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«United States Government Accountability Office Report to the Chairman, Committee on Finance, U.S. Senate ANTIDUMPING AND July 2016 COUNTERVAILING ...»

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United States Government Accountability Office

Report to the Chairman, Committee on

Finance, U.S. Senate


July 2016



CBP Action Needed to

Reduce Duty

Processing Errors and

Mitigate Nonpayment



July 2016



CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk Highlights of GAO-16-542, a report to the Chairman, Committee on Finance, U.S.

Senate Why GAO Did This Study What GAO Found GAO estimates that about $2.3 billion in antidumping (AD) and countervailing The United States assesses AD duties on products imported at unfairly low (CV) duties owed to the U.S. government were uncollected as of mid-May 2015, prices (i.e., dumped) and CV duties on based on its analysis of AD/CV duty bills for goods entering the United States in products subsidized by foreign fiscal years 2001–2014. U.S. Customs and Border Protection (CBP) reported that governments. Nonpayment of AD/CV it does not expect to collect most of that debt. GAO found that most AD/CV duty duties means the U.S. government has bills were paid and that unpaid bills were concentrated among a small number of not fully remedied unfair trade importers, with 20 accounting for about 50 percent of the $2.3 billion uncollected.

practices and results in lost revenue. CBP data show that most of those importers stopped importing before receiving their first AD/CV duty bill. As GAO has previously reported, the U.S. AD/CV duty GAO was asked to review CBP’s system involves the retrospective assessment of duties, such that the final efforts to improve the collection of amount of AD/CV duties an importer owes can significantly exceed the initial AD/CV duties. This report (1) examines the status and composition of amount paid at the estimated duty rate when the goods entered the country.

uncollected AD/CV duties, (2) the extent to which CBP has taken steps to Importers with Unpaid Antidumping and/or Countervailing Duty Bills for Entries in Fiscal improve its collection of such duties, Years 2001–2014, as of May 12, 2015 and (3) the extent to which CBP assesses and mitigates the risk to revenue from potentially u

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This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

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According to that CBP report, the vast majority of manufacturers, exporters, importers, customs brokers, and other parties involved in shipments of goods subject to AD/CV duties lawfully pay the duties owed. 6 However, as the CBP report notes, elements of the U.S. system for determining and collecting AD/CV duties create an inherent risk that some importers will not pay the full amount they owe in AD/CV duties. As we have previously reported, 7 three related factors create a heightened risk of AD/CV duty nonpayment: (1) The U.S. system for determining such duties involves the setting of an initial estimated duty rate upon the entry of goods, followed by the retrospective assessment of a final duty rate; (2) the amount of AD/CV duties for which an importer may be ultimately billed can significantly exceed what the importer pays when the goods enter the country; and (3) the assessment of final AD/CV duties can occur up to several years after an importer enters goods into the United States, during which time the importer may cease operations or become unable to pay additional duties.

The persistently large and growing amount of uncollected AD/CV duties has raised concerns in Congress and among domestic industries affected by dumped or subsidized imports. You asked us to conduct a follow-up review to provide an update on our 2008 report, 8 which identified key factors contributing to uncollected AD/CV duties and the steps CBP had taken to address those factors. This report (1) examines the status and composition of uncollected AD/CV duties, (2) the extent to which CBP has taken steps to improve its billing and collection of AD/CV duties, and (3) CBP included all outstanding AD/CV duty bills issued from October 1991 through June 2015.

Department of Homeland Security, U.S. Customs and Border Protection, Antidumping and Countervailing Duty Collection of Outstanding Claims: Fiscal Year 2015 Report to Congress (Oct. 27, 2015).

See GAO, Antidumping and Countervailing Duties: Congress and Agencies Should Take Additional Steps to Reduce Substantial Shortfalls in Duty Collection, GAO-08-391 (Washington, D.C.; Mar. 26, 2008). See Related GAO Products at the end of the report for a list of relevant recent reports and testimonies.


Page 2 GAO-16-542 Antidumping and Countervailing Duties the extent to which CBP assesses and mitigates the risk to revenue from potentially uncollectible AD/CV duties.

To examine the status and composition of uncollected AD/CV duties, 9 we analyzed CBP data on all open, delinquent duty bills for entries 10 from fiscal year 2001 through fiscal year 2014, as of May 12, 2015. 11 For this purpose, we combined three datasets from CBP’s Automated Commercial System (ACS) containing information on entries and billed amounts associated with entries. ACS is used by CBP to track, control, and process all goods entering the United States. The first ACS dataset contained AD/CV duty entry data; the second contained final assessed AD/CV duty rate data; and the third contained importer AD/CV duty billing data. As part of our examination of the status and composition of uncollected AD/CV duties, we analyzed the extent to which CBP writes off uncollectible bills. In addition to analyzing data to determine the status and composition of uncollected AD/CV duties, we reviewed relevant statutes, regulations, and agency reports, and interviewed CBP and Commerce officials.

To examine the extent to which CBP has taken steps to improve its billing and collection of AD/CV duties, we obtained and analyzed ACS data;

reviewed relevant statutes, regulations, and agency reports; and we interviewed CBP, Commerce, and Department of the Treasury (Treasury) officials. Customs bonds are used to safeguard revenue, and, according In general, the methodological approach of this report is similar to the one we used in our 2008 report on the same topic. However, the definition of “uncollected duties” that we use in this report differs slightly from the definition that we used in our 2008 report. The 2008 report defined “uncollected duties” as all open unpaid bills for AD/CV duties, including unpaid bills that were less than 31 days old. According to statute, amounts due to CBP are considered delinquent if they are unpaid within 30 days after issuance of the bill for such a payment. See 19 U.S.C. § 1505(d). For this report, we narrowed the definition of “uncollected duties” to include the amounts owed on all open, delinquent AD/CV duty bills, which we generally refer to simply as “unpaid AD/CV duty bills.” Although the definition of uncollected duties was slightly different in the 2008 report, we included selected results from our 2008 analysis in this report for context.

The term "entry" refers to the importation of an item into the United States.

We selected this time frame because our prior report started with fiscal year 2001 data, and fiscal year 2014 was the last full year for which data were available. The data we present throughout the report represent a snapshot of all unpaid AD/CV duties (i.e., all unpaid and past-due bills) as of May 12, 2015. The amount of unpaid AD/CV duties changes continually as more bills are paid or become delinquent and as CBP issues additional bills.

Page 3 GAO-16-542 Antidumping and Countervailing Duties to CBP officials, these bonds play an important role in CBP’s efforts to improve AD/CV duty collections. 12 For that reason, we met with three of the major associations that represent the companies that issue customs bonds.

To examine the extent to which CBP assesses and mitigates the risk to revenue from potentially uncollectible AD/CV duties, we analyzed ACS data on all open, delinquent duty bills for entries from fiscal year 2001 through fiscal year 2014, as of May 12, 2015. We also reviewed CBP’s risk assessment and interviewed cognizant CBP officials to determine what risk factors these officials identify in their analysis of AD/CV debts and discuss in CBP reports to Congress. We assessed CBP’s risk management efforts with regard to potentially uncollectible AD/CV duties against federal internal control standards, which state that agency managers should comprehensively identify risks and analyze them for their possible effects. 13 We also developed two regression models to estimate the likelihood of nonpayment for any given entry as well as the size of loss if nonpayment occurred; mathematically, these are the two components of expected loss. We did this to show how a statistical model could be constructed that addresses the association between potential risk factors and the potential for nonpayment. Our regression models do not establish whether a given factor causes nonpayment or is merely correlated with this risk. To be useful for risk management, such a model would need to be able to predict future nonpayment risk. As a result, to assess the ability of the model to predict future losses, we repeatedly tested its ability to identify nonpayment risk in data not used to construct the model. We further analyzed the data for two separate 5-year periods and conducted qualitative assessments of parameter stability. We presented the results of our analysis to CBP officials on two occasions and made adjustments to the methodology based on their feedback. The models provide an example of how CBP data could be systematically Similar to an insurance policy, customs bonds are underwritten for a specific dollar value. The value of a bond can be less than the full amount of duties owed.

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.; November 1999) contains the internal control standards to be followed by executive agencies in establishing and maintaining systems of internal control as required by 31 U.S.C. § 3512(c) (commonly referred to as the Federal Managers’ Financial Integrity Act). This report was revised in September 2014, and the new standards are effective beginning in fiscal year 2016. We began our work in fiscal year 2015 and, for that reason, we reference the November 1999 version of Standards for Internal Control in the Federal Government throughout our report.

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Background The U.S. AD/CV Duty The process for importing goods into the United States generally involves Collection Process at least two private parties (exporters and importers) as well as the U.S.

government. 14 The U.S. AD/CV duty collection process typically involves the five steps summarized below and illustrated in figure 1.

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Page 5 GAO-16-542 Antidumping and Countervailing Duties which importers must pay AD/CV duties. 15 The order communicates the initial estimated duty rates applicable to one or more specific exporters, producers, or both, as well as a catchall rate or, if appropriate, a countrywide rate for all other exporters and producers that were not individually investigated and that did not receive a specific rate. 16 The order also instructs CBP to collect cash deposits at the time of importation for estimated duties owed on all entries of the applicable products. These duty rates represent Commerce’s initial estimates of the level of dumping or subsidization. Commerce typically communicates to the public the initial estimated duty rate that must be applied in the Federal Register.

2. CBP reviews importers’ assessments of duties owed and collects the initial estimated duty from the importer: The importer determines the value of estimated duties owed by applying the initial rate set in the applicable AD/CV duty order to its imports. CBP reviews the importer’s assertions for correctness and collects the required cash deposits or bonds from the importer. According to CBP officials, estimated duties are usually due within 10 days after CBP has released the product for entry into the United States.

3. Commerce determines and communicates the final duty rate to CBP: Each year, during the anniversary month of the publication of an AD or CV duty order, an interested party may ask Commerce to conduct an administrative review to determine the actual amount of dumping or subsidization and calculate a final duty rate. 17 This can occur if the party believes that the initial estimated rate is too high or too low. During the administrative review, Commerce analyzes In order for AD/CV duties to be imposed, two agencies must make affirmative determinations in their respective investigations. Commerce is responsible for determining whether the imports at issue are being sold at less than fair value (dumped) or are being subsidized by a countervailable subsidy. The United States International Trade Commission is responsible for determining whether an industry in the United States is being injured by the imports at issue. We use the term “injured” to encompass material injury, threat of material injury, or material retardation of the establishment of an industry.

See 19 U.S.C. §§ 1671, 1671b, 1671d, 1673, 1673b, and 1673d.

This catchall rate is typically a weighted average of the individual rates.

An administrative review may be requested by exporters subject to the AD/CV duty order, importers, U.S. domestic industry, and the government of producing or exporting countries for reasons including if they believe the rate does not accurately reflect the actual level of dumping or subsidization. Finally, Commerce itself can initiate an administrative review. However, according to Commerce officials, Commerce itself rarely initiates administrative reviews.

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