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entitled 'International Trade: Observations on U.S. Government Efforts 
to Address Textile Transshipment' which was released on June 18, 2009. 

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Before the Subcommittee on Rural Development, Entrepreneurship, and 
Trade, Committee on Small Business, House of Representatives: 

United States Government Accountability Office: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Thursday, June 18, 2009: 

International Trade: 

Observations on U.S. Government Efforts to Address Textile 

Statement of Loren Yager, Director:
International Affairs and Trade: 


Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to appear today to provide our 
perspective on the issues associated with textile transshipment. I have 
had the opportunity to testify on a number of occasions before the 
Committee on Small Business, and learned more in each of those hearings 
about the importance of trade to the small business community. It is 
particularly important in the current economic environment that the 
United States does everything it can to ensure that U.S. laws regarding 
the entry of illegal goods are fully enforced at the U.S. borders. 
Effective monitoring of textile and apparel imports are also important 
because duties on textile and apparel products account for a 
significant share of U.S. duty collections. However, this enforcement 
takes place in the challenging and busy environment of U.S. ports of 
entry--in fiscal year 2008, there were nearly 29 million trade entries 
processed at more than 300 ports of entry throughout the United States. 

In my statement today, after providing some background on the role of 
Customs and Border Protection (CBP) with regard to textile imports and 
other goods, I will summarize key findings from our prior reports on 
(1) U.S. government efforts to enforce laws related to imports of 
textiles and other goods, including transshipment, and (2) the revenue 
implications of these efforts, as well as discuss the recommendations 
we made to improve those efforts. 

GAO's last report on the subject of textile transshipment was published 
in 2004 and there have been many changes in world trade and in customs 
enforcement since that time. However, we have consulted with CBP since 
that report was issued on the status of their response to the GAO 
recommendations to improve that system. In addition, we have completed 
additional studies on customs enforcement issues, which provide 
important insights into the challenges CBP faces as it addresses 
textile transshipment. One of those reports covered the in-bond system, 
which was a key subject in the 2004 report on textiles, and a second is 
on CBP's ability to maintain an emphasis on revenue such as duties 
collected from textile and apparel imports. In addition, we have also 
completed numerous studies on intellectual property enforcement by CBP 
and other U.S. agencies, and there is considerable overlap between 
those efforts and textile enforcement efforts. We conducted our work 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. 


CBP is the agency primarily responsible for border enforcement, given 
its authority to detain and examine shipments and seize goods that 
violate U.S. law. These illegal goods could include textiles and 
apparel that are illegally entering the U.S., but could also include 
goods that violate U.S. laws related to intellectual property, illegal 
drugs, or product safety. CBP's priority mission is keeping terrorists 
and their weapons out of the U.S. CBP is also responsible for enforcing 
immigration and other border related laws and regulations. Two CBP 
offices are central to carrying out policies and procedures related to 
enforcement efforts at the U.S. border:[Footnote 1] 

* Office of Field Operations - This office houses CBP's border 
operations and is comprised of 20 field offices under which are CBP's 
more than 300 ports of entry. With more than 20,000 CBP officers, the 
office is responsible for carrying out CBP's cargo and passenger- 
processing activities related to security, trade, immigration, and 
agricultural inspection. Daily management of port operations is highly 
decentralized, with field offices overseeing but not directly managing 
port operations. CBP's port operations oversee an array of cargo-and 
passenger-processing environments, and port management structures are 
not uniform. For example, some ports' management oversees a single port 
of entry while others oversee multiple ports of entry (e.g., a seaport 
and nearby airport). 

* Office of International Trade - Established in October 2006, this 
office consolidates the trade policy, program development, and 
compliance measurement functions of CBP into one office. It is 
responsible for providing uniformity and clarity for the development of 
CBP's national strategy to facilitate legitimate trade and managing the 
design and implementation of strategic initiatives related to trade 
compliance and enforcement. CBP has identified seven customs issues 
considered to be its priority trade issues, one of which is textiles. 

Although all goods imported into the United States are subject to 
examination, CBP examines only a small portion of them. The total 
number of exams conducted each year increased dramatically after 
September 2001, but most exams conducted between 2001 and 2005 were for 
security rather than trade reasons; the percent of exams conducted for 
trade purposes decreased during that time period. When CBP detects 
imported goods that violate U.S. law, additional law enforcement 
agencies such as the Department of Homeland Security's (DHS) 
Immigration and Customs Enforcement (ICE) and the Department of Justice 
may become involved to further investigate and/or prosecute violators. 
[Footnote 2] 

CBP Attempts to Address Textile Transshipment, but Significant 
Challenges Remain: 

GAO's prior work has shown that CBP targets potential textile 
transshipment on several levels. However, we have found that CBP's 
efforts continue to face challenges which inhibit its ability to fully 
address the risk of textile transshipment. 

To identify potential illegal textile transshipments to the United 
States, CBP targets countries, manufacturers, shipments, and importers 
that it determines to be at a higher risk for textile transshipment. 
CBP uses a targeting process that relies heavily on analyzing available 
trade data and other information to focus limited review and 
enforcement resources on the most suspect activity. 

First, CBP identifies the countries in which trade flows and other 
information indicate a large potential for transshipment. Second, it 
focuses on selected manufacturers in those high-risk countries for 
overseas factory visits, by what are known as Textile Production 
Verification Teams. The teams attempt to verify that factories are able 
to produce the shipments they have claimed or to discover evidence of 
transshipment, such as counterfeit documents. If evidence of 
transshipment is found, CBP uses this information to target shipments 
to the United States for review and potential exclusions, seizures, or 
penalties. CBP also targets importers based on high-risk activity, and 
conducts internal control audits that include verifying whether the 
importers have controls against transshipment. However, resource 
constraints limit the number of foreign factories and shipments that 
CBP can target and review annually to a small share of textile and 
apparel trade. 

CBP's textile review process for preventing illegal textile 
transshipment has adapted to the changing security environment, but our 
past work found that CBP faces challenges in its monitoring and 
enforcement activities. The textile review process includes analysis of 
entry documents, inspection of shipments, and verification of foreign 
production. We found that CBP ports increasingly depend on information 
received from targeting the most high-risk shipments, the results of 
CBP's Textile Production Verification Team foreign factory visits, and 
other intelligence. 

Our prior reports identified three key challenges to effectively 
addressing textile transshipment. First, in 2004 we found that CBP's 
Textile Production Verification Team reports were not always finalized 
and provided to CBP ports, other agencies, or foreign governments for 
follow-up in a timely manner.[Footnote 3] CBP adopted our 
recommendation to improve the timeliness of this follow-up. We also 
found that information from overseas Customs Attaché offices and 
cooperative efforts by foreign governments can provide important 
information for port inspections. Since the time of our report, CBP has 
increased the number of attachés in foreign ports to 20 in 2009. In 
addition, ICE has also increased its overseas personnel to over 50 in 
2009.[Footnote 4] 

Second, the in-bond program creates the risk that importers can 
circumvent trade rules, including those applying to textile imports. To 
facilitate trade, the U.S. customs system allows imported cargo 
intended for either U.S. or foreign markets to move from one U.S. port 
to another without being assessed duties or quotas and without 
officially entering U.S. commerce. This cargo--referred to as an in- 
bond shipment, requires a responsible party to be covered by a CBP- 
approved bond and to agree to comply with applicable regulations. Some 
CBP port officials have estimated that in-bond shipments represent from 
30 percent to 60 percent of goods received at their ports. 

In our original report on textile transshipment and in a later review, 
we found that CBP's ability to assess and manage the risks of the in- 
bond cargo system was impaired by both (1) the limited information it 
collected on in-bond cargo and (2) the limited analysis it performed on 
available information.[Footnote 5] Evidence indicates that the in-bond 
system has been used at times for moving unauthorized goods through the 
country. For example, in 2007, we reported that about one-third of the 
value of goods that CBP seized for intellectual property violations in 
2004 and 2006 were moving through the in-bond system. With the 
tremendous volume of trade coming through U.S. ports, CBP needs 
detailed information and accurate monitoring systems to set priorities 
for targeting and tracking cargo shipments that pose security or 
revenue risks. However, we found that CBP did not collect detailed 
information on the value or type of in-bond cargo being transported 
through U.S. ports; the in-bond form asks only for a general 
description. As a result, CBP did not have the information needed to 
set priorities for targeting and tracking cargo moving within the in- 
bond program, so as to concentrate on cargo of highest security, law 
enforcement, or revenue impact. 

To address these weaknesses, GAO recommended in 2004 and again in 2007 
that CBP increase targeting and inspection of in-bond shipments and 
collect more detailed information about such shipments. In response, 
CBP issued new in-bond inspection and data collection guidance to its 
ports, as well as updated guidance on in-bond processing requirements. 
In 2008, CBP issued guidance to advise ports on using automated 
targeting systems to identify at-risk in-bond shipments. CBP has also 
been working under the SAFE Port Act of 2006 to establish new 
information requirements for all maritime cargo destined to the United 
States, through its Secure Freight Initiative. 

Third, in reviewing the in-bond system, we also found that CBP had 
failed to perform basic analyses of available information. CBP was not 
able to tell us, for example, the extent of the system's use, what 
products are shipped in-bond, or what shipments are expected for entry 
(and thus expected revenue collection from applicable trade duties) at 
inland ports. Despite prior audit recommendations, important management 
weaknesses persisted in CBP's tracking of in-bond cargo, with the 
result that CBP still does not know whether in-bond cargo shipments of 
greatest security or revenue interest are in fact entered into U.S. 
commerce or exported as required. In particular, CBP continued to have 
high numbers of open in-bond transactions with uncertain disposition. 
As a result, GAO made a series of recommendations to improve the 
oversight and monitoring of cargo moving within the in-bond system. 

In response to those recommendations, CBP has taken steps to improve 
monitoring and oversight of in-bond shipments. For example, it 
increased data collection requirements on in-bond shipments and updated 
its Automated Commercial System (ACS) to better track, link, and report 
on such shipments. These steps have reduced the number of open in-bond 
transactions. CBP also modified the development plans for its Automated 
Commercial Environment System (ACE) to ensure that ACE provides 
adequate in-bond tracking and reporting capabilities. CBP also 
developed proposed regulatory changes that are expected to address 
certain weaknesses with in-bond regulation, by shortening the time 
period during which in-bond shipments can transit the country and 
requiring importers to notify CBP if their shipment plans change. As of 
August 2008, these proposed changes were being reviewed within CBP. To 
the extent that these changes address problems with the in-bond system, 
they will also address one of the ways in which textiles and other 
goods might illegally enter the United States or enter without paying 
the appropriate duties. 

CBP Needs to Renew Its Focus on Revenue Functions: 

In addition to needed improvements on specific programs, we also found 
that CBP had to find a way to better balance security and important 
trade functions such as revenue collection. Although CBP's priority 
mission relates to homeland security, it collected more than $34 
billion in fiscal year 2008, making it the second largest revenue 
generator for the federal government. Because of the high concentration 
of duties collected on textiles and apparel--four percent of U.S. 
imports generate approximately 40 percent of U.S. duties collected--any 
efforts to focus on revenue functions would likely generate improved 
oversight of textile and apparel imports. When the Customs Service was 
created in 1789 under the Department of the Treasury, its mission was 
almost entirely focused on revenue collection. Over time, the agency 
was presented with new missions and challenges, including drug 
interdiction, immigration enforcement, and airport passenger 
processing. But customs revenue functions, such as assessing and 
collecting duties, excise taxes, and fees and penalties, were always 
central to the Customs Service's mission because they produced 
substantial revenue. 

To preserve a high level of customs revenue collections, Congress 
required in Section 412(b) of the Homeland Security Act that CBP, at a 
minimum, maintain certain revenue function positions and the level of 
staff resources that were present in the U.S. Customs Service when it 
became part of DHS in March 2003. The nine specific revenue function 
positions Congress required CBP to maintain were Import Specialists; 
Entry Specialists; Drawback Specialists; National Import Specialists; 
Fines, Penalties, and Forfeiture Specialists; attorneys of the Office 
of Regulations and Rulings; Customs Auditors; International Trade 
Specialists; and Financial Systems Specialists. The act also mandated 
that CBP maintain, at a minimum, the levels of support staff associated 
with customs revenue positions. Associated support staff provide a 
variety of management, technical, and administrative support functions. 
Some staff considered associated support staff includes Liquidators, 
Seized Property Custodians, Customs Technicians, as well as, Assistant 
Port Directors, Account Managers, and Economists. In 2007 we reported 
that CBP had not maintained the minimum number of staff in each 
position.[Footnote 6] In addition, other positions that were not 
specified in the act (e.g., CBP Officers) that previously performed 
primarily customs enforcement functions, were spending much of their 
time performing homeland security functions. 

Our previous findings suggest that Congress' concerns about the 
potential effects of moving customs revenue functions into DHS, whose 
priority mission is homeland security, were warranted. We found that 
this shift in mission contributed to reduced focus and resources 
devoted to customs revenue functions. Specifically, the number of staff 
in most customs revenue positions declined since the creation of DHS, 
despite a legislative mandate that they should not. In addition, the 
number of Auditors in the Office of Inspector General dedicated to 
customs issues has declined as the office's resources were focused in 
other areas. As a result the DHS Office of Inspector General conducted 
no performance audits related to customs revenue functions until 2007. 

As a result of these findings, GAO recommended that CBP perform 
workforce planning to ensure that they had the necessary expertise to 
perform the various functions related to collection of duties and 
penalties. In addition, we also recommended that the DHS Office of 
Inspector General should identify whether areas of high risk related to 
customs revenue functions exist and consider initiating performance 
audits to explore and mitigate those risks. 

In response the DHS Office of Inspector General initiated a broad 
survey of customs revenue functions to determine whether areas of high 
risk related to customs revenue functions exist and initiated 
additional work. For example, in February 2009, the DHS Office of 
Inspector General reported on CBP's management of revenue analysis 
functions.[Footnote 7] In addition, in preparing its fiscal year 2010 
budget request, CBP employed a resource allocation model to determine 
the resources necessary to perform trade functions. As a result, it 
requested funding for 103 positions related to import safety and trade 


Mr. Chairman, we appreciate the opportunity to summarize our work 
related to CBP's efforts to enforce U.S. laws regarding illegal 
shipments of textiles and other products. As I have noted in my 
statement, we have performed a number of studies for the U.S. Congress 
both on textile issues specifically as well as on a number of closely 
related issues such as the in-bond program, revenue collection, and 
intellectual property enforcement at the U.S. border. Over time, we 
have found that CBP has made improvements in its efforts to enforce 
trade laws, including those related to textiles, but trade enforcement 
issues continue to present long-term challenges with significant 
revenue implications for the U.S. government. This concludes my 
statement, but I welcome the opportunity to answer any additional 
questions from you or other members of the Subcommittee. 

[End of section] 


[1] GAO, Intellectual Property: Better Data Analysis and Integration 
Could Help U.S. Customs and Border Protection Improve Border 
Enforcement Efforts, [hyperlink,], (Washington, D.C.: April 26, 

[2] GAO, Intellectual Property: Federal Enforcement Has Generally 
Increased, but Assessing Performance Could Strengthen Law Enforcement 
Efforts, [hyperlink,], 
(Washington, D.C.: March 11, 2008). 

[3] GAO, International Trade: U.S. Customs and Border Protection Faces 
Challenges in Addressing Illegal Textile Transshipment, [hyperlink,], (Washington, D.C.: Jan. 23, 

[4] GAO, Overseas U.S. Government Personnel Involved in Efforts to 
Protect and Enforce Intellectual Property Rights, [hyperlink,], (Washington, D.C.: Feb. 26, 

[5] GAO, International Trade: Persistent Weaknesses in the In-Bond 
Cargo System Impede Customs and Border Protection's Ability to Address 
Revenue, Trade, and Security Concerns, [hyperlink,], (Washington, D.C.: April 17, 

[6] GAO, Customs Revenue: Customs and Border Protection Needs to 
Improve Workforce Planning and Accountability, [hyperlink,], (Washington, D.C.: April 12, 

[7] Department of Homeland Security Office of Inspector General, 
Management of CBP Revenue Analysis Functions, OIG-09-29 (Washington, 
D.C.: Feb. 12, 2009). 

[End of section] 

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