *.
Full amount of bond collected from surety[B];
Number of cases: 5;
Number of bills: 139;
Amount of bills: $10,472;
Amount paid: $450;
Loss: $10,022.
Bill determined to be legally unenforceable[C];
Number of cases: 4;
Number of bills: 66;
Amount of bills: $3,366;
Amount paid: $27;
Loss: $3,339.
Bill referred back to Office of Finance[D];
Number of cases: 2;
Number of bills: 3;
Amount of bills: *;
Amount paid: *;
Loss: *.
Total;
Number of cases: 21;
Number of bills: 251;
Amount of bills: $13,958;
Amount paid: $597;
Loss: $13,361.
Source: GAO analysis of CBP data.
Note: * denotes amount less than $1,000.
[A] In eight of these cases, the full amount of the duty was collected
by the Office of Chief Counsel following demands upon the surety and/or
importer, excluding interest accrual. In 2 of the 10 cases, the amount
remaining after the importer made a majority payment was uneconomical
to pursue (less than $100).
[B] According to CBP, the amount owed under the surety bond was
collected, but this amount was significantly lower than the total
duties owed by each importer.
[C] In these cases, the bills were determined to be legally
unenforceable as a result of the Court of Appeals for the Federal
Circuit's decisions in Int'l Trading Co. v. United States, 281 F.3d
1268 (2002) and Int'l Trading Co. v. United States, 412 F.3d 1303
(2005) because the entries were not liquidated within 6 months of the
Department of Commerce's relevant Federal Register notice. According to
CBP, in two of the four cases (totaling $5.2 million), CBP promptly
liquidated the entries, but they were not legally enforceable because
Commerce did not issue liquidation instructions in a timely manner.
[D] These two cases were referred back to the Office of Finance because
they were for an amount less than $100, which the Office of Chief
Counsel generally does not handle because the cost of collection is
significantly greater than any possible recovery.
[End of table]
Enclosure III: Comments from the Department of Commerce and GAO
Evaluation:
United States Department Of Commerce:
The Under Secretary for International Trade:
Washington, DC 20230:
July 11, 2008:
Dr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Dr. Yager:
Thank you for providing us with the draft report on whether
international agreements to which the United States is a party might be
strengthened to improve the collection of antidumping (AD) and
countervailing (CV) duties. We carefully reviewed the draft report, and
agree with the overall conclusion that strengthening international
agreements would not substantially improve the under-collection problem
the United States has encountered with these particular types of
duties. However, we disagree with the report's assertion that the
challenges the United States faces in collecting unpaid AD/CV duties is
largely due to the retrospective nature of the duty collection process.
We strongly take issue with the implication that, unless we change to a
prospective system of AD/CV duty assessment, the agencies responsible
for duty collection would be unable to address this problem. [See
comment 1]
Despite indications in the report to the contrary, under both
prospective and retrospective systems, the final determination of duty
liability is made not at the border, but rather at a later date based
on the results of any review or lack thereof. [See comment 2] The
infrequency of reviews under prospective systems is the primary reason
why duties tend to be assessed more quickly in such systems than in the
United States' retrospective system. The main difference between the
two systems is that prospective systems will never collect additional
duties when dumping, pursuant to a review, is found to increase. [See
comment 3] Further, we believe strongly that the under-collections at
issue have unique factors that contributed to the problem, and that
such factors could exist under either a prospective or retrospective
system. Indeed, based on our analysis of the information presented in
the GAO's March 2008 report on AD and CV duties, the key factors
contributing to under-collection are most likely to be: I) the
insufficient amount of continuous bonds and 2) minimal information
regarding importers. [See comment 4]
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:
Christopher A. Padilla:
Enclosure:
Comments on GAO Draft Report 08-8768: Agencies Believe Strengthening
International Agreements to Improve Collection of Antidumping and
Countervailing Duties Would Be Difficult and Ineffective:
Page 1, Second Paragraph, Sentence 3: "A key factor we identified as
contributing to these uncollected AD/CV duties is the retrospective
nature of the U.S. AD/CV duty system."
Comment: In several places the report states that the retrospective
nature of our AD/CVD system is a key factor in the under collection of
duties. This is not true. The fact that our system is retrospective
allows us to ascertain the specific extent of dumping on a sale-by-sale
basis rather than merely accepting, as final, the estimated amount of
duties determined based on past trading behavior and collected on the
entries of the merchandise. A key difference between the prospective
and retrospective systems is that under the retrospective system
authorities are able to quantify the amount by which the estimated AD
and CV duties i.e. cash deposits) are too low or too high. Therefore, a
retrospective system does not, per se, cause under collection; it
merely allows us to quantify the difference between estimated duties
and the actual duties owed, where prospective systems do not. Despite
indications in the report to the contrary, under both prospective and
retrospective systems, the final determination of duty liability is
made not at the border, but rather at a later date based on the results
of any review or lack thereof. The infrequency of reviews under
prospective systems is the primary reason why duties tend to be
assessed more quickly in such systems than in the United States'
retrospective system. The main difference between the two systems is
that prospective systems will never collect additional duties when
dumping, pursuant to a review, is found to increase. [See comment 5]
Page 2, First Partial Paragraph, Last Sentence: "For example, we
suggested Congress consider requiring the relevant agencies to perform
an analysis and report to Congress on the relative advantages and
disadvantages of the U.S. retrospective AD/CV duty system compared to
other systems where the final amount of duties is known and paid when
the goods enter the country."
Comment: The underlying observation for this suggestion ("where the
final amount of duties is known and paid when the goods enter the
country") is factually inaccurate. in all systems (prospective or
retrospective), parties have a right to request a review. The final
determination of duty liability is made, not at the border, but rather
at a later date based on the results of any review or lack thereof.
Until that right under the WTO Agreement has been requested or waived,
the final determination of duty liability cannot be made in a manner
consistent with the WTO. [See comment 2]
Page 3, First Bullet of Section Entitled "Results in Brief": "....other
major trading partners have AD/CV duty systems that establish the final
amount of AD/CV duties when goods enter the country."
Comment: As mentioned above, this is factually inaccurate. [See comment
2]
Page 4, Bullet Entitled "Retrospective nature of the U.S. AD/CV duty
system.": "....the final amount of duties owed may exceed the amount of
cash deposits the importer paid at the time of entry, and CBP must
attempt to collect from the importer long after the products enter the
country. By the time CBP is able to take collection action,
illegitimate importers (foreign or domestic) may have disappeared in
order to evade the duties and legitimate importers may be financially
unable to pay the duties."
Comment: This problem would not appear to be tied to the retrospective
nature of the U.S. system, but rather stems from the fact that certain
parties have been successful at finding ways to abuse elements of our
system (e.g.. the insufficient bonding problem identified on page 5 of
the draft report). Also, illegitimate activities (e.g., the use of "fly
by night" or "shell" companies) could occur in a situation where there
was a short period between the time the products entered the country
and efforts at final collection took place. [See comment 6]
Page 7, Second Paragraph, Second Sentence: "Unlike the United States,
other major trading partners have AD/CV duty systems that establish the
final amount of AD/CV duties owed at the time goods enter their
country."
Comment: As mentioned above, this mischaracterizes prospective systems
and implies that other major trading partners have AD/CV duty systems
that establish the final amount of AD/CV duties owed at the time goods
enter their country. [See comment 2]
Page 11, Last Sentence of First Paragraph: "In addition, we suggested
that Congress consider (1) requiring the relevant agencies to conduct
an analysis of the relative advantages and disadvantages of different
AD/CV duty systems, (2) requiring CBP to publicly report annually on
uncollected AD/CV duties, and L3) providing Commerce with discretion to
establish minimum thresholds for the amount or value of exports when
conducting certain AD/CV duty investigations. (emphasis added)"
Comment: With regard to item "(3)", the actual suggestion was to
provide Commerce with such discretion for new shipper reviews. [See
comment 7]
Page 11, Section Entitled "Concluding Observations": "As long as the
United States maintains a system that involves attempting to collect
duties from importers years after they import products into the United
States, it will have difficulties collecting the full amount of duties
owed."
Comment: As indicated above, we disagree with the report's assertion
that the challenges the United States faces in collecting unpaid AD/CV
duties is largely clue to the retrospective nature of the duty
collection process. Further, we strongly take issue with the
implication that, unless we change to a prospective system, the
agencies responsible for duty collection would be unable to address
this problem. Rather than concluding at this time that we "will have
difficulties collecting" as long as we maintain a retrospective system,
it would seem appropriate to first evaluate the effectiveness of
implementing GAO's various recommendations in the March 2008 report.
[See comment 1]
GAO Evaluation:
1. The Department of Commerce (Commerce) commented that they disagree
with our report's assertion that the challenges the United States faces
in collecting unpaid AD/CV duties are largely due to the retrospective
nature of the duty collection process and that, unless changed to a
prospective system, the agencies responsible for duty collection would
not be able to address this problem. We did not draw this conclusion in
this report or our March 2008 report (GAO-08-391). Rather, in our March
2008 report we included a comprehensive review of the key factors
contributing to uncollected AD/CV duties and concluded that the
retrospective component of the U.S. AD/CV duty system was one of four
key factors contributing to uncollected AD/CV duties. We also analyzed
two sets of options for Congress and relevant agencies to consider: one
that would eliminate the current system's retrospective nature and make
it prospective, based on an analysis of the relative advantages and
disadvantages; and a second that would involve adjusting aspects of the
current U.S. AD/CV duty system while retaining its retrospective
nature. In response to Commerce's comments, we revised the report to
add this broader context from our earlier report.
However, our analysis and other agencies' views indicate that the
retrospective nature of the U.S. AD/CV duty system is a key factor
contributing to uncollected AD/CV duties.
* In our March 2008 report, we discussed the fact that uncollected
AD/CV duties arise when the final amount of duties owed (as determined
by an administrative review by Commerce) exceeds the amount of
estimated duties paid by the importer when the goods entered the
country. When this occurs, CBP must attempt to collect the additional
amount from the importer. Our analysis showed that, on average, more
than 3 years elapsed from the time goods entered the country to the
time when the final AD/CV duty rate is determined. In addition, we
found that when AD duty rates increase (16 percent of the time), the
average increase was 62 percentage points. According to the Department
of the Treasury (Treasury) and U.S. Customs and Border Protection
(CBP), this creates significant collection problems. Illegitimate
importers expect that their final assessment will exceed their cash
deposit and plan to avoid their final duty obligation, according to
Treasury and CBP officials, while other importers are unable to pay the
additional amount because it exceeds their available assets.
* In addition, in commenting on our March 2008 report, the Departments
of the Treasury and Homeland Security provided additional insights
regarding the challenges created by the retrospective component of the
U.S. AD/CV duty system. In responding to that report, Treasury stated
that, "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." In addition, the Department of Homeland
Security (which is responsible for collecting AD/CV duties) responded
that eliminating the retrospective component of the U.S. AD/CV duty
system would, among other things, "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."
2. We disagree with Commerce's characterization of how prospective
AD/CV duty systems operate. In our March 2008 report, we examined the
prospective AD/CV duty systems of major U.S. trading partners (European
Union, Canada, and Australia) and noted that, while each country's AD/
CV duty system operates differently, their reviews have a prospective
effect (i.e., the new duty rate/normal value that results from the
review is applied to future imports). We also noted in our March 2008
report that 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.
3. We disagree with Commerce's assertion that the main difference
between prospective and retrospective AD/CV duty systems is that
"prospective systems will never collect additional duties when dumping,
pursuant to a review, is found to increase." Our March 2008 report
included analysis of other countries' prospective AD/CV duty systems,
and explored the trade-offs in prospective and retrospective system, as
well as a matter for congressional consideration to require additional
analysis of the relative advantages and disadvantages of prospective
and retrospective AD/CV duty systems.
In our March 2008 report we indicated that 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. We discussed three characteristics which
illustrate the trade-offs associated with prospective and retrospective
systems: (1) timing for determining and collecting final AD/CV duties,
(2) "accuracy" of AD/CV duties paid, and (3) administrative simplicity
for customs officials. In addition, our prior report specifically
addressed different systems' ability to address increased dumping. For
example, we noted that under the Canadian system (which bases AD duties
on the "normal value" of the product), "... 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." We further added that,
"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."
4. In its comments to our March 2008 report and this report, Commerce
suggests that two other factors identified in our March 2008 report--
insufficient bond amounts and minimal information regarding importers-
-are the "most likely" factors contributing to uncollected AD/CV
duties. To address this comment, we revised this report's introduction
to include a discussion of each of the four key factors contributing to
uncollected AD/CV duties identified in our March 2008 report and
outlined two sets of options for addressing those factors.
We agree that CBP' insufficient continuous bond formula and minimal
information regarding importers are key factors and recommended that
the Secretary of Homeland Security, in consultation with other relevant
agencies, should determine whether CBP can adjust its bonding
requirements to further protect revenue. As we discussed in our March
2008 report, however, addressing these factors is not without costs and
other challenges. For example, we noted that increasing bond
requirements increases costs for importers and has been challenged in
U.S. courts and in the WTO. Further, increasing information
requirements for importers would create a significant administrative
burden on CBP and may not improve CBP's ability to collect AD/CV
duties. We also observe that if the U.S. AD/CV duty system did not have
a retrospective component (and therefore did not require attempting to
collect additional amounts from importers years after products enter
the country), uncollected U.S. AD/CV duties would be effectively
eliminated.
5. In commenting on whether the retrospective nature of the U.S. AD/CV
duty system is a key contributing factor to uncollected AD/CV duties,
Commerce states that: "The fact that the U.S. AD/CV duty system is
retrospective allows us to ascertain the specific extent of dumping on
a sale-by-sale basis rather than merely accepting, as final, the
estimated amount of duties determined based on past trading behavior
..." First, this statement (which implies that prospective AD/CV duty
systems treat the duties paid when products enter the country as final)
contradicts Commerce's earlier statement that, "...under both
prospective and retrospective systems the final determination of duty
liability is made not at the border, but rather at a later date based
on the results of any review or lack thereof." Second, our March 2008
report acknowledged that there are trade-offs involved in considering
prospective and retrospective AD/CV duty systems. As a result, we
suggested that Congress consider requiring the Secretaries of Commerce,
Homeland Security, and the Treasury work together to conduct an
analysis of the relative advantages and disadvantages of prospective
and retrospective AD/CV duty systems. Among the trade-offs we
identified in our March 2008 report are:
* 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,
which creates certainty for importers, enabling legitimate importers to
plan their business operations. In a retrospective system, the amount
of AD/CV duties owed is not determined until well after the time of
importation, which generates the collection risks for the U.S.
government created by the time lag.
* "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, but the government is able to collect
the full amount of duties owed because they are paid at the time of
importation. Under a retrospective AD/CV duty system, the amount of
duties assessed exactly reflects the amount of dumping or
subsidization, but, in practice, a substantial amount of retrospective
AD/CV duty bills are not collected.
* Administrative simplicity for customs officials. Retrospective AD/CV
duty systems can create a substantial burden for customs officials;
prospective systems create a smaller burden.
6. Commerce commented that the problem of illegitimate importers
disappearing in order to evade the duties and legitimate importers
being unable to pay the duties "would not appear to be tied to the
retrospective nature of the U.S. system, but rather stems from the fact
that certain parties have been successful at finding ways to abuse
elements of our system (e.g., the insufficient bonding problem. . .) "
As we recommended in our March 2008 report, we believe that 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. However, the fact remains that, if the U.S. AD/CV duty
system did not have a retrospective component (and therefore did not
require attempting to collect additional amounts from importers years
after products enter the country), uncollected U.S. AD/CV duties would
be effectively eliminated.
Commerce also commented that "...illegitimate activities (e.g., the use
of "fly by night" or "shell" companies) could occur in a situation
where there was a short period between the time the products entered
the country and efforts at final collection took place." We believe
that a time lag between when products enter the country and when final
duty collection takes place creates a risk of uncollected AD/CV duties
and is an important trade-off to consider in evaluating the relative
advantages and disadvantages of prospective and retrospective AD/CV
duty systems. In our March 2008 report, we indicated that under the
U.S. retrospective system, this time lag, on average, exceeds 3 years.
We also reported that under other countries' prospective AD/CV duty
systems that we reviewed, the duties assessed at the time a product
enters the country are essentially treated as final (allowing for
importers to request a review if they believe they are owed a refund).
7. We have revised the text to clarify that our recommendation related
to "new shipper reviews."
[End of enclosure]
Footnotes:
[1] 19 U.S.C. §§ 1671, 1673.
[2] This includes uncollected duties from fiscal years 2001 through
2007, as of September 2007.
[3] GAO, Antidumping and Countervailing Duties: Congress and Agencies
Should Take Additional Steps to Reduce Substantial Shortfalls in Duty
Collection, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-391]
(Washington, D.C.: Mar. 26, 2008). In that report, we used the phrase
"uncollected AD/CV duties" to mean the sum of all open, unpaid bills
for AD/CV duties issued by CBP, which included those under protest. We
included the principal amount of the bill but not any accrued interest.
This amount did not include revenue that is foregone when CBP is unable
to issue duty bills within statutory deadlines.
[4] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-391].
[5] Joint Explanatory Statement accompanying Consolidated
Appropriations Act, 2008, Pub. L. No. 110-161 (directing GAO to
undertake an investigation, as detailed in Senate Report 110-84).
[6] See also Restatement (Third) of Foreign Relations Law of the United
States § 483 (1987).
[7] For additional detail regarding the challenges posed by the
retrospective nature of the U.S. AD/CV duty system, see GAO-08-391.
[8] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-391].
[9] 19 C.F.R. § 142.4.
[10] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-391].
[11] See also Restatement (Third) of Foreign Relations Law of the
United States § 483 (1987).
[12] Pasquantino v. U.S., 544 U.S. 349 (2005).
[13] Customs mutual assistance agreements with Austria, China, Cyprus,
Ireland, Norway, and Sweden exclude assistance related to collection of
duties.
[14] In March 2008, we reported that final AD duty rates increased 16
percent of the time, with an average increase of 62 percentage points.
Our analysis showed that, on average, more than 3 years passed between
the time when imports entered the country and when the final AD/CV
duties were assessed. See [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-391].
[15] CBP identified importers located outside the United States by
using their unique importer number and address of record.
[16] The other 10 cases (representing approximately $6 million in
unpaid bills) are currently open, and CBP is continuing to pursue
collection action. As of June 2008, CBP had collected approximately
$121,000 as a result of those cases.
[17] Treaties in Force uses the term "treaty" as defined in the Vienna
Convention on the Law of Treaties--that is, an international agreement
"governed by international law, whether embodied in a single instrument
or in two or more related instruments and whatever its particular
designation."
[18] GAO, Antidumping and Countervailing Duties: Congress and Agencies
Should Take Additional Steps to Reduce Substantial Shortfalls in Duty
Collection, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-391]
(Washington, D.C.: Mar. 26, 2008).
[End of section]
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