[Senate Hearing 112-355]
[From the U.S. Government Publishing Office]
S. Hrg. 112-355
PROTECTING AMERICAN JOBS: STRENGTHENING TRADE ENFORCEMENT INCLUDING
ANTI-DUMPING AND MARITIME LAWS
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HEARING
Before A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
MAY 25, 2011--WASHINGTON, DC
__________
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COMMITTEE ON APPROPRIATIONS
DANIEL K. INOUYE, Hawaii, Chairman
PATRICK J. LEAHY, Vermont THAD COCHRAN, Mississippi
TOM HARKIN, Iowa MITCH McCONNELL, Kentucky
BARBARA A. MIKULSKI, Maryland RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas
PATTY MURRAY, Washington LAMAR ALEXANDER, Tennessee
DIANNE FEINSTEIN, California SUSAN COLLINS, Maine
RICHARD J. DURBIN, Illinois LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota LINDSEY GRAHAM, South Carolina
MARY L. LANDRIEU, Louisiana MARK KIRK, Illinois
JACK REED, Rhode Island DANIEL COATS, Indiana
FRANK R. LAUTENBERG, New Jersey ROY BLUNT, Missouri
BEN NELSON, Nebraska JERRY MORAN, Kansas
MARK PRYOR, Arkansas JOHN HOEVEN, North Dakota
JON TESTER, Montana RON JOHNSON, Wisconsin
SHERROD BROWN, Ohio
Charles J. Houy, Staff Director
Bruce Evans, Minority Staff Director
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Subcommittee on the Department of Homeland Security
MARY L. LANDRIEU, Louisiana, Chairman
FRANK R. LAUTENBERG, New Jersey, Vice Chairman
DANIEL K. INOUYE, Hawaii DANIEL COATS, Indiana
PATRICK J. LEAHY, Vermont THAD COCHRAN, Mississippi
PATTY MURRAY, Washington RICHARD C. SHELBY, Alabama
JON TESTER, Montana LISA MURKOWSKI, Alaska
JERRY MORAN, Kansas
Professional Staff
Charles Kieffer
Chip Walgren
Scott Nance
Drenan E. Dudley
Rebecca Davies (Minority)
Carol Cribbs (Minority)
Administrative Support
Nora Martin
Courtney Stevens (Minority)
C O N T E N T S
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Page
Opening Statement of Senator Mary L. Landrieu.................... 1
Statement of Senator Dan Coats................................... 3
Statement of Loren Yager, Director, International Affairs and
Trade, Government Accountability Office........................ 5
Statistics on Uncollected Duties................................. 5
Opportunities To Improve Collections of Anti-dumping and
Countervailing Duties.......................................... 6
Prepared Statement of Yoren Lager................................ 7
Past Initiatives To Improve Anti-dumping and Countervailing Duty
Collection Have Made Little Progress........................... 8
Additional Options Exist for Improving Collection of Anti-dumping
and Countervailing Duties...................................... 10
Statement of Allen Gina, Assistant Commissioner for International
Trade, Customs and Border Protection........................... 12
Prepared Statement of........................................ 13
Anti-dumping and Countervailing Duty Evasion..................... 14
A Layered Approach............................................... 15
New Approaches to Anti-dumping and Countervailing Duty
Enforcement.................................................... 15
The Jones Act.................................................... 16
Statement of J. Scott Ballman, Jr., Deputy Assistant Director,
National Intellectual Property Rights Coordination Center,
Immigration and Customs Enforcement............................ 17
Prepared Statement of........................................ 19
ICE Enforcement Efforts.......................................... 19
Anti-dumping and Countervailing Duties Program................... 19
Anti-dumping and Countervailing Duty Investigations.............. 20
Statement of Ronald Lorentzen, Deputy Assistant Secretary for
Import Administration, Department of Commerce.................. 21
Prepared Statement of........................................ 23
Resources Needs.................................................. 28
International Trade Administration Staffing...................... 31
New Shippers..................................................... 34
Jones Act Enforcement............................................ 36
Jones Act Resources.............................................. 37
Statement of Kristen M. Baumer, President, Paul Piazza & Son,
Inc., New Orleans, Louisiana................................... 38
Prepared Statement of........................................ 39
Statement of Eddy Hayes, Partner, Leake & Andersson, and
Professor, Trade Policy, Tulane Law School, New Orleans,
Louisiana...................................................... 42
Prepared Statement of........................................ 43
Statement of Keith Busse, Chairman and CEO, Steel Dynamics, Inc.,
Fort Wayne, Indiana............................................ 46
Prepared Statement of........................................ 47
Statement of Jim Adams, President and CEO, Offshore Marine
Service Association, New Orleans, Louisiana.................... 49
Prepared Statement of........................................ 50
Additional Committee Questions................................... 58
Questions Submitted to Loren Yager............................... 59
Questions Submitted by Senator Mary L. Landrieu.................. 59
Under-Collection of Tariff Revenue............................... 59
Reasons in Defense of a Retrospective Trade System............... 59
Shrimp Test Case................................................. 60
Characteristics of a Good Anti-dumping System.................... 61
Effective Communications......................................... 61
Bonding Requirements............................................. 62
Product Concentration............................................ 62
Willful Circumvention............................................ 63
Questions Submitted to Allen Gina................................ 63
Questions Submitted by Senator Mary L. Landrieu.................. 63
Collecting Duties on Shrimp...................................... 63
Use of Fines Collected for Investigations........................ 63
Transparency..................................................... 63
Louisiana Shrimp Industry........................................ 65
New Shipper...................................................... 67
Difficulty Collecting Duties..................................... 68
Verification Teams............................................... 69
Statute of Limitations........................................... 69
Sharing Information with Agencies................................ 69
Deemed Liquidations.............................................. 70
Faster Reaction to Industry Protests............................. 70
Human Capital and Planning....................................... 70
Bonding Requirements............................................. 71
Complaints of Jones Act Violations............................... 71
Notice of Arrival in the Outer Continental Shelf--Burdensome
Coast Guard Regulation......................................... 71
Cooperative Enforcement--CBP Failure To Assess Penalties for
Jones Act Violations........................................... 72
Product Concentration............................................ 73
Willful Circumvention............................................ 74
Time Lag......................................................... 74
Side Payments.................................................... 75
Effective Communications......................................... 75
Question Submitted by Senator Frank R. Lautenberg................ 75
Questions Submitted by Senator Daniel Coats...................... 76
Anti-dumping and Countervailing Duties Enforcement............... 78
Length of Time Devoted to Reviews and Investigations............. 78
Uncollected Anti-dumping Duties.................................. 79
Questions Submitted to J. Scott Ballman, Jr...................... 80
Questions Submitted by Senator Mary L. Landrieu.................. 80
Investigations and Access to Other Countries..................... 80
Investigative Effort............................................. 82
Product Concentration............................................ 83
Willful Circumvention............................................ 84
Time Lag......................................................... 84
Side Payments.................................................... 85
Effective Communications......................................... 85
Question Submitted by Senator Frank R. Lautenberg................ 85
Questions Submitted by Senator Daniel Coats...................... 86
Intellectual Property Rights..................................... 87
Anti-dumping and Countervailing Duties Enforcement............... 88
Length of Time Devoted to Reviews and Investigations............. 89
Uncollected Anti-dumping Duties.................................. 89
Questions Submitted to Ronald Lorentzen.......................... 90
Questions Submitted by Senator Mary L. Landrieu.................. 90
Chinese Circumvention............................................ 90
Issuing Duty Orders.............................................. 90
New Shippers..................................................... 91
Importance of Automated Commercial Environment................... 92
Time Lag......................................................... 92
Side Payments.................................................... 92
Deemed Liquidations.............................................. 93
Faster Reaction to Industry Protests............................. 93
Human Capital and Planning....................................... 93
Characteristics of a Good Anti-dumping System.................... 94
Effective Communications......................................... 95
Product Concentration............................................ 96
Willful Circumvention............................................ 96
Questions Submitted by Senator Daniel Coats...................... 96
Anti-dumping and Countervailing Duties Enforcement............... 96
Length of Time Devoted to Reviews and Investigations............. 97
Uncollected Anti-dumping Duties.................................. 97
Questions Submitted to Eddy Hayes................................ 100
Questions Submitted by Senator Mary L. Landrieu.................. 100
Importance of Anti-dumping Duties................................ 100
Require Cash Deposits............................................ 101
PROTECTING AMERICAN JOBS: STRENGTHENING TRADE ENFORCEMENT INCLUDING
ANTI-DUMPING AND MARITIME LAWS
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WEDNESDAY, MAY 25, 2011
U.S. Senate,
Subcommittee on Homeland Security,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:02 a.m., in room SD-124, Dirksen
Senate Office Building, Hon. Mary L. Landrieu (chairman)
presiding.
Present: Senators Landrieu and Coats.
opening statement of senator mary l. landrieu
Senator Landrieu. This meeting of the Homeland Security
Subcommittee will come to order.
I appreciate the witnesses joining us this morning, and our
ranking member, Senator Coats, and others will be joining us
momentarily. Let me begin with a brief opening statement.
The Department of Homeland Security (DHS), as we all know,
has many roles as it protects our country's security, including
our economic security, which is sometimes in this Department
overlooked. A critically underappreciated aspect of the
Department's economic security role is enforcement of our
Nation's trade laws.
After the Internal Revenue Service (IRS), DHS is
responsible for the next-largest source of revenue collection.
I think that might come as a surprise to many. In fiscal year
2009, U.S. companies imported more than $1.7 trillion in goods
and deposited $22 billion in estimated duties into the U.S.
Treasury.
When the American people and the Congress think of the jobs
performed by Customs and Border Protection (CBP) and
Immigration and Customs Enforcement (ICE), they think of men
and women on our borders with scopes, potentially rifles,
enforcing our immigration laws. But CBP and ICE are also
responsible for enforcing our trade laws, including anti-
dumping (AD) and maritime trade laws.
Together, with the Department of Commerce (DOC), these
agencies assess duties on imported goods, collect those duties,
and ensure that goods entering the Nation's stream of commerce
are safe, traded fairly and competitively. Unfortunately, many
U.S. businesses and their employees are harmed when other
countries and companies unfairly and illegally dump their goods
on the U.S. market. Those actions, frequently deliberate,
undercut the cost of products made in this country, thereby
increasing the cost of production, reducing profits, and
causing the loss of American jobs.
I am concerned that CBP is simply not doing all they can to
collect dumping duties that importers owe to the Federal
Government. According to your own statistics, more than $1.5
billion, including $1.04 billion in duties related to AD that
accumulated between 2001 and 2010, have yet to be collected. We
want to examine why this morning.
Since 2005, for example, importers of shrimp from China
have failed to pay more than $58 million in dumping duties,
some of which is supposed to be redistributed to injured
shrimpers, producers here in the United States, many of whom
are in my State and in the region, of course, of the gulf
coast.
Continued failure to collect these duties is fiscally
irresponsible, and it further threatens the vulnerability of
our gulf seafood industry that is struggling mightily to
recover from the impacts of not only four major hurricanes in
recent years, but also the devastating oil spill of just over a
year ago.
The shrimp industry particularly has been a fundamental
part of the Gulf of Mexico's culture for generations,
particularly in south Louisiana. It is especially important to
our State. In my State, we have at least 5,000 active
shrimpers. Most of these are individuals, and it is more than
just a job. It is an honored way of life, part of our culture.
Our shrimping business spans generations with entire
families working together, trawling, processing, and
distributing what is arguably the best-tasting shrimp--if I
have to say so myself--in the world. So, for hundreds of years,
these families have made their homes and towns and villages
along our coast and bayous. If this system breaks down, if this
system doesn't work, if we fail to collect the duties and
distribute them appropriately, this industry and this way of
life suffer.
Beyond its unique cultural significance, though, the
Louisiana shrimp industry contributes more than $1 billion
annually to our State's economy. But declining dock prices have
been a trend for the past 2 decades, with prices falling
precipitously since 1980.
In March 2008, the Government Accountability Office (GAO)
reported that as of September 2007, CBP had been unable to
collect more than $600 million owed in AD and countervailing
duties (CVDs) imposed to remedy this unfair competition. These
include duties imposed on products exported to the United
States at unfairly low prices, and duties on products exported
to the United States that were subsidized by foreign
governments. In addition to the substantial amount of lost
revenue, the uncollected duties cause concern that the U.S.
Government has not fully remedied these unfair trade practices.
And I could go on and on about the shrimp industry, but it
is not only the shrimp industry. Many, many industries are
affected. Senator Coats's steel manufacturing industry is
similarly affected, and we will be examining that in this
hearing.
In a separate trade issue, the Jones Act is designed to
strengthen the economic and military security of our Nation by
ensuring the existence of a robust merchant marine fleet. CBP
is charged with enforcing our Nation's cabotage laws, including
the Jones Act, which requires that any goods transported by
water between two coast-wide points in the United States must
be carried on ships that are built in America and crewed by
Americans.
According to a study prepared by PricewaterhouseCoopers for
the National Transportation Institute, Louisiana ranks No. 1 in
the Nation for jobs, economic output, labor compensation, and
value added related to the domestic maritime industry. This
industry is responsible in my State alone for almost 62,000
jobs, with $3.4 billion a year in wages and an annual gross
economic output of $14.25 billion.
I could go on and on. This Jones Act is not just important
to Louisiana, but to many, many States, particularly coastal
States. Working with DOC, CBP and ICE are charged with
enforcing these trade laws. As we will hear today, there are
too many examples of these agencies, in my view, not
aggressively doing the job they are charged to do.
So I would like to examine if this is true, and if not,
then what are the reasons that we are hearing so many of these
complaints? And if it is, what can we do to potentially
resource you better or streamline whatever regulations you are
bumping into to get this job done?
That is the purpose of this hearing. Our duty is to ensure
that your agencies, funded by this subcommittee, are provided
the resources needed to do an excellent job in this field to
enforce our existing trade laws. It is important for our
businesses. We are trying to grow jobs in America, not lose
them.
And we are trying to close a substantial budget gap. We
don't want to leave $1 billion or $2 billion or $3 billion on
the table when it can be collected and contribute to our effort
and the great challenge that is before this Congress today.
So these are some of the facts that we hope to bring
forward. We are trying to understand whether the failure to
collect AD duties is a result of the authorization, weak
authorization law, which potentially needs to be strengthened,
or is it a lack of resources to enforce the law? Or is it just
a failure of the agencies to communicate, a deliberate lack of
aggressiveness, or some combination of the above?
We want to get to the bottom of this. I have had many,
many, many complaints from my State from a broad variety, wide
variety of industries.
So I thank you all for coming. I want this to be productive
and constructive. We want to be helpful to you as these
challenges, I am sure, are mounting.
So before we get to your opening remarks, I would like to
turn to my ranking member, Senator Coats, for his opening
statement. And thank you for joining me and for your interest
in this subject, Senator.
statement of senator dan coats
Senator Coats. Madam Chair, thank you. And thank you for
having this hearing today.
I think it is a good opportunity for me to make the
acquaintance of individuals that I am happy to be working
alongside of in the future. I am new to this Committee and new
to the subcommittee, but I am privileged to be able to serve as
ranking member on this subcommittee, along with Senator
Landrieu.
I want to assure you that those of us in Indiana don't have
access to Indiana shrimp. So Louisiana is the highest priority
in our shrimp orders. I am going to be asking from now on when
I order shrimp at our restaurants whether it is Louisiana
shrimp or not----
Senator Landrieu. Make sure it is gulf shrimp.
Senator Coats [continuing]. And make sure that it is.
I would like to just tag on a little bit to what the
chairwoman has said here regarding collection of duties on
importation of goods. I don't need to remind everybody we are
at a time of fiscal constraint and looking for ways in which to
continue to do our jobs effectively and efficiently with
perhaps less resources.
And I have noticed how, and been personally engaged in
helping support, additional revenues for our various police,
sheriffs, and State trooper funds. I have noticed a very
significant increase in the amount of cars pulled over to the
side of the road, or tickets issued. They have met their fiscal
challenge by making all of us safer drivers, including me.
So I think collection of duties is one way we can help
offset some of the potential declining revenues or static
revenues we are seeing. So I encourage you to continue to think
along these terms.
My understanding is last fiscal year, 2010, CBP processed
nearly $2 trillion in imports and collected more than $32
billion in duties, taxes, and fees. In addition to ensuring the
free flow of goods and people across our borders, CBP, ICE, and
DOC enforce laws that ensure fair trade and fair competition.
We do not want to encourage overly aggressive and
unnecessary collection efforts, but by the same token, those
that violate the laws need to be prosecuted. And collection of
those fees is important. It sends a very important signal, I
think, to those who are skirting the law that we are not going
to tolerate that--that they do not have an easy path in terms
of bringing their goods into this country illegally.
Trade enforcement, whether it is AD orders, intellectual
property rights, or safety of commercial merchandise, is
vitally important to this country. Trade laws are especially
important to my State of Indiana, where we have a number of
steel, pipe, furniture, and other companies that rely on AD/
CVDs to protect against unfair imports.
I am proud that a leading representative of the steel
industry, Keith Busse from Steel Dynamics, is here today to
stress the importance of enforcing these trade laws. And we
will hear from him in the second panel.
There are many of us who feel that each of your
organizations should be doing more to enforce our trade laws.
To give a sense of enforcement efforts in fiscal year 2010,
CBP's Office of Laboratory and Scientific Services provided
support in 977 shipments of products involved in AD cases and
484 cases involving intellectual property rights.
Since fiscal year 2006, ICE has initiated 391 cases based
on allegations of fraud regarding AD orders. I hope that we
will be able to discuss with all of our witnesses today how
trade enforcement can be improved and what level of resources
we should put toward these efforts, and I look forward to our
discussion.
Thank you, Madam Chair.
Senator Landrieu. Thank you, Senator. I really appreciate
your focus and interest.
I would like to recognize our panel. In this order, ask
them for their statements. Mr. Loren Yager from the Government
Accountability Office; Mr. Allen Gina from Customs and Border
Protection; Mr. Scott Ballman from Immigration and Customs
Enforcement; and Mr. Ronald Lorentzen from the Department of
Commerce.
So, Mr. Yager, if you will begin? And I think we have asked
you for 3 to 5 minutes?
Thank you.
STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, GOVERNMENT
ACCOUNTABILITY OFFICE
Mr. Yager. Madam Chair Landrieu, Ranking Member Coats,
thank you for the opportunity to appear before the subcommittee
to present our findings on the enforcement of AD/CVDs.
Senator Landrieu. Could you pull the mike a little bit
closer to you? It is a little difficult, but it moves. You can
just--there you go.
Mr. Yager. Okay. Madam Chair Landrieu, as you mentioned in
your opening statement, the U.S. Government has not fully
remedied the unfair trade practices for the U.S. industry and
has also lost out on a substantial amount of duties that would
have increased revenue to the U.S. Treasury.
As you know, DOC is responsible for calculating the
appropriate AD/CVD rate. CBP is responsible for collecting any
additional duties, called liquidating. And ICE provides the
investigative support for these and other enforcement issues
related to the U.S. border.
Madam Chair, my written statement summarizes the key
efforts undertaken by CBP and DOC related to the issue of
collection in recent years, efforts that have not solved the
problem of significant lost revenues.
In the past month, there have been hearings and also public
events focused on the design of the system and whether the
United States should consider a change to the current system
that we have called a retrospective system. I am happy to
answer any questions related to the design of this system.
However, in my remarks today, let me focus on two aspects
that are of more immediate relevance to this subcommittee, and
these are related to getting the most effective use of the
current resources--first, the need for better information and
second, the need for better communication among the agencies to
reduce the incidence of uncollected duties.
statistics on uncollected duties
First, let me talk about the importance of better
information. As we demonstrated in our 2008 report, there are a
few key statistics that are central to understanding the issue.
For example, GAO found in 2008 that uncollected duties were
highly concentrated. Four products accounted for 84 percent of
the uncollected duties. Importers purchasing from China
accounted for 90 percent, and new shippers accounted for 40
percent of those uncollected duties.
Senator Landrieu. Could you state those again, please?
Mr. Yager. Yes.
Senator Landrieu. Four industries accounted for 80 percent?
Mr. Yager. For 84 percent. Importers purchasing from China
accounted for 90 percent, and new shippers, which is a
particular category of shippers, which can be explained also by
DOC and CBP, accounted for 40 percent of the uncollected
duties.
Senator Landrieu. Okay.
Mr. Yager. This type of information helped the agencies,
the Congress, and other stakeholders understand the nature of
the problem and suggest ways to improve operations and to find
solutions. However, from what we can gather, CBP and DOC have
not updated most of these statistics since our 2008 report, and
we believe they are missing an opportunity to utilize up-to-
date information to identify the key risks and reduce
uncollected duties.
opportunities to improve collections of anti-dumping and countervailing
duties
A second issue of particular interest to this panel is
whether there are additional opportunities for the agencies
represented here today to better communicate in ways that might
make their individual efforts more effective. Let me give three
examples.
The first is eliminating what is called ``deemed
liquidations''. These represent a failure in the system as an
entry is deemed liquidated if CBP does not issue the
liquidation order within 6 months of DOC's notice in the
Federal Register. This means that the Treasury forfeits all
revenue that might have been collected as a result of a review.
Second is identifying the bad actors. We know from our 2008
report that only 20 firms represented 63 percent of all
uncollected duties. This suggests that early warnings are
needed to prevent bills of that magnitude, and it appears
collectively that the agencies have much of the necessary
information, either from themselves or from the private sector.
Whether this is ICE, who suspects that some firms may be
owned by individuals who have avoided payment in the past; or
it may be DOC, who might be aware that firms are importing
large quantities on a minimal bond. And sharing that kind of
information could prevent some of the largest bills from being
created by firms who have no intention to pay.
And finally, improving workforce planning. In a
presentation last week, CBP made the point that they don't know
what is likely to happen even the next day in terms of the
volume of liquidation instructions that come from DOC. It could
be a slow day, or it could be a massive day for them in terms
of trying to get those liquidation instructions out.
This has obvious implications for workforce planning and
staffing and a major impact on the ability of the office to
complete its work in an efficient manner. As a result, it is
worth asking what kind of information DOC can legally provide
to CBP in advance so that they can make appropriate decisions
with regard to planning and ensuring that their work
environment moves smoothly through their responsibilities.
prepared statement
Madam Chair Landrieu, Ranking Member Coats, this concludes
my statement. I would be happy to answer any questions that you
have.
[The prepared statement follows:]
Prepared Statement of Yoren Lager
Chairman Landrieu, Ranking Member Coats, and members of the
subcommittee: Thank you for the opportunity to appear before the
subcommittee to present our findings on the enforcement of anti-dumping
and countervailing duties (AD/CVDs). Since fiscal year 2001, the
Federal Government has been unable to collect more than $1 billion in
AD/CVDs imposed to remedy injurious, unfair foreign trade practices.\1\
These include AD duties imposed on products exported to the United
States at unfairly low prices (i.e., dumped) and CVDs on products
exported to the United States that were subsidized by foreign
governments. These uncollected duties show that the U.S. Government has
not fully remedied the unfair trade practices for U.S. industry and has
lost out on a substantial amount of duties that would have increased
revenue to the U.S. Treasury.
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\1\ In this testimony we use the phrase ``uncollected AD/CVDs'' to
mean the sum of all open, unpaid bills for AD/CVDs, which includes
those currently under protest. We include the principal amount of the
bill, but not any accrued interest. This amount does not include
revenue that is written off or forgone when the U.S. Government is
unable to issue duty bills within statutory deadlines.
---------------------------------------------------------------------------
In my statement today, I will summarize key findings from our prior
reports on (1) past initiatives to improve AD/CVD collection and (2)
additional options for improving AD/CVD collection. This statement is
based on a body of work that we have conducted over the last several
years for the Congress on issues related to the enforcement of U.S.
trade laws, particularly a 2008 report on collection of AD/CVDs and a
report, issued earlier this year, that included improved collection of
AD/CVDs among opportunities for enhancing Government revenue.\2\ Since
our 2008 report was issued, we have followed up with the U.S.
Government agencies involved in responding to our recommendations to
improve AD/CVD collection. We conducted our work 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.
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\2\ GAO, Antidumping and Countervailing Duties: Congress and
Agencies Should Take Additional Steps to Reduce Substantial Shortfalls
in Duty Collection, GAO-08-391 (Washington, DC: Mar. 26, 2008), and
Opportunities to Reduce Potential Duplication in Government Programs,
Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, DC:
Mar. 1, 2011). See also International Trade: Customs' Revised Bonding
Policy Reduces Risk of Uncollected Duties, but Concerns about Uneven
Implementation and Effects Remain, GAO-07-50 (Washington, DC: Oct. 18,
2006).
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background
The United States and many of its trading partners have established
laws to remedy the unfair trade practices of other countries and
foreign companies that cause injury to domestic industries. U.S. law
authorizes the imposition of AD/CVDs to remedy these unfair trade
practices, namely dumping (i.e., sales at less than normal value) and
foreign government subsidies. The U.S. AD/CVD system is retrospective,
in that importers pay estimated AD/CVDs at the time of importation, but
the final amount of duties is not determined until later. By contrast,
other major U.S. trading partners have AD/CVD systems that, although
different from one another, are fundamentally prospective in that AD/
CVDs assessed at the time a product enters the country are essentially
treated as final.
Two key U.S. agencies are involved in assessing and collecting AD/
CVDs owed. The Department of Commerce (DOC) is responsible for
calculating the appropriate AD/CVD rate, which it issues in an AD/CVD
order.\3\ DOC typically determines two types of AD/CVD rates in the
course of an initial AD/CVD investigation on a product: a rate
applicable to a product associated with several specific manufacturers
and exporters, as well as an ``all others'' rate for all other
manufacturers and exporters of the product who were not individually
investigated. After the initial AD/CVD investigation, DOC can often
conduct two subsequent types of review: administrative and new shipper.
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\3\ Among other things, the order specifies the products for which
importers must pay AD/CVDs.
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Administrative Review
One year after the initial rate is established, DOC can also
conduct a review to determine the actual, rather than estimated, level
of dumping or subsidization. At the conclusion of the administrative
review, the final duty rate, also known as the liquidation rate, is
established for the product.
New Shipper Review
After an initial rate is established, a new shipper (i.e., a
shipper who has not previously exported the product to the United
States during the initial period of investigation and is not affiliated
with any exporter who exported the subject merchandise) who is subject
to the ``all others'' rate can request that DOC conduct a review to
establish the shipper's own individual AD/CVD rate.
U.S. Customs and Border Protection (CBP), part of the Department of
Homeland Security (DHS), is responsible for collecting the AD/CVDs. The
initial AD/CVD order issued by DOC instructs CBP to collect cash
deposits at the time of importation on the products subject to the
order. Once DOC establishes a final duty rate, it communicates the rate
to CBP through liquidation instructions, and CBP instructs staff at
each port of entry to assess final duties on all relevant products
(technically called liquidating).\4\ This may result in providing
importers--who are responsible for paying all duties, taxes, and fees
on products brought into the United States--with a refund or sending an
additional bill.
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\4\ 19 U.S.C. 1500. Legal authority over customs revenue functions
is vested in the Secretary of the Treasury and, under Treasury Order
165, was delegated to the U.S. Customs Service. In March 2003, the U.S.
Customs Service was transferred to DHS, and authority over customs
revenue functions was delegated to DHS. 68 Fed. Reg. 10777-01 (Mar. 6,
2003).
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CBP is also responsible for setting the formula for establishing
the bond amounts that importers must pay. To ensure payment of
unforeseen obligations to the Government, all importers are required to
post a security, usually a general obligation bond, when they import
products into the United States.\5\ This bond is an insurance policy
protecting the U.S. Government against revenue loss if an importer
defaults on its financial obligations. In general, the importer is
required to obtain a bond equal to 10 percent of the amount the
importer was assessed in duties, taxes, and fees over the preceding
year (or $50,000, whichever is greater). In addition, importers
purchasing from the new shipper can pay estimated AD/CVDs by providing
a bond in lieu of paying cash to cover the duties--an option known as
the new shipper bonding privilege.
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\5\ 19 CFR 142.4.
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We previously reported that more than $613 million in AD/CVDs from
fiscal years 2001 through 2007 went uncollected, with the uncollected
duties highly concentrated among a few industries, products, countries
of origin, and importers.\6\ Recent CBP data indicate that uncollected
duties from fiscal year 2001 to 2010 have grown to more than $1 billion
and are still highly concentrated. For example, according to CBP, five
products from China account for 84 percent of uncollected duties.\7\
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\6\ GAO-08-391.
\7\ The products are crawfish, fresh garlic, mushrooms, honey, and
wooden bedroom furniture.
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past initiatives to improve anti-dumping and countervailing duty
collection have made little progress
CBP, the Congress, and DOC have undertaken several initiatives to
address the problem of uncollected AD/CVDs. However, these initiatives
have not resolved the problems associated with collections.
CBP Temporarily Adjusted Standard Bond-Setting Formulas
In response to the problems of collecting AD/CVDs, in July 2004,
CBP announced a revision to bonds covering certain imports subject to
these duties, significantly increasing the value of bonds required of
importers. CBP's goal was to increase protection for securing AD/CVD
revenue for certain imports when the final amount of duties owed
exceeds the amount paid at the time of importation, without imposing an
``excessive burden'' on importers. In February 2005, CBP applied this
revision to imports of shrimp from six countries as a test case, which
covered a potential increase in the final AD duty rate of up to 85
percent from the initial rate. However, shrimp importers reported that
the costs were substantial because they had to pay up front higher
premiums and larger collateral requirements to obtain the bonds for the
initial duties.\8\ These increased up-front costs can deter malfeasance
by illegitimate importers by increasing the cost of importing
merchandise subject to AD/CVDs, but may also impose costs on legitimate
importers that pose little risk of failing to pay retrospective AD/
CVDs. The enhanced bonding requirement was subject to domestic and
World Trade Organization (WTO) litigation, and CBP decided to terminate
the requirement in April 2009.\9\
---------------------------------------------------------------------------
\8\ GAO-07-50 and GAO-08-391.
\9\ In 2005, separate trade associations, whose membership includes
some of the affected importers, filed two lawsuits against the United
States challenging the bond policy. The Court of International Trade
(CIT) dismissed one of the cases without a finding on the merits in
2008. Seafood Exps. Ass'n of India v. United States, case No. 05-00347,
court order of Feb. 19, 2008 (docket entry No. 54). In August 2009, CIT
issued a decision on the second case and ordered the enhanced bonding
policy be set aside as arbitrary, capricious, and otherwise not in
accordance with law. National Fisheries Inst. v. United States, 673 F.
Supp. 2d 1270 (Ct. Int'l Trade 2009). CIT remanded the bond amount
determinations and found that although CBP possessed the authority to
require bonds that take into account anti-dumping duties, it
arbitrarily and capriciously imposed the new bond formula solely on
U.S. importers of subject shrimp. Id. In October 2010, CIT issued a
final judgment sustaining CBP's recalculation of the bond amounts using
the pre-2004 bonding formula. National Fisheries Inst. v. United
States, No. 05-00683, 2010 WL 4121855 (Ct. Int'l Trade Oct. 21, 2010).
In addition, WTO's Appellate Body ruled in July 2008 that CBP's
enhanced bonding requirement was inconsistent with U.S. obligations
under international agreements. United States--Measures Relating to
Shrimp from Thailand and United States--Customs Bond Directive for
Merchandise Subject to Anti-Dumping/Countervailing Duties, WT/DS343/AB/
R and WT/DS345/AB/R.
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The Congress Temporarily Suspended New Shipper Bonding Privilege
The Congress partially addressed the risk that CBP would not be
able to collect AD/CVDs from new shippers by suspending the new shipper
bonding privilege from August 2006 to July 2009.\10\ As a result,
importers purchasing from new shippers were required to post a cash
deposit for estimated AD/CVDs, like all other importers. This
requirement eliminated the risk of uncollected AD/CVD revenues when the
final duty amounts were assessed at the cash deposit rate or less
because CBP did not have to issue a bill for the bonded amount.\11\
Upon the July 2009 expiration of the requirement, the new shipper
bonding privilege was reinstated. The Treasury stated in a 2008 report
to the Congress that the added risk associated with the bond compared
with the cash deposit is low.
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\10\ Pension Protection Act of 2006, Public Law No. 109-280,
section 1632(a), 120 Stat. 780, 1165.
\11\ This temporary requirement did not eliminate the risk of
uncollected AD/CVDs in instances where the final duty rate amount
exceeded the cash deposit amount.
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Department of Commerce Continues Efforts To Improve Liquidation
Instructions
DOC has taken steps to improve the transmission of liquidation
instructions to CBP, which should improve CBP's ability to liquidate
AD/CVDs in a timely manner. Once DOC determines the final AD/CVD, it
publishes a notice in the Federal Register, and CBP has 6 months to
complete the liquidation process.\12\ If CBP fails to complete the
liquidation process within 6 months, an entry is ``deemed liquidated''
at the rate asserted by the importer at the time of entry.\13\ Once an
entry has been deemed liquidated, CBP cannot attempt to collect any
supplemental additional duties that might have been owed because of an
increase in the AD/CVD rate from initial to final. DOC's liquidation
instructions are necessary for CBP to assess and collect the
appropriate amount of AD/CVDs in a timely manner. However, we reported
in 2008 that there were frequent delays in DOC's transmission of
liquidation instructions to CBP, and that about 80 percent of the time,
DOC failed to send liquidation instructions within its self-imposed 15-
day deadline. In addition, we found that DOC's liquidation instructions
were sometimes unclear, thereby causing CBP to take extra time to
obtain clarification. In December 2007, after we made DOC officials
aware of the untimely liquidation instructions, DOC announced a plan
for tracking timeliness, including a quarterly reporting requirement.
In April 2011, DOC officials told us that DOC had deployed a system for
tracking DOC's liquidation instructions. In addition, DOC and CBP
established a mechanism for CBP port personnel to submit questions to
DOC regarding liquidation issues.
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\12\ 19 U.S.C. 1504(d).
\13\ The importer must use reasonable care in making entry and,
when filing electronically, certify that the information is true and
correct to the best of his knowledge. 19 U.S.C. 1484.
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Agencies Believe Using International Agreements To Collect Duties Would
Be Difficult and Ineffective
The House and Senate Appropriations Committees directed us to
examine whether international agreements to which the United States is
a party could be strengthened to improve the collection of AD/CVDs from
importers with no attachable assets in the United States. We reported
in 2008 that U.S. agency officials believed this would be both
difficult and ineffective because of two key obstacles: Few countries
are willing to enter into negotiations, and United States and foreign
governments have a practice of not enforcing a revenue claim based upon
the revenue laws of another country.\14\ In addition, agency officials
stated that strengthening international agreements would not
substantially improve the collection of AD/CVDs, given the
retrospective nature of the AD/CVD system and the high cost of
litigation.
---------------------------------------------------------------------------
\14\ GAO, Agencies Believe Strengthening International Agreements
To Improve Collection of Antidumping and Countervailing Duties Would Be
Difficult and Ineffective, GAO-08-876R (Washington, DC: July 24, 2008).
---------------------------------------------------------------------------
additional options exist for improving collection of anti-dumping and
countervailing duties
There are two key components of the U.S. AD/CVD system that have
not been addressed but could improve the collection of AD/CVDs: the
retrospective nature of the system and the new shipper review process.
In addition, DOC and CBP are contemplating changes to the bonding
process.
Retrospective Nature of United States System Could Be Revised
One key component of the U.S. AD/CVD system is its unique
retrospective nature, which creates risks of uncollected duties both
because of time lags and rate changes. As discussed earlier, importers
pay the estimated amount of AD/CVDs when products enter the United
States, but the final amount of duties owed is not determined until
later. In 2008, we found that the average time elapsed between entry of
goods and liquidation was more than 3 years. The long time lag between
the initial entry of a product and the final assessment of duties
heightens the risk that the Government will be unable to collect the
full amount owed, as importers may disappear, cease business
operations, or declare bankruptcy.
The final amount owed under the retrospective system of the United
States can also be substantially more than the original estimate,
putting revenue at risk. We reported that, while final AD duty rates
are lower than or the same as the estimated duty rates the vast
majority of the time, in some cases final duty rates are significantly
higher. On the basis of our analysis of more than 6 years of CBP data
covering more than 900,000 entries subject to AD duties, we found that
duty rates went up 16 percent of the time, went down 24 percent of the
time, and remained the same 60 percent of the time.\15\ When duty rates
increased, the median increase was less than 4 percentage points.\16\
However, because of some large increases, the average rate increase was
62 percentage points, with some increases greater than 150 to 200
percentage points. The majority of uncollected duty bills more than
$500,000 are attributed to rate increases greater than 150 percentage
points.
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\15\ For information on how we calculated these duty rate changes,
see GAO-08-391.
\16\ A median increase of 4 percentage points means that half of
the time the rate increased less than 4 percentage points.
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In our 2008 report, we noted that the advantages and disadvantages
of prospective and retrospective AD/CVD systems differ and depend on
specific design features.
--In prospective AD/CVD systems, the amount of AD/CVDs paid by the
importer at the time of importation is essentially treated as
final.\17\ This eliminates the risk of being unable to collect
AD/CVDs and creates certainty for importers. In a retrospective
AD/CVD system, however, the amount of AD/CVDs owed is not
determined until well after the time of importation. This time
lag can result in ``bad actors'', those importers who
intentionally avoid paying required duties, not being
identified until they have been importing for a long time. Only
after its collections efforts are unsuccessful does the
Government clearly know that duties owed by this importer are
at serious risk for noncollection.
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\17\ If and when the AD/CVD rate is changed under a prospective
system, it is applied only to future imports and has no effect on the
amount of duties owed for previous imports.
---------------------------------------------------------------------------
--Prospective AD/CVD systems create a smaller burden for customs
officials because the full and final amount of AD/CVDs is
assessed at the time of importation, whereas, according to CBP,
the retrospective AD/CVD system of the United States places a
unique and significant burden on CBP's resources.
--Depending on the design of the prospective AD/CVD systems, the
amount of duties assessed is based on dumping or subsidization
that occurred in a previous period, and therefore may not equal
the amount of actual dumping or subsidization, whereas under a
retrospective AD/CVD system, the amount of duties assessed
reflects the actual amount of dumping by the exporter for the
period of review. However, in practice, a substantial amount of
retrospective AD/CVD bills are not collected.
In response to a recommendation in our 2008 report, DOC reported to
the Congress in 2010 on the advantages and disadvantages of
retrospective and prospective systems.\18\ While the DOC report cites a
variety of strengths and weaknesses for both systems, it states that
retroactive increases in AD/CVDs are particularly harmful for small
businesses such as shrimp and seafood importers. Under a retrospective
system, the DOC report notes, such small U.S. importers potentially
face years of uncertainty over duty liability that can hinder their
ability to make informed business decisions, plan investments, and
create jobs.
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\18\ DOC, International Trade Administration, Relative Advantages
and Disadvantages of Retrospective and Prospective Antidumping and
Countervailing Duty Collection Systems: A Report to Congress.
(Washington, DC: November 2010).
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New Shipper Review Process Could Be Enhanced
Another component of the AD/CVD collection system that has not been
resolved is the new shipper review process. This process allows new
manufacturers or exporters to petition for their own separate AD/CVD
rate. However, U.S. law does not specify a minimum amount of exports or
number of transactions that a company must make to be eligible for a
new shipper review, and according to DOC officials, they do not have
the legislative authority to create any such requirement. As a result,
a shipper can be assigned an individual duty rate based on a minimal
amount of exports--as little as one shipment, according to DOC--and can
intentionally set a high price for this small amount of initial
exports. This creates the possibility that companies may be able to get
a low (or 0 percent) initial duty rate, which will subsequently rise
when the exporter lowers its price. This creates additional risk by
putting the Government in the position of having to collect additional
duties in the future rather than at the time of importation. Importers
that purchased goods from companies undergoing a new shipper review are
responsible for approximately 40 percent of uncollected AD/CVDs.
The Department of Commerce and Customs and Border Protection Recently
Proposed Additional Changes to the Bonding Process
DOC and CBP have proposed additional changes to the bonding process
to try to reduce the risk of uncollected AD/CVDs. In April 2011, DOC
proposed a rule that would eliminate the bond that all shippers post
when entering products under an AD/CVD investigation and require a cash
deposit instead.\19\ A key reason for the change is that importers bear
full responsibility for future duties, according to DOC. Separately, in
May 2011, CBP's Commissioner of International Trade stated in a Senate
hearing that CBP is developing internal guidance to require that
importers at risk of evasion take out one-time bonds that cover at
least the full value of the shipment (single-transaction bonds).
Currently, shippers typically take out a ``continuous bond'' that
covers all import transactions over the course of a year, and is
calculated at 10 percent of the prior year's duties (or $50,000,
whichever is greater). GAO has not reviewed these proposals or assessed
their potential effect on the collection of additional AD/CVDs.
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\19\ DOC regulations refer to this as a ``provisional measure''. 76
Fed. Reg. 23225 (April 26, 2011).
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concluding observations
The existence of a substantial amount of uncollected AD/CVDs
undermines the effectiveness of the U.S. Government's efforts to remedy
unfair foreign trade practices for U.S. industry. While the Congress
and Federal agencies have taken actions to address the problem of
uncollected duties, these initiatives have met with little success.
Some additional options exist that the Congress could pursue to further
protect Government revenue. In particular, the Congress could eliminate
the retrospective component of the U.S. AD/CVD system and consider the
variety of alternative prospective systems available. The Congress
could also make adjustments to specific aspects of the U.S. AD/CVD
system without altering its retrospective nature, such as by providing
DOC the discretion to require companies applying for a new shipper
review to have a minimum amount or value of imports before establishing
an individual AD/CVD rate. However, any effort to improve the U.S. AD/
CVD system should consider the additional costs placed on legitimate
importers while attempting to address the issue of illegitimate
importers. We continue to respond to congressional interest in this
issue, and have recently begun a review of the evasion of trade duty
laws, in response to a request from the Subcommittee on International
Trade, Customs, and Global Competitiveness, Senate Committee on
Finance.
Chairman Landrieu, Ranking Member Coats, this completes my prepared
statement. I would be happy to respond to any questions you or other
members of the subcommittee may have at this time.
Senator Landrieu. Thank you very much.
We look forward to working closely with you, Mr. Yager.
Mr. Gina.
STATEMENT OF ALLEN GINA, ASSISTANT COMMISSIONER FOR
INTERNATIONAL TRADE, CUSTOMS AND BORDER
PROTECTION
Mr. Gina. Good morning.
Madam Chair Landrieu, Ranking Member Coats, and members of
the subcommittee, it is an honor to appear before you today to
discuss CBP's responsibility to detect and prevent the evasion
of AD/CVDs.
Senator Landrieu. You have to pull your mike a little
closer.
Mr. Gina. Absolutely.
Senator Landrieu. There you go.
Mr. Gina. Thank you.
My name is Al Gina, and I have been with CBP and its legacy
agency, the U.S. Customs Service, for 29 years. While I am new
to my role as assistant commissioner, Office of International
Trade, I am committed to ensuring that the AD/CVD laws are
enforced and that those who would try to evade those laws are
identified and dealt with appropriately.
In today's oral testimony, I will be highlighting the
principal points set out in my previously submitted written
statement.
AD/CVD evasion is a significant challenge for the United
States. And while we have had some successes, we realize that
we must be more innovative and assertive to combat increasingly
complex strategies used to evade AD/CVDs, which undermines the
vitality of the U.S. industry and the integrity of our trade
remedy laws.
First, I would like to outline the challenges we see with
evasion and dumping collection. We see multiple techniques used
to evade, often used together in complex schemes. We see
illegal transshipments, undervaluation, failure to manifest,
misclassification, and other techniques, such as employing
shell companies or the use of foreign businesses outside the
reach of CBP's authorities.
To address these threats, we use a layered approach by
taking actions before and after goods enter the United States.
Before goods arrive, CBP works with U.S. industry and foreign
customs agencies to share information and assess risk of
incoming shipments.
Based on information received and risk assessments, we may
sample goods to determine country of origin at time of entry.
After entry, we perform verifications in order to further
assess risk and determine if additional corrective actions
should be taken.
To track the valuable information that the private sector
shares with us, we established CBP's e-Allegations online
referral system in June 2008. We take each claim seriously, and
we have researched 4,000 commercial allegations of which nearly
10 percent are AD/CVD-related.
CBP has also taken steps to specifically improve the
collection of AD/CVDs on shrimp imports by requiring enhanced
bonds. These efforts have been litigated in both the World
Trade Organization (WTO), as well as the Court of International
Trade. However, CBP continues to explore changes to enhance
bonding requirements.
Additionally, CBP works with the private sector and ICE by
initiating enforcement operations. In the last 2 years, 10 AD/
CVD-focused operations have been conducted, resulting in
successful cases on steel wire hangers, citric acid, mattress
innerspring units, honey, furniture, tissue paper, lumber,
catfish, and frozen shrimp.
Also in the last 5 years, CBP has conducted 215 CVD/AD-
related audits and has recommended $42 million in recovery.
However, CBP recognizes, as stated by Commissioner Bersin, that
new methods of detection and deterrence are needed in this area
of concern, and we look forward to continuing our work with
DOC, ICE, GAO, industry, and this subcommittee to identify the
most productive ways to deter dumping evasion and provide a
level playing field.
Some approaches, if I might mention, under consideration
include the greater use of single-transaction bonds for
importers when we suspect a risk to revenue. We will pursue
regulatory and statutory changes to address the risk of
nonpayment or evasion posed by nonresident importers of record.
To trace the origin of goods imported using false
documents, we need better information and verification of
production capabilities in potential transshipment countries.
Therefore, we are discussing how to secure new authority to
conduct site visits in cooperation with host countries.
We are working with DOC on the exchanging of information
that will help us verify the legitimacy of goods and to tighten
the new shipper requirements, which we see as a potential risk.
And we are in discussion with others to develop task forces
that would concentrate resources on the most complex criminal
cases, just as we have done with intellectual property rights.
PREPARED STATEMENT
Madam Chair Landrieu, members of the subcommittee, thank
you again for the opportunity to testify today, and I look
forward to working with you to address these issues. And I will
be happy to answer your questions.
Thank you.
[The prepared statement follows:]
Prepared Statement of Allen Gina
introduction
Chairman Landrieu, Ranking Member Coats, and members of the
subcommittee, it is an honor to appear before you today to discuss U.S.
Customs and Border Protection's (CBP) trade enforcement role,
specifically in detecting and preventing the circumvention of anti-
dumping and countervailing duties (AD/CVDs) on imported goods.
My name is Al Gina, the Assistant Commissioner for CBP's Office of
International Trade. I have been with CBP and its legacy agency, the
U.S. Customs Service, for 29 years. While I am new to my role as
Assistant Commissioner, Office of International Trade, I am very
committed to ensuring that the AD/CVD laws are vigorously enforced and
that those who would try to evade those laws are identified and dealt
with appropriately. Thank you for this opportunity to appear here
today.
My testimony will highlight CBP's enforcement stance, provide
examples of actions and initiatives performed in support of U.S. AD/CVD
laws, and present some of the challenges we face while enforcing those
important laws.
anti-dumping and countervailing duty evasion
CBP and U.S. producers have a common interest in preventing the
evasion of AD/CVDs, which undermines the vitality of U.S. industry and
the integrity of our trade remedy laws. We take all indications or
allegations of evasion very seriously, and in coordination with U.S.
Immigration and Customs Enforcement (ICE), employ all available methods
in accordance with the law to address these matters. Recent publicized
arrests and convictions by ICE and the Department of Justice (DOJ),
with significant CBP assistance, are evidence of this. However, the
increasing complexity of the strategies employed by parties to evade
AD/CVDs poses a significant challenge.
CBP has a statutory responsibility to collect all revenue due to
the U.S. Government that arises from the importation of goods. In
fiscal year 2010, CBP collected $310 million in AD/CVD deposits on $5.4
billion of goods subject to AD/CVD orders. CBP's main challenge in all
areas of trade enforcement, including AD/CVD enforcement, is to
identify the small minority of noncompliant shipments amid the universe
of compliant shipments.
CBP's ability to fulfill its statutory responsibility to collect
all revenue due to the U.S. Government that arises from the importation
of goods has been affected by companies that willfully circumvent the
provisions of the AD/CVD laws in order to avoid paying AD/CVDs. As
evidenced by Senator Wyden's staff report on duty evasion, it is not
difficult for an importer to find and collude with a producer to avoid
paying dumping duties. Many of the parties identified in the Wyden
report were able to hide their identity as part of the import
transaction process.
Evasion takes several forms and often involves the collusion of
several parties, including the manufacturer, shippers, and the
importer. Several schemes may be employed at once, further complicating
an already challenging task:
--Illegal transshipment involves the manipulation of documents and
shipping logistics to disguise the true country of origin of a
product. Transshipment is often built into production by
design, with false markings and packaging devised to
purposefully mimic legitimate production in other countries.
Determining a product's country of origin through visual
inspection or through verification of shipping documents can be
very difficult, especially if cargo has been manipulated prior
to import, completely masking the connection back to the true
source country.
--Undervaluation involves the intentional falsification of documents
and declarations to reduce the amount of AD/CVD a company must
pay. Beyond the suspicion of undervaluation, it can be
difficult to sufficiently prove that it is occurring,
especially if there is collusion between the producer and
importer to create false values.
--Failure to manifest (i.e., smuggling) is when a company does not
declare goods on its entry documents in order to avoid paying
AD/CVDs.
--Misclassification includes improperly declaring goods with the
proper duty classification, or misdescribing the goods to avoid
suspicion of dumping. This is easier to detect and address than
other schemes, but is often used in combination with another
scheme such as transshipment, so that it may still appear to
fall outside the scope of an AD/CVD case.
--Other schemes that exist include taking advantage of loopholes
related to administrative reviews, product engineering to fall
outside the scope of a case, employing shell companies as a
primary means of avoiding payment, or the use of foreign
businesses outside the reach of CBP authorities.
Despite these challenges CBP, in partnership with ICE, has been
increasingly successful in uncovering instances of illegal
transshipment and penalizing those in the United States responsible for
this fraud. Our recent enforcement activities include:
--Special operations attacking illegal transshipment of Chinese steel
wire garment hangers through Vietnam, Korea, and Mexico,
concluding with the assessment of $13.1 million in AD/CVDs and
the arrests of two Mexican citizens.
--An ongoing CBP/ICE operation on illegal transshipment of Chinese
citric acid resulting in the identification of $17 million in
unpaid AD/CVDs. Additional revenue recoveries are expected as
the operation continues.
--A joint CBP/ICE operation on uncovered mattress innerspring units
from China that concluded with the assessment of $5.3 million
in unpaid AD/CVDs.
--Using multiple investigative techniques including lab analysis, CBP
and ICE detected that Chinese honey had been transshipped
through Russia, India, Indonesia, Malaysia, Mongolia, the
Philippines, South Korea, Taiwan, and Thailand. This operation
has led so far to the indictment and arrest of multiple
corporate officers.
--CBP recovered $2.5 million in unpaid AD duties through a company
audit on imports of frozen warm water shrimp transshipped from
China through Indonesia, where it was commingled with
Indonesian shrimp.
a layered approach
CBP focuses its trade enforcement actions and resources around
priority trade issues (PTI) that pose a significant risk to the U.S.
economy, consumers, and stakeholders. In fiscal year 2003, AD/CVD
enforcement was granted PTI status because of its importance to the
U.S. economy.
CBP utilizes a layered approach to trade facilitation and
enforcement, which employs numerous efforts in the pre-entry, entry,
and post-release environments to prevent, address, and deter AD/CVD
violations and promote compliance.
In the pre-entry environment, CBP works with U.S. industry and
foreign customs agencies to share information prior to arrival, monitor
the import process, verify compliance, and evaluate risk. At the
border, CBP uses risk assessment to target and focus resources on high-
risk security, admissibility, and health and safety issues for further
review, while working to expedite compliant trade across the border. In
a post-release setting, verifications and audits are performed to
ensure the process functions properly and to refine risk assessments
based on outcomes. Throughout this process, CBP personnel work with
agents from ICE and staff from the Department of Commerce (DOC), the
administering authority for AD/CVD determinations under U.S. law, on
potential enforcement action. This comprehensive approach is a dynamic
response to the nature of today's international trade environment.
We meet regularly with U.S. industry representatives to discuss AD/
CVD circumvention schemes, and U.S. industry representatives share
valuable private sector intelligence with us. In order to facilitate
the process of providing us with this critical information, we created
an online referral process called e-Allegations. Since e-Allegations'
inception in June 2008, CBP has received more than 4,000 commercial
allegations via www.cbp.gov. Nearly 10 percent of these allegations are
AD/CVD-related. Every allegation submitted through e-Allegations is
reviewed and researched to determine the validity of the trade law
violation(s) being alleged. Some are reviewed and resolved internally
within CBP, and some are referred to ICE for further investigation.
When CBP suspects that AD/CVD circumvention violates criminal laws,
we work closely with ICE to pursue these violations. ICE has certain
authorities and resources, such as its global network of attaches, that
complement CBP's own civil authorities and limited international
capabilities to address AD/CVD circumvention. Last year ICE, working
with a foreign government, assisted in that government's seizure of
multiple containers of Chinese honey that had been destined for the
United States.
CBP carries out its AD/CVD enforcement by targeting AD/CVD
circumvention at the national and port level. When targeting criteria
alone cannot address all AD/CVD circumvention--it will not in many
instances of transshipment--CBP will initiate an operation to
coordinate actions across the country to determine if a violation is
occurring and to determine its scope. In the last 2 years, 10 AD/CVD-
focused national operations and several local operations have been
completed. Additionally, in the last 5 years, CBP has conducted 215 AD/
CVD-related audits and has recommended $42.2 million in recoveries to
DOC.
new approaches to anti-dumping and countervailing duty enforcement
CBP is constantly developing new approaches to AD/CVD enforcement
to meet the challenges posed by complex AD/CVD circumvention schemes.
CBP is working with U.S. industry, ICE, and our international partners
to develop new sources of information to identify AD/CVD circumvention.
CBP also takes a comprehensive and integrated view of security and
trade enforcement, and is creatively using other civil authorities to
stop AD/CVD circumvention. We are exploring many options that will give
us additional information and new tools to protect U.S. revenue and
identify those who would use our system for illicit gains.
As you know, under the current retrospective system, there can
sometimes be substantial increases in AD/CVD rates several years after
the initial finding by DOC. The bonding system is a key tool in our
administration of the import process. We must pay particular attention
to the risk of nonpayment or evasion posed by nonresident importers of
record. For example, we can use our existing regulations to levy
single-transaction bonds against any importer when we suspect a risk to
revenue and I have directed my staff to develop internal guidance to
ensure that single-transaction bonds are required whenever we suspect
that a risk of revenue loss exists.
CBP shares industry concerns about the importance of countering AD/
CVD circumvention. We also understand that U.S. industry wants more
transparency in CBP's AD/CVD circumvention efforts. We are examining
ways to timely release information to the public about our enforcement
activities. At the same time, there is necessarily information that we
cannot make public when there is a criminal case under development.
Such cases usually require time to develop as CBP, in cooperation with
ICE, fully investigates and prosecutes the parties that are not
properly paying their AD/CVDs. Such public prosecution sends a very
strong message worldwide about the U.S. Government's AD/CVD enforcement
efforts. All of this notwithstanding, we are taking all necessary steps
to find ways that will allow us to release information to petitioners
to make our process more transparent.
One of our biggest challenges, as I outlined earlier, is with
transshipment where the normal documents available to us are not the
complete set that would trace the goods back to the original country of
origin. This was a problem we faced with textile transshipment and we
found a good deal of success with textile production verification teams
that, under the auspices of an agreement with the host country, would
allow teams of CBP and ICE experts to determine the production
capability of individual factories. CBP is looking at the possibility
of conducting similar visits to ensure that goods are actually produced
in the country claimed as the country of origin with our colleagues in
the executive branch.
Some of the activities we are undertaking are:
--Working with DOJ to develop a task force to concentrate resources
on the most complex cases just as we have with intellectual
property rights;
--Working with DOC on release of information that will help us verify
the legitimacy of goods suspected of transshipment and to
tighten the ``new shipper'' requirements; and
--Clarifying the responsibility of customs brokers when executing
powers of attorney, to verify the both the identities of their
principals and their eligibility to be importers of record.
the jones act
CBP also enforces many navigation and shipping laws intended to
protect the U.S. maritime industry. One of these laws is the ``Jones
Act'', which provides in part that a vessel may not provide any part of
the transportation of merchandise by water, or by land and water,
between points in the United States, either directly or via a foreign
port, unless the vessel is wholly owned by citizens of the United
States and has been issued a certificate of documentation with a
coastwise endorsement by the U.S. Coast Guard or is exempt from
documentation but would otherwise be eligible for such a certificate
and endorsement.
Transportation in this context occurs when there is a lading of
merchandise at one U.S. point and an unlading of the same merchandise
at a different U.S. point. Penalties are assessed for violations of the
Jones Act, typically in the amount of the value of the merchandise
illegally transported.
CBP has a process whereby it issues rulings concerning the Jones
Act and the other coastwise statutes. After issuance of its rulings,
CBP publishes them in an electronic database where they can be reviewed
by the public. CBP occasionally receives requests for waivers of the
Jones Act, which are granted by the Secretary of Homeland Security if
he/she determines that it is necessary in the interest of national
defense and after consulting with the Maritime Administrator in the
Department of Transportation, as to qualified U.S. vessel availability
and receiving advice from the Departments of Defense and Energy about
whether to grant the waiver. CBP Headquarters frequently interacts with
and provides advice to its field offices concerning the enforcement of
the Jones Act.
In addition to focusing on strong enforcement of the Jones Act, CBP
also conducts significant outreach to industry in order to increase
compliance prevent violations of the Jones Act.
conclusion
Senator Landrieu, members of the subcommittee, thank you again for
the opportunity to testify today, I will be happy to answer your
questions.
Senator Landrieu. Thank you very much.
Mr. Ballman.
STATEMENT OF J. SCOTT BALLMAN, JR., DEPUTY ASSISTANT
DIRECTOR, NATIONAL INTELLECTUAL PROPERTY
RIGHTS COORDINATION CENTER, IMMIGRATION AND
CUSTOMS ENFORCEMENT
Mr. Ballman. Thank you.
Madam Chair Landrieu, Ranking Member Coats, and
distinguished members of the subcommittee, on behalf of
Secretary Napolitano and Assistant Secretary Morton, it is my
privilege to testify before you today to discuss the efforts of
ICE Homeland Security Investigations (HSI) to combat illegal
trade practices and investigate commercial fraud activities,
including the evasion of AD/CVDs.
As members of this subcommittee know, globalization
provides boundless opportunities for commerce. But with these
opportunities comes new potential threats to national security.
DHS is committed to ensuring the security of America's borders
while fostering and facilitating the movement of legitimate
trade that is critical to our economy.
ICE has a long history of engagement in commercial fraud
enforcement, particularly AD/CVDs, dating back to our past as
legacy U.S. Customs Service investigators. ICE works in close
cooperation with relevant interagency partners, the private
sector, and international counterparts to investigate a broad
spectrum of crimes related to commercial fraud. ICE targets and
investigates goods entering the United States illegally through
our ports and seizes these goods for forfeiture.
ICE recognizes that we must partner with the private sector
to obtain the necessary information to halt this illegal
fraudulent trade practice. It is also essential that we
continue to work with all relevant Federal agencies to confront
this challenge. ICE has, therefore, built strong relationships
with our interagency partners and international counterparts.
The ICE HSI commercial fraud priorities are, one, protect
the health and safety of consumers, Government workers, and our
warfighters from hazardous, tainted, substandard, and
counterfeit imported products; two, protect U.S. businesses
from unfair trade practices; and three, protect the revenue of
the Federal Government.
Our AD/CVDs program is one way that ICE protects U.S.
businesses. ICE is responsible for investigating importers who
evade the payment of dumping duties on imported merchandise. AD
cases are long-term transnational investigations that require
significant coordination between domestic and international
offices and with our foreign law enforcement counterparts.
When working dumping investigations, ICE agents work
closely with CBP officers, import specialists, and regulatory
auditors. Prior to opening a criminal case, ICE must verify the
information related to dumping allegations made either by CBP
or private industry. ICE agents research, identify, and obtain
entry documents for all the alleged violator's importations to
calculate a loss of revenue to the United States and to
demonstrate that that loss of revenue exceeds prosecution
thresholds set by the local United States attorney's office.
Even if the initial calculation exceeds the minimum
prosecution threshold, it is important to note that preliminary
dumping duty rates are only estimates. The final rate is set by
DOC, and the final rate could be substantially lower than the
initial estimate. For example, ICE had to close multiple
Canadian softwood lumber investigations when the dumping duty
rate was lowered to zero by DOC officials.
After demonstrating a loss of revenue that exceeds the
threshold for prosecution, ICE will utilize mutual legal
assistance treaties to obtain shipping records and other
documents from foreign countries in order to prove that an
individual or company evaded dumping duties through
transshipment, undervaluation, overvaluation, or
misdescription. This process normally involves coordination
between several United States and foreign government agencies.
Since 2006, ICE has initiated 391 cases based on
allegations of fraud relating to AD/CVD orders, which, to date,
have resulted in 28 criminal arrests, 86 indictments, and 39
convictions.
Current dumping orders affect products that Americans use
on a daily basis. Of these, ICE has investigated a wide range
of commodities, including honey, saccharin, citric acid, lined
paper products, pasta, polyurethane bags, shrimp, catfish,
crawfish, garlic, mushrooms, steel, magnesium, pencils, wooden
bedroom furniture, wire clothing hangers, ball bearings, and
nails.
I would like to provide two examples of significant dumping
investigations. In February 2008, ICE's special agent in charge
(SAC) office in Chicago and the Food and Drug Administration
(FDA) Office of Criminal Investigation began investigating
Alfred L. Wolff, Inc., for the transshipment of Chinese honey
to evade paying 221-percent AD duties.
YongXiang Yan, a Chinese manufacturer of honey and the
president and chairman of the board of Changge City Jixiang Bee
Product Company, Limited, supplied Alfred L. Wolff with Chinese
honey that was transshipped through the Philippines before
entering the United States. To date, this investigation has led
to 14 indictments of 11 individuals and five companies and a
forfeiture provision for approximately $78 million in evaded
dumping duties, an additional $39.5 million in undervaluation.
In addition, five individuals have been arrested, two of
whom have pled guilty and have been sentenced. Hung Ta Fan, the
owner of four companies in the United States that were used to
fraudulently import the honey from China, was sentenced to 30
months in prison and fined $5 million. And Yan was sentenced to
18 months and was fined $3 million.
In February 2007, ICE agents in Atlanta received an
allegation from CBP import specialists that Goshen Trading was
submitting fraudulent documents to CBP to evade the payment of
AD duties on wooden bedroom furniture from China. The goods
were allegedly being intentionally misclassified as ``other''
or ``dining furniture'' from China.
On April 10, 2007, ICE SAC Atlanta agents executed Federal
search warrants at two Goshen business locations and at the
residence of Goshen's owner, Seng Ng, which resulted in the
seizure of 27 boxes of documents and eight computers.
Subsequent analysis of the seized documents and computers
identified evidence substantiating that Goshen knowingly and
willfully submitted fraudulent documents to CBP on at least 185
separate importations of Chinese wooden bedroom furniture.
On May 13, 2009, Ng pled guilty to 18 U.S.C. 542, entry of
goods by means of false statements or invoices, and on July 27,
2009, Ng was sentenced to 14 months in prison and ordered to
forfeit $5,993,433.70 to the United States in restitution.
It is important to note that ICE criminal investigations
are the last line of defense against evasion of AD/CVDs. By the
time ICE investigators have become involved in a particular
case, the alleged violators have already committed customs
fraud by evading or by attempting to evade dumping duties.
To act as a more efficient deterrent factor and protect
U.S. business interests in global economy, the United States
Government must increase its efforts to educate the public and
foreign industry about the penalties and consequences for
evading AD duties through our successful investigations and
enforcement actions.
PREPARED STATEMENT
Thank you once again for the opportunity to appear before
you today to discuss the important role ICE plays in combating
illegal trade practices, commercial fraud activities, and
enforcing AD/CVDs.
I would be pleased to answer any questions that you may
have.
[The prepared statement follows:]
Prepared Statement of J. Scott Ballman, Jr.
introduction
Chairman Landrieu, Ranking Member Coats, and distinguished members
of the subcommittee: On behalf of Secretary Napolitano and Assistant
Secretary Morton, it is my privilege to testify before you today to
discuss the efforts of U.S. Immigration and Customs Enforcement (ICE),
Homeland Security Investigations (HSI) to combat illegal trade
practices and investigate commercial fraud activities, including the
evasion of anti-dumping and countervailing duties (AD/CVDs). As members
of this subcommittee know, globalization provides boundless
opportunities for commerce, but with these opportunities comes new
potential threats to national security. The Department of Homeland
Security (DHS) is committed to ensuring the security of America's
borders while fostering and facilitating the movement of legitimate
trade that is critical to our economy.
ice enforcement efforts
ICE has a long history of engagement in commercial fraud
enforcement, particularly AD/CVD, dating back to our past as legacy
U.S. Customs Service investigators. ICE works in close cooperation with
relevant interagency partners, the private sector, and international
counterparts to investigate a broad spectrum of crimes related to
commercial fraud. ICE targets and investigates goods entering the
United States illegally through our ports and seizes these goods for
forfeiture. ICE recognizes that we must partner with the private sector
to obtain the necessary information to halt this illegal fraudulent
trade practice. It also is essential that we continue to work with all
relevant Federal agencies to confront this challenge. ICE has,
therefore, built strong relationships with our interagency partners and
international counterparts.
anti-dumping and countervailing duties program
The ICE HSI Anti-Dumping and Countervailing Duties (AD/CVD) Program
is one way that ICE protects U.S. businesses from fraudulent trade
practices. AD/CVD orders are issued by the Department of Commerce (DOC)
and collected and distributed by CBP. AD duties are assessed when
importers sell merchandise at less than fair market value, which causes
material injury to a domestic industry producing a comparable product.
The United States can also impose CVDs to offset foreign government
subsidy payments on exports of foreign businesses. Duties are imposed
to offset the dumping or subsidies provided by the foreign country in
order to maintain the competitiveness of United States industry and to
foster a level playing field for businesses.
ICE is responsible for investigating importers who evade the
payment of AD/CVD on imported merchandise. AD/CVD cases are long-term,
transnational investigations that require significant coordination
between domestic and international offices and with our foreign law
enforcement counterparts. When working AD/CVD investigations, ICE
special agents also work closely with CBP officers, import specialists,
and regulatory auditors.
Prior to opening a criminal case, ICE must verify the information
related to dumping allegations made either by CBP or private industry.
ICE agents research, identify and obtain entry documents for all of the
alleged violator's importations to calculate a loss of revenue to the
United States and to demonstrate that the loss of revenue exceeds the
prosecution threshold set by the local United States Attorney's Office.
Even if the initial calculation exceeds the minimum prosecution
threshold, it is important to note that preliminary dumping duty rates
are only estimates. The final rate is set by DOC, and the final rate
can be substantially lower than the initial estimate. For example, ICE
had to close multiple Canadian softwood lumber investigations when the
dumping duty rate was lowered to zero by DOC officials.
After demonstrating a loss of revenue that exceeds the threshold
for prosecution, ICE will utilize Mutual Legal Assistance Treaties
(MLATs) to obtain shipping records and other documents from foreign
countries in order to prove that an individual or company evaded
dumping duties through transshipment, undervaluation or overvaluation,
or misdescription. This process normally involves coordination between
several United States and foreign government agencies.
anti-dumping and countervailing duty investigations
Since 2006, ICE has initiated 391 cases based on allegations of
fraud regarding AD/CVD orders, which to date have resulted in 28
criminal arrests, 86 indictments, and 39 convictions. Current AD/CVD
orders affect products that Americans use on a daily basis. Of these,
ICE has investigated a wide range of commodities including honey,
saccharin, citric acid, lined paper products, pasta, polyethylene bags,
shrimp, catfish, crayfish, garlic, steel, magnesium, pencils, wooden
bedroom furniture, wire clothing hangers, ball bearings, and nails. I
would now like to provide a few examples of significant AD/CVD
investigations.
In April 2005, HSI special agent in charge (SAC) Buffalo personnel
began investigating three individuals and two companies for importing
disguised, mislabeled, and undervalued Chinese magnesium powder to
circumvent a 305.56 percent AD duty. The magnesium powder was disguised
by physically placing aluminum nuggets on top of the magnesium powder
and claiming it was a blend of magnesium and aluminum powders. After
arrival in the United States the aluminum nuggets were removed from the
magnesium powder.
The three individuals and two businesses allegedly conspired to
defraud the Department of Defense (DOD) by using this imported Chinese
magnesium powder to manufacture countermeasure flares designed to draw
heat seeking missiles away from fighter aircraft, in violation of the
Buy America Contract, which requires that the magnesium must be a
product of the United States.
DOD was sold 1.8 million fraudulent and untested countermeasure
flares for approximately $42 million. The Chinese magnesium used in the
manufacture of the countermeasure flares was substandard and DOD had to
dispose of the flares. The company evaded approximately $10 million in
AD duties.
In February 2007, ICE agents in Atlanta received an allegation from
CBP Import Specialists that Goshen Trading (Goshen) was submitting
fraudulent documents to CBP to evade the payment of AD duties on wooden
bedroom furniture from China. The goods were allegedly being
intentionally misclassified as ``other'' or ``dining'' furniture from
China. On April 10, 2007, ICE SAC Atlanta agents executed Federal
search warrants at two Goshen business locations and at the residence
of Goshen's owner, Seng Ng, which resulted in the seizure of 27 boxes
of documents and eight computers. Subsequent analysis of the seized
documents and computers identified evidence substantiating that Goshen
knowingly and willfully submitted fraudulent documents to CBP on at
least 185 separate importations of Chinese wooden bedroom furniture. On
May 13, 2009, Ng pled guilty to 18 U.S.C. 542, entry of goods by means
of false statements or invoices. On July 27, 2009, Ng was sentenced to
14 months in prison, and ordered to forfeit $5,993,433.70 to the United
States in restitution.
In February 2008, ICE's SAC office in Chicago and the Food and Drug
Administration, Office of Criminal Investigation (OCI), began
investigating Alfred L. Wolff, Inc., for the transshipment of Chinese
honey to evade paying 221 percent AD duties. YongXiang Yan, a Chinese
manufacturer of honey and the president and chairman of the board of
Changge City Jixiang Bee Product Co. Ltd. (Jixiang), supplied Alfred L.
Wolff, Inc., with Chinese honey that was transshipped through the
Philippines before entering the United States. To date, this
investigation has led to 14 indictments of 11 individuals and five
companies, and a forfeiture provision for approximately $78 million in
evaded dumping duties and an additional $39.5 million in
undervaluation. In addition, five individuals have been arrested, two
of whom have pled guilty and have been sentenced. Hung Ta Fan, the
owner of four companies in the United States that were used to
fraudulently import the honey from China, was sentenced to 30 months in
prison and fined $5 million, and Yan was sentenced to 18 months and was
fined $3 million.
ICE SAC San Diego investigated Arturo Huizar-Velazquez, a citizen
of Mexico, for circumventing AD duties on Chinese-made metal hangers.
The metal hangers were shipped from China through the Port of Long
Beach California to Mexico, where they were relabeled as a product of
Mexico and then imported in the United States. On March 9, 2010, a
shipment of wire hangers from China, destined for Huizar-Velazquez in
Mexico, was examined at the Port of Long Beach and marked with
invisible ink. On March 17, 2010, this marked shipment was presented
for export into Mexico at the Otay Mesa port of entry. On March 19,
2010, the marked shipment was re-presented for entry into the United
States. On March 20, 2010, the shipment was examined, the invisible ink
was observed and it was noted that the majority of the cartons were the
same as those seen on March 9, 2010, in Long Beach. Additionally, all
the cartons in the shipment were now stamped ``Made in Mexico'', which
was not the case prior to being exported to Mexico. Huizar-Velazquez
and his employee, Jesus De La Torre-Escobar, were arrested and charged
in a 55-count indictment for entry of goods falsely classified,
smuggling of goods, money laundering, and structuring of currency. The
indictment included a forfeiture provision for $5 million. De La Torre-
Escobar pled guilty to one count of conspiracy and Huizar-Velazquez
pled guilty to conspiracy, entry of goods by false statements, false
statements, wire fraud, and money laundering. De La Torre-Escobar was
sentenced to 355 days in prison and required to pay $3.4 million in
restitution. Huizar-Velazquez is scheduled to be sentenced on May 31,
2011.
It is important to note that ICE criminal investigations are the
last line of defense against the evasion of AD/CVD. By the time ICE
investigators are involved in a particular case, the alleged violators
have already committed customs fraud by evading or by attempting to
evade dumping duties. To further deter these activities and protect
U.S. business interests in the global economy, the United States
Government must also continue its efforts to educate the public and
foreign industry about the penalties of our successful investigations
and enforcement actions.
conclusion
Thank you once again for the opportunity to appear before you today
to discuss the important role that ICE plays in combating illegal trade
practices and commercial fraud activities and enforcing AD/CVDs. I
would be pleased to answer any questions that you may have at this
time.
Senator Landrieu. Thank you very much.
Mr. Lorentzen.
STATEMENT OF RONALD LORENTZEN, DEPUTY ASSISTANT
SECRETARY FOR IMPORT ADMINISTRATION,
DEPARTMENT OF COMMERCE
Mr. Lorentzen. Thank you, Madam Chair Landrieu and Ranking
Member Coats for inviting me to appear before you today.
As the Deputy Assistant Secretary of Commerce for Import
Administration, my charge is to enforce the AD/CVD laws in
order to counter unfair trade practices that injure U.S.
industries. And we do this in close and daily cooperation with
our colleagues at DHS.
Under U.S. law, DOC conducts AD/CVD investigations and
administrative reviews to determine whether imported
merchandise is dumped or is subsidized by foreign governments.
If our investigation finds that imports have been dumped or
unfairly subsidized and if the International Trade Commission
(ITC) finds that the domestic industry has been injured as a
result, we issue an AD or CVD order.
When that happens, we instruct CBP to require importers to
pay cash deposits whenever they import merchandise subject to
that order. Thereafter, on an annual basis and upon request by
an interested party, we will review the entries made in the
prior year to determine the actual level of duties owed.
Section 781 of the Tariff Act of 1930 empowers my agency to
identify and counteract circumvention of AD/CVD orders. Under
these provisions, DOC may conduct circumvention inquiries when
it is alleged that minor alterations have been made to subject
merchandise in order to evade AD or CVD orders, or merchandise
subject to an order is completed or assembled in the United
States or other foreign countries from parts and components
imported from the country subject to the order.
DOC can also find under these statutory provisions that
later developed merchandise may be included within the scope of
an existing order.
If it is determined that an order is being circumvented,
DOC may, after consulting the ITC, direct CBP to suspend
liquidation of the entries and require a cash deposit of
estimated duties on all unliquidated merchandise determined to
be circumventing the order. We are currently investigating
seven allegations of circumvention involving imports of various
steel, textile, industrial, chemical, and paper products.
Beyond our own authority to address circumvention, we work
daily with CBP, ICE, and the Department of Justice (DOJ) to
assist them in enforcing the customs laws and ensuring our
border measures are effective. In 2006, we established a
Customs Liaison Unit under the direction of our Deputy
Assistant Secretary for AD/CVD Operations to work with CBP and
ICE on fraud and evasion matters related to AD/CVD measures.
This staff meets regularly with their CBP and ICE colleagues to
share information and coordinate responses to fraud and evasion
threats.
In February of last year, the AD/CVD portion of CBP's new
commercial trade tracking system, the Automated Commercial
Environment (ACE) went live for entries of merchandise subject
to AD/CVD orders. This new system allows us to maintain more
efficient communication with CBP and the proper application of
AD/CVDs.
For example, ACE now allows us to apply duties on a per-
unit basis, in addition to the typical ad valorem rates. This
helps us to counter situations where companies understate the
value of their imported merchandise, and we have opted to apply
per-unit rates in several dumping cases, including crawfish,
honey, activated carbon, and garlic from China, as well as fish
fillets from Vietnam.
In the course of our work, our staff may come across
information indicating the possible evasion of AD/CVDs, and we
have also encountered in our work, situations in which foreign
manufacturers have presented us with false documents. To deal
with this, we have issued an interim final rule to amend our
regulation governing the certification of factual information
submitted to us in AD/CVD proceedings, and are currently
awaiting comments from interested parties so that we may issue
the final rule.
The amendments strengthen current requirements by mandating
that the party submitting information identify specifically the
documents, time period, party, and date to which the
certification applies. These changes will better ensure that
parties and their counsel can be held legally responsible for
the authenticity of specific documents given to us and are
aware of the consequences of certifying false documents.
When DOC uncovers information that indicates possible
evasion of the AD/CVD laws, we have the statutory authority to
provide that information to our colleagues at DHS, and we do
so. Once a fraud or evasion investigation involving an AD/CVD
case is initiated by ICE, we are often asked by CBP or ICE
agents or the U.S. attorney conducting the investigation to
provide assistance.
Cooperation among our agencies has resulted in indictments,
convictions, and prison sentences for evaders of AD/CVD orders,
and my written testimony provides examples of the fruits of
that labor. My agency is committed to strict enforcement of the
unfair trade laws and will continue to work actively with our
partner agencies to minimize evasion of them.
PREPARED STATEMENT
Thank you for providing me the opportunity to speak to you
today, and I am happy to take your questions.
[The prepared statement follows:]
Prepared Statement of Ronald Lorentzen
Thank you Chairman Landrieu and Ranking Member Coats for inviting
me to appear before you today to discuss the issue of the evasion of
anti-dumping duty and countervailing duty (AD/CVD) orders and the
efforts of the Department of Commerce (DOC) to enforce the trade remedy
laws.
As the Deputy Assistant Secretary for Import Administration (IA) at
DOC, my primary responsibility is to administer the AD/CVD laws, which
are designed to counter unfair trade practices that injure U.S.
industries in our domestic market.
As part of the Trade Agreements Act of 1979, the Congress
transferred from the Department of the Treasury to DOC the
responsibility for administering the AD/CVD laws. And then, in the late
1980s, the Congress gave DOC additional authority, under section 781 of
the Tariff Act of 1930, to deal with the potential circumvention of AD/
CVD orders. Moreover, as a matter of daily business, we cooperate with
U.S. Customs and Border Protection (CBP) and U.S. Immigration and
Customs Enforcement (ICE) in a variety of ways to try to counter and
thwart various duty evasions schemes.
DOC conducts AD/CVD investigations and administrative reviews to
determine whether imported merchandise is dumped (that is, sold in the
United States at less than fair, or normal, value) or subsidized by
foreign governments. If our investigation finds that imports have been
dumped or unfairly subsidized, and if the International Trade
Commission (ITC) finds that a domestic industry has been injured as a
result of the unfairly traded imports, we issue an AD duty or CVD
order. When that happens, we instruct CBP to require importers to pay
cash deposits whenever they import merchandise subject to that order.
Thereafter, on an annual basis, we will conduct an administrative
review of the entries from the past year to determine the actual level
of dumping or subsidization during the prior 1-year period.
DOC's role in detecting and deterring the circumvention of AD/CVDs
is addressed in section 781 of the act. Pursuant to those provisions,
DOC may conduct circumvention inquiries when:
--It is alleged that minor alterations have been made to subject
merchandise in order to evade AD/CVD orders; or
--It is alleged that merchandise subject to an order is completed or
assembled in the United States or other foreign countries from
parts and components imported from the country subject to the
order.
DOC can also find under these provisions that later-developed
merchandise may be included within the scope of an existing order.
If it is determined that an order is being circumvented, DOC may,
after taking into account any advice provided by the ITC, direct CBP to
suspend liquidation of the entries and require a cash deposit of
estimated duties on all unliquidated merchandise determined to be
circumventing the order. For example, in October 2006, DOC published
the final affirmative determination of circumvention of the AD order on
petroleum wax candles from China. DOC determined that candles composed
of petroleum and more than 50 percent or more palm and/or other
vegetable oil-based waxes (``mixed-wax candles'') were later-developed
merchandise and, thus, were circumventing the AD order. In addition, we
determined that mixed-wax candles containing any amount of petroleum
are covered by the scope of the order.
DOC is currently investigating seven allegations of circumvention,
including steel wire garment hangers from China, laminated woven sacks
from China, small diameter graphite electrodes from China, glycine from
China, tissue paper from China, cut-to-length carbon steel plate from
China, and ferrovanadium from Russia.
In the tissue paper inquiry, DOC recently made a preliminarily
determination that certain tissue paper processed and exported to the
United States by a Vietnamese company was circumventing the AD order on
tissue paper from China. Based on this determination, DOC directed CBP
to suspend liquidation and collect cash deposits at a rate of 112.64
percent for all exports from the Vietnamese company retroactive to the
date we initiated the circumvention inquiry. We will be taking comments
from interested parties prior to making a final determination in this
case in August.
Similarly, in a case involving cut-to-length carbon steel plate
(steel plate) from China, it was determined that a Chinese producer was
adding boron to the steel plate in an attempt to circumvent the order
and avoid paying AD duties by making the boron-infused steel plate an
out-of-scope product. In August 2009, DOC determined that imports of
steel plate produced by the specific Chinese exporter involved in this
scheme should be covered by the steel plate order and directed CBP to
suspend liquidation of entries of the merchandise. We are now
conducting another inquiry to determine if a similar ruling should
apply to all imports of the same merchandise from China.
In addition to the authority specifically prescribed to DOC by the
statute, we work in close cooperation with CBP, ICE, and the Department
of Justice (DOJ) to assist them in enforcing the customs laws and
ensuring our border measures are effective.
In 2006, IA formally established a Customs Unit, which falls under
the direction of our Deputy Assistant Secretary for AD/CVD Operations.
The Customs Unit serves as our primary staff-level liaison with CBP and
ICE on many of the fraud/evasion matters related to our AD/CVD
measures. The members of this staff meet regularly with personnel from
CBP and ICE to discuss enforcement issues, share information and
coordinate our interaction to address potential fraud and evasion of
AD/CVDs in a timely manner.
In February of last year, the AD/CVD portion of CBP's new
commercial trade tracking system--the automated commercial environment
(ACE) went ``live'' for entries of merchandise subject to AD/CVD
orders. ACE allows DOC to maintain much more efficient communication
with CBP in the implementation and application of the AD/CVD rates.
For example, ACE enables the application of AD/CVD rates on a per-
unit basis, as opposed to the typical ad valorem rates. The application
of a per-unit amount is important to counter situations where companies
regularly understate the value of their imported merchandise. Cash
deposit rates are typically calculated as a percentage of the entered
value of the imported merchandise. By undervaluing the merchandise,
importers avoid paying the full duties owed. To forestall such
activity, we have resorted to the use of per-unit rates in several AD
cases including crawfish, honey, activated carbon, and garlic from
China, as well as fish fillets from Vietnam. As an illustration, DOC
has imposed a cash deposit rate of $5.23 per/kilogram for an exporter's
entries of crawfish from China. Thus, even if the value of the
merchandise is undervalued upon entry, the full amount of the duties
owed is being applied.
In the course of our proceedings, particularly our annual
administrative reviews, our staff occasionally comes across information
indicating the possible evasion of AD/CVDs, and DOC has also
encountered situations in which foreign manufacturers have presented
false documents during the course of an AD/CVD proceeding. In response
to such behavior, we recently amended our regulation governing the
certification of factual information submitted to DOC by a person or
his or her representative during AD/CVD proceedings. The amendments aim
to strengthen the current certification requirements by mandating that
the party submitting the documents:
--identify to which document the certification applies;
--to which segment of an AD/CVD proceeding the certification applies;
--who is making the certification; and
--the date on which the certification was made.
These new requirements will better ensure that parties and their
counsel can be held legally responsible for the authenticity of
specific documents and are aware of the consequences of certifying
false documents.
When DOC uncovers information that indicates possible evasion of
the AD/CVD laws, we have the statutory authority to provide that
information to DHS. Upon examination of the information provided,
authorities at DHS may initiate an investigation which may result in
the imposition of civil or criminal penalties and fines on parties
involved in the evasion scheme. Once a fraud/evasion investigation
involving an AD/CVD case is initiated by ICE, DOC is frequently asked
by CBP/ICE agents or the Assistant U.S. Attorney prosecuting the
investigation to provide assistance.
Cooperation among DOC, CBP, ICE, and DOJ has resulted in
indictments, convictions, and prison sentences for evaders of AD/CVD
orders. Such cooperation led to the indictment of Alfred L. Wolff Gmbh,
a German food conglomerate, and 10 executives. Federal prosecutors
alleged that the conglomerate and 10 of its executives conspired to
illegally import more than $40 million of honey from China between 2002
and 2009, and concealed its country of origin in order to avoid paying
nearly $80 million in AD duties. Also indicted was Gong Jie Chen, a
Chinese national who was the sales manager for a company called QHD
Sanhai Honey Co., Ltd., located in Hebei Province, China. He allegedly
set up this company as a front to conceal the Chinese origin of the
honey being shipped to the United States and to avoid paying AD duties.
The defendants were charged with conspiracy and smuggling,
falsifying documents submitted to CBP and DOC, and violating food and
drug safety laws. The defendants allegedly destroyed records and other
evidence of fraud, including internal emails and documents that were
allegedly used to falsify the origin of the honey and to avoid paying
the AD duties. If convicted, some of the defendants could face more
than 20 years in prison.
During a fraud investigation of steel wire garment hangers from
China, DOC assisted the Assistant U.S. Attorney prosecuting the
investigation by providing background and guidance regarding the AD
process. After completion of the fraud investigation, a U.S. importer
was arrested and charged with fraud, smuggling, and money laundering in
connection with bringing Chinese-made hangers into the United States
via a third country and falsely claiming a country of origin other than
China. Conviction on these felonies carries a maximum prison term of
between 5 and 20 years per count, plus substantial monetary fines and
the payment of applicable dumping duties.
Further, during verification of the respondent, Cantho Agricultural
and Animal Products Im-Ex Company (CATACO), in the first administrative
review of frozen fish fillets from Vietnam, DOC officials found
evidence of mislabeling and duty reimbursements. This information was
conveyed to ICE, providing critical information for their criminal case
against one of CATACO's importers. As a result, in 2007, the U.S.
District Court in Panama City, Florida, sentenced Danny Nguyen to
Federal prison, and issued criminal fines to Panhandle Seafood, Inc.,
and Panhandle Trading, Inc. for a multi-year scheme that involved
smuggling and distributing mislabeled frozen fish fillets into the
United States and Canada from Vietnam. The 42-count criminal indictment
charged that from 2002 to 2005, Mr. Nguyen and his two companies
conspired with Vietnamese fish exporters to intentionally mislabel
hundreds of thousands of pounds of Vietnamese frozen fish fillets.
Nguyen was charged with importing fish into the United States that was
incorrectly labeled as grouper and other fish types in order to avoid
U.S. AD duties.
After pleading guilty, Mr. Nguyen received a sentence of 51 months
imprisonment and 3 years supervised release. Panhandle Seafood Inc.
received 5 years probation and forfeited the real property of the
business. Panhandle Trading Inc. was also ordered to pay restitution of
$1.3 million and received 5 years probation.
In another evasion scheme involving frozen fish fillets from
Vietnam, DOC found that some Vietnamese exporters and U.S. importers
were mislabeling the subject merchandise as other types of fish that
were not subject to AD duties in order to avoid those duties.
Investigation and cooperation among several Federal agencies have
resulted in several convictions, indictments, and prison sentences. For
example, in October 2008, 12 individuals and companies were convicted
of criminal offenses related to a scheme to avoid paying duties by
falsely labeling fish for import and then selling it in the United
States at below market price. Two Virginia-based companies, Virginia
Star Seafood Corporation and International Sea Products Corporation,
illegally imported more than 10 million pounds of frozen fish fillets
from companies in Vietnam, valued at $15.5 million.
In the 2005-2006 AD review of freshwater crawfish from China, DOC
obtained evidence showing that imports claimed by the respondent to be
whole crawfish (nonsubject merchandise) were in fact imports of
crawfish tail meat (subject merchandise). DOC worked with CBP and the
Food and Drug Administration (FDA) to obtain evidence that DOC
ultimately used in its determination to base the respondent's dumping
margin on adverse facts available, resulting in a relatively high-
dumping margin. Some of the evidence obtained by DOC included entry,
sales, and shipping documents, FDA photographs of the imported product
in question showing that the bags contained crawfish tail meat, not
whole crawfish, warehouse records, FDA surveillance reports, and
information regarding CBP's reclassification of merchandise from
``certain disputed entries'' to ``entries of subject merchandise''.
The examples I have just provided illustrate the close and
expanding relationship between DOC, DOJ, ICE, and CBP with regard to
stopping duty evasion. DOC is committed to strict enforcement of the
unfair trade laws and will continue to work intensively and actively
with our sister agencies to minimize evasion of AD/CVDs.
Thank you for providing me the opportunity to testify. I am happy
to take your questions.
Senator Landrieu. Thank you very much.
Mr. Yager, let me begin with you. If you could help us
understand a little more clearly the size of this problem? How
many AD/CVD cases are received annually in your review? Is that
volume going up significantly or down? Could you comment?
Mr. Yager. Yes, Madam Chair Landrieu. When we did our
report in 2008, there were slightly more than 240 open AD
orders. I believe as of March of this year, there are more than
300. But I think that is only one way to measure the scale of
the problem.
One of the other ways is to think about the workload impact
that it has, for example, at DOC and CBP. Particularly at CBP,
each one of those orders that is received and is open could
cover one country, but multiple different tariff specific
products, as well as many firms.
In addition, because of the fact that we have the system
that provides updates and a retrospective system, it also
requires a great deal of work for each one of those open
orders.
Senator Landrieu. Right. I wanted to understand, and I am
glad you pointed that out, an order is not just one importer or
one company trying to circumvent the rule on one line of
product. An order could be multiple----
Mr. Yager. An order tends to be for one country.
Senator Landrieu. Okay.
Mr. Yager. But it could cover, for example, 6, 8, 12
specific tariff schedule items, which are highly specific. So,
within the steel area, for example, it could contain a number
of different steel products within that broad order. And each
one of those orders would typically have specific rates for
certain companies, and then it would have an all-country rate
for those that do not have that specific information.
So there is a great deal of difference between one order
and the next. Some could be relatively narrow and specific with
a few companies and not a great volume of imports, and others
could be substantial.
But I think one other thing to point out is that the impact
also differs greatly and the importance of this differs
greatly. As you mentioned in your opening statement, there are
certain industries, particularly aquaculture and agriculture,
where the impact of this noncollection is particularly
important for a variety of reasons, some of which have to do
with the nature of the industry.
As you mentioned, the seafood industry tends to be small
operators. There is a great deal of entry and exit in that
industry. And many of the nonpayment issues are highly
concentrated in the industry of seafood, whether it is
crawfish, shrimp, or some others. And so, the impact is highly
concentrated, particularly on certain types of aquaculture and
agriculture industries.
Senator Landrieu. And let me ask you for your comments
about this liquidation issue. I am a little unclear about the
testimony that we are receiving about it. Is our liquidation
process working or not working?
Mr. Yager. Okay. There are a couple of different aspects of
the liquidation process, which I think are worth talking about
at this hearing. One that I brought up specifically in my oral
statement was something called deemed liquidation, and that is
the requirement that the United States has that CBP needs to
provide those instructions to the ports and publish that
information within 6 months of receiving the information from
DOC.
And if they do not get it out within the 6 months, then the
United States does not have the right to collect any additional
duties that may be owed. So that is one particular aspect.
Senator Landrieu. So the bottom line is if we don't act,
tons and tons and millions and billions of dollars could flow
into this country illegally if they just get through the 6-
month review period, and then we basically can't touch them?
Mr. Yager. I believe that we wouldn't call it illegally
because that would be the responsibility of the United States
to ensure that that liquidation is performed within 6 months.
So we would forfeit the ability to collect any additional funds
that might be due on those imports.
Senator Landrieu. Do you have an estimate of, in your view,
having done this review, of what our gap is? In other words,
are we collecting 20, 30 percent of what you think is owed? Is
there any way to judge how far off our collections are?
Mr. Yager. Madam Chair Landrieu, that is an excellent
question. I think maybe we can also ask CBP for that. But I
think one of the things that is really quite important and
makes it very difficult to do work in this area is that once
the goods have entered the United States, Customs, as they
mentioned in their opening statement, collects that initial
deposit as well as a bond.
But until the final determination is made by DOC, which
could be anywhere from 1 year to numerous years later, it
really is not clear what their final duty will be, and no one
can estimate what that will be because it depends upon the
investigations that are then put in place by DOC. So it is an
excellent question. And because of the complexity of the system
that we have, it is really quite difficult to answer that.
Of course, the point you made in the opening statement is
that on a cumulative basis, there have been more than $1
billion in collections that we have not been able to get for
the U.S. Government over approximately a 10-year period. I
think that is the best measure of the uncollected duties, at
least that we could find.
Senator Landrieu. All right. I have other questions, but
let me turn to my ranking member.
Senator Coats. Thank you.
Just answered one of my questions. You mentioned four
industries constitute 84 percent of uncollected duties. Would
you name those four industries?
Mr. Yager. The information that we have, Senator Coats, is
from 2008, and I can tell you what those industries were. They
were honey, crawfish, fresh garlic, and mushrooms. And I
believe there are some other products that are also in that
list, but those are the top four as of 2008.
I believe those are the ones that we mentioned. And I don't
know whether there is a change. I think there are some
additions to that. But those were the four most important
industries in 2008.
RESOURCES NEEDS
Senator Coats. Knowing that, how do you allocate your
resources and personnel? And the larger question is, do you
have the resources that you think you need or the personnel you
need to not only address the major four, but also not overlook
those that fall below the top four, but are still critical in
terms of our dealing with protections for U.S. industry?
Mr. Yager. Ranking Member Coats, when we did the work for
the Congress in 2008, we did ask questions about whether the
human capital was sufficient at the agencies, such as DOC and
CBP. At that time, we had found that, at least in DOC, they
were working with significantly less than their full-time
equivalents (FTEs) in order to process these orders.
And I think that would be, obviously, a good question for
DOC to answer at this point as to whether they have the people
necessary to perform these functions?
Senator Landrieu. Mr. Lorentzen.
Senator Coats. Would you like to follow up on that?
Mr. Lorentzen. I think in the current environment, all
agencies are struggling to be as economic as they can be with
the resources that they have. But we do feel that we have
adequate resources, as set forth in the President's current
year budget.
Thank you.
Senator Coats. You are one of the few who has come before
us on any appropriations matter that says we have adequate
resources. Congratulations.
Particularly at a time of fiscal constraint, it is
important to hear that. But it is also important for us to know
that in the area of enforcement and collection that sometimes
we may be shortchanging ourselves. Maybe a few more resources,
if necessary, would more than pay for itself.
I am not asking you to change your testimony here, but you
should feel free to let us know if there are ways that we can
either help you in terms of allocating resources in certain
areas that would result in better benefits for us--not just
from the collection standpoint, but also from the protection
standpoint for our industries.
You also mentioned that China accounted for 90 percent of
uncollected duties. I assume then that we could draw the
conclusion that that is where you are focusing at least 90
percent of your efforts. And I am wondering are there things
that we can do or provide, or that you need in order to better
focus that concentration on a country that is clearly the most
egregious offender of all of these protections?
Senator Landrieu. Mr. Gina----
Senator Coats. I say it to the panel, and I think whoever
is most directly associated with that question should address
it.
Mr. Gina. Just for clarification in conjunction to what Mr.
Yager had stated, the most current update on the five items
that posed the greatest challenge for us are, as indicated:
crawfish, fresh garlic, honey, mushrooms, and wooden bedroom
furniture. All, as you stated, Senator, originating from China.
It comprises approximately 84 percent, or $878 million of the
approximate $1 billion that has yet to be collected over the
past 10 years.
I think an interesting statistic is that, as you stated,
Senator Landrieu, even though there is X number of orders,
there was approximately 160,000 entries that were closed out in
fiscal year 2010 relative to AD/CVD. Of that, 60 percent of the
time, the duty that was initially assessed stayed the same.
Twenty-four percent of the time, the duty that was assessed
actually was lowered, and the Government issued a rebate.
It is that last 16 percent of the time, or approximately
25,600 entries, where the duty was increased. And in reading
the GAO report prior, I think this study showed, of that 16
percent, about one-half the time the increase is somewhat
within the 4-percent range. But it is that other one-half of
that 16 percent where the increase is significantly increased.
And therefore, the challenges that presents relative to the
collection are the fact that sometimes actual legitimate
importers can't afford to pay.
Surety companies that have written the bonds for these
importers, two of them are in receivership because, I guess,
they just never counted on that much additional money being
owed. The collection efforts that we then have taken is, first,
our Office of Administration will issue bills. If payments are
not made, those cases are referred to our Office of Chief
Counsel. They take the appropriate measures to try to collect.
If they don't have success, they are referred to DOJ for
possible additional action and/or bringing individuals into
court. We will go back at times and even ask our colleagues at
ICE, who is CBP's investigative arm, if there is additional
information in trying to collect it.
So it is that small percentage of individuals which are
imposing the greatest consequence relative to these collections
of duties.
Senator Landrieu. Can I follow up on that for just a
minute?
Senator Coats. Sure. Yes.
Senator Landrieu. Let us follow that line for just a
minute. Because if the 16 percent that you have identified
after you review owe substantially more money than initially
completed or assessed, and you said that sometimes the surety
bonds backing up that group are not substantial enough to
provide that revenue, of that 16 percent, is it the same sort
of bad actors? Is it the crawfish in that 16 percent, the
shrimp, the mushrooms, the honey, and the bedroom furniture? Or
is it other things within that 16 percent?
So it is sort of a pattern that can be identified is what
you are saying?
Mr. Gina. Right. And I think what we had attempted to do,
and we are continuing to evaluate how to be more effective. As
I stated in my oral statement, we attempted to modify our
bonding and the issuance of much greater enhanced single-
transaction bonds.
The normal bonding requirement or rule of thumb is that you
go to an importer's past 12 months history, and it is 10
percent of the duties, revenues, or taxes that are submitted to
the Government. What we attempted to do was, in order to secure
a greater surety of payment, issue bonds relative to the actual
value of the imports, plus the duty. That, of course, was
challenged, and we are trying to come up with different
measures that would be accepted.
Senator Landrieu. But, Mr. Gina, and one thing, Senator, I
want to just bring to our attention. I mean, one of the things
that concerns me is that CBP has 58,700 employees, 20,000
patrol agents, 22,000 are the officers, cargo and passenger,
air, land, and sea ports of entry. And only 13 of these
employees are fully dedicated to AD/CVDs.
Is that your understanding? And I also understand there are
more than 1,200 import specialists, Revenue Division personnel
lawyers, but only 13 people dedicated to AD/CVDs out of an
agency of 58,000. Is that correct?
Mr. Gina. I think it is misleading, Senator.
Senator Landrieu. Okay.
Mr. Gina. If I might, CBP has approximately, out of the
58,000, 9,600-plus employees involved in commercial trade. Of
that, 1,000-plus are solely dedicated to the Office of
International Trade. Of that number, approximately 2,500
positions are what we refer to as nonuniformed positions.
So if I may list, just as an example of some of those
nonuniformed positions that would get possibly involved in the
course of their day-to-day activity as part of their collateral
duties are chemists, customs attorneys, auditors, drawback
specialists, entry specialists, financial system specialists,
fines, penalties, and forfeiture specialists. There are
approximately 900 import specialists, national account
managers, and seized property specialists.
Of those individuals, that is also augmented by the 5,000
CBPO uniform and 2,000-plus agricultural inspectors. The
numbers that you stated, those individuals we believe are
augmented by individuals who primarily focus, are the subject
matter experts is the eight staff in the Office of
International Trade dedicated to AD/CVD.
We also have a national targeting analysis group in south
Florida that is 1 of 5, which focuses solely on AD/CVD. And it
is those individuals who are doing the risk analysis, which is
then directing those thousands of individuals in the field.
Senator Landrieu. I think that is one of the things that
Senator Coats and I really want to get to the bottom of in this
hearing, and I know our time is limited. But what are your
resources? How are they being applied?
And if they could be applied in a better fashion, how much
additional revenue we could generate not just for the Federal
Treasury, but potentially a stream of that revenue could come
back to your individual agencies to step up your efforts. I
mean, this is really a very tragic situation as it relates to
crawfish and shrimp, I can tell you.
I mean, it is putting huge pressure on an industry that
could--it is small businesses in our State that have very sort
of low-entry level. You need a boat. You need the ability to
work hard and long hours, gasoline in the boat, and some skill
to shrimp. But otherwise, it is a fairly low barrier of entry.
People can make a lot of money in good times shrimping.
But with this situation, no one in my State can make any
money because they are just absolutely overwhelmed with the
dumping activities, and that is just seafood. And that is just
crawfish and shrimp. I don't know about honey and garlic, and I
am very curious as to why we don't import bedroom furniture,
but it seems like we can import dining room furniture. Did you
hear that?
But I will come back to that in a minute. Maybe I missed
something.
But one more thing, Mr. Ballman, could you comment on your
positions? We understand there are only 39 full-time positions
out of a corps of 9,390 with ICE?
Mr. Ballman. Certainly, Madam Chair.
It is also a little misleading here. The 39 is FTEs. We
have 26 SAC offices, each of which has a commercial fraud
investigative group. Then we have all the sub offices that are
under those who have agents that aren't specialized, but they
do carry commercial fraud cases, including AD cases as well.
So what the FTE amounts to is we have taken all the hours
that were applied to AD investigations and came up with that
figure. That doesn't mean we only have 39 people working the
cases, and we are only working 39 cases. That just means that
the accumulations of hours would mean 39 man-years went into
those investigations in 1 year.
INTERNATIONAL TRADE ADMINISTRATION STAFFING
Senator Landrieu. Okay. And Mr. Lorentzen, if you could
comment? There are 1,500 positions in International Trade, 300
individuals dedicated to AD compliance. Is that your
understanding?
Mr. Lorentzen. Yes, Madam Chair. That is approximately
correct.
The International Trade Administration has four business
units. The unit that I am responsible for, Import
Administration, has its core mission of enforcing the law, as I
indicated. And right now, we have an operational staff of about
294 financial analysts, accountants, and investigators, and a
legal staff of a little more than 30 lawyers that assist us in
that work.
Senator Landrieu. And Mr. Yager, let me, just as my last
question before turning it back over to Senator Coats, we are
going to submit a lot of questions for the record because we
want to get to our second panel. What is your general view,
having investigated or reviewed their operations, in terms of
the resources that are being applied to collecting--identifying
the fines, collecting them, having the inspectors to go after
the bad actors, and focusing, as Senator Coats said, on the
obvious either bad actors or areas or countries or products?
Mr. Yager. That is one of the two things that we mentioned
or that I mentioned in the oral statement, and that is they do
have the personnel in order to process these types of orders.
And I think one of the things that did alarm us, though, is the
fact that CBP has a significant challenge in trying to plan the
workload that they need to get through because some of these
orders, as I mentioned, are quite complicated. And they don't
know from one day to the next just how many orders they are
going to need to have to process.
And because they have that 6-month deadline and because of
the complexity, there have been times when we have had that
situation of deemed liquidation, which, again, is our
forfeiture of the right to collect those----
Senator Landrieu. Because they don't have an ability to
surge their personnel or et cetera?
Mr. Yager. Certainly if we were managing that office, we
would do everything we can to understand what our workload is
going to be for the next week, month, 6 months, and 1 year. And
I think in this environment, it seems quite difficult for them
to be able to do that.
If I could just respond, too, also to a couple of points
that were made earlier by Mr. Gina, we do think that
considering a single-transaction bond is one way to try to
target your efforts. Because I think what we found when we did
the work earlier on shrimp and others is that some of the
measures that they put in place had a lot of what you would
call ``collateral damage''.
It imposed costs on many importers who fully intended to
pay their bills. But as you noted, you have many small firms in
these different industries, and when you impose costs on the
full range of importers when your focus is really on a few bad
actors, then that is not a very efficient system.
To the extent that they can focus and target their
enforcement efforts and get additional monies from those firms
who have no intention to pay, that would be a much more
effective system, and I think that is one possibility. Using
that single-transaction bond might offer you that kind of an
option.
And one other comment that you made is finding that balance
between security and the commercial side is something that CBP
and all of DHS has struggled with since the creation. But we do
recognize that with the current commissioner, there is much
more emphasis on revenue.
In the past, we had to ask why the inspector general of DHS
had not done a single financial audit since the creation of the
Department. We think now that the attention to that commercial
side is growing again will give these offices the opportunity
to perform their missions.
Senator Landrieu. Thank you.
Senator Coats. I want to make a point and then also ask a
question. The point is it is clear one of the nations that we
have a very significant relationship with, particularly in
terms of trade, is China. Yet we are hearing and reaffirming
what all of us know--it is not been a responsible trading
partner. Whether it is China's inability to let its currency
float against the dollar in the way that everyone has had to
do--virtually everyone else--or whether it is in this area of
trade violations that we have been discussing today clearly is
something that needs to be run up the flagpole.
When the Secretary of Commerce interacts with his
equivalent in China, when the President or Vice President
interacts with their equivalents in China, trade enforcement
needs to be a continued top priority. We appreciate the job
that you are doing, but some of this effort, particularly when
we target it the way we can, needs to be accompanied with
support for you from the highest possible levels and from
demands from us at the highest possible levels.
This is something that has been going on for a long time,
and it is egregiously hurting American industry and American
jobs. And I know that we are, unfortunately, indebted to the
Chinese to a larger extent in terms of financing our debt than
any nation should be. And that is a separate issue in and of
itself.
Nevertheless, there ought to be some rules that the world
community of trade engages in, and clearly, this is something
that has to be addressed at a higher governmental level.
On the way in this morning, I was listening to sports
radio, and they were talking about the fact that the NFL, which
conducts annual meetings with the new drafted rookies for the
purpose of informing them and acquainting them with what the
responsibilities are, the legalities, the ethics, and
everything else, as someone moving into the NFL, on a new team.
Kids coming out of college, and so forth and so on.
And that annual NFL meeting had to be suspended or
terminated because of the walkout and so forth. But the
discussion was how important it is at the beginning of the
process to know what the rules, regulations, ethics
requirements, and personal performance requirements in terms of
how you interact as someone that is a part of the organization.
And so, when you were talking about when the statistic came
up about 40 percent of the uncollected revenues come from new
shippers, I am just wondering what kind of process do those new
shippers have to go through before they have the right permits
and licenses and so forth to do business with us. I am
wondering if this is not a way to put the fear of enforcement
penalty, including criminal violation, in front of those people
before they are granted the right to ship into the United
States.
I am just wondering if we can't better put, as I said, a
little bit of fear and particularly information in their hands
so that they know they have to go through a pretty rigorous
process before they are allowed to even get engaged. And if
they violate those rules, there are going to be very severe
penalties.
Mr. Yager. Yes, Ranking Member Coats. The new shipper
designation does create specific risks for the United States,
particularly in the collection of AD duties. And new shipper is
a category of firm that has not imported or not shipped goods
to the United States under a particular order, and they apply
to DOC to begin making those shipments, and they are given an
initial rate.
And oftentimes, that rate could be made on the basis of one
or two or just a small number of shipments. At some later
point, they might step up the value of shipments, the value of
shipments and the volume. And then some years later, after a
DOC review, it could turn out that that rate that they had
initially been paying is nowhere near sufficient to cover the
level of dumping that was actually occurring.
So that new shipper problem is certainly one that we
identified that does create specific risks for collection. And
while many of the new shippers fully intend to pay their bills,
it does appear that some firms use that as an opportunity to
get a low rate, ship a great deal of product into the United
States, and then walk when the bill becomes due.
Senator Coats. It is clear then that we can do some things
at the beginning to, hopefully, alleviate that issue.
Anybody else want to comment on that? Then I am finished
with my questions.
NEW SHIPPERS
Senator Landrieu. Yes, and I just want to ask--that is a
good question. I want to follow up. How long can you be a new
shipper? For 1 year, 2 years, 3 years, 6 months? What is the
new shipper designation? Go ahead.
Mr. Lorentzen. As Mr. Yager explained, under the AD law,
the law permits a new shipper to come to DOC and ask for its
own rate. Because when----
Senator Landrieu. But how long does that rate last?
Mr. Lorentzen. So that rate would be established for them
at the end of that review, assuming we first confirm that they
are, indeed, a new shipper. We devote a lot of resources to
confirming that they are not an affiliated party that is trying
to sneak around the rate that they already have.
So we look at whether the transaction is in commercial
quantities and whether they are a bona fide shipper.
Senator Landrieu. And how long does it last?
Mr. Lorentzen. The rate resulting from a new shipper review
can last for up to a year.
Senator Landrieu. Okay. But nobody can be a new shipper for
like 5 years?
Mr. Lorentzen. No.
Senator Landrieu. You can only be a new shipper for 6
months, a year, and then you are an old shipper?
Mr. Lorentzen. Once you have established they are a new
shipper, you are given your specific rate. And then either the
domestic industry or that shipper can ask that their rate be
updated or reviewed in the following year.
Senator Landrieu. Okay. Let me ask, because we have got to
move to the second panel, but I do need to ask because each one
of you have indicated that you do have sufficient resources to
do the job we are asking you to do. If that is the case, now we
are leaving $1 billion-plus on the table. So I don't know
whether we don't have the people or we are not coordinating,
but there is $1 billion-plus on the table that we are not
collecting.
So there is something that is not working as well as it
could, and we need to try to figure that out. If it is not
additional personnel or additional resources, what do each of
you--and I am going to ask each of you to do two things
quickly. What do you believe are required to pick up this $1
billion that the American taxpayers are owed and our businesses
deserve in terms of fair playing field for trade on these
industries that have been identified this morning, starting
with you, Mr. Gina?
And then I will end with you, Mr. Yager.
Mr. Gina. Very quickly, I think two items that may
contribute to a significant change is the better utilization of
single-transaction bonds, as alluded to, and also a further
review of the new shipper program and trying to ensure that is
not used as a loophole also in the circumvention of duties.
Senator Landrieu. Mr. Ballman.
Mr. Ballman. I think there are two areas from an
investigative point of view that need to be addressed, the
retrospective versus the prospective. So that if there is any
way that--DOC is very good at setting the rates, but they do
change.
From an investigative standpoint, I need to be able to
investigate one rate and know that I am not wasting my
resources if that rate is lowered. And the other thing is the
new shipper rule. In both cases that I mentioned in my oral
statement, the honey, the people involved in that were trying
to set up as a new shipper.
They were actually under consideration by DOC when we found
in our search warrant that everything they had provided to them
was false. That added another 20-year count to the indictment,
which was very nice for that.
And then for the wooden bedroom furniture, we have seen
that there are now trading companies that are getting a lower
rate as a new shipper. So it doesn't surprise me at all that
most of the imports are now coming from trading companies
rather than the manufacturers.
Senator Landrieu. Mr. Lorentzen.
Mr. Lorentzen. To name just a couple of things, I would
say, first of all, it has been stressed that we need to have
more and more effective communication, which I think all of us
are attempting to do, and we need to develop that further. I
think the new automated system I referred to in my testimony
helps us to achieve that. It allows direct contact between
people in the ports and staff in my office to get real-time
information.
The other thing I would say on new shippers is the Congress
at one point several years ago had suspended the bonding rule
and required that cash deposits be posted by new shippers. That
was for only a 3-year period of time, and it expired. And I
think that would be a very practical and direct impact change
that could address this problem.
Senator Landrieu. And Mr. Yager.
Mr. Yager. Yes. I believe there are three things that the
Congress could be involved in that could help to address this
problem.
First is to look at the current structure of the new
shipper arrangements because we do believe that creates a
vulnerability. Second, I believe that the Congress should also
require continued reporting on the amount of uncollected
duties.
Right now, CBP is required to report on uncollected duties
under the Continuing Dumping Subsidy Offset Act, the Byrd
amendment. But it does not report on all the uncollected
duties. We think that that would be very helpful for the
Congress and other stakeholders to get that kind of information
in order to be able to monitor the status of the collections.
And finally, I think there is a bigger discussion about
whether the current system, the retrospective system that we
have, can be effectively used in order to provide remedy to the
U.S. firms, as well as provide the revenue to the U.S.
Treasury.
So those are the three things for the Congress. And of
course, in my statement, I talked about better data analysis
and better communication among the agencies as also being
important.
Senator Landrieu. Thank you. Your testimony has been
excellent this morning.
I do have a question, but I will ask for a response in
writing, about the Jones Act, if DHS can enforce the Jones Act
effectively without assigning priority to the mission and
dedicating resources to accomplish it. Secretary Napolitano,
before our Homeland Security subcommittee, said she had the
resources necessary. But I am going to ask you all to clarify
her comments in writing. Does DHS have a dedicated enforcement
regime to investigate Jones Act violations, and if not, what
would you need to establish one that can be effective? How
would it engage with the Coast Guard and other agencies? How
many people and what level of resources are dedicated to Jones
Act enforcement? How many Jones Act cases does CBP review
annually?
[The information follows:]
jones act enforcement
CBP receives information regarding alleged coastwise violations
from a variety of sources and coordinates the review of allegations
with ICE. While the offshore facilities are located outside the limits
of the CBP ports of entry, this does not preclude the initiation of an
appropriate action for violations.
CBP enforcement of the Jones Act is a coordinated effort by CBP
local ports of entry, CBP field offices and CBP headquarters (HQ)
offices and personnel working with other U.S. Government agencies i.e.,
U.S. Coast Guard (USCG) and U.S. Immigration and Customs Enforcement
(ICE) and industry. CBP field personnel work in conjunction with ICE
Investigations and the USCG to address alleged coastwise violations.
Guidance is provided in such cases by the CBP Penalties Branch of
Regulations & Rulings (RR), Office of International Trade (OT).
Cooperation with the USCG and ICE is essential to successfully
investigate potential Jones Act violations. CBP is engaged with its
partners in coordinated efforts to investigate allegations of coastwise
movements in violation of U.S. laws. An example of this cooperation is
the CBP port of entry (POE), Morgan City, Louisiana.
The CBP Morgan City POE is responsible for providing coverage for a
large portion of the Louisiana coastal area as well as monitoring the
movement of foreign vessels operating at offshore facilities. Staffing
levels and operational requirements require the port to demonstrate a
great deal of flexibility in addressing allegations of Jones Act
violations.
To prepare all parties engaged in investigating potential Jones Act
violations within the area of responsibility, the CBP Morgan City POE
conducts ``Jones Act'' awareness training with USCG and ICE. When a
Jones Act issue is brought to the attention of CBP Morgan City and it
appears to be valid, CBP personnel will conduct a boarding in
conjunction with the local USCG station and ICE. In many cases the USCG
will ferry CBP personnel from Morgan City to the vessel operating at
offshore facilities. The interagency team will collect evidence from
the official vessel logs, and any cargo manifest and/or invoices from
the vessel and interview crew to determine if a violation occurred. The
local CBP Morgan City POE leverages existing Federal assets at other
components and relies on a team approach to successfully address Jones
Act violations.
jones act resources
At the CBP HQ level, various offices are involved in reviewing,
investigating and providing guidance and oversight on Jones Act issues
to the field offices. They are comprised of the Office of Field
Operations (OFO) Cargo & Conveyance Security (CCS); OFO Agriculture
Programs and Trade Liaison (APTL); OFO Fines, Penalties and Forfeiture
(FP&F); and the Cargo Security, Carriers, and Immigration Branch (CCIB)
of Regulations & Rulings (RR), Office of International Trade (OT).
OFO/CCS and OFO/APTL/FP&F each assign two program managers with the
responsibility of managing and resolving coastwise issues.
The CCIB is staffed with a branch chief, five attorney-advisors and
an administrative assistant. Attorney-Advisors in the penalties branch
of RR/OT also work on Jones Act matters. The CCIB falls under the
jurisdiction of the Director, Border Security and Trade Compliance (RR/
OT), who is integral to Jones Act enforcement.
CBP field offices at the port of entry level are staffed with
vessel entrance and clearance specialists (VECS) and CBP officers
assigned to identify and initiate potential Jones Act violations. These
CBP front-line personnel are provided a number of in-house resources
(e.g., training, directives, memorandums, handbooks, rulings,
information notices, etc.) to assist in enforcing Jones Act statutes,
regulations, and policy.
Local CBP port directors assign and distribute resources at a level
commensurate with the number of Jones Act violation allegations. For
smaller CBP ports of entry, with high volumes of vessel entrances and
clearances and wide-ranging port boundaries, this task has proven
challenging, particularly in the Outer Continental Shelf (OCS) region.
In fiscal years 2009-2011, all CBP ports of entry issued 57 Jones
Act-specific penalties. In each of these incidents, a case was opened
after a thorough investigation was completed by CBP and its Government
partners and sufficient evidence was found to commence formal penalty
proceedings.
Senator Landrieu. But you all have been terrific. I want to
excuse this first panel and then call up our second panel.
Thank you very much.
And if any of you all can stay around to hear the testimony
of the second panel, that would be very helpful.
Thank you.
All right. To save time, let me introduce the second
panel--Mr. Kristen M. Baumer of Paul Piazza & Son, Inc., of New
Orleans; Eddy Hayes, partner of Leake & Andersson, professor of
law at Tulane University; Keith Busse, chairman and CEO of
Steel Dynamics--and I am going to have the ranking member
introduce him more fully in a minute--and Jim Adams, Offshore
Marine Service Association.
All of you represent significant industries with
significant experience in this area. We are particularly happy
to have Tulane University present.
And Senator, would you like to introduce your witness?
Senator Coats. I would. I would like to welcome Keith
Busse, chairman and chief executive officer of Steel Dynamics.
Steel Dynamics is a company that Keith founded in 1993. It
was an entrepreneurial venture. Under his leadership, it has
grown to become the Nation's largest mini mill steel and metals
recycling company. It employs about 7,000 people and has annual
production exceeding 7 million tons.
So it not only is a producer of needed material for our
industries, but it is also a responsible citizen in terms of
recycling used materials into forming this product.
Prior to starting Steel Dynamics, he was associated with
Nucor Corporation, which also is located primarily in Indiana,
and successfully developed one of the largest flat-rolled steel
production facilities in the United States.
He has received numerous awards, and I am glad that he
could be here to testify for us today about some of the trials
and travails of being in an industry when you are competing
against someone that is breaking the law and using unfair
practices. So welcome to him and the rest of the panelists.
Thank you very much.
Senator Landrieu. Thank you.
And let me just say for the Baumer family, I really
appreciate your being here, and your family came from Sicily
135 years ago. And your family has settled along the banks of
the Mississippi River in New Orleans. We are so grateful for
the work and the enterprise that you and your family have
contributed all those years, and we are thrilled to have you
this morning.
So, Mr. Baumer, why don't we go ahead and start with you?
STATEMENT OF KRISTEN M. BAUMER, PRESIDENT, PAUL PIAZZA
& SON, INC., NEW ORLEANS, LOUISIANA
Mr. Baumer. Thank you, Madam Chair.
Madam Chair and Ranking Member Coats, thank you for the
opportunity again to testify before you today.
My name is Kristen M. Baumer, as you said, and I am the
president of Paul Piazza & Son, which is a fourth-generation,
family-owned Louisiana shrimp processing and wholesale
distribution company, which was established in 1892.
About 135 years ago, Paul Piazza left his home in Sicily
when he was 15 years old with dreams of a better life for
himself and his family. He supported himself by walking the
streets of New Orleans, selling shrimp from a basket on his
back.
Later, that basket became a horse-drawn wagon. Shortly
thereafter, he established Paul Piazza & Son in the French
Market with his son, my grandfather, Vincent Rene Piazza.
Through honesty, integrity, dedication, and hard work, combined
with consistent quality domestic shrimp products from our gulf
fishermen, my great-grandfather, my grandfather, as well as my
father and uncle, transformed Paul Piazza & Son into one of the
largest domestic shrimp processors and distributors in the gulf
today.
Currently, we are processing, inventorying, and supplying
many food service companies and retail grocery store chains
throughout the United States, as well as our Nation's military,
with approximately 20 million pounds of domestic shrimp each
year.
As you know, the shrimp industry contributes about $1
billion annually to Louisiana's economy. The industry is
responsible for employing thousands of hard-working Louisiana
citizens in shrimp harvesting and related production and
distribution activity.
The gulf shrimp industry has survived hurricanes and the
gulf oil spill. But perhaps the most dire and sustained threat
we have ever faced has been unfair competition from imported
shrimp. Nearly 90 percent of the shrimp consumed in this
country is imported, which makes our industry particularly
vulnerable if that imported shrimp is not traded fairly.
In 2003, our industry was in crisis. A massive wave of
foreign shrimp was being dumped into our market at less than
fair value, driving down prices, eating into our market share,
and forcing our shrimp boats to tie up at the docks.
The industry took action. We invested an enormous amount of
time, effort, and resources to obtain AD orders on shrimp from
six countries. Duties redistributed to the affected domestic
industry under CDSOA have allowed many of us to regroup and
rebuild after being hammered by dumped imports, successive
hurricanes, and the gulf oil spill.
These duties have also allowed processors like Paul Piazza
& Son to pass on dockside prices that allow our fishermen to
keep trawling the waters they have fished for generations,
despite rising fuel prices.
Unfortunately, much more needs to be done to ensure these
orders are actually restoring conditions of fair trade to our
market. Foreign producers and importers have gone to
extraordinary lengths to evade the duties they owe, greatly
undermining the effectiveness of the orders we fought so hard
to obtain.
Their actions fall into three categories--one, the
nonpayment of duties; two, transshipment of shrimp through
countries not covered by the orders; and three,
misclassification of covered shrimp as product not covered by
the orders.
The nonpayment of duties is the most well-documented of the
three. Since the orders were imposed in 2005, shrimp importers
have failed to pay more than $75 million in duties they owe to
the U.S. Government. This is a massive problem that is not
limited to shrimp alone.
Another iconic Louisiana industry, crawfish, has also
suffered with more than $560 million in AD duties that remain
unpaid. In all, Customs has been unable to collect more than
$1.5 billion in AD/CVDs since 2001. It means that $1 out of
every $3 of unfair trade duties due to our Government are
simply not being paid.
Our trade remedy laws provide for our industry first and
often the only line of defense for American companies, farmers,
fishermen, and workers when they are forced to compete with
dumped and subsidized imports. We are very grateful to Senator
Landrieu for her championship on this important issue, and we
look forward to working with the subcommittee to finally fix
this hole in our trade remedy system.
PREPARED STATEMENT
I look forward to any questions that you may have after
everyone speaks.
[The prepared statement follows:]
Prepared Statement of Kristen M. Baumer
Madam Chairman, Ranking Member Coats, members of the subcommittee,
thank you for the opportunity to testify before you today. My name is
Kristen M. Baumer, and I am the president of Paul Piazza & Son, Inc., a
fourth-generation, family-owned Louisiana shrimp processing and
wholesale distribution company which was established in 1892.
There is a lady who stands tall in New York harbor with a message
which says, ``Give me your tired, Your poor, Your huddled masses
yearning to breathe free . . . I lift my lamp beside the golden
door.'' Many of our ancestors heeded the call of the Lady of Liberty,
and found their destiny on the golden shores of America. My great
grandfather, Paul Piazza, was no exception.
Approximately 135 years ago, Paul Piazza left his home town in
Sicily when he was 15 years old with dreams of a better life for
himself and his family, and landed near the banks of the Mississippi
River, in New Orleans, Louisiana. He supported himself by walking the
streets of New Orleans selling shrimp from a basket on his back. Later,
that basket became a horse-drawn wagon selling seafood. Shortly
thereafter, he established Paul Piazza & Son, as an open marketplace in
the French Market with his son, my grandfather, Vincent ``Rene''
Piazza. They would buy seafood from local fishermen to distribute to
local restaurants and markets. Through honesty, integrity, dedication,
and hard work, combined with consistent quality domestic shrimp
products, my great grandfather, my grandfather, as well as my father
and uncle, transformed Paul Piazza & Son, Inc. into one of the largest
domestic shrimp processors and distributors in the gulf south.
Today we process, inventory, and supply many foodservice companies
and retail grocery stores throughout the United States, as well our
Nation's military, with approximately 20 million pounds of domestic
shrimp each year. Yet, we very much remain a family business
headquartered in New Orleans, Louisiana. I run the business along with
my brother Shep and brother-in-law, Kory, and the many valued employees
of our company, many of whom have been with our company since I was a
small child.
Personally, I worked in the business during my high school and
college years. After law school and 10 years in the legal profession, I
returned to our family's business to help rebuild our company after
Hurricane Katrina destroyed millions of dollars in inventory and nearly
collapsed our business. Through the hard work of our extended family,
the hard work and sweat of our gulf fishermen, and the protection and
financial support we have received from the Continued Dumping and
Subsidy Offset Act of 2000 (CDSOA), Paul Piazza & Son, Inc. has
continued to process and sell domestic shrimp to the citizens of our
country. We have also taken a leadership role in protecting and
preserving our domestic shrimp industry despite the many challenges
posed by imported seafood. I have been an active board member with the
Louisiana Seafood Marketing and Promotion Board and Louisiana Shrimp
task force, as well as an active member of the American Shrimp
Processors Association.
The shrimp industry contributes about $1 billion annually to
Louisiana's economy. The industry is also responsible for employing
thousands of hard-working Louisiana citizens in shrimp harvesting and
related production and distribution activity. Shrimping is a way of
life for many of Louisiana's citizens. In most cases, shrimping
operations are small, family-run businesses, and many fishermen's
families have been trawling the same waters for generations.
The gulf shrimp industry has survived Hurricanes Katrina, Rita, and
Ike, and the gulf oil spill, but perhaps the most dire threat we have
ever faced has been unfair competition from imported shrimp. Nearly 90
percent of the shrimp consumed in this country is imported, which makes
our industry particularly vulnerable if that imported shrimp is not
traded fairly. In 2003, our industry was in crisis. A massive wave of
foreign shrimp was being dumped in our market at less than fair value,
driving down prices for the rest of us and eating into our market
share. As a result, many of our shrimp boats were forced to simply tie
up at the docks because they could not afford to go out and harvest.
The industry took action. We invested a huge amount of time,
effort, and resources to obtain anti-dumping (AD) orders on shrimp from
six countries:
--Brazil;
--China;
--Ecuador;
--India;
--Thailand; and
--Vietnam.
These are some of the most economically important orders to be imposed
in recent years--in 2005, when the orders were imposed, shrimp imports
from these six countries totaled $1.7 billion.
Without these orders, I doubt our industry would have survived the
past 6 years. They stopped the downward spiral in prices and stabilized
the market. While dumping has continued, duties collected under the
orders have imposed needed price discipline on importers. In addition,
duties redistributed to the affected domestic industry under the CDSOA
have allowed many of us to regroup and rebuild after being hammered
first by dumped imports, then by successive hurricanes, and last year,
by the gulf oil spill.
Unfortunately, much more needs to be done to ensure these orders
are actually restoring conditions of fair trade to our market. Foreign
producers and importers have gone to extraordinary lengths to evade the
AD duties they owe, greatly undermining the effectiveness of the orders
we fought so hard to obtain. Their actions fall into three general
categories:
--the nonpayment of duties;
--transshipment of shrimp through countries not covered by the
orders; and
--misclassification of covered shrimp as product not covered by the
orders.
The nonpayment of duties is the most well-documented of the three
enforcement problems. Since the orders were imposed in 2005, shrimp
importers have failed to pay more than $75 million in duties they owe
to the U.S. Government. China is by far the biggest source of the
problem, accounting for 78 percent of the unpaid duties on shrimp, and
93 percent of the unpaid duties on seafood imports overall. When these
duties go uncollected, it means that unfairly dumped shrimp is being
allowed to enter our market with no price discipline. It also deprives
the U.S. Government of revenue it is owed. In addition, to the extent
the duties were owed on imports covered by CDSOA, it has robbed our own
industry of part of the compensation it was owed under the law.
This is a massive problem that is not limited to shrimp alone.
Another iconic Louisiana industry, crawfish, has also suffered--
crawfish importers have failed to pay more than $560 million in AD
duties they owe. In all, Customs has been unable to collect more than
$1.5 billion in AD and countervailing duties (CVDs) since 2001. This is
a staggering amount. It means that $1 out of every $3 of unfair trade
duties due to our Government are simply not being paid at all.
We are very grateful to Senator Landrieu for her championship on
this important issue, which is of great concern not only to the shrimp
and seafood industries but to the many domestic producers across our
country who have been irreparably harmed by nonpayment of duties. We
look forward to working with the subcommittee to finally fix this
gaping hole in our trade remedy system.
Foreign producers and importers further undermine our trade relief
through transshipment and misclassification. We applaud Customs for the
work they have done to uncover and prosecute these fraudulent schemes,
but they need more tools and more resources to prevent these schemes
from weakening our trade laws.
In 2005, for example, Customs discovered that more than $6 million
in shrimp from China had been illegally transshipped through Indonesia
to avoid AD duties, and Customs recovered more than $2 million in
duties owed on this shrimp. Unfortunately, those duties were not
collected until late 2007, after the shrimp had already entered the
market at dumped prices and the harm had been done. In 2007, Customs
also found Chinese shrimp being transshipped through Malaysia to avoid
an FDA import alert regarding the presence of unapproved drugs in
seafood from China. Such evasion is particularly troubling given that,
according to a Government Accountability Office report released last
month, only a mere 0.1 percent of all seafood imports from countries
not under an import alert are tested by the FDA for banned drug
residues.
Another example concerns so-called ``dusted'' shrimp, shrimp that
is coated with flour but not fully breaded. In 2007, Customs sampled
shrimp being entered as ``dusted'' product from China, which at that
time was not subject to the AD order, and found that a full 64 percent
of the sampled shipments did not in fact qualify as dusted shrimp and
should have been entered under the order. While Customs estimated that
the duties potentially due on the sampled shipments were about $5
million, the total loss in AD duties, assuming a similar rate of fraud
going back to the issuance of the orders, was estimated at more than
$130 million.
While these enforcement actions by Customs have sent a needed
signal to importers that they will be held accountable for such
fraudulent schemes, we need more tools and resources that allow Customs
to collect duties more quickly, anticipate risks proactively, share
information more openly, and keep such fraudulent imports out of our
market in the first place. Otherwise, the relief is often too little,
too late for the domestic industry.
Our trade remedy laws provide the first, and often the only, line
of defense for American companies, farmers, fishermen, and workers when
they are forced to compete with dumped and subsidized imports. The
Congress created these laws to ensure that opening the doors of foreign
commerce does not unfairly distort the playing field for U.S.
industries here at home. A healthy trade remedy regime is key to
continued domestic support for our engagement in the global economy.
But these laws mean little if they are not vigorously enforced. I hope
this hearing will be a first step towards strengthening that
enforcement and fulfilling the promise of our trade remedy laws.
I thank the subcommittee for the opportunity to testify today and
for your interest in this important issue. I look forward to any
questions you may have.
Senator Landrieu. Thank you, Mr. Baumer. I appreciate it.
Mr. Hayes.
STATEMENT OF EDDY HAYES, PARTNER, LEAKE & ANDERSSON,
AND PROFESSOR, TRADE POLICY, TULANE LAW
SCHOOL, NEW ORLEANS, LOUISIANA
Mr. Hayes. Thank you, Madam Chair, Ranking Member Coats.
My name is Eddy Hayes, and I am a partner at the law firm
of Leake & Andersson in New Orleans. I lead the firm's
international trade and business practice, and I also am proud
to serve as an adjunct professor at Tulane Law School and at
Loyola Law School, where I teach a seminar on international
trade. I am also very proud to be counsel to the American
Shrimp Processors Association.
On a personal note, Senator Landrieu, I wanted to say thank
you for everything that you have done not just for this
industry, but for our citizens and our State. We have had a
wild ride since 2005, and I can tell you, we all feel better
that you are up here being our champion.
So thank you, Senator Landrieu.
As Mr. Baumer just testified, the shrimp industry has seen
the damaging effects of duty evasion, transshipment, and
circumvention firsthand. Duty nonpayment in the shrimp industry
alone has deprived the U.S. Government of more than $75 million
in tariff revenue and more than $1.5 billion in tariff revenue
overall since 2001.
These problems have seriously compromised the integrity of
the trade relief that this industry fought so hard to obtain.
If the IRS had only collected $2 out of every $3 it was owed,
it would be on the front page of every newspaper, and rightly
so. And we believe this issue demands the same measure of
attention.
We are deeply appreciative of all the support the industry
has received from this subcommittee, including the powerful
testimony that both Madam Chair Landrieu and Senator Cochran
provided to ITC in its recent sunset review of the AD orders on
shrimp.
Now that the commission has voted to keep these orders in
place, it is the perfect opportunity to ensure that the full
measure of AD orders are realized and that the relief intended
under the law is provided to the members of the shrimp
industry.
Madam Chair Landrieu, as the commission voted to maintain
these orders, you rightly noted that the next step was to
ensure that all the duties owed under the orders were, in fact,
being paid. And we could not agree more that that is the next
logical step.
Importers of goods under an AD or CVD order generally have
to post cash deposits equal to the estimated dumping or subsidy
margin for those goods. Because the final duty liability may be
higher than this cash deposit amount, importers are also
required to post a bond in addition to their cash deposits.
New exporters are allowed to post bonds instead of cash
deposits while they seek reviews to establish their own dumping
margins. Unfortunately, the bonds that are currently required
in these situations are simply not sufficient to allow Customs
to collect the full amount of duties owed. In some cases, the
importer is nothing more than a P.O. box, and there is no way
to collect against the importer at all.
Customs is then forced to try and collect against the
entity, most oftentimes a surety that provided the bond. But
when the importers are only required to obtain a continuous
entry bond, rather than the more robust single entry bond, then
the bond is often inadequate to capture the full amount of
dumping and the revenue that is due to the United States.
This problem is particularly acute for agriculture and
aquaculture products, where fragmentation in the foreign
industries allows players to appear and disappear at whim and
often without a trace. Seafood alone accounts for 43 percent of
the duties that have not been collected since 2001, and most of
that amount is due to duties that have not been paid by
importers of crawfish and shrimp.
Now, to its credit, Customs has tried to address the
problem in these industries with enhanced bonding requirements.
Though those particular requirements have been struck down, we
believe it is possible to reintroduce those requirements in a
consistent manner with our obligations both domestically and
internationally.
For example, whenever the amount of uncollected duties
exceeds a certain monetary threshold, for example, $1 million,
then Customs could require that the importers post a more
robust single entry bond. Furthermore, we should not allow an
importer to continue posting the same security after DOC has
preliminarily found that a higher margin is likely to apply or
while a final DOC determination is under appeal. Instead,
importers should have to start posting a sufficiently high bond
to meet those increased margins shortly after those
determinations.
And finally, the Congress should eliminate the privilege
that new shippers have to post bonds rather than cash deposits
as they await the results of their new shipper reviews. I
believe these three changes would go a very long way to
plugging the holes through which far too many importers escape
their duty liability. These changes will ensure this
inexcusable behavior is not allowed to continue.
PREPARED STATEMENT
We also support the proposals put forth by your colleague
Senator Wyden and others to give Customs the tools it needs to
more effectively address these issues of transshipment,
misclassification, circumvention, and duty evasion. And I am
happy to answer any questions that the Madam Chair and the
ranking member have.
[The prepared statement follows:]
Prepared Statement of Eddy Hayes
Madam Chairman, Ranking Member Coats, members of the subcommittee,
good morning. My name is Eddy Hayes, and I am a partner at the law firm
of Leake & Andersson LLP in New Orleans, Louisiana. I lead the firm's
international trade practice, and I am an adjunct professor of law at
Tulane University Law School and Loyola University Law School, where I
teach a seminar on international trade law and practice. I also
represent the city of New Orleans on the U.S. Trade Representative's
Intergovernmental Policy Advisory Committee, and I serve on the roster
of panelists eligible to adjudicate trade disputes under chapter 19 of
the North American Free Trade Agreement.
I am also counsel to the American Shrimp Processors Association,
the largest national organization of shrimp processors. As Mr. Baumer
just testified, this industry has seen the damaging effects of duty
evasion, transshipment, and circumvention first-hand. Duty nonpayment
in the shrimp industry alone has deprived the U.S. Government of more
than $75 million in tariff revenue--and more than $1.5 billion in
tariff revenue overall--since 2001. These problems have seriously
compromised the integrity of the trade relief the industry has fought
to obtain and maintain over the years.
We are deeply appreciative of all of the support the industry has
received from this subcommittee, including the powerful testimony that
both Chairman Landrieu and Senator Cochran provided to the U.S.
International Trade Commission in its recent sunset review of the anti-
dumping (AD) orders on shrimp. The Commission rightly decided that
revocation of the orders would likely lead to a continuation or
recurrence of material injury to the domestic shrimp industry, and
voted to keep these orders in place. Now is the perfect opportunity to
ensure that these orders are in fact providing the full measure of
relief intended under the law.
Chairman Landrieu, as the Commission voted to maintain these
orders, you rightly noted that the next step was to ensure that all
duties owed under the orders were in fact being paid. We could not
agree more. As Mr. Baumer testified, importers have failed to pay more
than $75 million in AD duties owed. As I noted, across all orders, such
nonpayment has deprived the U.S. Government of more than $1.5 billion
in revenue. If the Internal Revenue Service only collected $2 out every
$3 tax owed, it would be on the front page of every newspaper, and
rightly so. This duty collection problem deserves a similar level of
urgent attention.
Importers of goods under an AD or countervailing duty (CVD) order
generally must post cash deposits equal to the estimated dumping or
subsidy margin for those goods. The actual margin of dumping or
subsidization for the merchandise will often not be finalized until an
administrative review is conducted by DOC, and sometimes, until
judicial review of DOC's determination is complete. Because the final
duty liability may be higher than the estimated margin covered by cash
deposits, importers are also required to post a bond in addition to
their cash deposits. In addition, a new exporter or producer may post a
bond instead of cash deposits while it seeks a determination of its
correct margin in a new shipper review.
Unfortunately, the bonds that are currently required in these
situations are simply not sufficient to allow Customs to collect the
full amount of duties it is owed. In too many cases when the ultimate
duty liability increases over the preliminary estimate, or when a new
shipper fails to achieve a lower rate in its requested review, the
importer of record is unable or unwilling to meet its duty obligation.
In some cases, the ``importer'' is little more than a U.S. post office
box address for the foreign producer or exporter, and there is no way
to collect at all. Customs is then forced to try to collect against the
surety that provided the bond. But if importers are only required to
obtain a continuous entry bond, which is capped at 10 percent of the
duties owed in the previous year, what Customs is able to collect from
a surety may be far less than the full amount actually owed.
The problem is particularly acute for agriculture and aquaculture
products, where fragmentation in the foreign industries allows players
to appear and disappear without a trace. Indeed, seafood alone accounts
for a full 43 percent of the duties that have not been collected since
2001, and most of that amount is due to duties that have not been paid
by importers of crawfish and shrimp.
To its credit, Customs has tried to address the problem in these
industries with enhanced bonding requirements. Unfortunately, those
requirements were struck down because they singled out agriculture and
aquaculture. But there is a way to make such requirements fully
consistent with both U.S. law and our World Trade Organization
obligations by ensuring they are based on an objective risk assessment
rather than industry categories. For example, whenever the amount of
uncollected duties under an order exceeds a certain fixed amount, say
$1 million, Customs could require that importers post a more robust
single entry bond, rather than the insufficient continuous entry bond,
for imports under that order. Such a requirement would be industry- and
country-neutral, easy to administer, and highly effective.
Furthermore, we should not allow an importer to continue posting
the same security after the Department of Commerce (DOC) has
preliminarily found that a higher margin is likely to apply or while a
final DOC determination that such a higher margin will apply is under
appeal. Instead, importers should have to start posting a sufficiently
high security to meet increased margins shortly after any preliminary
DOC determination that the duty liability is likely to be higher than
the cash deposit rates. The same obligation should apply if any final
determination by DOC that finds a margin that is higher than the cash
deposit rates is subsequently appealed. To facilitate this, DOC should
be required to publish the amount by which the margins that apply to
exporters in a preliminary or final determination exceed each
exporter's cash deposit rates for the period reviewed.
Finally, the Congress could change the law to eliminate the
privilege new shippers currently enjoy to post bonds rather than cash
deposits as they await the results of new shipper reviews. Importers of
merchandise from new shippers should face the same cash deposit
requirements as importers from other companies that have not received
individual rates.
These three changes would go a very long way towards plugging the
holes through which far too many importers currently escape their duty
liability. While they can't make our industries whole for the harm they
have already suffered, these changes will ensure this inexcusable
behavior is not allowed to continue. In addition, we believe it is
entirely appropriate for these changes to originate from this
subcommittee because they go directly to Customs' revenue-raising
authority.
As to the problems of transshipment, misclassification,
circumvention, and other schemes, we believe it is time to supplement
Customs' toolkit so it can act with the speed, flexibility, and
transparency that modern commerce demands. As Mr. Baumer testified, too
often enforcement efforts such as civil fraud cases, penalty
collections, and criminal prosecutions take far too long to have a
meaningful impact on the market. In addition, the legal threshold for
initiating such investigations is a high one, and such cases are
resource-intensive.
While these enforcement actions play an important role, more is
needed. Numerous helpful proposals have been put forward that would
give Customs needed new enforcement tools, including by Senator Wyden
and some of his colleagues. We are supportive of Senator Wyden's
proposals and believe them consistent with the ideas proposed below.
First, Customs should suspend liquidation of entries as soon as
there is a reasonable indication that goods which may be subject to an
order are not being properly entered under that order. The burden
should be on the importer, not on Customs, to substantiate claims
regarding the origin, physical properties, and value of the
merchandise. While these claims are being verified, entries would be
held in suspension. If an importer cannot substantiate its claims,
Customs should be able to apply an adverse inference that the goods are
in fact subject to the order, and assess duty liability accordingly.
Similar procedures at DOC create a strong incentive for foreign
producers to cooperate and provide requested information, and the same
would hopefully be true at Customs. These actions would be separate
from, and in addition to, any civil or criminal proceedings against the
importer.
Second, the ability of Customs to share useful information with
those who have the most vested interest in enforcing our trade laws--
the domestic industry--is currently hampered by legal restrictions such
as the Trade Secrets Act. At DOC, the ability of domestic parties to
access foreign producers' confidential business information under
administrative protective orders has proven invaluable; it permits the
domestic industry to provide targeted, specific information to DOC,
eases the Department's own investigative burden, and helps to keep
respondents honest, all while protecting confidential information.
Similar procedures should be available at Customs. In addition, Customs
should be able to update the domestic industry on the status of
investigative matters without violating its confidentiality
obligations. This would keep the domestic industry involved and
invested and permit Customs to share its successes.
Third, there should be more robust information sharing between
Customs and DOC. When Customs conducts the type of verification
outlined above, it should forward the resulting information to DOC so
it can be part of its own record, and so that parties to the DOC
proceeding can access that information under protective order.
Similarly, parties should be allowed to share confidential information
learned in a DOC proceeding with Customs. If, for example, Customs
suddenly sees a large increase in imports claiming to originate from a
foreign producer that recently received a relatively low margin,
information learned in the DOC proceeding may demonstrate that the
foreign producer has nowhere near the capacity to produce such a high
volume of imports, and that they are in fact being fraudulently shipped
from foreign producers subject to much higher margins. Interested
parties should be able to alert Customs to such information without
violating their confidentiality obligations.
Fourth, Customs must be allowed to use the full range of
information it currently collects from importers for trade enforcement
purposes. In 2009, Customs began requiring importers to submit
additional information regarding cargo shipments on their way to our
ports, the so-called ``10+2'' requirements. The information is
collected for smuggling and security purposes, and it includes the
identity of the seller, the buyer, the manufacturer, the party being
shipped to, the country of origin, the applicable tariff line, where
the container was loaded, and the identity of the consolidator. This
information is already being collected on all cargo shipments to the
United States, yet Customs is prohibited from using this information
for trade enforcement purposes. By eliminating this needless wall
between security and trade enforcement, we could give Customs access to
a huge amount of extremely useful information at no extra cost to the
taxpayer and with no additional burden on importers.
Finally, in this time of acute fiscal pressures, we understand that
any request for increased funding is a hard sell. But at Customs, the
funds invested bring a concrete revenue return back to the Government,
and they are thus money well spent. At a minimum, we should ensure that
Customs is not being deprived of the appropriations it needs to protect
the tariff revenue and to ensure the integrity of our trade remedy
laws. The losses due to unpaid duties alone exceed $1.5 billion over
the past 10 years; it is impossible to quantify the additional amounts
lost to transshipment, circumvention, misclassification, and other
schemes.
I thank the subcommittee for the opportunity to testify today, and
I look forward to working with you on these important issues. I would
be happy to take any questions you may have.
Senator Landrieu. Thank you.
Mr. Busse.
STATEMENT OF KEITH BUSSE, CHAIRMAN AND CEO, STEEL
DYNAMICS, INC., FORT WAYNE, INDIANA
Mr. Busse. Good morning, Madam Chair Landrieu, Senator
Coats, and members of the subcommittee.
I am Keith Busse, co-founder, chairman, and CEO of Steel
Dynamics, Inc. (SDI). We began operations in Butler, Indiana,
with one greenfield mini mill in the year 1996. We now have
five mills in three States with more than 6,000 employees
dedicated to steel making and recycling.
We produce flat-rolled steel, special bar quality steels,
rebar rail structurals, and we gather, process, and distribute
scrap. We recently began producing pig iron from iron ore oxide
at our Mesabi Nugget plant in Hoyt Lakes, Minnesota, and will
soon begin a joint venture with a Spanish entity to produce
copper rod.
Thank you for inviting me to discuss a paramount issue for
U.S. manufacturers, specifically our trade laws and the proper
enforcement of existing dumping orders. Testimony this morning
from CBP, ICE, DOC, and GAO showed that much work remains to
ensure that custom fraud ends.
Our expansion and continued investment in new technologies,
products, and employment in the United States faces one major
headwind, China. The Chinese Government has subsidized a steel
industry with 800 million tons of capacity and only 675 million
tons of domestic demand. The 125 million tons of excess
capacity is pouring onto world markets, as China is the world's
largest steel exporter.
This exists because the Chinese Government manipulates the
value of its currency to provide export subsidies. The United
States should address this issue immediately because it is
costing us millions of jobs. However, I know that this is not
the subject of today's hearing.
In 2000, SDI and others obtained AD duties on imports of
hot-rolled steel from China. In the past few years, many of our
most important customer groups, including the pipe and tube
industry, wire products producers, and steel wheel producers,
have won AD/CVD orders against China or are now seeking them.
But a new industry has sprung up in China to evade duties
by creating false country of origin documents and transshipping
those Chinese products through third countries. Customs'
present inability to stop this massive invasion is harming us
and the American worker.
I would like to offer three recommendations to you. First,
the Congress has to ensure that DHS is accountable for
investigating and determining whether AD/CVDs are being evaded.
Both DOC and ITC have statutory timelines in place that require
them to publish results. I understand that no similar rules
apply to Customs investigations of allegations of duty evasion.
Therefore, I would urge you to support the bipartisan
efforts of Senators Wyden and Snowe and their colleagues to
establish a new statutory system to initiate, investigate, and
reach conclusions about duty evasion within a defined
timeframe.
Second, and this is where this subcommittee has a direct
impact, clearly, DHS will need separate funding through a fresh
appropriations for establishing an office to process
administrative protective orders and additional personnel to
investigate duty evasion and collect AV and CVDs. These
expenditures will pay for themselves, as millions of dollars of
duties are recouped through collections by CBP.
If these duties are collected, then U.S. producers will
finally receive the relief intended from the imposition of
duties under U.S. law. This will improve conditions for
manufacturers, who will re-enlist workers and contribute to our
economic recovery in communities throughout the country.
Third, I understand that when textile quotas were put in
effect, Customs had production verification teams that would go
to foreign countries to investigate whether clothing was made
in the factories they were alleged to be made in or they were,
in fact, Chinese. The same thing should now be done with AD/CVD
orders since importers claim the imports are from Malaysia,
Vietnam, Taiwan, Hong Kong, Turkey, you name it, even though
these products are made in China.
Evidently, the State Department would have to work out
memorandums of understanding with countries to allow these
production verification teams to do their work. But I would
emphasize that this would be an important step in intervention.
PREPARED STATEMENT
Let me conclude by telling you that our board is
considering an investment of $1.5 billion in a new greenfield
mini mill to make flat-rolled steel primarily for tube and line
pipe, mainly used to drill and transport oil and gas from new
shale drilling sites around the country. This could create
thousands of new jobs, but we need your help to stop the
Chinese invasion of AD/CVD orders on these products. America
must be prepared to secure the integrity of our ports.
Thank you.
[The prepared statement follows:]
Prepared Statement of Keith Busse
Good Morning Chairman Landrieu, Senator Coats, and members of the
subcommittee. I am Keith Busse, co-founder, chairman, and CEO of Steel
Dynamics. We began operations in Butler, Indiana with one greenfield
mini mill in 1996. We now have five mills in three States with more
than 6,000 employees in steel and recycling. We produce flat-rolled
steel, SBQ bars, rebar, rail, structurals, and we gather, process, and
distribute scrap. We recently began producing pig iron from iron ore at
our Mesabi Nugget plant in Hoyt Lakes, Minnesota and we will soon begin
a joint venture with a Spanish entity to produce copper rod.
Thank you for inviting me to discuss a paramount issue for U.S.
manufacturers--our trade laws and the proper enforcement of existing
dumping orders. Testimony this morning from Customs and Border
Protection (CBP), Immigration and Customs Enforcement (ICE), the
Department of Commerce (DOC), and the General Accountability Office
(GAO) showed that much work remains to ensure that customs fraud ends.
Our expansion and continued investment in new technologies,
products, and employment in the United States faces one major headwind:
China. The Chinese Government has subsidized a steel industry with 800
million tons of capacity and only 675 million tons of domestic demand.
That 125 million tons of excess capacity is pouring on to world markets
and China is the world's largest steel exporter. This exists because
the Chinese Government manipulates the value of its currency to provide
export subsidies. The United States should address this issue
immediately because it is stealing millions of jobs from us. However, I
know that is not the subject of today's hearing.
In 2000, SDI and others obtained anti-dumping (AD) duties on
imports of hot-rolled sheet from China. In the past few years, many of
our most important customer groups including the pipe and tube
industry, wire products producers, and steel wheels producers have won
AD and countervailing duty (CVD) orders against China, or are now
seeking them. But, a new industry has sprung up in China to evade trade
relief by creating false country of origin documents and the
transshipping of Chinese products through third countries. Customs'
present inability to stop this massive evasion is harming us and our
workers.
I would like to offer three recommendations to you. First, the
Congress has to ensure that the Department of Homeland Security is
accountable for investigating and determining whether AD/CVDs are being
evaded. Both DOC and the U.S. International Trade Commission have
statutory timelines in place that require them to publish results. I
understand that no similar rules apply to Customs investigations of
allegations of duty evasion. Therefore, I urge you to support the
bipartisan efforts of Senators Wyden and Snowe and their colleagues to
establish a new statutory system to initiate, investigate, and reach
conclusions about duty evasion within a defined timeframe.
Second, and this is where this subcommittee has a direct impact.
Clearly, Homeland Security will need separate funding through
appropriations for establishing an office to process administrative
protective orders, and additional personnel to investigate duty evasion
and collect AD/CVDs. These expenditures will pay for themselves as
millions in dollars of duties are recouped through collections by CBP.
If these duties are collected, then U.S. producers will finally receive
the relief intended from the imposition of duties under U.S. law. This
will improve conditions for manufacturers who will re-enlist workers
and contribute to economic recovery in communities throughout the
country. Third, I understand that when textile quotas were put into
effect, Customs had production verification teams that would go to
foreign countries to investigate whether clothing was made in the
factories that they were alleged to be made in, or they were in fact
Chinese. The same thing should now be done with AD/CVD orders since
importers claim the imports are from Malaysia, Vietnam, Taiwan, Hong
Kong, Turkey--you name it--even though these products are made in
China. Evidently, the State Department would have to work out
memorandums of understanding with countries to allow these production
verification teams to do their work, but I would emphasize that this
would be an important step in intervention.
Let me conclude by telling you that our board has preliminarily
allotted $1.5 billion for a new greenfield mini mill to make flat-
rolled steel primarily for tube and line pipe mainly used to drill and
transport oil and gas from new shale drilling sites around the country.
This could create thousands of new U.S. jobs, but we need your help to
stop Chinese evasion of AD/CVD orders on these products. America must
be prepared to secure the integrity of our ports. Thank you.
Senator Landrieu. Thank you.
And thank you for raising the issue of production
inspection teams. We are going to focus on that, and I will
have a few questions to you all and also the previous panel.
Mr. Adams.
STATEMENT OF JIM ADAMS, PRESIDENT AND CEO, OFFSHORE
MARINE SERVICE ASSOCIATION, NEW ORLEANS,
LOUISIANA
Mr. Adams. Good morning. Madam Chair, Ranking Member Coats,
thank you so much for this opportunity.
As president of the Offshore Marine Service Association
(OMSA), I am pleased to testify on the need for disciplined,
consistent, transparent enforcement of the Jones Act. OMSA
represents more than 250 companies, and you know most of them
and know our board members.
Our members need consistent Jones Act enforcement. But they
are also a resource. You know them well, and they can be the
eyes and ears on the gulf for both CBP and the Coast Guard, and
I would like to talk about how we can get more out of that
partnership.
The Jones Act is very broad, and it is very clear. It
requires that to transport goods domestically, that that move
needs to be made on a U.S.-built boat owned by Americans and
crewed with American crew members. Foreign vessels are
prohibited from engaging in coast-wide trade.
Ensuring foreign vessels stay in their nontransportation
lane is the responsibility of CBP and the Coast Guard. The need
for clear, consistent, vigorous enforcement is essential to our
members. It is really what the basis of the capital formation
and the jobs that go along with that capital formation are
built upon.
But it is not an easy job. In contrast to a typical
container ship move, a conventional move, in the Outer
Continental Shelf (OCS), things are very complex. The OCS is a
vast subsea network of wells and pipelines and equipment, and
it is very foreign-looking to the average American. In this
environment, it really takes a seasoned eye to differentiate
between what is transportation service and what might be an
installation or construction service.
In the past 30 years, the complexity of the OCS has driven
CBP down a very difficult and piecemeal path of letter rulings
that have fostered uncertainty in our market, and you can be
sure that foreign vessel operators have done their best to
exploit the ambiguity that remains in the rules.
In 2009, CBP courageously attempted to make broad policy
improvements. But under intense political pressure to protect
the status quo, CBP had to withdraw its rulemaking. I would
like to thank CBP for that effort, and I remain confident that
their acknowledgment that broad policy change was warranted,
that acknowledgment will affect future letter rulings, as well
as the enforcement posture of the agency.
Again, enforcing the Jones Act on the OCS is a difficult
job. Violations occur far offshore and at private docks. In
2008--you know our members, they are self-starters--they
created the Jones Act Compliance Program. Under this program,
we have been assisting CBP and the Coast Guard with enforcement
of all of our domestic transportation laws.
We work closely with the CBP port directors to provide them
with training, to give them the latest understanding of where
technology is going, what they might expect to see occurring at
various docks, and to understand what operations are going on.
Using the Automatic Identification System, OMSA continually
monitors the location and movements of every foreign vessel
operating in the gulf.
This surveillance, coupled with an aggressive intelligence
program, allows OMSA to identify suspicious behavior. Then we
take that intelligence and documented vessel movement data, and
we provide it to CBP and help them build a case. This is an
excellent example of what maritime domain awareness really is,
and we would love to share this information with the Coast
Guard so that we can not only do this for economic interest
reasons, but also for Homeland Security.
OMSA has assisted CBP in eight enforcement cases. Six of
those are going to the fine assessment phase. Two of them were
immediately rectified with compliance. As soon as we get
compliance, a particular job will go to a U.S. flag boat and
that work will go to U.S. crewmen.
When a violation occurs, the penalty is the value of the
cargo moved. In the six pending cases, the value of the cargos
moved is between $2.5 million and $10 million. We strongly
encourage CBP to take immediate action and assess a penalty. We
understand they are very close on a couple of these cases.
We think, with a strong penalty, that will provide the
market clarity necessary for companies to understand what is at
risk when they make a move of convenience possibly.
Senator Landrieu. Okay. Try to wrap up, if you can?
Mr. Adams. Yes, I will.
PREPARED STATEMENT
Just before closing, thank you so much for your leadership
in trying to get permits awarded in the gulf. We are at a
critical stage. Our industry is being decapitalized, and our
world-class workforce is being displaced.
But thanks to your leadership, we may see improvement in
the near future. I certainly hope so.
[The prepared statement follows:]
Prepared Statement of Jim Adams
Madam Chairman and members of the subcommittee: As the president
and chief executive officer of the Offshore Marine Service Association
(OMSA), I am pleased to have the opportunity to describe the challenges
facing our industry and the Department of Homeland Security (DHS)
through its agency, U.S. Customs and Border Protection (CBP), in
enforcing the Jones Act in the Gulf of Mexico. The Jones Act is very
broad and very clear in its mandate--no merchandise or passengers shall
be transported by water between points in the United States in any
other vessel than a vessel built in and documented under the laws of
the United States and owned by persons who are citizens of the United
States.
OMSA represents more than 250 companies that own and operate
vessels, perform towing activities and provide services in support of
the production, exploration and development of offshore natural
resources. These companies employ more than 12,000 mariners operating
approximately 1,200 vessels in the Gulf of Mexico. Madam Chairman, in
your visits to Port Fourchon and other port and offshore facilities in
southeast Louisiana, you have observed firsthand the OMSA member
vessels and personnel that support vital offshore oil and gas
exploration and development operations. While our association
represents the world's largest offshore vessel companies, most OMSA
members are to this day family owned and operated businesses. Our
members not only perform a valuable economic function for the oil and
gas industry, but we also have an important homeland security role to
play. Because we regularly operate within and beyond the maritime
borders of the United States, OMSA members serve as ``an early-warning
system'' for threats against the strategic assets in the Gulf of Mexico
and our homeland.
Madam Chairman, at the outset, I would like to provide the
subcommittee with some important background on the Jones Act, a
critically important law that is vital to the American maritime
industry and our operations in the Gulf of Mexico. When the Jones Act
was enacted by the Congress in 1920, its preamble provided that:
``It is necessary for the national defense and for the proper
growth of its foreign and domestic commerce that the United States
shall have a merchant marine of the best equipped and most suitable
types of vessels sufficient to carry the greater portion of its
commerce and serve as a naval or military auxiliary in time of war or
national emergency, ultimately to be owned and operated privately by
citizens of the United States; and it is declared to be the policy of
the United States to do whatever may be necessary to develop and
encourage the maintenance of such a merchant marine, and, insofar as
may not be inconsistent with the express provisions of this act, the
[United States] shall, in the disposition of vessels and shipping
property as hereinafter provided, in the making of rules and
regulations, and in the administration of the shipping laws keep always
in view this purpose and object as the primary end to be attained.''
While the Jones Act dates from 1920, cabotage laws from which it
came were enacted by the first United States Congress in 1789. Through
the Jones Act and its predecessor statutes, the Congress intended to
ensure that the United States has available vessels to meet sealift
needs, trained and experienced seafarers to operate U.S. Government
ships in times of national emergency, and a modern shipyard industrial
base that is critical to the Nation's military and economic security.
In so doing, the Congress required that vessels operating in the
domestic commerce of the United States must be owned by U.S. citizens,
built in U.S. shipyards, crewed by U.S. citizens, and documented under
the laws of the United States as U.S. flag vessels. CBP is vested with
the authority to interpret and enforce these Jones Act requirements.
Indeed, as the Preamble included by the Congress at the time of the
passage of the Jones Act makes clear, it is the duty of CBP to ``keep
always'' the stated purpose of the statute as the ``primary end'' to be
attained. This means, and the Congress made clear, that when creating
rules and regulations and when administering all shipping laws, of
which the Jones Act is one, CBP must ``do whatever necessary to develop
and encourage the maintenance of such a merchant marine''.
Without a doubt, U.S. businesses have done their part in ensuring
that our Nation has a vibrant merchant marine. The investment by
American businesses, and members of OMSA, based on the Jones Act is
substantial. According to America's Maritime Partnership, the entire
Jones Act fleet is comprised of more than 40,000 vessels and represents
an investment of nearly $30 billion. Jones Act vessels annually move
more than 100 million passengers and 1 billion tons of cargo with a
market value of $400 billion. There are 74,000 jobs that are directly
related to Jones Act maritime activity, and total employment related to
domestic waterborne commerce is 500,000. The annual economic impact of
the industry is $100 billion, with $29 billion in annual wages paid and
$11 billion in taxes generated. In addition to support for domestic
offshore oil and gas activities on the Outer Continental Shelf of the
United States (OCS), Jones Act vessels carry grain, coal and other dry-
bulk cargoes, crude, and petroleum products on the inland river system;
domestic crude oil from Alaska to west coast refineries; iron ore,
limestone and coal throughout the Great Lakes; refined petroleum
products along the east and gulf coasts; and merchandise and
construction materials to and from Alaska, Hawaii, Puerto Rico, and
Guam.
The segment of the industry that serves the Nation's oil and gas
exploration and development on the OCS is a vital and indispensable
part of the Nation's Jones Act fleet and its ability to competitively
explore and produce domestic sources of oil and gas. Prior to the
moratorium imposed by the administration on OCS drilling activities,
the United States obtained almost a one-third of its oil and more than
a quarter of its gas from offshore drilling and production.
In addition to the importance of the oil and gas sector, the OCS
may also be a significant future source of wind-generated electricity.
Our members' vessels serve exploration, development, and production
rigs and facilities and support offshore and subsea construction,
installation, maintenance, repair and decommissioning activities. In
addition to transporting deck cargo, such as pipe or drummed material
and equipment, our vessels also transport liquid mud, potable and
drilling water, diesel fuel, dry bulk cement, and personnel between
shore bases and offshore rigs and production facilities.
The need for clarity, consistent with legislative intent, and
vigorous enforcement of the Jones Act by CBP is extremely important in
the context of offshore oil and gas activities on the OCS. This issue
is of even greater importance in the Gulf of Mexico where day-to-day
operations have been significantly curtailed by the Administration's
continuing de facto moratorium on offshore oil and gas drilling
activities. In contrast to the relative simplicity of the
transportation of merchandise from one place to another in other
segments of the Jones Act trade, oil and gas exploration and
development activities on the OCS are very complex. On the OCS, rapidly
developing technology supports the installation of subsea wells and the
myriad types of connecting pipes and other equipment necessary for the
production of oil and gas. In the deepwater oil and gas fields, a new
generation of special purpose and multipurpose vessels and equipment
has been developed to facilitate operations. Subsea systems in
deepwater often employ multiple wells connected to each other and
production facilities with a wide variety of devices and patterns with
such colorful names as ``daisy chain tiebacks'', ``cluster well
manifolds'', and ``multi-well templates'' that can be miles long.
Production facilities, fixed or floating, are connected to seabed
systems by devices such as ``flexible compliant risers'', ``steel
catenary risers'', ``tower risers'', and ``top tension risers''.
Production structures vary depending on the depth of the water, and may
run the gamut from platforms fixed to the seabed to moored floating
production, storage and offloading vessels. There are at least four
marine pipeline installation methods, including towing, S-lay, J-lay,
and reel lay.
This complexity in oil and gas activities on the OCS has taken CBP
down a path of rulings based on specific and very complex fact patterns
and situations that have unfortunately resulted in a lack of clarity
and a misapplication of the law. Foreign vessel owners have exploited
this ambiguity--and even promoted it--in order to create a market on
the U.S. OCS for their vessels that should be reserved to Jones Act
qualified vessels. Because of the complex, dynamic and rapidly changing
environment on the OCS, the lack of clarity or failure to apply the
Jones Act as intended by the Congress has created uncertainty,
undermined enforcement, and opened the door to foreign carriers to
inappropriately engage in the coastwise trade of the United States. In
fact, this lack of clarity in the past in CBP rulings has allowed
numerous foreign-flag vessels with foreign crews to carry on activities
and transport cargo in the Gulf of Mexico, thereby costing OMSA members
both jobs and revenue.
In 2009, and with the full support of OMSA and its membership, CBP
courageously initiated action to restore proper clarity to and
enforcement of the Jones Act. Specifically, in its July 2009 proposed
modification and revocation of certain previous Jones Act ruling
letters, CBP sought to restore the definition of what constitutes
vessel ``equipment'' as it relates to the transportation of merchandise
under the Jones Act. CBP had revoked an earlier ruling that allowed a
foreign-flag vessel to transport and install a wellhead assembly
(commonly known as a ``Christmas tree'') from a U.S. port to the OCS,
and the agency sought to impose clear and proper guidance to the trade
community for compliance and to ensure that the legislative intent of
the Congress is followed in the application of the Jones Act. However,
to the great disappointment of OMSA and others in the Jones Act
community, CBP, at the direction of the Department of Homeland
Security, soon withdrew the modification and revocation proposal, and
subsequent rulemaking proceedings in this matter have been abandoned
for now.
OMSA fully understands the difficulty of enforcing the Jones Act on
the OCS, particularly given the size of the Gulf of Mexico and the
complexity of OCS operations. Jones Act violations are often occurring
far offshore or at remote private facilities. With this in mind, OMSA
has taken steps to create a working partnership with CBP to assist in
its enforcement of the Jones Act. And, I am pleased to report that our
partnership is delivering positive results. I want to thank CBP for its
commitment to this initiative and encourage CBP to continue its efforts
to pursue swift enforcement when violations occur.
In 2008, OMSA took the initiative to create a Jones Act compliance
program with the express purpose of assisting CBP and the U.S. Coast
Guard in enforcement of the Jones Act and other key maritime laws of
the United States. Our members are operating throughout the Gulf of
Mexico on a daily basis and are often able to see first-hand violations
of the Jones Act by foreign flag vessels. In essence, the U.S.-flagged
Jones Act fleet, in its role as an essential partner with DHS in the
maritime homeland security mission, serves as the Nation's ``eyes and
ears'' in the strategically vital OCS region.
Under our Jones Act compliance program, OMSA works closely with CBP
Port Directors and provides them with information and assistance to
ensure a common understanding of the offshore industry's equipment,
technology, operations, and terminology. Next, we actively monitor the
location and movement of every foreign vessel in the Gulf of Mexico
through the use of automated identification system technology. By
continually documenting the location and activities of foreign vessels
working in the Gulf of Mexico, OMSA is able to recognize vessel
movements that warrant further scrutiny. We also have developed the
capability to generate credible information about possible violations
of the Jones Act from our experienced personnel working offshore.
OMSA's Jones Act Compliance Manager regularly provides detailed
enforcement reports to CBP that enable the Federal Government to pursue
those companies and individuals that are actively violating the Jones
Act.
As a result of this program and the information that OMSA has
provided to CBP, there have been numerous enforcement actions
successfully initiated. In fact, there have been eight enforcement
cases in the past few years that are progressing towards a fine or have
been otherwise resolved by CBP with full compliance by the foreign
shipowner. In order for its enforcement efforts to be credible and
deter future violations by foreign flag shipowners, we encourage CBP to
act quickly and decisively to impose fines and other sanctions when a
violation is found, and to widely publish such enforcement actions. We
are confident that with the assessment of a few significant penalties,
there will be a marked change in the inappropriate activities of
certain foreign flag vessels in the Gulf of Mexico. As a result, more
opportunities for U.S. flag vessels and American crews will be created.
Madam Chairman, the members of OMSA are proud to support the
efforts to develop the oil and gas resources of this Nation. We have
made a substantial investment in this enterprise and are prepared to
increase that investment. Our investments in the past have been
predicated on the continuing viability of the Jones Act and the
expectation that the Federal Government will aggressively enforce that
law. Our investments in the future, investments that would continue to
generate thousands of American jobs, also directly depend on the
efforts of CBP to ensure that foreign vessels with foreign crews are
prohibited from routinely violating the Jones Act in the Gulf of
Mexico. We are pleased that CBP has worked with us in a constructive
fashion to improve compliance with the Jones Act, and we look forward
to even more vigorous enforcement in the years to come.
Madam Chairman, thank you for inviting me to appear before the
subcommittee today. I will be pleased to answer any questions that you
or any members of the subcommittee may have.
Senator Landrieu. Thank you. Thank you, Mr. Adams.
Our whole delegation is working on it with the other gulf
coast Senators. We will continue to push it. It is extremely
important.
But between the pressures on our seafood industry not just
from natural disasters, but from the failure to be able to
enforce and collect in this area, and with the permatorium that
we say is still in effect in the gulf, it is a very tough time
for many industries. And indirectly, of course, you have got
the hospitality industry, which is affected by these base
industries that are not able to perform at their highest
levels.
Let me ask quickly just a couple of things. All of you--Mr.
Baumer, Mr. Hayes, and Mr. Busse--have you all ever used the e-
Allegations process? They have created an online referral
process for AD, or any of your members or associates? Have you
all used that process? Are you familiar with it? It is called
e-Allegations. I think it is an online way for people to enter
complaints or et cetera.
Mr. Hayes, are you familiar with it?
Mr. Hayes. Madam Chair, I am familiar with it. Not
intimately, but I can tell you that in our industry, there have
been complaints that have been made that were industry-driven
because of our knowledge of what is going on. I don't know that
they were made through the e-filing system. But there have been
complaints registered with respect to transshipment,
misclassification, and other issues.
But I am not so sure that any of it has been directed
directly to undercollection and noncollection issues. But
certainly, we will take a look at the e-filing system and
familiarize ourselves with it to see if it is efficient and if
it works.
Senator Landrieu. Anybody else want to comment on that? If
not, don't feel compelled. Mr. Busse.
Mr. Busse. Madam Chair, our steel producers, I am not sure
if other steel producers have used the system. We have not, but
our clients have. The pipe and tube making community uses that
system today.
Senator Landrieu. Okay. Mr. Baumer, help me understand,
when the old Byrd rule was in effect that has been ruled not up
to standard with the World Trade Organization (WTO) guidelines,
but there was money collected under that rule. How did you all,
some of the processors use some of that funding? How did you
use it to sort of reinvest and/or recapitalize, and do you have
any suggestions about how we could move forward and either
reshape or redesign that process?
It seems only fair to me that some of the penalties, the
injured parties themselves should receive some benefit from the
violations that occur. But do you want to comment on any of
that and clarify some of it?
Mr. Baumer. Yes. I guess on how the Byrd money that was
distributed to the industry was used would depend on the
individual circumstances. For us as a company, and a lot of our
other processors and fishermen, we used it in multiple ways.
The first way is we upgraded our plants, put new machinery
in, new floors, new buildings, new refrigeration. A second way
that we did it was we paid more at the dockside for shrimp that
we would otherwise pay while we are competing with imports. So
we used that as our profit margin, so to speak, to pay higher
prices than we can actually sell the shrimp for on the open
market.
And three, what it allowed us to do, it gave us more
capital to inventory product year-round. In our industry,
capitalization is very important because, as a domestic
industry, we only fish for certain months out of the year. But
to compete with imports, we can't write long-term contracts
because we are not sure what is coming out of the water.
So, to the best of our ability, we buy product, inventory
millions throughout the months that we are not fishing to keep
our customers year-round. So inventory, upgrades on plants, and
higher dock prices I would say, give or take, are the three
areas that were most beneficial.
On the future, to address the question on the future, I
personally, and a lot of people in our industry would love to
see some of the monies that are collected be put back into our
industry. It was WTO-inconsistent, but I would like to see a
very easy way, I think, to do it would be to get that money
back into our fishermen's hands, maybe through fuel subsidies.
So we could buy shrimp at potentially a lower price or a
fair price, but it would eliminate some of their risk when they
are fishing. Still cover their expenses. And we would
potentially be able to get shrimp at a lower cost to compete
with imports that are continuing to come in cheaper and cheaper
at times.
So fuel subsidies would be a great way, as well as upgrades
on rigs to put newer fishing methods, more sustainable fishing.
A lot of the retailers in this country, as you know, are moving
to the Marine Stewardship Council or to other sustainability
measures. And the more our fishermen have money to invest in
their fleets to upgrade to produce more sustainable, so to
speak, a more sustainable catch, would also be an upgrade.
Senator Landrieu. Thank you.
My final question, and I will turn it over to Senator
Coats. Mr. Hayes, you have worked with this industry,
particularly aquaculture, shrimp, and crawfish. But as a
professor, you are familiar. What would be the two or three
things that you would like to suggest to our subcommittee that
we can do, either through the appropriations process or focused
on either resources or directing resources or enforcing what
the laws allow us to do today?
Mr. Hayes. Thank you, Madam Chair.
My suggestion would be, No. 1, focus on the bonding issue.
That is a very easy fix, and it is something that can be done,
arguably, by CBP on its own, with some direction from this
subcommittee and from the Congress.
The enhanced bonding issue, if it is applied on a neutral
basis, based upon an objective risk assessment, then I believe
it would be WTO-consistent and also in compliance with our
domestic laws. That is a very easy thing that we can do to
capture those duties that are being uncollected.
Also the new shipper issue, having them post cash deposits
rather than the bond is an easy fix that I think the Congress
would have to create. But that is also something that could be
done.
And then, also the notion of some type of separate remedy
in these types of situations that, in addition to the civil and
the criminal fraud actions where they have very high thresholds
to prosecute these cases, if we have sort of a revenue remedy
where there is adverse inferences against the foreign importers
who are trying to game the system, then if there is this
revenue remedy available and the industry is engaged, then it
is a very pragmatic way to address the issue.
So I think the bonding issues are very important, and they
are very obtainable. And they are quite easy to address. And
then also this notion of a separate type of remedy that would
allow individuals or groups to bring complaints to the
appropriate administrating authority to investigate these
issues and have information freely shared between Customs and
DOC under an administrative protective order, which has been
very successful in the AD environment.
So those are two things, Madam Chair, that I would suggest.
And just real briefly, if I could? Mr. Yager, this morning, was
discussing the retrospective system that we have. I just wanted
to point out that that system is not only the most fair and
transparent system in the world. It allows you to collect more
revenue because we determine what the actual dumping rate is.
There is a preliminary rate. And then after the review,
that rate is often much higher. So the retrospective system
allows you to collect more revenue, assuming that Customs and
DOC are doing their job appropriately.
So I just wanted to mention that we are strong supporters
of the retrospective system that we have, as long as Customs
and DOC have the tools necessary to collect the duties.
Senator Landrieu. Mr. Baumer. And then I will turn to the
Senator.
Mr. Baumer. I would like to add one more thing that I was
thinking about that I wanted to mention to you. I mentioned
fuel subsidies on some of that money. Another avenue that would
be excellent for the industry is to fund, at least early on
until they become self-sustainable, a marketing program similar
to Wild American Shrimp.
I know the American Shrimp Processors Association has
numerous processors that process and distribute most of the
shrimp in the United States, and we are working together now to
create a united marketing program because 90 percent of the
people that eat shrimp in this country, when they are eating
them, think they are eating domestic. And if those people were
aware of what they were eating, 90 percent of them, because of
the flavor profile, as you mentioned earlier, would choose to
eat domestic shrimp.
But with such a small niche industry, 5, 10 percent at
times, it is going to take a pretty cohesive marketing and
broad marketing program to inform people of what they are
eating to help out our industry and get it out of that
commodity market.
Senator Landrieu. Thank you very much.
Senator Coats.
Senator Coats. Thank you, Madam Chair.
Thanks, all four of you, for your testimony here this
morning.
And Madam Chair, thank you for holding the hearing. It has
been informative, and we talked just a couple of whispers here
in between in terms of some action that we think we can take
regarding some of the trade agreements that are coming before
the Senate this year. So this has been very, very helpful.
Mr. Busse, thank you also for your testimony and for being
here. You made three recommendations for us. And the first was
a statutory timeline issue, which we will take a look at. The
second was the resources and personnel necessary to have the
various departments become the most efficient and effective
that they can be. And the third was the production
verification.
I think those are all legitimate recommendations. I know
that the chairman and I will be discussing how we look at that
and how we potentially can address those three issues.
I just have one question for you, Keith, relative to the
resources and personnel question. As you heard, I asked that
question to the first panel, and the answer was essentially we
pretty much have what we need.
Now, as I said, that is welcome news to us that are in a
position where people are going to be asked to do more with
less. And we don't have the funds available out there to do
many add-ons, if any. But I would be interested in your
response to them when they said, ``We have got what we need.
Maybe there is a few more efficient ways of doing our work, but
we have the resources, and we have the personnel.''
But that is really contrary to what you are saying, at
least I think what you are saying. Do you want to comment on
that?
Mr. Busse. I think it has been clearly established there is
cheating and fraud going on, and I think it really is low-
hanging fruit. I think the return on investment is monumental
there.
It is appropriate, I think, that we are sitting here in the
Dirksen building. I think it was Senator Everett M. Dirksen
that said, ``A million here and a million there, and pretty
soon, we are talking about real money.''
I guess in today's environment, where we have enormous debt
and we have revenue streams that don't match that debt, running
enormous deficits, I would say this is one of the easier areas
to pick up a billion or two. Because I think the phrase today
would be, ``A billion here and a billion there, and pretty
soon, we are talking about real money.''
So it is tough enough to bring a dumping case. A lot of
work goes into that, and they are hard to win. But when you win
them, I think enforcement is paramount. And it is obvious we
are not getting the job done.
We can say we have adequate resources, but there is still
cheating going on out there and evasion of a duty exists today.
So I would say my challenge to them would be why aren't we
getting the job done if you have the adequate resources?
Senator Coats. Madam Chair, thank you.
Senator Landrieu. Yes.
Senator Coats. That is all the questions that I have.
Again, thanks to the panel for your contributions here, and we
look forward to continuing to work with you and administration
officials to, as you say, go after that low-hanging fruit and
have a better system that not only brings in more revenue, but
also protects U.S. industries and U.S. jobs.
Senator Landrieu. Thank you.
I just have three brief questions. And while Senator Coats
is here, just bear with me for a minute.
It is very hard, I think, sometimes for the people in our
country to understand just the visual difference between the
west coast, the east coast, and the gulf coast. Just very
briefly, the gulf coast--because we do oil and gas drilling--we
literally have cities operating offshore. There are no cities
operating off the shores of California or New Jersey. We
literally have cities, what I would describe as skyscrapers
that are taller than the skyscrapers in any of our cities out
in the gulf.
So we have an inhabited gulf. It is like living on the
water. Not just boats coming back and forth, but people
inhabiting platforms, which is why I think, Mr. Adams, you got
to your program of these offshore private companies helping the
Coast Guard helping Customs. Customs doesn't have a fleet of
boats.
The Coast Guard is very overworked and stretched right now.
So one of my questions is when you all started with OMSA
support, this effort OMSA, you created the Jones Act Compliance
Program to be the eyes and the ears in the gulf. So you can
identify foreign vessels that are unidentified. Your crew
members would be out there seeing them.
It is an excellent example of public-private partnerships,
which the two of us are very supportive of, trying to limit the
cost to the Government by leveraging the private assets. But
you said there were six or you said in your testimony there
were six documented violations OMSA members, OMSA members
reported, but there have been no follow-up.
Do you know why these particular violations that you have
reported had not been followed up? I am very curious as to why
they haven't.
Mr. Adams. I think there has been work conducted on the
cases. They just haven't been--and should be. I am sorry. The
cases are pending the issuance of a penalty.
Senator Landrieu. But no fines have been assessed. So you
all reported them. You did what you were supposed to do. There
are investigations underway on those six ships that seem to be
out of compliance, but no fines have been assessed, to your
knowledge?
Mr. Adams. That is correct. And I can't explain why. I
would just encourage the assessment of a fine. It would provide
the market clarity we need.
Senator Landrieu. Okay. And finally, Mr. Baumer, we didn't
talk at all, and I want to get this into the record, about the
health risk of some of the seafood that is coming in from
potentially China, other parts, Asia, et cetera. Are you
hearing complaints or have any evidence to suggest or testimony
to give about the health and safety risk associated with some
of these products coming in that are part of the illegal
dumping that is going on?
Mr. Baumer. Most of the testimony that I would provide
would be in the GAO report that, in fact, I just reviewed this
on the plane over here. You constantly hear in our industry
about drug residues and so forth. And to me, it is surprising
to me to think that we allow right now importers to put drugs
or antibiotics into seafood that are not approved by the FDA.
Almost to the point where it is almost an equal protection
violation under our Constitution that to think if you have
aquaculture in this country, you cannot use an antibiotic that
can be used in another country to keep the bacteria off of the
shrimp.
And to the extent that and those antibiotics cause long-
term effects, maybe the science isn't quite there yet. But it
is certainly an issue that I think needs to be explored and
informed to the public more than it is currently being done.
Senator Landrieu. Okay. Thank you all very much.
It has been a wonderful hearing. I see a young gentleman
behind you. Is that part of the seventh generation?
Mr. Baumer. This is the fifth generation.
Senator Landrieu. Fifth generation.
Mr. Baumer. Fifth generation. This is my son, Vincent.
Senator Landrieu. Vincent, welcome to our hearing today. We
thank you for being here.
Mr. Baumer. Thank you.
ADDITIONAL COMMITTEE QUESTIONS
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
Questions Submitted to Loren Yager
Questions Submitted by Senator Mary L. Landrieu
under-collection of tariff revenue
Question. Based on information contained in the annual anti-dumping
and countervailing duty (AD/CVD) enforcement report required by the
Homeland Security appropriations law, a total of more than $1.5 billion
in duties have not been collected between 2001 and 2010. Of this
amount, more than $1 billion are uncollected AD/CVDs--of which more
than $660 million consists of duties owed on seafood--and 94 percent of
the under-collected seafood duties are from China. We are facing huge
budget deficits in this country. For that reason alone, we should be
more aggressive in collecting duties we are rightly owed. Why are we
not doing more to collect all duties?
Answer. We have undertaken a number of efforts over the years to
help the Congress better understand issues related to uncollected AD/
CVDs, and our work has identified a number of opportunities for
improving duty collection. For example, our written testimony statement
\1\ noted that duty collection could be improved by revising the
retrospective nature of the U.S. system and by requiring companies
applying for new shipper status to have a minimum amount or value of
imports before receiving an individual AD/CVD rate. Similarly, our
March 2008 \2\ report on uncollected AD/CVDs included several
recommendations to help ensure the full collection of AD/CVDs.
Specifically, we recommended that:
---------------------------------------------------------------------------
\1\ GAO, Antidumping and Countervailing Duties: Options for
Improving Collection, GAO-11-693T (Washington, DC: May 25, 2011).
\2\ GAO, Antidumping and Countervailing Duties: Congress and
Agencies Should Take Additional Steps To Reduce Substantial Shortfalls
in Duty Collection, GAO-08-391 (Washington, DC: Mar. 26, 2008).
---------------------------------------------------------------------------
--the Department of Homeland Security (DHS) determine whether bonding
requirements can be adjusted to further protect revenue;
--the Department of Commerce (DOC) work with DHS to identify
opportunities to improve the clarity of liquidation
instructions; and
--DOC develop a strategic human capital plan to ensure that it has
sufficient human capital to issue timely and clear liquidation
instructions.
With regard to the first of the recommendations above, U.S. Customs
and Border Protection (CBP) has stated that it remains committed to
utilizing its bonding authority to address revenue risk. However, the
World Trade Organization's (WTO) Appellate Body ruled in July 2008 that
CBP's enhanced bonding requirement, which was applied to the AD orders
on shrimp as a test case, was inconsistent with U.S. obligations under
international agreements. CBP subsequently decided to terminate the
enhanced bonding requirement. Detailed information on actions the
agencies have taken in response to the second recommendation is
provided in our response to the question on ``Effective
Communications'', and we continue to track the agencies' progress in
responding to the third recommendation. In addition, given
congressional concerns that evasion of AD/CVDs results in lost revenues
and weakens protections for U.S. industry and workers, we are currently
conducting a review of U.S. efforts to detect and deter evasion of AD/
CVDs at the request of Senators Ron Wyden and Olympia Snowe.
reasons in defense of a retrospective trade system
Question. Both the Government Accountability Office (GAO) and DOC
state that the retrospective trade law--which is current U.S. trade
law--is ``particularly harmful for small businesses such as shrimp and
seafood importers''.
What are the reasons given in defense of this trade system that
apparently deliberately harms a segment of U.S. employers?
Answer. We reported in March 2008 \3\ that one relative advantage
of a retrospective AD/CVD system is the accuracy of the amount of AD/
CVDs assessed. However, we also noted that, in practice, a substantial
amount of retrospective AD/CVD bills are not collected. This suggests
that assessing a more accurate duty rate does not necessarily result in
receiving more accurate duty amounts from importers. Moreover, the long
lag time involved in assessing a final, more accurate duty rate--3.3
years, on average, as of our March 2008 \4\ report--creates uncertainty
over duty liability that can hinder the ability of small U.S. importers
to make informed business decisions, plan investments, and create jobs.
---------------------------------------------------------------------------
\3\ GAO-08-391.
\4\ GAO-08-391.
---------------------------------------------------------------------------
Is it possible to modify U.S. trade laws so that small businesses
like these are not harmed while maintaining the system which appears to
benefit other industries?
Answer. Our written testimony statement \5\ emphasizes that any
effort to improve the U.S. AD/CVD system should consider the additional
costs placed on legitimate importers--including legitimate small
businesses--while attempting to address the issue of illegitimate
importers. We believe that one way to pursue the goal of minimizing the
additional costs on legitimate importers is to include this goal as an
explicit criterion for consideration in any evaluation of changes to
the current retrospective AD/CVD system or in the design of a
prospective system.
---------------------------------------------------------------------------
\5\ GAO-11-693T.
---------------------------------------------------------------------------
shrimp test case
Question. Your testimony discusses the 2005 decision by CBP to test
shrimp imports from six countries. This requirement was terminated in
2009. What were the lessons learned by this test case? What were the
benefits--and also the costs--of this requirement on companies?
Answer. We reported in October 2006 \6\ on the effects of CBP's
revised bonding policy and its application to the ``test case'' of
shrimp imports. While we noted that the effects of the revised policy
could not be readily isolated from the effects of other changes
occurring during the same time period, we were able to identify the
following lessons learned:
---------------------------------------------------------------------------
\6\ GAO, International Trade: Customs' Revised Bonding Policy
Reduces Risk of Uncollected Duties, but Concerns about Uneven
Implementation and Effects Remain, GAO-07-50 (Washington, DC: Oct. 18,
2006).
---------------------------------------------------------------------------
--CBP estimates indicated that more revenue was 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.
--In addition to the AD duties imposed, the costs associated with
higher bond amounts were substantial, according to shrimp
importers. Under the revised bonding policy, importers paid
higher premiums and typically also had to post the 100 percent
collateral required by surety providers before the sureties
would 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 was particularly onerous because it restricted the
funds available to operate the business, and that this
constraint resulted in lost or forgone business opportunities.
In particular, 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.
Moreover, given the WTO's July 2008 ruling that CBP's revised
bonding policy was inconsistent with U.S. obligations under
international agreements, we believe an additional lesson learned is
that consideration of any modification to the U.S. AD/CVD system should
include analysis of whether the change would be consistent with
international trade agreements, including WTO rules.
Question. DOC allows domestic parties to access confidential
information learned in your proceedings under a protective order. Do
you feel these protective orders function well? What if these parties
could also use that information with CBP, and access CBP information to
use with DOC? Would this be helpful?
Answer. We have not conducted work on this issue and are not in a
position to answer this question.
Question. I understand that DOC is proposing to require cash
deposits, instead of just bonds, between preliminary and final
determinations in original investigations. This appears to be a
positive decision. Do you see any reason we shouldn't make a similar
change by eliminating the bonding privilege for new shipper reviews?
What else can you do administratively to minimize abuse of the new
shipper review process?
Answer. According to the Department of the Treasury (Treasury), the
new shipper bonding privilege poses a minimal risk to collection of AD/
CVDs. Specifically, Treasury reported to the Congress in December 2008
that the added risk associated with a bond, as compared to a cash
deposit, is equal to the probability of failing to collect on an
obligation secured by a bond, which is low. Consequently, Treasury
stated that it did not believe suspension of the new shipper bonding
privilege would have any significant impact on the collection of AD/
CVDs. Treasury added that the significant risk associated with new
shippers comes from the retrospective component of the U.S. AD/CVD
system, without which there would be minimal risk of uncollected AD/
CVDs.
As noted in our written testimony statement,\7\ one way to improve
collection of AD/CVDs would be to eliminate the retrospective component
of the U.S. AD/CVD system and consider the variety of alternative
prospective systems available. We also noted that the new shipper
review process could be enhanced without altering the retrospective
nature of the U.S. AD/CVD system, such as by requiring companies that
are applying for a new shipper review to have a minimum amount or value
of imports before establishing an individual AD/CVD rate. At present, a
shipper can be assigned an individual duty rate based on as little as
one shipment, intentionally set at a high price, resulting in a low or
0-percent duty rate. This creates additional risk by putting the
Government in the position of having to collect additional duties in
the future rather than at the time of importation.
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\7\ GAO-11-693 T.
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characteristics of a good anti-dumping system
Question. GAO reported in 2008 on the U.S. AD system and
recommended that DOC create a study on the possible advantages and
disadvantages of alternative systems.
What are some criteria the Congress should keep in mind as it
considers ways to improve collection of AD duties?
Answer. Our March 2008 \8\ report identified several criteria for
DOC, DHS, and Treasury to address in their analysis and reporting on
the relative advantages and disadvantages of prospective and
retrospective AD/CVD systems. Specifically, we stated that the three
agencies should address the extent to which each type of AD/CVD system
would likely achieve the following goals:
---------------------------------------------------------------------------
\8\ GAO-08-391.
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--remedy injurious dumping or subsidized exports;
--minimize uncollected duties;
--reduce incentives and opportunities for importers to evade AD/CVDs;
--effectively target high-risk importers; and
--create a minimal administrative burden.
In addition, we believe that minimizing the additional costs on
legitimate importers should be another explicit criterion for
consideration in any evaluation of changes to the current retrospective
AD/CVD system or in the design of a prospective system. While this list
is not intended to be exhaustive, we believe that these are important
criteria for the Congress to keep in mind as it considers ways to
improve collection of AD/CVDs.
What progress has DOC made on such a study?
Answer. DOC, with input from DHS and Treasury, completed a report
in November 2010 that addressed the criteria we identified in March
2008 \9\ and listed a variety of advantages and disadvantages of both
prospective and retrospective AD/CVD systems.
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\9\ GAO-08-391.
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effective communications
Question. In 2008, GAO reported that there were frequent delays in
DOC's transmission of liquidation instructions to CBP and that about 80
percent of the time, DOC failed to send liquidation instructions within
its self-imposed 15-day deadline.
How have the agencies improved communication since 2008?
Answer. In our March 2008 \10\ report on uncollected AD/CVDs, we
identified untimely and unclear liquidation instructions from DOC as an
impediment to CBP's ability to liquidate entries subject to AD/CVDs.
For example, we found that, over the 4-month period we reviewed, DOC
did not send liquidation instructions to CBP headquarters within its
self-imposed deadline of 15 days approximately 80 percent of the
time.\11\ After we made DOC officials aware of the untimely liquidation
instructions, DOC officials announced a plan to track the timeliness of
liquidation instructions. Further, as noted earlier, we recommended
that DOC work with DHS to identify opportunities to improve the clarity
of liquidation instructions. In February 2010, DOC and CBP deployed a
new component specific to AD/CVD issues as part of CBP's cargo
management system (the Automated Commercial Environment (ACE)), to
increase the efficiency of communication between the two agencies. CBP
personnel at the port can now utilize the system to submit inquiries
and seek clarification of DOC's liquidation instructions. In addition,
a messaging system was built into ACE, enabling CBP to track the
sending and posting of DOC's liquidation instructions. ACE was also
modified to build in a new case reference file that includes
information such as Harmonized Tariff Schedule numbers, scope of
information, start and stop suspension dates, and cash/bond data. This
case reference file allows for the automatic application of cash
deposit and liquidation instructions, and according to DOC, streamlines
the communication process between both agencies.
---------------------------------------------------------------------------
\10\ GAO-08-391.
\11\ We have not updated these statistics since 2008.
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bonding requirements
Question. Right now, even if DOC has preliminarily determined that
the final dumping rate is likely to be higher than the cash deposit
rate, we don't immediately change the bonding requirements to reflect
that. Even where DOC has reached a final determination of increased
liability, we still don't update our bonding requirements if that
determination is appealed to the courts.
Can the bonding requirements for an individual company be updated
in a more timely fashion? Given that it often takes an importer years
to be held accountable for their violations, do you think that the
outcome of an investigation still makes an impact on the market? What
could be done to expedite these types of investigations?
Would you support a change that requires bonding requirements to be
enhanced after a DOC determination that the margins are likely to
exceed cash deposits, even if the determination is only preliminary or
being appealed? Isn't it better to err on the side of protecting the
revenue once we have an indication from DOC that cash deposits may not
cover an importer's ultimate liability?
Answer. We have not conducted work on these issues. However, in our
written testimony statement,\12\ we noted that while the increased up-
front costs for higher bonds can deter malfeasance by illegitimate
importers, the higher costs may also affect legitimate importers who
pose little risk of failing to pay retrospective AD/CVDs.
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\12\ GAO-11-693T.
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Question. In CBP's statement, it discusses how easy it is for an
importer to find and collude with a producer to avoid paying dumping
duties. It lists some of these schemes including illegal transshipment,
undervaluation, failure to manifest, and misclassification. If a
company--or a country--deliberately sets out to engage in these kinds
of trade fraud, how can the U.S. Government appropriately tackle this
issue?
Answer. As noted earlier, we are currently conducting a review of
the issue of evasion of AD/CVDs at the request of Senators Ron Wyden
and Olympia Snowe. We would welcome the opportunity to brief the
subcommittee on the results of this review once completed.
product concentration
Question. CBP reported that uncollected AD duties are highly
concentrated among a few products (crawfish, fresh garlic, mushrooms,
honey, and wooden bedroom furniture). These five products represent
more than 80 percent of the uncollected duties.
Why are uncollected AD duties concentrated among these products?
Why don't you focus your limited resources on these products and create
task forces as was done for textiles?
Answer. Four of these products are agriculture/aquaculture
products. In 2006,\13\ we reported that CBP had identified agriculture/
aquaculture importers as sharing certain characteristics that made them
a high risk for being unable to pay the full amount of AD/CVDs owed,
namely:
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\13\ GAO-07-50.
---------------------------------------------------------------------------
--low capitalization and many small firms;
--a high degree of leveraging and dependence on borrowing;
--a fluid market with many entrants and exits; and
--most importers had 5 years or less in the industry.
However, DHS noted in its comments to our 2008 \14\ report that
countries, industries, products and importers that currently pose a
revenue risk may not be the same ones that will pose a revenue risk in
the future. For this reason, we believe it is important to identify the
underlying reasons for noncollection.
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\14\ GAO-08-391.
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willful circumvention
Question. As noted in the background section, companies willfully
circumvent the provisions of the AD/CVD laws by illegally transshipping
goods through an intermediate destination to mask the true country of
origin; undervaluing goods to reduce the amount of AD/CVD owed;
misclassifying or misdescribing merchandise outside the scope of the
order and, therefore, not subject to AD/CVD; and failing to manifest
(smuggling) goods. What remedies are there to pursue those who
willfully circumvent the laws?
Can the U.S. Government issue--in essence--a ``stop importing''
order against the company or the individual? Recognizing it is
difficult to collect revenues and conduct inspections overseas, what
can we do to the U.S.-based representatives of these illegal importers?
Answer. Regarding remedies to pursue those who willfully circumvent
the laws, we are currently conducting a review of the issue of evasion
of AD/CVDs at the request of Senators Ron Wyden and Olympia Snowe. As
mentioned earlier, we would welcome the opportunity to brief the
subcommittee on the results of this review once completed.
In May 2011, the Assistant Commissioner of CBP's Office of
International Trade stated in a Senate hearing that CBP is developing
internal guidance to require that importers at risk of evasion take out
one-time bonds that cover at least the full value of the shipment
(single-transaction bonds). Currently, shippers typically take out a
``continuous bond'' that covers all import transactions over the course
of a year and is calculated at 10 percent of the prior year's duties
(or $50,000, whichever is greater). We have not reviewed CBP's guidance
or assessed its potential effect on the collection of additional AD/
CVDs. However, any effort to improve the U.S. AD/CVD system should
consider the additional costs placed on legitimate importers while
attempting to address the issue of illegitimate importers.
______
Questions Submitted to Allen Gina
Questions Submitted by Senator Mary L. Landrieu
collecting duties on shrimp
Question. Customs and Border Protection (CBP) claims it has taken
steps to specifically improve the collection of anti-dumping (AD)
duties on shrimp imports and that it continues to explore statutory and
nonstatutory changes to enhance bonding requirements.
Please list the specific steps you are taking and when did you
start taking these steps as they related to shrimp imports?
Answer. In 2004, CBP applied to anti-dumping/countervailing duty
(AD/CVD) shrimp imports a revised bond policy which increased the bond
requirements commensurate to the risk of such imports. However, the
enhanced bond policy was challenged at the U.S. Court of International
Trade (CIT) and at the World Trade Organization (WTO). In April 2009,
following the adoption of the WTO Appellate Body's report finding that
the enhanced bonding requirement was WTO-inconsistent, CBP ended this
program. CIT also recently struck down this policy as well. CBP is
currently developing internal guidance to ensure that single-
transaction bonds (STBs) are required whenever we suspect that a risk
of revenue loss exists due to evasion for shrimp and other AD/CVD
imports.
use of fines collected for investigations
Question. What legal impediments prevent CBP from being able to use
a portion of the fines it collects to cover the costs of increased
investigations?
Answer. CBP does not have specific statutory authority to
supplement its appropriations, as with certain user fees, and CBP
cannot use fines or duties that it collects to cover program costs. By
law, CBP deposits them directly into the U.S. Treasury.
transparency
Question. We frequently hear from U.S. industry that many of the AD
charges it brings to CBP seem to enter a ``black hole''--never to be
responded to by CBP. But in your testimony you claim that you ``meet
regularly with U.S. industry representatives to discuss AD/CVD
circumvention schemes''. Why does industry have this impression? How
can CBP fix the information sharing and transparency process?
Some U.S. companies have charged that CBP claims it cannot share
information because of Trade Secrets Act restrictions. Is this true?
Why? What are the legal--as opposed to internal policy or practice
guidance--prohibiting CBP from keeping an importer regularly updated on
status of the charges?
CBP has created an online complaint process called e-Allegations.
How many individual complaints have been received on it and how many
has CBP acted on? What information on the investigation of these
allegations is transmitted to industry?
You have stated that you are reviewing the trade secrets statute
and regulations to find ways to allow CBP to release information to
petitioners to make the investigations process more transparent. Please
give me a date when that review will be completed and a date when the
results of it will be implemented.
Does CBP need a trade enforcement ombudsman to act as an
interlocutor with industry?
Answer. As noted, CBP meets regularly with U.S. industry
representatives to discuss AD/CVD circumvention schemes. We also
understand that U.S. industry wants more transparency in CBP's AD/CVD
circumvention enforcement efforts, especially in response to specific
allegations of AD/CVD circumvention. In certain circumstances, e.g.,
when developing a criminal investigation or evaluating the sufficiency
of alleged circumvention activities, CBP is limited in what information
CBP can make public. As discussed more fully below, CBP is evaluating
opportunities to share greater information with our trade partners.
We are examining ways to timely release information to the public
about our enforcement activities while providing safeguards to
legitimate trading community against frivolous claims. We are currently
looking at steps to find ways that will allow us to release information
to petitioners to make our process more transparent. These include
earlier publication of enforcement actions. We have also asked the AD/
CVD working group of CBP's private sector Commercial Operations
Advisory Committee work group to provide feedback on greater
information sharing with the trade community on AD/CVD enforcement.
Yes, much of the information relating to AD enforcement is business
confidential information and the Trade Secrets Act imposes criminal
liability upon Federal employees who disclose confidential commercial
information unless there is a statute or regulation authorizing such
disclosure.
CBP is prohibited by the Trade Secrets Act from providing business
confidential information obtained from one party to another party who
is not part of the import transaction.
Since e-Allegations' inception in June 2008, CBP has received more
than 4,000 commercial allegations via www.cbp.gov--370 of these
allegations are AD/CVD-related, and regardless of the subject, CBP
reviews and makes an initial assignment of each allegation within 2 to
3 days of receipt. Each allegation is closed out, but how it is closed
and how long it takes will vary depending on the specifics of the
allegation, CBP authorities, the need for U.S. Immigration and Customs
Enforcement (ICE) investigative capabilities, and the ability of CBP to
take action if a violation is confirmed. Most allegations are closed
within 6 months, but others will take longer if they are especially
complex or involve overseas parties. An allegation can conclude with
enforcement action, or the allegation is disproved, or others where the
allegation appears credible, but CBP is unable to prove the violation
to the standards required by our authorities. In the latter case, the
allegation may be closed from an analytical perspective, but
operational monitoring and follow-up action may continue.
CBP is prohibited by the Trade Secrets Act to release confidential
commercial information contrary to the commercial provisions of that
act. There is also information that we cannot make public when there is
a criminal case related to an allegation under development. Such cases
usually require time to develop as CBP, in cooperation with ICE, fully
investigates and prosecutes the parties that are not properly paying
their AD/CVDs. All of this notwithstanding, we are taking all necessary
steps to find ways that will allow us to release information to
petitioners to make our process more transparent.
CBP has been looking at ways that we are able to share information
on trade enforcement. Recently we provided internal guidance to our
ports of entry to publish enforcement results earlier. This new policy
has been successful in CBP being able to publicize its role in the
conviction of smugglers of wire hangers that were subject to AD/CVD. We
have started a review of the process under which we keep information
protected from inappropriate release. We will continue to look for ways
that we can be more responsive to the public and to share with them as
much as possible while ensuring the confidentiality of business-
sensitive materials or information that could be used to build a
criminal case. We anticipate that this review will be done by the end
of the fiscal year.
CBP has established the Office of Trade Relations (OTR) to act as
the senior advisor to the Commissioner on issues related to private
sector industry and trade. OTR is responsible for and has a process
established to ensure that challenges and concerns raised by trade
stakeholders is addressed in an efficient and timely manner and that
particular problems or concerns have the visibility of the
Commissioner. CBP is committed to ensuring that this office and its
role have the capacity to carry out this important responsibility.
louisiana shrimp industry
Question. The Louisiana shrimp industry contributes about $1
billion annually to the State economy. Thousands of our citizens are
employed in this industry that is both culturally and economically
important to our State and the entire gulf region. This industry fought
to win AD orders on shrimp from six countries, and yet importers have
failed to pay more than $75 million in AD duties they owe to the U.S.
Government under these orders. Importers of crawfish have gotten away
with not paying another $560 million in duties they owe. In fact,
seafood alone accounts for a full 43 percent of the more than $1.5
billion in duties we have not been able to collect since 2001. The
system is broken and it needs to be fixed.
There are several factors at work. First, imports from China seem
to be driving the problem--China alone accounts for more than 90
percent of the uncollected duties on seafood, for example. We also have
a lot of fly-by-night operators who disappear once duties become due.
This is especially true in fragmented industries like agriculture and
aquaculture. We can't change the fact that more and more of our imports
are from China and that some players in fragmented industries try to
avoid their duty obligations. While it is beyond this subcommittee's
jurisdiction, perhaps what we should do is update our system so it
adapts to these market realities.
I know CBP is aware of the problem, particularly in the seafood
industry, and that you tried to address it without success.
Has CBP considered imposing enhanced bonding across the board?
Alternatively, couldn't you require enhanced bonding whenever there a
risk of underpayment arises based on some neutral criteria, such as
history of under collection under a particular order? Can you do this
under your existing statutory authority, or would you need help from
the Congress to do this?
Answer. CBP has considered all options available for enhanced
bonding that would be consistent with the WTO Appellate Body's finding
that an enhanced bonding requirement was WTO-inconsistent, and CIT's
ruling that an enhanced bonding policy covering certain importations of
shrimp was arbitrary, capricious, and otherwise not in accordance with
law. It has been determined that enhanced bonding cannot be imposed
across the board, so CBP will focus on using STBs where there is a
reasonable belief that a particular shipment poses a risk to the
revenue.
So long as the United States employs a retrospective AD/CVD scheme,
CBP continues to consider whether it is possible to require enhanced
bonding in light of the recent decision of the WTO Appellate Body, and
CIT's decision in National Fisheries Institute (NFI) v. United States.
In NFI, CIT ordered an enhanced bonding policy covering certain
importations of shrimp subject to AD duty orders to be set aside as
arbitrary, capricious, and otherwise not in accordance with law. 637 F.
Supp. 2d 1270 (Ct. Int'l Trade 2009). Setting aside concerns about
CBP's legal authority to require enhanced bonds, CBP may be able to
identify one or more neutral criteria as the basis for enhanced
bonding, but such criteria must be selected and applied with care to
avoid being set aside as arbitrary and capricious.
Section 623 of the Tariff Act of 1930 provides CBP with broad
authority to require bonds to protect the revenue in import
transactions. Meanwhile, the Department of Commerce (DOC) has been
given broad authority to investigate and establish AD duty rates and
require security for such duties at entry. It has been and continues to
be a subject of judicial inquiry as to how these separate authorities
interrelate. CBP continues to consider adopting an enhanced bonding
policy that would protect the revenue, as well as ensure compliance
with the laws, and that would withstand judicial and international
scrutiny.
Question. In your statement, you say that CBP is taking additional
steps such as working with DOC on releasing information to help verify
the legitimacy of goods suspected of transshipment and to tighten the
``new shipper'' requirements, as clarifying the responsibility of
customs brokers. When are these planned to be completed and executed?
Answer. Our work with DOC on transshipment issues is ongoing, and
we will continue to work with DOC on any goods suspected of
transshipment. We are discussing new shipper-related issues with DOC.
In regards to clarifying the responsibilities of customs brokers,
CBP meets regularly with representatives of the National Customs Broker
and Forwarders Association of America to redefine the role of the
broker in the 21st century. This project will identify regulatory
revisions that may be necessary to reflect current business practices
and determine the appropriate response to existing gaps or needs.
You state that you have asked your staff to develop internal
guidance to ensure that STBs are required whenever CBP suspects that a
risk of revenue loss exists.
Question. You state that you have asked your staff to develop
internal guidance to ensure that STBs are required whenever CBP
suspects that a risk of revenue loss exists. Please describe this
process in greater detail. What are the benefits to industry of this
process? Do you have estimates of additional revenue that could be
collected, or potential losses of revenue prevented, by using these
types of bonds versus a continuous bond?
Answer. CBP staff is reviewing all of the potential scenarios to
ensure that STBs are required whenever CBP suspects that a risk of
revenue loss exists for AD/CVD imports. These scenarios will be
incorporated into the final internal guidance on this topic.
This process will protect the revenue due to the United States on
AD/CVD imports, including AD/CVDs. AD/CVDs are intended to offset the
dumping and subsidization of foreign imports, and create a level
playing field for U.S. manufacturers.
Under the retrospective AD/CVD system, it is not possible to
predict the final AD/CVD assessment rate on entries covered by an STB
or any other type of bond. Therefore, it is not possible to estimate
any additional revenue that could be collected, or potential losses of
revenue prevented, by using STBs.
Question. Regarding clearing account balances--does CBP actually
hold these dollars in a separate account pending final orders?
Answer. Yes, pending liquidation.
Question. In a May 5 hearing, CBP's Commissioner of International
Trade stated that CBP is developing internal guidance to require that
shippers at risk of evasion take out one-time bonds (STBs) that cover
at least the full value of the shipment.
How will CBP identify ``shippers at risk?'' How will this reduce
the risk of uncollected duties?
Answer. CBP will identify shippers and importers at risk of evasion
by analyzing trends in import information, previous instances of
noncompliance, and allegations from outside sources, including U.S.
industry.
CBP currently has authority to protect the revenue through the
requirement of STBs that is set at the full value of a shipment. CBP is
providing further guidance on the use of these bonds to our ports of
entry to ensure their use when potential evasion has been identified.
Question. In one of the questions for the record from the
subcommittee's March 2, 2011, hearing regarding improved AD revenue
collections, you only responded to the question about what laws could
be changed or amended to enhance CBP's AD investigations. Please
respond to the following questions:
Can CBP take administrative actions to improve AD collections?
Can CBP take administrative actions to improve AD collections in
the absence of legislation?
In the absence of changes in legislative authorities to existing
laws and practices, can CBP do more to collect and distribute AD
receipts to injured U.S. businesses if it was provided with additional
resources?
If so, what resources would be required and what more could be
achieved?
Answer. CBP continues to explore the existing tools it possesses,
i.e., live entry, sanction, bond sufficiency, and targeting, to remain
aggressive in its revenue collection.
Additional resources cannot fix the most prevalent issue with
collecting AD duties which is the retrospective collection system and
passage of time between entry and liquidation.
Question. I'm pleased that you acknowledge that ``CBP has a
statutory responsibility to collect all revenue due to the U.S.
Government that arises from the importation of goods''. I am very
concerned, however, that despite this statutory responsibility, CBP has
made virtually no effort to collect nearly $1 billion in AD duties that
are due to the United States in connection with the AD duty orders on
honey, fresh garlic, preserved mushrooms, crawfish, and wooden bedroom
furniture from China.
What is your agency's strategy for promptly recovering these AD
duties?
Answer. As part of the debt collection process, CBP sends out
dunning notices to the principal. CBP issues formal demand on the
respective surety for payment of the delinquent amount and pursues
litigation against delinquent debtors and sureties. CBP also conducts
research to determine if the company is still actively operating.
new shipper
Question. Another problem we have is with new shipper reviews,
where companies enjoy the privilege of only having to post a bond, and
not cash deposits, while a new shipper review is pending. How much of
the problem of under collection do you think is due to new shippers
versus other evasion schemes?
This new shipper bonding privilege is currently provided for by
statute. Would you support a statutory change that would require new
shippers to post cash deposits--like is done for everyone else?
Answer. According to the March 2008 report on AD/CVDs prepared by
the Government Accountability Office (GAO) importers that purchased
goods from new shippers are responsible for approximately 40 percent of
uncollected AD/CVDs.
In December 2006, section 1632 of the Pension Protection Act
(Public Law 109-280) was implemented, suspending the option for new
shippers to bond for estimated AD/CVD from April 1, 2006 through June
30, 2009. The importers were required to submit a cash deposit to cover
the total estimated AD/CVD for merchandise exported by a new shipper
during this ``test'' period. This cash deposit provision of Public Law
109-280 excluded new shippers from Canada and Mexico. On June 20, 2009,
this test period ended and the provision lapsed. As noted in CBP's
fiscal year 2010 Report to Congress on Antidumping and Countervailing
Duty Enforcement: Fiscal Year 2009, the Department of the Treasury
decided not to seek extension of the cash deposit for new shipper
provision because there was no discernible benefit to the collection of
cash over duties secured by a bond at the time of final assessment of
AD/CVD.
Question. As you are well aware, foreign producers and importers
have resorted to a wide variety of tactics to evade AD/CVDs, and the
nonpayment of duties we know about is only part of the problem. Illegal
transshipment, undervaluation of product being shipped, failure to
manifest or to declare an export, misclassification, and setting up
shell companies all contribute to the acute duty collection shortfall
that we are discussing today.
In your estimate, which transgression contributes the most to the
overall duty collection problem?
What tools do you need to better address this problem? Is it a
funding issue or something else?
Do you need better ways to collect or access information?
Do you need more tools to give you greater leverage with importers
and foreign producers?
What else could be helpful?
Answer. When CBP issues a bill for AD/CVDs, an importer can easily
exit out of the market, and not pay any duties due. This applies to
both foreign and domestic companies. When companies evade AD/CVDs to
prevent bills from being issued, it is difficult to estimate which
issue contributes the most to the overall duty collection problem as
CBP does not have complete data on AD/CVDs not collected for each of
these various issues.
Under the retrospective AD/CVD system, CBP faces many challenges in
AD/CVD administration and collection. CBP devotes significant resources
to administering AD/CVD entries under the AD/CVD retrospective system.
By the time CBP issues a bill for the final AD/CVDs due, many importers
are unwilling or unable to pay these duties, or no longer exist.
CBP is working with U.S. industry, ICE, DOC, and our international
partners to develop new sources of information to identify AD/CVD
circumvention. We are exploring many options that will give us
additional information and new tools to protect U.S. revenue.
Data will help identify new targets and schemes, but verification
of schemes is crucial to the success of AD/CVD enforcement. Without
proof, CBP cannot take enforcement action and data alone may not always
provide the proof needed. CBP is working on integrated analysis within
CBP and other agencies including ICE and DOC.
CBP is currently exploring many options that will give us
additional information and new tools. For example, CBP is developing
internal guidance to ensure that STBs are required whenever we suspect
that a risk of revenue loss exists.
CBP needs information to verify AD/CVD circumvention schemes in
order to take AD/CVD enforcement action. This often can be very
challenging for CBP; for example, determining a product's country of
origin through visual inspection or through verification of shipping
documents can be very difficult, especially if cargo has been
manipulated prior to import, completely masking the connection back to
the true source country. Information regarding the movement of goods
from one foreign location to another foreign location (which is usually
not available to CBP when AD/CVD circumvention occurs) may assist in
this process. CBP is currently looking at our entire process in dealing
with AD/CVD administration and circumvention enforcement. We continue
to seek ways to better identify circumvention and to verify the origin
of the merchandise.
Question. I understand that companies sometimes apply for ``new
shipper'' status from DOC, secure very favorable AD/CVD margins, and
then proceed to ship massively at unfair prices.
Does CBP have information about these companies that might be
useful to DOC in considering whether to approve a ``new shipper''
application?
Does CBP have authority to make this information available to DOC?
Answer. CBP may have information about foreign companies that apply
for ``new shipper'' status, and provides such information when needed.
CBP has the authority to make this information available to DOC.
Question. What is being done to improve coordination between CBP
and DOC concerning notice of final rates, liquidation instructions,
scope determinations, and other day-to-day work of administering the
AD/CVD laws?
In your experience, how long does it usually take to obtain a
decision from ICE and the Department of Justice (DOJ) on whether there
will be a prosecution in a typical case? Does CBP have to hold back on
its own actions while waiting for these decisions?
Answer. In February 2010, CBP launched the AD/CVD Module of CBP's
Automated Commercial Environment (ACE), which provides a modern
communication system for CBP to communicate with DOC on AD/CVD
enforcement. The ACE AD/CVD Module incorporates a joint AD/CVD case
management system for CBP and DOC, and communication systems to
facilitate coordination between CBP and DOC on AD/CVD enforcement and
administration issues. CBP personnel also hold regular meetings with
DOC's Customs Liaison Unit and communicate throughout every work day on
AD/CVD-related matters.
The timeframe varies widely with respect to how long it takes to
obtain a decision from ICE and DOJ regarding whether a case will be
prosecuted. Several factors--including the severity of the violation,
the evidence that is available, and the complexity of the
investigation--impact the timeline for receiving a decision. CBP works
with partners at ICE and with DOJ throughout this process.
CBP and ICE have civil and criminal enforcement legal authorities
available to pursue enforcement action against those who violate the
customs laws, including AD duty evasion. When criminal enforcement is
pursued, CBP coordinates with ICE during the investigative phase of
these cases, and coordinates with DOJ when litigation is commenced. CBP
also has authority to assess civil penalties, as appropriate.
difficulty collecting duties
Question. In responses to questions for the record from the
subcommittee's March 2, 2011, hearing, CBP responded that one of the
difficulties encountered in collecting all duties, taxes, and fees once
it issues a bill for final AD/CVDs, is that at least two sureties
issuing bonds covering substantial amounts of these duties are in
receivership, further complicating collections. Why is that? Please
give us specific examples.
Answer. Under the retrospective AD/CVD scheme, by the time CBP
issues a bill for the final AD/CVDs due, many importers are unwilling
or unable to pay these duties, or no longer exist, which requires CBP
to resort to available bond coverage to collect from the appropriate
sureties. Much like any other business, sureties are vulnerable to
insolvency, which may force the surety to enter receivership. Two
sureties--Highlands Insurance Company and Frontier Insurance Company--
have entered receivership proceedings under State insurance law. In
these proceedings, the Federal Priority Statute, 31 U.S.C. 3713, often
does not apply as a result of the pre-emption exemption in the
McCarran-Ferguson Act. The Government's bond claims may then receive
either less priority than policyholders, or equal priority. Thus,
collection is complicated not only by the absence of the importer and
the insolvency of the surety, but also by the fact that the
Government's bond claims may be subject to a State priority scheme that
yields the Government a lesser payout on its claims than what might be
available under the Federal Priority Statute. Moreover, these
receivership proceedings take years to resolve, during which time the
Government's claims are stayed in Federal court until the State
insurance insolvency proceedings are resolved, and the Government often
has no legal means to accelerate the process to receive payment on its
claims.
verification teams
Question. CBP uses textile production verification teams to help
address the problem of duty evasion for textile transshipments.
What, if any, additional authority would CBP require to send
verification teams to foreign manufacturing sites to inspect and verify
that those manufacturers are in fact capable of making the goods that
are theoretically being exported to the United States?
Are such teams feasible for products such as shrimp, seafood,
garlic, honey, and others? What legal authorities, if any, do you need
to create such teams, or can these teams be created administratively?
Answer. CBP would be able to send verification teams to foreign
manufacturing sites as long as it has the consent of the governments
where those sites are located. CBP has customs mutual assistance
agreements authorities with many foreign customs authorities which
could provide an avenue for conducting these visits. In many cases, the
United States may need to negotiate separate treaty language with
foreign governments to provide the authority to conduct these visits.
Such teams are feasible for any product to confirm that
manufacturing is actually taking place at foreign sites so long as CBP
has access to the foreign manufacturing facility.
These teams can be created administratively based on the ability to
gain consent from foreign countries.
statute of limitations
Question. I am concerned that CBP's failure to take action promptly
to collect certain duties hinders the United States' ability to collect
any AD duties under the bonds associated with those shipments, due to
the applicable statute of limitations.
Given your recognition of the importance of vigorous enforcement of
the U.S. AD laws to protect the vitality of U.S. industries, is CBP
committed to taking action quickly to collect these duties and ensure
that the U.S. industries involved receive the relief they are due under
the AD orders?
In instances where the U.S. importers default on the AD duties that
are due, what specific actions has CBP taken to ensure that the bonding
companies responsible for securing those liabilities are meeting their
obligations?
Answer. Yes, CBP is committed to taking quick action. CBP makes a
formal demand on surety when the principal fails to pay. CBP provides
copies of the documents obligating the associated bond. CBP uses a
dunning letter and follow-up phone calls to also remind the surety of
their obligation. If they still fail to pay, CBP pursues legal action
against the surety.
Question. It can be difficult to identify country of origin or
exporter/manufacturer for certain products, such as agriculture/
aquaculture products like shrimp or honey.
How does CBP test these products at entry to know which duties to
apply to them?
Answer. CBP's laboratories use a variety of scientific techniques
to identify the country of origin for certain products, to ensure that
the correct duties are applied to these products. For certain products,
such as steel products, CBP cannot identify the country of origin using
current scientific techniques.
There are a large number of products that are covered under AD
duties. Different products have different tests to determine
compliance. For example for AD duties involving seafood CBP's Office of
Information & Technology Laboratories and Scientific Services Division
(CBP/OIT/LSS) usually tests for country of origin using either DNA or
protein electrophoresis. For steel AD duties CBP/OIT/LSS determines the
composition of the steel using either exray diffraction or xray
fluorescence. This process determines whether the steel product
violates U.S. requirements. The type of test used to measure compliance
is dependant upon the product.
sharing information with agencies
Question. Apparently, both CBP and DOC have been concerned about
the treatment of confidential business information, trade secrets, and
materials under protective orders for which they are responsible.
Has CBP prepared any assessments of its authority to share
information with partner agencies? If so, what are the results?
Would CBP find it useful to have greater access to DOC information
obtained during its investigations and verifications?
Answer. CBP is in the process of preparing its assessment of its
authority to share information with partner agencies.
CBP has access to DOC information obtained during its proceedings
under 19 U.S.C. 1677f(b)(1)(A)(ii). This section provides that DOC may
disclose proprietary information ``to an officer of the employee of the
U.S. Customs Service who is directly involved in conducting an
investigation regarding fraud under this title''. CBP has concerns that
this could be interpreted to limit disclosure of information only to
officers or employees of CBP (the successor agency to the U.S. Customs
Service) conducting criminal investigations. CBP does not normally
conduct criminal investigations, so this interpretation could limit
CBP's access to DOC proprietary information.
deemed liquidations
Question. Untimely action by DOC and CBP can impede CBP's ability
to process the appropriate amount of AD/CVDs within the required 6-
month period. When entries are not liquidated within the specified
timeframe, CBP is unable to collect any supplemental duties that might
have been owed because of an increase in the AD/CVD rate.
What is the amount of lost revenue due to deemed liquidations?
What steps are CBP and DOC taking to reduce the amount of
uncollected duties attributable to deemed liquidation?
Answer. In fiscal year 2010, CBP processed 16,105 deemed
liquidations of AD/CVD entries out of a total of 141,896 liquidated AD/
CVD entries. We note that CBP has the legal authority under 19 U.S.C.
1501 to reliquidate deemed liquidated entries at the appropriate final
AD/CVD rate, and therefore mitigate the effect of the deemed
liquidation.
From fiscal year 2006 through fiscal year 2010, CBP wrote-off more
than $113 million in uncollectible debt. Of the more than $113 million,
$28.9 million was lost due to deemed liquidations or untimely
liquidations.
In February 2010, CBP launched the AD/CVD Module of CBP's Automated
Commercial Environment (ACE), which provides a modern communication
system for CBP to communicate with DOC on AD/CVD enforcement. The ACE
AD/CVD Module incorporates a joint AD/CVD case management, messaging
and inquiry system for CBP and DOC. These communication systems
facilitate coordination between CBP and DOC on AD/CVD messaging issues,
and reduce delays which lead to deemed liquidation. CBP personnel also
hold regular meetings with DOC's Customs Liaison Unit and communicate
throughout every work day on AD/CVD-related matters, including deemed
liquidation issues.
faster reaction to industry protests
Question. The June 2010, AD enforcement report indicated that CBP
and DOC were working on plans to increase AD collections. One area both
agencies agreed to review and update was how you can quickly address
protests by industries so that you can begin duty collection
activities. The report indicated that DOC had increased staffing levels
to process these protests.
Has CBP also refocused its staffing? Have your agencies noticed an
improvement in this process over the past year?
Answer. CBP reviewed and enhanced its internal AD/CVD protest
management process in fiscal year 2010. CBP is also focusing on
addressing those AD/CVD protests that CBP can rule on under its own
authority, so collection actions can commence as quickly as possible.
CBP and DOC are continuing to closely coordinate those protests that
CBP sends to DOC for recommendation.
We have noticed a significant improvement in this process over the
past year. The number of protests with DOC for an AD/CVD recommendation
has continued to decrease over the past year, from more than 50
protests to 18.
human capital and planning
Question. In a readout conference, CBP stated that it has no
information on what is likely to happen the next day--it could get a
few dozen instructions from DOC that cover a limited number of ports
and products, or it could get an enormous set of instructions that
would require enormous effort to get the liquidation instructions
completed.
Can you explain the challenges associated with this type of system
and suggest the kind of information that would help make this process
work better?
Answer. Each AD/CVD instruction could potentially require CBP to
manually calculate the amount of AD/CVDs due for thousands of import
records at a single or numerous ports of entry within the statutory 6-
month time limit to prevent deemed liquidation. CBP sometimes has much
less than this 6 months time limit to process these records because it
does not receive the instructions until after the 6-month clock was
initiated. The more information that CBP has about potential AD/CVD
instructions at the earliest point of time possible could help CBP plan
for this substantial workload.
bonding requirements
Question. Right now, even if DOC has preliminarily determined that
the final dumping rate is likely to be higher than the cash deposit
rate, we don't immediately change the bonding requirements to reflect
that. Even where DOC has reached a final determination of increased
liability, we still don't update our bonding requirements if that
determination is appealed to the courts.
Can the bonding requirements for an individual company be updated
in a more timely fashion? Given that it often takes an importer years
to be held accountable for their violations, do you think that the
outcome of an investigation still makes an impact on the market? What
could be done to expedite these types of investigations?
Would you support a change that requires bonding requirements to be
enhanced after a DOC determination that the margins are likely to
exceed cash deposits, even if the determination is only preliminary or
being appealed? Isn't it better to err on the side of protecting the
revenue once we have an indication from DOC that cash deposits may not
cover an importer's ultimate liability?
Answer. The ability to bond is finalized prior to CBP releasing any
merchandise. Policies may/could be implemented to require that bonds be
adjusted after the investigations are completed. However, if a surety
chooses to adjust the bond, they would more than likely require
collateral from the importer in the amount of the bond adjustment to
protect their financial interests.
CBP attempted to accomplish this with the Enhanced Bonding
Requirement bonding formula. Unfortunately, WTO and CIT overturned this
formula.
complaints of jones act violations
Question. I am aware that CBP has specific complaints of Jones Act
violations in the offshore energy sector--unrelated to any vessel
equipment issue.
What steps is CBP taking to actively resolve these complaints?
Answer. When an alleged Jones Act violation is discovered or
reported, CBP ports of entry attempt to resolve matters through an
administrative process. CBP reviews the evidence presented, performs a
physical boarding of the vessel (when possible), conducts interviews
and when available, accesses automatic identification system data to
track the movement of suspect vessels. When a determination is made
that a violation occurred, the CBP local port of entry begins
administrative penalty proceedings. In those cases where substantial
evidence does not support punitive action, the CBP port of entry
retains the information for future consideration and no penalty is
issued. Input throughout this process is provided by CBP HQ OFO/CCS,
OFO/APTL/FP&F, and the Penalties Branch of RR/OT.
notice of arrival in the outer continental shelf--burdensome coast
guard regulation
Question. For many years, foreign vessels entered the Exclusive
Economic Zone of the United States to work on the OCS without notifying
the United States Coast Guard (USCG) in advance, even though
notification was required for entry into U.S. ports. That changed in
2006 with the passage of the SAFE Ports Act, which included a provision
that required foreign vessels to provide information to USCG about
their crew and cargo at least 24 hours before arriving in the OCS. This
information is necessary to help USCG maintain Maritime Domain
Awareness in the strategically vital Outer Continental Shelf of the
United States (OCS), where critical infrastructure like the Louisiana
Offshore Oil Port is located.
Unfortunately though, the Department of Homeland Security (DHS)
promulgated a final rule in January of this year that imposes the same
requirement on the domestic fleet, which was never the Congress's
intention. Whereas foreign vessels are generally only engaged in
production or construction activities because of the Jones Act, U.S.
vessels spend a significant amount of time moving equipment and
personnel between platforms and the shore. Only U.S.-flagged vessels
are allowed to transport equipment and personnel under the law. In a
given day, the average platform supply vessel may cross an OCS lease
block numerous times. Under USCG's existing rules, the vessel would
have to provide advance notification for each one of these movements.
Movements are based on fluid operational requirements that industry
cannot possibly predict in this level of detail. USCG somehow
determined that this regulation would not significantly impact the U.S.
economy. Obviously that determination was inaccurate. The existing rule
is not being enforced because headquarters has not offered guidance
down the chain of command about how to implement it, and in practice
many vessels aren't even aware when they cross arbitrarily drawn lease
block lines in the gulf. This burdensome requirement is impossible to
implement, it contradicts congressional intent, and it has been leveled
upon the only part of the U.S. maritime fleet that is growing right
now. This seems to reflect a fundamental misunderstanding of how the
offshore industry operates, and it poses a significant threat to energy
production and economic output in the OCS. Chairman Don Young held a
hearing in the House Transportation and Infrastructure Committee
wherein this issue was raised with USCG. And while USCG is not here
today, DHS is represented, and this is an important issue to the U.S.
maritime industry that requires the Congress's attention.
Please discuss the impact of this USCG rule on the offshore energy
production and the U.S. maritime fleet, and offer any suggestions you
may have on how USCG may more efficiently achieve its objective to
obtain Maritime Domain Awareness on the OCS without crippling energy
production in the process.
Answer. USCG has issued additional regulations for notice of
arrival (NOA) for OCS activities in response to security measures as
required by the SAFE Port Act of 2006. This rulemaking requires owners
or operators of floating facilities, mobile offshore drilling units,
and vessels to submit NOA information to the National Vessel Movement
Center prior to engaging in OCS activities. The amendments are intended
to enhance maritime security, safety, and environmental protection by
increasing maritime domain awareness (MDA) on units and personnel
engaging in OCS activities. USCG published a Notice of Proposed
Rulemaking in June 2009 and made some adaptations to enhance clarity
based on the comments received, and no significant impact on energy
production was or is anticipated. The final rule published in the
Federal Register on January 13, 2011; effective date is February 14 (76
Fed. Reg. 2254).
USCG's intent is to gain compliance from both foreign and domestic
vessels in order to enhance situational awareness and overall MDA on
the U.S. OCS. According to industry sources, there are an estimated
1,500 offshore supply vessels operating on the OCS, often operating in
close proximity to key components of the Nation's energy
infrastructure. The information required to be submitted by this final
rule will greatly assist USCG in evaluating risk associated with OCS
activities and to manage appropriate resources should a significant
incident occur (e.g., environmental or national security), and a
coordinated response is necessary. With this information USCG is better
able to provide security for the energy infrastructure. For these
reasons, USCG intends to move forward with the implementation of this
rule.
Upon publication and implementation of the final rule, industry
noted significant concerns. In response, the USCG has initiated a
redesign of the form used to collect the data, effectively suspending
enforcement, and convened a working group under the partnership with
the Offshore Marine Service Association (OMSA) to specifically address
the design of an OCS-specific reporting form, as well as alternatives
to the electronic submission of an NOA. USCG has made great strides
towards creating a process and reporting form that is both workable for
industry, while also providing USCG the critical information it needs
to maintain safety and security without impairing the commerce of
offshore energy production. This form would potentially include:
creating an offline option; third party vendor option; and an import
function so that vessels operating on the OCS have the ability to copy,
save, and email the required information.
Finally, USCG is committed to working with the regulated public to
find a way forward, in terms of policy and procedures, which will both
achieve greater MDA and minimize any regulatory burden.
cooperative enforcement--cbp failure to assess penalties for jones act
violations
Question. OMSA has created a Jones Act Compliance Program that
relies upon the United States fleet to be the Nation's ``eyes and
ears'' in the strategically vital Gulf of Mexico/OCS region. Through
this program, OMSA monitors the location and movement of every foreign
vessel in the Gulf of Mexico and provides CBP with regular reports of
vessels in violation along with photographic evidence.
This is an excellent example of Government and industry working
together to accomplish their mutual objectives. After all, CBP does not
have a large water-borne fleet, and the Coast Guard doesn't have the
capacity to recognize violations as readily as offshore work crews who
know the industry best.
We received testimony a subcommittee hearing that penalties have
not yet been assessed by CBP in at least six cases of Jones Act
violations in the Gulf of Mexico, which according to our understanding,
have been investigated and verified by the agency.
Please provide information on the status of these cases and the
date when CBP plans to assess penalties for them.
Answer. All alleged Jones Act cases are reviewed and investigated
based on their own merits, beginning at the CBP port of entry level.
After close consultation between CBP ports of entry, CBP HQ, ICE, and
USCG, the facts of each case are weighed. If the circumstances disclose
a violation, CBP may initiate formal penalty proceedings. This includes
cases referred to CBP by industry partners such as OMSA.
Currently, several CBP ports of entry located along the Gulf of
Mexico are pursing potential Jones Act violations as a result of
information provided by OMSA. A number of ongoing cases are in various
stages of the penalty administrative process at the CBP port of entry
level. CBP continues to gather details and evidence on several cases as
the formal review and approval process advances. CBP feels it would be
prudent for all current Jones Act cases to be formally reviewed and
vetted prior to providing further information.
Question. In CBP's statement, it discusses how easy it is for an
importer to find and collude with a producer to avoid paying dumping
duties. It lists some of these schemes including illegal transshipment,
undervaluation, failure to manifest, and misclassification. If a
company--or a country--deliberately sets out to engage in these kinds
of trade fraud, how can the U.S. Government appropriately tackle this
issue?
Answer. [A joint response for CBP and ICE follows:]
Importers of record are responsible for the duties owed to the
United States for each importation. Currently, the laws of the United
States allow foreign importers to make importations, and accordingly, a
foreign importer can be the importer of record. Unfortunately, many
foreign importers do not pay the required duties, and the U.S.
Government currently has little recourse to enforce and obtain these
duties.
Nonetheless, ICE works closely with CBP to enforce customs laws
applicable to companies and individuals involved in trade fraud. If an
ICE special agent has a reasonable suspicion that a company committed
customs violations, ICE will conduct an investigation to identify,
detect, and dismantle that company's transshipping to address the
undervaluing, failure to manifest, and misclassification of imported
products. ICE's 69 foreign offices assist by obtaining information and
evidence on foreign investigative targets located in their area of
responsibility. ICE has also increased its interaction with the private
sector, and received several useful leads of potential violations from
U.S.-based industries.
ICE recognizes that there are many challenges associated with
conducting an investigation into trade fraud, particularly when the
target of the investigation is not based in the United States. ICE will
continue to take a proactive stance to combat these crimes and protect
the U.S. economy from unfair trade practices. ICE defers to the
Department of State and the U.S. Trade Representative's Office to
determine the appropriate actions when another country is suspected of
deliberately engaging in illegal trade activities.
The U.S. Government needs a unified approach to appropriately
tackle this challenging issue, and CBP and ICE are working with our
partners in other agencies (including DOC) to stop AD/CVD
circumvention. CBP and ICE are also working with U.S. industry and our
international partners to develop new sources of information to
identify AD/CVD circumvention. CBP and ICE are constantly developing
new approaches to AD/CVD enforcement to meet the challenges posed by
complex AD/CVD circumvention schemes. We are exploring many options
that will give us additional information and new tools to protect U.S.
revenue and identify those who would use our system for illicit gains.
product concentration
Question. CBP reported that uncollected AD duties are highly
concentrated among a few products (crawfish, fresh garlic, mushrooms,
honey, and wooden bedroom furniture). These five products represent
more than 80 percent of the uncollected duties.
Why are uncollected AD duties concentrated among these products?
Why don't you focus your limited resources on these products and create
task forces as was done for textiles?
Answer. The Department of the Treasury's July 2007 report on Duty
Collection Problems, Fiscal Year 2003-2006 notes that ``Although a
particular imported product may be associated with a high default rate
(for example, crawfish imports), the most likely explanation for the
varied default rates lies with the type of firms that are importing the
product. If importers of a particular product are typically lightly
capitalized firms or parties with minimal assets in the United States,
one might expect a lower collection rate. For example, when CBP
reviewed its duty collection program, CBP determined that defaults on
AD duty supplemental bills (bills issued to collect retroactively
assessed duties) had increased substantially from previous years. CBP
also determined that the principal entities responsible for uncollected
duties were importers of agriculture/aquaculture merchandise subject to
AD duties. Based on CBP's analysis, the collection problem with respect
to this merchandise appeared to be attributable to the fact that
importers of agriculture/aquaculture merchandise tended to be
undercapitalized, and that by the time final liability was assessed
(typically 1 or more years after the goods had entered), many of the
companies were no longer in operation. Because the AD duties finally
assessed often significantly exceeded both the cash deposit and the
bond amount, CBP was left unable to collect the unsecured
(retrospectively assessed) portion of the duties assessed.''
In 2004, CBP recognized the collection issues related to AD/CVD
agriculture and aquaculture imports, and therefore applied to AD/CVD
shrimp imports a revised bond policy which increased the bond
requirements commensurate to the risk of such imports. However, the
enhanced bond policy was challenged at CIT and at WTO. In April 2009,
following the adoption of the WTO Appellate Body's report finding that
the enhanced bonding requirement was WTO-inconsistent, CBP ended this
program.
Because of WTO and CIT rulings, CBP has been limited in its ability
to apply enhanced bonding measures to a broad category of imports (such
as a single commodity). In addition, under the retrospective AD/CVD
system, CBP does not know what the final AD/CVD rates will be until
years after the initial importations, and cannot predict based on the
initial importation the amount of the final AD/CVD bills, nor the
ability of the importer to pay the bills.
CBP staff is reviewing all of the potential scenarios to ensure
that STBs are required whenever CBP suspects that a risk of revenue
loss exists for AD/CVD imports.
willful circumvention
Question. As noted in the background section, companies willfully
circumvent the provisions of the AD/CVD laws by illegally transshipping
goods through an intermediate destination to mask the true country of
origin; undervaluing goods to reduce the amount of AD/CVD owed;
misclassifying or misdescribing merchandise outside the scope of the
order and, therefore, not subject to AD/CVD; and failing to manifest
(smuggling) goods. What remedies are there to pursue those who
willfully circumvent the laws?
Can the U.S. Government issue--in essence--a ``stop importing''
order against the company or the individual? Recognizing it is
difficult to collect revenues and conduct inspections overseas, what
can we do to the U.S.-based representatives of these illegal importers?
Answer. CBP has the statutory authority to assess monetary
penalties to culpable parties who willfully circumvent the laws
enforced by CBP. In addition, CBP has the statutory authority to seize
and forfeit merchandise in cases of inadmissibility into the country.
CBP also levies duties and imposes certain bonding requirements
consistent with law and regulations. CBP also refers cases to ICE for
investigation of criminal violations.
We are not aware of legal authority on which the U.S. Government
could rely to prohibit importation generally by a person or company.
The United States does not have any reciprocal revenue agreements
with any country in the world. For revenue purposes, even if we know
that an importer which is not physically present in the United States,
is viable and operating in another country, CBP cannot go after them to
collect any revenues.
time lag
Question. According to a 2008 GAO report, there is a 3-year lag
time by DOC and CBP, between the time goods arrive at the border and
the final assessment of duties. This lag allows illegitimate importers
to avoid paying duties by ceasing operations or claiming bankruptcy.
GAO recommendations to improve duty collection include better
communications between the agencies, modifying CBP's standards for
reviewing new shippers, and assessing CBP's process for setting bond
requirements. What steps have your agency's taken over the past 3 years
to implement these recommendations?
CBP also notes that some importers no longer exist by the time CBP
issues a bill. If we know these companies will disappear, why is there
a delay in issuing the bill? Can this process be expedited
administratively or does a law need to be changed?
Answer. CBP is constantly reviewing its bonding requirements, and
adjusting these bonding requirements as necessary consistent with its
statutory authority. CBP has improved communication with DOC through
the implementation of the ACE system and meeting regularly with DOC. We
note that DOC, and not CBP, reviews new shippers.
CBP cannot issue a bill for final AD/CVDs until CBP receives
instructions from DOC on the final AD/CVD amount. CBP cannot predict
whether an importer will disappear by the time a bill is issued, which
according to the GAO in its 2008 report, took on average about 3.3
years from the date of importation (but could be significantly longer).
Under the current retrospective AD/CVD scheme, CBP, for its part,
cannot issue a bill for final AD/CVDs until CBP receives instructions
from DOC on the final AD/CVD amount.
side payments
Question. The Wall Street Journal reported in February 2011, that
some U.S. furniture makers have received cash payments from their
Chinese competitors in exchange for not asking for an AD review. GAO
similarly found that shrimp exporters made cash payments to the
domestic U.S. industry.
What are the agencies' view on the legality of this issue and the
loss of revenue to the U.S. Treasury as a result of these side
payments?
Answer. [A joint response for CBP and ICE follows:]
ICE defers to the Department of Justice on questions of legality
and the Department of the Treasury on issues related to loss of
revenue.
CBP is not aware of any legal authority that prohibits such ``side
payments''. For entries prior to October 1, 2007, i.e., subject to the
Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), any such
``side payments'' may result in a small loss to the U.S. Treasury to
the extent that AD duty collections would have exceeded claims for
disbursement under the CDSOA. For entries after October 1, 2007, i.e.,
after the CDSOA was repealed, any such ``side payments'' would likely
result in a loss of revenue to the U.S. Treasury. However, no loss may
occur if DOC proceeds with an AD review for the subject merchandise at
the request of another party. Regardless of any lost revenue from these
``side payments'', CBP understands that the primary purpose of the
dumping laws is intended to be the protection of domestic industries
from unfair competition, not the generation of revenue to the U.S.
Treasury.
effective communications
Question. In 2008, GAO reported that there were frequent delays in
DOC's transmission of liquidation instructions to CBP and that about 80
percent of the time, DOC failed to send liquidation instructions within
its self-imposed 15-day deadline.
How have the agencies improved communication since 2008?
Answer. In February 2010, CBP launched the AD/CVD Module of CBP's
Automated Commercial Environment (ACE), which provides a modern
communication system for CBP to communicate with DOC on AD/CVD
enforcement. The ACE AD/CVD Module incorporates a joint AD/CVD case
management, messaging and inquiry system for CBP and DOC. These
communication systems facilitate coordination between CBP and DOC on
AD/CVD messaging issues, and reduce delays. CBP personnel also hold
regular meetings with DOC's Customs Liaison Unit and communicate
throughout every work day on AD/CVD-related matters, including deemed
liquidation issues.
Question. What additional information from DOC or interagency
processes would help CBP's ability to collect unpaid bills?
Answer. Under the current retrospective AD/CVD system, any changes
in information or interagency processes would not compensate for the
underlying issues (such as time lags between entry and final billing,
and large increases in final AD/CVD rates) with the retrospective
system.
______
Question Submitted by Senator Frank R. Lautenberg
Question. When CBP seizes materials that were illegally imported
from China, what steps does it take to ensure that such materials do
not re-enter the U.S. market and further damage the business of other
legitimate suppliers of such materials?
Answer. When CBP seizes merchandise that has been illegally
imported into the United States, if the goods are not legally required
to be destroyed, they are sold for exportation only, and the terms of
sale will state that the goods must be exported to a noncontiguous
country.
______
Questions Submitted by Senator Daniel Coats
Question. I have requested information on the exact level of
personnel and funding being used to enforce AD/CVDs, which CBP has
failed to supply to the subcommittee. Recently, CBP supplied
information only on the level of effort going towards overall trade
enforcement and only for fiscal year 2010. Is CBP unable to supply
basic information about how it spends the resources provided by the
Congress? Can CBP tell this subcommittee exactly how much was spent on
AD last fiscal year as compared to each of the previous 5 fiscal years
and what is requested for fiscal year 2012?
Answer. CBP takes an agency-wide approach to AD/CVD enforcement,
and CBP has more than 9,000 employees who are involved in trade
enforcement, and whose responsibilities may include AD/CVD enforcement.
These include more than 1,000 employees solely dedicated to the Office
of International Trade, and other nonuniformed positions including
attorneys, attaches, auditors, entry specialists, field analytical
specialists, financial systems specialists, fines, penalties, and
forfeiture officers, import specialists, and seized property
specialists. These individuals are augmented by more than 5,000 CBP
Officers and more than 2,000 agricultural specialists.
CBP does not specifically track the expenditures being used to
enforce AD/CVD because this is part of CBP's overall trade enforcement
responsibilities, and part of the duties of all CBP trade enforcement
employees. To respond to this question and provide the data requested
in questions 112, 114, and 115, CBP estimated how much was spent on AD/
CVD enforcement over the last 5 years, a projection for fiscal year
2011, and how much was requested for fiscal year 2012. The spending
estimate is based on an estimate of the full-time equivalent (FTE)
personnel involved in AD/CVD enforcement in fiscal year 2011 and the
number of FTE personnel requested in fiscal year 2012.
This estimate includes data on personnel dedicated exclusively or
almost exclusively to AD/CVD enforcement within the Office of
International Trade, the Office of Information Technology, and the
Office of Administration. The estimate also includes data on personnel
from the Office of Field Operations, based on the total number of hours
coded for AD/CVD in the Office of Field Operation's activity-based
costing system, and converted into the corresponding number of FTE
positions. The Office of Chief Counsel also devotes resources to AD/CVD
enforcement and has opened 459 AD/CVD cases from fiscal year 2005 to
present.
[In millions of dollars]
------------------------------------------------------------------------
Estimated
Fiscal year amount
------------------------------------------------------------------------
2006.................................................... 20
2007.................................................... 21
2008.................................................... 14
2009.................................................... 15
2010.................................................... 14
2011 (projected)........................................ 17
2012 (requested)........................................ 18
------------------------------------------------------------------------
Question. Is the level of resources within the Office of
International Trade at CBP adequate for enforcement of AD orders? If
not, what is being spent now and what additional amount is needed? How
many dollars and personnel are going towards AD this fiscal year? How
many dollars and personnel are included in the fiscal year 2012
request?
Answer. CBP's fiscal year 2012 request for trade enforcement
resources, including AD/CVD enforcement resources, was included in the
President's fiscal year 2012 budget request submitted to the Congress.
In fiscal year 2011, CBP projects spending $17 million, with 172
FTE, on AD activities.
In 2012, CBP anticipates filling some vacant positions, which will
result in spending $18 million with 177 FTE.
Question. Some of the testimony today has touched on information
sharing--among Federal agencies as well as with private industry. Is
CBP able to share information with private industry or rights holders
when examining or seizing merchandise in intellectual property rights
(IPR) enforcement cases?
Answer. Currently, the Trade Secrets Act may be interpreted to
prevent CBP from sharing certain information, including unredacted
samples, with right holders prior to seizure. This creates a hurdle for
CBP's IPR enforcement capabilities because right holders know their
products better than anyone and can provide valuable information to
assist with determining the authenticity of suspect goods. CBP worked
with the Intellectual Property Enforcement Coordinator to develop
legislative recommendations that will resolve this issue and authorize
DHS to share information with right holders during examinations and
prior to seizure. CBP shares the goals set forth in the recent Senate
bill S. 968, ``Preventing Real Online Threats to Economic Creativity
and Theft of Intellectual Property Act of 2011''. After seizure, CBP is
required to share information with rights holders that includes the
identifying information for the importer and manufacturer if available.
Question. Last year, CBP submitted a 5-year enforcement strategy to
reduce IPR violations. What progress has been made in implementing this
strategy to expand training, improve targeting models, expand post
audit reviews, and implement an IPR component as a part of the Importer
Self Assessment program?
Answer. CBP has been working to implement its 5-year IPR Strategy
and thanks the Congress for supporting us through funding for IPR in
the fiscal year 2011 appropriation. CBP envisions an effective IPR
enforcement process in which legitimate cargo is released without
delay, IPR infringing goods are intercepted, and violators are deterred
or put out of business. The Strategy submitted to the Congress
described a three-pronged strategy for moving toward this vision. It
laid out objectives to:
--facilitate entry of legitimate cargo prior to its arrival;
--to strengthen IPR enforcement as goods arrive at our borders; and
--to deter future illicit imports by counterfeiters and pirates after
goods have arrived.
CBP has taken steps to carry out this vision by:
--CBP is reviewing the benefits of developing an IPR component to the
Importer Self Assessment program. In addition to looking at
this form of partnership program, CBP is exploring other
options to partner with the trade community through other types
of supply and distribution chain management programs. CBP has
been seeking input from the trade community to ensure any
program developed from this initiative would not only prove
effective in interdicting counterfeit goods, but would also
help facilitate legitimate trade.
--CBP implemented a Pharmaceutical Center for Excellence and
Expertise (CEE) pilot on November 1, 2010. Through the CEE, we
are partnering with the pharmaceutical industry and gaining
intelligence to segment low-risk, trusted importers from those
that present higher risk for IPR violations. This allows us to
facilitate entry of these low risk shipments without
inspection, and frees CBP to focus IPR enforcement resources on
inspecting goods entered by high-risk importers.
--CBP's enforcement methods are based on a risk assessment of
incoming shipments to determine the shipments most likely to
contain counterfeit goods. CBP is currently modifying its risk
model for deployment in the ocean cargo environment to enhance
targeting.
--In addition to updating our risk model, in April 2011, CBP began an
admissibility compliance measurement (ACM) program that
assesses import compliance rates. The ACM is currently running
in international mail and will be implemented in express
courier facilities in the fall. CBP plans to administer the ACM
in ocean cargo in the first one-half of fiscal year 2012.
--To better equip officers in our ports of entry to enforce IPR, CBP
designed and began providing Integrated IPR Field Training in
March 2011. This full-day, live instructor-led course covers
IPR policy, law, and operations. CBP is also in the process of
recording short training sessions on very specific topics that
can be delivered on-demand over the Internet to field
personnel.
--To deter IPR violators postentry, one of the things we are doing is
revamping the IPR penalty process. This includes collaboration
with ICE to identify assets that could be pursued for
collection on IPR penalties.
CBP formed an internal working group to identify the underlying
issues that affecting the effectiveness of post entry audits and to
consider their overall impact on IPR enforcement. Component offices
within CBP are drafting proposals.
anti-dumping and countervailing duties enforcement
Question. What steps are CBP, ICE, and DOC taking to improve
communication about AD/CVD enforcement efforts with private industry?
Answer. [A joint response for CBP and ICE follows:]
CBP refers potentially actionable allegations received from private
industry to ICE during monthly commercial enforcement and analysis
response meetings at both headquarters and local field office levels.
In addition, ICE and CBP regularly conduct meetings with private
industry at both the headquarters and local office levels to receive
allegations and concerns regarding AD/CVD enforcement.
CBP shares industry concerns about the importance of countering AD/
CVD circumvention. We also understand that U.S. industry wants more
transparency in CBP's AD/CVD circumvention efforts. We are examining
ways to timely release information to the public about our enforcement
activities. At the same time, there is necessarily information that we
cannot make public when there is a criminal case under development.
Such cases usually require time to develop as CBP, in cooperation with
ICE, fully investigates and prosecutes the parties that are not
properly paying their AD/CVDs. Such public prosecution sends a very
strong message worldwide about the U.S. Government's AD/CVD enforcement
efforts. All of this notwithstanding, we are taking all necessary steps
to find ways that will allow us to release information to petitioners
to make our process more transparent.
Question. What is the state of information sharing between CBP,
ICE, and DOC? Are there barriers to sharing information that each
agency obtains during AD/CVDs investigations and verifications? As an
example, does CBP have information about shippers that would be useful
to DOC?
Answer. [A joint response for CBP and ICE follows:]
ICE works in close cooperation with relevant interagency partners,
the private sector, and international counterparts to investigate a
broad spectrum of crimes related to commercial fraud. Attempts to
circumvent payments of AD/CVDs may be investigated by ICE based upon
the multidisciplinary commercial enforcement analysis and response
(CEAR) process evaluation. CEAR meetings are conducted in most major
cities throughout the United States on a monthly basis by members of
ICE and CBP. The purpose of the meetings is to coordinate information
sharing between ICE and CBP regarding potential trade violations. The
role of the CEAR process is to make an early determination as to the
nature, extent, and impact of instances of noncompliance, select the
response best suited to remedy the problem, and follow up on that
action to ensure that the noncompliance problem is solved.
CBP, ICE, and DOC all share extensive information related to AD/CVD
enforcement, and CBP actively responds to requests for information from
these agencies. Much of the data sharing relates to specific
enforcement activities. Additionally, CBP, ICE, and DOC discuss broader
information sharing efforts to improve AD/CVD enforcement.
ICE is limited in sharing information concerning ongoing
investigations with DOC or any other agency outside of DHS due to
Federal Rules of Criminal Procedure and secrecy requirements placed on
matters pending before a grand jury.
DOC AD/CVD orders are issued by DOC and collected and distributed
by CBP. ICE works closely with DOC and CBP to share noncase-related
information regarding AD/CVD orders. ICE also actively participates in
the CBP-led multidisciplinary CEAR process to coordinate information
sharing between ICE and CBP regarding potential trade violations.
ICE, as the investigative arm of DHS, is responsible for
investigating importers who evade the payment of AD/CVD on imported
merchandise. AD/CVD cases are long-term, transnational investigations
that require significant coordination between domestic and
international ICE offices and with foreign law enforcement
counterparts. ICE special agents also work closely with CBP officers,
import specialists, and regulatory auditors during AD/CVD
investigations.
CBP has no specific barriers to sharing such information with DOC.
CBP often has information about shippers that would be useful to DOC,
and shares this information with DOC.
length of time devoted to reviews and investigations
Question. Each witness has testified on the length of time it takes
to do reviews or investigations involving trade enforcement,
specifically AD/CVDs. In prepared testimony, Deputy Assistant Secretary
Lorentzen mentions the October 2006 final affirmative determination of
circumvention of the AD order on petroleum wax candles from China--but
the complaint alleging possible circumvention was filed in 2004; and
Deputy Assistant Director Ballman speaks to the case alleging
transshipment of Chinese honey which began in February 2008 and has
resulted in fines and prison sentences--but the most significant
indictments did not come for 2.5 years--until September 2010. What can
be done to shorten these timeframes so that enforcement has a deterrent
effect on others across the trade community?
Answer. [A joint response for CBP and ICE follows:]
There is an inherent delay in criminal investigations and
prosecutions involving trade enforcement. ICE criminal investigations
are the last line of defense against the evasion of AD/CVD. These cases
are long-term, transnational investigations that require significant
coordination between domestic and international offices, with foreign
law enforcement counterparts. By the time ICE investigators are
involved in a particular case, the alleged violators have already
committed customs fraud by evading or attempting to evade dumping
duties. ICE is committed to shortening timeframes wherever possible,
but many aspects of these investigations, such as the assistance of
foreign law enforcement counterparts, and the prosecution of cases by
the United States Attorney's Office, are outside of ICE's control.
To further deter these types of customs violations and protect U.S.
business interests in the global economy, the United States Government
should continue to inform the public and foreign industry, about
successful prosecutions and awarded penalties resulting from ICE's
investigations and enforcement actions.
CBP continues to work with our partner agencies in the Federal
Government as well as with foreign law enforcement and the private
sector to bring quick and effective legal actions against those that we
suspect are circumventing the AD/CVD system. We will continue to build
the relationships that will help to streamline the process and
demonstrate our collective efforts as a credible deterrent.
uncollected anti-dumping duties
Question. The Government Accountability Office mentioned in
testimony the more than $1 billion in AD duties that have not been
collected. These duties are related primarily to just five products--
honey, fresh garlic, preserved mushrooms, crawfish, and bedroom
furniture from China. What can be done at this point to collect these
duties, some of which I believe stretch back to 2004? Some of these
collections would go back to the U.S. Treasury to finance the
Government--some would actually go back to these industries that have
been damaged under the ``Byrd amendment''. I realize that CBP has a
process it follows for debt collection--which on average can take 300
days before even referring the case to attorneys--but if some of these
duties were imposed in 2004, that would be 7 years ago which is a
considerable length of time beyond 300 days. What exactly is the
central issue preventing either collection or the liquidation of any
bonds posted by the importers? Please give us more transparency into
whether these amounts are collectible; what is the process; and what is
the plan at DOC and CBP to resolve this situation.
Answer. CBP is pursuing all of the collection tools available. Most
of the debts associated with these products are in litigation against
the surety, principal, or both. Also, the principal would be on
sanction and they would have immediate suspension of delivery
privileges.
The central issue preventing CBP from collecting the full amount of
the debt is the ease in which a company can exit the market either
foreign or domestic. While the debt collection process can add a
significant amount of time to the overall collection process, many
companies ceased to exist prior to the creation of the debt leaving
only the surety to pursue in active collection. Collections from the
surety may result in collecting 10 percent of the overall amount due to
CBP. Sureties assert many legal justifications to prevent payment to
CBP which requires legal review from CBP.
Question. What suggestions do CBP and DOC have to get China to
focus on solving this problem?
Answer. CBP continues to work with our partner countries to
identify areas of common risk and concern. We work through the World
Customs Organization to identify best practices and to develop common
action plans. This work with other countries is important to try and
address the issue of AD/CVD evasion. We will continue to work with our
Federal partners within the executive branch to ensure that they are
working with their Chinese colleagues.
______
Questions Submitted to J. Scott Ballman, Jr.
Questions Submitted by Senator Mary L. Landrieu
investigations and access to other countries
Question. How does the process of investigating anti-dumping (AD)
allegations differ from other Immigration and Customs Enforcement (ICE)
investigations in terms of time, manpower, and evidence requirements?
What authority does ICE have to enter a country to conduct an AD
investigation? Can countries deny you entry and/or access to a company
with which you have suspicions? If so, what leverage does the U.S.
Government have to get the country to reconsider its entry denial?
Answer. AD investigations are long-term, transnational
investigations. These investigations are also very document-intensive.
ICE agents expend a substantial amount of time to review numerous
complex documents (i.e., bank records, import/export documents, and
foreign customs documents) and verify the information contained in the
documents.
AD investigations typically require significant coordination
between domestic and international offices. If information is needed
from foreign sources, the legal process to obtain and translate
evidence from other countries to support a criminal prosecution can
also be lengthy.
Additionally, AD rates are determined by the Department of Commerce
(DOC). Thus, ICE investigations into AD allegations may be impacted if
the dumping duty rate changes during the course of the investigation.
This volatility makes AD investigations unique among other ICE
investigative authorities.
Because of the complex nature of AD investigations, they are often
more resource and time intensive than other types of investigations.
ICE has no authority to conduct a law enforcement investigation
outside of the jurisdiction of the United States unless ICE obtains
express permission from a foreign government. ICE has two primary
methods to request assistance from foreign governments. ICE can submit
the request through formal legal channels such as customs mutual
assistance agreements, mutual legal assistance agreements, or letters
rogatory. ICE may also obtain information through informal channels
based on relationships with foreign law enforcement officials.
Yes, countries can deny access. As sovereign nations, foreign
countries may limit the ability that ICE has to conduct law
enforcement-related activities and to enter or access a company located
outside of the United States. ICE has two primary methods to request
assistance from foreign governments. ICE can submit the request through
formal legal channels such as customs mutual assistance agreements,
mutual legal assistance agreements, or letters rogatory. ICE may also
obtain information through informal channels based on relationships
with foreign law enforcement officials.
The Department of Homeland Security (DHS) would defer to the
Department of State or the U.S. Trade Representative to have the
country reconsider the denied entry or access.
Question. In your statement you describe a number of investigative
cases ICE has conducted in recent years. Of these cases, who/which
agency brings them to you--CBP? If so, how long does it take CBP to get
it to ICE after it has come to CBP's attention?
Does ICE have the authority to initiate investigations on its own
or must it wait for charges to be brought by CBP and/or DOC?
Answer. ICE may obtain leads for AD investigations through a
variety of sources; the majority of the AD cases are received from CBP,
including those described in the statement given on May 25, 2011.
Occasionally, AD cases are referred to ICE directly by industry
representatives. Other possible methods of referral include foreign
customs services, the ICE tip hotline, and self-generated ICE
investigations. CBP will make referrals to ICE which may result in a
new criminal investigation or which may help bolster an existing ICE
investigation.
CBP directly refers allegations timely to ICE through the
commercial enforcement analysis and response (CEAR) process. Local CEAR
meetings are held on a regular basis and are a platform for referring
significant trade violations to ICE. In addition, CBP will immediately
refer egregious or time-sensitive allegations to ICE field offices
through established communications channels. Contact with ICE can be
made outside of the monthly CEAR meeting if a significant violation is
detected and waiting for the monthly meeting might jeopardize the
investigation. The violation/violator would still be discussed at the
next meeting to ensure that the appropriate agency decisionmakers agree
with the course of action selected to address the violation or
violator.
ICE's Office of Homeland Security Investigations (HSI) has the
authority to initiate investigations on its own. ICE HSI's
investigations are both self-generated and a result of received
allegations of evasion from sources, to include CBP, industry, foreign
customs, and law enforcement agencies. The self-generated
investigations can be the result of information received from criminal
informants, criminal defendants, current or former employees,
competitors, other criminal investigations, or observations of HSI
special agents.
Question. Over the last 12 months, how many seizures has ICE made
of merchandise that was entered into the United States in ways meant to
evade AD/CVD orders?
Would you agree that AD/CVDs are in place because industry has
demonstrated that unfair imports are proven--by the independent
International Trade Commission (ITC)--to be harming American producers?
Is ICE challenged for resources to enforce the trade laws?
CBP is responsible for AD/CVD targeting, examinations and revenue
collection, while ICE investigates possible criminal violations. How
are CBP and ICE working to coordinate their enforcement activities?
In your testimony, you gave a couple of examples of high-profile
arrests and indictments. Generally, how long did it take ICE to build
these cases?
How many cases over the past 2 years has ICE spent time examining,
but not taken to indictment, and how long has this delayed effective
civil enforcement action to stop the evasion?
Answer. ICE is responsible for the criminal investigations of cases
involving evasion of AD/CVD orders. ICE's goal in these investigations
is to secure criminal charges against suspected violators. Under rare
circumstances, ICE does conduct seizures of merchandise independent of
CBP in furtherance of a criminal investigation. From June 1, 2010, to
May 31, 2011, ICE conducted three seizures consisting of 96 packages of
polyethylene bags with a domestic value of $230,400; 192 55-gallon
drums of malt sweetener; and 28,017 aluminum shower door frames and
profiles with a domestic value of $69,514. All of the seized contraband
entered the United States through schemes meant to evade AD/CVDs.
DOC sets the duties for AD. ICE is not involved in the review
process within the ITC. ICE does not review any evidence or documents
given to DOC by the industry when reporting AD violations. Once DOC
makes a determination that a duty should be instituted, CBP collects
the duties, and ICE, as the investigative arm of DHS, investigates
allegations of evasion of those duties.
ICE, as the investigative arm of DHS, is responsible for
investigating more than 400 criminal offenses related to violations of
customs and immigration laws to include AD/CVD evasion, intellectual
property rights, North American Free Trade Agreement, and textile
violations. Despite such broad authority, ICE aggressively pursues AD/
CVD evasion investigations resulting from viable commercial fraud leads
regardless of the primary predicate offense. Maintaining the current
pace, ICE will increase commercial fraud investigations by
approximately 20 percent in fiscal year 2011. ICE is able to deploy all
the necessary resources needed to bring an investigation to a
successful conclusion.
ICE works closely with CBP to enforce customs laws applicable to
companies and individuals involved in trade fraud. ICE and CBP
regularly conduct meetings with private industry to receive allegations
and discuss concerns regarding AD/CVD enforcement. To better coordinate
enforcement activities, ICE and CBP also hold a monthly CEAR meeting at
various ports throughout the United States. Moreover, ICE special
agents work closely with CBP officers, import specialists, and
regulatory auditors when developing and pursuing AD/CVD investigations.
ICE also has a special agent assigned to the CBP Office of
International Trade to assist them with commercial fraud issues.
Additionally, the National Intellectual Property Rights Coordination
Center houses the ICE-led Commercial Fraud Programs Unit with co-
located CBP personnel, which enables improved coordination between ICE
and CBP.
The investigations cited in ICE's May 25, 2011, testimony took
between 16 to 38 months to complete, and one investigation is still
ongoing. However, each case conducted by ICE involves unique
circumstances that may shorten or lengthen the time of the case. AD
investigations, in particular, involve multijurisdictional and
international components as well as the review of voluminous amounts of
historical records. As a result, these investigations often take months
or years to resolve and conclude.
Delays to civil enforcement actions are often necessary in order to
effectively conduct a criminal investigation. During the past 2 years,
ICE conducted 232 AD/CVD investigations, resulting in 40 indictments of
domestic and international subjects. International arrests present far
more complex legal hurdles and challenges relating to extradition and
eventual trial. Investigations that have not been brought to indictment
may be ongoing, may have been closed, or may have been referred to CBP
for civil enforcement action.
As noted in the previous answer, ICE and CBP hold CEAR process
meetings on a monthly basis at various ports throughout the United
States to coordinate enforcement activities. Through these meetings and
routine communication channels, ICE refers any cases that will not be
taken to criminal indictment back to CBP, allowing CBP to proceed with
civil enforcement action.
investigative effort
Question. The ICE AD/CVD program is one way that ICE protects U.S.
businesses from fraudulent trade practices. AD/CVD orders are issued by
DOC and collected and distributed by CBP. AD duties are assessed when
importers sell merchandise at less than fair market value, which causes
material injury to a domestic industry producing a comparable product.
ICE is responsible for investigating importers who evade payment of AD/
CVD on imported merchandise. These cases are long-term, transnational
investigations that require significant coordination between domestic
and international offices and with foreign law enforcement
counterparts.
In general, how long does a case take from initiation to
conclusion? Are there any ways the investigative process can be
expedited?
Answer. Each case is unique. Therefore, the amount of time required
to complete an AD/CVD case will vary due to a number of factors, such
as whether the case requires information from foreign law enforcement,
translation of foreign documents, multijurisdictional requirements, and
the voluminous amounts of historical records that require review. In
general, these investigations take approximately 1 to 5 years from
initiation to conclusion.
AD/CVD cases are complex and often transnational requiring
significant coordination between domestic and international ICE offices
and foreign law enforcement counterparts. The unique challenge each of
these cases presents contributes to the time intensive nature of AD/CVD
cases. Thus, the amount of time to complete a case may vary from 1 to 5
years or longer.
By increasing cooperation between ICE and foreign governments the
investigative process has been expedited, thus accelerating the
response time to information requests. Another method used by ICE to
expedite the investigative process is by conducting site verifications
of foreign manufacturers to ensure that the country of origin
information reported in customs documents is accurate.
Question. In some cases, after ICE has invested resources in
developing a case and final finding of liability, some of these fly-by-
night importers may have disappeared altogether, and the bond they got
doesn't come close to covering their final liability.
How often do you encounter this problem?
What is your investigative threshold for investigating these types
of matters?
How often do you have to decide not to pursue a case because you
lack the necessary information or resources?
Answer. Although CBP is responsible for the assessment and
collection of duties, ICE regularly encounters fly-by-night importers
during investigations. Many of these companies were established in the
United States by people who have few, if any, ties to the United
States. Their corporate addresses are often post office boxes or other
locations that provide limited investigative leads. Moreover, importers
are not required to have a U.S. address, making it difficult to verify
the information that they submit to CBP. This allows the importer to
evade paying duties with little or no recourse for the U.S. Government.
Operation Mirage provides an example of how ICE has used its trade
fraud authority to combat fly-by-night importers. ICE and CBP conducted
Operation Mirage in 2009, targeting 176 importers of record identified
as having potential involvement with the undervaluation of textile
products imported from the People's Republic of China. Of the 176, ICE
and CBP identified 90 importers of record who either did not have a
legitimate interest in the goods, or were fictitious importers. These
efforts resulted in 32 investigations. While ICE does not have specific
data regarding a similar AD operation, the percentages would likely be
consistent across the board, as similar smuggling and illegal
importation schemes are utilized in both textile smuggling and AD
investigations.
Prior to opening a criminal case, ICE must verify the information
related to AD allegations made either by CBP or private industry. ICE
special agents calculate a projection of the loss of revenue to the
United States to demonstrate whether the loss exceeds the prosecution
threshold set by the local United States Attorney's Office (USAO).
ICE does not set the threshold of amounts for criminal
prosecutions. The USAO independently set thresholds for prosecution and
ICE is bound by the USAO recommendations. These thresholds vary from
USAO district to district.
ICE does not set a threshold for investigating civil cases but the
loss of revenue to the Federal Government is weighed against the
available manpower at the specific ICE office, case load restraints,
and prosecutorial discretion.
ICE does not maintain statistics on unopened cases. ICE
investigates potential AD/CVD violations only when it has a reasonable
suspicion to believe that the information provided may result in an
enforcement action (arrest, indictment, conviction, seizure, fine, or
forfeiture). If a lead is viable, cases opened by ICE are investigated
to the fullest extent possible based on the resources available. Some
of the possible actions taken in furtherance of an AD/CVD case may
include reviewing United States and foreign shipping documents,
conducting interviews, and working with CBP officers to inspect
shipments and to examine comparable samples of imported material from
source countries at CBP laboratories to determine country of origin.
All ICE cases are opened to determine the facts of any potential
violation, to include AD/CVD investigations.
Question. In CBP's statement, it discusses how easy it is for an
importer to find and collude with a producer to avoid paying dumping
duties. It lists some of these schemes including illegal transshipment,
undervaluation, failure to manifest, and misclassification. If a
company--or a country--deliberately sets out to engage in these kinds
of trade fraud, how can the U.S. Government appropriately tackle this
issue?
Answer. [A joint response for ICE and CBP follows:]
Importers of record are responsible for the duties owed to the
United States for each importation. Currently, the laws of the United
States allow foreign importers to make importations, and accordingly, a
foreign importer can be the importer of record. Unfortunately, many
foreign importers do not pay the required duties, and the U.S.
Government currently has little recourse to enforce and obtain these
duties.
Nonetheless, ICE works closely with CBP to enforce customs laws
applicable to companies and individuals involved in trade fraud. If an
ICE special agent has a reasonable suspicion that a company committed
customs violations, ICE will conduct an investigation to identify,
detect, and dismantle that company's transshipping to address the
undervaluing, failure to manifest, and misclassification of imported
products. ICE's 69 foreign offices assist by obtaining information and
evidence on foreign investigative targets located in their area of
responsibility. ICE has also increased its interaction with the private
sector, and received several useful leads of potential violations from
U.S.-based industries.
ICE recognizes that there are many challenges associated with
conducting an investigation into trade fraud, particularly when the
target of the investigation is not based in the United States. ICE will
continue to take a proactive stance to combat these crimes and protect
the U.S. economy from unfair trade practices. ICE defers to the
Department of State and the U.S. Trade Representative's Office to
determine the appropriate actions when another country is suspected of
deliberately engaging in illegal trade activities.
The U.S. Government needs a unified approach to appropriately
tackle this challenging issue, and CBP and ICE are working with our
partners in other agencies (including DOC) to stop AD/CVD
circumvention. CBP and ICE are also working with U.S. industry and our
international partners to develop new sources of information to
identify AD/CVD circumvention. CBP and ICE are constantly developing
new approaches to AD/CVD enforcement to meet the challenges posed by
complex AD/CVD circumvention schemes. We are exploring many options
that will give us additional information and new tools to protect U.S.
revenue and identify those who would use our system for illicit gains.
product concentration
Question. CBP reported that uncollected AD duties are highly
concentrated among a few products (crawfish, fresh garlic, mushrooms,
honey, and wooden bedroom furniture). These five products represent
more than 80 percent of the uncollected duties.
Why are uncollected AD duties concentrated among these products?
Why don't you focus your limited resources on these products and create
task forces as was done for textiles?
Answer. [A joint response for ICE and CBP follows:]
The Department of the Treasury's July 2007 report on Duty
Collection Problems, Fiscal Year 2003-2006 notes that ``Although a
particular imported product may be associated with a high default rate
(for example, crawfish imports), the most likely explanation for the
varied default rates lies with the type of firms that are importing the
product. If importers of a particular product are typically lightly
capitalized firms or parties with minimal assets in the United States,
one might expect a lower collection rate. For example, when CBP
reviewed its duty collection program, CBP determined that defaults on
AD duty supplemental bills (bills issued to collect retroactively
assessed duties) had increased substantially from previous years. CBP
also determined that the principal entities responsible for uncollected
duties were importers of agriculture/aquaculture merchandise subject to
AD duties. Based on CBP's analysis, the collection problem with respect
to this merchandise appeared to be attributable to the fact that
importers of agriculture/aquaculture merchandise tended to be
undercapitalized, and that by the time final liability was assessed
(typically 1 or more years after the goods had entered), many of the
companies were no longer in operation. Because the AD duties finally
assessed often significantly exceeded both the cash deposit and the
bond amount, CBP was left unable to collect the unsecured
(retrospectively assessed) portion of the duties assessed.''
In 2004, CBP recognized the collection issues related to AD/CVD
agriculture and aquaculture imports, and therefore applied to AD/CVD
shrimp imports a revised bond policy which increased the bond
requirements commensurate to the risk of such imports. However, the
enhanced bond policy was challenged at the U.S. Court of International
Trade (CIT) and at the World Trade Organization (WTO). In April 2009,
following the adoption of the WTO Appellate Body's report finding that
the enhanced bonding requirement was WTO-inconsistent, CBP ended this
program.
Because of WTO and CIT rulings, CBP has been limited in its ability
to apply enhanced bonding measures to a broad category of imports (such
as a single commodity). In addition, under the retrospective AD/CVD
system, CBP does not know what the final AD/CVD rates will be until
years after the initial importations, and cannot predict based on the
initial importation the amount of the final AD/CVD bills, nor the
ability of the importer to pay the bills.
CBP staff is reviewing all of the potential scenarios to ensure
that single-transaction bonds are required whenever CBP suspects that a
risk of revenue loss exists for AD/CVD imports.
willful circumvention
Question. As noted in the background section, companies willfully
circumvent the provisions of the AD/CVD laws by illegally transshipping
goods through an intermediate destination to mask the true country of
origin; undervaluing goods to reduce the amount of AD/CVD owed;
misclassifying or misdescribing merchandise outside the scope of the
order and, therefore, not subject to AD/CVD; and failing to manifest
(smuggling) goods. What remedies are there to pursue those who
willfully circumvent the laws?
Can the U.S. Government issue--in essence--a ``stop importing''
order against the company or the individual? Recognizing it is
difficult to collect revenues and conduct inspections overseas, what
can we do to the U.S.-based representatives of these illegal importers?
Answer. [A joint response for ICE and CBP follows:]
CBP has the statutory authority to assess monetary penalties to
culpable parties who willfully circumvent the laws enforced by CBP. In
addition, CBP has the statutory authority to seize and forfeit
merchandise in cases of inadmissibility into the country. CBP also
levies duties and imposes certain bonding requirements consistent with
law and regulations. CBP also refers cases to ICE for investigation of
criminal violations.
We are not aware of legal authority on which the U.S. Government
could rely to prohibit importation generally by a person or company.
The United States does not have any reciprocal revenue agreements
with any country in the world. For revenue purposes, even if we know
that an importer which is not physically present in the United States,
is viable and operating in another country, CBP cannot go after them to
collect any revenues.
time lag
Question. According to a 2008 GAO report, there is a 3-year lag
time by DOC and CBP, between the time goods arrive at the border and
the final assessment of duties. This lag allows illegitimate importers
to avoid paying duties by ceasing operations or claiming bankruptcy.
GAO recommendations to improve duty collection include better
communications between the agencies, modifying CBP's standards for
reviewing new shippers, and assessing CBP's process for setting bond
requirements. What steps have your agency's taken over the past 3 years
to implement these recommendations?
CBP also notes that some importers no longer exist by the time CBP
issues a bill. If we know these companies will disappear, why is there
a delay in issuing the bill? Can this process be expedited
administratively or does a law need to be changed?
Answer. [A joint response for ICE and CBP follows:]
CBP is constantly reviewing its bonding requirements, and adjusting
these bonding requirements as necessary consistent with its statutory
authority. CBP has improved communication with DOC through the
implementation of the ACE system and meeting regularly with DOC. We
note that DOC, and not CBP, reviews new shippers.
CBP cannot issue a bill for final AD/CVDs until CBP receives
instructions from DOC on the final AD/CVD amount. CBP cannot predict
whether an importer will disappear by the time a bill is issued, which
according to the GAO in its 2008 report, took on average about 3.3
years from the date of importation (but could be significantly longer).
Under the current retrospective AD/CVD scheme, CBP, for its part,
cannot issue a bill for final AD/CVDs until CBP receives instructions
from DOC on the final AD/CVD amount.
side payments
Question. The Wall Street Journal reported in February 2011, that
some United States furniture makers have received cash payments from
their Chinese competitors in exchange for not asking for an AD review.
GAO similarly found that shrimp exporters made cash payments to the
domestic U.S. industry.
What are the agencies' view on the legality of this issue and the
loss of revenue to the U.S. Treasury as a result of these side
payments?
Answer. [A joint response for ICE and CBP follows:]
ICE defers to the Department of Justice on questions of legality
and the Department of the Treasury on issues related to loss of
revenue.
CBP is not aware of any legal authority that prohibits such ``side
payments''. For entries prior to October 1, 2007, i.e., subject to the
Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), any such
``side payments'' may result in a small loss to the U.S. Treasury to
the extent that AD duty collections would have exceeded claims for
disbursement under the CDSOA. For entries after October 1, 2007, i.e.,
after the CDSOA was repealed, any such ``side payments'' would likely
result in a loss of revenue to the U.S. Treasury. However, no loss may
occur if DOC proceeds with an AD review for the subject merchandise at
the request of another party. Regardless of any lost revenue from these
``side payments'', CBP understands that the primary purpose of the
dumping laws is intended to be the protection of domestic industries
from unfair competition, not the generation of revenue to the U.S.
Treasury.
effective communications
Question. In 2008, GAO reported that there were frequent delays in
DOC's transmission of liquidation instructions to CBP and that about 80
percent of the time, DOC failed to send liquidation instructions within
its self-imposed 15-day deadline.
How have the agencies improved communication since 2008?
Answer. [A joint response for ICE and CBP follows:]
In February 2010, CBP launched the AD/CVD Module of CBP's Automated
Commercial Environment (ACE), which provides a modern communication
system for CBP to communicate with DOC on AD/CVD enforcement. The ACE
AD/CVD Module incorporates a joint AD/CVD case management, messaging
and inquiry system for CBP and DOC. These communication systems
facilitate coordination between CBP and DOC on AD/CVD messaging issues,
and reduce delays. CBP personnel also hold regular meetings with DOC's
Customs Liaison Unit and communicate throughout every work day on AD/
CVD-related matters, including deemed liquidation issues.
______
Question Submitted by Senator Frank R. Lautenberg
Question. An investigation by the Department of Homeland Security
(DHS) and U.S. Customs and Border Protection (CBP) found a deliberate
scheme by the company ESM to illegally import magnesium powder, a
critical component in the production of infrared countermeasure flares,
thereby circumventing payment of anti-dumping duties. How do DHS and
CBP intend to guard against the unlawful importation into the United
States of hazardous materials with potential military applications?
Does CBP have sufficient remedies against those who attempt to
unlawfully import potentially dangerous materials in large volumes
(i.e., multiple container loads)? If not, what additional remedies are
needed?
Answer. Hazardous material importations with a military application
may require a license or permit. For those goods where a license or
permit is required, CBP would ensure the proper documents are in place
prior to releasing the shipment from CBP custody.
CBP uses its resources to ensure that dangerous materials
regardless of volume do not enter into the United States. CBP has
comprehensive plans to inspect targeted goods that pose a threat. Upon
discovery of dangerous materials, CBP would use locally available
resources as well as national expertise to properly deal with the
cargo.
______
Questions Submitted by Senator Daniel Coats
Question. It is my understanding that within the resources
available to ICE to conduct AD/CVDs investigations, Commercial Fraud
receives on average about 5 percent of the total dollars each year.
Commercial Fraud covers 24 areas, one of which is AD/CVD enforcement.
Within Commercial Fraud what personnel, full-time equivalents (FTEs),
and dollars were devoted to AD/CVD enforcement for each of fiscal years
2009 and 2010, planned for fiscal year 2011, and requested for fiscal
year 2012?
Answer. The following table provides the total numbers of FTE
personnel and dollars expended on AD/CVD enforcement activities for
fiscal year 2009 and fiscal year 2010 and the projected expenditures
for fiscal year 2011. No additional resources are requested in fiscal
year 2012.
------------------------------------------------------------------------
Investigative
full-time Investigative
equivalent program
personnel expenditures
------------------------------------------------------------------------
Fiscal year 2009........................ 12 $3,108,000
Fiscal year 2010........................ 12 2,863,000
Fiscal year 2011 (full-year projected).. 12 2,961,000
------------------------------------------------------------------------
Note.--Individual ICE Homeland Security Investigations special agents
are not permanently assigned to any specific case type or workload and
these FTE levels do not represent fixed allocations from year to year
to a specific investigative mission area. The actual expenditures and
level of investigative FTE in any specific investigative area may vary
significantly due to changing threats to public safety or national
security and/or mission re-prioritization by a higher authority.
Question. ICE has many responsibilities; however, it is hard to see
how ICE is putting any priority on trade enforcement when so few
dollars (5 percent) are being used to investigate it. Trade and customs
enforcement is important work. Trade enforcement is not shared with
other Federal law enforcement agencies. These investigations are not
the responsibility of the Drug Enforcement Agency, the Secret Service,
or the Bureau of Alcohol, Tobacco and Firearms--but ICE's
responsibility. How does ICE justify putting such a small level of
resources into Commercial Fraud, and such a small level of resources
into AD/CVD enforcement?
Answer. As the investigative arm of DHS, ICE is responsible for
investigating more than 400 criminal offenses related to violations of
customs and immigration laws, which includes more than 20 commercial
fraud related violations. ICE aggressively pursues commercial fraud
cases, investigating all viable commercial fraud leads, regardless of
the primary predicate offense. ICE is currently on pace to increase its
commercial fraud arrests by nearly 70 percent in fiscal year 2011.
Question. Does ICE have agents and other personnel outside of
Commercial Fraud dedicated to AD/CVD enforcement? If so, how many?
Provide numbers of personnel, FTEs, and dollars for each of fiscal
years 2009 and 2010, planned for fiscal year 2011, and requested for
fiscal year 2012.
Answer. ICE Homeland Security Investigations (HSI) commercial fraud
investigative groups investigate a wide range of illegal activities,
including AD/CVD enforcement. HSI has commercial fraud groups in each
of its 26 Special Agent in Charge (SAC) offices. Each SAC office
regularly evaluates personnel assignments to effectively allocate
resources to address the broad range of criminal violations HSI is
responsible for investigating.
The following table provides the total numbers of FTE personnel and
dollars expended on trade enforcement for fiscal year 2009 and fiscal
year 2010 and the projected expenditures for fiscal year 2011. No
additional resources are requested in fiscal year 2012.
------------------------------------------------------------------------
Investigative
full-time Investigative
equivalent program
personnel expenditures
------------------------------------------------------------------------
Fiscal year 2009........................ 271 $72,362,000
Fiscal year 2010........................ 269 71,787,000
Fiscal year 2011 (full-year projected).. 335 81,884,000
------------------------------------------------------------------------
Note.--Individual ICE Homeland Security Investigations special agents
are not permanently assigned to any specific case type or workload and
these FTE levels do not represent fixed allocations from year to year
to a specific investigative mission area. The actual expenditures and
level of investigative FTE in any specific investigative area may vary
significantly due to changing threats to public safety or national
security and/or mission re-prioritization by a higher authority.
Question. How is ICE working to coordinate its enforcement
activities with CBP? Does CBP have to hold off on taking administrative
actions while ICE is pursuing an investigation? How long is the delay
between a final determination from ICE and CBP being able to take
action? Is ICE communicating with CBP in a timely fashion when an
investigation is concluded?
Answer. ICE works closely with CBP to enforce customs laws
applicable to companies and individuals involved in trade fraud. ICE
and CBP regularly conduct meetings with private industry to receive
allegations and discuss concerns regarding AD/CVD enforcement. To
better coordinate enforcement activities, ICE and CBP also hold a
monthly CEAR meeting at various ports throughout the United States.
Moreover, ICE special agents work closely with CBP officers, import
specialists, and regulatory auditors when developing and pursuing AD/
CVD investigations. ICE also has a special agent assigned to the CBP
Office of International Trade to assist them with commercial fraud
issues. Additionally, the National Intellectual Property Rights
Coordination Center houses the ICE-led Commercial Fraud Programs Unit
with co-located CBP personnel, which enables improved coordination
between ICE and CBP.
CBP and ICE work closely on most, if not all, AD investigations.
CBP does not pursue administrative actions independently while ICE is
pursuing a criminal case. CBP may postpone a civil enforcement action
until ICE has completed its investigation. This CBP action, or
inaction, is to ensure that CBP's administrative process does not
jeopardize a criminal investigation. The appropriate enforcement action
is determined on a case-by-case basis and is closely coordinated
through the local CEAR groups to ensure that the right enforcement
actions, whether criminal or civil, are taken at the right time as to
not hinder either process.
ICE notifies CBP of criminal investigations within 1 month of CBP
referrals. These notifications are made either through the formal CEAR
process or through informal notification. ICE does not maintain
statistical data on actions taken by CBP if a case is pursued for civil
penalties.
Through monthly CEAR meetings, ICE and CBP share information
related to violations concerning both agencies. Additionally, ICE and
CBP personnel communicate regularly during criminal investigations and
ICE often shares information with CBP personnel informally at the
conclusion of an investigation. ICE notifies CBP of criminal
investigations within a month of CBP referrals. These notifications are
made either through the formal CEAR process or through informal
notification.
intellectual property rights
Question. The National Intellectual Property Rights Coordination
Center (IPR Center) is located within ICE, but is staffed by many
different Federal agencies. In the past there have been significant
issues with staffing the Center and gaining the cooperation of the
partner agencies. Have those issues been resolved?
Answer. The IPR Center brings together 16 key Federal investigative
agencies, Interpol, and the Governments of Canada and Mexico in a task
force setting. The task force structure enables the IPR Center to
efficiently and effectively leverage the resources, skills, and
authorities of each participating agency and provide a comprehensive
response to intellectual property (IP) theft.
Cooperation among IPR Center partners has continued to grow over
the past year, with member agencies participating in several joint
operations and investigations. This cooperation includes the recently
announced Operation Chain Reaction in which nine IPR Center partner
agencies and prosecutors from DOJ are working together to target
counterfeit items entering the supply chains of the Department of
Defense and other U.S. Government agencies.
In addition, the IPR Center has recently added several agencies to
more comprehensively address the mission of the IPR Center to combat
predatory and unfair trade practices that threaten our economic
stability and national security, restrict the competitiveness of U.S.
industry in world markets, and place the public's health and safety at
risk.
Thus far in 2011, the IPR Center has welcomed the following
partners:
--the U.S. Consumer Product Safety Commission;
--the Defense Logistics Agency Office of Inspector General;
--the Department of State Office of International Intellectual
Property Enforcement;
--the Air Force Office of Special Investigations;
--the National Aeronautics and Space Administration Office of the
Inspector General; and
--our third international partner, the Royal Canadian Mounted Police.
While DOJ is not an official partner at the IPR Center, Federal
prosecutors work closely with all agency partners at the IPR Center;
this close relationship has resulted in a one-stop shop for industry
and victims of IP theft, reducing duplication and allowing us to
leverage and benefit from our unique missions and areas of expertise.
anti-dumping and countervailing duties enforcement
Question. What steps are CBP, ICE, and DOC taking to improve
communication about AD/CVD enforcement efforts with private industry?
Answer. [A joint response for ICE and CBP follows:]
CBP refers potentially actionable allegations received from private
industry to ICE during monthly commercial enforcement and analysis
response meetings at both headquarters and local field office levels.
In addition, ICE and CBP regularly conduct meetings with private
industry at both the headquarters and local office levels to receive
allegations and concerns regarding AD/CVD enforcement.
CBP shares industry concerns about the importance of countering AD/
CVD circumvention. We also understand that U.S. industry wants more
transparency in CBP's AD/CVD circumvention efforts. We are examining
ways to timely release information to the public about our enforcement
activities. At the same time, there is necessarily information that we
cannot make public when there is a criminal case under development.
Such cases usually require time to develop as CBP, in cooperation with
ICE, fully investigates and prosecutes the parties that are not
properly paying their AD/CVDs. Such public prosecution sends a very
strong message worldwide about the U.S. Government's AD/CVD enforcement
efforts. All of this notwithstanding, we are taking all necessary steps
to find ways that will allow us to release information to petitioners
to make our process more transparent.
Question. What is the state of information sharing between CBP,
ICE, and DOC? Are there barriers to sharing information that each
agency obtains during AD/CVDs investigations and verifications? As an
example, does CBP have information about shippers that would be useful
to DOC?
Answer. [A joint response for ICE and CBP follows:]
ICE works in close cooperation with relevant interagency partners,
the private sector, and international counterparts to investigate a
broad spectrum of crimes related to commercial fraud. Attempts to
circumvent payments of AD/CVDs may be investigated by ICE based upon
the multidisciplinary CEAR process evaluation. CEAR meetings are
conducted in most major cities throughout the United States on a
monthly basis by members of ICE and CBP. The purpose of the meetings is
to coordinate information sharing between ICE and CBP regarding
potential trade violations. The role of the CEAR process is to make an
early determination as to the nature, extent, and impact of instances
of noncompliance, select the response best suited to remedy the
problem, and follow up on that action to ensure that the noncompliance
problem is solved.
CBP, ICE, and DOC all share extensive information related to AD/CVD
enforcement, and CBP actively responds to requests for information from
these agencies. Much of the data sharing relates to specific
enforcement activities. Additionally, CBP, ICE, and DOC discuss broader
information sharing efforts to improve AD/CVD enforcement.
ICE is limited in sharing information concerning ongoing
investigations with DOC or any other agency outside of DHS due to
Federal Rules of Criminal Procedure and secrecy requirements placed on
matters pending before a grand jury.
DOC AD/CVD orders are issued by DOC and collected and distributed
by CBP. ICE works closely with DOC and CBP to share noncase-related
information regarding AD/CVD orders. ICE also actively participates in
the CBP-led multidisciplinary CEAR process to coordinate information
sharing between ICE and CBP regarding potential trade violations.
ICE, as the investigative arm of DHS, is responsible for
investigating importers who evade the payment of AD/CVD on imported
merchandise. AD/CVD cases are long-term, transnational investigations
that require significant coordination between domestic and
international ICE offices and with foreign law enforcement
counterparts. ICE special agents also work closely with CBP officers,
import specialists, and regulatory auditors during AD/CVD
investigations.
CBP has no specific barriers to sharing such information with DOC.
CBP often has information about shippers that would be useful to DOC,
and shares this information with DOC.
length of time devoted to reviews and investigations
Question. Each witness has testified on the length of time it takes
to do reviews or investigations involving trade enforcement,
specifically AD/CVDs. In prepared testimony, Deputy Assistant Secretary
Lorentzen mentions the October 2006 final affirmative determination of
circumvention of the AD order on petroleum wax candles from China--but
the complaint alleging possible circumvention was filed in 2004; and
Deputy Assistant Director Ballman speaks to the case alleging
transshipment of Chinese honey which began in February 2008 and has
resulted in fines and prison sentences--but the most significant
indictments did not come for 2.5 years--until September 2010. What can
be done to shorten these timeframes so that enforcement has a deterrent
effect on others across the trade community?
Answer. [A joint response for ICE and CBP follows:]
There is an inherent delay in criminal investigations and
prosecutions involving trade enforcement. ICE criminal investigations
are the last line of defense against the evasion of AD/CVD. These cases
are long-term, transnational investigations that require significant
coordination between domestic and international offices, with foreign
law enforcement counterparts. By the time ICE investigators are
involved in a particular case, the alleged violators have already
committed customs fraud by evading or attempting to evade dumping
duties. ICE is committed to shortening timeframes wherever possible,
but many aspects of these investigations, such as the assistance of
foreign law enforcement counterparts, and the prosecution of cases by
the United States Attorney's Office, are outside of ICE's control.
To further deter these types of customs violations and protect U.S.
business interests in the global economy, the U.S. Government should
continue to inform the public and foreign industry, about successful
prosecutions and awarded penalties resulting from ICE's investigations
and enforcement actions.
CBP continues to work with our partner agencies in the Federal
Government as well as with foreign law enforcement and the private
sector to bring quick and effective legal actions against those that we
suspect are circumventing the AD/CVD system. We will continue to build
the relationships that will help to streamline the process and
demonstrate our collective efforts as a credible deterrent.
uncollected anti-dumping duties
Question. The GAO mentioned in testimony the more than $1 billion
in AD duties that have not been collected. These duties are related
primarily to just five products--honey, fresh garlic, preserved
mushrooms, crawfish, and bedroom furniture from China. What can be done
at this point to collect these duties, some of which I believe stretch
back to 2004? Some of these collections would go back to the U.S.
Treasury to finance the Government--some would actually go back to
these industries that have been damaged under the ``Byrd amendment''. I
realize that CBP has a process it follows for debt collection--which on
average can take 300 days before even referring the case to attorneys--
but if some of these duties were imposed in 2004, that would be 7 years
ago which is a considerable length of time beyond 300 days. What
exactly is the central issue preventing either collection or the
liquidation of any bonds posted by the importers? Please give us more
transparency into whether these amounts are collectible; what is the
process; and what is the plan at DOC and CBP to resolve this situation.
Answer. [A joint response for ICE and CBP follows:]
CBP is pursuing all of the collection tools available. Most of the
debts associated with these products are in litigation against the
surety, principal, or both. Also, the principal would be on sanction
and they would have immediate suspension of delivery privileges.
Some of these collections would go back to the U.S. Treasury to
finance the Government--some would actually go back to these industries
that have been damaged under the ``Byrd amendment''. I realize that CBP
has a process it follows for debt collection--which on average can take
300 days before even referring the case to attorneys--but if some of
these duties were imposed in 2004, that would be 7 years ago which is a
considerable length of time beyond 300 days.
The central issue preventing CBP from collecting the full amount of
the debt is the ease in which a company can exit the market either
foreign or domestic. While the debt collection process can add a
significant amount of time to the overall collection process, many
companies ceased to exist prior to the creation of the debt leaving
only the surety to pursue in active collection. Collections from the
surety may result in collecting 10 percent of the overall amount due to
CBP. Sureties assert many legal justifications to prevent payment to
CBP which requires legal review from CBP.
Question. What suggestions do CBP and DOC have to get China to
focus on solving this problem?
Answer. [A joint response for ICE and CBP follows:]
CBP continues to work with our partner countries to identify areas
of common risk and concern. We work through the World Customs
Organization to identify best practices and to develop common action
plans. This work with other countries is important to try and address
the issue of AD/CVD evasion. We will continue to work with our Federal
partners within the executive branch to ensure that they are working
with their Chinese colleagues.
______
Questions Submitted to Ronald Lorentzen
Questions Submitted by Senator Mary L. Landrieu
chinese circumvention
Question. In your testimony, you mentioned that the Department of
Commerce (DOC) is currently investigating several allegations of
circumvention. Of those, how many involve products from China.
Circumvention appears to be a China-centric problem.
Should we have a specific solution to deal with China?
Answer. Although there are many allegations of circumvention
involving products from China, attempts at circumvention of our anti-
dumping and countervailing duty (AD/CVD) orders are not limited to any
particular country. Any laws or regulations pertaining to circumvention
should be broad enough to address circumvention in any instance.
What more should we be doing to ensure that products from China do
not continue to circumvent and evade our trade laws?
Answer. In our bilateral discussions with foreign governments we
must stress the importance of adherence to and enforcement of our trade
laws. DOC will continue to work in close cooperation with Customs and
Border Protection (CBP), Immigration and Customs Enforcement (ICE), and
the Department of Justice to improve information sharing and
communication, assist in each others' investigations, and improve our
enforcement procedures.
issuing duty orders
Question. In your testimony, you discuss the process by which you
issue AD orders and annually review the entries from the previous year
to determine the actual level of dumping or subsidization during the
prior 1-year period. Is this process as expeditious as it can be? Can
DOC further improve its process to be more responsive to the concerns
of U.S. industries?
Answer. DOC requires complete use of the time allotted by the
statute in which to gather information and provide all interested
parties the opportunity to comment and participate meaningfully in the
administrative review process. These proceedings are conducted as
expeditiously as possible within existing timeframes, but their
complexity and the need to reach legally defensible outcomes results in
few instances in which we can finish our work early. However, DOC
successfully issues all its preliminary and final results in AD/CVD
reviews within the statutory deadlines.
Question. In your testimony, you discuss an investigation of
Chinese tissue paper which resulted in DOC directing CBP to suspend
liquidation and collect cash deposits. When the liquidation suspension
order is issued, does it give the violating company time to
``disappear'', or is it automatic?
Answer. Once the preliminary affirmative determination of
circumvention (preliminary determination) in this case was published in
the Federal Register, liquidation was suspended retroactive to the date
the circumvention investigation was initiated by DOC. Any subject
entries which entered prior to the publication of the preliminary
determination in the Federal Register will be reclassified by CBP as
AD/CVD entries and suspended from liquidation and the importer will be
asked to post cash deposits. While I cannot speculate as to the
possibility of an importer ``disappearing'' and not paying the required
cash deposit, any entries on or after the date of publication of the
preliminary determination will automatically require the posting of
cash deposits equal to the PRC-wide rate of 112.64 percent.
Question. I understand you have the ability to share information
from your proceedings with CBP, and CBP has the same ability. Do you
view the current level of information-sharing as adequate?
Answer. Both DOC and CBP willingly share information. However, the
sharing of information may be restricted by existing law.
In AD/CVD proceedings, pursuant to 19 U.S.C. 1677f(b)(1)(A)(ii),
DOC may disclose proprietary information that it receives ``to an
officer or employee of the United States Customs Service who is
directly involved in conducting an investigation regarding fraud under
this subtitle''. In light of the new and different factual scenarios
that DOC and CBP must evaluate and respond to, the Congress may wish to
evaluate whether the linkage to a fraud investigation is the
appropriate statutory standard.
CBP regularly shares import information with DOC and provides DOC
with access to both the Automated Commercial Environment and the
Automated Commercial System. Upon request, CBP also provides entry
documentation. When CBP shares data with DOC it is subject to the
provisions of the Trade Secrets Act, and typically can only be released
under Administrative Protective Order (APO). Under DOC's current
practice, this may limit the usefulness of certain information provided
by CBP in AD/CVD proceedings. For example, CBP may have information
showing that a particular exporter from a country subject to an AD or
CVD order is potentially circumventing that order through minor
alternations of the merchandise that are performed in a third country.
That information, however, may only be made available to DOC officials
directly involved in the case and to parties covered under an APO in
the proceeding. Such parties generally include counsel for foreign
producers, importers, and the U.S. domestic industry. Because the
information is proprietary, counsel cannot share it with their clients,
who are not covered by an APO. This precludes the domestic industry
from filing an anti-circumvention inquiry with DOC.
In other situations, CBP and ICE may be prevented from sharing
fraud and evasion information in order to protect the legal integrity
of ongoing fraud and evasion investigations. Given that these are
criminal investigations, it is reasonable that CBP and ICE do not share
such information with DOC as it could become necessary for DOC to place
the information on the proprietary case record, at which point it could
be viewed by all parties under an APO in the proceeding.
new shippers
Question. GAO has reported that new shippers represent 40 percent
of uncollected duties, and has suggested that adjusting the
requirements for new shipper reviews so that companies would have to
make a minimum amount or value of exports to qualify for an individual
AD/CVD rate. DOC agreed with this idea in a November 2010 report to the
Congress.
What kinds of changes in authority does DOC believe it needs in
order to adjust the minimum amount or value of exports from companies
requesting a new shipper review?
Answer. DOC recommends that companies requesting new shipper
reviews should be required to meet certain minimum volume and value
requirements, requirements which are currently not in the statute.
While DOC does conduct a bona fides analysis to determine whether the
sale was in commercial quantities, the adoption of volume and value
requirements would tighten our standards and help prevent foreign
companies from exploiting the new shipper provision in the statue.
What options has DOC explored to reduce the amount of time it takes
to complete a new shipper review?
Answer. It would be difficult for DOC to shorten the time required
to complete a new shipper review. DOC conducts its proceedings
according to the statute and our regulations, which provide deadlines
for our preliminary and final determinations. Significant time is
required for DOC to collect the necessary data, analyze this
information and calculate a dumping margin for the final result. As
part of our new shipper review proceedings, DOC issues questionnaires
that often require follow-up questions, and gives parties a chance to
comment on submissions. While DOC works in an expeditious manner with
the resources available, the information and data required to conduct a
new shipper review often do not allow DOC to complete its review sooner
than the time allowed by statute.
importance of automated commercial environment
Question. How important and valuable to your Department's work on
AD enforcement is development and expansion of CBP's Automated
Commercial Environment (ACE)?
Answer. ACE is valuable because it allows for more efficient and
timely communication between CBP and DOC in the implementation and
application of the AD/CVD rates. For example, ACE allows DOC to apply
AD/CVD rates on a per-unit amount basis, in addition to the typical ad
valorem rates. The application of a per-unit amount is important to
counter situations where companies may understate the value of their
imported merchandise. ACE is also much more user-friendly and flexible
than the old automated commercial system (ACS). Moreover, there are
nearly five times as many analysts who have been permitted ``write
access'' to ACE than the number of analysts who had similar access to
ACS.
time lag
Question. According to a 2008 GAO report, there is a 3-year lag
time by DOC and CBP, between the time goods arrive at the border and
the final assessment of duties. This lag allows illegitimate importers
to avoid paying duties by ceasing operations or claiming bankruptcy.
GAO recommendations to improve duty collection include better
communications between the agencies, modifying CBP's standards for
reviewing new shippers, and assessing CBP's process for setting bond
requirements. What steps have your agency's taken over the past 3 years
to implement these recommendations?
Answer. DOC and CBP worked together to design and implement the AD/
CVD module of the ACE, CBP's new trade processing system. This part of
ACE was deployed on February 14, 2010, and has fostered improved and
more efficient communication between the two agencies. Specifically, an
inquiry system was built into ACE to address the issue of clarity of
duty liquidation instructions. CBP port personnel rely on this system
to submit questions to DOC regarding liquidation and other issues,
enabling more accurate implementation of DOC's AD/CVD programs. Also a
messaging system was built to track the sending and posting of DOC's
liquidation instructions. This aspect of ACE enables quicker processing
of liquidation instructions by CBP.
Further, DOC's Customs Liaison Unit and members of CBP's AD/CVD
Policy and Programs Office meet on a regular basis to discuss AD/CVD
enforcement matters. In addition, on-going meetings are now taking
place between senior Import Administration (IA) and Department of
Homeland Security (DHS) officials to strengthen the dialogue on issues
of mutual interest.
CBP also notes that some importers no longer exist by the time CBP
issues a bill. If we know these companies will disappear, why is there
a delay in issuing the bill? Can this process be expedited
administratively or does a law need to be changed?
Answer. The delay in issuing the bill which identifies the final
assessment amount owed on entries subject to an AD or CVD
administrative review is due to the fact that, until DOC finishes an
administrative review covering those entries and any subsequent
litigation is completed, the final assessment amount is unknowable.
Until the final assessment amount is known a bill cannot be issued. The
law provides that after an AD or CVD order has been put in place, the
importer must pay a cash deposit of the estimated duties.
Therefore, at the time of entry, CBP does collect a cash deposit on
entries at the amount of dumping or subsidization DOC determined to
exist in the investigation or subsequent reviews. The amount of
potentially uncollectable duties at issue here is the amount, if any,
by which the final assessment rate exceeds that cash deposit rate
already collected by CBP. In theory, the general import bond required
by CBP was supposed to be the secondary source for payment of duties if
the importer for whatever reason was not able to pay. However,
sometimes those general bonds are insufficient. We understand that CBP
requires single-transaction bonds for specific importers to reflect the
risk associated with their entries of merchandise, including entries
covered by AD/CVD proceedings.
side payments
Question. The Wall Street Journal reported in February 2011, that
some United States furniture makers have received cash payments from
their Chinese competitors in exchange for not asking for an AD review.
GAO similarly found that shrimp exporters made cash payments to the
domestic U.S. industry.
What are the agencies' view on the legality of this issue and the
loss of revenue to the U.S. Treasury as a result of these side
payments?
Answer. The alleged cash payments at issue have been described by
various parties in terms ranging from ``negotiated settlements'' to
``extortion'' and the legality of any such arrangement has not been
formally determined by the courts. The Department neither encourages
nor condones such agreements, but neither do we have any authority to
regulate or prohibit them. The trade remedy laws prescribe specific
relief to domestic industries that are injured by unfairly traded
foreign imports in the form of duties that are imposed on imported
merchandise. The Government has sole authority to provide such relief
to harmed U.S. industries and we do so exclusively based on information
and grounds which the law permits us to consider. We cannot
categorically state that every agreement results in a reduction of
revenue to the Treasury because an AD review so avoided may not have
resulted in an increase in AD duties due.
deemed liquidations
Question. Untimely action by DOC and CBP can impede CBP's ability
to process the appropriate amount of AD/CVDs within the required 6-
month period. When entries are not liquidated within the specified
timeframe, CBP is unable to collect any supplemental duties that might
have been owed because of an increase in the AD/CVD rate.
What is the amount of lost revenue due to deemed liquidations?
Answer. GAO's Report to Congress on Antidumping and Countervailing
Duties, (GAO-08-391) (March 2008) identified more than 37,000 entries
(1.19 percent) out of a total of approximately 3.1 million entries
subject to AD duties liquidated from October 2004 through June 2007
that were deemed liquidated. Of those 37,000 entries, the GAO
identified 507 entries (1.37 percent) which should have resulted in the
collection of additional duties, amounting to $106,000 in lost revenue.
What steps are CBP and DOC taking to reduce the amount of
uncollected duties attributable to deemed liquidation?
Answer. As cited in the GAO's 2008 Report to Congress, IA
established internal performance metrics on the timely issuance of
liquidation instructions, defined as being no later than 15 days after
the publication of the pertinent Federal Register notice. IA's Customs
Unit regularly works to clarify instructions where necessary for
processing by CBP and, on a daily basis, addresses inquiries on
liquidation issues raised by CBP.
faster reaction to industry protests
Question. The June 2010, AD enforcement report indicated that CBP
and DOC were working on plans to increase AD collections. One area both
agencies agreed to review and update was how you can quickly address
protests by industries so that you can begin duty collection
activities. The report indicated that DOC had increased staffing levels
to process these protests.
Has CBP also refocused its staffing? Have your agencies noticed an
improvement in this process over the past year?
Answer. I am not in a position to address questions pertaining to
CBP staffing issues. I can note, however, that while DOC had 55
unprocessed protests pending as of December 2010, as of November 2011,
due to the increased cooperation and communication between DOC and CBP,
there remain only 9 unprocessed protests now under review by DOC.
human capital and planning
Question. In a readout conference, CBP stated that it has no
information on what is likely to happen the next day--it could get a
few dozen instructions from DOC that cover a limited number of ports
and products, or it could get an enormous set of instructions that
would require enormous effort to get the liquidation instructions
completed.
What kinds of information can you provide to CBP to better enable
them to anticipate the workloads that are likely to affect their
ability to perform their functions?
Answer. DOC's Customs Liaison Unit and other IA staff will continue
to build upon existing efforts to communicate regularly and work with
CBP to ensure that CBP is aware of all upcoming DOC decisions that
involve the issuance of CBP instructions. The volume of instructions
sent to CBP will ebb and flow depending on the number of final results,
preliminary determinations, etc. that DOC issues.
Question. DOC allows domestic parties to access confidential
information learned in your proceedings under a protective order. Do
you feel these protective orders function well? What if these parties
could also use that information with CBP, and access CBP information to
use with DOC? Would this be helpful?
Answer. The administrative protective orders (APO) administered by
DOC function well. APOs encourage interested parties to provide
thorough responses to our requests for information while at the same
time providing adequate protection of their business proprietary
information (BPI).
As stated in my written testimony, DOC works in close cooperation
with CBP and ICE to assist them in enforcing the customs laws and
ensuring our border measures are effective. DOC regularly exchanges BPI
with CBP. Specifically, 19 CFR 351.306(a) of DOC's regulations
currently permits the disclosure of an interested party's BPI to an
employee of CBP involved in conducting a fraud investigation relating
to an AD/CVD proceeding. In turn, CBP transmits BPI to DOC on a regular
basis in the form of CBP entry summary forms and supporting
documentation. Pursuant to agreements governing the exchange of
information between the two agencies, DOC treats such information
received from CBP as business proprietary and such information is
releasable only under APO in its proceedings. We find such exchanges of
information to be very helpful in conducting our proceedings.
This existing exchange of information between DOC and CBP has
resulted in indictments, convictions and prison sentences for evaders
of AD/CVD orders. To that end, we believe it has been effective is
assisting in the enforcement of our unfair trade laws. For example, in
June 2011, such cooperation resulted in a 6-year conviction for an
individual who attempted to evade anti-dumping duties on steel wire
hangers from China through illegal third country mislabeling and wire
fraud. This individual was ordered to pay nearly $8 million in
restitution and forfeiture as a result.
The Trade Secrets Act generally governs DOC's handling of BPI and
the trade laws permit DOC to share BPI with Customs officials
``directly involved in conducting an investigation regarding fraud''.
Thus, while DOC will share with Customs public information it obtains,
DOC cannot share BPI with Customs for nonfraud purposes, such as to
improve duty collection.
Question. I understand that DOC is proposing to require cash
deposits, instead of just bonds, between preliminary and final
determinations in original investigations. This appears to be a
positive decision. Do you see any reason we shouldn't make a similar
change by eliminating the bonding privilege for new shipper reviews?
What else can you do administratively to minimize abuse of the new
shipper review process?
Answer. Adopting minimum requirements for new shipper reviews will
likely increase the reliability of calculated new shipper rates, making
it less likely that the rate will be based on a single,
unrepresentative high-priced sale.
characteristics of a good anti-dumping system
Question. GAO reported in 2008 on the U.S. AD system and
recommended that DOC create a study on the possible advantages and
disadvantages of alternative systems.
What are some criteria the Congress should keep in mind as it
considers ways to improve collection of AD duties?
What progress has DOC made on such a study?
Answer. On November 19, 2010, the Department delivered its Report
to Congress on the Relative Advantages and Disadvantages of
Retrospective and Prospective Antidumping (AD) and Countervailing Duty
(CVD) Collection Systems.\1\ This detailed report was prepared in
response to the conference report accompanying the 2010 Consolidated
Appropriations Act.\2\
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\1\ The United States is the only major World Trade Organization
member that uses a retrospective trade remedy system. Under such a
system, duties are assessed, not at the time of entry, but rather some
time after importation following the opportunity for interested parties
to request an administrative review to determine the exact amount of
duties to collect based on the level of dumping or subsidization that
occurred during the review period. Conversely, under a prospective
system, duties are collected at the time of entry based on previously
calculated AD margins and CVD rates or, in some countries, previously
determined normal values.
\2\ The conferees requested that the report address the extent to
which each type of system would:
-- Likely achieve the goals of remedying injurious dumped or
subsidized exports;
-- Minimize uncollected duties;
-- Reduce incentives and opportunities for importers to evade AD/
CVDs;
-- Effectively target high-risk importers;
-- Address the impact of retrospective rate increases on U.S.
importers and their employees; and
-- Create a minimal administrative burden.
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In preparing its report, the Department sought public comment and
held a hearing on April 27, 2010. Those submitting comments ranged from
large manufacturers to small family-owned businesses as well as unions,
retailers, trade associations, and members of the trade bar. Comments
and hearing participants were divided between proponents of both
systems. Generally, representatives of domestic petitioning industries
and workers favored the existing retrospective system, arguing that it
more accurately and fully offsets foreign dumping and subsidization,
while representatives of consuming industries, retailers and importers
favored prospective systems because of the greater certainty of duty
liability at the time of importation.
The report, available at http://ia.ita.doc.gov/download/rvp/rvp-
final-report-to-congress-20101119.pdf, provides general background
information on the retrospective and prospective systems and details
the certain advantages and disadvantages associated with retrospect and
prospective AD/CVD systems. The report also discusses alternative means
of addressing the problem of uncollected duties and the steps that DOC
and DHS are taking to increase duty collection. Although the
administration has not taken a position on possible reforms needed in
this area, the November report provides important input for
understanding and evaluating this complex issue. An overview of
possible advantages and disadvantages of prospective and retrospective
systems is set out below.
Retrospective system proponents argued that such systems are better
able to remedy dumping because the full amount of dumping can be offset
through the administrative review process. Increased dumping that
occurs between reviews in a prospective ad valorem system cannot be
addressed because any changes in the rate are prospective. Prospective
system proponents argued that this situation can be addressed through
more frequent reviews or the use of a prospective normal value system
which encourages exporters to price at the fair value or be liable for
additional duties if they price below that level.
Prospective system proponents argued that the delay between
importation and final assessment of duties results in large amounts of
uncollected duties which would be eliminated in a prospective system.
However, critics of a prospective system counter that the maximum
amount collected under a prospective ad valorem system, for example,
would be the minimum amount collected under a retrospective system. As
noted in the November 2010 report, our examination of collection data
found that, under such an ad valorem prospective system, an additional
$426 million in Government revenue would have been foregone over a 4-
year period. The report goes on to note that the amount of foregone
revenue is likely to be reduced but not necessarily eliminated in other
types of prospective systems.
Prospective system proponents noted that the system's immediacy and
certainty of duty assessment not only benefit consuming industries,
retailers and importers by eliminating the risk of substantial
retrospective rate increases years after the good is imported, but also
reduce incentives and opportunities for duty evasion. CBP also noted
that the reduction in administrative burden would free up resources for
increased enforcement efforts. However, the November 2010 report notes
that while certain administrative burdens, particularly those on CBP,
could be reduced under a prospective system, others might increase,
depending on the type of system adopted. For example, as noted in the
November 2010 report, if a prospective normal value system were
adopted, the large number of AD orders and the complexity of some
products could result in the issuance of thousands, if not hundreds of
thousands, of normal values that would have to be administered by CBP.
effective communications
Question. In 2008, GAO reported that there were frequent delays in
DOC's transmission of liquidation instructions to CBP and that about 80
percent of the time, DOC failed to send liquidation instructions within
its self-imposed 15-day deadline.
How have the agencies improved communication since 2008?
Answer. Timely issuance of liquidation instructions is an element
that is included in performance plans and monitored in the annual
performance appraisal process. Accordingly, IA Operations issues
liquidation instructions to CBP as soon as it can under its current
policy and practice. IA's Customs Liaison Unit works closely with CBP
to address liquidation questions raised by CBP.
Question. In CBP's statement, it discusses how easy it is for an
importer to find and collude with a producer to avoid paying dumping
duties. It lists some of these schemes including illegal transshipment,
undervaluation, failure to manifest, and misclassification. If a
company--or a country--deliberately sets out to engage in these kinds
of trade fraud, how can the U.S. Government appropriately tackle this
issue?
Answer. If presented with evidence of potential fraud, DOC alerts
CBP immediately to that possibility and shares the evidence with CBP.
If sufficient to trigger an investigation into commercial fraud, CBP
works in conjunction with ICE and DOJ, with assistance from DOC, in
pursuing the investigation, which, as has been noted, has resulted in a
number of indictments, convictions, and prison sentences for evaders of
our trade laws. For example, in June 2011, such cooperation resulted in
a 6-year conviction for an individual who attempted to evade AD duties
on steel wire hangers from China through illegal third-country
mislabeling and wire fraud. This individual was ordered to pay nearly
$8 million in restitution and forfeiture as a result.
product concentration
Question. CBP reported that uncollected AD duties are highly
concentrated among a few products (crawfish, fresh garlic, mushrooms,
honey, and wooden bedroom furniture). These five products represent
more than 80 percent of the uncollected duties.
Why are uncollected AD duties concentrated among these products?
Why don't you focus your limited resources on these products and create
task forces as was done for textiles?
Answer. DOC is diligent in its calculation of cash deposit and
liquidation instructions, but CBP handles issues of duty evasion and
fraud. We continue to work closely with CBP to share information we
collect that relates to the above issues. We also have applied a per
unit liquidation rate in a number of proceedings in order to counter
situations where companies regularly understate the value of their
imported merchandise. We note that litigation in proceedings involving
the above cases has also delayed the collection of AD duties.
willful circumvention
Question. As noted in the background section, companies willfully
circumvent the provisions of the AD/CVD laws by illegally transshipping
goods through an intermediate destination to mask the true country of
origin; undervaluing goods to reduce the amount of AD/CVD owed;
misclassifying or misdescribing merchandise outside the scope of the
order and, therefore, not subject to AD/CVD; and failing to manifest
(smuggling) goods. What remedies are there to pursue those who
willfully circumvent the laws?
Answer. The issues listed in this question concern customs fraud,
which is within the authority of CBP, not that of DOC, and thus would
be better addressed by CBP. However, to the extent record evidence is
obtained by or submitted to DOC concerning such activity under the
unfair trade laws, DOC, by statute, is permitted to and does share the
information with CBP's customs fraud division and can take such
information into consideration in reaching its AD/CVD determinations.
For example, in an AD or CVD proceeding, if DOC found that a party
withheld or did not disclose necessary information during its
proceeding, DOC has authority to reject the respondent's submitted data
and select and apply an inference that is adverse to that party in
determining the appropriate duty rate.
Question. Can the U.S. Government issue, in essence, a ``stop
importing'' order against the company or the individual? Recognizing it
is difficult to collect revenues and conduct inspections overseas, what
can we do to the U.S.-based representatives of these illegal importers?
Answer. DOC is responsible for administering the AD/CVD laws. The
duty rates determined by DOC in its AD/CVD proceedings form the basis
of its instructions to CBP to impose cash deposits and collect duties
from U.S. importers. While DOC is charged with administering the AD/CVD
laws, only CBP is charged with overseeing importer status and behavior.
______
Questions Submitted by Senator Daniel Coats
anti-dumping and countervailing duties enforcement
Question. What steps are CBP, ICE, and DOC taking to improve
communication about AD/CVD enforcement efforts with private industry?
Answer. DOC frequently meets with domestic parties who wish to
discuss AD/CVD enforcement issues. If it is determined the issue in
question may be addressable under the provisions of section 781 of the
Tariff Act of 1930 for which DOC is responsible, we may initiate a
circumvention investigation. However, if it involves an issue such as
transshipment, we will refer the outside party to CBP insofar as that
typically indicates an infraction of customs law. In these instances,
we will provide the outside party the name of the appropriate office
and official at CBP to contact. Occasionally, we will coordinate the
scheduling of a meeting between the outside party and CBP and,
typically, a member of the Import Administration Customs Unit will
participate in the meeting. If CBP or ICE initiates an investigation,
we will frequently request updates on the progress of the
investigation. However, CBP and/or ICE cannot always provide us with an
update because the ongoing investigation may be confidential or the
release of information may be restricted by law.
Question. What is the state of information sharing between CBP,
ICE, and DOC? Are there barriers to sharing information that each
agency obtains during AD/CVD investigations and verifications? As an
example, does CBP have information about shippers that would be useful
to DOC?
Answer. DOC, CBP, and ICE maintain strong working relationships and
routinely share information to the extent allowed under current laws.
When DOC uncovers information that indicates possible evasion of the
AD/CVD laws, the information is provided to CBP pursuant to 19 U.S.C.
1677f(b)(1)(a)(ii) which states ``Commerce may provide information
received in the context of an investigation or administrative
proceeding to CBP, to assist the Department of Homeland Security with
an investigation into fraud and evasion.'' Under this same provision,
DOC makes available to CBP and/or ICE information in support of those
agencies' investigations into possible fraudulent activities by
importers of merchandise subject to AD/CVD orders.
For its part, CBP maintains information about exporters,
manufacturers, importers, etc., that is critical to DOC's conduct of
AD/CVD proceedings, including the conduct of new shipper reviews. CBP
regularly shares this information with DOC. Such information is subject
to the provisions of the Trade Secrets Act, and typically can only be
released under Administrative Protective Order (APO). This may limit
the usefulness of the information under current DOC practice. For
example, CBP may have information showing that a particular exporter
from a country subject to an AD or CVD order is potentially
circumventing that order through minor alternations of the merchandise
that are performed in a third country. That information, however, may
only be made available to DOC officials directly involved in the case
and to parties covered under an APO in the proceeding. This impedes
DOC's ability to initiate a formal anti-circumvention inquiry into the
exporter's activities.
length of time devoted to reviews and investigations
Question. Each witness has testified on the length of time it takes
to do reviews or investigations involving trade enforcement,
specifically AD/CVDs. In prepared testimony, Deputy Assistant Secretary
Lorentzen mentions the October 2006 final affirmative determination of
circumvention of the AD order on petroleum wax candles from China--but
the complaint alleging possible circumvention was filed in 2004; and
Deputy Assistant Director Ballman speaks to the case alleging
transshipment of Chinese honey which began in February 2008 and has
resulted in fines and prison sentences--but the most significant
indictments did not come for 2.5 years--until September 2010. What can
be done to shorten these timeframes so that enforcement has a deterrent
effect on others across the trade community?
Answer. DOC, in administering the AD/CVD laws, conducts scope
inquiries, including four specific types of statutory anti-
circumvention inquiries for:
--merchandise assembled in third countries;
--merchandise assembled in the United States;
--later developed products; and
--products altered in some minor fashion.
DOC is very aware of the potential impact the results of one of these
inquires may have and strives to complete all such inquiries within the
timelines established for these proceedings. However, occasionally (in
some rare or unusual cases), due to the complexity of the issues or in
order to most efficiently utilize available resources, the final
results of a scope or anti-circumvention inquiry may be delayed.
DOC plays no role in the setting of deadlines for customs fraud
cases such as the case involving the transshipment of Chinese honey.
uncollected anti-dumping duties
Question. GAO mentioned in testimony the more than $1 billion in AD
duties that have not been collected. These duties are related primarily
to just five products--honey, fresh garlic, preserved mushrooms,
crawfish, and bedroom furniture from China. What can be done at this
point to collect these duties, some of which I believe stretch back to
2004? Some of these collections would go back to the U.S. Treasury to
finance the Government--some would actually go back to these industries
that have been damaged under the ``Byrd amendment''. I realize that
U.S. Customs and Border Protection has a process it follows for debt
collection--which on average can take 300 days before even referring
the case to attorneys--but if some of these duties were imposed in
2004, that would be 7 years ago which is a considerable length of time
beyond 300 days. What exactly is the central issue preventing either
collection or the liquidation of any bonds posted by the importers?
Please give us more transparency into whether these amounts are
collectible; what is the process; and what is the plan at DOC and CBP
to resolve this situation.
Answer. Part of the explanation is the manner in which the AD/CVD
laws generally operate. For example, a retrospective duty collection
system, such as that provided for under U.S. law, allows imports to
enter the United States at a cash deposit rate, and then at a later
date, after an administrative review proceeding, the final duty
assessment is determined and imposed on the entry. At the time of
entry, an importer must submit an estimated cash deposit rate based on
a prior DOC determination. However, neither the importer nor the U.S.
Government knows the exact amount of the final assessment that will be
due for that entry until DOC has completed its administrative review.
Given the importance of thorough investigation and the delays in
assessment that litigation may introduce to assure due process, DOC may
not be able to issue a final decision for some time, from 18 to 30
months. Therefore, it is difficult to determine the amount of bonding
to require upon entry of the import. In the time between the entry date
and final assessment date, the importer may file for bankruptcy or
simply disappear. CBP must then resort to trying to collect from the
surety that issued a general import bond or a special AD or CVD bond.
Because the final duty assessment was not known at the time of entry,
these bonds may not cover the total amount of the duty to be collected,
resulting in cases of under-collection.
Some suggest the problem could be resolved with the adoption of a
prospective system, which other countries employ. A prospective system,
however, could present a different set of questions and challenges. In
a prospective system the final duties are assessed upon entry at the
estimated cash deposit rate calculated in the original investigation or
a subsequent review. In such systems, the governments do not impose
duties based on the actual margin of dumping calculated for the entry
in question; instead, they merely apply the duty rates calculated for
prior entries to future entries. As a result, in a prospective system,
while there is little question that the actual amount of duty owed will
be paid, there is no certainty that the amount of duty owed equals the
extent of dumping occurring.
Question. What suggestions do CBP and DOC have to get China to
focus on solving this problem?
Answer. We engage China regularly on trade remedy issues in various
forums, such as in the Trade Remedies Working Group of the United
States-China Joint Commission on Commerce and Trade, as well as in the
context of informal bilateral exchanges and meetings. We will continue
to engage China on areas of concern regarding our respective AD/CVD
regimes, including with respect to systemic issues of evasion and
uncollected duties.
Question. Last August, DOC announced 14 proposals to strengthen the
administration of the Nation's AD/CVDs laws that could be accomplished
through administrative and regulatory changes. Among the proposals were
strengthening the certification process for submission of information
and adoption of a new methodology for valuing wage rates in nonmarket
economies. What is the status of implementation of these proposed
changes? How do these proposed changes relate to DOC's enforcement
mission?
Answer. We issued a Federal Register notice on February 18, 2011,
inviting public comment on the issue of wage rates. After reviewing all
of these comments, the Department decided to use a wage rate source
which is inclusive of all labor costs, and changed our methodology to
use labor costs from a single surrogate country. The Federal Register
announcing this change in practice was published on June 20, 2011.
With regard to the certification process, on February 10, 2011, in
an interim rule (Interim Final Rule), the Department amended its
regulations to strengthen the certifications that accompany the
submission of factual information in AD/CVD proceedings. The Department
revised the text of both the certification for company or Government
officials, as well as the certification for legal counsel or other
representatives. On March 14, 2011, the Interim Final Rule became
effective for all segments of all proceedings initiated on or after
that date. As such, all submissions containing factual information were
required to include the revised certifications.
In response to the Department's request for comments on the Interim
Final Rule, some commenters discussed the appropriateness of requiring
foreign governments and their officials to submit a certification that
one commenter claims includes an acknowledgement that the certifying
individual may be subject to criminal sanctions under U.S. law. Some
parties contend that it is inappropriate for the Department to impose a
certification requirement that, these parties claim, subjects foreign
governments to potential liability from which they are immune, absent
limited exceptions, pursuant to U.S. statutory law (e.g., the Foreign
Sovereign Immunities Act) and common law. In addition, the new
certification requirements include language which certain parties claim
impose additional enforceable legal obligations on foreign governments,
such as the notation that the Department may preserve the submission
for purposes of determining the accuracy of a certification, even if a
party otherwise withdraws the submission from the record, and also the
language indicating that the submitter must maintain the original of
the certification for a 5-year period. These parties contend that the
purported additional legal obligations which this language imposes are
also contrary to principles of sovereign immunity.
In order for the Department to consider those comments fully and
not to impede the progress of ongoing AD/CVD proceedings, which are
conducted under strict statutory deadlines, on September 2, 2011, the
Department issued the Supplemental Interim Final Rule which permits
foreign governments to file certifications in either the format that
was in use prior to the effective date of the Interim Final Rule or in
the format provided in the Interim Final Rule. The Department also
allowed interested parties to submit comments on the Supplemental
Interim Final Rule, and the comment period closed on October 3, 2011.
The Supplemental Interim Final Rule is effective as of September 2,
2011, and will remain in effect until such time as a final rule is
promulgated. This Supplemental Interim Final Rule only affects the
certifications required by foreign governments and does not affect the
certifications that other interested parties (i.e., company officials
and legal representatives) must file. As such, all other aspects of the
Interim Final Rule remain in effect and fully apply to all company
officials and representatives.
The Department intends to publish a final rule within 1 year from
the publication of the Supplemental Interim Final Rule. This time
period is necessary in order to consider fully all aspects of the rule
as well as to address all of the comments received, not only the
comments submitted in response to the Supplemental Interim Final Rule,
but also all of the comments received in response to our request for
comments on the Interim Final Rule published last February.
Question. As DOC continues to investigate allegations of
circumvention--and these allegations often involve China--has DOC
developed any ideas as to what more could be done to prevent these
companies from circumventing and evading our trade laws? Please
summarize the suggestions made.
Answer. DOC, CBP, and ICE are the agencies primarily responsible
for AD/CVD enforcement. DOC conducts the initial investigations and
subsequent reviews to determine the actual amount of AD/CVDs to be
assessed and also investigates circumvention inquiries. CBP collects
AD/CVDs on imports of goods based on the instructions of DOC, pursues
those parties that evade the payment of AD/CVDs, and imposes penalties
through CBP's civil authorities. CBP also refers potential criminal
violations of AD/CVD laws to ICE, which investigates such violations
and works together with the Department of Justice (DOJ) to prosecute
the responsible parties.
DOC takes these matters seriously and will more aggressively work
in close cooperation with CBP, ICE, and DOJ to share information and
assist in each others' investigations, and persist in the continued
improvement of our methodology and communications.
Question. There are many private and public programs that provide
new applicants extensive materials before allowing individuals or
companies to participate. Often the information may include the
potential penalties for violation of the rules of the program. When a
company applies for a new shipper rate with DOC what process does the
company go through? Is there an opportunity to educate these new
shippers on the penalties for violating our laws and on what
constitutes circumvention and why it is a violation of law?
Answer. DOC's regulations at 19 CFR 351.214 set forth in detail the
requirements that must be met by exporters requesting new shipper
reviews. These requirements include various types of documentation
supporting their request, as well as explicit certifications that the
requester meets the statutory requirements for being considered a new
shipper. The requester must submit documentation that establishes the
date of the sale and/or the date it was imported into the United
States. In addition, the documentation must show the volume of the
first shipment and any subsequent shipments, as well as the date of the
first sale to an unaffiliated party. The requester must certify that it
was not affiliated with any company that shipped during the
investigation and if the requesting exporter is not the producer of the
merchandise, the producer must provide the same certification. If the
exporter or producer is in an NME country, it must certify that it is
not under the control of the central government.
In addition to the documentation and new shipper-specific
certifications, the requesting exporter and its counsel must file with
the request a certification attesting to the accuracy and completeness
of the information contained in the request. On February 10, 2011, DOC
published an interim final regulation (Interim Final Rule) enhancing
the certification requirements for all submissions filed in any AD or
CVD proceeding, including requests for new shipper reviews. Although
parties who knowingly and willingly submitted false statements to DOC
were always subject to possible criminal sanctions, these enhanced
certifications now include an explicit acknowledgement that U.S. law
(including, but not limited to, 18 U.S.C. 1001) imposes criminal
sanctions on individuals who knowingly and willfully make material
false statements to the U.S. Government.
In order for the Department to consider comments regarding foreign
sovereign immunity that it received in response to the Interim Final
Rule, and not to impede the progress of ongoing AD/CVD proceedings,
which are conducted under strict statutory deadlines, on September 2,
2011, the Department issued the Supplemental Interim Final Rule. The
Supplemental Interim Final Rule permits foreign governments to file
certifications in either the format that was in use prior to the
effective date of the Interim Final Rule or in the format provided in
the Interim Final Rule. This Supplemental Interim Final Rule only
affects the certifications required by foreign governments and does not
affect the certifications that other interested parties (i.e., company
officials and legal representatives) must file. As such, all other
aspects of the Interim Final Rule remain in effect and fully apply to
all company officials and representatives.
DOC has posted on its Web site a checklist detailing the
requirements for requesting a new shipper review. As such, companies
can review the checklist to determine if they meet the requirements. In
addition, during the course of new shipper reviews, DOC conducts an
exhaustive investigation into the bona fides of the new shipper sale
and the new shipper itself, and only if we determine that the new
shipper sale was a legitimate commercial transaction and the new
shipper is a bona fide business do we calculate an individual dumping
margin for the company.
______
Questions Submitted to Eddy Hayes
Questions Submitted by Senator Mary L. Landrieu
importance of anti-dumping duties
Question. Would the American shrimp industry survive without anti-
dumping (AD) duties in place to combat unfair foreign trade practices?
Please provide an overview of why the U.S. trade remedy laws are
important to the U.S. shrimp and other industries.
You noted that the gulf shrimp and crawfish have been hit hard with
unpaid duties--43 percent of all unpaid duties since 2001 are in
seafood, primarily those two industries. Why have these critical gulf
seafood industries been hit so hard with unpaid duties?
Answer. The American shrimp industry would not survive without AD
duties on unfairly traded shrimp imports. Nearly 90 percent of the
shrimp consumed in the United States is imported. The small market
share of domestic producers makes them particularly susceptible to
unfair trade practices. In addition, the U.S. shrimp industry is a
wild-catch industry, which in our industry's view ensures a higher-
quality product than that of foreign producers' farmed shrimp. This
fact also means that processors must sell from inventory for that part
of the year when the shrimp fishery is out of season. This makes
processors very vulnerable to price undercutting in the off-season,
when they have already paid for their inventory and must compete for
customers on the basis of price.
In the early 2000s, a surge of imports at dumped prices drove the
industry to the brink of collapse. The domestic industry was forced to
follow the downward spiral in prices, depriving processors of the
ability to offer dockside prices that could sustain shrimp fishermen.
When fishermen could not receive prices for their shrimp that would
cover their costs of fuel and boat maintenance, many of them were
forced to tie up their boats rather than catch shrimp. The industry was
only able to survive because of the AD duties they obtained on shrimp
from six countries. The duties put a floor on prices, moderated import
volumes, and stabilized the market for domestic producers.
The shrimp industry is typical of many American industries that
need trade relief to remedy distortions caused by unfair trade
practices. Effective enforcement of the domestic trade remedy laws
ensures that firms and workers can compete on a level playing field on
the basis of their productivity, innovation, and efficiency, rather
than their willingness to resort to injurious dumping or subsidies. In
order for these remedies to fulfill their intended purpose, however, it
is essential that orders be enforced and that AD and countervailing
duties (CVDs) be fully collected. Otherwise, the Government is not only
deprived of revenue, but the market disciplining effects of the orders
are corroded, the integrity of the system is compromised, and
industries suffer continued injury even with orders in place.
The shrimp and crawfish industries have borne the brunt of
uncollected duties, at least according to public data on the rate of
undercollection published by Customs. Overall, orders on agricultural
and aquacultured products have been most vulnerable to duty
undercollection. One of the reasons is that such sectors of the economy
tend to be more fragmented than manufacturing industries such as steel.
Foreign producers and importers in these industries appear and
disappear and with much more frequency, making it much harder to track
which firms are legitimate producers, who the producer/exporter is in
fact on imports entering the United States (making collection of the
correct cash deposits more difficult), preventing gaming of the system
through surges in imports allegedly from an exporter with a low-cash
deposit rate which are later found to be dumped at much higher rates,
and the inability to collect moneys owed from importers (partially
attributable to the fact that exporters, through an agent, can be an
importer without any physical presence in the United States) if they
are thinly capitalized.
require cash deposits
Question. You suggest U.S. Customs and Border Protection (CBP)
eliminate the posting of bonds for new shippers and require cash
deposits instead.
Do you know if CBP can make this change administratively or does it
require a change in law? Would this have a negative impact on other
U.S. companies?
Answer. The statute gives CBP the option of allowing new shippers
to post bonds rather than cash deposits during the pendency of a new
shipper review. The privilege has become the standard practice, with
all new shippers enjoying the ability to import under bonds while a
review is pending. While it may technically be permissible for CBP to
not allow new shippers to take advantage of the bonding privilege, a
legislative solution that eliminates the privilege will be much easier
to administer with more legal certainty. Indeed, the Congress did once
suspend the bonding privilege before on a temporary basis from August
2006 to July 2009 as part of legislation, the Pension Protection Act
which passed the Congress in 2006. The privilege can just as easily be
revoked permanently with a similar legislative change.
The change would not have a negative impact on legitimate
importers, as they will be entitled to a return of any overpaid cash
deposits, with interest, if their final duty liability determined at
the end of a review is less than the cash deposit amount. The major
impact of the change would be to provide better security for Government
revenue that is owed and ensure that new shipper reviews are not abused
to bring in dumped product but evade duty liability.
Question. You speak of CBP being unable or unwilling to share (or
use) information provided by shippers for security purposes also to use
it for trade enforcement.
Do you know why this information wall exists? Has this been raised
with CBP?
Answer. CBP is prohibited by law from saving much of the shipping
and container information that it collects from importers as part of
the enhanced ``10+2'' system for security purposes for trade
enforcement purposes. The information wall was imposed as part of the
legislation that created the new ``10+2'' requirements, reportedly at
the request of the import community. We believe that CBP would like to
access this information for trade enforcement purposes, as it would be
helpful in identifying circumvention, transshipment, and other evasion
schemes. A legislative change would be required to remove the
information wall and permit CBP to use this information for trade
enforcement.
CONCLUSION OF HEARING
Senator Landrieu. Okay? All right. The subcommittee is
recessed.
[Whereupon, at 11:54 a.m., Wednesday, May 25, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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