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entitled 'Options for Collecting Revenues on Liquidated Entries of 
Merchandise Evading Antidumping and Countervailing Duties' which was 
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GAO-12-131R: 

United States Government Accountability Office: 
Washington, DC 20548:

November 2, 2011:

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:

Subject: Options for Collecting Revenues on Liquidated Entries of 
Merchandise Evading Antidumping and Countervailing Duties:

The United States imposes antidumping and countervailing (AD/CV) 
duties to remedy unfair foreign trade practices that cause injury to 
domestic industries. Evasion of AD/CV duties weakens protections for 
U.S. industry and reduces U.S. revenues.[Footnote 1] U.S. Customs and 
Border Protection (CBP) sometimes detects such evasion after the 
merchandise has been "liquidated," i.e., the goods have entered 
commerce and the agency has completed processing the entry.[Footnote 
2] You requested that we examine CBP's options for attempting to 
collect revenues in such cases.[Footnote 3] In this report, we examine 
(1) options available to CBP to assess revenues on entries of goods 
subject to AD/ CV duties that entered the United States through 
evasion and have already been liquidated and (2) factors that affect 
the amount of revenues collected by CBP through the use of these 
options.[Footnote 4]

To address these objectives, we interviewed knowledgeable officials 
from CBP and the Department of Commerce (Commerce). In addition, we 
collected and reviewed relevant agency data and documents, laws, and 
regulations. We conducted this performance audit from February 2011 to 
November 2011 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 and that the data we collected were sufficiently reliable 
for our purposes.

Results in Brief:

CBP has three options for assessing revenues on liquidated entries 
brought in through evasion of AD/CV duties: reliquidation, duty 
demands, and penalties. Two factors that can influence which of these 
options CBP will use in a given instance are (1) how much time has 
elapsed since the entry was liquidated and (2) whether Commerce has 
issued liquidation instructions conveying the applicable final duty 
rate.

Two key factors affect the amount of revenues CBP collects on 
liquidated entries brought in through evasion of AD/CV duties. First, 
the amount of duties or penalties CBP ultimately collects may be lower 
than the amount initially assessed, due to successful protest or 
petition by the importer. Second, CBP faces difficulty in collecting 
revenues from importers that may be unscrupulous, difficult to locate, 
or outside of U.S. jurisdiction.

Background:

The process for importing products into the United States involves 
several different private parties, as well as the U.S. government. 
Exporters are companies that ship goods manufactured or produced in 
foreign countries to the United States. Importers may be companies 
that purchase the products from exporters or simply may be responsible 
for facilitating the importation of the goods.[Footnote 5] 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.[Footnote 6] Importers of record are also required to 
secure the payment of their financial obligations (generally by 
obtaining a bond).[Footnote 7]

The United States and many of its trading partners have established 
laws to remedy the unfair trade practices of other countries and 
foreign companies that cause injury to domestic industries. U.S. laws 
authorize the imposition of AD duties on products that were "dumped" 
(i.e., sales at less than normal value) and CV duties on products 
exported to the United States that were subsidized by foreign 
governments.[Footnote 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. 
[Footnote 9]

Two key U.S. agencies are involved in assessing and collecting AD/CV 
duties owed. Commerce is responsible for calculating the appropriate 
duty rate for the merchandise subject to AD/CV duties. CBP is 
responsible for, among other things, collecting duties, taxes, and 
fees on those products and setting the formula for establishing 
importers' bond amounts.[Footnote 10] Commerce issues an AD/CV duty 
order after conducting an initial AD/CV duty investigation on a 
product. The AD/CV duty order instructs CBP to collect cash deposits 
at the time of entry on all merchandise subject to the order.[Footnote 
11] The merchandise also can be subject to an administrative review by 
Commerce 12 months after the issuance of the AD/CV duty order. 
[Footnote 12] At the conclusion of the administrative review 
(typically about 18 months after the review's initiation), the final 
duty rate, also known as the liquidation rate, is established for all 
relevant merchandise. Once Commerce establishes a final duty rate, it 
communicates the rate to CBP through liquidation instructions, and CBP 
instructs staff at each port of entry to assess final AD/CV duties on 
all relevant products. The liquidation process is complete and the 
entries are liquidated when CBP issues a supplemental bill or a 
refund, depending on whether the final rate is higher or lower than 
the cash deposit rate.[Footnote 13] As we reported in March 2008, the 
process of liquidating entries subject to AD/CV duties takes 3 years 
on average from the time the merchandise enters the country.[Footnote 
14]

According to CBP reporting, companies can use a variety of techniques 
to evade AD/CV duties. These 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. As CBP has reported, 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. Because these methods of 
evading AD/CV duties are clandestine activities, the amount of revenue 
lost as a result is unknown.

CBP Has Three Options to Assess Revenues on Liquidated Entries Evading 
AD/CV Duties:

CBP has three options at its disposal to assess revenues on liquidated 
entries brought in through evasion of AD/CV duties: reliquidation, 
duty demands, and penalties. Two factors that can influence which of 
these options CBP will use in a given instance are as follows:

* how much time has elapsed since the associated entry liquidated, and:

* whether Commerce has issued liquidation instructions conveying the 
applicable final duty rate.

Reliquidation. In instances where CBP determines that a liquidated 
entry was subject to error in the amount of duties, taxes, or fees 
assessed, it has the authority to "reliquidate" the entry and assess 
the correct amount owed within 90 days of the date of liquidation. 
[Footnote 15] Reliquidation can be used to correct a variety of 
revenue-related errors, including cases where CBP determines that 
merchandise subject to AD/CV duties was brought into the United States 
through evasion.If CBP discovers, after an entry is liquidated, that 
the merchandise was brought in through evasion, it can attempt to 
collect the duties by reliquidating that entry. However, in order to 
assess AD/CV duties in that instance, CBP must first receive 
liquidation instructions establishing the final duty rate from 
Commerce. Because the process of establishing a final rate under the 
U.S. retrospective system can be lengthy, CBP officials stated that 
they are unlikely to receive liquidation instructions for that 
merchandise within the 90-day reliquidation period. According to CBP 
officials, there would be little advantage to extending the 90-day 
time limit because an expanded window does not significantly increase 
the probability that they would receive liquidation instructions in 
time from Commerce. In addition, an expanded window would affect all 
instances of reliquidation, most of which are not related to AD/CV 
duties. CBP also stated that some industry parties would likely oppose 
an expanded window for reliquidation given the possibility of a longer 
period of uncertainty about their financial liabilities.

Duty demands. If CBP determines that a liquidated entry subject to AD/ 
CV duties was brought in through evasion, and CBP no longer has the 
authority to reliquidate (i.e., more than 90 days have passed since 
liquidation), it can issue a duty demand for the amount of duties 
owed.[Footnote 16] According to CBP, duty demands are ordinarily 
issued in connection with penalty assessments, which are discussed 
next. Depending on the nature of the violation, CBP can issue a duty 
demand up to 5 years after the date of alleged violation or after the 
discovery of fraud.[Footnote 17]

Penalties. CBP can assess penalties against a person who evades AD/CV 
duties.[Footnote 18] As with duty demands, the statute of limitations 
for CBP to commence the imposition of penalties is 5 years from the 
date of alleged violation or from the discovery of fraud.Penalties 
assessed in cases of evasion of AD/CV duties can lead to revenue 
assessments that are much higher than the amounts assessed through 
reliquidation or duty demands.[Footnote 19]

Two Factors Affect the Amount of Revenues Collected on Liquidated 
Entries Evading AD/CV Duties:

Two key factors affect the amount of revenues CBP collects through its 
three options for assessing revenues on liquidated entries brought in 
through evasion. First, the amount of duties or penalties CBP 
ultimately collects may be lower than the amount initially assessed, 
due to successful protest or petition by the importer. For example, 
CBP officials explained that an importer can protest a duty 
assessment. If the importer's protest succeeds, the duty assessment is 
canceled. Similarly, CBP officials noted that assessed penalties can 
be mitigated for reasons such as an importer's successful petition 
against a penalty or demonstration of inability to pay the full amount 
assessed.[Footnote 20]

Second, CBP faces difficulty in attempting to collect money from 
parties that never intended to pay the duties, may be difficult to 
locate, and have few, if any, assets in the United States. As we 
reported in 2008, importers can disappear, cease business operations, 
or declare bankruptcy--all of which, according to CBP, are tactics 
that "bad actors" may use to avoid paying duties and penalties owed, 
but which may be legitimate actions under other circumstances. 
[Footnote 21] In addition, CBP collects a minimal amount of 
information from companies applying to be importers of record, thereby 
creating challenges to locating debtors and collecting revenues. 
Furthermore, foreign companies and individuals are allowed to be 
importers. CBP has indicated that its ability to collect from such 
importers--especially illegitimate ones--is limited, particularly in 
cases where the importers have no attachable assets in the United 
States. As we reported in 2008, many unpaid AD/CV duty bills involving 
a foreign company with no discernable U.S. assets may be classified as 
uncollectible.[Footnote 22]

CBP's information systems do not enable it to generate data on 
revenues assessed and collected through the use of reliquidation, duty 
demands, and penalties on liquidated entries brought in through 
evasion. However, CBP provided some information on the use of these 
three options related to AD/CV duties. Specifically, CBP provided the 
following information for fiscal years 2009 and 2010:

* Reliquidation. CBP reliquidated 111 entries for reasons related to 
AD/ CV duties; however, CBP stated that its information systems do not 
enable it to identify which, if any, of these reliquidated entries 
involved evasion of AD/CV duties. Of the approximately $3.7 million 
assessed during this period, CBP collected approximately $572,000. 
According to CBP, the difference between the amounts assessed and 
collected is due in part to successful protests of the duty 
assessments by importers; the remainder of the difference is due to 
protest decisions that are pending.

* Duty demands. CBP was unable to provide data on the total number of 
duty demands it issued in cases of evasion of AD/CV duties. CBP 
officials explained that their information systems enable them to only 
identify those duty demands that are issued without any accompanying 
penalties. As noted earlier, most duty demands are accompanied by 
penalties; consequently, according to these officials, the lack of 
data on the number of duty demands accompanied by penalties leads to 
significant undercounting of the total number of duty demands. The 
limited data provided by CBP show that, during fiscal years 2009 and 
2010, CBP issued six duty demands related to evasion of AD/CV duties 
(with no penalties attached). These six duty demands totaled 
approximately $77,000, of which CBP collected about $49,000.[Footnote 
23]

* Penalties. CBP assessed 119 penalties related to evasion of AD/CV 
duties; however, CBP data do not indicate which penalties resulted 
from instances where evasion was detected after liquidation.[Footnote 
24] During fiscal years 2009 and 2010, CBP assessed approximately $63 
million in penalties, of which it collected about $3 million. 
According to CBP officials, it is important to note that it can take 
years to collect penalties. Furthermore, the amount that CBP 
ultimately collects may be lower than the amount it originally 
assessed, due, in part, to mitigation decisions that lower the amount 
of penalties owed.

Concluding Observations:

Evasion of AD/CV duties negatively impacts U.S. domestic industries 
and deprives the U.S. government of revenues. CBP has three options-- 
reliquidation, duty demands, and penalties--for assessing revenues in 
cases where it detects evasion of AD/CV duties after the merchandise 
has already been liquidated. While CBP's ability to use these options 
is subject to statutory deadline or dependent on input from Commerce, 
the three options collectively provide CBP an array of tools for 
attempting revenue collection if it determines that a liquidated entry 
was brought into the United States through evasion. Regardless of 
which option CBP uses, the amount of duties or penalties it ultimately 
collects may be lower than the amount initially assessed, due to 
successful protest or petition by the importer. Furthermore, CBP may 
face significant obstacles in collecting assessed revenues due to the 
difficulty of collecting from importers that may be potentially 
unscrupulous, difficult to locate, or outside of U.S. jurisdiction.

Agency Comments:

We provided a draft of this report to the Departments of Homeland 
Security, Commerce, and the Treasury. All three agencies provided 
technical comments, which we have incorporated throughout the draft as 
appropriate.

We are sending copies of this report to interested congressional 
committees as well as the Departments of Homeland Security, Commerce, 
and the Treasury. In addition, the report is available at no charge on 
the GAO Web site at [hyperlink, http://www.gao.gov].

If you or your staff members have any questions about this report, 
please contact me at (202) 512-4347 or yagerl@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Individuals making key 
contributions to this report include Christine Broderick (Assistant 
Director), Ken Bombara, Debbie Chung, Aniruddha Dasgupta, Martin De 
Alteriis, Julia Jebo, and Grace Lui. Marc Castellano, Joyce Evans, and 
Cynthia Taylor provided technical assistance. 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade:

[End of section] 

Footnotes: 

[1] In this report, we use the term "evasion" to refer to any activity 
whereby companies, through means such as misclassification, 
undervaluation, or falsification of country of origin, improperly 
declare goods that are subject to AD/CV duties to avoid payment of 
such duties.

[2] CBP regulations define liquidation as the final computation or 
ascertainment of duties on entries for consumption or drawback 
entries. 19 C.F.R. § 159.1.

[3] In this report, we use the term "revenues" to refer to funds due 
to the U.S. government, including but not limited to duties and 
penalties.

[4] GAO is currently conducting a separate, in-depth review of U.S. 
efforts to detect and deter evasion of AD/CV duties.

[5] See 19 C.F.R. § 101.1 for the CBP regulatory definition of 
"importer."

[6] 19 U.S.C. § 1505. 

[7] See 19 C.F.R. § 142.4 for CBP bonding requirements.

[8] 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.

[9] The United States is the only major user of AD/CV trade remedies 
that uses a retrospective system to assess AD/CV duties. Other 
countries use a prospective system and collect final AD/CV duties at 
the time of entry. 

[10] 19 U.S.C. § 1500. 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).

[11] Among other things, the order specifies the products subject to 
the order and indicates the rates applicable to the individually 
investigated exporters and producers and a catchall rate for other 
exporters and producers that did not receive a specific rate. 19 
C.F.R. § 351.211. 

[12] An administrative review may be requested by an interested party, 
exporters of products subject to the AD/CV duty order, importers, the 
U.S. domestic industry, or the government of producing or exporting 
countries. 19 C.F.R. § 351.213(b); 19 U.S.C. § 1677(9). If no 
administrative review is requested, the estimated AD/CV duties 
importers paid when merchandise entered the country become the final 
duties, and CBP liquidates the entry. 19 U.S.C. § 1675; 19 C.F.R. § 
351.212(c).

[13] If the cash deposit rate is equal to the liquidation rate, CBP 
does not issue a refund or a supplemental bill and the entry is 
liquidated "as entered." In addition, importers can protest the 
supplemental bill, which can add up to 24 months to the liquidation 
process. If an importer does not pay the bill, CBP requests payment 
from the surety (insurance) company that underwrote the bond the 
importer provided when the products entered the United States.

[14] 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).

[15] 19 U.S.C. § 1501.

[16] 19 U.S.C. § 1592(d). 

[17] The statute of limitations for duty demands varies by the type of 
violation. For fraud, CBP has up to 5 years from the time it discovers 
the fraud. For negligence and gross negligence, CBP has up to 5 years 
from the date of alleged violation. 19 U.S.C. § 1621.

[18] 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.

[19] Under 19 U.S.C. §1592, CBP assesses penalty amounts based on the 
cause of action. Civil penalties for fraud cannot exceed the domestic 
value of the merchandise. Civil penalties for gross negligence are not 
to exceed (1) the lesser of (a) the domestic value of the merchandise 
or (b) four times the lawful duties, taxes, and fees of which the 
United States is or may be deprived, or (2) if the violation did not 
affect the assessment of duties, 40 percent of the dutiable value of 
the merchandise. Civil penalties for negligence are not to exceed (1) 
the lesser of (a) the domestic value of the merchandise or (b) two 
times the lawful duties, taxes, and fees of which the United States is 
or may be deprived, or (2) if the violation did not affect the 
assessment of duties, 20 percent of the dutiable value of the 
merchandise. The penalty under 19 U.S.C. § 1595a is equal to the 
domestic value of the merchandise. 

[20] According to CBP, penalty mitigation is conducted in accordance 
with published mitigation guidelines.

[21] GAO-08-391.

[22] GAO-08-391 and GAO, Agencies Believe Strengthening International 
Agreements to Improve Collection of Antidumping and Countervailing 
Duties Would be Difficult and Ineffective, GAO-08-876R (Washington, 
D.C.: July 24, 2008). 

[23] According to CBP officials, the agency collects at least some 
portion of the duties demanded in every instance. CBP attributes this 
in part to its bonding requirement. Specifically, to protect the U.S. 
government against revenue loss if an importer defaults on its 
financial obligations, the importer is required to post a security, 
usually a general obligation bond. 19 C.F.R. § 142.4. CBP has set the 
bond requirement equal to 10 percent of the amount the importer was 
assessed in duties, taxes, and fees, over the preceding year (or 
$50,000, whichever is greater). However, this bond requirement may be 
insufficient to cover the importer's full obligation.

[24] In addition, the data do not include penalties CBP imposed under 
19 U.S.C. § 1595a (importation contrary to law).

[End of section] 

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