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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www.gao.gov/cgi-bin/getrpt? [24]GAO-07-50 .

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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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