International Trade: Customs' Revised Bonding Policy Reduces Risk
of Uncollected Duties, but Concerns about Uneven Implementation
and Effects Remain (18-OCT-06, GAO-07-50).
Since 2003, the Department of Homeland Security's U.S. Customs
and Border Protection (CBP) has been unable to collect at least
$480 million in antidumping (AD) and countervailing (CV) duties.
In July 2004, CBP revised its policy regarding the continuous
bonds (CB) that importers post. The policy potentially
significantly increases the amount of the bonds for affected
importers. Following the application of the policy to imports of
shrimp as a "test case," U.S. importers and trading partners
initiated legal action to prevent CBP from continuing to apply
the policy. GAO examined why and how CBP revised its CB policy,
how CBP implemented the revised policy, and the effects of the
revised policy.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-50
ACCNO: A62364
TITLE: International Trade: Customs' Revised Bonding Policy
Reduces Risk of Uncollected Duties, but Concerns about Uneven
Implementation and Effects Remain
DATE: 10/18/2006
SUBJECT: Foreign trade policies
Import regulation
Policy evaluation
Risk management
Trade regulation
Policies and procedures
Program implementation
Transparency
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GAO-07-50
* [1]
* [2]Summary
* [3]Conclusions
* [4]Recommendations for Executive Action
* [5]Agency Comments and Our Evaluation
* [6]Appendix I: Briefing Slides from the October 10, 2006, Brief
* [7]Appendix II: Scope and Methodology
* [8]Appendix III: Comments from the Department of Commerce
* [9]Appendix IV: Comments from the Department of Homeland Securi
* [10]GAO Comment
* [11]Appendix V: GAO Contact and Staff Acknowledgments
* [12]GAO Contact
* [13]Staff Acknowledgments
* [14]Order by Mail or Phone
Report to the Chairman, Committee on Ways and Means, House of
Representatives
United States Government Accountability Office
GAO
October 2006
INTERNATIONAL TRADE
Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but
Concerns about Uneven Implementation and Effects Remain
GAO-07-50
Contents
Letter 1
Summary 3
Conclusions 7
Recommendations for Executive Action 7
Agency Comments and Our Evaluation 8
Appendix I Briefing Slides from the October 10, 2006, Briefing to the
House Committee on Ways and Means 9
Appendix II Scope and Methodology 49
Appendix III Comments from the Department of Commerce 51
Appendix IV Comments from the Department of Homeland Security 52
GAO Comment 54
Appendix V GAO Contact and Staff Acknowledgments 55
Abbreviations
AD antidumping CD continuous bond CV countervailing CBP U.S. Customs and
Border Protection DDP delivered duty-paid
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United States Government Accountability Office
Washington, DC 20548
October 18, 2006
The Honorable William M. Thomas Chairman Committee on Ways and Means House
of Representatives
Dear Mr. Chairman:
Since 2003, the Department of Homeland Security's U.S. Customs and Border
Protection (CBP) has been unable to collect more than $480 million in
antidumping (AD) and countervailing (CV) duties, a problem we have
previously blamed for undermining the effectiveness of U.S. trade
remedies.1 Congress has expressed ongoing concern about CBP's problems in
collecting AD/CV duties, most recently by enacting legislation to close a
legal loophole some believe contributed to a large amount of uncollected
duties.2 In an effort to address the underlying causes of its problem in
collecting AD/CV duties, in July 2004, CBP revised its continuous bond
(CB) policy. The policy significantly increases the amount of the bonds
required for some affected importers.3 Following the application of the
policy to imports of shrimp, U.S. importers and trading partners initiated
legal action to prevent CBP from applying the policy.
CBP assesses importers' estimated duties on goods brought into the United
States on the basis of declarations by importers at the time that the
products enter the country. CBP then reviews the importer's declarations
and determines whether the importer's estimates of import duties and fees
were accurate or whether additional (supplemental) duties are owed. To
help protect the government's interests against loss if importers do not
pay the full amount of duties owed, CBP requires importers to maintain
bond coverage.
1CBP reported that it was unable to collect $130 million in AD/CV duties
in fiscal year 2003, $260 million in fiscal year 2004, and $93 million in
fiscal year 2005.
2Section 1632 of Pub. L. No. 109-280 requires reports on collections
problems, and temporarily suspended the new shipper bonding privilege,
which CBP and others said was contributing to the problems CBP has
experienced in collecting AD/CV duties. For a description of the new
shipper bonding privilege, see GAO, International Trade: Issues and
Effects of Implementing the Continued Dumping and Subsidy Offset Act,
[15]GAO-05-979 (Washington, D.C.: Sept. 26, 2005), 26, footnote 37.
3Currently, the revised CB policy is only being applied to imports of
shrimp from six countries that are subject to antidumping orders: Brazil,
China, Ecuador, India, Thailand, and Vietnam.
In addition to standard duties, some imports are subject to AD/CV duties
to remedy the adverse impact of unfair trade practices, namely dumping
(i.e., sales at less-than-normal value) and foreign government subsidies,
on domestic industries and workers. Imposition of these duties requires
two separate investigations by U.S. government agencies: one by the
Department of Commerce, which determines if dumping or subsidies are
occurring, and the other by the U.S. International Trade Commission, which
determines whether a domestic U.S. industry is materially injured by such
imports. If both agencies make affirmative determinations, CBP is directed
to collect additional duties at a rate that Commerce determines.
Given the importance of collecting AD/CV duties without unnecessarily
burdening U.S. importers or international trade, we reviewed the
development, implementation, and effects of CBP's revised CB policy as
applied to shrimp imports. Specifically, we reviewed (1) why CBP revised
its continuous bond policy; (2) how CBP developed the revised policy; (3)
how CBP has implemented the revised policy; and (4) the effects of the
revised policy on revenue, imports, and importers. It was not our
objective to assess or comment, nor should this report be construed as
assessing or commenting, on the arguments raised in ongoing litigation
relating to the revised CB policy. On October 10, 2006, we briefed your
staff on the results of our analysis. This report formally conveys the
information provided during the briefing (see app. I).
To determine why and how CBP developed its revised CB policy, we reviewed
the July 2004 revised policy and the related August 2005 policy
clarification. We also reviewed relevant laws and regulations and publicly
available documents that CBP submitted to the U.S. Court of International
Trade pursuant to ongoing litigation regarding the revised CB policy. In
addition, we interviewed CBP officials who participated in developing the
revised policy. We did not independently verify the analysis CBP used to
develop the revised CB policy. To identify how CBP implemented the revised
policy, we reviewed publicly available documents that CBP submitted to the
U.S. Court of International Trade pursuant to ongoing litigation,
interviewed CBP officials responsible for implementing the policy, and
reviewed selected documentation related to CBP's decisions regarding
setting individual companies' bond amounts. We also interviewed and
obtained documents from U.S. shrimp importers, which are the first and
only importers subject to the revised policy, to obtain information on
their experiences with CBP's implementation of the policy. To determine
the effects of the revised CB policy, we reviewed economic literature and
analysis. In addition, we interviewed industry representatives, surety
companies and associations, and importers. Our interviews with 15 U.S.
shrimp importers subject to the revised policy included companies that
were both large and small; that are party to and are not party to ongoing
litigation regarding the revised policy; that imported shrimp from a
variety of countries; and that ranged from almost exclusively relying on
shrimp to having shrimp as one of many commodities they import. We also
spoke with several domestic producer interests. We conducted our work from
April 2006 to September 2006 in accordance with generally accepted
government auditing standards. (For additional details regarding our scope
and methodology, see app. II.)
Summary
In summary, we found the following in examining why and how CBP revised
its CB policy, how CBP implemented the revised policy, and the effects of
the revised policy:
o Why CBP revised the CB policy. CBP revised its CB policy to
reduce three risks of uncollected AD/CV duties that it identified.
First, the traditional bond formula provided little protection of
duty revenue. It is set at the greater of $50,000 or 10 percent of
an importer's bill for duties and other CBP charges from the
previous year, which often resulted in an insufficient bond.
Second, multiple agencies are involved in a complex AD/CV duty
investigation process,4 final AD/CV duty bills are generated long
after products enter the country,5 and AD/CV duty rates on a
product can increase dramatically. This often creates a need for
CBP to go back to importers to collect additional duties and a
risk that CBP will not be able to collect the full amount owed. In
early 2004, CBP determined that the vast majority of outstanding
duty bills were due to increases in AD/CV duty rates, and that
insufficient bonds were the key reason CBP was unable to collect
these duties when importers were unwilling or unable to pay.
Third, CBP analyzed the uncollected AD/CV duties and determined
that large portions were attributable to imports from China and to
agriculture/aquaculture products. CBP then determined that
importers of agriculture/aquaculture products shared certain
characteristics, such as low capitalization, that made them a high
risk for being unable to pay the full amount of AD/CV duties owed.
o How CBP developed the revised CB policy. CBP developed a revised
CB policy internally after factoring in several considerations and
then conducted some outreach prior to applying the policy to
shrimp importers. An internal CBP working group identified
potential options for protecting future AD/CV duty revenue, and
determined that revising the CB policy was the best mechanism to
use because CBP concluded that the revision was within its legal
authority and would be less burdensome on importers than other
options. CBP decided that imports of warmwater shrimp, which were
undergoing an AD investigation, would be a suitable test case for
the revised bond policy, primarily because (1) warmwater shrimp
shared characteristics with other agriculture/aquaculture products
that indicated a risk that CBP may not be able to collect the full
amount of duties owed; (2) it represented a large volume of
imports and faced potentially high AD duties; and (3) shrimp
imports were duty-free, therefore, most shrimp importers had no
history of normal duty payments and had minimum $50,000 bonds.
CBP's goal was to balance its interest in ensuring that AD/CV
duties were collected, with its interest of not imposing an
"unnecessarily excessive burden on importers or international
commerce." However, while CBP analyzed possible bond premium
increases that shrimp importers might incur, it did not consult
with its own Customs Surety Executive Committee about the proposed
policy. Moreover, CBP did not consider the additional collateral
requirements that surety companies could impose to underwrite
sizable increases in CB amounts in its analysis, in part because
such business decisions reflect each surety's own evaluation of
risk. CBP then conducted outreach with certain agencies and
groups, such as shrimp importers, before implementing the revised
policy. However, certain importers have criticized CBP for, among
other things, not providing adequate notice or soliciting formal
public comments on the draft policy and for applying the policy to
shrimp, where there was no demonstrated duty collection problem,
but not to other cases--such as crawfish tail meat--where tens of
millions of dollars in AD duties were uncollected.
o How CBP implemented the revised CB policy. CBP's implementation
of the revised CB policy lacked transparency and consistency. CBP
implemented the policy in February 2005 by calculating the initial
revised bond requirements for each shrimp importer using the
company's imports from the prior year, and by sending certain
shrimp importers letters demanding that they post higher bond
amounts within 30 days. Some importers complied with the CBP
demand as written. Hundreds of other importers, however, requested
lower bond amounts. Although CBP officials told us that initially
these appeals were routinely denied, they responded to importer
calls for greater flexibility by developing internal, unwritten
procedures and adjusting some bond amounts. In August 2005, CBP
publicly clarified the bond policy appeal procedures, but did not
explain what evidence its officials would accept from importers to
justify reducing bond amounts. Moreover, our interviews with CBP
officials and documentation we reviewed showed that how CBP
defines the criteria it considers in making bond adjustments is
neither formally written down nor made publicly available and, in
practice, is significantly narrower than the August 2005 policy
clarification. In addition, CBP based bond requirements on
different data time periods for different importers and rescinded
some bond increases on the basis of 1 month of import data. CBP
has identified additional products to which it might apply the
revised CB policy. However, CBP officials told us any decision to
apply the revised policy to additional products, while supported
by some U.S. producer interests, is on hold pending domestic and
international legal challenges to the policy.
o Effects of the revised CB policy. Our analysis, interviews with
importers, and the limited data available show that the revised CB
policy could be expected to have and is having a range of effects
on revenue protection, shrimp imports, and importing firms.
However, these effects cannot be isolated from the effects of
other changes that occurred during the same time frame. Moreover,
the small amount of time that has lapsed, Commerce's ongoing
review of AD rates for shrimp imports, and other factors make it
premature to draw definitive conclusions.
Conclusions
The revised CB policy significantly increased bond requirements
for some importers, and some key lessons can be learned from CBP's
application of the policy to shrimp as its "test case." Given
concerns about the policy's implementation and effects, recent
legislation on other, related aspects of the collections problem,
and the prospect of expanding the CB policy to other products,
these lessons are timely and apply to both of CBP's goals for the
revised CB policy: protecting revenue and not placing an
unnecessary burden on importers or international trade. Regarding
revenue protection, the revised CB policy likely led to additional
revenue protection. However, an evaluation of the lessons learned
in this area should consider the policy's indirect effects on
revenue and the unique circumstances present in this "test case."
Regarding not placing an unnecessary burden on importers or
international trade, CBP's outreach efforts during the development
and implementation of the policy could have been more effective.
In addition, shrimp importers have expressed significant concerns
regarding the onerous cost and other negative effects they
attribute to the revised CB policy.
Given the importance of the policy to CBP's revenue collection
efforts, the policy's reported effects on importers, and the
scrutiny the policy has received, it is critical that the policy
be applied in a transparent and consistent manner. The revised CB
policy represented a significant change from CBP's traditional
method of setting bond amounts. However, the importers we
interviewed were often unclear about the basis upon which CBP
would consider reducing companies' bonds. CBP has not publicly
explained a major part of the criteria it considers when adjusting
bond amounts, which has contributed to a perception among some
importers that the CB policy is being inconsistently implemented.
Our review of CBP records confirmed this perception and showed
that CBP lacks clear and transparent guidance for making bond
adjustments, which led to inconsistent implementation.
Recommendations for Executive Action
We are making two recommendations to the Commissioner of U.S.
Customs and Border Protection. To ensure that CBP's goal of
ensuring collection of AD/CV duties without imposing an excessive
burden on importers or international trade and commerce is
achieved, the Commissioner of CBP should conduct a formal review
of the lessons CBP can learn from implementing the revised CB
policy on shrimp imports. Given CBP's stated desire not to
unnecessarily burden importers, this review should include
specific steps to systematically obtain importers' views on the
policy. Moreover, the review should examine whether the policy
appropriately addresses the underlying risks to CBP's collection
of AD/CV duties. To ensure full transparency and remedy
inconsistent implementation of the CB policy, the Commissioner of
CBP should develop clear and consistent guidance for implementing
the policy, take steps to inform covered importers of the basis
upon which CBP will reduce importers' bond requirement, and ensure
the guidance is uniformly applied.
Agency Comments and Our Evaluation
We provided a draft of this report to the Departments of Commerce,
Homeland Security, and the Treasury and to the Office of the U.S.
Trade Representative. Commerce provided comments, which are
contained in appendix III, and additional technical comments,
which we incorporated where appropriate. Homeland Security agreed
with our recommendations and intends to take appropriate action to
implement them. Its comments are contained in appendix IV.
As agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
until 30 days from the report date. At that time we will send
copies of this report to interested congressional committees, the
Secretaries of Commerce and Homeland Security, the U.S. Trade
Representative, and other interested parties. We will also make
copies available to others upon request. In addition, the report
will be available at no charge on GAO's Web site at
http://www.gao.gov .
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or [email protected] . Contact
points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff
who made major contributions to this report are listed in appendix
V.
Sincerely yours,
Loren Yager
Director, International Affairs and Trade
Appendix I: Briefing Slides from the October 10, 2006,
Briefing to the House Committee on Ways and Means
Appendix II: Scope and Methodology
To determine why and how the Department of Homeland Security's
U.S. Customs and Border Protection (CBP) revised its continuous
bond (CB) policy, we reviewed the revised policy and the
subsequent August 2005 policy clarification. We also reviewed
relevant laws, regulations, and legal precedents and interviewed
officials at CBP, the Department of Commerce, and the Department
of the Treasury. In addition, we reviewed publicly available
documents that CBP submitted to the U.S. Court of International
Trade pursuant to ongoing domestic litigation regarding the
revised CB policy. Furthermore, we interviewed CBP officials who
participated in the development of the revised policy and the
agencies they sought to involve in this process. We did not
independently verify or evaluate CBP analyses used as the basis
for developing the revised CB policy, because this matter is
presently under litigation.
To identify how CBP implemented the revised CB policy, we reviewed
publicly available documents that CBP submitted to the U.S. Court
of International Trade pursuant to ongoing domestic litigation and
interviewed CBP officials responsible for implementing the policy.
In addition, we requested and reviewed other documentation from
CBP, including correspondence between CBP and 39 shrimp importers
that CBP selected as representative examples of how they handled
bond adjustment requests. We also obtained documentation of
importer/CBP bond adjustment discussions from 5 shrimp importers.
In addition, we also interviewed 15 U.S. companies that import
shrimp (importers) that are subject to the policy, including those
that sent us documentation of CBP communication, to obtain
information on their experiences with CBP's implementation of the
policy. More details on how this sample of 15 importers was
selected are discussed later in this appendix. Lastly, given that
antidumping (AD) and countervailing (CV) duties are imposed to
remedy injury to domestic producers, we interviewed
representatives of U.S. shrimp producers as well as
representatives of producers in industries where CBP has
experienced problems collecting AD/CV duties.
To analyze the effects of the revised CB policy on duty
collections, imports, and importers, we first reviewed relevant
economic and related literature on tariffs and AD duties to
determine the expected effects of CB policy, which we used as a
guide to the interpretation of importer interviews and our data
analysis. We then gathered relevant information from shrimp
industry officials, shrimp importers, and government reports to
ascertain reported effects on importers and to examine U.S. shrimp
importing trends. This information is factual in nature, but it
does not represent a definitive determination of the effects
associated with the revised CB policy, which would be premature at
this time. While we consider the information presented relevant
and instructive, it has known limitations resulting from such
factors as the continued flux in important variables that could
affect revenue and imports, such as Commerce's AD duty rates; the
difficulty in distinguishing the policy's effect from other
changes occurring at the same time (notably the imposition of AD
duties); the short amount of time the policy has been in effect;
and the limited availability of data.
To examine the implications of the CB policy for revenue
collection, we obtained CBP data regarding the amount of cash
deposits obtained for shrimp imports and the amount of continuous
bonds that CBP received since the policy was implemented. To
examine the effects on imports and importers, we obtained and
analyzed official U.S. trade statistics from the U.S. Census
Bureau as well as additional data from CBP. We have done a
detailed data reliability assessment for U.S. trade data on past
engagements. On the basis of these reviews, we concluded that
there are no specific biases or limitations in these data that
significantly impair their use, and that these data are
sufficiently reliable to show the import trends in shrimp
products.
To further examine the effects of the AD and bond policies on
imports and importers, we interviewed shrimp industry
representatives, surety companies and associations, and a selected
group of U.S. shrimp importers. In selecting importers to
interview, we judgmentally chose importers on the basis of their
size and referrals from shrimp industry representatives and other
shrimp importers. The importers we interviewed included companies
that
o CBP estimates indicate that more revenue is
protected as a result of the new bond policy. Based
on the value of actual bonds obtained after
implementation of the revised policy, CBP reported in
December 2005 that the revised bond policy would
ensure collection of revenue up to an increase of 85
percent in final AD duty rates, versus the
traditional bond formula, which would only cover a 28
percent increase. While the revised CB policy
protected additional revenue, CBP's degree of success
in protecting revenue will depend on a variety of
factors. For example, the extent to which revenue
will need to be protected will remain uncertain until
final duty bills are determined and will be
significantly affected by various factors, such as
recent settlements between shrimp exporters and the
domestic industry aimed at forestalling reviews by
Commerce that could have changed duty rates.
o In addition to the AD duties imposed, shrimp
importers told us the costs associated with higher
bond amounts are substantial. Importers now pay
higher premiums and typically must also post the 100
percent collateral required by surety providers
before the sureties will write the larger bonds.
Importers with whom we spoke reported a range of
effects arising from these higher costs on import
flows, their sourcing patterns, and their business
practices. Many importers emphasized that the
collateral requirement is particularly onerous
because it restricts the funds available to operate
the business, and that this constraint results in
lost or forgone business opportunities.
o The concurrent imposition of AD duties and other
factors affecting the shrimp industry limit the
conclusions that can be drawn about the effects of
the revised CB policy on imports. However, data we
reviewed suggest that while the overall quantity and
value of U.S. shrimp imports have not changed
significantly since the AD petition (request to
impose AD duties) was filed, the amount of shrimp
imported from AD duty versus nonduty countries
changed significantly, and the changes varied by
country. These shifts in sourcing patterns began
after the AD petition was filed but before the July
2004 announcement of the revised CB policy. Importers
reported that the higher bonds and collateral
requirements were negatively affecting many smaller
shrimp importing businesses, causing them to stop
importing or to exit the industry. The data we
reviewed did not show substantial change in the
number of shrimp importers since the AD petition was
filed, but the data do suggest a recent trend toward
the top-ranking importers' gaining market share
relative to the rest of the shrimp importing
industry. The data also show declines in the number
of shrimp exporters and gains in market share by the
top-ranking exporters relative to the rest of the
shrimp exporting industry. Moreover, some importers
now require their foreign suppliers to ship on a
delivered, duty-paid basis. This requirement makes
the foreign-based supplier the U.S. importer of
record and shifts the burden of higher bonds to them.
CBP acknowledges that such importers without assets
accessible to CBP represent a potential collection
risk.
o were both large and small (annual shrimp imports ranged from a
few million dollars to over $100 million);
o were party to and were not party to ongoing litigation regarding
the revised policy;
o imported shrimp from a variety of countries; and
o ranged from almost exclusively relying on shrimp to having
shrimp as one of many commodities they import.
We conducted our work from April 2006 to September 2006 in
accordance with generally accepted government auditing standards.
Appendix III: Comments from the Department of Commerce
Appendix IV: Comments from the Department of Homeland Security
The following is GAO's comment on the Department of Homeland
Security letter dated October 10, 2006.
CBP's publicly available August 2005 clarification listed seven
factors that CBP would at least consider in adjusting bonds for
individual importers. Our interviews with CBP officials and review
of CBP records show that CBP (1) applied only one of the seven
criteria, (2) applied a narrow interpretation of that criterion,
and (3) was not transparent.
Appendix V: GAO Contact and Staff Acknowledgments
GAO Contact
Loren Yager (202) 512-4347
Staff Acknowledgments
In addition to the individual named above, Kim Frankena (Assistant
Director), Jason Bair, Ken Bombara, Grace Lui, and Don Morrison
made key contributions to this report. Tim Wedding, Mark Speight,
Martin de Alteriis, Casey Keplinger, Stephen Lawrence, and
Christine San provided professional support and technical advice.
Karen Deans and Jeremy Sebest provided editorial assistance and
graphics support.
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4The AD/CV duty investigatory process includes Commerce's investigation
into whether imports are being sold at unfairly low prices or benefit from
subsidies and the U.S. International Trade Commission's investigation into
whether such imports are causing or are likely to cause injury to the
domestic industry.
5Specifically, according to Commerce, after its preliminary determination,
cash deposits will be collected by CBP or bonds may be posted by the
importer on entries of merchandise being investigated. After the
investigation is complete and an order is issued (as a result of
affirmative determinations by the U.S. International Trade Commission and
Commerce), importers are required to pay cash deposits on
entries--however, AD/CVD duties are not assessed. AD/CVD duties are not
assessed until after the conclusion of an administrative review by
Commerce (unless no review is requested, in which case the entries are
liquidated at the rate in effect at the time of entry). If, because of
litigation, there is an injunction prohibiting liquidation following the
publication of the final results of administrative review, the injunction
must lift before final AD/CVD duties are assessed.
Conclusions
Recommendations for Executive Action
Agency Comments and Our Evaluation
Appendix I: Briefing Slides from the October 10, 2006, Briefing to the
House Committee on Ways and Means Appendix I: Briefing Slides from the
October 10, 2006, Briefing to the House Committee on Ways and Means
Appendix II: Scope and Methodology Appendix II: Scope and Methodology
Appendix III: Comments from the Department of Commerce Appendix III:
Comments from the Department of Commerce
Appendix IV: Comments from the Department of Homeland Security Appendix
IV: Comments from the Department of Homeland Security
Note: GAO comment supplementing those in the report text appears at the
end of this appendix.
See GAO comment.
GAO Comment
Appendix V: A Appendix V: GAO Contact and Staff Acknowledgments
GAO Contact
Staff Acknowledgments
(320392)
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Highlights of [25]GAO-07-50 , a report to the Chairman, Committee on Ways
and Means, House of Representatives
October 2006
INTERNATIONAL TRADE
Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but
Concerns about Uneven Implementation and Effects Remain
Since 2003, the Department of Homeland Security's U.S. Customs and Border
Protection (CBP) has been unable to collect at least $480 million in
antidumping (AD) and countervailing (CV) duties. In July 2004, CBP revised
its policy regarding the continuous bonds (CB) that importers post. The
policy potentially significantly increases the amount of the bonds for
affected importers. Following the application of the policy to imports of
shrimp as a "test case," U.S. importers and trading partners initiated
legal action to prevent CBP from continuing to apply the policy.
GAO examined why and how CBP revised its CB policy, how CBP implemented
the revised policy, and the effects of the revised policy.
[26]What GAO Recommends
GAO recommends that the Commissioner of CBP (1) conduct a formal review of
the lessons CBP has learned from implementing the revised CB policy on
shrimp imports and (2) develop clear and consistent guidance for
implementing the policy and take steps to inform covered importers of the
basis upon which CBP will reduce importers' bond requirement. The
Department of Homeland Security agreed with GAO's recommendations and
provided technical comments. The Department of Commerce also provided
technical comments.
CBP revised its CB policy to reduce the risk of uncollected AD/CV duties.
CBP determined that the traditional bond formula provides little
protection of duty revenue. In addition, time lags and duty increases
associated with the U.S. AD/CV duty system heighten the risk of importers'
bonds being insufficient, which led to large amounts of uncollected
duties.
CBP developed the revised CB policy internally, and then conducted some
outreach prior to applying it to imports of shrimp as a "test case." An
internal CBP working group identified options for improving collection of
AD/CV duties and recommended revising the CB policy. The revised policy
significantly increased bond amounts for some shrimp importers. Before
implementing the policy, CBP conducted outreach, but some importers
criticized CBP's outreach as insufficient.
CBP's implementation of the revised CB policy lacked transparency and
consistency. CBP implemented the policy in February 2005 and required
shrimp importers to obtain larger bonds. According to CBP, many importers
inquired about lowering their bond requirement, and CBP lowered bond
requirements under certain circumstances. However, CBP's procedures for
adjusting bond requirements were not formally written and were not public.
GAO's review of CBP and importer records showed that CBP set bond
requirements on the basis of different data time periods for different
importers and used inconsistent criteria when considering bond requests.
The revised CB policy is expected and reported to have a variety of
effects on revenue protection, importers, and imports. CBP reports that
the revised CB policy protects additional revenue, but the degree of
success cannot be known yet. Importers report facing higher costs as a
result of the revised policy, which they say leads them to change business
practices and has reduced profitability. Trade data show that some import
patterns shifted after the AD petition but before the revised CB policy
was announced.
Shrimp Imports from AD Countries Dropped after AD Petition Filed, but
before Announcement of Revised CB Policy
References
Visible links
15. http://www.gao.gov/cgi-bin/getrpt?GAO-05-979
24. http://www.gao.gov/cgi-bin/getrpt?GAO-07-50
25. http://www.gao.gov/cgi-bin/getrpt?GAO-07-50
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