Antidumping and Countervailing Duties:

CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk

GAO-16-542: Published: Jul 14, 2016. Publicly Released: Aug 15, 2016.

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What GAO Found

GAO estimates that about $2.3 billion in antidumping (AD) and countervailing (CV) duties owed to the U.S. government were uncollected as of mid-May 2015, based on its analysis of AD/CV duty bills for goods entering the United States in fiscal years 2001–2014. U.S. Customs and Border Protection (CBP) reported that it does not expect to collect most of that debt. GAO found that most AD/CV duty bills were paid and that unpaid bills were concentrated among a small number of importers, with 20 accounting for about 50 percent of the $2.3 billion uncollected. CBP data show that most of those importers stopped importing before receiving their first AD/CV duty bill. As GAO has previously reported, the U.S. AD/CV duty system involves the retrospective assessment of duties, such that the final amount of AD/CV duties an importer owes can significantly exceed the initial amount paid at the estimated duty rate when the goods entered the country.

Importers with Unpaid Antidumping and/or Countervailing Duty Bills for Entries in Fiscal Years 2001–2014, as of May 12, 2015

Importers with Unpaid Antidumping and/or Countervailing Duty Bills for Entries in Fiscal Years 2001–2014, as of May 12, 2015

CBP has undertaken efforts to improve its collection of AD/CV duties or to protect against the risk of unpaid final duty bills through bonding, but these efforts have yielded limited results. For example, CBP launched an initiative to reduce processing errors that result in CBP closing duty bills at the initial duty rate rather than the final duty rate, such that the initial duty paid may be significantly higher or lower than the final duty amount owed. Though the initiative has shown positive results, as of May 2016, its application had been limited. In addition, CBP had not collected and analyzed data systematically to help it monitor and minimize these duty processing errors. As a result, CBP does not know the extent of these errors and cannot take timely or effective action and avoid the potential revenue loss they may represent.

CBP's limited analysis of the risk to revenue from potentially uncollectible AD/CV duties (nonpayment risk) misses opportunities to identify and mitigate nonpayment risk. The standard definition of risk with regard to some negative event that could occur includes both the likelihood of the event and the significance of the consequences if the event occurs; however, CBP does not attempt to assess either of these risk components for any given entry of goods subject to AD/CV duties. GAO's analysis, applying standard statistical methods, demonstrates that a more comprehensive analysis of CBP data related to AD/CV duties is feasible and could help CBP better identify key factors associated with nonpayment risk and take steps to mitigate it.

Why GAO Did This Study

The United States assesses AD duties on products imported at unfairly low prices (i.e., dumped) and CV duties on products subsidized by foreign governments. Nonpayment of AD/CV duties means the U.S. government has not fully remedied unfair trade practices and results in lost revenue.

GAO was asked to review CBP's efforts to improve the collection of AD/CV duties. This report (1) examines the status and composition of uncollected AD/CV duties, (2) the extent to which CBP has taken steps to improve its collection of such duties, and (3) the extent to which CBP assesses and mitigates the risk to revenue from potentially uncollectible AD/CV duties. GAO analyzed CBP AD/CV duty entry data for fiscal years 2001 through 2014, AD/CV duty billing data as of mid-May 2015, and Department of Commerce data for fiscal years 2002–2015. GAO also reviewed agency documents, interviewed agency and private sector officials, and analyzed CBP data to assess the risk of duty nonpayment.

What GAO Recommends

GAO recommends that CBP (1) issue guidance to collect and analyze data on a regular basis to find and address the causes of AD/CV duty liquidation errors and track progress; (2) regularly conduct a comprehensive risk analysis that considers likelihood as well as significance of risk factors related to duty nonpayment; and (3) take steps to use its data and risk assessment strategically to mitigate AD/CV duty nonpayment consistent with U.S. law and international trade obligations. CBP concurred with all three recommendations.

For more information, contact Kimberly M. Gianopoulos at (202) 512-8612 or gianopoulosk@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Priority recommendation

    Comments: In July 2016, GAO found that U.S. Customs and Border Protection (CBP) had not collected and analyzed data systematically to help it monitor and minimize processing errors and as a result did not know the extent of these errors and could not take timely or effective action to avoid the potential losses that they may represent. GAO recommended that to better manage the AD/CV duty liquidation process, CBP should issue guidance directing the Antidumping and Countervailing Duty Team to (a) collect and analyze data on a regular basis to identify and address the causes of liquidations that occur contrary to the process or outside the 6-month time frame mandated by statute, (b) track progress on reducing such liquidations, and (c) report on any effects these liquidations may have on revenue. CBP concurred with this recommendation. In its response to the July 2016 report, CBP identified several actions it intended to take. For example, CBP said that it would be employing its annual self-inspection process to identify the causes of incorrect AD/CV duty liquidations. As of June 2020, CBP had taken some steps to implement this recommendation, but had not fully implemented it. CBP has issued guidance to collect and analyze data on liquidations, including those that occur contrary to the process (known as premature liquidations because they occur before the Department of Commerce has issued its final liquidation instructions) or outside of the 6-month statutory time period for liquidating AD/CV duty entries (known as "deemed" liquidations). The most recent guidance is contained in an August 2018 update of CBP's AD/CV duty liquidation handbook. CBP is also now regularly collecting and analyzing some premature and deemed AD/CV duty liquidation data. For example, CBP now records when certain premature liquidations occur, but according to CBP officials, the agency does not track progress on reducing these liquidations on a year-to-year basis or analyze this data. In fiscal year 2017, CBP added a new premature-liquidation question into its self-inspection process worksheet to help managers identify problems and take corrective actions, but the process only involves a sample of data. CBP is regularly collecting and analyzing deemed liquidation data and is using this data to track progress toward reducing the number of these liquidations. CBP's data suggests it has made progress toward reducing the number of these liquidations, but it has not eliminated the problem. As of December 2019, CBP's data showed that the number of deemed liquidations decreased from about 7,300 entries in fiscal year 2017 to 2,500 in fiscal year 2018, but increased to about 4,600 in fiscal year 2019. To help managers determine whether these liquidations are resulting in a loss of revenue, in fiscal year 2019, CBP added an additional deemed liquidation-related question into its self-inspection process worksheet, but managers are not using this data to calculate the revenue effects of these liquidations. . To reduce the number of AD/CV duty premature and deemed liquidations, CBP officials said the agency is focusing on efforts to increase uniformity in the process of liquidating entries. Actions taken by CBP to increase uniformity include an August 2018 update of its AD/CV handbook to provide detailed instructions for liquidating entries; developing modules within CBP's information system to guide and manage the review, administration and oversight of AD/CV duty entries; and providing staff with additional training. While CBP has taken steps to meet some elements of this recommendation, CBP will not meet all the elements of this recommendation. Specifically, the agency does not report on the revenue effects of premature and deemed liquidations. Agency officials say that calculating the revenue effects of these liquidations is too labor intensive, involving having to comb through sometimes complex liquidation instructions.

    Recommendation: To better manage the AD/CV duty liquidation process, CBP should issue guidance directing the Antidumping and Countervailing Duty Centralization Team to (a) collect and analyze data on a regular basis to identify and address the causes of liquidations that occur contrary to the process or outside the 6-month time frame mandated by statute, (b) track progress on reducing such liquidations, and (c) report on any effects these liquidations may have on revenue.

    Agency Affected: Department of Homeland Security: United States Customs and Border Protection

  2. Status: Open

    Priority recommendation

    Comments: As of December 2019, CBP was taking steps to conduct the type of risk analysis GAO recommended in July 2016. In November 2019 we reported that according to CBP , the agency had developed and successfully tested two models using risk factors including, but not limited to, the type of good, country of origin of the good, and whether the importer is from a foreign country. One test demonstrated that, using data from fiscal years 2007-2015, CBP could have predicted over 95 percent of the importers with delinquent antidumping and countervailing (AD/CV) duty bills in fiscal years 2016 and 2017. CBP requested $17 million in fiscal year 2020 funds to make updates to its information systems necessary to facilitate the implementation of statistical models. CBP is also working on long-term enhancements to the models that it says will leverage additional modeling techniques, such as social network and spatial analysis. Regularly conducting a comprehensive risk analysis of factors related to AD/CV duty non-collection could enhance CBP's capacity to collect additional revenue by enabling CBP to increase bonding amounts for continuous entry and single-transaction bonds for importers with a greater risk of nonpayment. In a December 2019 Commercial Customs Operations Advisory Committee report, CBP said that it planned to begin rolling out a risk-based bonding framework in March 2020. The new framework relies on a bond formula that is in part based on risk factors identified by the statistical models .

    Recommendation: To improve risk management in the collection of AD/CV duties and to identify new or changing risks, CBP should regularly conduct a comprehensive risk analysis that assesses both the likelihood and the significance of risk factors related to AD/CV duty collection. For example, CBP could construct statistical models that explore the associations between potential risk factors and both the probability of nonpayment and the size of nonpayment when it occurs.

    Agency Affected: Department of Homeland Security: United States Customs and Border Protection

  3. Status: Open

    Priority recommendation

    Comments: As of December 2019, CBP was taking steps to develop a risk-based AD/CV bonding framework to use in conjunction with the development of an AD/CV risk assessment model. CBP is developing a supplemental AD/CV duty continuous entry bond that incorporates nonpayment risk factors identified in its statistical models and has worked with Commercial Customs Operations Advisory Committee (COAC) to test the proposed risk based bonding formula by applying it to historical data. CBP has estimated that the collection rate under the risk-based bonding framework using the proposed formula would have been significantly higher than the collection rate under its existing bond policies during fiscal years 2007-2017, both in number and value of the bills collected; however, COAC members said the proposed bond formula would have resulted in overinsurance, which could increase cost to importers. The use of supplemental continuous entry bonds may require regulatory changes and modifications to CBP's database. CBP has also conducted an analysis of the use of single-transaction bonds using historical data, and found that this procedure would have allowed CBP to collect significantly more revenue in fiscal years 2007-2018. CBP is working with COAC members to test a risk-based application of single-transaction bonds to historical AD/CV duty entries to assess whether the bond would have reduced the amount of uncollected duties. In a December 2019 Commercial Customs Operations Advisory Committee report, CBP said that it plans to rolls out its risk-based bonding framework in March 2020.

    Recommendation: To improve risk management in the collection of AD/CV duties, CBP should, consistent with U.S. law and international obligations, take steps to use its data and risk assessment strategically to mitigate AD/CV duty nonpayment, such as by using predictive risk analysis to identify entries that pose heightened risk and taking appropriate action to mitigate the risk.

    Agency Affected: Department of Homeland Security: United States Customs and Border Protection

 

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