International Trade: Issues and Effects of Implementing the
Continued Dumping and Subsidy Offset Act (26-SEP-05, GAO-05-979).
Between fiscal years 2001 and 2004, the Continued Dumping and
Subsidy Offset Act (CDSOA) provided over $1 billion funded from
import duties to U.S. companies deemed injured by unfair trade.
Some supporters state CDSOA helps U.S. companies compete in the
face of continuing unfair trade. Some opponents believe CDSOA
recipients receive a large, unjustified windfall from the U.S.
treasury. Also, 11 World Trade Organization (WTO) members lodged
a complaint over the law at the WTO. This report assesses (1) key
legal requirements guiding and affecting agency implementation of
CDSOA; (2) problems, if any, U.S. agencies have faced in
implementing CDSOA; and (3) which companies have received CDSOA
payments and their effects for recipients and non-recipients; and
describes (4) the status of WTO decisions on CDSOA.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-979
ACCNO: A38057
TITLE: International Trade: Issues and Effects of Implementing
the Continued Dumping and Subsidy Offset Act
DATE: 09/26/2005
SUBJECT: Eligibility criteria
International law
International organizations
International trade
International trade regulation
Payments
Claims processing
Eligibility determinations
Federal law
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GAO-05-979
United States Government Accountability Office
GAO Report to Congressional Requesters
September 2005
INTERNATIONAL TRADE
Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act
a
GAO-05-979
[IMG]
September 2005
INTERNATIONAL TRADE
Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act
What GAO Found
Congress enacted CDSOA to strengthen relief to injured U.S. producers. The
law's key eligibility requirements limit benefits to producers that filed
a petition for relief or that publicly supported the petition during a
government investigation to determine whether injury had occurred. This
law differs from trade remedy laws, which generally provide relief to all
producers in an industry. Another key CDSOA feature requires that Customs
and Border Protection (CBP) disburse payments within 60 days after the
beginning of a fiscal year, giving CBP limited time to process payments
and perform desired quality controls. This time frame, combined with a
dramatic growth in the program workload, presents implementation risks for
CBP.
CBP faces three key implementation problems. First, processing of company
claims and CDSOA payments is problematic because CBP's procedures are
labor intensive and do not include standardized forms or electronic
filing. Second, most companies are not accountable for the claims they
file because they do not have to support their claims and CBP does not
systematically verify the claims. Third, CBP's problems in collecting
duties that fund CDSOA have worsened. About half of the funds that should
have been available for disbursement remained uncollected in fiscal year
2004.
Most of the CDSOA payments went to a few companies with mixed effects.
About half of these payments went to five companies. Top recipients we
surveyed said that CDSOA had beneficial effects, but the degree varied. In
four of seven industries we examined, recipients reported benefits, but
some non-recipients noted CDSOA payments gave their competitors an unfair
advantage. These views are not necessarily representative of the views of
all recipients and non-recipients.
Because the United States has not brought CDSOA into compliance with its
WTO obligations, it faces additional tariffs on U.S. exports covering a
trade value of up to $134 million based on 2004 CDSOA disbursements.
Recently, Canada, the European Union, Mexico, and Japan imposed additional
duties on various U.S. exports. Four other WTO members may follow suit.
Five Companies Received about Half of All CDSOA Payments through Fiscal
Year 2004
Remaining 731 The Timken Company
companies ($203 million) ($205 million)
The Torrington Company ($135 million)
($347 million) 5% MPB Corporation ($55 million)
3% Zenith Electronics Corporation ($33 million)
Total $1,035 million
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
Key CDSOA Features Restrict Company Eligibility, Determine Share
of Disbursements, and Set Tight Time Frame for Disbursing
Payments
CBP Faces Three Key Problems Implementing CDSOA
CDSOA Payments Largely Concentrated on a Few Companies and
Industries, with Mixed Effects Reported
Retaliation Against U.S. Producers Underway for U.S. Failure to
Comply with WTO Ruling on CDSOA
Conclusions
Matters for Congressional Consideration
Recommendations for Executive Action
Agency Comments and Our Evaluation
1 3 6
9 18
28
40 44 46 46 47
Appendixes
Appendix I:
Appendix II:
Appendix III:
Objectives, Scope, and Methodology 49
Top CDSOA Recipient Companies 55
CDSOA Payments to the Top Recipient Companies 55
CDSOA Effects on Top Recipient Companies 58
CDSOA Recipient and Non-Recipient Companies in Seven
Industries 60
Views on CDSOA from Recipients and Non-Recipients in the
Bearings Industry 61
CDSOA Effects on Bearings Companies 63
Scope and Methodology 67
Views on CDSOA from Recipients in the Steel Industry 68
CDSOA Effects on Steel Companies 70
Scope and Methodology 72
Views on CDSOA from Recipients and Non-Recipients in the Candle
Industry 74
CDSOA Effects on Candle Companies 76
Scope and Methodology 79
Views on CDSOA from Pasta Company Recipients and
Non-Recipients 80
CDSOA Effects on Pasta Companies 82
Scope and Methodology 86
Views on CDSOA from Recipients in the DRAM Industry 87
Contents
CDSOA Effects on DRAM Companies
Scope and Methodology
Views on CDSOA from Recipients and Non-Recipients in Crawfish
Industry CDSOA Effects on Crawfish Processing Companies Scope and
Methodology Views on CDSOA from Recipients and Non-Recipients in Softwood
Lumber Industry CDSOA Effects on Softwood Lumber Companies Scope and
Methodology
Appendix IV: Comments from Customs and Border Protection Appendix V: GAO
Contact and Staff Acknowledgments
89 91
92 94 98
99 101 104
106
109
Tables Table 1:
Table 2:
Table 3: Table 4:
Table 5: Table 6: Table 7:
Table 8: Table 9:
CBP's CDSOA Program Staff, Responsibilities, and
Workload
Fiscal Years 2001-2004 CDSOA Distributions to Top
Recipient Companies
CDSOA Effects on Top Recipient Companies
CDSOA Effect on Companies' Ability to Compete in U.S.
Market
Fiscal Years 2001-2004 Bearings CDSOA Recipients
CDSOA Effects on Bearings Companies
CDSOA Effect on Bearings Companies' Ability to Compete
in U.S. Market
Top 10 Fiscal Years 2001-2004 Steel CDSOA Recipients
CDSOA Effects on Steel Companies
Table 10: CDSOA Effect on Steel Companies' Ability to Compete in U.S.
Market
Table 11: Fiscal Years 2001-2004 Candle CDSOA Recipients
Table 12: CDSOA Effects on the Candle Companies
Table 13: CDSOA Effect on Candle Companies' Ability to Compete in U.S.
Market
Table 14: Fiscal Years 2001-2004 CDSOA Pasta Recipients
Table 15: CDSOA Effects on Pasta Companies
Table 16: CDSOA Effect on Pasta Companies' Ability to Compete in U.S.
Market
Table 17: Fiscal Years 2001-2004 DRAM CDSOA Recipients
Table 18: CDSOA Effects on DRAM Companies
Table 19: CDSOA Effect on DRAM Companies' Ability to Compete in U.S.
Market
21
55 59
59 63 65
66 69 71
72 75 77
78 82 84
85 89 90
91
Contents
Table 20: Top 10 Fiscal Years 2001-2004 Crawfish CDSOA
Recipients 93 Table 21: CDSOA Effects on Crawfish Companies 96 Table 22:
CDSOA Effect on Crawfish Companies' Ability to Compete
in the U.S. Market 97 Table 23: Top 10 FY 2003-2004 Softwood Lumber CDSOA
Recipients 101 Table 24: CDSOA Effects on Softwood Lumber Companies 102
Table 25: CDSOA Effect on Softwood Lumber Companies' Ability to
Compete in U.S. Market 103
Figures Figure 1: Figure 2:
Figure 3:
Figure 4:
Figure 5:
Figure 6: Figure 7: Figure 8:
CBP's and Treasury's Units Involved in CDSOA Efforts 18
Potential Fiscal Year 2004 AD/CV Duties Available for
Distribution under CDSOA and Actual CDSOA
Disbursements 27
FY 2001-2004 CDSOA Payments to the Top Five
Companies and to the Remaining Companies 29
Fiscal Year 2001-2004 Distribution of CDSOA Payments to
the 39 Leading Recipient Companies 30
Top 24 Product Groups Receiving CDSOA
Disbursements, FY 2001-2004 32
Number of AD/CV Petitions Filed 1980-2004 39
Timeline of WTO-Related Events on CDSOA 44
Fiscal Year 2001-2004 CDSOA Disbursements by
Industries 61
Contents
Abbreviations
AD antidumping
CBO Congressional Budget Office
CV countervailing
CDSOA Continued Dumping and Subsidy Offset Act
CBP Customs and Border Protection
EU European Union
IG Inspector General
NCA National Candle Association
ITC International Trade Commission
USTR Office of the U.S. Trade Representative
WTO World Trade Organization
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A
United States Government Accountability Office Washington, D.C. 20548
September 26, 2005
The Honorable E. Clay Shaw, Jr.
Chairman
Subcommittee on Trade
Committee on Ways and Means
House of Representatives
The Honorable Jim Ramstad
Chairman
Subcommittee on Oversight
Committee on Ways and Means
House of Representatives
The Honorable Judy Biggert
House of Representatives
The Honorable John A Boehner
House of Representatives
The Continued Dumping and Subsidy Offset Act (CDSOA)1 of 2000 has
provided over $1 billion2 to hundreds of U.S. companies in industries
deemed to have been injured by unfair competition from dumped or
subsidized imports. Before CDSOA's enactment, these funds, which come
from duties (import taxes) imposed and collected on such imports, went to
the Department of the Treasury's (Treasury) general revenue fund. Some of
CDSOA's defenders argue that the law gives U.S. firms and their employees
a reasonable chance to compete and invest, despite facing continued unfair
trade from foreign competitors. However, since the act's enactment,
various domestic and international interests have opposed its
implementation. Some domestic opponents contend, among other things,
that CDSOA recipients receive a large, unjustified windfall from the U.S.
treasury. Also, several nations lodged a complaint over the law against
the
United States at the World Trade Organization (WTO) in 2001.
119 U.S.C S: 1675c.
2All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the short
time span and fairly low inflation rate over the period covered by our
analysis.
Nevertheless, defenders of CDSOA say that U.S. trading partners have been
unable to demonstrate they actually suffered adverse effects from the law.
The President has proposed repealing the CDSOA three times.3 However,
legislation recently introduced4 to do so faces strong bipartisan
opposition.
Given the pending legislation and disagreements over CDSOA's
implementation and effects, you asked us to assess (1) what key legal
requirements guide and have affected agency implementation of CDSOA; (2)
what problems, if any, U.S. agencies have faced in implementing CDSOA; and
(3) which U.S. companies and industries have received payments under CDSOA
and what effects these payments have had for recipient and non-recipient
companies; and to describe (4) the status of the WTO decisions on CDSOA.
To identify legal requirements guiding and problems facing U.S. agencies
in implementing CDSOA, we examined CDSOA legislation and regulations,
obtained and analyzed agency documents such as procedures and disbursement
reports, conducted field work at Customs and Border Protection's (CBP)
Revenue Division in Indianapolis, and met with officials of CBP and the
U.S. International Trade Commission (ITC) in Washington, D.C. To identify
company recipients, we obtained and analyzed CBP disbursement data for
fiscal years 2001 through 2004. To assess the effect of disbursements on
companies, we relied upon the views of the top recipients of all CDSOA
funds, and of selected leading recipient and nonrecipient companies in
seven industries via standard data collection questionnaires. A total of
24 of the 32 top recipient companies we contacted responded to our
questionnaires. In the seven industries, a total of 92 of the 151 leading
companies responded to structured questions we sent them,5 ranging from 2
to 25 respondents per industry. The views of these companies are not
necessarily representative of all recipient and nonrecipient companies. To
describe the current status of the WTO decisions, we analyzed official
U.S., foreign government, and WTO documents. We
3The President proposed the repeal of the CDSOA in three budget
submissions, for fiscal years 2004, 2005, and 2006.
4In March 2005, Congressman Ramstad introduced H.R. 1121, 109th Cong.
(2005) to repeal CDSOA.
5In the seven industries we examined, 61 of 69 recipient companies and 31
of 82 nonrecipient companies responded to our structured questions.
also met with U.S. officials. We conducted our work from September 2004
through September 2005 in accordance with generally accepted government
auditing standards. Appendix I contains a more detailed description of our
scope and methodology.
Results in Brief CDSOA has the following three key features that guide
agency implementation:
o First, in passing CDSOA, Congress aimed to strengthen the remedial
nature of U.S. trade laws, restore conditions of fair trade, and assist
domestic producers. However, the law provides criteria restricting company
eligibility for disbursements to a subset of domestic producers. Only
those companies that filed or publicly supported petitions that resulted
in an antidumping or a countervailing (AD/CV) duty order, while the
government was conducting its investigation for injury, and remain in
operation producing the product subject to the AD/CV order, are eligible
for CDSOA disbursements. As a result, a number of U.S. companies, such as
those that began production after orders covering their products came into
effect, are ineligible. This means that CDSOA operates differently from
trade remedies, such as AD/CV duties, which generally provide relief to
all producers in an industry.
o Second, the law identifies AD/CV duties collected as the source of
funds for the disbursements and provides a pro rata formula for allocating
disbursements so that those making the largest claims generally receive
the largest payments.
o Third, the law requires CBP to disburse all AD/CV duties collected in a
given fiscal year within 60 days after the first day of the following
fiscal year. CBP officials say this tight time frame means payments are
sent to companies before the agency can complete all the desired quality
controls.
CBP has faced three major problems in implementing CDSOA: (1) processing
CDSOA claims and payments, (2) verifying claims, and (3) collecting AD/CV
duties. First, processing of CDSOA claims and payments is labor intensive
and its associated workload is increasing; however, the agency lacks plans
for managing and improving its CDSOA program's processes, staffing, and
technology. Because CBP does not require companies to file claims using a
standardized method (e.g., an electronic
form), CDSOA program staff must review each claim to ensure it contains
the required information, enter the data into a "standalone" database, and
check for data entry errors. CBP uses complex procedures to manually
calculate the amounts available for distribution and allocate
disbursements among companies because its computer systems do not have the
capabilities to produce these figures. CBP's CDSOA program is facing more
than a 10-fold increase in its claim processing workload in fiscal year
2005. Second, although CBP has disbursed over $1 billion under CDSOA, CBP
generally does not require companies to provide any claims-related
supporting documentation. It has comprehensively verified the claims of
only 1 of the 770 companies receiving disbursements. Even though this
verification revealed significant problems, CBP does not plan to
systematically verify CDSOA claims. Finally, CBP only distributed about
half of the CDSOA money that should have been available for distribution
in 2004 because it failed to collect about $260 million in applicable
AD/CV duties. CBP has taken some steps to identify and address AD/CV duty
collection problems, which undermine both the effectiveness of related
trade remedies and the size of the amount available for disbursement under
CDSOA. However, because its actions to date have not fixed these problems,
CBP recently reported to Congress that it is working with other U.S.
agencies to develop legislative proposals and other solutions by the end
of 2005.
Most of the $1 billion in CDSOA disbursements in fiscal years 2001-2004
were concentrated in only a few companies and industries, with mixed
effects reported. About half of all CDSOA disbursements in terms of value
went to only 5 of the 770 recipient companies, and 80 percent of all
disbursements went to 39 companies. Similarly, two-thirds of the payments
went to three industries: bearings, candles, and steel. Top recipient
companies that responded to our questions generally indicated that the
CDSOA disbursements had beneficial effects on their companies and
industries, but the degree varied from slight to substantial. Leading
recipient and non-recipient companies we contacted in the seven industries
also reported mixed effects. In two industries-steel and
semiconductors-leading recipients we contacted reported positive effects.
In four other industries-crawfish, candles, bearings, and pasta-
recipients generally reported benefits, but some non-recipients said that
disbursements to competitors were having negative effects on them. Several
non-recipients complained that, although they would like to receive
disbursements, they were ineligible to receive them. In the final
industry, softwood lumber, both recipient and non-recipient respondents
indicated that disbursements to date have been too small to have a
discernable
effect, but non-recipient respondents expressed concern about potential
future adverse effects because disbursements might grow dramatically.
Critics have expressed concerns that CDSOA may increase the number of
AD/CV petition filings and the scope and duration of AD/CV duty orders.
However, the available evidence is inconclusive.
Some U.S. industries are facing the imposition of additional tariffs by
key U.S. trading partners as authorized by the WTO because CDSOA does not
comply with WTO agreements.6 In response to separate complaints about
CDSOA by 11 WTO members, the WTO ruled in January 2003 that CDSOA violated
U.S. WTO obligations. The rationale for the WTO's ruling was that CDSOA
was not among the allowed trade remedy responses to injurious dumping and
subsidies specifically listed in the applicable WTO agreements. The United
States pledged to comply with the adverse ruling, but it did not do so by
the December 2003 deadline. Although the President proposed CDSOA's
repeal, no change has been enacted by Congress. Three countries agreed to
give the United States more time to come into compliance; the other eight
members requested and received WTO authorization to retaliate by imposing
additional tariffs on imports from the U.S. WTO arbitrators found that
each of the eight members would be entitled to suspend concessions against
U.S. exports in an amount equal to 72 percent of the CDSOA disbursements
associated with AD/CV duties on that member's products each year. The
total suspension authorized for 2005 could be up to $134 million based on
the fiscal year 2004 CDSOA disbursements. Specifically, for the fiscal
year 2004 disbursements, the WTO arbitrators authorized the imposition of
additional duties covering a total value of trade not exceeding $0.3
million for Brazil, $11.2 million for Canada, $0.6 million for Chile,
$27.8 million for the European Union (EU), $1.4 million for India, $52.1
million for Japan, $20.0 million for Korea, and $20.9 million for Mexico.
On May 1, 2005, Canada and the EU began the imposition of additional
duties on various U.S. exports. On August 18, 2005, Mexico began imposing
additional duties on U.S. exports. On September 1, 2005, Japan began
imposing additional duties on U.S. exports as well. The remaining four
members say they might suspend concessions.
This report contains matters for congressional consideration and
recommendations to CBP. Specifically, given the results of our review, as
Congress carries out its CDSOA oversight functions and considers related
6These members were Australia, Brazil, Canada, Chile, the European Union,
India, Indonesia, Japan, Korea, Mexico, and Thailand.
legislative proposals, it should consider whether CDSOA is achieving the
goals of strengthening the remedial nature of U.S. trade laws, restoring
conditions of fair trade, and assisting domestic producers. If Congress
decides to retain and modify CDSOA, it should also consider extending
CBP's 60-day deadline for completing the disbursement of CDSOA funds. If
Congress retains the law, we also recommend that CBP take several steps to
improve the processing of claims and payments, the verification of claims,
and the collection of AD/CV duties.
We received written comments on a draft of this report from CBP (see app.
IV) indicating that it concurred with our recommendations. We also
received technical comments on this draft from CBP, the ITC, and the
Office of the U.S. Trade Representative (USTR), which we have incorporated
where appropriate.
Background The United States and many of its trading partners have long
used laws known as "trade remedies" to mitigate the adverse impact of
certain trade practices on domestic industries and workers, notably
dumping (i.e. sales at below fair market value), and foreign government
subsidies that lower producers' costs or increase their revenues. In both
situations, U.S. law provides that a duty intended to counter these
advantages be imposed on imports. Such duties are known as AD/CV duties.
The process involves the filing of a petition for relief by domestic
producer interests, or selfinitiation by the U.S. Department of Commerce
(Commerce), followed by two separate investigations: one by Commerce,
which determines if dumping or subsidies are occurring, and the other by
the ITC, which determines whether a domestic U.S. industry is materially
injured by such unfairly traded imports. If both agencies make affirmative
determinations, Commerce issues an order to CBP directing it to collect
the additional duties on imports. These are known as AD/CV duty orders.7
No later than 5 years after publication of these orders, Commerce and the
ITC conduct a "sunset review" to determine whether revoking the order
would likely lead to the continuation or recurrence of dumping and/or
subsidization and material injury.
Congress enacted CDSOA on October 28, 2000, as part of the Agriculture,
Rural Development, Food and Drug Administration and Related Agencies
7For further background see Vivian Jones, Trade Remedies: A Primer, a
publication of the Congressional Research Service, Order Code RL 32371.
Appropriations Act to strengthen the remedial nature of U.S. trade laws,
restore conditions of fair trade, and assist domestic producers. Congress
noted in its accompanying findings that "continued dumping and
subsidization . . . after the issuance of antidumping orders or findings
or countervailing duty orders can frustrate the remedial purpose"8 of U.S.
trade laws, potentially causing domestic producers to be reluctant to
reinvest or rehire and damaging their ability to maintain pension and
health care benefits. Consequently, Congress enacted the CDSOA, reasoning
that "U.S. trade laws should be strengthened to see that the remedial
purpose of those laws is achieved."9 CDSOA instructs Customs to distribute
AD/CV duties directly to affected domestic producers. Previously, CBP
transferred such duties to the Treasury for general government use.
Two agencies are involved in CDSOA implementation. The law gives each
agency-ITC and CBP-specific responsibilities for implementing CDSOA. The
ITC is charged with developing a list of producers who are potentially
eligible to receive CDSOA distributions and providing the names of these
producers to CBP.10 CBP has overall responsibility for annually
distributing duties collected to eligible affected domestic producers.
CDSOA also makes CBP responsible for several related actions.
Specifically, it charges CBP with establishing procedures for the
distribution of payments and requires that CBP publish in the Federal
Register a notice of intent to distribute payments and, based on
information provided by the ITC, a list of affected domestic producers
potentially eligible for the distribution.
Both agencies had some start-up challenges and have made improvements in
response to reports by their Inspectors General (IG). In September 2004,
ITC's IG found that the ITC had effectively implemented its part of the
act but made several suggestions for enhancing the agency's CDSOA
efforts.11 For example, it suggested that the ITC better document its
policies and procedures for identifying and reporting eligible producers
to CBP and improve its communication with companies regarding eligibility.
In response, the ITC implemented these suggestions to, among other things,
8Pub. L. No. 106-387, Title X, sec. 1002, 114 Stat. 1549, 1549A-72 (2000).
9S: 1002, 114 Stat. 1549A-72.
10The names are to be transmitted to Customs within 60 days of the
issuance of an AD/CV duty order. See 19 U.S.C. S: 1675c.
11U.S. ITC, Implementation of the Continued Dumping and Subsidy Offset Act
of 2000, OIG-IR-01-04, Washington, D.C.: September 30, 2004.
formalize and strengthen its procedures for identifying eligible
producers, developing a list of potentially eligible producers, and
transmitting the list to CBP. For example, the ITC updated its desk
procedures, clarified certain responsibilities to support the staff
responsible for maintaining the ITC list, and added additional guidance on
CDSOA requirements to its website.
In June 2003, the Treasury's IG issued a report finding several major
deficiencies in CBP's implementation of CDSOA and made several
recommendations.12 The Treasury's IG found that CBP was not in compliance
with the law because it did not properly establish special accounts for
depositing and disbursing CDSOA payments, did not pay claimants within the
required time frame, and did not institute standard operating procedures
or adequate controls for managing the program. Specifically, Treasury's IG
noted that the absence of proper accounts, accurate financial data, and
adequate internal controls had resulted in "overpayments of at least $25
million, and likely more." Treasury's IG also emphasized that several
other issues warranted attention, including no routine verification of
claims and significant amounts of uncollected AD/CV duties. In response,
CBP consolidated the processing of claims and payments by establishing a
CDSOA team in Indianapolis, Indiana; instituted procedures for processing
claims and disbursements, and for conducting claim verification audits;
and started proceedings to secure reimbursements from the companies that
had received overpayments. Despite these efforts, CBP still faces issues
raised by the Treasury IG, such as the issue of uncollected duties.
The United States has an obligation that its trade remedy actions conform
to its legal commitments as part of the WTO, an international body based
in Geneva, Switzerland. The WTO agreements set forth the agreed-upon rules
for international trade. The WTO provides a mechanism for settling
disputes between countries, and serves as a forum for conducting trade
negotiations among its 148 member nations and separate customs
territories. WTO trade remedy rules involve both procedural and
substantive requirements, and a number of U.S. trade remedies have been
12Department of the Treasury, Financial Management: Bureau of Customs and
Border Protection Needs to Improve Compliance with the Continued Dumping
and Subsidy Offset Act of 2000 (CDSOA), OIG-03-085, Washington, D.C.: June
17, 2003.
challenged at the WTO.13 WTO members that believe other members are not
complying with their WTO obligations can file a dispute settlement case.
The resulting decisions by a dispute settlement panel, once adopted, are
binding on members who are parties to the dispute, and WTO rules create an
expectation of compliance. Under WTO rules and U.S. law, however,
compliance is not automatic. WTO dispute settlement panels cannot order
the United States to change its law. Alternatively, the United States may
choose not to comply with WTO agreements and instead may choose to offer
injured members mutually-agreed upon trade compensation or face
retaliatory suspension of trade concessions by the complainant members. A
new round of global trade talks aimed at liberalizing trade barriers is
now underway and includes discussions of possible clarifications and
improvements to the WTO rules on antidumping and on subsidies and
countervailing measures. U.S. trade with members of the WTO totaled $2.1
trillion in 2004, giving the United States a considerable stake in these
WTO negotiations, which aim to liberalize trade in agriculture, industrial
goods, and services.14
Key CDSOA Features Restrict Company Eligibility, Determine Share of
Disbursements, and Set Tight Time Frame for Disbursing Payments
Three key features of CDSOA guide and affect agency implementation. These
features (1) determine company eligibility to receive CDSOA disbursements,
(2) shape the allocation of CDSOA disbursements among companies based on
their claimed expenditures, and (3) specify milestones that agencies must
achieve when implementing the act, including a tight time frame for
disbursing funds.
13For background see GAO, World Trade Organization: Standard of Review and
Impact of Trade Remedy Rulings, GAO-03-824 (Washington, D.C.: July 30,
2003), and World Trade Organization: Issues in Dispute Settlement,
GAO/NSIAD-00-210 (Washington, D.C.: Aug. 9, 2000). The relevant WTO
agreements for trade remedies are the Antidumping Agreement, the Agreement
on Subsidies and Countervailing Measures, and parts of the General
Agreement on Tariffs and Trade 1994.
14For background see GAO, World Trade Organization: Global Trade Talks
Back on Track, but Considerable Work Needed to Fulfill Ambitious
Objectives, GAO-05-538 (Washington, D.C.: May 31, 2005). This is the
latest in a series of GAO reports on these negotiations.
CDSOA's Criteria for Company Eligibility Restricts Benefits
CDSOA establishes criteria that restrict eligibility for CDSOA
disbursements. As guidance for agency implementation, these criteria raise
issues because (1) two-thirds of the orders in effect predate CDSOA, (2)
ITC investigative procedures were not designed to, and do not result in,
collecting information on support of petitions from all industry
participants, and (3) other factors further limit company eligibility.
Some companies deemed ineligible regard these criteria as unfair, and
several have initiated legal action to secure eligibility.
CDSOA Restricts Eligibility The law restricts eligibility to "affected
domestic producers"-namely, any "manufacturer, producer, farmer, rancher,
or worker representative (including associations of these persons)" that
(1) petitioned15 the ITC or supported a petition for relief to the ITC
that resulted in an AD/CV duty order and (2) remains in operation. The law
also requires the ITC to prepare a list of potentially eligible producers
for CBP, which publishes it in advance of each annual distribution. The
law only applies to orders in effect on or after January 1, 1999. CDSOA
further specifies that support must be communicated to the ITC through a
letter from the company or a response to an ITC questionnaire. Successor
companies or members of an association may also be eligible for CDSOA
distributions.16 Conversely, CDSOA deems as ineligible those companies
that (1) opposed a petition, (2) ceased production of a product covered by
an order, or (3) were acquired by companies that opposed a petition.
15A petitioner is a manufacturer, producer, or wholesaler in the United
States of a domestic like product; a certified union or recognized union
or group of workers which is representative of an industry engaged in the
manufacture, production, or wholesale in the United States of a domestic
like product; a trade or business association a majority of whose members
manufacture, produce, or wholesale a domestic like product in the United
States; an association, a majority of whose members is composed of the
aforementioned parties with respect to a domestic like product; and in any
investigation involving an industry engaged in producing a processed
agricultural product, a coalition or trade association which is
representative of either: (i) processors, or (ii) processors and
producers, or (iii) processors and growers. See 19 U.S.C. S:S: 1671a,
1673a.
16A successor company may be eligible if it has succeeded to the
operations of a predecessor company that appeared on the ITC list of
potentially eligible companies and files a certification to claim a
distribution behalf of the predecessor company. If a member company of an
association appearing on the ITC list does not itself appear on the ITC
list, the member company may file a claim, as long as the member was a
member at the time of the petition and also meets the other requirements
of the statute. However, according to the law, companies that had
supported petitions but were acquired by a company that did not support a
petition are not eligible to receive distributions. See 19 U.S.C. S: 1675c
and 19 C.F.R. S: 159.61.
Most Orders Predate CDSOA These eligibility criteria create special
problems when older AD/CV orders are involved. Our analysis of ITC data
reveals that roughly two-thirds of (234 out of 351) AD/CV duty orders in
effect as of April 15, 2005, precede CDSOA. The application of CDSOA to
orders that predate the law's enactment raises concern. This is because,
for AD/CV relief petitions that were investigated before CDSOA was
enacted, producers had no way of knowing that their lack of expression of
support for the petition would later adversely affect their ability to
receive CDSOA disbursements. Moreover, firms that began operations or
entered the U.S. market after the ITC's original investigation are not
eligible to receive CDSOA distributions. For petitions that have been
investigated since CDSOA was enacted, producers would likely be aware of
this linkage. The ITC and CBP told us that in a recent case involving
shrimp, industry associations reached out broadly to ensure producers were
aware of the need to communicate support to the ITC. Similarly, officials
from a law firm that works with importers told us they were aware of such
industry association efforts in cases involving live swine. However, in
examining seven industries, we spoke to several ineligible companies that
were frustrated because they had not expressed support during, or in some
cases had not even known about, AD/CV investigations conducted before
CDSOA's adoption.
ITC Sometimes Does Not Collect The ITC relies on company data that is
sometimes incomplete, and this Data from All Industry further limits
eligibility. CDSOA's criteria link companies' eligibility to a
Participants
process the ITC has long followed in investigating AD/CV petitions by U.S.
domestic industry interests for relief from unfair imports. However, the
ITC's investigative process does not result in collecting information from
all industry participants, because it is intended for purposes other than
CDSOA. The ITC's primary role in AD/CV investigations is to define the
scope of the industry that is affected by competition from imported goods
and to determine whether the industry has suffered or been threatened with
material injury as a result of dumped or subsidized imports. The ITC
collects information from U.S. producers, primarily by surveying them. ITC
officials told us that they generally strive to cover 100 percent of
industry production in their surveys and usually receive responses from
producers accounting for a substantial share of production. In situations
with a relatively small number of producers, ITC officials said they often
succeed in getting coverage of 90 percent of the domestic industry.
However, in certain circumstances, such as with agricultural products,
which have a large number of small producers, ITC surveys a sample of U.S.
producers
instead of the entire industry.17 In these situations, it is not uncommon
for the share of production reflected in the ITC's questionnaire responses
to account for 10 percent or less of production.
Other Factors May Further Limit The following four factors additionally
define the list of eligible producers:
List of Eligible Producers ITC
Provides CBP o The questionnaires that the ITC sends to domestic
producers during its investigations have only asked respondents to
indicate their position on the petition since 1985. For cases prior to
1985, only petitioners and producers who indicated support of the petition
by letter in the ITC's public reports or documents have been considered
"affected domestic producers."
o The ITC considers the most recent answer a company provides as the one
that determines eligibility. In its investigations, the ITC sends out both
preliminary and final surveys in which producers are asked about support
for petitions. Presently, producers have the option of checking one of
three boxes: (1) support, (2) take no position, and (3) oppose. According
to ITC officials, because the statute requires support, only those firms
that check the "support" box are considered eligible. Moreover, ITC's
practice has been to look to the most recent clear expression of a
company's position on the petition to determine its CDSOA eligibility. For
example, if a company's response was "support" on the preliminary survey
but "take no position" on the final survey, the ITC interprets "take no
position" as non-support, and considers the company ineligible for CDSOA
disbursements.
o The ITC limits its list of potentially eligible producers to those who
indicate their support can be made public. The ITC is required by statute
to keep company information, including positions on petitions,
confidential, unless the company waives its confidentiality rights.18
CDSOA requires CBP to publish the list of potentially eligible producers;
as a result, the list the ITC provides CBP only includes companies who
have affirmatively indicated willingness (in the original investigation or
after) to have their support be made public.
17In situations where the ITC has good information about the universe of
producers, the agency takes a stratified sample by dividing the universe
of companies into different groups by size. It then draws a random sample
from each group. However, in situations where the ITC has no information
about the size of the industry, it simply takes a random sample.
18See 19 U.S.C. S: 1677f.
o Because of CDSOA's interpretation of the phrase "support of the
petition," the ITC only considers evidence of support during its initial
investigation to satisfy CDSOA requirements. Once an investigation is
over, a producer that has not communicated its support to the ITC cannot
later become eligible for CDSOA disbursements, even if it supports the
continuation of an existing order at the time of the 5-year "sunset
review."
Several Companies Have Several companies have brought legal action
challenging agency decisions Challenged CDSOA's Eligibility that rendered
them ineligible to receive disbursements, but none of these Restrictions
challenges have been successful. The following examples illustrate
challenges to agency decisions:
o A case was brought by candle companies to compel the payment of CDSOA
distributions to them.19 The companies were not on the ITC's list of
potentially eligible producers and did not file timely certifications with
CBP. The companies asserted that the ITC had violated CDSOA by failing to
include them on the list of affected domestic producers and that this
omission excused their failure to timely file their certifications.20 A
federal appellate court held that the ITC properly excluded the two
producers from the list of affected domestic producers because the
producers provided support for the AD petition in a response to a
confidential questionnaire and failed to waive confidentiality.21 The
court also held that when the ITC properly excludes a producer from the
list, the producer still must file a timely certification with CBP to
obtain retroactive consideration for CDSOA distributions.22 As a result,
the court found that the firms were not entitled to CDSOA disbursements
for the years in question.
19Cathedral Candle Co. v. United States Int'l Trade Comm'n, 400 F.3d 1352
(Fed. Cir. 2005).
20Id. at 1360.
21Id. at 1361, 1367.
22Id. at 1372.
o Another set of candle companies, which had opposed the relevant
petition and subsequently acquired companies in support of the same
petition, brought a case seeking to obtain CDSOA disbursements on behalf
of the acquired companies.23 An appellate court held that CDSOA bars
claims made on behalf of otherwise affected domestic producers who were
acquired by a company that opposed the investigation or were acquired by a
business related to a company that opposed the investigation.24 The court
also found that the acquired companies are also barred from claiming
disbursements for themselves.25
o A seafood producer brought a case seeking an evidentiary hearing and/or
inclusion of affidavits in the agency record where the producer was
excluded from the list of affected domestic producers because the ITC had
no record of the producer's support for the petition. 26 The producer
claimed that it had mailed a questionnaire response indicating support to
the ITC on time and wanted to have its affidavits in support of the
contention included in the agency's records.27 The U.S. Court of
International Trade held that because the producer failed to allege the
proper reasons for amending the agency record, affidavits concerning the
timely mailing of a questionnaire could not be added to the agency record
and considered when reviewing the producer's eligibility for a CDSOA
distribution.28
Two other legal challenges are still pending and involve claims that CDSOA
violates the First Amendment of the U.S. Constitution ("free speech") by
conditioning the distribution of benefits on a company's expression of
support for an AD/CV relief petition.29
23Candle Corp. of America v. United States Int'l Trade Comm'n, 374 F.3d
1087 (Fed. Cir. 2004).
24Id. at 1094.
25Id. at 1094.
26Bergeron's Seafood v. United States Int'l Trade Comm'n, 306 F.Supp.2d
1353 (CIT 2004).
27Id. at 1357.
28Id. at 1359.
29See PS Chez Sidney, L.L.C. v. United States Int'l Trade Comm'n, Court
No. 02-00635 and Bergeron's Seafood v. United States Int'l Trade Comm'n,
Court No. 03-00448.
Monies Collected on All Active Orders Fund Annual CDSOA Disbursements;
Company Claims Determine Share of Disbursements
AD/CV Duties Fund CDSOA Disbursements
The second key CDSOA feature provides for CDSOA funding and a pro rata
mechanism for allocating funds among the companies that claim
disbursements based on a broad definition of qualifying expenditures.
Partly as a result of the incentive this creates, company claims
approached $2 trillion in fiscal year 2004.
Each fiscal year's duty assessments on all AD/CV duty orders that were in
effect for that year fund annual CDSOA disbursements. Each fiscal year,
CBP creates a special account that acts as an umbrella over multiple
holding accounts used to track collections by specific active AD/CV duty
orders and deposits collected duties under an order into its respective
account. Within these accounts, CBP indicates that the dollar amounts
attributable to each specific case are clearly identifiable. For example,
a total of 351 AD/CV duty orders were in effect as of April 15, 2005,
covering 124 products from 50 countries. In other words, as of that date,
CBP intended to allocate CDSOA disbursements not from "one CDSOA pie" but
from "351 CDSOA pies." Each of these accounts constitutes a separate fund
from which CBP makes annual distributions. After the fiscal year closes,
CBP distributes the duties collected and interest earned under a given
order that year to the affected eligible producers filing timely claims
related to the specific order.
The agency cannot distribute funds collected from one order to producers
that were petitioners under other orders. For example, funds collected
from the order on pineapples from Thailand cannot be used to pay producers
covered by the frozen fish from Vietnam order. As a result, in fiscal year
2004, the one U.S. producer of pineapples received all the money collected
under that order, but CBP did not make CDSOA disbursements to U.S.
producers of frozen fish because the agency had not collected any funds
under that order.
CDSOA Has Broad Definition of Qualifying Expenditures
CDSOA Disbursements Are Proportional to Company Claims
CDSOA's definition of expenses companies can claim is very broad. The law
defines ten categories of qualifying expenditures, such as health benefits
and working capital expenses, incurred during the production of the
product under the order.30 According to CBP officials we spoke with, this
broad definition means companies can include a wide range of expenses in
their certifications. Moreover, CDSOA allows companies to claim any
expenses incurred since an order was issued, a period that may span as far
back as the early 1970s for some orders.31 Indeed, 68 of the 351 orders in
effect have been in place for 15 years or more. Companies can also make
claims under multiple AD/CV orders. For example, in fiscal year 2004, one
of the top recipient companies filed claims for different products under
89 AD/CV orders. Finally, the law allows companies to submit claims for
qualified expenditures that have not been reimbursed in previous fiscal
years. However, CBP implementing regulations require that producers relate
claimed expenditures to the production of the product that is covered by
the scope of the order or finding.
CDSOA uses a pro rata formula to allocate disbursements under a given
order among the eligible companies filing claims, with percentages
determined according to the claims of qualifying expenditures submitted.
If the amount collected under an order is insufficient for all claims to
be paid in full, as is often the case, each company receives its pro rata
share of the amount collected. This pro rata formula creates an incentive
for producers to claim as many expenses as possible relative to other
producers so that their share of the funds available under an order is as
large as possible. CBP officials cited the increase in claims-from $1.2
trillion in fiscal year 2001 to just under $2 trillion in fiscal year
2004-as an indication of this incentive.
30Namely, these expenditures might include expenses for manufacturing
facilities; equipment; research and development; personnel training;
acquisition of technology; health care benefits paid by the employer;
pension benefits paid by the employer; environmental equipment, training,
or technology; acquisition of raw materials and other inputs; and working
capital or other funds needed to maintain production.
31Specifically, producers can claim expenses incurred after the issuance,
and prior to the termination, of an order.
CDSOA Sets a Tight Time Frame for Disbursing Payments
The third key feature of CDSOA is that it sets a strict deadline by which
CBP must distribute payments for a fiscal year. Most disbursement-related
activities cannot begin until the fiscal year ends. As a result, CBP has a
significant workload in October and November and cannot perform all the
desired quality controls prior to disbursement.
CDSOA gives CBP a flexible time frame for processing claims and the CBP
has used its discretion to give itself more time. Specifically, the law
directs CBP to publish a Federal Register notice of its intent to
distribute payments, and the list of affected domestic producers
potentially eligible to receive payments under each order, at least 30
days before distributions are made. However, CBP has scheduled the
publication, which is the first step in processing claims, at least 90
days before the end of the fiscal year for which distributions are being
made. For the fiscal year 2004 disbursements, CBP actually published the
notice on June 2, 2004-about 120 days before the end of the fiscal year.
CBP requires producer claims/certifications to be submitted within 60 days
after this notice is published. The fiscal year 2004 deadline for
submitting claims was August 2, 2004. This gave CBP the months of August
and September to examine certifications, seek additional information from
the producers, send acceptance or rejection letters to producers, and
finalize a list of recipients.
The law is not flexible in the time frame allowed for processing
disbursements for a given fiscal year, specifying that payments must be
made within 60 days after the first day of the following fiscal year.
Because of the need to calculate funds available based on a completed
fiscal year, CBP cannot commence these calculations until the following
fiscal year. This tight time frame means that during October and November,
CBP must perform the bulk of the tasks associated with calculating the
funds available for disbursement under each order and the funds that will
be distributed to each recipient company under an order. In discussions
with us, CBP officials said CDSOA's 60-day time frame for disbursing
payments was tight, posing the biggest risk associated with running the
program. For instance, in fiscal year 2002, the program missed this
deadline by about 2 weeks and, in the process, overpaid some producers.
Efforts to collect these overpayments have yielded some results but are
still continuing. An extension of 30 days in the disbursement deadline
would give CBP additional time to undertake desired quality control
measures before sending the instructions to Treasury and issuing payments.
The present schedule does not allow sufficient time for quality control,
forcing CBP to ask companies for repayment if errors are subsequently
detected.
CBP Faces Three Key Problems Implementing CDSOA
CBP faces three key problems in implementing CDSOA. First, despite some
recent improvements, CBP's processing of CDSOA claims and disbursements is
labor intensive, and the agency is facing a dramatic increase in its 2005
workload. Second, the agency does not systematically verify claims and
thus cannot be sure it appropriately distributes disbursements. Third, CBP
disbursed only about half the funds that should have been available in
fiscal year 2004 because of ongoing problems collecting AD/CV duties.
Figure 1 depicts how the various units of CBP and Treasury interact when
processing claims, verifying claims, and making payments. Following the
consolidation of CBP's CDSOA program within the Revenue Division at
Indianapolis in 2004, the division is now fully responsible for processing
claims and disbursements. The division issues payment instructions for
Treasury's Financial Management Service, which actually issues CDSOA
disbursement checks to U.S. companies. CBP's Regulatory Audit Division may
selectively perform claims verifications upon request of the CDSOA
program.
Figure 1: CBP's and Treasury's Units Involved in CDSOA Efforts
Actual payments/ disbursements
Department of the Treasury's Financial Management Service
Source: GAO depiction based on CBP information.
In addition to these offices within CBP, the Office of Regulations and
Rulings addresses legal matters, the Office of the Chief Counsel addresses
litigation, the Office of Information Technology provides necessary
reports, and the Office of Field Operations is responsible for
liquidations.
CBP's CDSOA Program Faces Problems Processing Claims and Payments
Processing of Claims Is Labor Intensive
The CDSOA program's efforts to process claims and disbursements are
cumbersome and likely to become more challenging with impending workload
increases. The processing of claims and disbursements requires intensive
manual efforts, in part because CBP does not require companies to file
claims using a standardized form. Also, existing computer systems do not
have the capabilities to produce the data needed to calculate amounts
available for distribution. CBP's guidance for filing claims is not
sufficiently specific and causes confusion, requiring extra effort by CBP
staff to answer questions from companies. CBP officials are concerned
that, despite recent staffing increases, the number and experience level
of staff may not be sufficient to handle the dramatic workload increase in
fiscal year 2005. Despite being aware of these problems, CBP's CDSOA
program lacks plans for improving its processes, staff, and technology.
CDSOA claims processing is cumbersome and labor intensive. Through fiscal
year 2004, CBP only received updates to the list of potentially eligible
companies from the ITC in hard copy. As a result, CBP had to manually
update its electronic database of potentially eligible producers. During
the course of our review, ITC officials took the initiative to provide the
list to CBP in hard copy and in electronic format to facilitate CBP's
processing of this information. CBP officials noted that getting the file
electronically was very helpful. However, because CBP still needed to
perform considerable data re-entry to get the list into the format they
preferred, ITC and CBP officials told us they are exploring whether to
formalize and improve this file exchange in the future. Because CBP does
not require companies to submit claims electronically using a standardized
form, program staff scan all the documents received for electronic storage
and subsequently archive all paper copies of the documents. CDSOA program
staff must review each claim to ensure it contains the required
information, contact claimants to clarify basic information, and send out
letters concerning rejected claims.32 Staff must manually enter
information from accepted claims into a
32Claims may be rejected if a claimant is not an eligible producer or
fails to meet certain other CDSOA criteria.
Gaps in Computer Systems Force Reliance on Manual Calculations of
Disbursements
Guidance to Companies Generates Questions to CBP and Uncertainty by
Companies
CDSOA Program Has Increased Staff but Faces Dramatic Growth in Workload
"standalone" database, and perform repeated checks to ensure that they
followed the prescribed procedures and that their data entries are valid
and accurate.
The payments processing component is also labor intensive because existing
computer systems do not have the capabilities to provide precise
information on the amounts available for disbursement under each order or
the amounts to be disbursed to each claimant. CBP's CDSOA program
continues to face a risk in this area because its staff must manually
perform the calculations and any inaccurate calculations can result in
over or underpayments. Multiple data elements are required to determine
the amounts available for disbursement, and these come from different
computer systems. In some instances, the computer systems produce
conflicting information, and program staff must manually reconcile these
differences. While internal control procedures are in place to ensure the
validity and accuracy of the calculations, the process is nonetheless
subject to human error. Program officials told us that the new computer
system being implemented agencywide will not have the financial component
needed to perform this task for several more years.
Claims processing is further complicated because the guidance about how to
file CDSOA claims is very general and open to interpretation. As a result,
CDSOA program staff field many phone calls from claimants regarding their
claims, including clarification questions on how to file claims.
Respondents to GAO's questions generally praised CBP for its handling of
these calls. However, a recent CBP verification of a company's claims
raised various claims-related questions. For example, CDSOA provides that
companies can receive disbursements for qualifying expenditures not
previously reimbursed, but officials involved in the verification said it
was not clear whether companies must subtract all past disbursements when
making claims under multiple orders, or only those disbursements related
to a particular order. Also, one CDSOA recipient company reported that,
because of uncertainty about whether cumulative expenses could be claimed,
it claimed only 1 year's expenses. As a result, it received a much smaller
share of disbursements than it otherwise could have.
Although the number of staff assigned to process claims and payments has
grown, program officials noted that this increase may not be sufficient to
handle the dramatic workload increase expected in fiscal year 2005.
Specifically, the number of eligible claimants has grown by 500 percent
between fiscal years 2004 and 2005, and the number of claims might
increase more than 10-fold, from 1,960 to over 29,000. This growth is
largely due to AD duty orders on certain warm-water shrimp or prawns
recently coming into effect. Table 1 shows the number of program staff for
fiscal years 2003-2005 and the program's responsibilities and workload
during those years.
Table 1: CBP's CDSOA Program Staff, Responsibilities, and Workload
Fiscal Number
year of staff Responsibilities Workload
2003 4Process payments o Eligible claimants-1,000 forwarded by CBP's
Office o Claimants that filed-545 of Regulations and Rulings o Claims
filed-2,196
o Claims per staff-549 Prepare for consolidation of the program
2004 7Process CDSOA claims and o Eligible claimants-1,100 payments o
Claimants that filed-493
o Claims filed-1,960
o Claims per staff-280
2005 9Process CDSOA claims and o Eligible claimants-5,400 payments o
Claimants that filed-unknown
o Claims to be filed (est.)-29,300
o Claims per staff (est.) 3,255
Source: GAO analysis of CBP data.
Program officials are concerned about fiscal year 2005 processing
activities because only about half of the staff has processed claims and
payments before. The rest are new and not experienced with the procedures.
Moreover, if the workload becomes unmanageable, CBP may be unable to
quickly bring new staff on board and up to speed. This is because new
employees must undergo a 4 to 6 month background check and initial
training of entry-level college graduates takes 3 to 4 months. New staff
attains full proficiency only after they complete a full annual cycle of
processing claims and payments.
Despite these challenges, the CDSOA program does not have formal plans for
improving its processes, technology, and staff. In our efforts to help
improve the federal government's performance, we regularly emphasize that
processes, staff, and technology are vital to agency performance and that
planning is central to managing and improving these three
organizational components.33 For instance, our work on human capital
issues throughout the government has revealed the importance of having a
human capital plan in place to address problems, such as those faced by
the CDSOA program, and ensure that staff with the right skills and
abilities is available continuously and can meet changing organizational
needs.34
CBP Has Not Verified Claims Systematically
Claims verification poses another implementation problem for CBP.
Companies are not held accountable for the claims they file because CBP
does not require them to provide any supporting documentation for their
claims and does not systematically verify company claims. The only
comprehensive verification conducted to date found significant issues.
Although CBP has put in place procedures for verifying CDSOA claims, it
does not plan to implement them on a systematic or routine basis.
Program officials told us they basically accept the information in company
claims and rely on complaints from competitors to initiate verifications.
In reviewing certain claims and CBP's procedures, we found that claims are
generally not questioned even though top CDSOA recipient companies have
claimed over $2 trillion since fiscal year 2001 (see app.II). CBP normally
does not take steps to determine that companies are still in business and
producing the item covered by the order under which they are making a
claim. Neither CDSOA nor CBP require companies to explain their claims,
provide supporting documentation about their claims, or follow a format
when listing their qualifying expenditures. For example, in reviewing the
2004 claims filed by top CDSOA recipients, we found that most companies
did not provide any details about their claimed expenditures. Indeed, one
company listed all of its claimed expenditures under the category of raw
materials. CDSOA and CBP do not require that companies have their claims
reviewed by a certified public accountant or a party outside of the
company.
33See Human Capital: Managing Human Capital in the 21st Century,
GAO/T-GGD-00-77 (Washington, D.C.: Mar. 9, 2000).
34See Human Capital: Major Human Capital Challenges at SEC and Key Trade
Agencies, GAO-02-662T (Washington, D.C.: Apr. 23, 2002); A Model of
Strategic Human Capital Management, GAO-02-373SP, (Washington, D.C.: March
2002); Human Capital: Key Principles for Effective Strategic Workforce
Planning, GAO-04-39 (Washington, D.C.: Dec. 2003); and Human Capital:
Observations on Final DHS Human Capital Regulations, GAO-05-391T
(Washington, D.C.: Mar. 2, 2005).
CBP has only verified the claims of a handful of claimants. One of these
verifications was comprehensive and revealed significant problems. In the
first 3 years of the CDSOA program, staff in CBP's Office of Regulations
and Rulings conducted four, 1-day site visit verifications that revealed
no substantive issues. Subsequently, CBP's Regulatory Audit Division
decided to conduct a fifth verification using the detailed verification
procedures the division developed in mid-2004. This verification, which
took about a year and was completed in June 2005, revealed significant
problems, including substantial overstatement of claimed expenses.
According to CBP, the primary cause of the CDSOA expenditure overstatement
was the company's failure to maintain an internal control system to
prepare and support its CDSOA claims. This prevented the company from
identifying the non-qualifying products and costs associated with them. As
a result, the company included expenditures incurred in the production of
products not covered by the scope of the AD/CV orders. The company
acknowledged that it had wrongly claimed expenditures and subsequently
took corrective action.
CBP does not plan to change its present reactive approach or to
systematically target more companies for verifications. Although the law
does not require verification of claims, CBP has recognized over time the
need for them but has always stopped short of implementing a systematic
verification plan. In the third year of CDSOA implementation, a CBP
working group under the direction of the Deputy Commissioner's office
developed a statement of work to, among other things, verify claims
according to a risk-based plan. However, CBP does not have any evidence
that this plan was ever developed or implemented.
Despite having new claim verification procedures in place and having
performed an in-depth verification as a prototype review to determine the
extent of work involved in the verification, Regulatory Audit Division
officials told us they do not plan to verify claims systematically or on a
routine basis. Instead, CBP will continue to rely on complaints from
competitors to select companies for verification. According to CBP
officials, this approach is logical because the pro rata formula for
allocating disbursements among firms creates an incentive for other
companies to police their competitors. Although CBP has an agencywide
risk-based plan for targeting companies for audits, this plan does not
target the CDSOA program's recipients because the agency does not consider
the program a high risk to revenue or a high priority for policy reasons.
CBP's current position is at odds with its own Inspector General's (IG)
position and our work on financial management, which highlights the
importance of verifying claims. In its audit of the CDSOA program,
Treasury's IG emphasized the need for more robust claim verification. In
the report, the IG questioned why CBP was not reviewing CDSOA claims on an
annual basis, and particularly the expenditures claimed. The IG went on to
note that certifications are legally subject to verification and that
these certifications would serve as a deterrent against the submission of
deceptive claims. Moreover, it emphasized that untimely verifications
could result in the loss of revenue for other deserving companies if, in
fact, deception was later discovered. Our overall work on claims and
disbursements throughout the government shows that the systematic
verification of claims before they are processed (or after they are paid)
is key to ensuring the validity of transactions and to avoid disbursement
problems such as improper payments.35 This work also reveals the
importance of internal controls, such as verification, to ensure that only
valid transactions are initiated in accordance with management decisions
and directives.
CBP's Problems in Collecting AD/CV Duties Worsen
Collecting AD/CV duties has been another problem for CBP, compromising the
effectiveness of AD/CV trade remedies generally and limiting funding
available for distribution under CDSOA. CBP reported that the problem has
grown dramatically in the last couple of years. For example, it
distributed about half of the money that should have been available under
CDSOA in fiscal year 2004. CBP's efforts to date to address the causes of
its collections problems have not been successful, leading CBP to pledge
further steps in a July 2005 report to Congress.
Customs collections problems have been evident since mid-2003 and have two
distinct components. Specifically, the 2003 report on CDSOA by Treasury's
IG highlighted CBP's collections problems, raising particular concerns
about the following two AD/CV collection issues:
35See, for example, GAO's Policy and Procedures Manual for Guidance of
Federal Agencies, title 7-Fiscal Guidance, ch. 6, Disbursements, pp.
7.6.1-7.6.16, (Washington, D.C.: May 18, 1993); Streamlining the Payment
Process While Maintaining Effective Internal Control, GAO/AIMD-21.3.2
(Washington, D.C.: May 2000); Internal Control Management and Evaluation
Tool, GAO-01-1008G (Washington, D.C.: August 2001) p.41; and Strategies to
Manage Improper Payments, Learning from Public and Private Sector
Organizations, GAO-02-69G (Washington, D.C.: October 2001).
o Unliquidated entries make the eventual collection of duties owed less
certain. Liquidation is the final determination of duties owed on an
import entry. Liquidation of import entries subject to AD/CV duties only
occurs after Commerce issues a final order, determines final dumping
margins or final net countervailable subsidies (i.e. duty), and issues
liquidation instructions to CBP. Upon receipt of liquidation instructions,
CBP calculates and seeks to collect the actual duties owed. In some cases,
such as softwood lumber, liquidation is being suspended due to ongoing
litigation. While neither Commerce nor CBP can hasten collection of duties
tied up in litigation, Treasury's IG report found that, in some cases, CBP
was not collecting duties because Commerce had failed to issue proper
liquidation instructions to CBP. In other cases, the report said CBP had
overlooked Commerce liquidation instructions. The report said clearing up
the liquidation backlog should be given a high priority given the
substantial dollars involved-about $2 billion in 2003. Clearing the
backlog is also urgent because discrepancies between unliquidated duties
and final duties often means that CBP must attempt to collect additional
sums from producers that did not expect to pay more, or that went out of
business.36
o Open (unpaid or uncollected) duty bills are liquidated entries for
which final bills have been issued but not paid. The Treasury's IG report
expressed concern that CBP had not collected $97 million in duties owed
and said that the agency might not be able to recover some of these funds.
Treasury's IG said its discussion with CBP personnel suggested recovery
could be difficult because: (1) port personnel are accepting bonds that
are not sufficient to cover the duties owed plus interest when the entry
is liquidated, and (2) the length of time between entry and liquidation is
often several years, and in that time, some importers go out of business,
leaving CBP with no way to go back for collection of additional duties.
36In the interim between the entry of imports after an AD/CV duty is first
imposed and the final liquidation and collection of duties, CBP requires
posting of cash deposits or, in limited circumstances, bonds to cover
estimated duties. CBP also requires additional security, usually in the
form of a continuous bond, on the entry. Because the final AD/CV rate
often differs from the rates used to calculate these deposits, there are
cases where CBP has collected less money than what is finally due.
Moreover, the length of time that can elapse is sometimes several years,
which further compromises duty collection. It also means that any measure
CBP takes based on estimated duties, such as increasing continuous bond
coverage, may not cover duties owed.
In response, CBP and Commerce took steps to identify and address the
causes of CBP's collections problems. CBP attributes the uncollected
duties problem largely to "new shippers" with little import history,37 a
problem that is particularly prevalent in the agriculture and aquaculture
industries. According to CBP, one of these new shippers accounted for $130
million in uncollected duties in fiscal year 2004. To address this
problem, in 2004, Commerce changed its new shipper review process and
listed several steps it has taken to strengthen it. These included steps
such as making the bondholder liable for duties owed on each import entry,
and formalizing a checklist to ensure the legitimacy of new shippers and
their sales. Subsequently in 2004, CBP announced an amended directive to
help ensure that duties on agriculture and aquaculture imports were
collected properly by reviewing and applying a new formula for bonds on
these imports, effectively increasing these bonds by setting them at
higher rates.
Nevertheless, since the problem and its basic reasons became known in
2003, the size of CBP's collections problem has more than doubled. As
figure 2 shows, according to CBP data, $4.2 billion in AD/CV duties
remained unliquidated and $260 million in AD/CV duties were unpaid at the
end of fiscal year 2004. According to CBP, a large amount of the
unliquidated entries involves duties on softwood lumber from Canada
37A "new shipper" is a foreign exporter or producer that did not export,
and is not affiliated with, an exporter or producer that exported to the
United States during the period of AD/CV investigation and that has begun
to export to the United States. This shipper can request a separate,
expedited review (called a "new shipper" review) to establish his own
estimated dumping margin. The new shipper has the option of posting a bond
or security in lieu of cash once Commerce determines that the company
meets the requirements and initiates a review. Commerce conducts the
review based on at least one shipment. The United States has expressed
concern about abuse of such privileges, which were provided for in article
9.5 of the WTO Antidumping Agreement and subsequently codified in U.S. law
and regulations at 19 U.S.C. S: 1675 (a)(2)(B)(iii). The concern is that,
based on a single transaction, new shippers have received very low rates
that allow them to post bonds at low rates and ship goods at low prices,
subverting entirely or delaying relief to domestic producers from
injurious imports. Moreover, CBP has had problems collecting duties when
Commerce, after completing its review and finding higher dumping margins,
has issued orders for CBP to liquidate the prior entries at higher rates.
When CBP has tried to collect these higher rates (on goods that originally
entered at a low rate), both new shippers and bondsmen have not been able
to pay the duties owed. For example, CBP confirmed that it only collected
$25.5 million of the $195.5 million in AD duties owed on crawfish between
2002 and 2004. The antidumping order against freshwater crawfish tail meat
from the People's Republic of China has involved numerous new shipper
reviews. In many of these cases, new shippers were initially granted a
very low rate, which was later raised significantly upon review. For
example, one Chinese exporter was granted a rate of 0 percent (no duty) in
May 1999 after requesting a new shipper review. However, an administrative
review completed in April 2000 raised its rate to 201.63 percent.
(about $3.7 billion). In February 2005, CBP reported to Congress that it
had developed a plan to isolate suspended entries that were beyond the
normal time frames of an AD/CV case and then worked with Commerce to
obtain liquidation instructions, reducing the inventory of one million
suspended entries by 80,000. However, many unliquidated entries remain and
some of the unliquidated entries are still due to problems within CBP's
and Commerce's control. CBP estimates that over 90 percent of all
unliquidated AD/CV entries are awaiting Commerce instructions for
liquidation. Regarding unpaid duties, a large percentage pertains to
imports from China. Specifically, nearly two-thirds of these unpaid duties
(about $170 million) relate to an AD order on crawfish tail meat from
China. The second largest amount (about $25 million) relate to an AD order
on fresh garlic from China.
Figure 2: Potential Fiscal Year 2004 AD/CV Duties Available for
Distribution under CDSOA and Actual CDSOA Disbursements
Source: GAO analysis of CBP data.
CBP's continued collections problems have led to calls for more drastic
measures. Several industry groups, including representatives of the
garlic, honey, mushroom, and crawfish industries, have advocated for
elimination of the new shipper bonding rules in favor of cash deposits on
entries for new AD orders. Most crawfish and some steel recipients
responding to our questionnaire also raised concerns about CBP's
collection efforts and quality of communication about ongoing problems.
As a result, CBP is pursuing additional measures. In a February 2005
report to Congress, CBP said it is working with Treasury to address
financial risks associated with bond holders' insolvency and monitoring of
agriculture/aquaculture importers' compliance with its new bonding
requirements on a weekly basis. In its July 2005 report to Congress, CBP
highlights that it has begun working with other U.S. agencies to develop
legislative proposals and other solutions to better address AD/CV duty
collection problems. CBP notes that it plans to forward the results of
this interagency effort to Congress by December 2005. Meanwhile, Congress
is considering legislation that would change new shipper privileges.38
CDSOA Payments Largely Concentrated on a Few Companies and Industries,
with Mixed Effects Reported
Most CDSOA payments went to a small number of U.S. producers and
industries, with mixed effects reported. Top recipient companies reported
that the payments had positive overall effects, although their assessments
of the extent of the benefits varied. Leading recipient companies within
the seven industries we examined also reported varying positive effects.
In four of these industries-bearings, candles, crawfish, and pasta-
recipients we contacted reported benefits, but some non-recipients said
that CDSOA payments were having adverse effects on their ability to
compete in the U.S. market. Although some have argued that CDSOA has
caused increases in the number of AD/CV petitions filed and in the scope
and duration of AD/CV duty orders, the evidence to date is inconclusive.
A Few U.S. Producers and From fiscal year 2001 to fiscal year 2004, CBP
has distributed Industries Received the approximately $1 billion in CDSOA
payments to 770 companies from a Bulk of CDSOA Payments broad range of
industries. These payments have been highly concentrated
in a few companies. Figure 3 shows the share of payments going to the top
five companies and the share received by the remaining CDSOA recipients.
38See H.R. 3283, 109th Cong. (2005).
One company, Timken, a bearings producer, received about twenty percent of
total distributions, approximately $205 million, during fiscal years
20012004.39 Five companies, including Timken, received nearly half of the
total payments, or about $486 million.
Figure 3: FY 2001-2004 CDSOA Payments to the Top Five Companies and to the
Remaining Companies
Remaining 731 companies ($203 million)
The Timken Company ($205 million)
The Torrington Company ($135 million)
Candle-lite ($57 million)
MPB Corporation ($55 million)
3% Zenith Electronics Corporation ($33 million)
Next 34 companies ($347 million)
Total $1,035 million
Source: GAO analysis of CBP data.
Figure 4 shows the distribution of payments to the top 39 recipient
companies that have received 80 percent of total CDSOA disbursements.
These top recipient companies included several producers of steel,
candles, and pasta. They also included producers of cement, chemicals,
cookware, pencils, pineapples, and textiles.
39The fourth-leading recipient, MPB Corporation, is a subsidiary of the
Timken Company. For fiscal years 2001, 2003, and 2004, CBP distributed
CDSOA distributions separately to Timken and MPB. Timken also acquired the
Torrington Company, the second-leading CDSOA recipient, in February 2003.
Figure 4: Fiscal Year 2001-2004 Distribution of CDSOA Payments to the 39
Leading Recipient Companies
Recipients
The Timken Company
The Torrington Companya
Candle-liteb
MPB Corporation
Zenith Electronics Corporation
Micron Technology
Lancaster Colony Corporationb
United States Steel Corporation
Home Fragrance Holdings
Wellman
Carpenter Technology Corporation
E.I. du Pont de Nemours & Company
Emerson Power Transmission
AK Steel Corporation
Allegheny Ludlum Corporation
American Italian Pasta Company
Muench-Kreuzer Candle Company
International Steel Group
The Gates Rubber Company
Regal Ware
North American Stainless
Maui Pineapple Company
General Wax & Candle
Hershey Foods (New World Pasta)c
Maverick Tube Corporation
Reed Candle Company
Eramet Mariettad
J&L Specialty Steel
Bethlehem Steel Corporation
Sanford
Lumi-Lite Candle Company
Holcim (US)
Lafarge North America
USEC Neenah Foundry Corporation
Allied Tube & Conduit
Olin Corporation
A. Zerega's Sons
Armco Steel Corporation
Remaining 731 companies 0 50 100 150 200 Dollars in millions
Source: GAO analysis of CBP data.
Notes:
aThe data for Torrington reflects the payments it received for fiscal
years 2001 and 2002, prior to its acquisition by Timken.
bIn 1972 Candle-lite was acquired by Lancaster Colony Corporation of which
it remains a division today. For fiscal years 2001-2003, Lancaster Colony
received CDSOA distributions under the name Candle-lite. The amount paid
to Candle-lite and Lancaster Colony should be added together for an
accurate account of CDSOA distributions made to the Candle-lite Division
of Lancaster Colony Corporation. Total fiscal year 2001-2004 distributions
equal $82,985,544 or 58.21 percent of total distributions to the candle
industry.
cNew World Pasta acquired Hershey Foods Corporation in 1999. CBP also made
CDSOA distributions to New World Pasta. The amount paid to Hershey Foods
(New World Pasta) does not include these separate distributions to New
World Pasta, which were $3,584,898.
dEramet Marietta is included in this figure as a top recipient company
because it is listed by CBP as having received CDSOA funds for fiscal year
2002. After contacting this company, we discovered that it was required to
send back its CDSOA money to CBP due to a CBP overpayment error.
For most of the top recipient companies responding to our questionnaire,
the ratio of CDSOA payments to sales was less than 3 percent.
Specifically, the ratio of payments to sales ranged from less than 1
percent to over 30 percent. The ratio was generally the smallest for steel
companies and the largest for candle companies.
In analyzing CDSOA distributions by industry, or product group, the
payments are similarly concentrated among only a few industries or product
groups. For example, approximately two-thirds of total CDSOA distributions
went to three product groups-bearings, candles, and iron and steel
mills-which recieved approximately 40 percent, 14 percent, and 12 percent
respectively. Also, 95 percent of all total payments went to 24 out of the
77 product groups. Figure 5 shows the leading industries or product groups
that received CDSOA distributions.
Figure 5: Top 24 Product Groups Receiving CDSOA Disbursements, FY
2001-2004
Industry/product group
Ball and roller bearings
Petroleum wax candles
Iron and steel mills
TV & picture tubes
S/DRAMS
Pasta
Fibers
Crawfish tail meat
Gray portland cement and clinker
Steel mill products
Industrial belts
Cooking ware
Cased pencils
Canned pineapple
Manganese metal
Iron metal castings
Softwood lumbar
Preserved mushrooms
Brake rotors
Industrial nitrocellulose
Hand tools
Low enriched uranium
Roller chain
Brass sheet and strip
Remaining 53 industries/
product groups
0 100 200 300 400
Dollars in millions
Source: GAO analysis of CBP data.
Companies Report Mixed Effects from CDSOA Payments
Top Recipients of CDSOA Payments Reported Varying Positive Effects
Companies in Seven Industries Reported a Mix of Positive and Negative
Impacts
As detailed in appendix II, the 24 companies that responded to our survey
of top CDSOA recipients indicated that the CDSOA disbursements had
positive effects, but the extent of benefit varied from slight to
substantial.40 We asked these companies to assess CDSOA's effects at both
the industry and company level on a number of different dimensions
including prices, investment, employment, and ability to compete. The top
recipients reported that CDSOA had the most positive impact in areas such
as net income and employment. For example, one company commented that
CDSOA payments have allowed for substantial investments in its factory and
workers, providing, among other things, supplemental health care benefits.
Another company reported that CDSOA payments have been helpful in
justifying continued investment during periods when prices are depressed,
due to dumping or subsidization. The top recipients reported that CDSOA
had less of an effect in other areas such as prices and market share. For
example, a company commented that disbursements have had little or no
effect on prices for its CDSOA product because such prices are ultimately
determined by market forces.
As detailed in appendix III, in our examination of seven industries that
received CDSOA payments-bearings, steel, candles, pasta, dynamic random
access memory (DRAM) semiconductors, crawfish, and softwood lumber-leading
recipients we contacted generally reported benefits to varying degrees,
and the non-recipients we contacted either complained about being
disadvantaged or did not report effects.41 In four industries- bearings,
candles, crawfish, and pasta-recipients generally reported benefits, but
some non-recipients complained that the disbursements were having negative
effects on them. These industries all involve cases that predate CDSOA. In
general, the non-recipients that complained of negative effects are
ineligible for disbursements and several complained about their
ineligibility.
40We did not verify the accuracy of statements from these CDSOA
recipients.
41We did not verify the accuracy of statements from CDSOA recipients and
non-recipients in these seven industries.
o Bearings. The leading domestic producer of bearings is eligible for
CDSOA disbursements, but several large foreign-owned companies with
longstanding production in the United States are its major competitors and
ineligible. Three bearings recipient companies commented that CDSOA has
had positive effects, although they varied in their assessments of the
extent of the benefit. One company stated that the disbursements helped it
to replace equipment and enabled it to recover to the position it had held
prior to being injured from dumping. Another recipient commented that,
while the CDSOA disbursements were helpful, they were distributed several
years after the initial injury and did not fully compensate the company
for lost profits due to unfair trade. Two non-recipients provided views.
One non-recipient commented that CDSOA harms global bearings companies
because the antidumping duties they pay are transferred directly to a
competitor. It further commented that not only is it forced to subsidize
competitors through CDSOA, but the money it is paying in duties limits its
ability to invest in and expand its U.S. operations. The other said it is
too early to know what injurious effect CDSOA disbursements would have on
nonrecipients.
o Steel. In this industry, the largest U.S. producers are CDSOA
recipients.42 Recipient companies reported that payments-though small
relative to company size and the challenges they face in their
capital-intensive industries-had positive effects. Steel accounts for the
single largest industry share of outstanding dumping orders, and most
major U.S. producers receive CDSOA payments under numerous AD/CV orders on
different products. Steel recipients we contacted varied in their
assessments of CDSOA's effects, but generally agreed that the program
benefited them by providing greater opportunities for making needed
capital investments in their plant and equipment. Steel recipients also
commented, though, that CDSOA has not been a complete solution to the
serious problems they faced. When the Asian financial crisis spawned
rising imports, falling steel prices, and consolidating of firms,
42Within the steel industry, the non-recipients tended to be smaller and
typically were not direct competitors of the leading recipients. Only one
non-recipient steel company responded to our questionnaire on CDSOA, and
it did not provide views on the program.
the receipt of CDSOA disbursements did not prevent several steel producers
from joining numerous others in the industry in filing for bankruptcy.43
o Candles. Ten of the estimated 400 U.S. candle companies are eligible
and receive CDSOA disbursements. A number of recipients contended that
distributions have helped keep them in business, enabling them to develop
newer, better, and safer candles through investment in equipment and
research and development. One recipient stated that it has been able to
offer employees more consistent and comprehensive benefits packages due to
CDSOA. Several large candle producers that are comparable in size to
leading recipients complained that they are in favor of the order but are
ineligible to receive CDSOA disbursements. Some non-recipients argue that
recipients have an unfair advantage in their ability to keep prices lower
than they otherwise would. For instance, a major non-recipient company has
closed two of four of its domestic manufacturing facilities and has
reduced shifts at others. A smaller non-recipient company contended that
when it matched its competitors' lower prices, it was not able to make a
profit. As a result, the company stated that it was forced to exit this
segment of the candle business and release some workers.
o Crawfish. About 30 small, family-owned crawfish processors have
received CDSOA disbursements.44 Recipients said CDSOA payments provided
the industry with its first effective relief against dumped imports in
several years and enabled them to buy and process more crawfish, make
long-needed repairs and investments, hire more employees, and pay off
debts. In June 2003, the ITC reported that CDSOA disbursements to some
domestic producers had converted an industrywide net loss into net
income.45 The 16 crawfish tail meat processors who received CDSOA
distributions that we spoke with generally believe that the program has
had positive effects on the
43According to data provided by a steel industry representative, 42 steel
companies declared bankruptcy and 19 ceased operations from 1997 to 2003.
Many of these companies were subsequently acquired by larger companies.
44Although CBP data indicates payments were made to 35 different companies
between fiscal year 2002 and 2004, several of these companies reported
under different names in different years.
45See U.S. International Trade Commission Crawfish Tail Meat from China,
Investigation No. 731-TA-752 (Review), Publication 3614, (Washington,
D.C.: July 2003).
industry and their companies, keeping businesses open and employees
working. Non-recipients we spoke with in this industry said that CDSOA had
helped recipient companies---but had put them at a competitive
disadvantage. These companies want to be eligible for CDSOA disbursements
and several reported they had contacted certain government and
congressional sources to try to address their eligibility status, but were
told they did not meet the law's eligibility requirements regarding the
expression of support during the investigation. As discussed previously,
two of these companies brought legal action to challenge agency decisions
on their eligibility status. Because they also have to compete against
cheap Chinese imports, these non-recipients viewed the application of the
law as unfair. In addition, several said they were not able to compete
with recipient companies that offer processed tail meat at prices below
their cost of production and appear to be able to do so because the
recipients' CDSOA disbursements will compensate them for any losses. In
such conditions, some non-recipients said they cannot operate profitably
and some decided to stop processing tail meat.
o Pasta. Three of the four leading U.S. pasta makers received CDSOA
disbursements, but the fourth producer is ineligible. The top two CDSOA
recipients in this industry did not respond to our questions, and one of
them has filed for bankruptcy. The four CDSOA recipients that responded
said they had used the funds to increase or upgrade equipment, invest in
research and product development, defray manufacturing costs, and expand
production capacity. Nevertheless, CDSOA payments, while not
insignificant, were not large relative to sales or enough to offset other
problems that the industry faces, such as decreased demand for pasta due
to low-carbohydrate diets and low margins. Most non-recipients we
contacted said CDSOA had no effect, but a few non-recipients said that the
funds had created an uneven playing field and decreased their ability to
compete in the marketplace. Several of these companies tried to file for
CDSOA funds, but were found ineligible. The large non-recipient company
said the money it pays in duties transferred to its competitors could have
been used for product development, capital investment, and expansion of
its new U.S. operations.
o DRAMs. All four major DRAM producers in the United States currently
have production facilities in the United States as well as abroad;
however, three of these companies are U.S. subsidiaries of foreign
producers and have entered the market within the last decade. A CV
order is in effect for DRAMs produced by one Korean company only,46 but
the bulk of the distributions were made under an AD order on DRAMs of one
megabit and above from Korea issued in 1993 and revoked in 2000, as well
as on an AD order on SRAMs (static random access memory chips) issued in
1998 and revoked in 2002. A leading CDSOA recipient was the sole recipient
of duties on these revoked orders. Fabrication facility costs are high and
require complete replacement every few years. The DRAM industry is
cyclical in nature and subject to "booms and busts," where demand is
driven by investments in computers and other end products. Both CDSOA
recipients reported some net losses. One company reported benefits from
receiving payments and another reported fewer effects; both payments were
small relative to their net sales.
o Softwood Lumber. Both CDSOA recipients and non-recipients include
leading softwood lumber producers. Recipients and non-recipients that we
contacted indicated that disbursements to date have been too small to have
a discernable effect. However, non-recipients expressed concern about
potential adverse effects in the future, should the $3.7 billion in AD/CV
duties being held on deposit pending liquidation ever be distributed.
These duties are presently in escrow pending the outcome of litigation by
Canadian interests against the U.S. duties.
Effects of CDSOA on the Number of AD/CV Relief Petition Filings Not Clear
Current evidence does not clearly demonstrate that CDSOA is linked to an
increasing number of AD/CV petition filings. Critics have raised concerns
that, by awarding a portion of the tariff revenue that results from
successful petitions, CDSOA could potentially lead to more AD/CV petition
filings and thereby more restrictions on imports, to the detriment of the
U.S. economy. However, the evidence we analyzed was inconclusive.
Because CDSOA provides direct financial benefits to firms participating or
supporting AD/CV petitions by awarding them a proportion of the tariff
revenue, some analysts have warned that CDSOA could lead to more petitions
and to more companies supporting the filings because only
46Recipients for this CV order include the U.S. company, and a U.S.
subsidiary of a German company. The U.S. subsidiaries of the two Korean
companies opposed the petition and therefore are ineligible to receive
distributions.
companies who supported the petition would receive disbursements.47 A
report by the Congressional Budget Office48 (CBO) supports this view,
arguing on economic incentive grounds that CDSOA encourages more firms to
file or support petitions and discourages settling cases. CBO also argues
that firms may resume production or increase their output due to CDSOA,
which would result in inefficient use of resources and would be harmful to
the U.S. economy and consumers.
Our examination of the actual number of filings shows that there is no
clear trend of increased AD/CV petition filings since CDSOA.49 Figure 6
shows that since the passage of CDSOA in 2000, the number of petitions
spiked in 2001 and then sharply declined over the next three years.
Moreover, this fits the historical pattern of the number of AD/CV petition
filings, which also do not show a clear upward trend. The number of AD/CV
petitions filed each year has fluctuated widely, ranging from a maximum of
120 in 1985 to a minimum of 16 cases in 1995. Economists have found
evidence that the number of antidumping filings is closely linked to
macroeconomic conditions and real exchange rates.50
47See, for example, Kara Olson, Subsidizing Rent Seeking: Antidumping
Protection and the Byrd Amendment, American University, 2004.
48See Economic Analysis of the Continued Dumping and Subsidy Offset Act of
2000, The Congressional Budget Office, 2004.
49For example, our regression analysis of the number of filings each year,
versus macroeconomic conditions, which include real exchange rates, and
CDSOA's passage, was inconclusive and did not show clear evidence that
CDSOA had an impact on the number of filings.
50Generally, there tend to be more AD/CV filings following years with
slower U.S. economic growth and when the U.S. dollar appreciates against
foreign currencies, which makes imports cheaper. See, for example, Michael
Knetter and Thomas Prusa, Macroeconomic Factors and Antidumping Filings:
Evidence from Four Countries, NBER Working Paper 8010, 2000; Douglas
Irvin, The Rise of Antidumping Actions in Historical Perspective,
Department of Economics, Dartmouth College, 2004; and Richard Feinberg,
U.S. Antidumping Enforcement and Macroeconomic Indicators: What Do
Petitioners Expect, and Are They Correct?, Department of Economics,
American University, 2004.
Figure 6: Number of AD/CV Petitions Filed 1980-2004 Oct. 2000
Number of AD/CV petitions filed
CDSOA
120
100
80
60
40
20
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year
CV petitions filed
AD petitions filed
Source: GAO analysis of ITC data.
Our analysis of company responses to our case study questions similarly
reveals mixed evidence but no trend. In general, companies told us CDSOA
had little impact on their decision whether to file AD/CV relief
petitions. Most companies that responded to our questions said that filing
and winning new cases was too expensive, and the receipt of CDSOA payments
was too speculative, for CDSOA to be a major factor in their filing
decision. For example, producers accounting for a sizeable share of U.S.
softwood lumber production freely chose not to support the case, despite
being aware of the prospect of sizeable CDSOA disbursements. However,
bearings companies that had not supported earlier cases subsequently
supported a later case on China brought after CDSOA's passage.
Effects of CDSOA on Scope In addition to the number of filings, our
interviews and responses from and Duration of AD/CV Duty companies in the
seven industries we examined revealed a few allegations Orders Also Not
Clear that CDSOA resulted in orders that cover imports of more products
for
longer periods-that is, through wider-than-necessary product scopes of
AD/CV duty orders and longer-than-warranted retention of existing orders.
However, these allegations contradicted other examples, and we could not
independently verify them.51 One steel user, for example, complained that
CDSOA disbursements were a factor in the denial of its request for
narrowing the scope of an order and claimed the result has been to put
certain U.S. fastener makers at a disadvantage. In contrast, one steel
company noted that the domestic industry has no incentive to overly
broaden the scope of an AD/CV relief petition because doing so could
undermine its ability to prove injury and to obtain an order in the first
place. Bearings recipient companies similarly responded that CDSOA has not
affected the scope or duration of AD/CV duty orders and said regular
"sunset" reviews should ensure the government terminates unwarranted
orders. Bearings non-recipients, on the other hand, drew a connection
between the main CDSOA beneficiary within the industry and its support for
continuance of orders. In the candle industry, companies universally
reported that they are united in supporting retention of the existing
order, but divided over efforts by some candle firms to expand its scope.
Retaliation Against After finding the CDSOA inconsistent with WTO
agreements and after the
United States' failure to bring the act in compliance with the agreements,
inU.S. Producers 2004 the WTO gave 8 of the 11 members that complained
about CDSOA Underway for U.S. authorization to suspend concessions or
other WTO obligations owed to Failure to Comply with the United States.
Canada, the European Unian (EU), Mexico and Japan
have consequently applied additional tariffs to U.S. imports, and others
areWTO Ruling on CDSOA authorized to follow.
WTO Rules CDSOA Not in In 2003, the WTO found the CDSOA inconsistent with
U.S. obligations Compliance with U.S. WTO under WTO agreements and asked
the United States to bring the act into Obligations conformity with WTO
Agreements.52 Eleven members had brought
complaints about the CDSOA to the WTO and prevailed in their claims that
51We were unable to obtain detailed scope-related AD/CV duty orders data
from U.S. agencies because this data is not currently available. For
instance, the number of petitioners and supporters of an order, the number
of products covered by an order, and the number of products excluded from
an order after it went into effect are not readily available for the years
preceding and following the enactment of CDSOA.
52United States - Continued Dumping and Subsidy Offset Act of 2000,
WT/DS217/AB/BRA,CHL, EEC, IND, JPN, KOR; WT/DS234/AB/CAN, MEX.
the CDSOA is inconsistent with WTO agreements. 53 The WTO found that CDSOA
was not consistent with U.S. WTO obligations because it was not one of the
permitted specific actions against dumping and subsidization specifically
listed in applicable WTO agreements.54
The United States Pledges to Comply, but Has Not Yet Done So
The following the ruling, the United States indicated its intention to
comply. WTO gave the United States until December 27, 2003, to bring the
CDSOA into conformity with the organization's pertinent agreements.
However, all efforts to repeal the law have thus far been unsuccessful.
Meanwhile, the United States is also pursuing negotiations at the WTO to
address the right of WTO members to distribute AD/CV duties.
The President proposed repealing CDSOA in his fiscal year 2004, 2005, and
2006 budget submissions. Senate Bill 129955 was introduced in Congress in
2003 to amend the CDSOA and House Bill 393356 in 2004 to repeal the CDSOA.
Neither of these efforts succeeded during that legislative session of
Congress and thus expired. In a March 10, 2005, status report to the WTO,
the United States reaffirmed its commitment to bringing the CDSOA into
conformity with WTO agreements.57 The United States also reported that
House Bill 112158 had been introduced on March 3, 2005, to repeal CDSOA
and that it had been referred to the Committee on Ways and Means. Also in
2005, Senator Grassley introduced Amendment 1680 to the Departments of
Commerce and Justice, Science and Related Agencies Appropriations bill to
prohibit any further CDSOA distributions until the USTR determines that
such distributions are not inconsistent with
53These members were Australia, Brazil, Canada, Chile, the European Union,
India, Indonesia, Japan, Korea, Mexico, and Thailand.
54WT/DS217/AB/EEC, paragraph 274.
55Bill to amend the Trade Act of 1974 to provide trade readjustment and
development enhancement for America's communities, and for other purposes,
S. 1299, 108th Cong. (2003).
56Bill to repeal section 754 of the Tariff Act of 1930, H.R. 3933, 108th
Cong. (2004).
57WT/DS217/16/Add.14 and WT/DS234/16/Add.14.
58Bill to repeal section 754 of the Tariff Act of 1930, H.R. 1121, 109th
Cong. (2005).
U.S. WTO obligations.59 However, as of the date of publication of this
report, Congress has not passed House Bill 1121 and the Senate Committee
on Appropriations has not adopted Amendment 1680.
Since late 2001, the United States has been engaged in WTO negotiations at
the Doha Round, which may include changes to the WTO agreements under
which CDSOA was challenged. Following a congressional mandate to the USTR
and Commerce that negotiations shall be conducted within the WTO to
recognize the right of its members to distribute monies collected from
antidumping and countervailing duties,60 the United States submitted a
paper to the WTO Rules Negotiating Group stating that "the right of WTO
Members to distribute monies collected from antidumping and countervailing
duties"61 should be an issue to be discussed by the negotiating group.
USTR officials told us that, to date, the U.S. proposal has not attracted
support from any other WTO member.
WTO Authorizes Eight of Its Members to Retaliate; Canada, the European
Union, Mexico, and Japan Have Imposed Additional Tariffs
In January 2004, 8 of the 11 complainants-Brazil, Canada, Chile, the EU
India, Japan, Korea, and Mexico-sought and secured authorization to
retaliate against the United States. As a result of binding arbitration
regarding the level of authorized retaliation, the eight members received
authorization to impose an additional import duty on U.S. exports covering
a total value of trade up to 72 percent of the total of disbursements made
under the CDSOA for the preceding year relating to AD/CV duties on that
member's products each year.62 The total suspension authorized for 2005
could be up to $134 million based on the fiscal year 2004 CDSOA
disbursements. Specifically, for fiscal year 2004 disbursements, the WTO
arbitrators authorized the imposition of additional duties covering a
total value of trade not exceeding $0.3 million for Brazil, $11.2 million
for Canada, $0.6 million for Chile, $27.8 million for the EU, $1.4 million
for India, $52.1 million for Japan, $20.0 million for Korea, and $20.9
million for
59See Amendment No. 1680 to the appropriations bill for Science, the
Departments of State, Justice, and Commerce, and related agencies for the
fiscal year ending September 30, 2006, H.R. 2862, 109th Cong. (2005).
60See Consolidated Appropriations Act of 2005, Pub. L. No. 108-447, Div.
B, title II, 118 Stat. 2809, 2872, 2874 (2004).
61TN/RL/W/153.
62United States - Continued Dumping and Subsidy Offset Act of 2000,
WT/DS217/ARB/BRA, CHL, EEC, IND, JPN, KOR and WT/DS234/ARB/CAN, MEX.
Mexico. On May 1, 2005, Canada and the European Communities began the
imposition of additional duties on various U.S. exports. In particular,
Canada has imposed a 15 percent tariff on live swine, cigarettes, oysters,
and certain specialty fish (including live ornamental fish and certain
frozen fish) and the EU have imposed a 15 percent tariff on various paper
products, various types of trousers and shorts, sweet corn, metal frames,
and crane lorries. On August 18, 2005, Mexico began imposing additional
duties on U.S. exports such as chewing gum, wines, and milk-based
products. On September 1, 2005, Japan began imposing additional duties on
U.S. exports such as steel products and bearings. The remaining four
members say they might suspend concessions.
The three members that did not request authorization to retaliate-
Australia, Indonesia, and Thailand- have agreed to extend the deadline for
requesting authorization indefinitely.63 As agreed, the countries will
give the United States advance notice before seeking authorization to
retaliate. In return, the countries retain the ability to request
authorization to retaliate at any point in the future, and the United
States agreed not to seek to block those requests. See figure 7 for a
timeline of events related to the WTO decision on CDSOA.
63See WT/DS217/44, WT/DS217/45, and WT/DS217/46.
Figure 7: Timeline of WTO-Related Events on CDSOA
Sept. 1
Japan commences suspension of concessions or other obligations
Source: GAO analysis of WTO data.
Conclusions Congress' stated purposes in enacting CDSOA were to strengthen
the remedial nature of U.S. trade laws, restore conditions of fair trade,
and assist domestic producers. Our review suggests that the implementation
of CDSOA is achieving some objectives more effectively than others. One
reason is that, as a result of some of the key features of CDSOA, the law
in practice operates differently from trade remedies. For instance, while
trade remedies such as AD/CV duties generally provide relief to all
producers in a
particular market, the eligibility requirements of CDSOA limit relief to
only a subset of domestic producers-only those that petitioned for relief
or that publicly supported the petition by sending a letter to the ITC or
filling an ITC questionnaire while the agency was conducting its original
investigation and remain in operation. Our analysis of CDSOA disbursement
data and company views on the effects of CDSOA indicate that CDSOA has
provided significant financial benefits to certain U.S. producers but
little or no benefits to others. As a result, CDSOA has, in some cases,
created advantages for those U.S. producers that are eligible and receive
the bulk of disbursements over those U.S. producers that receive little
relief or are ineligible, by choice or circumstance. Moreover, because the
WTO found that CDSOA did not comply with WTO agreements, the EU, Canada,
Mexico, and Japan recently retaliated against U.S. exports and this
imposes costs on a number of U.S. companies exporting to those markets.
In implementing CDSOA, CBP faces problems processing CDSOA claims and
payments, verifying these claims, and collecting AD/CV duties. The CDSOA
program's time frame for processing payments is already too tight to
perform desired quality controls. The dramatic growth in the program's
workload--an estimated 10-fold increase in the number of claims in fiscal
year 2005 and the potential disbursement of billions of dollars from
softwood lumber duties--heighten program risks. CBP's labor-intensive
process for claims could be streamlined through steps such as regularly
obtaining from the ITC electronic updates of the list of potentially
eligible companies and having companies file CDSOA claims using a standard
form and submit them electronically. CBP's recent comprehensive company
claim verification effort also indicates that the agency needs additional
guidance in place for filing claims. In addition, CBP lacks plans for
managing and improving its CDSOA program's processes, staff, and
technology. For instance, it needs a human capital plan for enhancing its
staff in the face of dramatic growth in workload processing for both CDSOA
claims and payments. Accountability for the accuracy of the claims is
virtually non-existent and CBP has no plans to verify claims
systematically or on a routine basis. Finally, CDSOA has helped highlight
CBP's collection problems. Despite reports to Congress on its efforts to
address these problems, CBP faced a doubling in the AD/CV collections
shortfall in fiscal year 2004, to $260 million. This shortfall not only
reduces the amount available for disbursement under CDSOA, but also
undermines the effectiveness of the trade remedies generally.
Matters for Congressional Consideration
Given the results of our review, as Congress carries out its CDSOA
oversight functions and considers related legislative proposals, it should
consider whether CDSOA is achieving the goals of strengthening the
remedial nature of U.S. trade laws, restoring conditions of fair trade,
and assisting domestic producers.
If Congress decides to retain and modify CDSOA, it should also consider
extending CBP's 60-day deadline for completing the disbursement of CDSOA
funds. Meeting this deadline has been a problem in the past, and may be
even more difficult in the future given that the program is experiencing a
dramatic growth in its workload. For instance, extending the deadline for
processing payments for another 30 days would give the program's staff
additional time for processing payments and for pursuing additional
internal control activities.
Recommendations for Executive Action
To the extent that Congress chooses to continue implementing CDSOA, we
recommend that the Secretary of Homeland Security direct the Commissioner
of Customs and Border Protection to enhance the processing of CDSOA claims
and payments, the verification of these claims, and the collection of
AD/CV duties. Specifically, we recommend that:
o To improve the processing of CDSOA claims, CBP should implement labor
savings steps such as working with the ITC to formalize and standardize
exchanges of electronic updates of the list of eligible producers, and
requiring that company claims follow a standard form and be submitted
electronically. This would also reduce data entryrelated errors.
o To further improve the processing of claims, CBP should provide
additional guidance for preparing CDSOA certifications or claims.
o To enhance the processing of claims and payments in the face of a
growing workload, CBP should develop and implement plans for managing and
improving its CDSOA program processes, staff, and technology. For
instance, a human capital plan would help ensure that the CDSOA program
has staff in place with the appropriate competencies, skills, and
abilities.
o To enhance accountability for claims, CBP should implement a plan for
systematically verifying CDSOA claims. This plan should aim to ensure that
companies receiving CDSOA disbursements are accountable for the claims
they make. CBP should also consider asking companies to justify their
claims by providing additional information on their claims, such as an
explanation of the basis for the claim, supporting financial information,
and an independent assessment of the claim's validity and accuracy.
o To better address antidumping and countervailing duty collection
problems, CBP should report to Congress on what factors have contributed
to the collection problems, the status and impact of efforts to date to
address these problems, and how CBP, in conjunction with other agencies,
proposes to improve the collection of antidumping and countervailing
duties.
Agency Comments and We provided a draft of this report to the U.S.
International Trade Commission, Customs and Border Protection, and the
Office of the U.S.
Our Evaluation Trade Representative. We obtained written comments from CBP
(see app. IV). CBP concurred with our recommendations. We also received
technical comments on this draft from our liaisons at CBP, the ITC and
USTR, which we have incorporated where appropriate.
We are sending copies of this report to interested congressional
committees, the U.S. International Trade Commission, Customs and Border
Protection, and the Office of the U.S. Trade Representative. We will also
make copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-4347. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
GAO staff who made major contributions to this report are listed in
appendix V.
Loren Yager, Director International Affairs and Trade
Appendix I
Objectives, Scope, and Methodology
At the request of the Chairman of the House Subcommittee on Trade,
Committee on Ways and Means, as well as several House Members, we examined
the implementation and effects of the Continued Dumping and Subsidy Offset
Act (CDSOA) of 2000. Specifically, we assessed (1) what key legal
requirements guide and have affected agency implementation of CDSOA; (2)
what problems, if any, U.S. agencies have faced in implementing CDSOA; and
(3) which U.S. companies and industries have received payments under CDSOA
and what effects these payments have had for recipient and non-recipient
companies; and described (4) the status of the World Trade Organization
(WTO) decisions on CDSOA.
To determine the key legal requirements that guide and have affected
agency implementation of CDSOA, we obtained and reviewed legislation and
regulations establishing the requirements and procedures for the
International Trade Commission (ITC) to determine company eligibility to
receive CDSOA funds and for the Department of Homeland Security's Customs
and Border Protection (CBP) to implement CDSOA. We discussed these
requirements and their relationship to agency implementation with
officials at the ITC and CBP that carry out the agencies' respective
roles. We also reviewed judicial opinions and other documents associated
with certain legal cases that have been brought to challenge key
requirements of CDSOA, and incorporated the viewpoints expressed by some
companies that we contacted in addressing our third objective, which
illustrated the impacts of certain requirements.
To assess the problems, if any, U.S. agencies have faced in implementing
CDSOA, we first determined the agency roles and responsibilities that
CDSOA established. We then obtained and analyzed ITC and CBP documents
outlining their procedures for carrying out their CDSOA responsibilities
and discussed with agency officials the actions the agencies have taken to
implement CDSOA. We reviewed evaluations of CDSOA operations in both the
Department of the Treasury (Treasury) and ITC conducted by the Inspectors
General (IG) of those agencies. We also obtained from CBP a statement of
work that had been developed for improving CBP's management of the CDSOA
program. We discussed agency implementation of CDSOA with officials from
the Departments of Commerce and Agriculture, as well as certain industry
representatives, affected companies, and law firms that handle
CDSOA-related actions for their clients. We also reviewed GAO's documents
on human capital and
Appendix I
Objectives, Scope, and Methodology
disbursements1 for additional criteria to assess the agencies'
implementation of CDSOA. Our work focused on certain problems at CBP:
o To assess CBP's claims and payments processing procedures, we conducted
field work at CBP's Revenue Division in Indianapolis where we met with
officials and staff of the CDSOA Team. After they gave us a comprehensive
briefing of their CDSOA operations, we observed these operations, reviewed
documentation of their procedures, and discussed challenges they face in
implementing the law. We discussed changes in the CDSOA Team's workload
over time with these officials and obtained data on their workload and
staff resources. We discussed the team's procedures for counting and
recording eligible and actual claimants and claims, which included
information they obtain from the ITC on eligible producers and internal
controls the team applies to ensure accuracy in receiving and processing
claims. We determined that their data were sufficiently reliable for the
purpose of analyzing the changing relationship between the team's workload
and staff resources.
o To assess CBP's approach to verifying claims, we discussed the approach
and the extent of claim verification since the program's inception with
CBP officials and we reviewed CBP procedures for verifying company claims
that were developed in 2004. We also reviewed documentation of a
comprehensive verification of one company's CDSOA claims that was
conducted using these new procedures. Because this verification raised
issues about the quality and consistency of CBP's guidance regarding
claims submission, we examined the fiscal year 2004 claim files for 32 top
CDSOA recipients to ascertain the prevalence of these issues and also
obtained the viewpoints of certain CDSOA recipients on CBP's claims
guidance.
o To describe CBP's efforts to collect the anti-dumping (AD) and
countervailing (CV) duties that fund CDSOA, we obtained and reviewed data
on CBP's annual CDSOA disbursements and AD/CV duty liquidations and
collections. To assess the reliability of the data on unliquidated AD/CV
duties, we compared them to data used by Treasury's IG in its 2003 report
and performed basic reasonable checks. We determined the data were
sufficiently reliable to support the finding that there had been a
substantial increase in unliquidated AD/CV duties
1See GAO, Internal Control and Management Evaluation Tool, GAO-01-1008G
(Washington, D.C.: August 2001).
Appendix I
Objectives, Scope, and Methodology
since 2002. We also reviewed CBP reports to Congress in 2004 and 2005 that
reported on AD/CV duty collections issues and problems and the section of
the 2003 Treasury IG report that addressed CBP's efforts related to
liquidating and collecting AD/CV duties. Finally, we incorporated the
viewpoints of certain companies and industry groups about the status of
uncollected duties, and CBP's efforts to collect them.
To determine which U.S. companies and industries have received payments
under CDSOA and what effects these payments have had for recipient and
non-recipient companies, we obtained and analyzed CBP's annual
disbursement data for fiscal years 2001 to 2004 and collected information
from top CDSOA recipients and from recipients and non-recipients in seven
industries. Specifically, we identified 770 companies that had received
disbursements at some point during fiscal years 2001 through 2004 and
combined the multiple disbursements that companies may have received to
calculate the total amount of disbursements made to each company during
this period. Some companies received disbursements under different names
or were acquired by, or merged with or were otherwise affiliated with,
other companies on the list during this period. We did not make
adjustments to the number of companies, but rather retained the company
distinctions in the data as CBP provided it. We then identified 39
companies that had received the top 80 percent of the disbursements made
during fiscal years 2001 through 2004 and we reported information about
these disbursements. Using this data, we also identified the top 24
product groups that received 95 percent of disbursements during fiscal
years 2001 through 2004, and we reported information about these
disbursements.
We assessed the reliability CBP's CDSOA disbursements data, and the
related Harmonized Tariff Schedule data, and Census Bureau's data matching
the Harmonized Tariff Schedule to the North American Industry
Classification System by (1) performing electronic testing of required
data elements, (2) reviewing existing information about the data and the
system that produced them, and (3) interviewing agency officials
knowledgeable about the data. We determined that the data were
sufficiently reliable for the purposes of this report.
To further determine the effects of CDSOA payments on recipients and
non-recipients, we primarily relied on the views provided by top CDSOA
recipient companies and of certain recipients and non-recipients in 7 of
the top 24 industries (bearings, steel, candles, pasta, DRAMs, crawfish,
and
Appendix I
Objectives, Scope, and Methodology
softwood lumber) to which CDSOA payments have been made.2 We selected
these industries based on a range of criteria including: the leading
recipients of CDSOA funds; industries with the most AD/CV duty orders;
industries receiving press coverage related to CDSOA; and industries
considered by certain experts to have unique or noteworthy situations. In
selecting these industries, we also considered including different types
of industries and industries with differing numbers of CDSOA recipients.
We consulted with experts at the ITC, the Departments of Commerce and
Agriculture, and relevant trade associations to help define the industries
and identify leading non-recipients companies within them. In addition, we
obtained industry background from ITC investigative reports and other
official industry sources.
To obtain these companies' views on CDSOA, we developed and sent out a
questionnaire to top CDSOA recipient companies, and a set of structured
questions to selected recipient and non-recipient companies in the seven
case study industries. We developed and pretested the questionnaire
between February and April 2005. Our structured questions were based on
the items in our questionnaires.
We sent surveys to 32 of the top 39 recipient companies we had
identified.3 Twenty-four of these companies provided written responses to
our questions. Their views are not necessarily representative of all CDSOA
recipients.
We selected non-probability samples of CDSOA recipients and nonrecipients
that are U.S. producers for each of our seven case study industries.4 We
selected recipient companies based primarily on the amount of CDSOA funds
they had received between fiscal year 2001 and 2004. However, in certain
industries with small numbers of recipients,
2We were not able to verify the accuracy of statements from CDSOA
recipients and nonrecipients.
3We sent surveys to the 32 of the 39 companies that received 80 percent of
CDSOA payments from 2001-2004. Six of the seven companies that we did not
survey either were no longer in operation or had been acquired by another
company that did respond to our survey. The additional company that we did
not survey was required to send back its CDSOA payments to CBP due to a
CBP overpayment error. Eight of the top recipients that we contacted did
not respond to our survey.
4Some of the recipients and non-recipients may be U.S. producers that are
foreign-owned. We did not exclude these companies from our sample because
CDSOA does not restrict foreign-owned U.S. producers from receiving CDSOA
payments.
Appendix I
Objectives, Scope, and Methodology
including bearings, DRAMs, and candles, we sent structured questions to
all recipient companies. We selected non-recipient companies based on
industry experts' views of the importance of the companies and recipient
company views of their major non-recipient competitors. We also considered
available lists of companies by industry, but found that these lists had
limitations in terms of coverage and could not be used to draw probability
samples. Overall, we selected 69 recipient and 82 non-recipient companies
in the seven industries.
In total, we received 61 written responses from recipient companies and 31
written responses from non-recipient companies. Appendix III provides
details on how many companies we contacted and received information from
for each industry. All recipient companies in the bearings, DRAMs, and
candles industries provided responses, and these responses can be
generalized. For recipient companies in the other four industries, and for
non-recipient companies in all the industries, the responses we received
cannot be generalized because of the non-probability samples we used
and/or the number of responses we received. Thus, in these cases, the
views we report are not necessarily representative of their respective
groups. However, we supplemented the information we received with
telephone interviews to verify, and in some cases, expand upon, the
information that some companies provided. We also compared the overall
responses in each industry with industry experts' views and the
information contained in available studies, such as ITC reports, and found
the information we gathered to be broadly consistent with these sources.
Finally, within this objective, we also conducted an analysis on the
trends in the filings of AD/CV relief petitions. We collected data on the
number, type, and status of AD/CV duty orders from the ITC and Commerce.
We verified this information directly with the Federal Register notices,
which are the official sources for AD and CV orders. We determined that
the data were sufficiently reliable for the purposes of this report. In
addition, we reviewed literature on the determinants of AD petition
filings. We applied regression analysis to study the effects of
macroeconomic conditions, real exchange rates, and CDSOA itself on the
number of petition filings. We also asked the companies we surveyed to
discuss CDSOA's impact on AD/CV filings and interviewed industry
representatives to gain an understanding of what affects their decision to
file or support AD/CV petitions, and whether CDSOA was a significant
factor in their decision.
To determine the status of the WTO decisions on CDSOA, we analyzed
official U.S., foreign government, and WTO documents. We also
Appendix I
Objectives, Scope, and Methodology
interviewed officials from the Office of the U.S. Trade Representative and
the Department of State.
We conducted our work in Washington, D.C., and Indianapolis, Indiana, from
September 2004 to September 2005 in accordance with generally accepted
government auditing standards.
Appendix II
Top CDSOA Recipient Companies
This appendix provides information on the CDSOA payments1 received by the
top recipient companies and the views of these companies on CDSOA's
effects.
CDSOA Payments to Table 2 lists the top 39 companies that received 80
percent of the total
CDSOA payments during fiscal years 2001-2004. This table also presentsthe
Top Recipient each company's percentage of the total payments and the
cumulative Companies percentages. Each company's industry is also listed.
Table 2: Fiscal Years 2001-2004 CDSOA Distributions to Top Recipient Companies
Dollars in thousands
Cumulative
percentage
Percentage of of
Rank Company Amount paid Amount claimed total Industry
total payments payments
The Timken $59,990,348,732 19.83
$205,328,783 19.83 Bearings
Companya
22,175,725,680 32.90
The Torrington 135,349,304 13.07 Bearings
Companya
Candle-liteb 56,759,989 1,285,509,591 5.48 38.38 Candles
MPB 55,131,485 9,158,867,720 5.32 43.71 Bearings
Corporationc
Zenith 3.23 46.93 Television
33,412,990 sets
Electronics 23,270,258,343
Corporation
Micron 33,389,988 9,093,423,782 3.22 50.16 DRAMs
Technology
Lancaster 52.69 Candles
Colony 26,225,555 1,382,869,375 2.53
Corporationb
United States 590,935,208,013 54.91 Steel
22,925,628 2.21 products
Steel
Corporation
9 Home Fragrance 20,394,804 444,243,884 1.97 56.88 Candles
Holdings
10 Wellman 58.39 Polyester
15,681,319 1,291,294,651 1.51 fibers
1All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the short
time span and fairly low inflation rate over the period covered by our
analysis.
Appendix II Top CDSOA Recipient Companies
(Continued From Previous Page)
Dollars in thousands
Cumulative
percentage
Percentage of of
Rank Company Amount paid Amount claimed total Industry
total payments payments
24,272,753,229 59.74 Steel
Carpenter 13,991,133 1.35 products
Technology
Corporation
E.I. du Pont de 6,188,244,053 60.95 Chemical
12,485,357 1.21
Nemours and products
Company
Emerson Power 6,518,385,490 62.12
12,132,932 1.17 Bearings
Transmission
AK Steel 273,729,695,233 63.21 Steel
11,337,171 1.09 products
Corporation
42,821,265,506 64.29 Steel
Allegheny 11,107,788 1.07 products
Ludlum
Corporation
American Italian 8,063,794,100 65.35 Pasta
11,052,969 1.07
Pasta Company
Muench-Kreuzer 10,695,594 212,476,879 1.03 66.39 Candles
Candle Company
International 568,595,773,448 67.39 Steel
10,374,465 1.00 products
Steel Group
The Gates 2,037,888,247 68.37 Rubber
10,208,272 0.99
Rubber products
Company
9,804,074 1,364,648,692 69.32 Stainless
Regal Ware 0.95 steel
cooking
ware
North American 9,697,133 35,786,766,024 70.26 Steel
0.94 products
Stainless
Maui Pineapple 9,376,864 335,327,969 0.91 71.16 Pineapples
Company
General Wax & 9,297,725 150,256,642 0.90 72.06 Candles
Candle
4,853,308,844 72.85 Pasta
Hershey Foods 8,136,032 0.79
(New World
Pasta)d
25 Maverick Tube 35,919,351,631 73.55 Steel
7,295,447 0.70 products
Corporation
26 Reed Candle 7,214,429 152,164,485 0.70 74.25 Candles
Company
27 Eramet Mariettae 6,274,365 32,661,954 0.61 74.85 Manganese
metal
28 21,580,366,304 75.46 Steel
J&L Specialty 6,227,041 0.60 products
Steel
Appendix II Top CDSOA Recipient Companies
(Continued From Previous Page)
Dollars in thousands
Cumulative
percentage
Percentage of of
Rank Company Amount paid Amount claimed total total Industry
payments payments
Bethlehem 76.03 Steel
Steel 5,975,849 277,902,636,707 0.58 products
Company
Sanford 5,892,337 478,764,505 0.57 76.60 Cased
pencils
Lumi-Lite 77.15 Candles
Candle 5,625,486 89,582,027 0.54
Company
Holcim (US) 4,726,614 6,986,480,910 0.46 77.60 Cement
Lafarge North 4,633,793 6,850,627,559 0.45 78.05 Cement
America
USEC 78.47 Low
4,401,004 411,300,000 0.43 enriched
uranium
Neenah 78.89 Iron
Foundry 4,307,616 5,849,676,065 0.42 castings
Company
Allied Tube & 4,198,722 21,792,742,720 0.41 79.30 Steel
pipe
Conduit
Olin 79.68 Brass
Corporation 3,987,611 7,517,617,388 0.39 sheet
and strip
A. Zerega's 3,889,333 2,290,556,634 0.38 80.06 Pasta
Sons
Armco Steel 80.42 Steel
3,716,372 155,054,850,596 0.36 products
Corporation
Total $2,236,867,713,610 80.42
$563,228,970 80.42
Source: GAO analysis of CBP data.
Notes:
aTimken acquired Torrington in February 2003. The CDSOA distributions we
report for Torrington in this table reflect the distributions received by
Torrington in FY 2001 and FY 2002.
bIn 1972 Candle-lite was acquired by Lancaster Colony Corporation of which
it remains a division today. For fiscal years 2001-2003, Lancaster Colony
received CDSOA distributions under the name Candle-lite. The "amount paid"
for Candle-lite and Lancaster Colony should be added together for an
accurate account of CDSOA distributions made to the Candle-lite Division
of Lancaster Colony Corporation Total fiscal year 2001-2004 distributions
equal $82,985,544 or 58.21 percent of total distributions to the candle
industry. Likewise, the amount claimed for Lancaster Colony Corporation is
applicable to Candle-lite.
cMPB Corporation is a subsidiary of Timken. CDSOA distributions are listed
separately for Timken and MPB because they reflect the CDSOA distributions
as reported by CBP.
dNew World Pasta acquired Hershey Foods Corporation in 1999. CBP also made
CDSOA distributions to New World Pasta. The amount paid to Hershey Foods
(New World Pasta) does not include these separate distributions to New
World Pasta, which were $3,584,898.
eEramet Marietta is included in this table as a top recipient company
because it is listed by CBP as having received CDSOA funds in fiscal year
2002. After contacting this company, we discovered that it was required to
send back its CDSOA money to CBP due to a CBP overpayment error.
Appendix II Top CDSOA Recipient Companies
CDSOA Effects on Top Recipient Companies
Top Recipients of CDSOA Payments Reported Varying Positive Effects
We sent surveys to the companies that received 80 percent of the CDSOA
payments from 2001 through 2004, asking for their views on CDSOA's
effects.2 We asked these companies to assess CDSOA's effects on a number
of different dimensions including prices, employment, and ability to
compete.
We asked the companies to rate CDSOA's effect, ranging from 1 (very
positive) to 5 (very negative) for each particular company dimension.3
The top recipients reported that CDSOA had the most positive impact in the
areas of net income and employment.4 In its written comments, one company
stated that CDSOA payments have allowed it to make substantial investments
in its plant and its workers, including providing supplemental health care
benefits. The top recipients reported that CDSOA had less of effect in
areas such as prices, net sales, and market share. Several companies
commented that, for example, disbursements have had little or no effect on
prices for its CDSOA products, since such prices are ultimately determined
by market forces.
The ratio of CDSOA payments to company net sales ranged from less than 1
percent to over 30 percent. However, this ratio was less than 3 percent
for all but five companies.
In table 3 we present summary information on these companies' responses.
2We sent surveys to 32 of the 39 companies that received 80 percent of
CDSOA payments for fiscal years 2001-2004. Six of the seven companies that
we did not survey either were no longer in operation or had been acquired
by another company that did respond to our survey. The additional company
that we did not survey was required to send back its CDSOA payments to CBP
due to a CBP overpayment error. Eight of the top recipients that we
contacted did not respond to our survey.
3To conserve space in table 3 we combined the company responses of "very
positive" and "positive" into one category for positive effects. Similarly
we combined the "very negative" and "negative" categories into one
category for negative effects.
4We were not able to verify the accuracy of statements from these CDSOA
recipients.
Appendix II Top CDSOA Recipient Companies
Table 3: CDSOA Effects on Top Recipient Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Prices 2 20 0 0
Net sales 5 15 0 3
Gross profits 12 10 0 1
Net income 20 2 0 1
Property,
plant, and
equipment 17 6 0 1
Research and
development 16 6 0 1
Employment 17 5 0 1
Ability to
compete 14 9 0 0
Market share 4 17 0 1
Source: GAO analysis of company questionnaires.
CDSOA Effect on Company Table 4 shows that 17 of the 24 companies reported
that CDSOA had Ability to Compete in U.S. increased their ability to
compete in the U.S. market.
Market
Table 4: CDSOA Effect on Companies' Ability to Compete in U.S. Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
17 700
Source: GAO analysis of company questionaires.
Appendix III
CDSOA Recipient and Non-Recipient Companies in Seven Industries
This appendix provides information on the CDSOA payments1 received by
recipient companies in seven industries: bearings, steel, candles, DRAMs,
pasta, crawfish, and softwood lumber. It also discusses the views of
recipient and non-recipient companies in these industries on CDSOA's
effects.2
Figure 8 shows the share of CDSOA disbursements received by U.S. companies
in the seven industries and in the remaining industries.
1All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the short
time span and fairly low inflation rate over the period covered by our
analysis.
2We were unable to obtain the views of CDSOA non-recipients from the steel
and DRAMs industries. We also were not able to verify the accuracy of
statements from CDSOA recipients and non-recipients in these seven
industries.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Figure 8: Fiscal Year 2001-2004 CDSOA Disbursements by Industries
Remaining industries ($254 million)
Bearings ($413 million)
Candles ($143 million)
Steel ($129 million) 3% DRAMs ($33 million) 3% Pasta ($33 million)
2% Crawfish ($25 million)
1% Lumber ($5 million)
Total $1,035 million
Source: GAO analysis of CBP data.
Views on CDSOA from Recipients and Non-Recipients in the Bearings Industry
Background Bearings are used in virtually all mechanical devices and are
used to reduce friction in moving parts. Types of bearings include ball
bearings, tapered roller bearings, and spherical plain bearings. The
market for bearings is
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
global and dominated by only a few multinational companies.3 Within the
U.S. market the degree of concentration among different segments of the
industry varies; the Census Bureau listed 19 producers of tapered roller
bearings and 65 producers of ball bearings in 2003. The Timken Company is
the largest U.S. bearings company, but several foreign-owned companies
have also had a long-standing presence in this country as bearings
producers and are Timken's main competitors in the U.S. market. One
foreign-owned producer, for example, has operated U.S. production
facilities for over 80 years, while two others have produced in this
country for over 25 years. These companies have not been eligible to
receive CDSOA disbursements because they did not support the original
cases.
In 1975 the ITC determined that tapered roller bearings from Japan were
harming the domestic industry and a dumping finding was published the
following year. The Department of Commerce subsequently published
antidumping orders on tapered roller bearings against Japan, China,
Hungary, and Romania in 1987. Commerce then issued antidumping orders for
ball bearings, cylindrical roller bearings, and spherical plain bearings
from a number of other countries in 1989. Currently, there are eight
bearings orders in effect against seven countries. Import penetration of
the U.S. market has grown from 5 percent of consumption in 1969 to
approximately 25 percent in 2003. When Commerce levied ball bearing
dumping duties against Japan, Singapore, and Thailand in 1989, an
opportunity arose for China. All of the world's major bearing companies,
including Timken, now have manufacturing facilities in China.
Timken and Torrington are the two largest CDSOA recipient companies.
Together, they received over 80 percent of all disbursements to the
bearings industry and one-third of disbursements to all companies in
CDSOA's first four years. Table 5 shows CDSOA recipients in the bearings
industry from fiscal years 2001 through 2004.
3Public information on the comparative size and market share of leading
bearings producers is limited, but a report by the Department of Commerce
stated that in 1999, the world's 10 largest producers accounted for about
80 percent of total production.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 5: Fiscal Years 2001-2004 Bearings CDSOA Recipients
Amount paid as a
percentage of total
Company Amount paid Amount claimed paid to industry
1 The Timken
Company $205,328,783 $59,990,348,732
2 The Torrington
Companya 135,349,304 22,175,725,680
3 MPB Corporationb 55,131,485 9,158,867,720
4 Emerson Power
Transmission 11,574,736 6,503,215,604
5 McGill
Manufacturingc 2,703,403 653,293,608
6 Pacamor/Kubar
Bearings 2,267,413 442,474,178
7 Kubar Bearingsd 1,132,137 259,875,305
Source: GAO analysis of CBP data.
Notes:
aTimken acquired Torrington in February 2003. The CDSOA distributions we
report for Torrington in this table reflect the distributions received by
Torrington in FY 2001 and FY 2002.
bMPB Corporation is a subsidiary of Timken. CDSOA distributions are listed
separately for Timken and MPB because they reflect the CDSOA distributions
as reported by CBP.
cMcGill Manufacturing is owned by Emerson Power Transmission. CDSOA
distributions are listed separately for McGill Manufacturing and Emerson
Power Transmission because they reflect the CDSOA distributions as
reported by CBP.
dCBP listed separate CDSOA distributions to Pacamor/Kubar Bearings and
Kubar Bearings in its Annual Reports on CDSOA.
CDSOA Effects on Bearings Companies
Bearings Recipients We obtained the views of three bearings recipient
companies. These Reported Positive Effects companies commented that CDSOA
has had positive effects, although they from CDSOA Payments varied in
their assessments of the extent of the benefit. Bearings recipients
reported that CDSOA's greatest impact has been in the areas of net income,
employment, and ability to compete. These companies also commented that
CDSOA has had less of an effect on prices, sales, and profits. One company
stated that the disbursements helped it to replace equipment and become
more competitive, enabling it to recover to the position it had held
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
prior to being injured from dumping. Another recipient commented that
while the CDSOA disbursements were helpful, they were distributed years
after the initial injury and did not fully compensate the company for lost
profits due to unfair trade.
The bearings recipient companies vary greatly in their overall size. These
companies are also significantly different in terms of the amount they
have received through CDSOA, overall and as a percentage of their sales.
For the recipient companies in our case study, in fiscal year 2004, CDSOA
disbursements as a percentage of company sales ranged from just over 1
percent to 21 percent with the larger recipients generally at the low end
of this scale.4
Non-Recipients Reported Varying Effects
We obtained the views of two non-recipients, one of which reported
negative effects, while the other said it is too early to tell the extent
of the harm that CDSOA has caused. One company commented that CDSOA is
harmful because the antidumping duties it pays are transferred directly to
a competitor. The company further stated that the money it is paying in
duties limits its ability to invest in its U.S. operations. The other
nonrecipient company emphasized the size of the CDSOA disbursements in the
bearings industry, but commented that it is still too early to know the
injurious effect these disbursements will have on non-recipient producers.
The leading non-recipient producers have not been eligible to receive
CDSOA payments because they did not support the original cases.
Table 6 provides bearings recipient and non-recipients' responses to our
questionnaire on CDSOA's effects.
4The ratio of a company's fiscal year 2004 CDSOA disbursements to its 2004
new sales may not be representative of this ratio for prior fiscal years
or of the average ratio of disbursements to net sales for the company
since CDSOA's inception, because of fluctuations in the size of CDSOA
disbursements to net sales. Calculating average ratios would help take
account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 6: CDSOA Effects on Bearings Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Recipients Non-Recipients
Prices 0 3 0 0
Net sales 0 3 0 0
Gross profits 0 3 0 0
Net income 3 0 0 0
Property,
plant, and
equipment 2 1 0 0
Research and
development 1 2 0 0
Employment 3 0 0 0
Ability to
compete 2 1 0 0
Market share 1 2 0 0
Prices 0 1 0 1
Net sales 0 0 1 1
Gross profits 0 0 1 1
Net income 0 0 1 1
Property,
plant, and
equipment 0 0 1 1
Research and
development 0 0 1 1
Employment 0 0 1 1 2
Ability to
compete 0 0 1 1 2
Market share 0 0 1 1 2
Source: GAO analysis of company responses to structured
questions.
CDSOA Effect on Company Table 7 provides these companies' responses to our
question on CDSOA's Ability to Compete in U.S. effect on their ability to
compete in the U.S. market.
Market
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 7: CDSOA Effect on Bearings Companies' Ability to Compete in U.S.
Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
2 100
Non-Recipients
0 011
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA Funds
We also asked companies to describe how they used the CDSOA payments that
they received. However, the law does not require that distributions be
used for any specific purpose. The bearings recipient companies varied in
their responses to this question. One company responded that it has used
the disbursements to rebuild production equipment, maintain employment
levels, and add more technical personnel for pursuing bearings customers.
A second company commented that it does not earmark funds for a specific
project; thus the funds have been spent on debt reduction. The third
company did not specify how it used the funds, reiterating that the
disbursements were based on previous qualified expenditures and
emphasizing that its investments in U.S. bearings production have exceeded
the money it received through CDSOA.
Net Sales and Employment Trends
No clear trend emerged from these companies' production and employment
data over the 4 years that CDSOA has been in effect. One recipient's net
sales increased from 2001 to 2004, for example, while another's declined.
Similarly for employment, one recipient's number of workers decreased over
the 4 years, while another's remained about the same. The responses from
the non-recipients also did not show a clear trend for production or
employment. For two of the three companies, employment declined, while all
three companies' net sales increased to varying degrees.
Extent of Overseas Most of the bearings companies that we contacted
indicated that they had
Production both domestic and overseas production operations. Of the three
recipient companies, only one reported that it imports CDSOA products, but
its imports make up a small share of its overall sales.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Scope and Methodology
To obtain bearings companies' views on CDSOA's effects, we sent out a set
of structured questions to certain CDSOA recipients and certain
nonrecipients in the bearings industry. CDSOA payments are made in this
industry under multiple AD orders that were issued in different years.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments in each of the four years that
disbursements have been made and the amount of disbursements they have
received. Using this information, we developed a list of seven recipients
and ranked them by their total CDSOA receipts. We obtained additional
information from company representatives and CBP resulting in our
combining certain recipients and treating them as three distinct
companies.5 For example, CBP sometimes listed in its annual reports on
CDSOA, as separate distributions, payments to entities that were divisions
or subsidiaries of other companies that also received CDSOA distributions.
We surveyed the three companies, and all of them provided completed
surveys.
The universe of bearings non-recipients is larger than the universe of
recipients.6 We sought to obtain views from a comparable number of
nonrecipients as recipients. To identify these companies, we obtained
information from associations or others that were knowledgeable about the
industry. Specifically, we obtained information about non-recipient
bearings companies by (1) identifying members of the American Bearings
Manufacturing Association, (2) asking recipient companies to identify
their competitors, and (3) conducting our own research. We surveyed three
nonrecipient companies, of which two provided completed surveys.7 These
two non-recipients are multi-national companies that are among the leading
global producers of bearings and have had a long-standing history of
production in the United States. The views of the non-recipients that
responded to our questions may not be representative of all
non-recipients.
5Timken, Emerson Power Transmission, and Pacamor/Kubar Bearings.
6Whereas there are seven CDSOA bearings recipients, in 2003, the Census
Bureau listed 19 producers of tapered roller bearings and 65 producers of
ball bearings.
7We also sent out and received back a survey from an additional company.
We did not include this survey in our results because this company does
not produce bearings within the United States.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Views on CDSOA from Recipients in the Steel Industry
Background For this case study, we defined the scope of the steel industry
to include companies that produce steel by melting raw materials.8 The two
main types of producers of raw steel are integrated mills and minimills.
Integrated producers use older, blast furnaces to convert iron ore into
steel. They mainly produce "flat" products, such as plate and hot-rolled
steel that are used in transportation equipment, construction, and heavy
machinery. The minimills are a scrap-based industry, producing steel from
recycled metal products, such as crushed cars or torn-down buildings. They
use newer, electric-arc furnaces, and account for almost all of the
industry's "long" production, including wire-rod and rebar. The top three
domestic steel producers-Mittal, U.S. Steel, and Nucor-together account
for about half of overall domestic steel production, which is
approximately 100 million tons a year.9 A third, much smaller sector of
the industry is the specialty, or stainless, sector. These producers also
use electric-arc furnaces and represent about 2 percent of the overall
industry output and about 10 percent of value. The steel industry is by
far the largest user of AD/CV duty orders, with over 125 iron and steel
mill orders in place as of June 2005.
Several industrywide trends occurring at the same time as CDSOA
disbursements are relevant. Between 1997 and 2003 period, 40 steel
companies declared bankruptcy, with some of them ceasing operations
altogether. CDSOA recipients were not immune from this general trend;
several of them have declared bankruptcy and various firm consolidations
have also occurred. The Asian financial crisis was an important factor in
increasing steel imports to this country, as Asian demand for steel
dropped and foreign steel companies increasingly looked to the United
States as a
8We excluded from our scope companies that make steel-related products,
such as pipe or tubing, from purchased raw steel.
9In 2003, according to the Census Bureau, there were 226 producers of
carbon steel, 64 producers of alloy steel, and 74 producers of stainless
steel in this country.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
market for their products.10 The surge in imports led to the filing of
relief petitions on hot-rolled steel against Russia, Japan, and Brazil
beginning in 1998. Companies subsequently filed relief petitions against
11 other countries. In 2002, the President also took action under section
201 of the Trade Act of 1974,11 which allows him to implement temporary
relief when an industry has been seriously injured by surging imports.
Under this authority the President announced a series of safeguard tariffs
of up to 30 percent on a range of steel products. These tariffs, which
were imposed in addition to the AD/CV duties, remained in place from March
2002 until late 2003. Much of the industry returned to profitability in
2004, when prices rose.
Table 8 depicts the top 10 CDSOA recipients for steel in fiscal years 2001
through 2004.
Table 8: Top 10 Fiscal Years 2001-2004 Steel CDSOA Recipients
Amount paid as a
percentage of
total
Company Amount paid Amount claimed paid to industry
United States $22,610,280 $589,595,769,913 17.6
Steel Corporation
Carpenter 13,991,133 24,272,753,229 10.9
Technology
Corporation
3 AK Steel 11,337,171 273,729,695,233 8.8
Corporation
4 Allegheny Ludlum 11,107,788 42,821,265,506 8.6
Corporation
5 International Steel 10,374,465 568,595,773,448 8.1
Group
6 North American 9,697,133 35,786,766,024 7.5
Stainless
10We identified the vulnerability of the U.S. steel and semiconductor
industries (among others) to surging imports in the wake of the Asian
financial crisis, as well as concerns over dumping and subsidies, in a
1999 report to Congress. See GAO, International Monetary Fund: Trade
Policies of IMF Borrowers, GAO/NSIAD/GGD-99-174 (Washington, D.C.: Jun.
23, 1999), pp. 29-35.
1119 U.S.C. S: 2251.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
(Continued From Previous Page)
Amount paid as a
percentage of total
Company Amount paid Amount claimed paid to industry
7 J&L Specialty 6,227,041 21,580,366,304
Steel
8 Bethlehem Steel 5,975,849 277,902,636,707
Company
9 Armco Steel 3,716,372 155,054,850,596
Corporation
10 Maverick Tube 3,454,452 13,870,701,890
Corporation
Source: GAO analysis of CBP data.
CDSOA Effects on Steel Companies
CDSOA Recipients Commented That Disbursements Have Had a Moderately
Positive Effect
Recipient steel companies varied in their assessments of the payments'
effects, but generally agreed that they had a positive impact in the areas
of net income and investing in plant, property, and equipment. For
example, several recipients said disbursements enabled them to make
investments needed to survive the steel crisis and be competitive in the
future. The companies also generally stated that CDSOA disbursements have
had little or no effect on prices, net sales, and market share. Some steel
recipients also commented that CDSOA has not been a complete solution to
the problems they faced due to unfairly traded imports. One recipient
commented, for example, that while CDSOA payments could be presumed to
have had a tangible benefit for the industry, they have not come close to
erasing the years of financial injury brought on by unfairly traded steel
products.
Some steel companies acknowledged that the CDSOA disbursements have not
been significant in relation to their size or capital expenditure needs.
For each of the 13 steel companies in our case study, the CDSOA
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
disbursements they received amounted to less than 1 percent of their net
sales in fiscal year 2004.12
Table 9 provides steel recipients' responses to our questionnaire on
CDSOA's effects.
Table 9: CDSOA Effects on Steel Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Recipients
Prices 0 11 0 0
Net sales 0 12 0 0
Gross profits 6 6 0 0
Net income 10 2 0 0
Property,
plant, and
equipment 9 3 0 1
Research and
development 8 4 0 0
Employment 6 5 0 1
Ability to
compete 8 4 0 0
Market share 1 10 0 0
Source: GAO analysis of company responses to structured questions.
CDSOA Effect on Company Ability to Compete in U.S. Market
Table 10 provides these companies' responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
12The ratio of a company's fiscal year 2004 CDSOA disbursements to its
2004 new sales may not be representative of this ratio for prior fiscal
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements to net sales. Calculating average ratios would help
account for these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 10: CDSOA Effect on Steel Companies' Ability to Compete in U.S.
Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
9 400
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA We also asked companies to describe how they used
the CDSOA payments
Funds that they received. However, the law does not require that
distributions be used for any specific purpose. The steel recipient
companies generally did not provide specific replies to this question.
General comments by these companies included that they used the CDSOA
payments to make capital investments, reduce debt, and assisted in the
acquisition of steel-making assets.
Net Sales and Employment Sales, profit, and income figures generally
improved markedly for the steel
Trends companies between 2003 and 2004, as the overall industry enjoyed a
strong rebound from the previous years. In some cases companies went from
showing net losses to net income between these 2 years. Some companies
also expanded greatly among all categories as they grew by acquiring the
assets of other companies. Overall, some companies gained employees, while
other companies lost them.
Extent of Overseas None of the recipient steel companies responding to our
questionnaire
Production reported that they are involved in overseas production or
importation of CDSOA products.
Scope and To obtain steel companies' views on CDSOA's effects, we sent out
a set of structured questions to certain steel CDSOA recipients and
non-recipients.
Methodology CDSOA payments are made in this industry under multiple steel
and steelrelated AD and CV orders that were issued over several years. For
this case study, we defined the scope of the steel industry to only
include companies
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
that produce steel by melting raw materials.13 Our scope excludes
companies that primarily make steel-related products (such as pipe or
tubing) from purchased raw steel. As discussed below, we were not able to
obtain information from steel non-recipients on CDSOA's effects.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments, according to our definition of the
industry, in each of the 4 years that disbursements have been made and the
amount of disbursements they have received. We obtained information from
representatives of the ITC, Commerce, and industry associations to
determine precisely which companies fit under our definition of the steel
industry. Using this information, we developed a list of 69 recipients and
ranked them by their total CDSOA receipts.14 Because of time and resource
constraints, we decided to survey the top 15 steel recipient companies
that had received 90 percent of the distributions made under the orders
included in our scope. Two of these companies had ceased operations. We
surveyed the remaining 13 companies and received completed surveys from
all of them. The 13 respondents accounted for about 72 percent of the
CDSOA payments to this industry; their views may not be representative of
all recipients, particularly those that received relatively small CDSOA
receipts.
The universe of steel non-recipients is larger than the universe of
recipients.15 We sought to obtain views from a comparable number of
nonrecipients as recipients. To identify these companies, we obtained
information from associations or others that were knowledgeable about the
industry. Besides ITC, we spoke with several steel industry associations
(American Iron and Steel Institute, Steel Manufacturers Association, and
the Specialty Steel Industry of North America) to identify leading steel
nonrecipients. We also asked recipient companies to identify their
competitors. Based on these meetings and our own research, we surveyed 12
leading non-recipient steel companies, from which we received 1 completed
13These are classified under the North American Industry Classification
System (NAICS) code, 331111 - Iron and Steel Mills.
14The calculation of the total number of steel companies to receive CDSOA
funds may include some payments that were received separately by different
divisions of the same company. In calculating the total number of
recipient steel companies we added the number of entities to receive
distributions for steel products, as listed by CBP.
15Whereas there are 69 CDSOA steel recipients, in 2003, the Census Bureau
listed 226 producers of carbon steel, 64 producers of alloy steel, and 74
producers of stainless steel.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
survey. However, this survey did not include comments or views on CDSOA's
effects. As a result, we are not able to present the views of steel
non-recipient companies on CDSOA's effects.
Views on CDSOA from Recipients and Non-Recipients in the Candle Industry
Background Petroleum wax candles are produced in several forms including
columns or pillars, wax-filled containers, tapers or dinner candles,
votives, and novelty candles. They are sold to consumers through retail
outlets, the largest percentage of which are through mass merchandisers
(such as Wal-Mart or Target); these are followed by department stores,
discount retailers, card and gift shops, and door-to-door sales through
membership groups. The majority of petroleum wax candles are produced and
imported for national markets. The number of domestic producers has grown
from over 100 when the ITC performed its original investigation in 1986 to
over 400 at the time of its second 5-year review in 2005. Only 10 domestic
candle producers are eligible for CDSOA payments. Table 5 shows these
companies' CDSOA disbursements and claims. According to the ITC, these
recipients, in addition to approximately 35 other candle producers, make
up 70 percent of U.S. candle production.
In 1985 a petition was filed by the National Candle Association (NCA)
alleging that the U.S. candle industry was materially injured by dumped
imports of petroleum wax candles from China.16 The ITC determined injury
in 1986, and Commerce issued an antidumping duty order of 54 percent on
all Chinese producers and exporters. The ITC conducted a 5-year, expedited
review in 1999, and the duty doubled from 54 percent to 108 percent after
another expedited review in 2004. U.S. producers' share of the market by
quantity (pounds) went from 43 percent in calendar year
16The ITC determined in the original investigation that beeswax candles
should not be included within the domestic like product. Beeswax candles
are composed of more than 50 percent beeswax, manufactured by U.S.
producers principally for religious and specialty markets, and priced
considerably higher than petroleum wax candles.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
1999 to 53 percent in calendar year 2004. Imports from China, which some
perceive as lower-end candles, accounted for 20 percent in 1999, rising to
27 percent in 2004. U.S. producers and Chinese suppliers have both gained
market share in recent years. U.S. producers' share of candles dollar
value was 66 percent in 1999 rising to 70 percent in 2004, while China's
share rose from 10 percent in 1999 to 14 percent in 2004. The ITC is
presently conducting a full 5-year "sunset" review of this order, and
recently presented its findings to Commerce. Also, Commerce is considering
whether the scope of the order should be changed, inquiring whether mixed
wax candles composed of petroleum wax and varying amounts of either palm
or vegetable wax alter the product so that they are not subject to the
current order.
Table 11 depicts CDSOA recipients for candles in fiscal years 2001 through
2004.
Table 11: Fiscal Years 2001-2004 Candle CDSOA Recipients
Amount paid as a
Amount percentage of total
Company Amount paid claimed paid to industry
Candle-litea $56,759,989 $1,285,509,591 39.81
Lancaster Colony 26,225,555 1,382,869,375 18.39
Corporationa
Home Fragrance 20,394,804 444,243,884 14.30
Holdings
Meunch-Kreuzer 10,695,594 212,476,879 7.50
Candle Company
General Wax & 9,297,725 150,256,642 6.52
Candle
Reed Candle 7,214,429 152,164,485 5.06
Company
7 Lumi-Lite Candle 5,625,486 89,582,027 3.95
Company
8 A.I. Root Company 3,338,318 163,393,408 2.34
9 Candle Artisans 1,171,570 57,421,924 0.82
10 Cathedral Candle 1,155,876 56,565,862 0.81
Company
11 Will & Baumer 691,842 913,379 0.49
Source: GAO analysis of CBP data.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
aIn 1972 Candle-lite was acquired by Lancaster Colony Corporation of which
it remains a division today. For fiscal years 2001-2003, Lancaster Colony
received CDSOA distributions under the name Candle-lite. The "amount paid"
for Candle-lite and Lancaster Colony should be added together for an
accurate account of CDSOA distributions made to the Candle-lite Division
of Lancaster Colony Corp. Total fiscal year 2001-2004 distributions equal
$82,985,544 or 58.21 percent of total distributions to the candle
industry. Likewise, the amount claimed for Lancaster Colony is applicable
to Candle-lite.
CDSOA Effects on
Candle Companies
Candle Recipients Reported Positive Effects from CDSOA Payments
Recipients report that CDSOA distributions have had positive effects on
their net income; on their property, plant and equipment; and on research
and development. One of the larger recipients of CDSOA distributions
claims that these payments have lessened the need to consider outsourcing
their candle products from abroad. However, the company reported that
because of the effects of dumped Chinese candles, they continue to lay off
workers, though fewer than they may have absent the CDSOA funds. Other
recipients claim to have developed new, better, and safer candles with
research and development reinvestment of CDSOA disbursements.
Fiscal year 2004 CDSOA disbursements as a percentage of company sales
range from 0.4 percent to 34.7 percent for the 10 recipient candle
companies, with most companies' shares in the higher end of this range.17
Candle Non-Recipients Reported Negative Effects
Non-recipients report that CDSOA distributions to their competitors have
had negative effects on their ability to compete in the market, on their
gross profits, and on net income. They also reported very negative effects
on industry competition. One non-recipient company has closed two of four
domestic manufacturing facilities, eliminated or reduced shifts, and its
released workers. Another non-recipient company claims that their
CDSOA-recipient competitors could reduce selling prices. While the
17The ratio of a company's fiscal year 2004 CDSOA disbursements to its
2004 new sales may not be representative of this ratio for prior fiscal
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements to net sales. Calculating average ratios would help
take account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
company matched competitors' lower prices, they made no profit. Because of
this, they have recently exited this segment of the candle business and
released workers accordingly. Some non-recipients also expressed the view
that their ineligibility for CSDOA disbursements is unfair. One
nonrecipient company joined the NCA as a leader of the organization a few
years after the issuance of the order, but stated that they have no
institutional memory of receiving an ITC questionnaire during its original
investigation in 1986. This company said it has supported the order as
well as NCA's efforts to defend the order since joining the NCA. Another
nonrecipient is ineligible by virtue of being acquired by a firm that
opposed the original investigation, and was unsuccessful in its legal
challenge of this.
Table 12 shows candle recipient and non-recipients' responses to our
questionnaire on CDSOA's effects.
Table 12: CDSOA Effects on the Candle Companies
Positive Little or no Negative No basis Number of Category effects effects
effects to judge respondents Recipients Non-Recipients
Prices 1 9 0 0
Net sales 2 5 0 3
Gross profits 6 3 0 1
Net income 9 0 0 1
Property, plant
and equipment 9 1 0 0
Research and
development 8 1 0 1
Employment 6 4 0 0
Ability to
compete 6 3 0 1
Market share 2 4 0 4 10
Prices 1 0 4 3 8
Net sales 1 0 4 3 8
Gross profits 0 0 4 4 8
Net income 0 0 4 4 8
Property, plant
and equipment 1 0 4 3 8
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
(Continued From Previous Page)
Positive Little or no Negative No basis
Number of respondents
Category effects effects effects to judge
Research and
development 1 1 3 3
Employment 1 1 3 3
Ability to
compete 0 0 4 4
Market share 1 0 4 3
Source: GAO analysis of company responses to structured questions.
CDSOA Effect on Company Table 13 depicts these companies' responses to our
question on CDSOA's Ability to Compete in U.S. effect on their ability to
compete in the U.S. market.
Market
Table 13: CDSOA Effect on Candle Companies' Ability to Compete in U.S.
Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
7 201
Non-Recipients
1 043
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA We also asked companies to describe how they used
the CDSOA payments
Funds that they received. However, the law does not require that
distributions be used for any specific purpose. Several recipients claim
that they have used CDSOA funds to invest in new and better equipment, and
in research and development. One recipient company reports that it has
been able to offer employees consistent and comprehensive benefits
packages due to CDSOA funds.
Net Sales and Employment For smaller candle companies-both recipients and
non-recipient
Trends respondents alike-net sales have stagnated, as has employment of
production and related workers. Some of the larger non-recipient
respondents appear to have experienced some growth in these categories,
while some of the larger recipients seem to have experienced some decline
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
or stagnation in net sales and some growth or stagnation in production and
employment.
Extent of Overseas Most candle companies are strictly domestic producers;
however, one non-
Production recipient stated that it would start to import some of its
candle products from Asia in order to keep its costs down.
Scope and Methodology
To obtain the views of candle companies on CDSOA's effects, we sent out a
set of structured questions to candle CDSOA recipients and certain
nonrecipient companies within the industry. CDSOA payments are made under
one AD order that was issued in 1986.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments in each of the 4 years that
disbursements have been made. Using this information, we developed a list
of 11 recipients and ranked them by their total CDSOA receipts. One of
these companies now receives CDSOA payments under the name of its parent
company, leaving 10 distinct companies. We sent surveys to all recipient
companies, and all of them provided completed surveys.
The universe of candle non-recipients is larger than the universe of
recipients.18 We sought to obtain views from a comparable number of
nonrecipients as recipients. To identify these companies, we obtained
information from associations or others that were knowledgeable about the
industry. Specifically, we (1) obtained a list of members of the NCA from
its website; (2) corroborated this list with information from a recent ITC
publication; and (3) obtained information about certain non-NCA members
based on our own research. Because of time and resource constraints, most
of the non-recipient candle companies we contacted are members of the NCA.
Surveys were sent to non-recipient candle companies for which an E-mail
address could be obtained either from the NCA list or from the company
directly. We surveyed 26 non-recipient candle makers, of which 8 provided
completed surveys. Respondents included two relatively large candle
companies whose net candle sales were similar in magnitude
18Eleven candle companies received CDSOA disbursements during fiscal years
2001-2005. According to ITC estimates, the U.S. candle industry contains
about 400 candle producers and 45 of these producers represent
approximately 70 percent of the domestic candle industry.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
to one of the largest candle CDSOA recipients, and several smaller candle
companies whose net sales were similar to or slightly larger than several
of the smaller CDSOA candle recipients. The views of these respondents may
not be representative of all non-recipients.
Views on CDSOA from Pasta Company Recipients and Non-Recipients
Background The bulk of pasta production in the United States is dry pasta,
with production of frozen or refrigerated pasta constituting a smaller
portion of the U.S. industry. After several decades of mergers and
acquisitions, and the 2001 sale of one major producer's production
facilities and brand names to two of its competitors, the industry's
current structure reflects a high degree of concentration among a few
large producers. The four largest U.S. producers as of 2001, based on ITC
data, were American Italian Pasta Company, New World Pasta, Dakota Growers
Pasta Company, and Barilla America, Inc. (a U.S. subsidiary of an Italian
pasta company that was set up in 1998 after antidumping and countervailing
duty orders on Italian dry pasta imports were issued). An industry expert
estimated that these four companies currently account for about 80 percent
of dry pasta production in the United States, with the remainder supplied
by smaller or specialty companies.19 Three of the four are eligible for
CDSOA disbursements, but Barilla America, Inc., whose share of U.S.
production is growing and which said it only imports a small percentage of
the pasta it sells here, is not. Overall demand for dry pasta in the
United States has been declining since the late 1990s, a trend that has
been exacerbated, according to dry pasta companies and industry experts,
by diets that emphasize low-carbohydrate intake.20 Further, the industry
has been experiencing decreased sales, excess capacity, and plant
closures. Among the more significant indicators
19According to the U.S. Census Bureau, there were 182 dry pasta companies
in 2002, down from 249 in 1997.
20Information on U.S. demand for pasta for the 1997-2000 period was
available from ITC. More recent information was obtained from annual
assessments of the pasta industry published by Milling & Baking News, a
trade magazine that follows the pasta industry.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
of the downturn, New World Pasta-a leading CDSOA recipient-filed for
Chapter 11 bankruptcy protection in 2004. According to ITC, about
threefourths of U.S. consumption of dry pasta in 2000 was supplied by
domestic producers, with the remainder supplied by imported products. At
that time, the largest sources of imported pasta were Italy, Canada,
Korea, and Mexico.
Several U.S. producers petitioned for relief from rapidly growing imports
in 1995. In 1996, Commerce issued antidumping and countervailing duty
orders on certain pasta imports from Italy and Turkey.21 Initial AD duties
rated from 0 to about 47 percent on Italian pasta and about 61 to 63
percent on Turkish pasta, while initial CV duties ranged from about 0 to
11 percent on Italian pasta and about 4 to 16 percent on Turkish pasta.
Since Commerce issued the order, dry pasta imports from Italy have
declined and Turkey is no longer a leading supplier of pasta to the United
States. The ITC completed a sunset review in 2001 that extended the orders
until 2006.
The top seven CDSOA recipients have received about 99 percent of the
payments made to the industry, with American Italian Pasta Company and New
World Pasta/Hershey Foods receiving 70 percent of total payments.
21The orders cover non-egg dry pasta in packages of 5 pounds or less.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 14 shows total payments made to all dry pasta CDSOA recipients in
fiscal years 2001 through 2004.
Table 14: Fiscal Years 2001-2004 CDSOA Pasta Recipients
Amount paid as
a percentage of
total paid to
Company Amount paid Amount claimed industry
1 American Italian Pasta $11,052,969 $8,063,794,100
Company
2 Hershey Foods (New 8,136,032 4,853,308,844
World Pasta)
3 A. Zerega's Sons 3,889,333 2,290,556,634
4 New World Pasta 3,584,898 8,213,502,091
5 Dakota Growers Pasta 2,328,690 3,285,863,416
Company
6 Philadelphia Macaroni 2,002,478 1,176,503,668
Company
7 Gooch Foods 744,737 30,137,692
8 Pasta USA 463,953 698,654,710
9 Fould's 185,155 260,992,108
10 S.T. Specialty Foods 112,247 282,512,767
11 D. Merlino & Sons 31,067 43,778, 230
Source: GAO analysis of CBP data.
aNew World Pasta acquired Hershey Foods Corporation in 1999.
CDSOA Effects on Pasta Companies
Pasta Recipients Reported The four pasta recipients that responded to our
survey viewed the CDSOA Mostly Positive Effects program as having mostly
positive effects on their companies. The two From CDSOA Payments largest
recipients did not respond to our survey, and we did not contact the
three smallest recipients. All respondents cited the most positive company
effects in the areas of profit; income; and investment in property, plant,
and equipment; and most cited positive effects on net sales and ability to
compete. Some recipient companies noted that the program has enhanced
their ability to increase production through plant expansions and
upgrades;
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
improved their cash flow, allowing them more operating flexibility;
reduced manufacturing costs; and enhanced some companies' competitive
position. Funds have also helped some companies develop new products.
CDSOA disbursements to the pasta industry have been small compared to each
company's net sales. For example, fiscal year 2004 CDSOA payments to the
pasta companies that responded to our survey represented about 1 percent
or less of each company's 2004 net sales.22
Non-Recipients Reported Minimal or Negative Effects
Among the six pasta non-recipients that responded to our survey, views
about the effect of CDSOA funds were mixed. A few said the funds had
impacted their companies negatively in certain areas or created an unfair
competitive environment in the industry, while others thought effects were
minimal or could not judge the program's effects. About half of the
nonrecipients thought the program has had little or no effects for their
companies in the areas of employment, prices, sales, investment, or market
share. Some non-recipients thought the program had negatively impacted
their company's profits, income, and ability to compete. Some
nonrecipients said that the program has probably helped recipients cut
prices, and that this has created an unfair advantage in the industry for
recipients. One non-recipient stated that it has had to transfer
substantial sums of money to its competitors because of CDSOA, and that
these funds would likely have been used for product development, capital
investment, and expansion at its U.S. facility.
Table 15 provides pasta recipients' and non-recipients' responses to our
questionnaire on CDSOA effects.
22The ratio of a company's fiscal year 2004 CDSOA disbursements to its
2004 new sales may not be representative of this ratio for prior fiscal
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements to net sales. Calculating average ratios would help
take account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 15: CDSOA Effects on Pasta Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Recipients Non-Recipients
Prices 2 2 0 0
Net sales 3 1 0 0
Gross profits 4 0 0 0
Net income 4 0 0 0
Property,
plant, and
equipment 4 0 0 0
Research and
development 2 1 0 1
Employment 3 1 0 0
Ability to
compete 2 2 0 0
Market share 1 2 0 1
Prices 0 3 1 2
Net sales 0 3 1 2
Gross profits 0 2 2 2
Net income 0 2 2 2
Property,
plant, and
equipment 0 3 1 2
Research and
development 0 2 1 3
Employment 0 4 0 2 6
Ability to
compete 0 2 2 2 6
Market share 0 3 1 2 6
Source: GAO analysis of company responses to structured
questions.
CDSOA Effect on Company Table 16 provides these companies' responses to
our question on CDSOA's Ability to Compete in U.S. effects on their
ability to compete in the U.S. market.
Market
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 16: CDSOA Effect on Pasta Companies' Ability to Compete in U.S.
Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
3 100
Non-Recipients
0 132
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA Funds
We also asked companies to describe how they used the CDSOA payments that
they received. However, the law does not require that distributions be
used for any specific purpose. Recipients used CDSOA funds for a variety
of purposes. For example, some said they used the funds to purchase new
equipment or upgrade existing equipment; reduce manufacturing costs and
improve cash flow; increase production capacity; and invest in research
and product development. This, in turn, led to increased production and
employment among some companies. One company that did not respond to our
survey disclosed in its 2003 annual report that it used a significant
portion of the funds to increased investment in brand building activities
and to strengthen the company's organization. One recipient noted that
CDSOA funds have been helpful because margins in the industry are very
thin and competition is strong. As CDSOA improved one company's bottom
line, it was able to obtain more attractive financing rates.
Net Sales and Employment Trends
Our information about the effect of CDSOA on net sales and employment in
this industry is limited because the two largest companies did not respond
to our survey. Although press coverage of the industry has noted generally
declining net sales among U.S. dry pasta companies in recent years, the
companies that responded to our questions reported general increases in
net sales during 2001 through 2004. Specifically, two companies reported
increased sales in the 2001 through 2004 time frame, and two companies
reported fluctuating sales that were higher at the end of the period than
at the beginning. Among recipient respondents, two companies' employment
levels generally increased, and two companies' employment levels generally
decreased since the implementation of CDSOA. Among nonrecipient
respondents, net sales and employment showed mixed trends. Three companies
reported increased sales, one company reported
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
fluctuating sales that were higher at the end of 2004, and two companies
reported decreased net sales. Three companies reported generally increased
employment levels and three reported general decreases.
Extent of Overseas All of the recipient pasta companies that responded to
our survey produce
Production their product only in the United States. However, the top CDSOA
recipients that did not respond to our survey produce pasta domestically
and in other countries. Four of the non-recipients produce exclusively in
the United States, and two produce both domestically and overseas.
Scope and Methodology
To obtain pasta companies' views on CDSOA's effects, we sent out a set of
structured questions to certain pasta CDSOA recipients and non-recipients.
CDSOA payments are made in this industry under two AD and two CV orders
that were issued simultaneously.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments in each of the 4 years that
disbursements have been made and the amount of disbursements they have
received. Using this information, we developed a list of 11 recipients and
ranked them by their total CDSOA receipts. CBP provided additional
information that indicated there were actually 10 distinct companies.23
Because of time and resource constraints, we decided to survey the top
seven companies that had received 99 percent of the total payments made
under these orders, from which we received four completed surveys.24 The
two pasta companies that are top CDSOA recipients did not respond to our
survey. Our information about CDSOA effects for recipients is limited to
the four pasta companies that responded, which together accounted for
about 27 percent of CDSOA payments to this industry.
23One recipient had acquired another recipient.
24One company said it lacked information to answer our questions because
its CDSOAeligible subsidiary was no longer producing pasta.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
The universe of dry pasta non-recipients is larger than the universe of
recipients.25 We sought to obtain views from a comparable number of
nonrecipients as recipients, but we had difficulty identifying
non-recipient dry pasta companies. To identify these companies, we
obtained information from associations or others that were knowledgeable
about the industry. Specifically, we obtained company names and contact
information from (1) the website of the National Pasta Association, which
presently carries out only limited activities on behalf of the industry;
(2) an association management company that handles administrative matters
for the National Pasta Association; (3) a directory of pasta companies
published on http://www.bakingbusiness.com, a division of Milling and
Baking News, which is a business news organization that ITC had identified
as closely following the pasta industry; and (4) other pasta companies.
Many of the companies we identified through these sources were not makers
of dry pasta as defined in the orders, but were instead makers of egg
noodles, fresh or refrigerated pasta, couscous, and boxed or frozen foods
that use pasta, or were flour mills or other companies linked to the
production of dry pasta. We surveyed eight non-recipient dry pasta
manufacturers, from which we received six completed surveys. The
respondents include the fourth-largest dry pasta manufacturer in the
United States, several smaller pasta companies that produce durum wheat
pasta, one company that produces wheat-free pasta, and one company that
produces exclusively organic pasta. The views of these respondents may not
be representative of all non-recipients.
Views on CDSOA from Recipients in the DRAM Industry
Background Dynamic random access memory (DRAM) semiconductors are
considered commodity products and compete largely on the basis of price;
DRAMs of similar density, access speed, and variety are generally
interchangeable
25Whereas only 11 pasta recipient companies have received CDSOA
disbursement, the U.S. Census Bureau identified 182 dry pasta companies in
its 2002 economic census. See U.S. Census Bureau, Dry Pasta Manufacturing:
2002 Economic Census (Washington, D.C.: December 2004).
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
regardless of the country of fabrication. Today, four companies produce
DRAMs in the United States:26 Micron Technologies is a U.S. company,
Infineon Technologies is a spin-off of the German company Siemens, and
Samsung Electronics27 and Hynix Semiconductor28 are Korean companies. All
of these companies now have production facilities in the United States as
well as abroad, but the latter three have entered the U.S. industry within
the past decade. The DRAM industry is cyclical in nature, where demand is
driven by investments in computers and other end-products. Fabrication
facility costs are high and require complete replacement approximately
every 10 years. Due to high fixed costs, chip manufacturers cannot afford
to scale down production; they must constantly produce chips and invest or
go out of business.
One countervailing duty order is currently in effect for DRAMs produced by
Hynix only.29 This duty order came into effect in 2003 and its duty rate
is currently 44 percent. Micron Technology received the bulk of
distributions in this industry because it was the sole recipient of duties
from two antidumping orders dating from the 1990s on DRAMs and other kinds
of chips. Payments were made to Micron on DRAMs of 1 megabit and above
under one AD order issued in 1993 and revoked in 2000, as well as on an AD
order on SRAMs (static random access memory chips) issued in 1998 and
revoked in 2002. The vast majority of CDSOA disbursements to the industry
(approximately $33 million) in fiscal years 2001 through 2004 were related
to these orders. Infineon did not incorporate in the United States until
2000 and, therefore, did not participate in the earlier investigations.
Both Infineon and Micron are eligible and received disbursements under the
26The Department of Commerce's final determination defines the imported
merchandise within the scope of its investigation as DRAMs from the
Republic of Korea (ROK), whether assembled or unassembled. Processed
wafers fabricated outside of the ROK and assembled into finished
semiconductors in the ROK are not included in the scope.
27Samsung Electronics Co. Ltd. of Korea is associated with Samsung Austin
Semiconductor LLC in Texas. Wafers fabricated in the Austin facility are
sent to Samsung facilities in Korea for cased DRAM assembly and in some
cases module assembly. These do not fall under the scope of the order.
28Hynix Semiconductor, Inc. of Korea has two U.S. subsidiaries in
California and Oregon. However, DRAM wafers fabricated in Oregon are sent
to Korea for assembly. These do not fall under the scope of the order.
29The Department of Commerce determined that the Government of Korea
directed credit to the Korean semiconductor industry through 1998 and
specifically to Hynix and companies that continue to be, or were part of,
the Hyundia Group from 1999 through June, 2002.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
current order but Hynix and Samsung are not eligible because they opposed
the petition. Because DRAMs are a technologically dynamic product, it is
expected that Commerce will revoke these orders when the subject products
are obsolete. New products open themselves to new petitions and orders,
thereby allowing new potential CDSOA recipients.
Table 17 depicts CDSOA recipients for DRAMs in fiscal years 2001-2004.
Table 17: Fiscal Years 2001-2004 DRAM CDSOA Recipients
Amount paid as
a percentage of
total paid to
Company Amount paid Amount claimed industry
1 Micron Technology $33,389,988 $9,093,423,782 99.98
2 Infineon Technologies 5,974 590,776,005 Richmond
Source: GAO analysis of CBP data.
CDSOA Effects on
DRAM Companies
CDSOA Disbursements The two recipients of CDSOA disbursements reported
mixed effects. One Have Mixed Effects on recipient reported that, although
at the time it was operating at a net loss, DRAM Companies CDSOA
distributions improved its profitability, investment, employment,
and research and development. The company noted that it would be of
greater help if payments were made soon after other countries began their
unfair trade practices. Another recipient reported that disbursements were
immaterial to their operations.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Fiscal year 2004 CDSOA disbursements are equal to less than 1 percent of
both companies' sales.30
Table 18 presents DRAM recipients' responses to our questionnaire on
CDSOA's effects.
Table 18: CDSOA Effects on DRAM Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Recipients
Prices 0 2 0 0
Net sales 0 2 0 0
Gross profits 1 1 0 0
Net income 1 1 0 0
Property, plant,
and equipment 1 1 0 0
Research and
development 1 1 0 0
Employment 1 1 0 0
Ability to compete 1 1 0 0
Market share 0 2 0 0
Source: GAO analysis of company responses to structured questions.
CDSOA Effect on Company Ability to Compete in U.S. Market
Table 19 shows companies' responses to our question on CDSOA's effect on
their ability to compete in the U.S. market.
30The ratio of a company's fiscal year 2004 CDSOA disbursements to its
2004 new sales may not be representative of this ratio for prior fiscal
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements to net sales. Calculating average ratios would help
take account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 19: CDSOA Effect on DRAM Companies' Ability to Compete in U.S.
Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
1 100
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA We also asked companies to describe how they used
the CDSOA payments
Funds that they received. However, the law does not require that
distributions be used for any specific purpose. One recipient uses CDSOA
distributions to fund U.S. operations and to invest in new U.S. production
equipment. The other recipient also uses distributions in operations.
Net Sales and Employment Historically, the DRAM market is subject to
periods of "boom and bust."
Trends Both CDSOA recipients reported some net losses and have experienced
slight declines in production and related workers during the past 4 fiscal
years.
Extent of Overseas One company has DRAM production facilities in three
U.S. states as well as
Production Japan, Italy, and Singapore. The other indicated that it has
both domestic and foreign production facilities; they also noted that
DRAMs manufactured in the United States can be sold abroad, and DRAMs
manufactured abroad can in turn be sold here.
Scope and Methodology
To obtain the views of DRAM-producing companies on CDSOA's effects, we
sent a set of structured questions to the two CDSOA recipients. Current
CDSOA payments on DRAMs are made on a CV order issued in 2003.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments in each of the 4 years that
disbursements have been made. CBP identified two companies. We surveyed
both recipient companies, and both provided completed surveys.
To identify non-recipients, we consulted the recipient companies to
identify their competitors, and we obtained information on domestic
producers
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
from the ITC's final determination on DRAM and DRAM Modules from Korea.31
There are two U.S. subsidiaries of Korean companies that are considered
domestic producers who opposed the petition for the current order. We
attempted to contact these companies but were unsuccessful in our efforts.
We did not attempt to contact a fifth company that is also considered a
domestic producer; this company does not list the major DRAM producers as
competitors, and has no fabrication facilities.32 ITC listed other
domestic producers for the purposes of its investigation, but these
companies have since ceased DRAM production or have ceased to exist.
Views on CDSOA from Recipients and Non-Recipients in Crawfish Industry
Background Crawfish are freshwater crustaceans that resemble lobsters but
are considerably smaller. U.S. commercial production of crawfish is
concentrated within a relatively small area of southern Louisiana, where
crawfish are harvested in the wild by fishermen and farmed in ponds.
Crawfish may be sold whole and live, whole and boiled, or as fresh or
frozen tail meat. Whole crawfish and fresh tail meat is consumed primarily
in Louisiana and neighboring states, where there is generally a preference
for local products in season. Tail meat is also sold more broadly
throughout the United States. U.S. producers supply whole crawfish and
fresh and frozen tail meat, whereas imports, mainly from China, are
primarily frozen tail meat. U.S. businesses that process whole crawfish
into tail meat are primarily small, family-owned concerns. Inexpensive
imports and poor harvests have driven many domestic crawfish processors
out of business in recent years. It is estimated that there were over 100
processors in
31See ITC, DRAM and DRAM Modules from Korea, Investigation No. 701-TA-431
(Final), Publication 3616 (Washington, D.C.: August 2003).
32According to the ITC, companies that only package DRAMs into DRAM
modules and fabless design houses do not engage in sufficient
production-related activities to warrant their inclusion in the domestic
industry. Nonetheless, ITC included this company in a list of domestic
producers for the purposes of its investigation.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Louisiana in the 1980s and early 1990s, but that number has dropped by
more than half.
In 1996, the Crawfish Processors Alliance, an industry association, and
the Louisiana Department of Agriculture and Fisheries, filed a petition
alleging that U.S. processors of crawfish tail meat were being injured by
dumped imports of crawfish tail meat from China. Significant imports of
tail meat began in the mid-1990s, and ITC estimates that imports' share of
consumption grew from just over 60 percent in 1997 to about 87 percent in
2002. In 1997, Commerce issued an anti-dumping order on crawfish tail meat
and imposed anti-dumping margins that ranged from about 92 to about 202
percent.
Table 20 depicts the top 10 CDSOA recipients for crawfish in fiscal years
2001-2004.
Table 20: Top 10 Fiscal Years 2001-2004 Crawfish CDSOA Recipients
Amount paid as a
percentage of
Amount Amount total paid to
Company paid claimed industry
Atchafalaya Crawfish $3,054,297 $5,940,653 12.0
Processors
2 Seafood International 2,394,144 4,231,815 9.4
3 Catahoula Crawfish 2,136,763 4,033,844 8.4
4 Crawfish Enterprises 1,722,957 5,559,354 6.8
5 Prairie Cajun Seafood 1,711,875 3,063,186 6.7
Wholesale Distributors
6 Bayou Land Seafood 1,512,866 3,083,890 6.0
7 Acadiana Fishermen's Co-Op 1,297,685 2,635,910 5.1
8 Bonanza Crawfish Farm 1,086,372 2,084,090 4.3
9 Riceland Crawfish 1,061,156 2,192,214 4.2
10 Cajun Seafood Distributors 1,052,414 2,172,290 4.1
Source: GAO analysis of CBP data.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
CDSOA Effects on Crawfish Processing Companies
Crawfish Recipients Reported Positive Effects from CDSOA Payments
CDSOA recipient respondents in the crawfish tail meat processing industry
stated that the program has generally had positive effects for the
industry and their companies. Several recipient respondents credited CDSOA
with saving the domestic crawfish processing industry. Because of the
program, they said, businesses remained open, employees kept their jobs,
and crawfish fishermen continued to fish. The areas in which positive
effects were most often cited were income; profits; investment in
property, plants, and equipment; employment; and ability to compete. The
program was generally seen as having little or no effect on prices,
research and development, and market share. Many recipients stated that
the program had encouraged them to purchase and process more crawfish and
freeze more tail meat for sale in the off-season, leading to increased
employment among some processors and higher sales volumes for crawfish
farmers and fishermen.
Many respondents noted the poor collection rate and enforcement of the AD
order for crawfish and viewed the CDSOA program as providing their only
effective relief from dumped imports. (CBP disbursed about $9.8 million to
crawfish processors in fiscal year 2003 but reported that the uncollected
duties related to crawfish in that year were about $85.4 million. In
fiscal year 2004, CBP disbursed about $8.2 million to the industry, but
uncollected duties rose to about $170 million. Nearly two-thirds of all
uncollected duties in fiscal year 2004 were related to the crawfish
order.) Recipients complained that widespread non-payment of duties means
Chinese crawfish continues to enter the U.S. market unabated. In its 2003
review to evaluate continuation of the AD order, ITC found that Chinese
tail meat undersold (was sold at a lower price) domestic tail meat to the
same degree with the AD order in place as it had before the order was
issued, suggesting that the order has not affected the price of imported
tail meat.33
33See ITC, Crawfish Tail Meat from China, Investigation No. 731-TA-752
(Review), Publication 3614 (Washington, D.C.: July 2003).
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Although CDSOA disbursements in this industry have been small compared to
certain other industries, these payments have been significant for some
recipients when compared to net sales. Among the 16 recipients that
responded to our survey, their fiscal year 2004 CDSOA disbursement as a
percent of their 2004 net sales ranged from a low of about 4 percent for
one company to a high of about 350 percent for another.34 Among the other
respondents, four companies' fiscal year 2004 disbursement was about 15 to
18 percent of their net sales that year, five companies' disbursement was
about 27 to 33 percent of their net sales, and four companies'
disbursement was between 52 and 96 percent of their net sales.35 One
company did not report any net sales information to us.
Non-Recipients Reported Negative Effects
Non-recipients crawfish processors that responded to our survey said that
the CDSOA program has helped recipient companies, but has harmed
nonrecipient companies by creating conditions of unfair competition among
domestic processors. Most non-recipients cited negative effects for their
companies in terms of ability to compete, net sales, profits, income,
investment, and employment, which are generally the areas where recipients
saw positive effects. Several non-recipients stated that they were unable
to compete with the CDSOA recipients. For example, several nonrecipients
said that recipient companies were offering tail meat for sale at prices
that were below the cost of production and were able to do so because
their CDSOA funds would compensate them for any losses. In such
conditions, some non-recipients said they cannot operate profitably and
some decided to stop producing tail meat in recent years.
Table 21 provides crawfish recipients and non-recipients' responses to our
questionnaire on CDSOA's effects.
34The ratio of a company's fiscal year 2004 CDSOA disbursement to its 2004
net sales may not be representative of this ratio for prior years or of
the average ratio of disbursements to net sales for the company since
CDSOA's inception, because of fluctuations in the size of CDSOA
disbursements and net sales. Calculating average ratios would help take
account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
35This includes information for two companies based on their fiscal year
2003 disbursements and net sales because we lacked information to
calculate the ratio for fiscal year 2004.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 21: CDSOA Effects on Crawfish Companies Category
Positive effects
Little or no effects
Negative effects
No basis to judge
Number of respondents
Recipients Non-Recipients
Prices 3 13 0 0
Net sales 9 7 0 0
Gross profits 11 4 0 0
Net income 14 2 0 0
Property,
plant, and
equipment 11 3 0 0
Research and 5 9 0 0
development
Employment 11 5 0 0
Ability to
compete 10 6 0 0
Market share 5 9 0 0
Prices 2 1 5 1
Net sales 0 1 8 0
Gross profits 0 1 8 0
Net income 0 1 7 1
Property,
plant, and
equipment 0 2 7 0
Research and
development 0 3 4 2
Employment 0 2 7 0 9
Ability to
compete 0 0 9 0 9
Market share 0 2 6 1 9
Source: GAO analysis of company responses to structured
questions.
CDSOA Effect on Company Table 22 provides these companies' responses to
our question on CDSOA's Ability to Compete in U.S. effect on their ability
to compete in the U.S. market.
Market
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 22: CDSOA Effect on Crawfish Companies' Ability to Compete in the
U.S. Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
12 301
Non-Recipients
0 180
Source: GAO analysis of company responses to structured questions.
Company Uses of CDSOA Funds
We also asked companies to describe how they used the CDSOA payments that
they received. However, the law does not require that distributions be
used for any specific purpose. Recipient companies reported a wide range
of uses for the funds. For example, most of the companies that reported
this information said they purchased or upgraded equipment, buying new or
larger delivery trucks, boilers, ice machines, freezers, coolers, and
vacuum-pack machines. Several companies bought more crawfish to peel and
hired more employees, thereby increasing their production of tail meat.
Several companies said that they made investments and repairs to their
plants, such as installing or expanding docks for receiving shipments of
whole crawfish. Several also paid off long-standing company and personal
debts. For example, the head of one small family-run company said he paid
off mortgages on the plant and his residence, bought new equipment, and
made needed repairs without incurring new financing costs. One company
said that it started a pension plan for its employees.
Net Sales and Employment Trends
More than half of the recipient companies that we surveyed had growing net
sales in the 2001 through 2004 time frame. Other companies' net sales
fluctuated, decreased, or were relatively stable. Several respondents said
that one of the most significant outcomes of the CDSOA program was to
encourage them to purchase and process more crawfish and freeze more tail
meat for sale in the off-season, thereby improving their year-round cash
flow. Most non-recipients that responded to our survey did not provide net
sales information.
More than half of the crawfish recipient respondents also reported growth
in employment levels, and some of these increases were significant. One
company quadrupled the number of production and related workers during
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
the 2001 through 2004 period (from 28 to 111) and the number of such
workers at three other companies doubled. Several stated CDSOA enabled
them to hire more people. Three recipients reported net decreases in the
number of production and related workers in this time period.
Nonrecipients also generally did not report employment information.
Extent of Overseas Survey respondents said they process tail meat
exclusively in the United
Production States. We did not gather any information that disclosed
whether, in the course of doing business, any of these processors also
import or offer imported tail meat for sale.
Scope and Methodology
To obtain crawfish tail meat processing companies' views on CDSOA's
effects, we sent out a set of structured questions to certain crawfish
CDSOA recipients and non-recipients. CDSOA payments are made in this
industry under one AD order.
To identify CDSOA recipients, we obtained information from CBP about the
companies that have received payments in each of the three years that
disbursements have been made and the amount of disbursements they have
received. Using this information, we developed a list of 35 recipients and
ranked them by their total CDSOA receipts. CBP provided additional
information that indicated that certain companies had received funds under
different names in different years. Because of time and resource
constraints, we decided to survey 20 of the top recipients that had
received about 90 percent of the total payments made under this order. We
received 16 completed surveys. These 16 companies accounted for about 73
percent of CDSOA payments to this industry; their views may not be
representative of all recipients, particularly those that received
relatively small CDSOA disbursements.
The size of the universe of crawfish non-recipients not known.36 We sought
to obtain views from a comparable number of non-recipients as recipients,
but we had difficulty identifying non-recipient crawfish companies. To
36Precise information about the number of crawfish processors is
unavailable. According to ITC, more companies are licensed to process
crawfish than are active in any given year. In a 2003 report to evaluate
the effects of the order, ITC received information from 42 crawfish
processors, of which 27 were CDSOA recipients. See ITC, Crawfish Tail Meat
from China, Investigation No. 731-TA-752 (Review), Publication 3614
(Washington, D.C.: July 2003).
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
identify these companies, we obtained information from associations or
others that were knowledgeable about the industry. Specifically, we
obtained contact information for current and former tail meat processors
that are non-recipients from (1) a law firm that represents the Crawfish
Processors Alliance, an entity that was a petitioner in this case; (2) the
Louisiana Department of Agriculture and Fisheries, an entity that was a
petitioner in this case; (3) the Louisiana Department of Health and
Hospitals, which licenses and inspects processors; and (4) certain other
tail meat processors. We lacked accurate contact information for several
of these companies. We surveyed 17 current and former processors, from
which we received 9 completed surveys.37 The views of these respondents
may not be representative of all non-recipients.
Views on CDSOA from Recipients and Non-Recipients in Softwood Lumber
Industry
Background Softwood lumber generally comes from conifers or evergreen
trees including pine, spruce, cedar, fir, larch, Douglas fir, hemlock,
cypress, redwood, and yew. Softwood is easy to saw and used in structural
building components. It is also found in other products such as mouldings,
doors, windows, and furniture. Softwood is also harvested to produce
chipboards and paper. U.S. softwood lumber producers are generallly
located in the southeast and northwest, with the northwest softwood lumber
being comparable to Canadian softwood lumber. CDSOA disbursements to the
softwood lumber industry went to 143 companies in fiscal years 2003 and
2004. According to one estimate, about half of the softwood lumber
companies are eligible to receive these disbursements.
37We sent surveys to all current processors that we identified, with the
exception of one company that had just entered the business and felt it
lacked perspective on the questions. Included in the definition of current
processors are certain companies that are not currently employing people
to process tail meat but that continue to hold licenses to process
crawfish and/or have engaged other companies to process tail meat on their
behalf. We also sent surveys to former processors that had processed tail
meat at any time since 2002, when CDSOA disbursements to this industry
began.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Canada's share of the U.S. lumber market rose from less than 3 billion
board feet (BBF) and 7 percent of the market in the early 1950s to more
than 18 BBF per year and 33 percent of the market in the late 1990s. In
2003, U.S. imports of softwoods were 49,708 thousands of cubic meters, and
the ratio of these imports to consumption was 37.4 percent. Since 1981,
the United States and Canada have been involved in several softwood lumber
disputes, leading to, among other things, a 15 percent Canadian tax on
lumber exports in 1986; a countervailing duty of 6.51 percent on Canadian
imports in 1992, which ended in 1994; and a 1996 Softwood Lumber Agreement
restricting Canadian exports for five years, until 2001.
The U.S. again imposed antidumping and countervailing duties on Canadian
imports in 2002. From May 2002 to December 2004 most Canadian softwood
lumber exported to the United States was subject to a combined antidumping
and countervailing duty of 27 percent. In December 2004 this combined duty
was reduced to 21 percent. These two duty orders funded about $5.4 million
in CDSOA disbursements to U.S. softwood lumber companies in fiscal years
2003 and 2004. Leading U.S. softwood lumber producers are among the
industry's top CDSOA recipients. However, major U.S. producers are also
among those ineligible to receive CDSOA disbursements. CBP has received
over $3.7 billion in deposits to cover estimated duties from softwood
lumber imports from Canada.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Table 23 depicts the top 10 CDSOA softwood lumber recipients for fiscal
years 2003-2004.
Table 23: Top 10 FY 2003-2004 Softwood Lumber CDSOA Recipients
Amount paid as a
percentage of
Amount total paid to
Company Amount paid claimed industry
1 International Paper $761,907 $3,450,790,984 13.98
2 Sierra Pacific Industries 549,622 2,479,493,488 10.09
3 Stimson Lumber 350,766 1,587,151,896
4 Hampton Resources 321,954 1,459,096,581
5 Potlatch Corporation 261,543 1,186,058,000
6 Temple Inland Forest 165,907 763,770,440
7 Plum Creek Reek Timber 141,260 650,304,609
8 Swanson Group Inc 135,481 623,700,679
9 Gilman Building Products 120,249 550,635,410
10 Seneca Sawmill 107,278 483,738,802
Source: GAO analysis of CBP data.
CDSOA Effects on Softwood Lumber Companies
Softwood Lumber Recipient and non-recipient companies generally noted
that, because Recipients and Non-CDSOA disbursements had been so small in
fiscal years 2003-2004, totaling Recipients Reported Little about $5.4
million, they had had little or no effect on their companies.
or No Effects from CDSOA Although recipient companies vary greatly in
their overall size, these Payments companies do not vary significantly in
terms of the amount they have received through CDSOA as a percentage of
their sales in fiscal year 2004.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Specifically, CDSOA disbursements to company sales amounted to less than 1
percent for the recipient companies in our study.38
However, some recipient and non-recipient companies emphasized that, if
the United States ever were to liquidate and disburse the large amount of
softwood lumber duties currently being held in deposit by Treasury, these
disbursements would have major effects on both recipient and nonrecipient
companies. One recipient company noted that these disbursements would have
positive effects on its company, while a nonrecipient company emphasized
negative effects. Because capital is a major function in competitiveness,
a non-recipient company stated that, if recipient companies were to invest
large CDSOA disbursements on new mills, they would be able to dramatically
increase their efficiency, output, and market share.
Table 24 provides softwood lumber recipients and non-recipients' responses
to our questionnaire on CDSOA's effects.
Table 24: CDSOA Effects on Softwood Lumber Companies
Positive Little or no Negative No basis to Number of Category effects
effects effects judge respondents Recipients
Prices 1 12 0 0
Net sales 1 12 0 0
Gross profits 1 12 0 0
Net income 1 12 0 0
Property, plant,
and equipment 1 12 0 0
Research and
development 1 12 0 0
Employment 1 12 0 0 13
38The ratio of a company's fiscal year 2004 CDSOA disbursements to its
2004 new sales may not be representative of this ratio for prior fiscal
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements to net sales. Calculating average ratios would help
take account of these fluctuations, but we did not calculate such ratios
because we lacked consistent information about disbursements and net sales
for all CDSOA recipients that responded to our case study questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
(Continued From Previous Page)
Positive Little or no Negative No basis to
Number of respondents
Category effects effects effects judge
Ability to compete 1 12 0 0
Market share 1 12 0 0
Non-Recipients
Prices 0 5 0 1
Net sales 0 5 0 1
Gross profits 0 5 0 1
Net income 0 5 0 1
Property, plant,
and equipment 0 5 0 1
Research and
development 0 5 0 1
Employment 0 5 0 1
Ability to compete 0 5 0 1
Market share 0 5 0 1
Source: GAO analysis of company responses to structured questions.
CDSOA Effect on Company Recipient and non-recipient companies generally
reported that the CDSOA Ability to Compete in U.S. disbursements had had
no effect on their companies' ability to compete in Market the U.S.
market.
Table 25 presents these companies responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 25: CDSOA Effect on Softwood Lumber Companies' Ability to Compete in
U.S. Market
Stayed about Don't know/no Number of Increased the same Decreased basis to
judge respondents
Recipients
2 80313
Non-Recipients
0 2136
Source: GAO analysis of company responses to structured questions.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Company Uses of CDSOA We also asked companies to describe how they used
the CDSOA payments
Payments that they received. However, the law does not require that
distributions be used for any specific purpose. Overall, companies noted
that they had used the payments for a variety of purposes, such as paying
debt, past qualifying expenditures, general operating expenses, general
corporate expenses, and capital investment. Others noted that the payments
had been too small to track their use in any area.
Net Sales and Employment Overall, recipient and non-recipient companies we
contacted vary
Trends significantly in size. Both show slight increase in net sales and
employment over the 4 years that CDSOA has been in effect. Leading U.S.
producers are among the CDSOA recipient and non-recipient companies.
Extent of Overseas Most recipient companies we contacted produced
CDSOA-related products
Production domestically. Some non-recipient companies we contacted
produced these products domestically. Others produced them both
domestically and abroad.
Scope and Methodology
To obtain softwood lumber companies' views on CDSOA's effects, we sent out
questionnaires to certain softwood lumber CDSOA recipients and
nonrecipients. CBP made CDSOA payments to recipients in this industry in
fiscal years 2003 and 2004 under an AD order and a CV order both issued in
2002.
To identify CDSOA recipients, we obtained information from CBP about the
companies that had received CDSOA payments in the 2 fiscal years and the
amount of disbursements they had received. Using this information, we
developed a list of 143 recipients and ranked them by their total CDSOA
receipts in the 2 fiscal years. Because of time and resource constraints,
we decided to survey the top 14 recipients that had received about 60
percent of the total softwood lumber payments. CBP provided contact
information on these companies to us. From these 14 companies, we received
13 completed surveys. These 13 companies accounted for about 59 percent of
all softwood lumber disbursements. Their views may not be representative
of all recipients, particularly those that received relatively small CDSOA
disbursements.
Appendix III
CDSOA Recipient and Non-Recipient
Companies in Seven Industries
Given that about half of the industry is eligible to receive CDSOA
disbursements, we sought to obtain views from a comparable number of
recipients and non-recipients. To identify non-recipient companies, we
obtained information from public and private sources that are
knowledgeable about the industry. Specifically, we obtained information on
non-recipients from the ITC and softwood lumber companies. We surveyed 15
companies and we received six completed surveys from them. These
respondents included a wide range of top non-recipients, including one of
the largest companies in the industry. However, their views may not be
representative of all non-recipients.
Appendix IV
Comments from Customs and Border Protection
Appendix IV
Comments from Customs and Border
Protection
Appendix IV
Comments from Customs and Border
Protection
Appendix V
GAO Contact and Staff Acknowledgments
GAO Contact Loren Yager, (202) 512-4347
Staff Acknowledgments
(320289)
Kim Frankena served as Assistant Director responsible for this report, and
Juan Tapia-Videla was the Analyst-in-Charge. In addition to those named
above, the following individuals made significant contributions to this
report: Shirley Brothwell, Ming Chen, Martin de Alteris, Carmen Donohue,
John Karikari, Casey Keplinger, Jeremy Latimer, and Grace Lui. The team
benefited from the expert advice and assistance of Jamie McDonald, Jena
Sinkfield, Tim Wedding, and Mark Speight.
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