oversight

Antidumping and Countervailing Duties: Management Enhancements Needed to Improve Efforts to Detect and Deter Duty Evasion

Published by the Government Accountability Office on 2012-05-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




May 2012
             ANTIDUMPING AND
             COUNTERVAILING
             DUTIES
             Management
             Enhancements
             Needed to Improve
             Efforts to Detect and
             Deter Duty Evasion




GAO-12-551
                                             May 2012

                                             ANTIDUMPING AND COUNTERVAILING DUTIES
                                             Management Enhancements Needed to Improve
                                             Efforts to Detect and Deter Duty Evasion
Highlights of GAO-12-551, a report to
congressional requesters




Why GAO Did This Study                       What GAO Found
The United States imposes AD/CV              U.S. Customs and Border Protection (CBP) detects and deters evasion of
duties to remedy unfair foreign trade        antidumping and countervailing (AD/CV) duties through a three-part process that
practices, such as unfairly low prices or    involves (1) identifying potential cases of evasion, (2) attempting to verify if
subsidies that cause injury to domestic      evasion is occurring, and (3) taking enforcement action. To identify potential
industries. Examples of products             cases of evasion, CBP targets suspicious import activity, analyzes trends in
subject to AD/CV duties include honey
from China and certain steel products
                                             import data, and follows up on allegations from external sources. If CBP identifies
from South Korea. Importers that seek        a potential case of evasion, it can use various techniques to attempt to verify
to avoid paying appropriate AD/CV            whether evasion is occurring, such as asking importers for further information,
duties may employ methods of evasion         auditing the records of importers suspected of evasion, and inspecting shipments
such as illegally transshipping an           arriving at ports of entry. If CBP is able to verify evasion, its options for taking
import through a third country to            enforcement action include (1) pursuing the collection of evaded duties, (2)
disguise its true country of origin or       imposing civil penalties, (3) conducting seizures, and (4) referring cases for
falsifying the value of an import to         criminal investigation. For example, between fiscal years 2007 to 2011, CBP
reduce the amount of duties owed,            assessed civil penalties totaling about $208 million against importers evading
among others. AD/CV duty evasion             AD/CV duties.
can harm U.S. companies and reduces
U.S. revenues. CBP, within the               Two types of factors affect CBP’s efforts to detect and deter AD/CV duty evasion.
Department of Homeland Security,
                                             First, CBP faces several external challenges in attempting to gather conclusive
leads efforts to detect and deter AD/CV
duty evasion.                                evidence of evasion and take enforcement action against parties evading duties.
                                             These challenges include (1) the inherent difficulty of verifying evasion conducted
GAO was asked to examine (1) how             through clandestine means; (2) limited access to evidence of evasion located in
CBP detects and deters AD/CV duty            foreign countries; (3) the highly specific and sometimes complex nature of
evasion, (2) factors that affect CBP’s       products subject to AD/CV duties; (4) the ease of becoming an importer of
efforts, and (3) the extent to which
                                             record, which evaders can exploit; and (5) the limited circumstances under which
CBP tracks and reports on its efforts.
To address these objectives, GAO             CBP can seize goods evading AD/CV duties. Second, gaps in information
reviewed CBP data and documents;             sharing also affect CBP efforts. Although communication between CBP and the
met with government and private              Department of Commerce (Commerce) has improved, CBP lacks information
sector representatives in Washington,        from Commerce that would enable it to better plan its workload and help mitigate
D.C.; and conducted fieldwork at three       the administrative burden it faces in processing AD/CV duties—an effort that
domestic ports.                              diminishes its resources available to address evasion. Additionally, CBP has
                                             encouraged the use of larger bond amounts to protect AD/CV duty revenue from
What GAO Recommends                          the risk of evasion, but CBP has neither a policy nor a mechanism in place for a
To enhance CBP’s efforts to address          port requiring a larger bond to share this information with other ports in case an
AD/CV duty evasion and facilitate            importer withdraws its shipment and attempts to make entry at another port to
oversight of these efforts, GAO makes        avoid the higher bond amount.
several recommendations, including
                                             While CBP has made some performance management improvements, it does not
that CBP create a policy and a
mechanism for information sharing            systematically track or report key outcome information that CBP leadership and
among ports regarding the use of             Congress could use to assess and improve CBP’s efforts to deter and detect
higher bond amounts and develop and          AC/CV duty evasion. First, CBP cannot readily produce key data, such as the
implement a plan to track and report on      number of confirmed cases of evasion, which it could use to better inform and
these efforts. CBP and the Department        manage its efforts. Second, CBP does not consistently track or report on the
of Commerce generally concurred with         outcomes of allegations of evasion it receives from third parties. As GAO
GAO’s recommendations.                       reported in March 2011, the Government Performance and Results
                                             Modernization Act of 2010 underscores the importance of ensuring that
View GAO-12-551. For more information,       performance information will be both useful and used in decision making. Without
contact Alfredo Gomez at (202) 512-4101 or   improved tracking and reporting, agency leadership, Congress, and industry
gomezj@gao.gov.                              stakeholders will continue to have little information with which to oversee and
                                             evaluate CBP’s efforts to detect and deter evasion of AD/CV duties.
                                                                                      United States Government Accountability Office
Contents


Letter                                                                                       1
               Background                                                                    2
               CBP Uses a Three-Part Process to Detect and Deter AD/CV Duty
                 Evasion                                                                     7
               External Obstacles and Gaps in Information Sharing Hamper CBP
                 Efforts to Address Evasion                                                13
               CBP Has Made Some Performance Management Improvements but
                 Does Not Systematically Track or Report on Its Efforts to Detect
                 and Deter Evasion                                                         25
               Conclusions                                                                 30
               Recommendations for Executive Action                                        31
               Agency Comments and Our Evaluation                                          32

Appendix I     Objectives, Scope, and Methodology                                          34



Appendix II    Comments from the Department of Homeland Security                           36



Appendix III   Comments from the Department of Commerce                                    38



Appendix IV    GAO Contact and Staff Acknowledgments                                       39



Table
               Table 1: Top 5 Countries with Most U.S. AD/CV Duty Orders in
                        Place, as of March 2012                                              5


Figures
               Figure 1: Key Steps in the Import Process                                     3
               Figure 2: Methods Commonly Used to Evade AD/CV Duties                         7
               Figure 3: CBP Techniques for Attempting to Verify Evasion at
                        Different Points in the Import Process                             10
               Figure 4: Boxes of Chinese Wood Flooring Brought into the United
                        States through Evasion                                             12




               Page i                          GAO-12-551 Antidumping and Countervailing Duties
Figure 5: Facility in Thailand Falsely Described as Honey
         Manufacturing Plant                                                              15
Figure 6: Unliquidated Entries Subject to AD/CV Duties Stored in
         File Room at a U.S. Port of Entry                                                20
Figure 7: Missing Data on Civil Penalties CBP Imposed between
         Fiscal Years 2007 and 2011 for AD/CV Duty Evasion, as of
         February 2012                                                                    28




Abbreviations

AD                         antidumping
CBP                        U.S. Customs and Border Protection
CV                         countervailing
Commerce                   Department of Commerce
ICE                        U.S. Immigration and Customs Enforcement
NTAG                       National Targeting and Analysis Group
STB                        single transaction bond




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Page ii                                 GAO-12-551 Antidumping and Countervailing Duties
United States Government Accountability Office
Washington, DC 20548




                                   May 17, 2012

                                   The Honorable Ron Wyden
                                   Chairman, Subcommittee on International Trade, Customs and Global
                                   Competitiveness
                                   Committee on Finance
                                   United States Senate

                                   The Honorable Olympia Snowe
                                   United States Senate

                                   The United States imposes antidumping and countervailing (AD/CV)
                                   duties to remedy unfair foreign trade practices that cause injury to
                                   domestic industries. Importers that seek to avoid paying appropriate
                                   AD/CV duties may attempt to evade them through methods such as
                                   illegally transshipping an import through a third country to disguise its true
                                   country of origin or falsifying the value of an import to reduce the amount
                                   of duties owed, among others. 1 Evasion of AD/CV duties undermines
                                   U.S. AD/CV duty laws—the intent of which is to level the economic
                                   playing field for U.S. industry—and deprives the U.S. government of
                                   revenues it is due. U.S. Customs and Border Protection (CBP), within the
                                   Department of Homeland Security, leads U.S. efforts to detect and deter
                                   AD/CV duty evasion. Congress and domestic industries have expressed
                                   concern that unscrupulous actors continue to find ways to evade duties,
                                   leaving U.S. industry at risk.

                                   In response to your request for a review of CBP’s efforts to address
                                   AD/CV duty evasion, this report examines (1) how CBP detects and
                                   deters evasion, (2) factors that affect CBP’s efforts to detect and deter
                                   evasion, and (3) the extent to which CBP tracks and reports on its efforts.

                                   To address these objectives, we reviewed a range of documents and data
                                   from CBP related to its efforts to detect and deter AD/CV duty evasion,
                                   such as annual planning and reporting documents; internal memos and
                                   other documents; and data on products subject to AD/CV duties,
                                   allegations of evasion from external sources, and enforcement outcomes.


                                   1
                                    In this report, we use the term “evasion” to refer to any activity whereby companies
                                   improperly declare goods that are subject to AD/CV duties to avoid payment of such
                                   duties.




                                   Page 1                                  GAO-12-551 Antidumping and Countervailing Duties
                          We also met with officials in CBP’s Offices of International Trade, Field
                          Operations, and Intelligence and Investigative Liaison; U.S. Immigration
                          and Customs Enforcement (ICE); and the Departments of Commerce
                          (Commerce) and the Treasury, as well as a coalition of U.S. industries
                          affected by AD/CV duty evasion. Additionally, we conducted fieldwork at
                          the ports of Miami, FL; Seattle, WA; and Los Angeles, CA; as well as the
                          National Targeting and Analysis Group for AD/CV duty issues in
                          Plantation, FL. See appendix I for a complete description of our
                          objectives, scope, and methodology.

                          We conducted this performance audit from June 2011 to May 2012 in
                          accordance with generally accepted government auditing standards.
                          Those standards require that we plan and perform the audit to obtain
                          sufficient, appropriate evidence to provide a reasonable basis for our
                          findings and conclusions based on our audit objectives. We believe that
                          the evidence obtained provides a reasonable basis for our findings and
                          conclusions based on our audit objectives.



Background
The U.S. Import Process   The process for importing products into the United States involves several
                          different private parties, as well as the U.S. government. These private
                          parties include exporters, carriers, and importers, among others.
                          Exporters are companies that sell goods manufactured or produced in
                          foreign countries to the United States. Carriers are companies that
                          transport the goods to the United States. Importers may be companies
                          that purchase the goods from exporters or simply may be responsible for
                          facilitating the importation of the goods. 2 The importer of record is
                          responsible for paying all estimated duties, taxes, and fees on those
                          products when they are brought into the United States. 3 Importers of
                          record are also required to obtain a general bond to secure the payment




                          2
                          See 19 U.S.C. § 1484, which identifies persons who have a right to make entry.
                          3
                          19 U.S.C. § 1505.




                          Page 2                                GAO-12-551 Antidumping and Countervailing Duties
                                            of their financial obligations. 4 CBP is responsible for, among other things,
                                            managing the import process (see fig. 1); collecting the duties, taxes, and
                                            fees assessed on those products; and setting the formula for establishing
                                            importers’ general bond amounts. 5

Figure 1: Key Steps in the Import Process




                                            4
                                             In addition to paying estimated duties, taxes, and fees when products enter the country,
                                            importers also are generally required to provide a bond to help ensure that the
                                            government can recover additional duties, taxes, or fees that may be owed. See 19 C.F.R.
                                            §§ 113.62 and 142.4 for CBP bonding requirements. In general, the importer is required to
                                            obtain a bond equal to 10 percent of the amount the importer paid in duties, taxes, and
                                            fees over the preceding year (or $50,000, whichever is greater). GAO and CBP both have
                                            expressed concern that this general bond inadequately protects AD/CV duty revenue. 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).
                                            5
                                             Legal authority over customs revenue functions is vested in the Secretary of the Treasury
                                            and, under Treasury Order 165, was delegated to the U.S. Customs Service. In March
                                            2003, the U.S. Customs Service was transferred to the Department of Homeland Security,
                                            and authority over customs revenue functions was delegated to the Department of
                                            Homeland Security. 68 Fed. Reg. 10777-01 (Mar. 6, 2003).




                                            Page 3                                 GAO-12-551 Antidumping and Countervailing Duties
The United States Imposes   The United States and many of its trading partners have established laws
AD/CV Duties on a Variety   to remedy the unfair trade practices of other countries and foreign
of Imported Goods           companies that cause injury to domestic industries. U.S. laws authorize
                            the imposition of AD duties on imports that were “dumped” (i.e., sold at
                            less than normal value) 6 and CV duties on imports subsidized by foreign
                            governments. 7 As we reported in March 2008, 8 the U.S. AD/CV duty
                            system is retrospective, in that importers initially pay estimated AD/CV
                            duties at the time of importation, but the final amount of duties, reflecting
                            the actual amount of dumping or subsidization, is not determined until
                            later. 9 Commerce is responsible for calculating the appropriate AD/CV
                            duty rate. 10 CBP is then responsible for collecting the estimated AD/CV
                            duties when goods enter the United States, and subsequently processing
                            the final AD/CV duties (called “liquidation”) when instructed by
                            Commerce. 11 Liquidation may result in providing importers with a refund
                            or sending an additional bill.

                            A wide range of imported goods are subject to AD/CV duties, such as
                            agricultural, chemical, steel, paper, and wooden products. Each set of
                            AD/CV duties—detailed in an AD/CV duty order—is for a type of product
                            from a specified country. The written “scope” of each AD/CV duty order
                            describes the specific type of product that is subject to the duties. The
                            duty order also lists one or more Harmonized Tariff Schedule codes




                            6
                             According to Commerce, the “normal value” is generally the price the foreign firm
                            charges for a comparable product sold in its home market. Under certain circumstances,
                            the normal value may also be the price the foreign firm charges in other export markets or
                            the firm’s cost of producing the merchandise, taking into account the firms selling, general,
                            and administrative expenses, and profit. If the producer is located in a non-market
                            economy country, normal value is based on producer’s factors of production using values
                            in a “surrogate” market economy country.
                            7
                             The legal authority for the imposition of these duties was created by the Tariff Act of
                            1930, June 17, 1930, c.497, Title VII. AD duties are authorized in 19 U.S.C. § 1673 and
                            CV duties are authorized in 19 U.S.C. §1671.
                            8
                            GAO-08-391.
                            9
                             The process and time frame for determining AD/CV duties is established by law in title 19
                            of the United States Code, sections 1671 – 1677n.
                            10
                                19 U.S.C. §§ 1671d, 1673d.
                            11
                                19 U.S.C. §§ 1500, 1505.




                            Page 4                                   GAO-12-551 Antidumping and Countervailing Duties
associated with the product. 12 There are duty orders in place for some
types of products from several countries. For example, there are currently
AD duty orders on frozen warmwater shrimp from five countries—Brazil,
China, India, Thailand, and Vietnam. For some other types of products,
there is a duty order in place on only one country, such as saccharin from
China. As of March 2012, there were 283 AD/CV duty orders in effect,
with more duty orders on products from China than from any other
country (see table 1). 13

Table 1: Top 5 Countries with Most U.S. AD/CV Duty Orders in Place, as of March
2012

                            Number of U.S.
                               AD/CV duty       Examples of product types subject to AD/CV
 Country                    orders in place     duties
 China                                   114    Honey, saccharin, frozen warmwater shrimp,
                                                steel wire hangers
 India                                    23    Mushrooms, matchbooks, frozen warmwater
                                                shrimp
 Taiwan                                   16    Steel pipes, ribbons, plastic bags
 South Korea                              14    Steel pipes, steel plates, diamond sawblades
 Japan                                    13    Steel bars, steel plates, cement
Source: GAO analysis of Commerce data.




12
  The Harmonized Tariff Schedule of the United States is the primary resource used by
CBP for determining tariff classification for goods imported into the United States. It
classifies a good by assigning a 10-digit tariff classification number, based on such things
as its name and use, providing CBP detailed information to identify items entering the
United States. While tariff codes are used for convenience and customs purposes, the
written description of an order is dispositive when determining which merchandise should
be subject to AD/CV duties.
13
  These 283 AD/CV duty orders include 234 AD duty orders and 49 CV duty orders.




Page 5                                         GAO-12-551 Antidumping and Countervailing Duties
Evasion of AD/CV Duties   Importers that seek to avoid paying appropriate AD/CV duties may
                          attempt to evade them by using a variety of techniques. These techniques
                          include illegal transshipment to disguise a product’s true country of origin,
                          undervaluation to falsify the price of an import to reduce the amount of
                          AD/CV duties owed, and misclassification of merchandise such that it falls
                          outside the scope of an AD/CV duty order, among others (see fig. 2). 14
                          According to CBP, importers sometimes use more than one evasion
                          method at a time to further disguise the fact that they are importing goods
                          subject to AD/CV duties. Because the techniques used to evade AD/CV
                          duties are clandestine, the amount of revenue lost as a result is unknown.




                          14
                             Transshipment is the movement of goods from a country of origin to a country of
                          ultimate destination through an intermediate country. According to CBP, transshipment is
                          legal and commonly used in the ordinary course of business. However, transshipment of
                          merchandise for the purpose of circumventing trade laws—including AD/CV duty laws—is
                          illegal.




                          Page 6                                 GAO-12-551 Antidumping and Countervailing Duties
Figure 2: Methods Commonly Used to Evade AD/CV Duties




                                     CBP detects and deters AD/CV duty evasion through a three-part process
CBP Uses a Three-                    that involves (1) identifying potential cases of evasion, (2) attempting to
Part Process to Detect               verify if evasion is occurring, and (3) taking enforcement action.
and Deter AD/CV                      CBP begins its detection of AD/CV duty evasion by identifying potential
Duty Evasion                         instances of evasion, using two primary sources of information: import
                                     data and allegations from external sources. Import data is generated from



                                     Page 7                           GAO-12-551 Antidumping and Countervailing Duties
the documents submitted by importers as part of the import process.
Allegations are collected electronically through e-Allegations, an online
system created by CBP in 2008. CBP also collects allegations via other
means (such as telephone and e-mail, among others) and stores them in
the e-Allegations system. As of September 2011, there were almost 400
allegations related to AD/CV duty evasion in the e-Allegations system,
mostly from sources associated with affected industries. 15

To look for anomalies that may be indicators of evasion, CBP personnel
at both the local and national levels conduct targeting, analyze trends in
import data, and follow up on allegations from external sources. 16 Local
targeting and analysis is conducted by CBP personnel stationed at more
than 300 ports of entry, while national targeting and analysis is conducted
by officials at CBP headquarters and its National Targeting and Analysis
Group (NTAG) for AD/CV duty issues located in Plantation, FL. CBP
officials explained that most of their targeting involves identifying entries
filed under the Harmonized Tariff Schedule codes associated with a given
product that is subject to AD/CV duties and then examining the import
documentation for those entries for anomalies that may suggest evasion
is occurring. Examples of such anomalies in import documents include,
but are not limited to

•    being filed under the same tariff code as a product that is subject to
     AD/CV duties but not being declared as subject to such duties,

•    listing a country of origin that is not capable of producing the goods
     (or the quantity of the goods) imported—a potential indicator of illegal
     transshipment, and

•    showing a monetary value for the goods imported that appears to be
     too low for the quantity or weight of goods imported—a possible sign
     of undervaluation.




15
  CBP received allegations from congressional sources, Commerce, and anonymous
parties, among others.
16
  In this report, we use the term “targeting” to refer to the synthesis and use of information
from a variety of sources to identify shipments that may be a potential risk for AD/CV duty
evasion.




Page 8                                   GAO-12-551 Antidumping and Countervailing Duties
Once CBP identifies a potential instance of evasion, it can use a variety of
techniques at different points in the import process to attempt to verify if
evasion is occurring. These include, but are not limited to, the following:

•   targeting additional shipments made by the importer of record and
    conducting further data analysis to look for other anomalies that may
    be evidence of evasion;

•   requesting that the importer provide further information, such as
    product invoices and other documents that can help CBP understand
    the transactions involved in producing and importing a good and
    ascertain if evasion occurred;

•   sending referrals to ICE to initiate criminal investigations and gather
    evidence of evasion from foreign countries, such as by visiting
    production facilities overseas and collecting customs documents from
    foreign counterparts;

•   performing cargo exams to inspect shipments arriving at ports of
    entry;

•   collecting samples of products potentially brought in through evasion
    and conducting laboratory analysis of these samples to attempt to
    identify their true country of origin and other technical details that can
    help CBP determine if the products should be subject to AD/CV
    duties; and

•   auditing importers suspected of evading AD/CV duties by collecting
    company records (such as purchase orders, shipping documents, and
    payment records) and examining them for discrepancies.

Figure 3 shows where in the import process CBP typically uses these
techniques.




Page 9                             GAO-12-551 Antidumping and Countervailing Duties
Figure 3: CBP Techniques for Attempting to Verify Evasion at Different Points in the Import Process




                                         In cases where CBP is able to verify evasion, its options for taking
                                         enforcement action to deter evasion include (1) pursuing the collection of
                                         evaded duties, (2) imposing civil penalties, (3) conducting seizures, and
                                         (4) referring cases to ICE for criminal investigation. As we discuss later in
                                         this report, CBP lacks complete data on the amount of evaded duties it


                                         Page 10                              GAO-12-551 Antidumping and Countervailing Duties
has pursued and collected in cases of evasion. From fiscal years 2007 to
2011, CBP assessed 252 civil penalties totaling about $208 million
against 237 importers that evaded AD/CV duties. 17 Over the same period,
CBP also made 33 seizures related to AD/CV duty evasion, with a total
domestic value of nearly $4 million. In instances where CBP suspects that
criminal laws may have been violated, it can refer cases to ICE for
criminal investigation. 18 Between fiscal years 2007 and 2011, ICE
investigations of AD/CV duty evasion led to 28 criminal arrests, 85
indictments, and 37 criminal convictions.

CBP officials we met with during our review provided examples of how
they had recently identified potential cases of evasion, verified that
evasion was occurring, and then taken enforcement action. For instance,
officials at one port described an effort they initiated following the
imposition of CV duties on wood flooring from China. Through a targeting
operation using the tariff code for wood flooring, the officials determined
that, since the imposition of CV duties on Chinese wood flooring, only 15
of 165 importers with a history of bringing goods from China into their port
under the tariff code for wood flooring had begun properly declaring their
shipments as entries subject to AD/CV duties—a potential sign of
evasion. 19 Subsequently, by conducting cargo exams on several of the
suspected importers, the officials were able to verify that the suspected
Chinese goods were, in fact, wood flooring, and therefore should have
been declared as subject to AD/CV duties (see fig. 4). At the time of our
visit, these officials stated that they had collected over $200,000 in unpaid
duties from importers that had attempted to evade the AD/CV duties on



17
  Under 19 U.S.C. § 1592, irrespective of whether the United States is deprived of lawful
duties, CBP can impose penalties against any person who, through fraud, gross
negligence, or negligence, enters merchandise into the United States by a material and
false act or a material omission. Alternatively, under 19 U.S.C. § 1595a, CBP can impose
penalties against any person who directs, assists, or is in any way concerned in
importation contrary to law. Importers can challenge the penalties assessed by petitioning
CBP. The $208 million penalty amount cited here does not include penalties CBP imposed
under 19 U.S.C. § 1595a (importation contrary to law).
18
  ICE officials told us that they may also initiate investigations on the basis of allegations
of evasion received from industry parties.
19
  As discussed later in this report, some products that are subject to AD/CV duties fall
under the same tariff codes as other products that are not subject to AD/CV duties.
Consequently, the tariff code for an entry may be insufficient for CBP to determine
whether or not the entry is subject to AD/CV duties; additional information may be needed.




Page 11                                   GAO-12-551 Antidumping and Countervailing Duties
wood flooring and were also preparing to assess civil penalties on 14
importers.

Figure 4: Boxes of Chinese Wood Flooring Brought into the United States through
Evasion




At another port we visited, CBP officials described a case that began with
an anonymous fax alleging evasion of the AD duties on steel nails from
China. After reviewing import data, the officials were able to confirm that
the importer named in the allegation had brought an entry of steel nails
into their port and that the importer’s broker had filed the entry as not
subject to AD duties. Because the AD duty order on steel nails from
China provides an exemption for roofing nails, the port officials then sent
a formal request for information to the importer to ask for a sample of the
steel nails imported, which the importer provided. 20 The port officials sent
the sample to a CBP laboratory to determine if the nails provided were
roofing nails or not. After the laboratory determined that the sample nails


20
  Port officials describing this case stated that since they requested a sample after the
product had already made entry, the importer could have easily provided a fake sample
instead of what was actually imported, but did not do so.




Page 12                                 GAO-12-551 Antidumping and Countervailing Duties
                                 were not roofing nails, the port officials concluded that the steel nails were
                                 subject to the AD duty order and, consequently, should have been
                                 declared as such. The officials subsequently told us that this would result
                                 in a penalty against the importer and that 34 additional entries by the
                                 importer at six ports were also under review for evasion.


                                 Two types of factors affect CBP’s efforts to detect and deter AD/CV duty
External Obstacles               evasion. First, CBP faces several external challenges in attempting to
and Gaps in                      gather conclusive evidence of evasion and deter parties from evading
                                 duties. Second, although interagency communication has improved, and
Information Sharing              CBP has encouraged the use of higher bonding requirements to protect
Hamper CBP Efforts               revenue, gaps in information sharing with Commerce and within CBP may
to Address Evasion               limit the effectiveness of these initiatives.


CBP Faces Challenges             Several challenges mostly outside of CBP’s control impede its efforts to
Mostly Beyond Its Control        prove that evasion has occurred and deter parties from evading AD/CV
in Proving Evasion Has           duties. These challenges include (1) the inherent difficulty of verifying
                                 evasion conducted through clandestine means; (2) limited access to
Occurred and Taking              evidence of evasion located in foreign countries; (3) the highly specific
Deterrent Action                 and sometimes complex nature of products subject to AD/CV duties;
                                 (4) the ease of becoming an importer of record, which evaders can
                                 exploit; and (5) the limited circumstances under which CBP can seize
                                 goods brought in through evasion.

Verifying Evasion of AD/CV       CBP officials we met with stated that verifying evasion of AD/CV duties is
Duties Is Inherently Difficult   one of the agency’s most challenging and time-consuming trade
and Time-Consuming               enforcement responsibilities. As these officials emphasized, proving that
                                 evasion is occurring is a key precondition for taking enforcement action
                                 against importers evading AD/CV duties. However, because AD/CV duty
                                 evasion is inherently deceptive and clandestine in nature, it can be
                                 extremely difficult for CBP to gather conclusive evidence to prove that
                                 evasion is occurring. According to CBP, not only can different methods of
                                 evasion be employed at once—often involving the collusion of several
                                 parties, including the manufacturer, shippers, and importer— but entities
                                 engaging in evasion are using increasingly complex schemes. In
                                 particular, CBP officials identified the growing use of illegal transshipment
                                 as a key concern, noting that the Internet has made it very easy for
                                 importers to find companies willing to transship goods subject to AD/CV
                                 duties through third countries to mask the goods’ true country of origin.
                                 Because such schemes often involve adding false markings and
                                 packaging designed to mimic legitimate production in other countries, it


                                 Page 13                           GAO-12-551 Antidumping and Countervailing Duties
                                can be very difficult for CBP to determine a product’s country of origin
                                through visual inspection or through reviews of shipping documents.
                                Undervaluation can be similarly difficult to prove, according to CBP,
                                especially if the producer and importer collude to create false values.

                                In addition to being inherently difficult, verifying evasion of AD/CV duties
                                can also be very time-consuming. According to CBP, it can easily take
                                over a year or more to collect the evidence needed to verify a potential
                                case of evasion. For example, CBP’s ability to target additional shipments
                                from an importer suspected of evading duties hinges on whether or not
                                importation is ongoing. However, CBP documentation notes that
                                shipments of some goods may be seasonal in nature, resulting in months
                                of inactivity until the next shipment can be targeted. Additionally, in cases
                                where CBP requests additional information from the importer, the
                                importer has 30 days in which to respond to the request, but CBP can
                                extend the deadline in additional 30-day increments if the importer fails to
                                respond or needs more time to gather the required information. Similarly,
                                according to CBP, it typically takes up to 30 days to conduct a laboratory
                                analysis of a product sample, but it can take up to 120 days if, for
                                instance, new analytical methods need to be developed. CBP officials
                                stated that their audits of importers suspected of evading AD/CV duties
                                are also time-consuming in nature, taking nearly 8 months to complete on
                                average. Given these timelines— and the fact that CBP may need to use
                                several such verification techniques to successfully prove a single case of
                                evasion—the process of proving evasion may become quite lengthy.

Limited Access to Evidence of   According to CBP and ICE officials, they have limited access to evidence
Evasion Located in Foreign      located in foreign countries that can be vital to proving that evasion has
Countries Hampers Efforts to    occurred, particularly in cases of illegal transshipment. These officials
Prove Evasion                   explained that collecting customs documents from foreign counterparts or
                                gaining access to facilities in a foreign country listed as the country of
                                origin for a suspicious entry can help them prove that the goods in
                                question originated elsewhere. For example, ICE officials investigating a
                                case concerning Chinese honey suspected of being illegally transshipped
                                through Thailand helped determine that evasion occurred, in part by
                                visiting the sites in Thailand where the honey was allegedly produced and
                                determining that the facilities were not honey manufacturing plants (see
                                fig. 5). Similarly, CBP laboratory scientists explained that their ability to
                                use chemical analysis to determine whether an importer falsely declared
                                a good’s country of origin is contingent on gathering reference samples
                                from as many countries as possible for comparison purposes.




                                Page 14                           GAO-12-551 Antidumping and Countervailing Duties
Figure 5: Facility in Thailand Falsely Described as Honey Manufacturing Plant




To collect information located outside of U.S. jurisdiction, CBP and ICE
need to obtain the permission of host nation governments. However, both
CBP and ICE explained that the level of host nation cooperation varies.
According to ICE, even when the United States has bilateral agreements
in place to share customs information, the extent of information shared by
foreign counterparts varies by country. For example, ICE officials stated
that although most of their investigations of evasion involve goods from
China—with which the United States has a customs cooperation
agreement in place—they have never received permission to visit
facilities in China as part of their investigations. Similarly, according to
ICE officials, although the United States has bilateral agreements with
several countries that are thought to be common transshipment points—
such as Indonesia, India, and the Philippines—ICE’s ability to visit these
and other countries during the course of investigations depends on
factors such as each country’s political climate, the nature of its bilateral
relationship with the United States, and the extent to which the host
nation government has ties to the company or industry under
investigation. CBP laboratory scientists have also had mixed results in
gaining access overseas. They noted that the Indonesian government
recently allowed them access to collect samples of shrimp from
Indonesian producers. However, the Malaysian government initially gave
them approval to visit honey and shrimp producers in their country but
ultimately rescinded its approval without explanation. CBP officials also



Page 15                             GAO-12-551 Antidumping and Countervailing Duties
                                noted that although the U.S. free trade agreement with Singapore—
                                another country thought to be a common transshipment point—allows for
                                cooperation on customs issues, the agreement explicitly excludes matters
                                related to AD/CV duties.

Specificity and Complexity of   According to CBP officials, the highly specific and complex nature of
Products Subject to AD/CV       some products subject to AD/CV duties can make it extremely difficult to
Duties Complicate CBP Efforts   identify evasion. As noted earlier, most of CBP’s targeting for potential
to Identify Evasion             evasion involves examining entries that have the same Harmonized Tariff
                                Schedule codes as products subject to AD/CV duties in order to look for
                                any not filed as subject to AD/CV duties. For example, to target potential
                                evasion of the AD duties on saccharin from China, CBP can examine
                                entries from China that have the tariff code for saccharin and determine if
                                any have been filed as not subject to AD/CV duties. However, in some
                                cases, no unique tariff code exists for the specific products that
                                Commerce investigated and issued a duty order for; rather, these
                                products fall under the same tariff code as a broader category of products
                                that are not subject to AD/CV duties. Consequently, the tariff codes listed
                                on a given entry may be insufficient for CBP to determine if goods
                                imported as part of that shipment are subject to AD/CV duties; additional
                                information may be needed. An example is petroleum wax candles from
                                China, which are subject to AD duties. Because there is no specific tariff
                                code for petroleum wax candles—only one for candles—CBP cannot
                                conclude, absent other evidence, that an entry from China under the tariff
                                code for candles is petroleum wax candles, as it may be another type of
                                candle that is not subject to AD duties. Instead, CBP has to turn to other
                                means of verification to attempt to gather conclusive evidence that the
                                entry is petroleum wax candles and, therefore, subject to AD duties. For
                                example, CBP may decide to ask the importer for additional information,
                                such as product invoices containing further details on the type of candles
                                imported. CBP may also target additional shipments of candles and
                                potentially collect a sample for laboratory analysis. However, as
                                described earlier, each of these steps would take additional time,
                                lengthening the verification process.

                                According to CBP officials, the complex nature of some products covered
                                by AD/CV duty orders can also make it difficult for CBP personnel to
                                visually identify the products during cargo exams. For instance, CBP
                                officials stated that AD/CV duty orders on steel typically cover steel
                                products with a certain chemical composition—an aspect that cannot be
                                determined through visual inspection. Another example is the AD/CV duty
                                order on honey, which applies not only to natural honey and flavored
                                honey, but also to honey blends that contain more than 50 percent natural


                                Page 16                          GAO-12-551 Antidumping and Countervailing Duties
                               honey by weight—a characteristic that cannot be ascertained by sight
                               alone. In such cases, CBP personnel can extract a sample from the
                               shipment and send it for laboratory analysis. However, CBP laboratory
                               scientists stated that chemical analysis does not always return a definitive
                               judgment of whether or not a product sample analyzed should fall within
                               the scope of an AD/CV duty order. For example, chemical analysis of a
                               honey blend can return inconclusive results if certain additives are
                               present in the blend. CBP officials stated that CBP cannot take
                               enforcement action without conclusive proof of evasion.

Evaders Can Exploit the Ease   Entities engaging in evasion can exploit the ease of becoming an importer
of Becoming an Importer of     of record, impeding CBP’s ability to target and take deterrent action
Record, Impeding CBP Efforts   against them. As noted earlier, importers of record are responsible for
to Target and Deter Evasion    paying all estimated duties, taxes, and fees on products when they are
                               brought into the United States. However, importers seeking to evade
                               AD/CV duties can exploit the ease of becoming an importer of record in
                               several ways. First, according to CBP officials, companies can easily
                               adopt new importer names and identification numbers, making it difficult
                               for CBP to track their importing activity and gather evidence needed to
                               prove that they are engaging in evasion. CBP officials stated that they
                               suspect some importers evading AD/CV duties set up new names and
                               identification numbers in advance to have ready for use in anticipation of
                               CBP targeting efforts. Second, as our prior work has noted, CBP collects
                               a minimal amount of information from companies applying to be importers
                               of record, which evaders can take advantage of to elude CBP efforts to
                               locate and collect revenues from them. 21 For instance, companies are not
                               subject to any credit or background checks before being allowed to import
                               products into the United States. Third, foreign companies and individuals
                               are allowed to import products into the United States, but CBP can have
                               difficulty collecting duties and penalties from foreign importers—especially
                               illegitimate ones—when the importers have no attachable assets in the
                               United States. For example, as of February 2012, CBP had collected
                               about $5 million, or about 2 percent, of the approximately $208 million it
                               assessed in civil penalties between fiscal years 2007 and 2011. CBP
                               attributed its collection difficulties, in part, to challenges experienced in




                               21
                                GAO-08-391.




                               Page 17                           GAO-12-551 Antidumping and Countervailing Duties
                             collecting from foreign importers of record. 22 CBP officials stated that, due
                             to this risk of noncollection, a factor they consider when deciding whether
                             or not to impose a penalty against a confirmed evader is whether or not it
                             has assets in the United States.

                             As we have previously reported, CBP or Congress could heighten the
                             requirements for becoming an importer of record; however, such action
                             could lead to unintended consequences. 23 Heightened requirements
                             could include mandatory financial or background checks. However,
                             performing these checks would create a significant new burden on CBP,
                             which would need to conduct or oversee these financial or background
                             checks. Additionally, it is possible that, to ensure fairness, the heightened
                             requirements would be imposed on all importers. Given that the vast
                             majority of importers comply with customs laws and pay their duty
                             liabilities, such a broad approach may not be cost-effective and could
                             potentially restrict trade.

Circumstances under Which    CBP is able to seize goods imported through evasion under limited
CBP Can Seize Shipments      circumstances. CBP officials explained that unlike goods that are illegal to
Brought in through Evasion   import, such as those violating import safety or intellectual property laws,
Are Limited                  goods imported through evasion are not necessarily illegal to import.
                             Specifically, according to CBP, although misclassification and
                             undervaluation are commonly used evasion schemes, U.S. trade law
                             limits the seizure of shipments that are misclassified or undervalued. 24 By
                             contrast, CBP is permitted to seize shipments brought in through other
                             forms of evasion, such as through falsifying the country of origin of goods
                             (illegal transshipment) or failing to declare goods on entry documents




                             22
                               As our prior work indicates, another factor that can lead the amount of penalties CBP
                             ultimately collects to be lower than the amount initially assessed is successful petition by
                             an importer. See GAO, Options for Collecting Revenues on Liquidated Entries of
                             Merchandise Evading Antidumping and Countervailing Duties, GAO-12-131R
                             (Washington, D.C.: Nov. 2, 2011).
                             23
                               GAO-08-391.
                             24
                               Under 19 U.S.C. § 1595a, shipments imported contrary to United States classification or
                             valuation law, where there are no issues as to the admissibility of the merchandise into the
                             Unites States, can only be seized in accordance with 19 U.S.C. § 1592.




                             Page 18                                  GAO-12-551 Antidumping and Countervailing Duties
                                 (smuggling). 25 Of the 33 seizures CBP made between fiscal years 2007
                                 and 2011, at least 28 were related to false country of origin or smuggling.
                                 For instance, CBP officials at one port seized a shipment of plastic bags
                                 following a cargo exam that revealed the shipment’s country of origin had
                                 been falsified. However, as CBP has testified before Congress, entities
                                 engaging in evasion often use false markings and packaging that make it
                                 very difficult to determine country of origin through visual examination
                                 alone, complicating the task of establishing grounds for seizure.
                                 Moreover, as noted earlier, verifying evasion is an inherently difficult and
                                 time-consuming process. CBP officials stated that, by the time CBP is
                                 able to verify an instance of evasion, the associated goods typically have
                                 already entered the United States and cannot be seized.


Interagency                      Communication between Commerce and CBP has improved since our
Communication Has                2008 report on AD/CV duties, and CBP has encouraged port officials to
Improved and CBP Has             use higher bonding requirements to protect AD/CV duty revenue when
                                 they suspect incoming shipments of evasion. However, CBP lacks
Promoted Use of Higher           information from Commerce that would enable it to better plan its
Bonding Requirements to          workload and minimize the burden of the U.S. retrospective system on its
Protect Revenue, but             efforts to address evasion. Additionally, CBP has neither a policy nor a
Weaknesses in Information        mechanism in place for a port requiring a higher bond to share this
Sharing Remain                   information with other ports in case an importer attempts to “port-shop,”
                                 i.e., chooses to withdraw its shipment and attempts to make entry at
                                 another port in an attempt to avoid the larger bond requirement.

Despite Improved                 CBP officials cited the administrative burden of the U.S. retrospective
Communication with               system as a factor that diminishes the resources they have available for
Commerce, CBP Lacks              detecting and deterring evasion of AD/CV duties. Under the U.S.
Information Needed to Mitigate   retrospective system, importers that properly declare their products as
Burden of Retrospective          subject to AD/CV duties (i.e., do not evade) pay the estimated amount of
System on Efforts to Address     duties when products enter the United States, but the final amount of
Evasion                          duties owed is not determined until later. The documentation for the
                                 entries remains at the ports while CBP awaits liquidation instructions
                                 conveying the final duty rate from Commerce. Commerce’s review to



                                 25
                                   CBP can also seize goods suspected of evading AD/CV duties if it can prove that the
                                 goods violate other laws. For instance, CBP officials at one port we visited stated that they
                                 were able to seize shipments of honey suspected of evasion after a sample they sent to
                                 the Food and Drug Administration for testing was found to contain a carcinogenic
                                 substance, thereby violating import safety law—a legitimate reason for seizure.




                                 Page 19                                  GAO-12-551 Antidumping and Countervailing Duties
determine the final duty rate—a process that culminates with the issuance
of liquidation instructions—typically takes up to 18 months to complete
and can take months or years longer if litigation is involved. 26 At one port
we visited, CBP officials stated that they had approximately 20,000
entries awaiting instructions to liquidate for food-related products alone.
At another port, officials showed us the file room where they store entries
awaiting liquidation instructions (see fig. 6). Moreover, each of the
thousands of entries subject to AD/CV duties must be liquidated through
manual data entry, which is resource- and time-intensive and diverts CBP
personnel from their efforts to detect and deter evasion.

Figure 6: Unliquidated Entries Subject to AD/CV Duties Stored in File Room at a
U.S. Port of Entry




Under U.S. law, CBP has 6 months to liquidate entries from the time that
it receives notice of the lifting of suspension of liquidation. 27 According to
CBP officials, this 6-month deadline can be very difficult to meet,


26
  During this review, which is known as an administrative review, Commerce analyzes
previous imports to determine the actual level of dumping or subsidization for those
imports and calculate the final duty rate.
27
  19 U.S.C. § 1504(d). Liquidation of entries subject to AD/CV duties is suspended until
removed by statute or by court order.




Page 20                                 GAO-12-551 Antidumping and Countervailing Duties
especially when a large volume of imports needs to be liquidated. 28 In
order to begin liquidating entries, CBP must first receive liquidation
instructions from Commerce.

Since our 2008 report, Commerce has taken steps to improve the
transmission of its liquidation instructions to CBP. We found in 2008 that,
about 80 percent of the time, Commerce failed to send liquidation
instructions within its self-imposed deadline of 15 days after the
publication of the Federal Register notice. Furthermore, we reported that
the instructions were sometimes unclear, thereby causing CBP to take
extra time to obtain clarification. 29 Consequently, we identified untimely
and unclear liquidation instructions from Commerce as an impediment to
CBP’s ability to liquidate entries. In response to our recommendation to
identify opportunities to improve liquidation instructions, Commerce took
steps to improve the transmission of liquidation instructions to CBP. For
instance, Commerce deployed a system for tracking when it sends
liquidation instructions, which according to Commerce, has greatly
improved its timeliness. Documentation from Commerce indicates that, in
the first half of fiscal year 2012, Commerce sent liquidation instructions on
a timely basis more than 90 percent of the time. In addition, Commerce
and CBP jointly established a mechanism for CBP port personnel to
submit questions directly to Commerce regarding liquidation issues.
According to CBP officials, these steps have improved the ability of port
personnel to ask Commerce to clarify its liquidation instructions.

Despite these improvements, CBP officials stated that they lack
information from Commerce needed to effectively manage their workload.
Specifically, although CBP and Commerce both characterized their
interagency working relationship as cooperative, CBP officials stated that
Commerce does not provide them with advance notice on a regular basis
before issuing liquidation instructions, impairing their ability to make
workload decisions that could help mitigate the impact of the liquidation
process on their efforts to detect and deter evasion. Similarly, we testified


28
  When CBP is unable to complete the liquidation process within 6 months, an entry is
“deemed liquidated,” and the entry is liquidated at the rate assessed at the time of entry.
This precludes CBP from attempting to collect any supplemental additional duties that
might have been owed because of an increase in the AD/CV duty rate. Similarly, it means
that CBP does not refund money owed to importers as a result of a decrease in the
AD/CV duty rate, absent a proper protest by the importer.
29
 GAO-08-391.




Page 21                                 GAO-12-551 Antidumping and Countervailing Duties
in May 2011 that, without advance notice from Commerce on upcoming
liquidation instructions, it can be very difficult for CBP to make workforce
planning and staffing decisions. CBP officials at headquarters and at
ports we visited stated that liquidation instructions arrive with little warning
but need to be acted on immediately due to the 6-month deadline for
liquidating entries. They said that this sudden shift in workload diverts key
personnel from efforts to address evasion to focus on manually liquidating
thousands of entries instead. In the absence of advance notice from
Commerce on upcoming liquidation instructions, CBP attempts to roughly
estimate where its workload peaks will occur on the basis of the 18-month
time frame within which Commerce typically completes liquidation
instructions. However, CBP officials stated that no such estimation is
possible in cases involving litigation, which are not subject to time frames.
According to CBP, cases involving litigation are particularly burdensome
because of the considerable length of time it can take to resolve some
cases, during which an extremely large number of entries can accumulate
at the ports—all of which CBP eventually has to attempt to liquidate within
the 6-month deadline. However, Commerce does not currently inform
CBP when a court reaches a decision on a case in litigation—information
that would enable CBP to conduct some workload planning. According to
CBP officials, since CBP is not a party to such cases, it would be helpful if
Commerce provided them with some notification once decisions are
reached. Commerce officials stated that they do not know when courts
will reach decisions on cases in litigation, but said that they could work
with CBP to identify opportunities to share information regarding the
status of litigation.

In response to a CBP request, Commerce recently provided CBP some
information for the first time to help with workload planning. In June 2011,
Commerce officials provided their counterparts in CBP headquarters with
a list of instructions planned for issuance over the next 6 months. CBP
officials at headquarters acknowledged receiving the list from Commerce,
stating that, although the list did not address their need to know when
courts reach decisions on cases involving litigation, they found it useful
for general workload planning purposes. They noted that they would like
to receive this type of list from Commerce on a quarterly basis to have
more up-to-date information on hand to incorporate into their workload
planning decisions. Commerce officials stated that they would be willing
to work with CBP to develop a schedule for sharing this list on a regular
basis.




Page 22                            GAO-12-551 Antidumping and Countervailing Duties
CBP Has Encouraged Use of        CBP has encouraged the use of higher bonding requirements, called
Higher Bonding Requirements      single transaction bonds (STB), to protect AD/CV duty revenue from the
to Protect Additional Revenue    risk of evasion; however, it has not ensured that a port requiring an STB
from Risk of Evasion, but Gaps   shares this information with other ports in case an importer withdraws its
Exist in Information Sharing     shipment and attempts to make entry at another port to avoid the STB. As
                                 noted earlier, all importers are required to post a security, usually a
                                 general obligation bond, when they import products into the United
                                 States. 30 This bond is an insurance policy protecting the U.S. government
                                 against revenue loss if an importer defaults on its financial obligations as
                                 well as ensuring compliance with the law. 31 However, given CBP’s
                                 concerns that this general bond inadequately protects AD/CV duty
                                 revenue, CBP has encouraged port officials to protect additional revenue
                                 by requiring STBs for individual shipments they suspect of evasion. 32 The
                                 amount of the STB is generally one to three times the total entered value
                                 of the merchandise plus duties, taxes, and fees, depending on the
                                 revenue risk. According to CBP officials, STBs serve as additional
                                 insurance in cases where CBP has not been able to collect enough
                                 evidence before a shipment’s arrival to prove that evasion is occurring,
                                 but where enough suspicion exists about the shipment to warrant
                                 protection of the anticipated AD/CV duty revenue. An importer that is
                                 required to obtain an STB can either choose to post the bond in order to
                                 enter its shipment, or can opt against obtaining the bond and withdraw its
                                 shipment. If an importer decides to post the STB, and CBP later confirms
                                 that AD/CV duties are indeed owed, CBP first tries to collect from the
                                 importer. However, if CBP is unable to collect from the importer, it can
                                 collect significantly more money from the surety (insurance) company that
                                 underwrote the STB than it would typically be able to collect from the
                                 surety on a general bond, given the larger amount of revenue protected
                                 by the STB.

                                 While CBP has encouraged the use of STBs to protect revenue related to
                                 imports suspected of AD/CV duty evasion, vulnerabilities exist due to
                                 gaps in port-level information sharing. CBP gives each port the discretion


                                 30
                                  19 C.F.R. § 142.4.
                                 31
                                   19 U.S.C. § 1623. In general, the importer is required to obtain a bond equal to 10
                                 percent of the amount the importer paid in duties, taxes, and fees over the preceding year
                                 (or $50,000, whichever is greater).
                                 32
                                   During our review, CBP was unable to provide data on the number of STBs port officials
                                 have required.




                                 Page 23                                 GAO-12-551 Antidumping and Countervailing Duties
to decide when to require an STB. However, CBP has no policy or
mechanism in place for ports requiring such a bond to share this
information with other ports in case an importer attempts to port-shop,
i.e., chooses to withdraw its shipment and attempts to make entry at
another port in an attempt to avoid the larger bond requirement. Instead,
CBP port officials currently rely on informal e-mail and telephone
communication to notify other port officials of importers potentially
seeking to port-shop. Officials we met with cited specific instances where
this informal approach had been ineffective in notifying other ports of
suspected evasion before the importer could enter the goods at another
port. For example, CBP officials at one port described a case where an
importer that decided against posting an STB at their port was able to
make entry in another port before they were able to e-mail a warning
about that particular importer to other ports. In another case, an importer
succeeded in entering a shipment of furniture in Newark after officials at
the initial port of entry on the West Coast failed to notify other ports that
the importer had decided to withdraw its entry instead of posting an STB.
In both cases, CBP port officials suspected evasion but did not take
additional action in time to warn other ports of entry about the potential for
port-shopping.

Although CBP is currently formulating policy to guide the use of STBs, the
policy may not fully address the risk of port-shopping. In February 2012,
CBP officials stated that they were in the process of completing a policy
that will further encourage port officials to use STBs and provide them
with guidance on circumstances under which the use of STBs is
appropriate. 33 Officials stated that the policy will also instruct officials at a
port requiring an STB to review any other shipments from the importer in
question before releasing them. They added that they had not yet decided
whether or not to automatically instruct ports nationwide to conduct the
same level of review.




33
 Commerce officials stated that they would be willing to assist CBP with this policy.




Page 24                                 GAO-12-551 Antidumping and Countervailing Duties
                           While CBP has improved its performance measures for addressing
CBP Has Made Some          AD/CV duty evasion and enhanced its monitoring of STBs, it does not
Performance                systematically track or report key outcome information that CBP
                           leadership and Congress could use to assess and improve CBP’s efforts
Management                 to detect and deter AD/CV duty evasion. First, CBP cannot readily
Improvements but           produce key data on AD/CV duty evasion, such as the number of
Does Not                   confirmed cases of evasion, which it could use to better inform and
                           manage its efforts. Second, CBP does not consistently track or report on
Systematically Track       the outcomes of allegations of evasion it receives from third parties. As
or Report on Its           we have previously reported, internal control is a major part of managing
                           an organization and should be generally designed to assure that ongoing
Efforts to Detect and      monitoring occurs in the course of normal operations. 34 Furthermore, our
Deter Evasion              prior work has noted the need for agencies to consider the differing
                           information needs of various users, such as agency top leadership and
                           Congress. Specifically, as we reported in March 2011, the Government
                           Performance and Results Modernization Act of 2010 underscores the
                           importance of ensuring that performance information will be both useful
                           and used in decision making. 35


CBP Has Improved           In the past year, CBP has made enhancements in the following two areas
Performance Measures       to track its efforts related to combating AD/CV duty evasion:
and Began Monitoring the
                           •    CBP has taken steps to improve the performance measures for its
Use of STBs                     efforts to detect and deter AD/CV duty evasion. CBP told us that in
                                fiscal years 2010 and 2011, a majority of the performance measures
                                for AD/CV duty enforcement either lacked sufficient data or were
                                declared to be “not measurable.” For example, CBP considered one
                                measure for fiscal year 2011—”analysis completed and enforcement
                                alternatives concurred”— too broad to collect data and report on,
                                given the large number of CBP offices that conduct analysis and
                                enforcement. In another example, CBP did not provide a response to
                                the fiscal year 2011 performance measure related to the results of
                                cargo exams because, according to CBP officials, cargo exams are
                                conducted at the local level and not tracked, creating a dearth of


                           34
                            GAO, Internal Control: Standards for Internal Control in the Federal Government,
                           GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
                           35
                             See GAO, GPRA Modernization Act Provides Opportunities to Help Address Fiscal,
                           Performance, and Management Challenges, GAO-11-466T (Washington, D.C.: Mar. 16,
                           2011).




                           Page 25                                GAO-12-551 Antidumping and Countervailing Duties
                              reportable data. In addition, CBP was unable to track and assess its
                              efforts over time because its measures were inconsistent from year to
                              year.

                              By contrast, CBP’s fiscal year 2012 action plan includes a new set of
                              performance metrics with measurable targets consistent from fiscal
                              years 2012 through 2017. For example, the performance measure for
                              penalties issued has targets to increase the amount of penalties
                              issued each year by 10 or 15 percent. There are similar measures
                              with targets for increasing the percentage of AD/CV duties collected
                              and the number of audits related to AD/CV duties.

                         •    CBP is working to improve its ability to track and report on the use of
                              STBs. In June 2011, after finding that CBP could not determine the
                              total number of STBs used at the ports, the Department of Homeland
                              Security Inspector General recommended that CBP appoint a
                              centralized office responsible for reporting STB-related activities and
                              monitoring results. 36 The Inspector General’s report also
                              recommended that CBP automate the STB process to provide
                              enhanced tracking ability. CBP concurred with these
                              recommendations, stating that it had begun the process of centralizing
                              STB-related roles and responsibilities and developing a system to
                              automate the STB process. Moreover, one of the new measures in
                              the fiscal year 2012 action plan tracks the number of STBs used for
                              AD/CV duty evasion.

CBP Lacks Key Data to    While CBP has reported anecdotes about its successes in addressing
Effectively Manage Its   AD/CV duty evasion and collects some statistics on its efforts, it lacks key
Efforts to Detect and    data that it could use to assess and improve its management practices
                         and that could enhance congressional oversight. Over the past year, CBP
Deter Evasion            has publicly reported anecdotes of successful efforts to detect and deter
                         AD/CV duty evasion. For example, in testimony before Congress in May
                         2011, the Assistant Commissioner for CBP’s Office of International Trade
                         described five recent cases where CBP and ICE uncovered instances of
                         evasion and penalized those responsible. Similarly, in a report to
                         Congress on fiscal year 2010 efforts to enforce AD/CV duties, CBP cited
                         eight cases that led to enforcement action against parties engaging in
                         evasion. CBP has also produced publicly available videos illustrating a


                         36
                          Department of Homeland Security Office of Inspector General, Efficacy of Customs and
                         Border Protection’s Bonding Process, OIG-11-92 (Washington, D.C.: June 27, 2011).




                         Page 26                               GAO-12-551 Antidumping and Countervailing Duties
successful case where CBP worked with ICE to arrest and convict an
importer who evaded the AD/CV duties on wire hangers.

CBP collects some statistics on its efforts to detect and deter AD/CV duty
evasion but lacks other key data on these efforts. For example, CBP
provided us with statistics on civil penalties and seizures related to AD/CV
duty evasion. However, CBP lacks data on

•   the total number of confirmed cases of AD/CV duty evasion;

•   the total amount of duties assessed and collected for confirmed cases
    of evasion;

•   the country of origin, product type, and method of evasion for each
    confirmed case of evasion; and

•   the number of confirmed cases of evasion involving a foreign importer
    of record.

CBP attributed this lack of data to the absence of a policy requiring
officials to record confirmed cases of AD/CV duty evasion. CBP officials
explained that although CBP has a database in which instances of
evasion could be recorded, current policy does not require officials to
record such instances. Consequently, CBP cannot conduct a simple data
query to identify all confirmed cases of evasion. Without the ability to
identify cases of evasion, CBP cannot easily access other related data on
AD/CV evasion that could help improve management decisions and
oversight. For example, CBP is currently unable to produce data on the
total amount of duties assessed and collected for confirmed cases of
evasion—figures that would provide CBP leadership and Congress
visibility over some of the results of CBP’s efforts to address evasion.
Similarly, comprehensive data on the country of origin, product type, and
method of evasion for each confirmed case of evasion could potentially
help CBP identify trends and shifts in evasive activity and make
adjustments accordingly.

CBP also lacks complete data on the country of origin and product type
associated with the 252 civil penalties it imposed for AD/CV duty evasion
between fiscal years 2007 and 2011 (see fig. 7). CBP attributed these
missing data items to CBP personnel not recording them in CBP’s
automated system for tracking penalties. Due to these missing data
items, CBP lacks a complete picture of the countries and commodities
involved in its penalty cases—information it could use to guide and



Page 27                          GAO-12-551 Antidumping and Countervailing Duties
                         improve its efforts. For example, CBP could identify which types of
                         commodities have led to penalties most often and decide whether or not
                         to focus more resources and detection efforts on those types of
                         commodities.

                         Figure 7: Missing Data on Civil Penalties CBP Imposed between Fiscal Years 2007
                         and 2011 for AD/CV Duty Evasion, as of February 2012




                         Note: Percentages do not add to 100 due to rounding.



CBP Does Not             According to CBP officials, CBP addresses all allegations of AD/CV duty
Consistently Track or    evasion it receives, including e-Allegations received online, but it does not
Report Outcomes of       routinely track or report on the outcomes of these allegations. As a result,
                         Congress and industry stakeholders lack information about the outcomes
Allegations of Evasion   of the allegations, which both parties have cited as a cause of concern.
                         Data from CBP indicate that it generally assigns allegations to its national
                         targeting staff for AD/CV duty issues (i.e., the NTAG) within 2 days of
                         receipt. The NTAG then assesses the validity of the allegation using
                         targeting and other analytical tools. If the NTAG determines that the
                         allegation may be valid, it will typically refer the allegation to the
                         appropriate port or to ICE for further investigation and possible
                         enforcement action. As of September 2011, CBP had confirmed or
                         referred nearly one-quarter of the approximately 400 allegations it



                         Page 28                                    GAO-12-551 Antidumping and Countervailing Duties
received from 2008 to August 2011. About half could not be validated,
and another one-quarter were still under analysis.

Although CBP has stated that it addresses all allegations of AD/CV duty
evasion it receives, it has reported little information to date on the
outcomes of its efforts to follow up on these allegations. For instance,
CBP’s report to Congress on AD/CV duty enforcement efforts in fiscal
year 2010 mentions that CBP has received hundreds of allegations from
the trade community, but the report includes no information on the
outcomes of those allegations. In January 2011, in response to a
congressional request, CBP produced a spreadsheet of the allegations it
had received since June 2008. CBP officials told us that this spreadsheet
was created upon request and is not something CBP updates or uses for
management or policy purposes. While this document lists certain details,
such as the source of each allegation, and identifies allegations of
evasion that CBP confirmed as valid, it does not include any information
on the associated enforcement outcomes. During the course of our
review, CBP provided us with expanded versions of the spreadsheet in
response to our request for details on the results of the allegations.
However, these expanded versions provide little insight into the results of
the allegations. For instance, the most recent version of the spreadsheet
that we received, from September 2011, documents the enforcement
outcome for only one of the 24 allegations labeled as “allegation
confirmed.” CBP was also unable to determine if the allegations referred
to ports and ICE by the NTAG were subsequently confirmed as valid or
resulted in enforcement outcomes.

CBP’s limited reporting on the outcomes of allegations is due, in part, to
inconsistent, decentralized tracking of such information. CBP officials
stated that once the NTAG has referred an allegation to a port or to ICE
for further action, CBP considers the allegation to be closed and may or
may not follow up to track its outcome. While CBP creates a record within
its Commercial Allegation and Reporting System for each allegation it
receives, there is no requirement for either the NTAG or the entity
receiving the allegation referral to update these records with details on its
enforcement outcomes. Instead, port officials and ICE store information
on enforcement outcomes in other data systems that are not linked to the
Commercial Allegation and Reporting System. CBP officials at
headquarters told us that aggregating data from these various systems to
link allegations with their associated outcomes would be difficult and time-
consuming. Additionally, according to ICE, it does not specifically track
cases generated as a result of allegations referred by CBP.
Consequently, since ICE cannot identify which of its cases involve


Page 29                           GAO-12-551 Antidumping and Countervailing Duties
              allegations referred from CBP, it also cannot identify the associated
              outcomes.

              An additional cause of CBP’s limited reporting on the outcomes of
              allegations is legal restrictions on the types of information it can share.
              During our review, we met with representatives of a coalition of domestic
              industries affected by AD/CV duty evasion. Some of these
              representatives stated that they had submitted allegations of evasion to
              CBP and expressed frustration that although they had requested updates
              from CBP on the outcomes of the allegations they submitted, CBP had
              not provided them with the information requested. CBP officials attributed
              this, in part, to the Trade Secrets Act, which they said restricts their ability
              to disclose the specific kinds of information requested. Additionally, CBP
              officials stated that they cannot disclose information about allegations
              involving active ICE investigations. Furthermore, CBP does not report on
              the results of its efforts at an aggregate level, which would avoid divulging
              restricted information while keeping key stakeholders informed. CBP
              officials stated that they are currently exploring ways to legally share what
              information they can on allegations with the parties that filed them.


              Evasion of AD/CV duties undermines U.S. AD/CV duty laws—the intent of
Conclusions   which is to level the economic playing field for U.S. industry—and
              deprives the U.S. government of revenues it is due. While CBP employs a
              variety of techniques to detect and deter such evasion, its efforts are
              significantly hampered by a number of factors primarily beyond its control.
              These include the inherently difficult and time-consuming process of
              uncovering evasive activity conducted through clandestine means,
              inconsistent access to foreign countries that limits CBP’s ability (as well
              as ICE’s) to gather necessary evidence, and the ease with which
              importers attempting to evade duties can change names and identification
              numbers to elude detection. Nonetheless, some improvements have been
              made since we last reported, including better communication between
              Commerce and CBP and CBP’s encouragement of the use of higher
              bonding requirements to protect additional AD/CV duty revenue in
              instances where it suspects evasion. However, CBP lacks information
              from Commerce that it needs to better plan its workload and mitigate the
              impact of the time- and resource-intensive liquidation process on its
              efforts to address evasion. Further, CBP has no policy or mechanism for
              port officials to minimize the risk of port-shopping by notifying other ports
              about their use of higher bonding requirements. Unless these gaps in
              information sharing are closed, these recent initiatives may be



              Page 30                            GAO-12-551 Antidumping and Countervailing Duties
                      compromised, thereby limiting the effectiveness of CBP’s efforts to
                      address AD/CV duty evasion.

                      CBP has also made some improvements in managing its efforts to
                      address AD/CV duty evasion, including by developing better performance
                      measures and monitoring its use of higher bonding requirements.
                      However, it lacks key data on AD/CV duty evasion, including on
                      confirmed cases of evasion and penalties, which could help it assess and
                      improve its approach to addressing evasion and also inform agency and
                      congressional decision makers about its efforts. Moreover, CBP has
                      neither tracked nor reported the outcomes of the allegations of evasion it
                      has received from third parties. Without improved tracking and reporting,
                      agency leadership, Congress, and industry stakeholders will continue to
                      have insufficient information with which to oversee and evaluate CBP’s
                      efforts.


                      To enhance CBP’s efforts to address AD/CV duty evasion and facilitate
Recommendations for   oversight of these efforts, we make the following recommendations:
Executive Action
                      First, to help ensure that CBP receives the information it needs from
                      Commerce to plan its workload and mitigate the impact of the liquidation
                      process on its efforts to address evasion, the Secretary of Commerce
                      should work with the Secretary of Homeland Security to identify
                      opportunities for Commerce to

                      •   regularly provide CBP advance notice on liquidation instructions, and

                      •   notify CBP when courts reach decisions on AD/CV duty cases in
                          litigation.

                      Second, to help minimize the risk of port-shopping by importers seeking
                      to avoid higher bond requirements, the Secretary of Homeland Security
                      should direct CBP to create a policy and a mechanism for information
                      sharing among ports regarding the use of higher bond requirements.

                      Third, to inform CBP management and to enable congressional oversight,
                      the Secretary of Homeland Security should ensure that CBP develop and
                      implement a plan to systematically track and report on

                      •   instances of AD/CV duty evasion and associated data—such as the
                          duties assessed and collected, penalties assessed and collected, and




                      Page 31                          GAO-12-551 Antidumping and Countervailing Duties
                          the country of origin, product type, and method of evasion for each
                          instance of evasion—and

                     •    the results, such as enforcement outcomes, of allegations of evasion
                          received from third parties.



                     We provided a draft of this report to the Secretary of the Department of
Agency Comments      Homeland Security, the Secretary of Commerce, and the Secretary of the
and Our Evaluation   Treasury for their review and comment. We received technical comments
                     from the Departments of Homeland Security, Commerce, and Treasury,
                     which we incorporated where appropriate. We also received written
                     comments from the Departments of Homeland Security and Commerce,
                     which are reprinted in appendixes II and III, respectively. The Department
                     of the Treasury did not provide written comments.

                     In commenting on a draft of this report, the Department of Homeland
                     Security concurred with our recommendations addressed to the
                     department that CBP (1) create a policy and a mechanism for information
                     sharing among ports regarding the use of higher bond requirements and
                     (2) develop and implement a plan to track and report systematically
                     instances of AD/CV duty evasion and the results of CBP’s enforcement
                     actions.

                     The Department of Commerce generally concurred with the
                     recommendation addressed to the department to work with CBP to
                     identify opportunities for Commerce to (1) regularly provide CBP with
                     advance notice of liquidation instructions and (2) notify CBP when courts
                     reach decisions on AD/CV duty cases in litigation.

                     In its response, Commerce stated that both CBP and Commerce receive
                     copies of injunctions from the U.S. Court of International Trade and
                     attached a copy of a preliminary injunction to demonstrate how both
                     agencies are generally served copies of the injunctions. However, when a
                     court orders an injunction, such as the one Commerce provided,
                     Commerce and CBP are enjoined 37 from issuing liquidation instructions or
                     otherwise causing or permitting liquidation of the entries that are the



                     37
                       Enjoin means to legally prohibit or restrain by injunction. Black’s Law Dictionary (7th
                     ed., 1999).




                     Page 32                                  GAO-12-551 Antidumping and Countervailing Duties
subject of the litigation. As a result, the injunction does not provide CBP
with the information it needs to help with workload planning because it is
not a court action that constitutes notice of the lifting of a suspension of
liquidation, which would start the 6-month period in which CBP must
liquidate entries. While an injunction can provide CBP information to help
with workforce planning, it does not address CBP’s concern for regular
advance notice of forthcoming liquidation instructions. CBP needs
information from Commerce on when final court decisions are reached to
help enable the agency to better plan its workload and help mitigate the
administrative burden it faces in processing AD/CV duties—an effort that
diminishes the resources it has available to address evasion.


We are sending copies of this report to the appropriate congressional
committees, the Departments of Homeland Security, Commerce, the
Treasury, and other interested parties. In addition, the report is available
at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please
contact me at (202) 512-4101 or gomezj@gao.gov. 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 key contributions to this
report are listed in appendix IV.




Alfredo Gomez
Acting Director, International Affairs and Trade




Page 33                           GAO-12-551 Antidumping and Countervailing Duties
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              To examine how the Department of Homeland Security’s U.S. Customs
              and Border Protection (CBP) detects and deters the evasion of
              antidumping and countervailing (AD/CV) duties, we examined agency
              documents that outline CBP’s process and methods for identifying
              evasion of AD/CV duties; reviewed laws and other documents that
              identify the enforcement options CBP uses to deter evasion; and
              analyzed data from CBP and U.S. Immigration and Customs Enforcement
              (ICE) on deterrence activities such as civil penalties, seizures, criminal
              arrests, indictments, and criminal convictions.

              To identify factors that affect CBP’s efforts to detect and deter AD/CV
              duty evasion, we examined CBP documents that highlight the challenges
              and the timeline associated with verifying evasion; analyzed data on the
              amount of civil penalties CBP has collected from importers evading
              AD/CV duties; and reviewed legislation governing CBP’s use of seizures,
              internal memos on the use of single transaction bonds, and previous
              GAO reports on AD/CV duties.

              To assess the extent to which CBP tracks and reports on its efforts to
              detect and deter AD/CV duty evasion, we reviewed CBP annual plans
              that identify its performance measures for addressing AD/CV duty
              evasion; documents that show CBP’s performance against these
              measures; CBP testimony and videos publicizing successful efforts to
              address evasion; a CBP report to Congress on fiscal year 2010 efforts to
              enforce AD/CV duties; and a report by the Department of Homeland
              Security Inspector General on CBP’s bonding process, including its use
              and tracking of single transaction bonds. Additionally, we analyzed data
              on civil penalties CBP has imposed for AD/CV evasion and allegations of
              evasion received from third parties.

              Additionally, in the Washington, D.C., area, we discussed our objectives
              with officials in CBP’s Offices of International Trade, Field Operations,
              and Intelligence and Investigative Liaison; ICE; and the Departments of
              Commerce and the Treasury, as well as a coalition of U.S. industries
              affected by AD/CV duty evasion.

              To obtain a more in-depth understanding of U.S. efforts to detect and
              deter AD/CV duty evasion, we conducted fieldwork at the ports of Miami,
              FL; Seattle, WA; and Los Angeles, CA. We selected the port of Miami
              due, in part, to its proximity to CBP’s National Targeting and Analysis
              Group (NTAG) for AD/CV duty issues; the port of Seattle due, in part, to
              the high number of civil penalties it imposed for AD/CV duty evasion over
              the last 5 years; and the port of Los Angeles because it processed the


              Page 34                              GAO-12-551 Antidumping and Countervailing Duties
Appendix I: Objectives, Scope, and
Methodology




most imports subject to AD/CV duties, by value, of any U.S. port. At each
port, we met with officials from CBP and ICE to discuss the efforts they
undertake to detect and deter AD/CV duty evasion at their port, the
challenges they face in detecting and deterring evasion, and the process
they use to track and report the results of these efforts. We also met with
representatives of the NTAG for AD/CV duty issues in Plantation, FL, to
discuss their methods for detecting evasion, both through their own
targeting efforts and through analyzing allegations of evasion they receive
from third parties.

To determine the reliability of the data we collected on AD/CV duty
orders, civil penalties, seizures, ICE enforcement outcomes (i.e., arrests,
indictments, and criminal convictions), and allegations received from third
parties, we compared and corroborated information from different
sources; checked the data for reasonableness and completeness; and
asked agency officials how the data are collected, tracked, and reviewed
for accuracy. Based on the checks we performed, our discussions with
agency officials, and the documentation the agencies provided to us, we
determined that the data we collected were sufficiently reliable for the
purposes of this engagement.

We conducted this performance audit from June 2011 to May 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 35                              GAO-12-551 Antidumping and Countervailing Duties
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Homeland Security



of Homeland Security




             Page 36                               GAO-12-551 Antidumping and Countervailing Duties
Appendix II: Comments from the Department
of Homeland Security




Page 37                               GAO-12-551 Antidumping and Countervailing Duties
Appendix III: Comments from the
              Appendix III: Comments from the Department
              of Commerce



Department of Commerce




              Page 38                               GAO-12-551 Antidumping and Countervailing Duties
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Alfredo Gomez, (202) 512-4101, or gomezj@gao.gov
GAO Contact
                  In addition to the individual named above, Christine Broderick (Assistant
Staff             Director), Aniruddha Dasgupta, Julia Jebo, Diahanna Post, Loren Yager,
Acknowledgments   Ken Bombara, Debbie Chung, Martin De Alteriis, Etana Finkler, and
                  Grace Lui made key contributions to this report. Joyce Evans, Jeremy
                  Latimer, Alana Miller, Theresa Perkins, Jena Sinkfield, Sushmita Srikanth,
                  Cynthia S. Taylor, and Brian Tremblay provided technical assistance.




(320882)
                  Page 39                              GAO-12-551 Antidumping and Countervailing Duties
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