Background

The United States and many of its trading partners have long used laws  known as “trade remedies” to mitigate the adverse impact of certain trade  practices on domestic industries and workers, notably dumping (i.e. sales  at below fair market value), and foreign government subsidies that lower  producers’ costs or increase their revenues. In both situations, U.S. law  provides that a duty intended to counter these advantages be imposed on  imports. Such duties are known as AD/CV duties. The process involves the  filing of a petition for relief by domestic producer interests, or self- initiation by the U.S. Department of Commerce (Commerce), followed by  two separate investigations: one by Commerce, which determines if  dumping or subsidies are occurring, and the other by the ITC, which  determines whether a domestic U.S. industry is materially injured by such  unfairly traded imports. If both agencies make affirmative determinations,  Commerce issues an order to CBP directing it to collect the additional  duties on imports. These are known as AD/CV duty orders. No later than 5  years after publication of these orders, Commerce and the ITC conduct a  “sunset review” to determine whether revoking the order would likely lead  to the continuation or recurrence of dumping and/or subsidization and  material injury.
Congress enacted CDSOA on October 28, 2000, as part of the Agriculture,  Rural Development, Food and Drug Administration and Related Agencies  Appropriations Act to strengthen the remedial nature of U.S. trade laws,  restore conditions of fair trade, and assist domestic producers. Congress  noted in its accompanying findings that “continued dumping and  subsidization . . . after the issuance of antidumping orders or findings or  countervailing duty orders can frustrate the remedial purpose” of U.S.  trade laws, potentially causing domestic producers to be reluctant to  reinvest or rehire and damaging their ability to maintain pension and health  care benefits. Consequently, Congress enacted the CDSOA, reasoning that  “U.S. trade laws should be strengthened to see that the remedial purpose of  those laws is achieved.” CDSOA instructs Customs to distribute AD/CV  duties directly to affected domestic producers. Previously, CBP transferred  such duties to the Treasury for general government use.
Two agencies are involved in CDSOA implementation. The law gives each  agency—ITC and CBP—specific responsibilities for implementing CDSOA.  The ITC is charged with developing a list of producers who are potentially  eligible to receive CDSOA distributions and providing the names of these  producers to CBP. CBP has overall responsibility for annually distributing  duties collected to eligible affected domestic producers. CDSOA also  makes CBP responsible for several related actions. Specifically, it charges  CBP with establishing procedures for the distribution of payments and  requires that CBP publish in the Federal Register a notice of intent to  distribute payments and, based on information provided by the ITC, a list of  affected domestic producers potentially eligible for the distribution.
Both agencies had some start-up challenges and have made improvements  in response to reports by their Inspectors General (IG). In September 2004,  ITC’s IG found that the ITC had effectively implemented its part of the act  but made several suggestions for enhancing the agency’s CDSOA efforts.  For example, it suggested that the ITC better document its policies and  procedures for identifying and reporting eligible producers to CBP and  improve its communication with companies regarding eligibility. In  response, the ITC implemented these suggestions to, among other things,  formalize and strengthen its procedures for identifying eligible producers,  developing a list of potentially eligible producers, and transmitting the list  to CBP. For example, the ITC updated its desk procedures, clarified certain  responsibilities to support the staff responsible for maintaining the ITC list,  and added additional guidance on CDSOA requirements to its website.
In June 2003, the Treasury’s IG issued a report finding several major  deficiencies in CBP’s implementation of CDSOA and made several  recommendations. The Treasury’s IG found that CBP was not in  compliance with the law because it did not properly establish special  accounts for depositing and disbursing CDSOA payments, did not pay  claimants within the required time frame, and did not institute standard  operating procedures or adequate controls for managing the program.  Specifically, Treasury’s IG noted that the absence of proper accounts,  accurate financial data, and adequate internal controls had resulted in  “overpayments of at least $25 million, and likely more.”   Treasury’s IG also  emphasized that several other issues warranted attention, including no  routine verification of claims and significant amounts of uncollected  AD/CV duties. In response, CBP consolidated the processing of claims and  payments by establishing a CDSOA team in Indianapolis, Indiana; instituted  procedures for processing claims and disbursements, and for conducting  claim verification audits; and started proceedings to secure  reimbursements from the companies that had received overpayments.  Despite these efforts, CBP still faces issues raised by the Treasury IG, such  as the issue of uncollected duties.
The United States has an obligation that its trade remedy actions conform  to its legal commitments as part of the WTO, an international body based in  Geneva, Switzerland. The WTO agreements set forth the agreed-upon rules  for international trade. The WTO provides a mechanism for settling  disputes between countries, and serves as a forum for conducting trade  negotiations among its 148 member nations and separate customs  territories. WTO trade remedy rules involve both procedural and  substantive requirements, and a number of U.S. trade remedies have been  challenged at the WTO. WTO members that believe other members are  not complying with their WTO obligations can file a dispute settlement  case. The resulting decisions by a dispute settlement panel, once adopted,  are binding on members who are parties to the dispute, and WTO rules  create an expectation of compliance. Under WTO rules and U.S. law,  however, compliance is not automatic. WTO dispute settlement panels  cannot order the United States to change its law. Alternatively, the United  States may choose not to comply with WTO agreements and instead may  choose to offer injured members mutually-agreed upon trade  compensation or face retaliatory suspension of trade concessions by the  complainant members. A new round of global trade talks aimed at  liberalizing trade barriers is now underway and includes discussions of  possible clarifications and improvements to the WTO rules on antidumping  and on subsidies and countervailing measures. U.S. trade with members of  the WTO totaled $2.1 trillion in 2004, giving the United States a  considerable stake in these WTO negotiations, which aim to liberalize trade  in agriculture, industrial goods, and services.

	Key CDSOA Features Restrict Company Eligibility, Determine Share of Disbursements, and Set Tight Time Frame for Disbursing Payments

Three key features of CDSOA guide and affect agency implementation.  These features (1) determine company eligibility to receive CDSOA  disbursements, (2) shape the allocation of CDSOA disbursements among  companies based on their claimed expenditures, and (3) specify milestones  that agencies must achieve when implementing the act, including a tight  time frame for disbursing funds.

		CDSOA’s Criteria for Company Eligibility Restricts Benefits

CDSOA establishes criteria that restrict eligibility for CDSOA  disbursements. As guidance for agency implementation, these criteria raise  issues because (1) two-thirds of the orders in effect predate CDSOA, (2)  ITC investigative procedures were not designed to, and do not result in,  collecting information on support of petitions from all industry  participants, and (3) other factors further limit company eligibility. Some  companies deemed ineligible regard these criteria as unfair, and several  have initiated legal action to secure eligibility.

			CDSOA Restricts Eligibility

The law restricts eligibility to “affected domestic producers”—namely, any  “manufacturer, producer, farmer, rancher, or worker representative  (including associations of these persons)” that (1) petitioned the ITC or  supported a petition for relief to the ITC that resulted in an AD/CV duty  order and (2) remains in operation. The law also requires the ITC to  prepare a list of potentially eligible producers for CBP, which publishes it in  advance of each annual distribution. The law only applies to orders in  effect on or after January 1, 1999. CDSOA further specifies that support  must be communicated to the ITC through a letter from the company or a  response to an ITC questionnaire. Successor companies or members of an  association may also be eligible for CDSOA distributions. Conversely,  CDSOA deems as ineligible those companies that (1) opposed a petition,  (2) ceased production of a product covered by an order, or (3) were  acquired by companies that opposed a petition.

			Most Orders Predate CDSOA

These eligibility criteria create special problems when older AD/CV orders  are involved. Our analysis of ITC data reveals that roughly two-thirds of  (234 out of 351) AD/CV duty orders in effect as of April 15, 2005, precede  CDSOA. The application of CDSOA to orders that predate the law’s  enactment raises concern. This is because, for AD/CV relief petitions that  were investigated before CDSOA was enacted, producers had no way of  knowing that their lack of expression of support for the petition would  later adversely affect their ability to receive CDSOA disbursements.  Moreover, firms that began operations or entered the U.S. market after the  ITC’s original investigation are not eligible to receive CDSOA distributions.  For petitions that have been investigated since CDSOA was enacted,  producers would likely be aware of this linkage. The ITC and CBP told us  that in a recent case involving shrimp, industry associations reached out  broadly to ensure producers were aware of the need to communicate  support to the ITC. Similarly, officials from a law firm that works with  importers told us they were aware of such industry association efforts in  cases involving live swine. However, in examining seven industries, we  spoke to several ineligible companies that were frustrated because they  had not expressed support during, or in some cases had not even known  about, AD/CV investigations conducted before CDSOA’s adoption.

			ITC Sometimes Does Not Collect Data from All Industry Participants

The ITC relies on company data that is sometimes incomplete, and this  further limits eligibility. CDSOA’s criteria link companies’ eligibility to a  process the ITC has long followed in investigating AD/CV petitions by U.S.  domestic industry interests for relief from unfair imports. However, the  ITC’s investigative process does not result in collecting information from  all industry participants, because it is intended for purposes other than  CDSOA. The ITC’s primary role in AD/CV investigations is to define the  scope of the industry that is affected by competition from imported goods  and to determine whether the industry has suffered or been threatened  with material injury as a result of dumped or subsidized imports. The ITC  collects information from U.S. producers, primarily by surveying them. ITC  officials told us that they generally strive to cover 100 percent of industry  production in their surveys and usually receive responses from producers  accounting for a substantial share of production. In situations with a  relatively small number of producers, ITC officials said they often succeed  in getting coverage of 90 percent of the domestic industry. However, in  certain circumstances, such as with agricultural products, which have a  large number of small producers, ITC surveys a sample of U.S. producers  instead of the entire industry. In these situations, it is not uncommon for  the share of production reflected in the ITC’s questionnaire responses to  account for 10 percent or less of production.

			Other Factors May Further Limit List of Eligible Producers ITC Provides CBP

The following four factors additionally define the list of eligible producers:  The questionnaires that the ITC sends to domestic producers during its  investigations have only asked respondents to indicate their position on  the petition since 1985. For cases prior to 1985, only petitioners and  producers who indicated support of the petition by letter in the ITC’s  public reports or documents have been considered “affected domestic  producers.”
The ITC considers the most recent answer a company provides as the  one that determines eligibility. In its investigations, the ITC sends out  both preliminary and final surveys in which producers are asked about  support for petitions. Presently, producers have the option of checking  one of three boxes: (1) support, (2) take no position, and (3) oppose.  According to ITC officials, because the statute requires support, only  those firms that check the “support” box are considered eligible.  Moreover, ITC’s practice has been to look to the most recent clear  expression of a company’s position on the petition to determine its  CDSOA eligibility. For example, if a company’s response was “support”  on the preliminary survey but “take no position” on the final survey, the  ITC interprets “take no position” as non-support, and considers the  company ineligible for CDSOA disbursements.
The ITC limits its list of potentially eligible producers to those who  indicate their support can be made public. The ITC is required by statute  to keep company information, including positions on petitions,  confidential, unless the company waives its confidentiality rights.  CDSOA requires CBP to publish the list of potentially eligible producers;  as a result, the list the ITC provides CBP only includes companies who  have affirmatively indicated willingness (in the original investigation or  after) to have their support be made public.
Because of CDSOA’s interpretation of the phrase “support of the  petition,” the ITC only considers evidence of support during its initial  investigation to satisfy CDSOA requirements. Once an investigation is  over, a producer that has not communicated its support to the ITC  cannot later become eligible for CDSOA disbursements, even if it  supports the continuation of an existing order at the time of the 5-year  “sunset review.”

			Several Companies Have Challenged CDSOA’s Eligibility Restrictions

Several companies have brought legal action challenging agency decisions  that rendered them ineligible to receive disbursements, but none of these  challenges have been successful. The following examples illustrate  challenges to agency decisions:   A case was brought by candle companies to compel the payment of  CDSOA distributions to them. The companies were not on the ITC’s list  of potentially eligible producers and did not file timely certifications  with CBP. The companies asserted that the ITC had violated CDSOA by  failing to include them on the list of affected domestic producers and  that this omission excused their failure to timely file their  certifications. A federal appellate court held that the ITC properly  excluded the two producers from the list of affected domestic  producers because the producers provided support for the AD petition  in a response to a confidential questionnaire and failed to waive  confidentiality. The court also held that when the ITC properly  excludes a producer from the list, the producer still must file a timely  certification with CBP to obtain retroactive consideration for CDSOA  distributions. As a result, the court found that the firms were not  entitled to CDSOA disbursements for the years in question.
Another set of candle companies, which had opposed the relevant  petition and subsequently acquired companies in support of the same  petition, brought a case seeking to obtain CDSOA disbursements on  behalf of the acquired companies. An appellate court held that CDSOA  bars claims made on behalf of otherwise affected domestic producers  who were acquired by a company that opposed the investigation or were  acquired by a business related to a company that opposed the  investigation. The court also found that the acquired companies are  also barred from claiming disbursements for themselves.
A seafood producer brought a case seeking an evidentiary hearing  and/or inclusion of affidavits in the agency record where the producer  was excluded from the list of affected domestic producers because the  ITC had no record of the producer’s support for the petition. The  producer claimed that it had mailed a questionnaire response indicating  support to the ITC on time and wanted to have its affidavits in support  of the contention included in the agency’s records. The U.S. Court of  International Trade held that because the producer failed to allege the  proper reasons for amending the agency record, affidavits concerning  the timely mailing of a questionnaire could not be added to the agency  record and considered when reviewing the producer’s eligibility for a  CDSOA distribution.
Two other legal challenges are still pending and involve claims that CDSOA  violates the First Amendment of the U.S. Constitution (“free speech”) by  conditioning the distribution of benefits on a company’s expression of  support for an AD/CV relief petition.

		Monies Collected on All Active Orders Fund Annual CDSOA Disbursements; Company Claims Determine Share of Disbursements

The second key CDSOA feature provides for CDSOA funding and a pro rata  mechanism for allocating funds among the companies that claim  disbursements based on a broad definition of qualifying expenditures.  Partly as a result of the incentive this creates, company claims approached  $2 trillion in fiscal year 2004.

			AD/CV Duties Fund CDSOA Disbursements

Each fiscal year’s duty assessments on all AD/CV duty orders that were in  effect for that year fund annual CDSOA disbursements. Each fiscal year,  CBP creates a special account that acts as an umbrella over multiple  holding accounts used to track collections by specific active AD/CV duty  orders and deposits collected duties under an order into its respective  account. Within these accounts, CBP indicates that the dollar amounts  attributable to each specific case are clearly identifiable. For example, a  total of 351 AD/CV duty orders were in effect as of April 15, 2005, covering  124 products from 50 countries. In other words, as of that date, CBP  intended to allocate CDSOA disbursements not from “one CDSOA pie” but  from “351 CDSOA pies.” Each of these accounts constitutes a separate fund  from which CBP makes annual distributions. After the fiscal year closes,  CBP distributes the duties collected and interest earned under a given  order that year to the affected eligible producers filing timely claims related  to the specific order.
The agency cannot distribute funds collected from one order to producers  that were petitioners under other orders. For example, funds collected  from the order on pineapples from Thailand cannot be used to pay  producers covered by the frozen fish from Vietnam order. As a result, in  fiscal year 2004, the one U.S. producer of pineapples received all the money  collected under that order, but CBP did not make CDSOA disbursements to  U.S. producers of frozen fish because the agency had not collected any  funds under that order.

			CDSOA Has Broad Definition of Qualifying Expenditures

CDSOA’s definition of expenses companies can claim is very broad. The  law defines ten categories of qualifying expenditures, such as health  benefits and working capital expenses, incurred during the production of  the product under the order. According to CBP officials we spoke with,  this broad definition means companies can include a wide range of  expenses in their certifications. Moreover, CDSOA allows companies to  claim any expenses incurred since an order was issued, a period that may  span as far back as the early 1970s for some orders. Indeed, 68 of the 351  orders in effect have been in place for 15 years or more. Companies can  also make claims under multiple AD/CV orders. For example, in fiscal year  2004, one of the top recipient companies filed claims for different products  under 89 AD/CV orders. Finally, the law allows companies to submit claims  for qualified expenditures that have not been reimbursed in previous fiscal  years. However, CBP implementing regulations require that producers  relate claimed expenditures to the production of the product that is  covered by the scope of the order or finding.

			CDSOA Disbursements Are Proportional to Company Claims

CDSOA uses a pro rata formula to allocate disbursements under a given  order among the eligible companies filing claims, with percentages  determined according to the claims of qualifying expenditures submitted. If  the amount collected under an order is insufficient for all claims to be paid  in full, as is often the case, each company receives its pro rata share of the  amount collected. This pro rata formula creates an incentive for producers  to claim as many expenses as possible relative to other producers so that  their share of the funds available under an order is as large as possible.  CBP officials cited the increase in claims—from $1.2 trillion in fiscal year  2001 to just under $2 trillion in fiscal year 2004—as an indication of this  incentive.

		CDSOA Sets a Tight Time Frame for Disbursing Payments

The third key feature of CDSOA is that it sets a strict deadline by which  CBP must distribute payments for a fiscal year. Most disbursement-related  activities cannot begin until the fiscal year ends. As a result, CBP has a  significant workload in October and November and cannot perform all the  desired quality controls prior to disbursement.
CDSOA gives CBP a flexible time frame for processing claims and the CBP  has used its discretion to give itself more time. Specifically, the law directs  CBP to publish a Federal Register notice of its intent to distribute  payments, and the list of affected domestic producers potentially eligible to  receive payments under each order, at least 30 days before distributions are  made. However, CBP has scheduled the publication, which is the first step  in processing claims, at least 90 days before the end of the fiscal year for  which distributions are being made. For the fiscal year 2004 disbursements,  CBP actually published the notice on June 2, 2004—about 120 days before  the end of the fiscal year. CBP requires producer claims/certifications to be  submitted within 60 days after this notice is published. The fiscal year 2004  deadline for submitting claims was August 2, 2004. This gave CBP the  months of August and September to examine certifications, seek additional  information from the producers, send acceptance or rejection letters to  producers, and finalize a list of recipients.
The law is not flexible in the time frame allowed for processing  disbursements for a given fiscal year, specifying that payments must be  made within 60 days after the first day of the following fiscal year. Because  of the need to calculate funds available based on a completed fiscal year,  CBP cannot commence these calculations until the following fiscal year.  This tight time frame means that during October and November, CBP must  perform the bulk of the tasks associated with calculating the funds  available for disbursement under each order and the funds that will be  distributed to each recipient company under an order. In discussions with  us, CBP officials said CDSOA’s 60-day time frame for disbursing payments  was tight, posing the biggest risk associated with running the program. For  instance, in fiscal year 2002, the program missed this deadline by about 2  weeks and, in the process, overpaid some producers. Efforts to collect  these overpayments have yielded some results but are still continuing. An  extension of 30 days in the disbursement deadline would give CBP  additional time to undertake desired quality control measures before  sending the instructions to Treasury and issuing payments. The present  schedule does not allow sufficient time for quality control, forcing CBP to  ask companies for repayment if errors are subsequently detected.

	CBP Faces Three Key Problems Implementing CDSOA

CBP faces three key problems in implementing CDSOA. First, despite some  recent improvements, CBP’s processing of CDSOA claims and  disbursements is labor intensive, and the agency is facing a dramatic  increase in its 2005 workload. Second, the agency does not systematically  verify claims and thus cannot be sure it appropriately distributes  disbursements. Third, CBP disbursed only about half the funds that should  have been available in fiscal year 2004 because of ongoing problems  collecting AD/CV duties.
Figure 1 depicts how the various units of CBP and Treasury interact when  processing claims, verifying claims, and making payments. Following the  consolidation of CBP’s CDSOA program within the Revenue Division at  Indianapolis in 2004, the division is now fully responsible for processing  claims and disbursements. The division issues payment instructions for  Treasury’s Financial Management Service, which actually issues CDSOA  disbursement checks to U.S. companies. CBP’s Regulatory Audit Division  may selectively perform claims verifications upon request of the CDSOA  program.
In addition to these offices within CBP, the Office of Regulations and  Rulings addresses legal matters, the Office of the Chief Counsel addresses  litigation, the Office of Information Technology provides necessary reports,  and the Office of Field Operations is responsible for liquidations.

		CBP’s CDSOA Program Faces Problems Processing Claims and Payments

The CDSOA program’s efforts to process claims and disbursements are  cumbersome and likely to become more challenging with impending  workload increases. The processing of claims and disbursements requires  intensive manual efforts, in part because CBP does not require companies  to file claims using a standardized form. Also, existing computer systems  do not have the capabilities to produce the data needed to calculate  amounts available for distribution. CBP’s guidance for filing claims is not  sufficiently specific and causes confusion, requiring extra effort by CBP  staff to answer questions from companies. CBP officials are concerned  that, despite recent staffing increases, the number and experience level of  staff may not be sufficient to handle the dramatic workload increase in  fiscal year 2005. Despite being aware of these problems, CBP’s CDSOA  program lacks plans for improving its processes, staff, and technology.

			Processing of Claims Is Labor Intensive

CDSOA claims processing is cumbersome and labor intensive. Through  fiscal year 2004, CBP only received updates to the list of potentially eligible  companies from the ITC in hard copy. As a result, CBP had to manually  update its electronic database of potentially eligible producers. During the  course of our review, ITC officials took the initiative to provide the list to  CBP in hard copy and in electronic format to facilitate CBP’s processing of  this information. CBP officials noted that getting the file electronically was  very helpful. However, because CBP still needed to perform considerable  data re-entry to get the list into the format they preferred, ITC and CBP  officials told us they are exploring whether to formalize and improve this  file exchange in the future. Because CBP does not require companies to  submit claims electronically using a standardized form, program staff scan  all the documents received for electronic storage and subsequently archive  all paper copies of the documents. CDSOA program staff must review each  claim to ensure it contains the required information, contact claimants to  clarify basic information, and send out letters concerning rejected claims.  Staff must manually enter information from accepted claims into a  “standalone” database, and perform repeated checks to ensure that they  followed the prescribed procedures and that their data entries are valid and  accurate.

			Gaps in Computer Systems Force Reliance on Manual Calculations of Disbursements

The payments processing component is also labor intensive because  existing computer systems do not have the capabilities to provide precise  information on the amounts available for disbursement under each order or  the amounts to be disbursed to each claimant. CBP’s CDSOA program  continues to face a risk in this area because its staff must manually perform  the calculations and any inaccurate calculations can result in over or  underpayments. Multiple data elements are required to determine the  amounts available for disbursement, and these come from different  computer systems. In some instances, the computer systems produce  conflicting information, and program staff must manually reconcile these  differences. While internal control procedures are in place to ensure the  validity and accuracy of the calculations, the process is nonetheless subject  to human error. Program officials told us that the new computer system  being implemented agencywide will not have the financial component  needed to perform this task for several more years.

			Guidance to Companies Generates Questions to CBP and Uncertainty by Companies

Claims processing is further complicated because the guidance about how  to file CDSOA claims is very general and open to interpretation. As a result,  CDSOA program staff field many phone calls from claimants regarding  their claims, including clarification questions on how to file claims.  Respondents to GAO’s questions generally praised CBP for its handling of  these calls. However, a recent CBP verification of a company’s claims  raised various claims-related questions. For example, CDSOA provides that  companies can receive disbursements for qualifying expenditures not  previously reimbursed, but officials involved in the verification said it was  not clear whether companies must subtract all past disbursements when  making claims under multiple orders, or only those disbursements related  to a particular order. Also, one CDSOA recipient company reported that,  because of uncertainty about whether cumulative expenses could be  claimed, it claimed only 1 year’s expenses. As a result, it received a much  smaller share of disbursements than it otherwise could have.

			CDSOA Program Has Increased Staff but Faces Dramatic Growth in Workload

Although the number of staff assigned to process claims and payments has  grown, program officials noted that this increase may not be sufficient to  handle the dramatic workload increase expected in fiscal year 2005.  Specifically, the number of eligible claimants has grown by 500 percent  between fiscal years 2004 and 2005, and the number of claims might  increase more than 10-fold, from 1,960 to over 29,000. This growth is largely  due to AD duty orders on certain warm-water shrimp or prawns recently  coming into effect. Table 1 shows the number of program staff for fiscal  years 2003-2005 and the program’s responsibilities and workload during  those years.
Program officials are concerned about fiscal year 2005 processing activities  because only about half of the staff has processed claims and payments  before. The rest are new and not experienced with the procedures.  Moreover, if the workload becomes unmanageable, CBP may be unable to  quickly bring new staff on board and up to speed. This is because new  employees must undergo a 4 to 6 month background check and initial  training of entry-level college graduates takes 3 to 4 months. New staff  attains full proficiency only after they complete a full annual cycle of  processing claims and payments.
Despite these challenges, the CDSOA program does not have formal plans  for improving its processes, technology, and staff. In our efforts to help  improve the federal government’s performance, we regularly emphasize  that processes, staff, and technology are vital to agency performance and  that planning is central to managing and improving these three  organizational components. For instance, our work on human capital  issues throughout the government has revealed the importance of having a  human capital plan in place to address problems, such as those faced by  the CDSOA program, and ensure that staff with the right skills and abilities  is available continuously and can meet changing organizational needs.

		CBP Has Not Verified Claims Systematically

Claims verification poses another implementation problem for CBP.  Companies are not held accountable for the claims they file because CBP  does not require them to provide any supporting documentation for their  claims and does not systematically verify company claims. The only  comprehensive verification conducted to date found significant issues.  Although CBP has put in place procedures for verifying CDSOA claims, it  does not plan to implement them on a systematic or routine basis.
Program officials told us they basically accept the information in company  claims and rely on complaints from competitors to initiate verifications. In  reviewing certain claims and CBP’s procedures, we found that claims are  generally not questioned even though top CDSOA recipient companies  have claimed over $2 trillion since fiscal year 2001 (see app.II). CBP  normally does not take steps to determine that companies are still in  business and producing the item covered by the order under which they are  making a claim. Neither CDSOA nor CBP require companies to explain  their claims, provide supporting documentation about their claims, or  follow a format when listing their qualifying expenditures. For example, in  reviewing the 2004 claims filed by top CDSOA recipients, we found that  most companies did not provide any details about their claimed  expenditures. Indeed, one company listed all of its claimed expenditures  under the category of raw materials. CDSOA and CBP do not require that  companies have their claims reviewed by a certified public accountant or a  party outside of the company.
CBP has only verified the claims of a handful of claimants. One of these  verifications was comprehensive and revealed significant problems. In the  first 3 years of the CDSOA program, staff in CBP’s Office of Regulations  and Rulings conducted four, 1-day site visit verifications that revealed no  substantive issues. Subsequently, CBP’s Regulatory Audit Division decided  to conduct a fifth verification using the detailed verification procedures the  division developed in mid-2004. This verification, which took about a year  and was completed in June 2005, revealed significant problems, including  substantial overstatement of claimed expenses. According to CBP, the  primary cause of the CDSOA expenditure overstatement was the  company’s failure to maintain an internal control system to prepare and  support its CDSOA claims. This prevented the company from identifying  the non-qualifying products and costs associated with them. As a result, the  company included expenditures incurred in the production of products not  covered by the scope of the AD/CV orders. The company acknowledged  that it had wrongly claimed expenditures and subsequently took corrective  action.
CBP does not plan to change its present reactive approach or to  systematically target more companies for verifications. Although the law  does not require verification of claims, CBP has recognized over time the  need for them but has always stopped short of implementing a systematic  verification plan. In the third year of CDSOA implementation, a CBP  working group under the direction of the Deputy Commissioner’s office  developed a statement of work to, among other things, verify claims  according to a risk-based plan. However, CBP does not have any evidence  that this plan was ever developed or implemented.
Despite having new claim verification procedures in place and having  performed an in-depth verification as a prototype review to determine the  extent of work involved in the verification, Regulatory Audit Division  officials told us they do not plan to verify claims systematically or on a  routine basis. Instead, CBP will continue to rely on complaints from  competitors to select companies for verification. According to CBP  officials, this approach is logical because the pro rata formula for  allocating disbursements among firms creates an incentive for other  companies to police their competitors. Although CBP has an agencywide  risk-based plan for targeting companies for audits, this plan does not target  the CDSOA program’s recipients because the agency does not consider the  program a high risk to revenue or a high priority for policy reasons.
CBP’s current position is at odds with its own Inspector General’s (IG)  position and our work on financial management, which highlights the  importance of verifying claims. In its audit of the CDSOA program,  Treasury’s IG emphasized the need for more robust claim verification. In  the report, the IG questioned why CBP was not reviewing CDSOA claims  on an annual basis, and particularly the expenditures claimed. The IG went  on to note that certifications are legally subject to verification and that  these certifications would serve as a deterrent against the submission of  deceptive claims. Moreover, it emphasized that untimely verifications could  result in the loss of revenue for other deserving companies if, in fact,  deception was later discovered. Our overall work on claims and  disbursements throughout the government shows that the systematic  verification of claims before they are processed (or after they are paid) is  key to ensuring the validity of transactions and to avoid disbursement  problems such as improper payments. This work also reveals the  importance of internal controls, such as verification, to ensure that only  valid transactions are initiated in accordance with management decisions  and directives.

		CBP’s Problems in Collecting AD/CV Duties Worsen

Collecting AD/CV duties has been another problem for CBP, compromising  the effectiveness of AD/CV trade remedies generally and limiting funding  available for distribution under CDSOA. CBP reported that the problem has  grown dramatically in the last couple of years. For example, it distributed  about half of the money that should have been available under CDSOA in  fiscal year 2004. CBP’s efforts to date to address the causes of its  collections problems have not been successful, leading CBP to pledge  further steps in a July 2005 report to Congress.
Customs collections problems have been evident since mid-2003 and have  two distinct components. Specifically, the 2003 report on CDSOA by  Treasury’s IG highlighted CBP’s collections problems, raising particular  concerns about the following two AD/CV collection issues:  Unliquidated entries make the eventual collection of duties owed less  certain. Liquidation is the final determination of duties owed on an  import entry. Liquidation of import entries subject to AD/CV duties only  occurs after Commerce issues a final order, determines final dumping  margins or final net countervailable subsidies (i.e. duty), and issues  liquidation instructions to CBP. Upon receipt of liquidation instructions,  CBP calculates and seeks to collect the actual duties owed. In some  cases, such as softwood lumber, liquidation is being suspended due to  ongoing litigation. While neither Commerce nor CBP can hasten  collection of duties tied up in litigation, Treasury’s IG report found that,  in some cases, CBP was not collecting duties because Commerce had  failed to issue proper liquidation instructions to CBP. In other cases, the  report said CBP had overlooked Commerce liquidation instructions. The  report said clearing up the liquidation backlog should be given a high  priority given the substantial dollars involved—about $2 billion in 2003.  Clearing the backlog is also urgent because discrepancies between  unliquidated duties and final duties often means that CBP must attempt  to collect additional sums from producers that did not expect to pay  more, or that went out of business.
Open (unpaid or uncollected) duty bills are liquidated entries for which  final bills have been issued but not paid. The Treasury’s IG report  expressed concern that CBP had not collected $97 million in duties  owed and said that the agency might not be able to recover some of  these funds. Treasury’s IG said its discussion with CBP personnel  suggested recovery could be difficult because: (1) port personnel are  accepting bonds that are not sufficient to cover the duties owed plus  interest when the entry is liquidated, and (2) the length of time between  entry and liquidation is often several years, and in that time, some  importers go out of business, leaving CBP with no way to go back for  collection of additional duties.
In response, CBP and Commerce took steps to identify and address the  causes of CBP’s collections problems. CBP attributes the uncollected  duties problem largely to “new shippers” with little import history, a  problem that is particularly prevalent in the agriculture and aquaculture  industries. According to CBP, one of these new shippers accounted for $130  million in uncollected duties in fiscal year 2004. To address this problem, in  2004, Commerce changed its new shipper review process and listed several  steps it has taken to strengthen it. These included steps such as making the  bondholder liable for duties owed on each import entry, and formalizing a  checklist to ensure the legitimacy of new shippers and their sales.  Subsequently in 2004, CBP announced an amended directive to help ensure  that duties on agriculture and aquaculture imports were collected properly  by reviewing and applying a new formula for bonds on these imports,  effectively increasing these bonds by setting them at higher rates.
Nevertheless, since the problem and its basic reasons became known in  2003, the size of CBP’s collections problem has more than doubled. As  figure 2 shows, according to CBP data, $4.2 billion in AD/CV duties  remained unliquidated and $260 million in AD/CV duties were unpaid at the  end of fiscal year 2004. According to CBP, a large amount of the  unliquidated entries involves duties on softwood lumber from Canada  (about $3.7 billion). In February 2005, CBP reported to Congress that it had  developed a plan to isolate suspended entries that were beyond the normal  time frames of an AD/CV case and then worked with Commerce to obtain  liquidation instructions, reducing the inventory of one million suspended  entries by 80,000. However, many unliquidated entries remain and some of  the unliquidated entries are still due to problems within CBP’s and  Commerce’s control. CBP estimates that over 90 percent of all unliquidated  AD/CV entries are awaiting Commerce instructions for liquidation.  Regarding unpaid duties, a large percentage pertains to imports from  China. Specifically, nearly two-thirds of these unpaid duties (about $170  million) relate to an AD order on crawfish tail meat from China. The second  largest amount (about $25 million) relate to an AD order on fresh garlic  from China.
CBP’s continued collections problems have led to calls for more drastic  measures. Several industry groups, including representatives of the garlic,  honey, mushroom, and crawfish industries, have advocated for elimination  of the new shipper bonding rules in favor of cash deposits on entries for  new AD orders. Most crawfish and some steel recipients responding to our  questionnaire also raised concerns about CBP’s collection efforts and  quality of communication about ongoing problems.
As a result, CBP is pursuing additional measures. In a February 2005 report  to Congress, CBP said it is working with Treasury to address financial risks  associated with bond holders’ insolvency and monitoring of  agriculture/aquaculture importers’ compliance with its new bonding  requirements on a weekly basis. In its July 2005 report to Congress, CBP  highlights that it has begun working with other U.S. agencies to develop  legislative proposals and other solutions to better address AD/CV duty  collection problems. CBP notes that it plans to forward the results of this  interagency effort to Congress by December 2005. Meanwhile, Congress is  considering legislation that would change new shipper privileges.

	CDSOA Payments Largely Concentrated on a Few Companies and Industries, with Mixed Effects Reported

Most CDSOA payments went to a small number of U.S. producers and  industries, with mixed effects reported. Top recipient companies reported  that the payments had positive overall effects, although their assessments  of the extent of the benefits varied. Leading recipient companies within the  seven industries we examined also reported varying positive effects. In  four of these industries—bearings, candles, crawfish, and pasta— recipients we contacted reported benefits, but some non-recipients said  that CDSOA payments were having adverse effects on their ability to  compete in the U.S. market. Although some have argued that CDSOA has  caused increases in the number of AD/CV petitions filed and in the scope  and duration of AD/CV duty orders, the evidence to date is inconclusive.

		A Few U.S. Producers and Industries Received the Bulk of CDSOA Payments

From fiscal year 2001 to fiscal year 2004, CBP has distributed  approximately $1 billion in CDSOA payments to 770 companies from a  broad range of industries. These payments have been highly concentrated  in a few companies. Figure 3 shows the share of payments going to the top  five companies and the share received by the remaining CDSOA recipients.
One company, Timken, a bearings producer, received about twenty percent  of total distributions, approximately $205 million, during fiscal years 2001- 2004. Five companies, including Timken, received nearly half of the total  payments, or about $486 million.
Figure 4 shows the distribution of payments to the top 39 recipient  companies that have received 80 percent of total CDSOA disbursements.  These top recipient companies included several producers of steel,  candles, and pasta. They also included producers of cement, chemicals,  cookware, pencils, pineapples, and textiles.
For most of the top recipient companies responding to our questionnaire,  the ratio of CDSOA payments to sales was less than 3 percent. Specifically,  the ratio of payments to sales ranged from less than 1 percent to over 30  percent. The ratio was generally the smallest for steel companies and the  largest for candle companies.
In analyzing CDSOA distributions by industry, or product group, the  payments are similarly concentrated among only a few industries or  product groups. For example, approximately two-thirds of total CDSOA  distributions went to three product groups—bearings, candles, and iron  and steel mills—which recieved approximately 40 percent, 14 percent, and  12 percent respectively. Also, 95 percent of all total payments went to 24  out of the 77 product groups. Figure 5 shows the leading industries or  product groups that received CDSOA distributions.

		Companies Report Mixed Effects from CDSOA Payments

			Top Recipients of CDSOA Payments Reported Varying Positive Effects

As detailed in appendix II, the 24 companies that responded to our survey  of top CDSOA recipients indicated that the CDSOA disbursements had  positive effects, but the extent of benefit varied from slight to substantial.  We asked these companies to assess CDSOA’s effects at both the industry  and company level on a number of different dimensions including prices,  investment, employment, and ability to compete. The top recipients  reported that CDSOA had the most positive impact in areas such as net  income and employment. For example, one company commented that  CDSOA payments have allowed for substantial investments in its factory  and workers, providing, among other things, supplemental health care  benefits. Another company reported that CDSOA payments have been  helpful in justifying continued investment during periods when prices are  depressed, due to dumping or subsidization. The top recipients reported  that CDSOA had less of an effect in other areas such as prices and market  share. For example, a company commented that disbursements have had  little or no effect on prices for its CDSOA product because such prices are  ultimately determined by market forces.

			Companies in Seven Industries Reported a Mix of Positive and Negative Impacts

As detailed in appendix III, in our examination of seven industries that  received CDSOA payments—bearings, steel, candles, pasta, dynamic  random access memory (DRAM) semiconductors, crawfish, and softwood  lumber—leading recipients we contacted generally reported benefits to  varying degrees, and the non-recipients we contacted either complained  about being disadvantaged or did not report effects. In four industries— bearings, candles, crawfish, and pasta—recipients generally reported  benefits, but some non-recipients complained that the disbursements were  having negative effects on them. These industries all involve cases that  predate CDSOA. In general, the non-recipients that complained of negative  effects are ineligible for disbursements and several complained about their  ineligibility.
Bearings. The leading domestic producer of bearings is eligible for  CDSOA disbursements, but several large foreign-owned companies with  longstanding production in the United States are its major competitors  and ineligible. Three bearings recipient companies commented that  CDSOA has had positive effects, although they varied in their  assessments of the extent of the benefit. One company stated that the  disbursements helped it to replace equipment and enabled it to recover  to the position it had held prior to being injured from dumping. Another  recipient commented that, while the CDSOA disbursements were  helpful, they were distributed several years after the initial injury and  did not fully compensate the company for lost profits due to unfair  trade. Two non-recipients provided views. One non-recipient  commented that CDSOA harms global bearings companies because the  antidumping duties they pay are transferred directly to a competitor. It  further commented that not only is it forced to subsidize competitors  through CDSOA, but the money it is paying in duties limits its ability to  invest in and expand its U.S. operations. The other said it is too early to  know what injurious effect CDSOA disbursements would have on non- recipients.
Steel. In this industry, the largest U.S. producers are CDSOA recipients.
Recipient companies reported that payments—though small relative to  company size and the challenges they face in their capital-intensive  industries—had positive effects. Steel accounts for the single largest  industry share of outstanding dumping orders, and most major U.S.  producers receive CDSOA payments under numerous AD/CV orders on  different products. Steel recipients we contacted varied in their  assessments of CDSOA’s effects, but generally agreed that the program  benefited them by providing greater opportunities for making needed  capital investments in their plant and equipment. Steel recipients also  commented, though, that CDSOA has not been a complete solution to  the serious problems they faced. When the Asian financial crisis  spawned rising imports, falling steel prices, and consolidating of firms,  the receipt of CDSOA disbursements did not prevent several steel  producers from joining numerous others in the industry in filing for  bankruptcy.
Candles. Ten of the estimated 400 U.S. candle companies are eligible  and receive CDSOA disbursements. A number of recipients contended  that distributions have helped keep them in business, enabling them to  develop newer, better, and safer candles through investment in  equipment and research and development. One recipient stated that it  has been able to offer employees more consistent and comprehensive  benefits packages due to CDSOA. Several large candle producers that  are comparable in size to leading recipients complained that they are in  favor of the order but are ineligible to receive CDSOA disbursements.  Some non-recipients argue that recipients have an unfair advantage in  their ability to keep prices lower than they otherwise would. For  instance, a major non-recipient company has closed two of four of its  domestic manufacturing facilities and has reduced shifts at others. A  smaller non-recipient company contended that when it matched its  competitors’ lower prices, it was not able to make a profit. As a result,  the company stated that it was forced to exit this segment of the candle  business and release some workers.
Crawfish. About 30 small, family-owned crawfish processors have  received CDSOA disbursements. Recipients said CDSOA payments  provided the industry with its first effective relief against dumped  imports in several years and enabled them to buy and process more  crawfish, make long-needed repairs and investments, hire more  employees, and pay off debts. In June 2003, the ITC reported that  CDSOA disbursements to some domestic producers had converted an  industrywide net loss into net income. The 16 crawfish tail meat  processors who received CDSOA distributions that we spoke with  generally believe that the program has had positive effects on the  industry and their companies, keeping businesses open and employees  working. Non-recipients we spoke with in this industry said that CDSOA  had helped recipient companies---but had put them at a competitive  disadvantage. These companies want to be eligible for CDSOA  disbursements and several reported they had contacted certain  government and congressional sources to try to address their eligibility  status, but were told they did not meet the law’s eligibility requirements  regarding the expression of support during the investigation. As  discussed previously, two of these companies brought legal action to  challenge agency decisions on their eligibility status. Because they also  have to compete against cheap Chinese imports, these non-recipients  viewed the application of the law as unfair. In addition, several said they  were not able to compete with recipient companies that offer processed  tail meat at prices below their cost of production and appear to be able  to do so because the recipients’ CDSOA disbursements will compensate  them for any losses. In such conditions, some non-recipients said they  cannot operate profitably and some decided to stop processing tail  meat.
Pasta. Three of the four leading U.S. pasta makers received CDSOA  disbursements, but the fourth producer is ineligible. The top two  CDSOA recipients in this industry did not respond to our questions, and  one of them has filed for bankruptcy. The four CDSOA recipients that  responded said they had used the funds to increase or upgrade  equipment, invest in research and product development, defray  manufacturing costs, and expand production capacity. Nevertheless,  CDSOA payments, while not insignificant, were not large relative to  sales or enough to offset other problems that the industry faces, such as  decreased demand for pasta due to low-carbohydrate diets and low  margins. Most non-recipients we contacted said CDSOA had no effect,  but a few non-recipients said that the funds had created an uneven  playing field and decreased their ability to compete in the marketplace.  Several of these companies tried to file for CDSOA funds, but were  found ineligible. The large non-recipient company said the money it pays  in duties transferred to its competitors could have been used for  product development, capital investment, and expansion of its new U.S.  operations.
DRAMs. All four major DRAM producers in the United States currently  have production facilities in the United States as well as abroad;  however, three of these companies are U.S. subsidiaries of foreign  producers and have entered the market within the last decade. A CV  order is in effect for DRAMs produced by one Korean company only,  but the bulk of the distributions were made under an AD order on  DRAMs of one megabit and above from Korea issued in 1993 and  revoked in 2000, as well as on an AD order on SRAMs (static random  access memory chips) issued in 1998 and revoked in 2002. A leading  CDSOA recipient was the sole recipient of duties on these revoked  orders. Fabrication facility costs are high and require complete  replacement every few years. The DRAM industry is cyclical in nature  and subject to “booms and busts,” where demand is driven by  investments in computers and other end products. Both CDSOA  recipients reported some net losses. One company reported benefits  from receiving payments and another reported fewer effects; both  payments were small relative to their net sales.
Softwood Lumber. Both CDSOA recipients and non-recipients include  leading softwood lumber producers. Recipients and non-recipients that  we contacted indicated that disbursements to date have been too small  to have a discernable effect. However, non-recipients expressed  concern about potential adverse effects in the future, should the $3.7  billion in AD/CV duties being held on deposit pending liquidation ever be  distributed. These duties are presently in escrow pending the outcome  of litigation by Canadian interests against the U.S. duties.

		Effects of CDSOA on the Number of AD/CV Relief Petition Filings Not Clear

Current evidence does not clearly demonstrate that CDSOA is linked to an  increasing number of AD/CV petition filings. Critics have raised concerns  that, by awarding a portion of the tariff revenue that results from  successful petitions, CDSOA could potentially lead to more AD/CV petition  filings and thereby more restrictions on imports, to the detriment of the  U.S. economy. However, the evidence we analyzed was inconclusive.
Because CDSOA provides direct financial benefits to firms participating or  supporting AD/CV petitions by awarding them a proportion of the tariff  revenue, some analysts have warned that CDSOA could lead to more  petitions and to more companies supporting the filings because only  companies who supported the petition would receive disbursements. A  report by the Congressional Budget Office (CBO) supports this view,  arguing on economic incentive grounds that CDSOA encourages more  firms to file or support petitions and discourages settling cases. CBO also  argues that firms may resume production or increase their output due to  CDSOA, which would result in inefficient use of resources and would be  harmful to the U.S. economy and consumers.
Our examination of the actual number of filings shows that there is no clear  trend of increased AD/CV petition filings since CDSOA. Figure 6 shows  that since the passage of CDSOA in 2000, the number of petitions spiked in  2001 and then sharply declined over the next three years. Moreover, this fits  the historical pattern of the number of AD/CV petition filings, which also do  not show a clear upward trend. The number of AD/CV petitions filed each  year has fluctuated widely, ranging from a maximum of 120 in 1985 to a  minimum of 16 cases in 1995. Economists have found evidence that the  number of antidumping filings is closely linked to macroeconomic  conditions and real exchange rates.
Our analysis of company responses to our case study questions similarly  reveals mixed evidence but no trend. In general, companies told us CDSOA  had little impact on their decision whether to file AD/CV relief petitions.  Most companies that responded to our questions said that filing and  winning new cases was too expensive, and the receipt of CDSOA payments  was too speculative, for CDSOA to be a major factor in their filing decision.  For example, producers accounting for a sizeable share of U.S. softwood  lumber production freely chose not to support the case, despite being  aware of the prospect of sizeable CDSOA disbursements. However,  bearings companies that had not supported earlier cases subsequently  supported a later case on China brought after CDSOA’s passage.

		Effects of CDSOA on Scope and Duration of AD/CV Duty Orders Also Not Clear

In addition to the number of filings, our interviews and responses from  companies in the seven industries we examined revealed a few allegations  that CDSOA resulted in orders that cover imports of more products for  longer periods—that is, through wider-than-necessary product scopes of  AD/CV duty orders and longer-than-warranted retention of existing orders.  However, these allegations contradicted other examples, and we could not  independently verify them. One steel user, for example, complained that  CDSOA disbursements were a factor in the denial of its request for  narrowing the scope of an order and claimed the result has been to put  certain U.S. fastener makers at a disadvantage. In contrast, one steel  company noted that the domestic industry has no incentive to overly  broaden the scope of an AD/CV relief petition because doing so could  undermine its ability to prove injury and to obtain an order in the first  place. Bearings recipient companies similarly responded that CDSOA has  not affected the scope or duration of AD/CV duty orders and said regular  “sunset” reviews should ensure the government terminates unwarranted  orders. Bearings non-recipients, on the other hand, drew a connection  between the main CDSOA beneficiary within the industry and its support  for continuance of orders.  In the candle industry, companies universally  reported that they are united in supporting retention of the existing order,  but divided over efforts by some candle firms to expand its scope.

	Retaliation Against U.S. Producers Underway for U.S. Failure to Comply with WTO Ruling on CDSOA

After finding the CDSOA inconsistent with WTO agreements and after the  United States’ failure to bring the act in compliance with the agreements, in  2004 the WTO gave 8 of the 11 members that complained about CDSOA  authorization to suspend concessions or other WTO obligations owed to  the United States. Canada, the European Unian (EU), Mexico and Japan  have consequently applied additional tariffs to U.S. imports, and others are  authorized to follow.

		WTO Rules CDSOA Not in Compliance with U.S. WTO Obligations

In 2003, the WTO found the CDSOA inconsistent with U.S. obligations  under WTO agreements and asked the United States to bring the act into  conformity with WTO Agreements. Eleven members had brought  complaints about the CDSOA to the WTO and prevailed in their claims that  the CDSOA is inconsistent with WTO agreements.  The WTO found that  CDSOA was not consistent with U.S. WTO obligations because it was not  one of the permitted specific actions against dumping and subsidization  specifically listed in applicable WTO agreements.

		The United States Pledges to Comply, but Has Not Yet Done So

The following the ruling, the United States indicated its intention to  comply. WTO gave the United States until December 27, 2003, to bring the  CDSOA into conformity with the organization’s pertinent agreements.  However, all efforts to repeal the law have thus far been unsuccessful.  Meanwhile, the United States is also pursuing negotiations at the WTO to  address the right of WTO members to distribute AD/CV duties.
The President proposed repealing CDSOA in his fiscal year 2004, 2005, and  2006 budget submissions. Senate Bill 1299 was introduced in Congress in  2003 to amend the CDSOA and House Bill 3933 in 2004 to repeal the  CDSOA. Neither of these efforts succeeded during that legislative session  of Congress and thus expired. In a March 10, 2005, status report to the  WTO, the United States reaffirmed its commitment to bringing the CDSOA  into conformity with WTO agreements. The United States also reported  that House Bill 1121 had been introduced on March 3, 2005, to repeal  CDSOA and that it had been referred to the Committee on Ways and Means.  Also in 2005, Senator Grassley introduced Amendment 1680 to the  Departments of Commerce and Justice, Science and Related Agencies  Appropriations bill to prohibit any further CDSOA distributions until the  USTR determines that such distributions are not inconsistent with  U.S. WTO obligations. However, as of the date of publication of this  report, Congress has not passed House Bill 1121 and the Senate Committee  on Appropriations has not adopted Amendment 1680.
Since late 2001, the United States has been engaged in WTO negotiations at  the Doha Round, which may include changes to the WTO agreements under  which CDSOA was challenged. Following a congressional mandate to the  USTR and Commerce that negotiations shall be conducted within the WTO  to recognize the right of its members to distribute monies collected from  antidumping and countervailing duties, the United States submitted a  paper to the WTO Rules Negotiating Group stating that “the right of WTO  Members to distribute monies collected from antidumping and  countervailing duties” should be an issue to be discussed by the  negotiating group. USTR officials told us that, to date, the U.S. proposal has  not attracted support from any other WTO member.

		WTO Authorizes Eight of Its Members to Retaliate; Canada, the European Union, Mexico, and Japan Have Imposed Additional Tariffs

In January 2004, 8 of the 11 complainants—Brazil, Canada, Chile, the EU  India, Japan, Korea, and Mexico—sought and secured authorization to  retaliate against the United States. As a result of binding arbitration  regarding the level of authorized retaliation, the eight members received  authorization to impose an additional import duty on U.S. exports covering  a total value of trade up to 72 percent of the total of disbursements made  under the CDSOA for the preceding year relating to AD/CV duties on that  member’s products each year. The total suspension authorized for 2005  could be up to $134 million based on the fiscal year 2004 CDSOA  disbursements. Specifically, for fiscal year 2004 disbursements, the WTO  arbitrators authorized the imposition of additional duties covering a total  value of trade not exceeding $0.3 million for Brazil, $11.2 million for  Canada, $0.6 million for Chile, $27.8 million for the EU, $1.4 million for  India, $52.1 million for Japan, $20.0 million for Korea, and $20.9 million for  Mexico. On May 1, 2005, Canada and the European Communities began the  imposition of additional duties on various U.S. exports. In particular,  Canada has imposed a 15 percent tariff on live swine, cigarettes, oysters,  and certain specialty fish (including live ornamental fish and certain frozen  fish) and the EU have imposed a 15 percent tariff on various paper  products, various types of trousers and shorts, sweet corn, metal frames,  and crane lorries. On August 18, 2005, Mexico began imposing additional  duties on U.S. exports such as chewing gum, wines, and milk-based  products. On September 1, 2005, Japan began imposing additional duties on  U.S. exports such as steel products and bearings. The remaining four  members say they might suspend concessions.
The three members that did not request authorization to retaliate—  Australia, Indonesia, and Thailand— have agreed to extend the deadline for  requesting authorization indefinitely. As agreed, the countries will give the  United States advance notice before seeking authorization to retaliate. In  return, the countries retain the ability to request authorization to retaliate  at any point in the future, and the United States agreed not to seek to block  those requests. See figure 7 for a timeline of events related to the WTO  decision on CDSOA.

	Conclusions

Congress’ stated purposes in enacting CDSOA were to strengthen the  remedial nature of U.S. trade laws, restore conditions of fair trade, and  assist domestic producers. Our review suggests that the implementation of  CDSOA is achieving some objectives more effectively than others. One  reason is that, as a result of some of the key features of CDSOA, the law in  practice operates differently from trade remedies. For instance, while trade  remedies such as AD/CV duties generally provide relief to all producers in a  particular market, the eligibility requirements of CDSOA limit relief to only  a subset of domestic producers—only those that petitioned for relief or  that publicly supported the petition by sending a letter to the ITC or filling  an ITC questionnaire while the agency was conducting its original  investigation and remain in operation. Our analysis of CDSOA  disbursement data and company views on the effects of CDSOA indicate  that CDSOA has provided significant financial benefits to certain U.S.  producers but little or no benefits to others. As a result, CDSOA has, in  some cases, created advantages for those U.S. producers that are eligible  and receive the bulk of disbursements over those U.S. producers that  receive little relief or are ineligible, by choice or circumstance. Moreover,  because the WTO found that CDSOA did not comply with WTO  agreements, the EU, Canada, Mexico, and Japan recently retaliated against  U.S. exports and this imposes costs on a number of U.S. companies  exporting to those markets.
In implementing CDSOA, CBP faces problems processing CDSOA claims  and payments, verifying these claims, and collecting AD/CV duties. The  CDSOA program’s time frame for processing payments is already too tight  to perform desired quality controls. The dramatic growth in the program’s  workload--an estimated 10-fold increase in the number of claims in fiscal  year 2005 and the potential disbursement of billions of dollars from  softwood lumber duties--heighten program risks. CBP’s labor-intensive  process for claims could be streamlined through steps such as regularly  obtaining from the ITC electronic updates of the list of potentially eligible  companies and having companies file CDSOA claims using a standard form  and submit them electronically. CBP’s recent comprehensive company  claim verification effort also indicates that the agency needs additional  guidance in place for filing claims. In addition, CBP lacks plans for  managing and improving its CDSOA program’s processes, staff, and  technology. For instance, it needs a human capital plan for enhancing its  staff in the face of dramatic growth in workload processing for both  CDSOA claims and payments. Accountability for the accuracy of the claims  is virtually non-existent and CBP has no plans to verify claims  systematically or on a routine basis. Finally, CDSOA has helped highlight  CBP’s collection problems. Despite reports to Congress on its efforts to  address these problems, CBP faced a doubling in the AD/CV collections  shortfall in fiscal year 2004, to $260 million. This shortfall not only reduces  the amount available for disbursement under CDSOA, but also undermines  the effectiveness of the trade remedies generally.

	Matters for Congressional Consideration

Given the results of our review, as Congress carries out its CDSOA  oversight functions and considers related legislative proposals, it should  consider whether CDSOA is achieving the goals of strengthening the  remedial nature of U.S. trade laws, restoring conditions of fair trade, and  assisting domestic producers.
If Congress decides to retain and modify CDSOA, it should also consider  extending CBP’s 60-day deadline for completing the disbursement of  CDSOA funds. Meeting this deadline has been a problem in the past, and  may be even more difficult in the future given that the program is  experiencing a dramatic growth in its workload. For instance, extending  the deadline for processing payments for another 30 days would give the  program’s staff additional time for processing payments and for pursuing  additional internal control activities.

	Recommendations for Executive Action

To the extent that Congress chooses to continue implementing CDSOA, we  recommend that the Secretary of Homeland Security direct the  Commissioner of Customs and Border Protection to enhance the  processing of CDSOA claims and payments, the verification of these  claims, and the collection of AD/CV duties. Specifically, we recommend  that:  To improve the processing of CDSOA claims, CBP should implement  labor savings steps such as working with the ITC to formalize and  standardize exchanges of electronic updates of the list of eligible  producers, and requiring that company claims follow a standard form  and be submitted electronically. This would also reduce data entry- related errors.
To further improve the processing of claims, CBP should provide  additional guidance for preparing CDSOA certifications or claims.
To enhance the processing of claims and payments in the face of a  growing workload, CBP should develop and implement plans for  managing and improving its CDSOA program processes, staff, and  technology. For instance, a human capital plan would help ensure that  the CDSOA program has staff in place with the appropriate  competencies, skills, and abilities.
To enhance accountability for claims, CBP should implement a plan for  systematically verifying CDSOA claims. This plan should aim to ensure  that companies receiving CDSOA disbursements are accountable for the  claims they make. CBP should also consider asking companies to justify  their claims by providing additional information on their claims, such as  an explanation of the basis for the claim, supporting financial  information, and an independent assessment of the claim’s validity and  accuracy.
To better address antidumping and countervailing duty collection  problems, CBP should report to Congress on what factors have  contributed to the collection problems, the status and impact of efforts  to date to address these problems, and how CBP, in conjunction with  other agencies, proposes to improve the collection of antidumping and  countervailing duties.

	Agency Comments and Our Evaluation

We provided a draft of this report to the U.S. International Trade  Commission, Customs and Border Protection, and the Office of the U.S.  Trade Representative. We obtained written comments from CBP (see app.  IV). CBP concurred with our recommendations. We also received technical  comments on this draft from our liaisons at CBP, the ITC and USTR, which  we have incorporated where appropriate.
We are sending copies of this report to interested congressional  committees, the U.S. International Trade Commission, Customs and Border  Protection, and the Office of the U.S. Trade Representative. We will also  make copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4347. 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 major contributions to this report are listed in appendix V.

Objectives, Scope, and Methodology

At the request of the Chairman of the House Subcommittee on Trade,  Committee on Ways and Means, as well as several House Members, we  examined the implementation and effects of the Continued Dumping and  Subsidy Offset Act (CDSOA) of 2000.  Specifically, we assessed (1) what  key legal requirements guide and have affected agency implementation of  CDSOA; (2) what problems, if any, U.S. agencies have faced in  implementing CDSOA; and (3) which U.S. companies and industries have  received payments under CDSOA and what effects these payments have  had for recipient and non-recipient companies; and described (4) the status  of the World Trade Organization (WTO) decisions on CDSOA.
To determine the key legal requirements that guide and have affected  agency implementation of CDSOA, we obtained and reviewed legislation  and regulations establishing the requirements and procedures for the  International Trade Commission (ITC) to determine company eligibility to  receive CDSOA funds and for the Department of Homeland Security’s  Customs and Border Protection (CBP) to implement CDSOA. We discussed  these requirements and their relationship to agency implementation with  officials at the ITC and CBP that carry out the agencies’ respective roles.  We also reviewed judicial opinions and other documents associated with  certain legal cases that have been brought to challenge key requirements of  CDSOA, and incorporated the viewpoints expressed by some companies  that we contacted in addressing our third objective, which illustrated the  impacts of certain requirements.
To assess the problems, if any, U.S. agencies have faced in implementing  CDSOA, we first determined the agency roles and responsibilities that  CDSOA established. We then obtained and analyzed ITC and CBP  documents outlining their procedures for carrying out their CDSOA  responsibilities and discussed with agency officials the actions the  agencies have taken to implement CDSOA. We reviewed evaluations of  CDSOA operations in both the Department of the Treasury (Treasury) and  ITC conducted by the Inspectors General (IG) of those agencies.  We also  obtained from CBP a statement of work that had been developed for  improving CBP’s management of the CDSOA program. We discussed  agency implementation of CDSOA with officials from the Departments of  Commerce and Agriculture, as well as certain industry representatives,  affected companies, and law firms that handle CDSOA-related actions for  their clients. We also reviewed GAO’s documents on human capital and  disbursements for additional criteria to assess the agencies’  implementation of CDSOA. Our work focused on certain problems at CBP:  To assess CBP’s claims and payments processing procedures, we  conducted field work at CBP’s Revenue Division in Indianapolis where  we met with officials and staff of the CDSOA Team.  After they gave us a  comprehensive briefing of their CDSOA operations, we observed these  operations, reviewed documentation of their procedures, and discussed  challenges they face in implementing the law. We discussed changes in  the CDSOA Team’s workload over time with these officials and obtained  data on their workload and staff resources. We discussed the team’s  procedures for counting and recording eligible and actual claimants and  claims, which included information they obtain from the ITC on eligible  producers and internal controls the team applies to ensure accuracy in  receiving and processing claims. We determined that their data were  sufficiently reliable for the purpose of analyzing the changing  relationship between the team’s workload and staff resources.
To assess CBP’s approach to verifying claims, we discussed the  approach and the extent of claim verification since the program’s  inception with CBP officials and we reviewed CBP procedures for  verifying company claims that were developed in 2004. We also  reviewed documentation of a comprehensive verification of one  company’s CDSOA claims that was conducted using these new  procedures. Because this verification raised issues about the quality and  consistency of CBP’s guidance regarding claims submission, we  examined the fiscal year 2004 claim files for 32 top CDSOA recipients to  ascertain the prevalence of these issues and also obtained the  viewpoints of certain CDSOA recipients on CBP’s claims guidance.
To describe CBP’s efforts to collect the anti-dumping (AD) and  countervailing (CV) duties that fund CDSOA, we obtained and reviewed  data on CBP’s annual CDSOA disbursements and AD/CV duty  liquidations and collections. To assess the reliability of the data on  unliquidated AD/CV duties, we compared them to data used by  Treasury’s IG in its 2003 report and performed basic reasonable checks.  We determined the data were sufficiently reliable to support the finding  that there had been a substantial increase in unliquidated AD/CV duties  since 2002. We also reviewed CBP reports to Congress in 2004 and 2005  that reported on AD/CV duty collections issues and problems and the  section of the 2003 Treasury IG report that addressed CBP’s efforts  related to liquidating and collecting AD/CV duties. Finally, we  incorporated the viewpoints of certain companies and industry groups  about the status of uncollected duties, and CBP’s efforts to collect them.
To determine which U.S. companies and industries have received payments  under CDSOA and what effects these payments have had for recipient and  non-recipient companies, we obtained and analyzed CBP’s annual  disbursement data for fiscal years 2001 to 2004 and collected information  from top CDSOA recipients and from recipients and non-recipients in seven  industries.  Specifically, we identified 770 companies that had received  disbursements at some point during fiscal years 2001 through 2004 and  combined the multiple disbursements that companies may have received to  calculate the total amount of disbursements made to each company during  this period. Some companies received disbursements under different  names or were acquired by, or merged with or were otherwise affiliated  with, other companies on the list during this period.  We did not make  adjustments to the number of companies, but rather retained the company  distinctions in the data as CBP provided it. We then identified 39 companies  that had received the top 80 percent of the disbursements made during  fiscal years 2001 through 2004 and we reported information about these  disbursements.  Using this data, we also identified the top 24 product  groups that received 95 percent of disbursements during fiscal years 2001  through 2004, and we reported information about these disbursements.
We assessed the reliability CBP’s CDSOA disbursements data, and the  related Harmonized Tariff Schedule data, and Census Bureau’s data  matching the Harmonized Tariff Schedule to the North American Industry  Classification System by (1) performing electronic testing of required data  elements, (2) reviewing existing information about the data and the system  that produced them, and (3) interviewing agency officials knowledgeable  about the data. We determined that the data were sufficiently reliable for  the purposes of this report.
To further determine the effects of CDSOA payments on recipients and  non-recipients, we primarily relied on the views provided by top CDSOA  recipient companies and of certain recipients and non-recipients in 7 of the  top 24 industries (bearings, steel, candles, pasta, DRAMs, crawfish, and  softwood lumber) to which CDSOA payments have been made.  We  selected these industries based on a range of criteria including: the leading  recipients of CDSOA funds; industries with the most AD/CV duty orders;  industries receiving press coverage related to CDSOA; and industries  considered by certain experts to have unique or noteworthy situations.  In  selecting these industries, we also considered including different types of  industries and industries with differing numbers of CDSOA recipients.  We  consulted with experts at the ITC, the Departments of Commerce and  Agriculture, and relevant trade associations to help define the industries  and identify leading non-recipients companies within them.  In addition, we  obtained industry background from ITC investigative reports and other  official industry sources.
To obtain these companies’ views on CDSOA, we developed and sent out a  questionnaire to top CDSOA recipient companies, and a set of structured  questions to selected recipient and non-recipient companies in the seven  case study industries.  We developed and pretested the questionnaire  between February and April 2005.  Our structured questions were based on  the items in our questionnaires.
We sent surveys to 32 of the top 39 recipient companies we had identified.  Twenty-four of these companies provided written responses to our  questions. Their views are not necessarily representative of all CDSOA  recipients.
We selected non-probability samples of CDSOA recipients and non- recipients that are U.S. producers for each of our seven case study  industries.  We selected recipient companies based primarily on the  amount of CDSOA funds they had received between fiscal year 2001 and  2004. However, in certain industries with small numbers of recipients,  including bearings, DRAMs, and candles, we sent structured questions to  all recipient companies.  We selected non-recipient companies based on  industry experts’ views of the importance of the companies and recipient  company views of their major non-recipient competitors.  We also  considered available lists of companies by industry, but found that these  lists had limitations in terms of coverage and could not be used to draw  probability samples.  Overall, we selected 69 recipient and 82 non-recipient  companies in the seven industries.
In total, we received 61 written responses from recipient companies and 31  written responses from non-recipient companies. Appendix III provides  details on how many companies we contacted and received information  from for each industry. All recipient companies in the bearings, DRAMs,  and candles industries provided responses, and these responses can be  generalized. For recipient companies in the other four industries, and for  non-recipient companies in all the industries, the responses we received  cannot be generalized because of the non-probability samples we used  and/or the number of responses we received. Thus, in these cases, the  views we report are not necessarily representative of their respective  groups.  However, we supplemented the information we received with  telephone interviews to verify, and in some cases, expand upon, the  information that some companies provided. We also compared the overall  responses in each industry with industry experts’ views and the  information contained in available studies, such as ITC reports, and found  the information we gathered to be broadly consistent with these sources.
Finally, within this objective, we also conducted an analysis on the trends  in the filings of AD/CV relief petitions.  We collected data on the number,  type, and status of AD/CV duty orders from the ITC and Commerce. We  verified this information directly with the Federal Register notices, which  are the official sources for AD and CV orders.  We determined that the data  were sufficiently reliable for the purposes of this report.  In addition, we  reviewed literature on the determinants of AD petition filings. We applied  regression analysis to study the effects of macroeconomic conditions, real  exchange rates, and CDSOA itself on the number of petition filings. We also  asked the companies we surveyed to discuss CDSOA’s impact on AD/CV  filings and interviewed industry representatives to gain an understanding of  what affects their decision to file or support AD/CV petitions, and whether  CDSOA was a significant factor in their decision.
To determine the status of the WTO decisions on CDSOA, we analyzed  official U.S., foreign government, and WTO documents.  We also  interviewed officials from the Office of the U.S. Trade Representative and  the Department of State.
We conducted our work in Washington, D.C., and Indianapolis, Indiana,  from September 2004 to September 2005 in accordance with generally  accepted government auditing standards.

Top CDSOA Recipient Companies

This appendix provides information on the CDSOA payments received by  the top recipient companies and the views of these companies on CDSOA’s  effects.

	CDSOA Payments to the Top Recipient Companies

Table 2 lists the top 39 companies that received 80 percent of the total  CDSOA payments during fiscal years 2001-2004.  This table also presents  each company’s percentage of the total payments and the cumulative  percentages.  Each company’s industry is also listed.

	CDSOA Effects on Top Recipient Companies

		Top Recipients of CDSOA Payments Reported Varying Positive Effects

We sent surveys to the companies that received 80 percent of the CDSOA  payments from 2001 through 2004, asking for their views on CDSOA’s  effects.  We asked these companies to assess CDSOA’s effects on a number  of different dimensions including prices, employment, and ability to  compete.
We asked the companies to rate CDSOA’s effect, ranging from 1 (very  positive) to 5 (very negative) for each particular company dimension.
The top recipients reported that CDSOA had the most positive impact in  the areas of net income and employment.  In its written comments, one  company stated that CDSOA payments have allowed it to make substantial  investments in its plant and its workers, including providing supplemental  health care benefits.  The top recipients reported that CDSOA had less of  effect in areas such as prices, net sales, and market share.  Several  companies commented that, for example, disbursements have had little or  no effect on prices for its CDSOA products, since such prices are ultimately  determined by market forces.
The ratio of CDSOA payments to company net sales ranged from less than 1  percent to over 30 percent.  However, this ratio was less than 3 percent for  all but five companies.
In table 3 we present summary information on these companies’ responses.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 4 shows that 17 of the 24 companies reported that CDSOA had  increased their ability to compete in the U.S. market.

CDSOA Recipient and Non-Recipient Companies in Seven Industries

This appendix provides information on the CDSOA payments received by  recipient companies in seven industries: bearings, steel, candles, DRAMs,  pasta, crawfish, and softwood lumber. It also discusses the views of  recipient and non-recipient companies in these industries on CDSOA’s  effects.
Figure 8 shows the share of CDSOA disbursements received by U.S.  companies in the seven industries and in the remaining industries.

	Views on CDSOA from Recipients and Non- Recipients in the Bearings Industry

		Background

Bearings are used in virtually all mechanical devices and are used to reduce  friction in moving parts. Types of bearings include ball bearings, tapered  roller bearings, and spherical plain bearings. The market for bearings is  global and dominated by only a few multinational companies. Within the  U.S. market the degree of concentration among different segments of the  industry varies; the Census Bureau listed 19 producers of tapered roller  bearings and 65 producers of ball bearings in 2003. The Timken Company is  the largest U.S. bearings company, but several foreign-owned companies  have also had a long-standing presence in this country as bearings  producers and are Timken’s main competitors in the U.S. market. One  foreign-owned producer, for example, has operated U.S. production  facilities for over 80 years, while two others have produced in this country  for over 25 years. These companies have not been eligible to receive  CDSOA disbursements because they did not support the original cases.
In 1975 the ITC determined that tapered roller bearings from Japan were  harming the domestic industry and a dumping finding was published the  following year. The Department of Commerce subsequently published  antidumping orders on tapered roller bearings against Japan, China,  Hungary, and Romania in 1987. Commerce then issued antidumping orders  for ball bearings, cylindrical roller bearings, and spherical plain bearings  from a number of other countries in 1989. Currently, there are eight  bearings orders in effect against seven countries. Import penetration of the  U.S. market has grown from 5 percent of consumption in 1969 to  approximately 25 percent in 2003. When Commerce levied ball bearing  dumping duties against Japan, Singapore, and Thailand in 1989, an  opportunity arose for China. All of the world’s major bearing companies,  including Timken, now have manufacturing facilities in China.
Timken and Torrington are the two largest CDSOA recipient companies.  Together, they received over 80 percent of all disbursements to the bearings  industry and one-third of disbursements to all companies in CDSOA’s first  four years. Table 5 shows CDSOA recipients in the bearings industry from  fiscal years 2001 through 2004.

	CDSOA Effects on Bearings Companies

		Bearings Recipients Reported Positive Effects from CDSOA Payments

We obtained the views of three bearings recipient companies. These  companies commented that CDSOA has had positive effects, although they  varied in their assessments of the extent of the benefit. Bearings recipients  reported that CDSOA’s greatest impact has been in the areas of net income,  employment, and ability to compete. These companies also commented  that CDSOA has had less of an effect on prices, sales, and profits. One  company stated that the disbursements helped it to replace equipment and  become more competitive, enabling it to recover to the position it had held  prior to being injured from dumping. Another recipient commented that  while the CDSOA disbursements were helpful, they were distributed years  after the initial injury and did not fully compensate the company for lost  profits due to unfair trade.
The bearings recipient companies vary greatly in their overall size. These  companies are also significantly different in terms of the amount they have  received through CDSOA, overall and as a percentage of their sales. For the  recipient companies in our case study, in fiscal year 2004, CDSOA  disbursements as a percentage of company sales ranged from just over 1  percent to 21 percent with the larger recipients generally at the low end of  this scale.

		Non-Recipients Reported Varying Effects

We obtained the views of two non-recipients, one of which reported  negative effects, while the other said it is too early to tell the extent of the  harm that CDSOA has caused. One company commented that CDSOA is  harmful because the antidumping duties it pays are transferred directly to a  competitor. The company further stated that the money it is paying in  duties limits its ability to invest in its U.S. operations. The other non- recipient company emphasized the size of the CDSOA disbursements in the  bearings industry, but commented that it is still too early to know the  injurious effect these disbursements will have on non-recipient producers.  The leading non-recipient producers have not been eligible to receive  CDSOA payments because they did not support the original cases.
Table 6 provides bearings recipient and non-recipients’ responses to our  questionnaire on CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 7 provides these companies’ responses to our question on CDSOA’s  effect on their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. The bearings recipient companies varied in  their responses to this question. One company responded that it has used  the disbursements to rebuild production equipment, maintain employment  levels, and add more technical personnel for pursuing bearings customers.  A second company commented that it does not earmark funds for a specific  project; thus the funds have been spent on debt reduction. The third  company did not specify how it used the funds, reiterating that the  disbursements were based on previous qualified expenditures and  emphasizing that its investments in U.S. bearings production have  exceeded the money it received through CDSOA.

		Net Sales and Employment Trends

No clear trend emerged from these companies’ production and  employment data over the 4 years that CDSOA has been in effect. One  recipient’s net sales increased from 2001 to 2004, for example, while  another’s declined. Similarly for employment, one recipient’s number of  workers decreased over the 4 years, while another’s remained about the  same. The responses from the non-recipients also did not show a clear  trend for production or employment. For two of the three companies,  employment declined, while all three companies’ net sales increased to  varying degrees.

		Extent of Overseas Production

Most of the bearings companies that we contacted indicated that they had  both domestic and overseas production operations. Of the three recipient  companies, only one reported that it imports CDSOA products, but its  imports make up a small share of its overall sales.

	Scope and Methodology

To obtain bearings companies’ views on CDSOA’s effects, we sent out a set  of structured questions to certain CDSOA recipients and certain non- recipients in the bearings industry. CDSOA payments are made in this  industry under multiple AD orders that were issued in different years.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments in each of the four years that  disbursements have been made and the amount of disbursements they have  received. Using this information, we developed a list of seven recipients  and ranked them by their total CDSOA receipts. We obtained additional  information from company representatives and CBP resulting in our  combining certain recipients and treating them as three distinct  companies. For example, CBP sometimes listed in its annual reports on  CDSOA, as separate distributions, payments to entities that were divisions  or subsidiaries of other companies that also received CDSOA distributions.  We surveyed the three companies, and all of them provided completed  surveys.
The universe of bearings non-recipients is larger than the universe of  recipients. We sought to obtain views from a comparable number of non- recipients as recipients. To identify these companies, we obtained  information from associations or others that were knowledgeable about  the industry. Specifically, we obtained information about non-recipient  bearings companies by (1) identifying members of the American Bearings  Manufacturing Association, (2) asking recipient companies to identify their  competitors, and (3) conducting our own research. We surveyed three non- recipient companies, of which two provided completed surveys. These  two non-recipients are multi-national companies that are among the  leading global producers of bearings and have had a long-standing history  of production in the United States. The views of the non-recipients that  responded to our questions may not be representative of all non-recipients.

	Views on CDSOA from Recipients in the Steel Industry

		Background

For this case study, we defined the scope of the steel industry to include  companies that produce steel by melting raw materials. The two main  types of producers of raw steel are integrated mills and minimills.  Integrated producers use older, blast furnaces to convert iron ore into steel.  They mainly produce “flat” products, such as plate and hot-rolled steel that  are used in transportation equipment, construction, and heavy machinery.  The minimills are a scrap-based industry, producing steel from recycled  metal products, such as crushed cars or torn-down buildings. They use  newer, electric-arc furnaces, and account for almost all of the industry’s  “long” production, including wire-rod and rebar. The top three domestic  steel producers—Mittal, U.S. Steel, and Nucor—together account for about  half of overall domestic steel production, which is approximately 100  million tons a year.  A third, much smaller sector of the industry is the  specialty, or stainless, sector. These producers also use electric-arc  furnaces and represent about 2 percent of the overall industry output and  about 10 percent of value. The steel industry is by far the largest user of  AD/CV duty orders, with over 125 iron and steel mill orders in place as of  June 2005.
Several industrywide trends occurring at the same time as CDSOA  disbursements are relevant. Between 1997 and 2003 period, 40 steel  companies declared bankruptcy, with some of them ceasing operations  altogether. CDSOA recipients were not immune from this general trend;  several of them have declared bankruptcy and various firm consolidations  have also occurred. The Asian financial crisis was an important factor in  increasing steel imports to this country, as Asian demand for steel dropped  and foreign steel companies increasingly looked to the United States as a  market for their products. The surge in imports led to the filing of relief  petitions on hot-rolled steel against Russia, Japan, and Brazil beginning in  1998. Companies subsequently filed relief petitions against 11 other  countries. In 2002, the President also took action under section 201 of the  Trade Act of 1974, which allows him to implement temporary relief when  an industry has been seriously injured by surging imports. Under this  authority the President announced a series of safeguard tariffs of up to 30  percent on a range of steel products. These tariffs, which were imposed in  addition to the AD/CV duties, remained in place from March 2002 until late  2003. Much of the industry returned to profitability in 2004, when prices  rose.
Table 8 depicts the top 10 CDSOA recipients for steel in fiscal years 2001  through 2004.

	CDSOA Effects on Steel Companies

		CDSOA Recipients Commented That Disbursements Have Had a Moderately Positive Effect

Recipient steel companies varied in their assessments of the payments’  effects, but generally agreed that they had a positive impact in the areas of  net income and investing in plant, property, and equipment. For example,  several recipients said disbursements enabled them to make investments  needed to survive the steel crisis and be competitive in the future. The  companies also generally stated that CDSOA disbursements have had little  or no effect on prices, net sales, and market share. Some steel recipients  also commented that CDSOA has not been a complete solution to the  problems they faced due to unfairly traded imports. One recipient  commented, for example, that while CDSOA payments could be presumed  to have had a tangible benefit for the industry, they have not come close to  erasing the years of financial injury brought on by unfairly traded steel  products.
Some steel companies acknowledged that the CDSOA disbursements have  not been significant in relation to their size or capital expenditure needs.  For each of the 13 steel companies in our case study, the CDSOA  disbursements they received amounted to less than 1 percent of their net  sales in fiscal year 2004.
Table 9 provides steel recipients’ responses to our questionnaire on  CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 10 provides these companies’ responses to our question on CDSOA’s  effect on their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. The steel recipient companies generally did  not provide specific replies to this question. General comments by these  companies included that they used the CDSOA payments to make capital  investments, reduce debt, and assisted in the acquisition of steel-making  assets.

		Net Sales and Employment Trends

Sales, profit, and income figures generally improved markedly for the steel  companies between 2003 and 2004, as the overall industry enjoyed a strong  rebound from the previous years. In some cases companies went from  showing net losses to net income between these 2 years. Some companies  also expanded greatly among all categories as they grew by acquiring the  assets of other companies. Overall, some companies gained employees,  while other companies lost them.

		Extent of Overseas Production

None of the recipient steel companies responding to our questionnaire  reported that they are involved in overseas production or importation of  CDSOA products.

	Scope and Methodology

To obtain steel companies’ views on CDSOA’s effects, we sent out a set of  structured questions to certain steel CDSOA recipients and non-recipients.  CDSOA payments are made in this industry under multiple steel and steel- related AD and CV orders that were issued over several years. For this case  study, we defined the scope of the steel industry to only include companies  that produce steel by melting raw materials. Our scope excludes  companies that primarily make steel-related products (such as pipe or  tubing) from purchased raw steel. As discussed below, we were not able to  obtain information from steel non-recipients on CDSOA’s effects.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments, according to our definition of  the industry, in each of the 4 years that disbursements have been made and  the amount of disbursements they have received. We obtained information  from representatives of the ITC, Commerce, and industry associations to  determine precisely which companies fit under our definition of the steel  industry. Using this information, we developed a list of 69 recipients and  ranked them by their total CDSOA receipts. Because of time and resource  constraints, we decided to survey the top 15 steel recipient companies that  had received 90 percent of the distributions made under the orders  included in our scope. Two of these companies had ceased operations. We  surveyed the remaining 13 companies and received completed surveys  from all of them. The 13 respondents accounted for about 72 percent of the  CDSOA payments to this industry; their views may not be representative of  all recipients, particularly those that received relatively small CDSOA  receipts.
The universe of steel non-recipients is larger than the universe of  recipients. We sought to obtain views from a comparable number of non- recipients as recipients. To identify these companies, we obtained  information from associations or others that were knowledgeable about  the industry. Besides ITC, we spoke with several steel industry associations  (American Iron and Steel Institute, Steel Manufacturers Association, and  the Specialty Steel Industry of North America) to identify leading steel non- recipients. We also asked recipient companies to identify their competitors.  Based on these meetings and our own research, we surveyed 12 leading  non-recipient steel companies, from which we received 1 completed  survey. However, this survey did not include comments or views on  CDSOA’s effects. As a result, we are not able to present the views of steel  non-recipient companies on CDSOA’s effects.

	Views on CDSOA from Recipients and Non- Recipients in the Candle Industry

		Background

Petroleum wax candles are produced in several forms including columns or  pillars, wax-filled containers, tapers or dinner candles, votives, and novelty  candles. They are sold to consumers through retail outlets, the largest  percentage of which are through mass merchandisers (such as Wal-Mart or  Target); these are followed by department stores, discount retailers, card  and gift shops, and door-to-door sales through membership groups. The  majority of petroleum wax candles are produced and imported for national  markets. The number of domestic producers has grown from over 100  when the ITC performed its original investigation in 1986 to over 400 at the  time of its second 5-year review in 2005. Only 10 domestic candle  producers are eligible for CDSOA payments. Table 5 shows these  companies’ CDSOA disbursements and claims. According to the ITC, these  recipients, in addition to approximately 35 other candle producers, make  up 70 percent of U.S. candle production.
In 1985 a petition was filed by the National Candle Association (NCA)  alleging that the U.S. candle industry was materially injured by dumped  imports of petroleum wax candles from China. The ITC determined injury  in 1986, and Commerce issued an antidumping duty order of 54 percent on  all Chinese producers and exporters. The ITC conducted a  5-year, expedited review in 1999, and the duty doubled from 54 percent to  108 percent after another expedited review in 2004. U.S. producers’ share  of the market by quantity (pounds) went from 43 percent in calendar year  1999 to 53 percent in calendar year 2004. Imports from China, which some  perceive as lower-end candles, accounted for 20 percent in 1999, rising to  27 percent in 2004. U.S. producers and Chinese suppliers have both gained  market share in recent years. U.S. producers’ share of candles dollar value  was 66 percent in 1999 rising to 70 percent in 2004, while China’s share rose  from 10 percent in 1999 to 14 percent in 2004. The ITC is presently  conducting a full 5-year “sunset” review of this order, and recently  presented its findings to Commerce. Also, Commerce is considering  whether the scope of the order should be changed, inquiring whether  mixed wax candles composed of petroleum wax and varying amounts of  either palm or vegetable wax alter the product so that they are not subject  to the current order.
Table 11 depicts CDSOA recipients for candles in fiscal years 2001 through  2004.

	CDSOA Effects on Candle Companies

		Candle Recipients Reported Positive Effects from CDSOA Payments

Recipients report that CDSOA distributions have had positive effects on  their net income; on their property, plant and equipment; and on research  and development. One of the larger recipients of CDSOA distributions  claims that these payments have lessened the need to consider outsourcing  their candle products from abroad. However, the company reported that  because of the effects of dumped Chinese candles, they continue to lay off  workers, though fewer than they may have absent the CDSOA funds. Other  recipients claim to have developed new, better, and safer candles with  research and development reinvestment of CDSOA disbursements.
Fiscal year 2004 CDSOA disbursements as a percentage of company sales  range from 0.4 percent to 34.7 percent for the 10 recipient candle  companies, with most companies’ shares in the higher end of this range.

		Candle Non-Recipients Reported Negative Effects

Non-recipients report that CDSOA distributions to their competitors have  had negative effects on their ability to compete in the market, on their  gross profits, and on net income. They also reported very negative effects  on industry competition. One non-recipient company has closed two of  four domestic manufacturing facilities, eliminated or reduced shifts, and its  released workers. Another non-recipient company claims that their  CDSOA-recipient competitors could reduce selling prices. While the  company matched competitors’ lower prices, they made no profit. Because  of this, they have recently exited this segment of the candle business and  released workers accordingly. Some non-recipients also expressed the view  that their ineligibility for CSDOA disbursements is unfair. One non- recipient company joined the NCA as a leader of the organization a few  years after the issuance of the order, but stated that they have no  institutional memory of receiving an ITC questionnaire during its original  investigation in 1986. This company said it has supported the order as well  as NCA’s efforts to defend the order since joining the NCA. Another non- recipient is ineligible by virtue of being acquired by a firm that opposed the  original investigation, and was unsuccessful in its legal challenge of this.
Table 12 shows candle recipient and non-recipients’ responses to our  questionnaire on CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 13 depicts these companies’ responses to our question on CDSOA’s  effect on their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. Several recipients claim that they have used  CDSOA funds to invest in new and better equipment, and in research and  development. One recipient company reports that it has been able to offer  employees consistent and comprehensive benefits packages due to CDSOA  funds.

		Net Sales and Employment Trends

For smaller candle companies—both recipients and non-recipient  respondents alike—net sales have stagnated, as has employment of  production and related workers. Some of the larger non-recipient  respondents appear to have experienced some growth in these categories,  while some of the larger recipients seem to have experienced some decline  or stagnation in net sales and some growth or stagnation in production and  employment.

		Extent of Overseas Production

Most candle companies are strictly domestic producers; however, one non- recipient stated that it would start to import some of its candle products  from Asia in order to keep its costs down.

	Scope and Methodology

To obtain the views of candle companies on CDSOA’s effects, we sent out a  set of structured questions to candle CDSOA recipients and certain non- recipient companies within the industry. CDSOA payments are made under  one AD order that was issued in 1986.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments in each of the 4 years that  disbursements have been made. Using this information, we developed a list  of 11 recipients and ranked them by their total CDSOA receipts. One of  these companies now receives CDSOA payments under the name of its  parent company, leaving 10 distinct companies. We sent surveys to all  recipient companies, and all of them provided completed surveys.
The universe of candle non-recipients is larger than the universe of  recipients. We sought to obtain views from a comparable number of non- recipients as recipients. To identify these companies, we obtained  information from associations or others that were knowledgeable about  the industry. Specifically, we (1) obtained a list of members of the NCA  from its website; (2) corroborated this list with information from a recent  ITC publication; and (3) obtained information about certain non-NCA  members based on our own research. Because of time and resource  constraints, most of the non-recipient candle companies we contacted are  members of the NCA. Surveys were sent to non-recipient candle companies  for which an E-mail address could be obtained either from the NCA list or  from the company directly. We surveyed 26 non-recipient candle makers, of  which 8 provided completed surveys. Respondents included two relatively  large candle companies whose net candle sales were similar in magnitude  to one of the largest candle CDSOA recipients, and several smaller candle  companies whose net sales were similar to or slightly larger than several of  the smaller CDSOA candle recipients. The views of these respondents may  not be representative of all non-recipients.

	Views on CDSOA from Pasta Company Recipients and Non- Recipients

		Background

The bulk of pasta production in the United States is dry pasta, with  production of frozen or refrigerated pasta constituting a smaller portion of  the U.S. industry. After several decades of mergers and acquisitions, and  the 2001 sale of one major producer’s production facilities and brand  names to two of its competitors, the industry’s current structure reflects a  high degree of concentration among a few large producers. The four largest  U.S. producers as of 2001, based on ITC data, were American Italian Pasta  Company, New World Pasta, Dakota Growers Pasta Company, and Barilla  America, Inc. (a U.S. subsidiary of an Italian pasta company that was set up  in 1998 after antidumping and countervailing duty orders on Italian dry  pasta imports were issued). An industry expert estimated that these four  companies currently account for about 80 percent of dry pasta production  in the United States, with the remainder supplied by smaller or specialty  companies. Three of the four are eligible for CDSOA disbursements, but  Barilla America, Inc., whose share of U.S. production is growing and which  said it only imports a small percentage of the pasta it sells here, is not.  Overall demand for dry pasta in the United States has been declining since  the late 1990s, a trend that has been exacerbated, according to dry pasta  companies and industry experts, by diets that emphasize low-carbohydrate  intake. Further, the industry has been experiencing decreased sales,  excess capacity, and plant closures. Among the more significant indicators  of the downturn, New World Pasta—a leading CDSOA recipient—filed for  Chapter 11 bankruptcy protection in 2004. According to ITC, about three- fourths of U.S. consumption of dry pasta in 2000 was supplied by domestic  producers, with the remainder supplied by imported products. At that time,  the largest sources of imported pasta were Italy, Canada, Korea, and  Mexico.
Several U.S. producers petitioned for relief from rapidly growing imports in  1995. In 1996, Commerce issued antidumping and countervailing duty  orders on certain pasta imports from Italy and Turkey. Initial AD duties  rated from 0 to about 47 percent on Italian pasta and about 61 to 63 percent  on Turkish pasta, while initial CV duties ranged from about 0 to 11 percent  on Italian pasta and about 4 to 16 percent on Turkish pasta. Since  Commerce issued the order, dry pasta imports from Italy have declined and  Turkey is no longer a leading supplier of pasta to the United States. The ITC  completed a sunset review in 2001 that extended the orders until 2006.
The top seven CDSOA recipients have received about 99 percent of the  payments made to the industry, with American Italian Pasta Company and  New World Pasta/Hershey Foods receiving 70 percent of total payments.
Table 14 shows total payments made to all dry pasta CDSOA recipients in  fiscal years 2001 through 2004.

	CDSOA Effects on Pasta Companies

		Pasta Recipients Reported Mostly Positive Effects From CDSOA Payments

The four pasta recipients that responded to our survey viewed the CDSOA  program as having mostly positive effects on their companies. The two  largest recipients did not respond to our survey, and we did not contact the  three smallest recipients. All respondents cited the most positive company  effects in the areas of profit; income; and investment in property, plant, and  equipment; and most cited positive effects on net sales and ability to  compete. Some recipient companies noted that the program has enhanced  their ability to increase production through plant expansions and upgrades;  improved their cash flow, allowing them more operating flexibility; reduced  manufacturing costs; and enhanced some companies’ competitive position.  Funds have also helped some companies develop new products.
CDSOA disbursements to the pasta industry have been small compared to  each company’s net sales. For example, fiscal year 2004 CDSOA payments  to the pasta companies that responded to our survey represented about 1  percent or less of each company’s 2004 net sales.

		Non-Recipients Reported Minimal or Negative Effects

Among the six pasta non-recipients that responded to our survey, views  about the effect of CDSOA funds were mixed. A few said the funds had  impacted their companies negatively in certain areas or created an unfair  competitive environment in the industry, while others thought effects were  minimal or could not judge the program’s effects. About half of the non- recipients thought the program has had little or no effects for their  companies in the areas of employment, prices, sales, investment, or market  share. Some non-recipients thought the program had negatively impacted  their company’s profits, income, and ability to compete. Some non- recipients said that the program has probably helped recipients cut prices,  and that this has created an unfair advantage in the industry for recipients.  One non-recipient stated that it has had to transfer substantial sums of  money to its competitors because of CDSOA, and that these funds would  likely have been used for product development, capital investment, and  expansion at its U.S. facility.
Table 15 provides pasta recipients’ and non-recipients’ responses to our  questionnaire on CDSOA effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 16 provides these companies’ responses to our question on CDSOA’s  effects on their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. Recipients used CDSOA funds for a variety  of purposes. For example, some said they used the funds to purchase new  equipment or upgrade existing equipment; reduce manufacturing costs and  improve cash flow; increase production capacity; and invest in research  and product development. This, in turn, led to increased production and  employment among some companies. One company that did not respond to  our survey disclosed in its 2003 annual report that it used a significant  portion of the funds to increased investment in brand building activities  and to strengthen the company’s organization. One recipient noted that  CDSOA funds have been helpful because margins in the industry are very  thin and competition is strong. As CDSOA improved one company’s bottom  line, it was able to obtain more attractive financing rates.

		Net Sales and Employment Trends

Our information about the effect of CDSOA on net sales and employment in  this industry is limited because the two largest companies did not respond  to our survey. Although press coverage of the industry has noted generally  declining net sales among U.S. dry pasta companies in recent years, the  companies that responded to our questions reported general increases in  net sales during 2001 through 2004. Specifically, two companies reported  increased sales in the 2001 through 2004 time frame, and two companies  reported fluctuating sales that were higher at the end of the period than at  the beginning. Among recipient respondents, two companies’ employment  levels generally increased, and two companies’ employment levels  generally decreased since the implementation of CDSOA. Among non- recipient respondents, net sales and employment showed mixed trends.  Three companies reported increased sales, one company reported  fluctuating sales that were higher at the end of 2004, and two companies  reported decreased net sales. Three companies reported generally  increased employment levels and three reported general decreases.

		Extent of Overseas Production

All of the recipient pasta companies that responded to our survey produce  their product only in the United States. However, the top CDSOA recipients  that did not respond to our survey produce pasta domestically and in other  countries. Four of the non-recipients produce exclusively in the United  States, and two produce both domestically and overseas.

	Scope and Methodology

To obtain pasta companies’ views on CDSOA’s effects, we sent out a set of  structured questions to certain pasta CDSOA recipients and non-recipients.  CDSOA payments are made in this industry under two AD and two CV  orders that were issued simultaneously.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments in each of the 4 years that  disbursements have been made and the amount of disbursements they have  received. Using this information, we developed a list of 11 recipients and  ranked them by their total CDSOA receipts. CBP provided additional  information that indicated there were actually 10 distinct companies.  Because of time and resource constraints, we decided to survey the top  seven companies that had received 99 percent of the total payments made  under these orders, from which we received four completed surveys. The  two pasta companies that are top CDSOA recipients did not respond to our  survey. Our information about CDSOA effects for recipients is limited to  the four pasta companies that responded, which together accounted for  about 27 percent of CDSOA payments to this industry.
The universe of dry pasta non-recipients is larger than the universe of  recipients. We sought to obtain views from a comparable number of non- recipients as recipients, but we had difficulty identifying non-recipient dry  pasta companies. To identify these companies, we obtained information  from associations or others that were knowledgeable about the industry.  Specifically, we obtained company names and contact information from (1)  the website of the National Pasta Association, which presently carries out  only limited activities on behalf of the industry; (2) an association  management company that handles administrative matters for the National  Pasta Association; (3) a directory of pasta companies published on  http://www.bakingbusiness.com, a division of Milling and Baking News,  which is a business news organization that ITC had identified as closely  following the pasta industry; and (4) other pasta companies. Many of the  companies we identified through these sources were not makers of dry  pasta as defined in the orders, but were instead makers of egg noodles,  fresh or refrigerated pasta, couscous, and boxed or frozen foods that use  pasta, or were flour mills or other companies linked to the production of  dry pasta. We surveyed eight non-recipient dry pasta manufacturers, from  which we received six completed surveys. The respondents include the  fourth-largest dry pasta manufacturer in the United States, several smaller  pasta companies that produce durum wheat pasta, one company that  produces wheat-free pasta, and one company that produces exclusively  organic pasta. The views of these respondents may not be representative of  all non-recipients.

	Views on CDSOA from Recipients in the DRAM Industry

		Background

Dynamic random access memory (DRAM) semiconductors are considered  commodity products and compete largely on the basis of price; DRAMs of  similar density, access speed, and variety are generally interchangeable  regardless of the country of fabrication. Today, four companies produce  DRAMs in the United States: Micron Technologies is a U.S. company,  Infineon Technologies is a spin-off of the German company Siemens, and  Samsung Electronics and Hynix Semiconductor are Korean companies.  All of these companies now have production facilities in the United States  as well as abroad, but the latter three have entered the U.S. industry within  the past decade. The DRAM industry is cyclical in nature, where demand is  driven by investments in computers and other end-products. Fabrication  facility costs are high and require complete replacement approximately  every 10 years. Due to high fixed costs, chip manufacturers cannot afford  to scale down production; they must constantly produce chips and invest  or go out of business.
One countervailing duty order is currently in effect for DRAMs produced by  Hynix only. This duty order came into effect in 2003 and its duty rate is  currently 44 percent. Micron Technology received the bulk of distributions  in this industry because it was the sole recipient of duties from two  antidumping orders dating from the 1990s on DRAMs and other kinds of  chips. Payments were made to Micron on DRAMs of 1 megabit and above  under one AD order issued in 1993 and revoked in 2000, as well as on an AD  order on SRAMs (static random access memory chips) issued in 1998 and  revoked in 2002. The vast majority of CDSOA disbursements to the industry  (approximately $33 million) in fiscal years 2001 through 2004 were related  to these orders. Infineon did not incorporate in the United States until 2000  and, therefore, did not participate in the earlier investigations. Both  Infineon and Micron are eligible and received disbursements under the  current order but Hynix and Samsung are not eligible because they  opposed the petition. Because DRAMs are a technologically dynamic  product, it is expected that Commerce will revoke these orders when the  subject products are obsolete. New products open themselves to new  petitions and orders, thereby allowing new potential CDSOA recipients.
Table 17 depicts CDSOA recipients for DRAMs in fiscal years 2001-2004.

	CDSOA Effects on DRAM Companies

		CDSOA Disbursements Have Mixed Effects on DRAM Companies

The two recipients of CDSOA disbursements reported mixed effects. One  recipient reported that, although at the time it was operating at a net loss,  CDSOA distributions improved its profitability, investment, employment,  and research and development. The company noted that it would be of  greater help if payments were made soon after other countries began their  unfair trade practices. Another recipient reported that disbursements were  immaterial to their operations.
Fiscal year 2004 CDSOA disbursements are equal to less than 1 percent of  both companies’ sales.
Table 18 presents DRAM recipients’ responses to our questionnaire on  CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 19 shows companies’ responses to our question on CDSOA’s effect on  their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. One recipient uses CDSOA distributions to  fund U.S. operations and to invest in new U.S. production equipment. The  other recipient also uses distributions in operations.

		Net Sales and Employment Trends

Historically, the DRAM market is subject to periods of “boom and bust.”  Both CDSOA recipients reported some net losses and have experienced  slight declines in production and related workers during the past 4 fiscal  years.

		Extent of Overseas Production

One company has DRAM production facilities in three U.S. states as well as  Japan, Italy, and Singapore. The other indicated that it has both domestic  and foreign production facilities; they also noted that DRAMs  manufactured in the United States can be sold abroad, and DRAMs  manufactured abroad can in turn be sold here.

	Scope and Methodology

To obtain the views of DRAM-producing companies on CDSOA’s effects, we  sent a set of structured questions to the two CDSOA recipients. Current  CDSOA payments on DRAMs are made on a CV order issued in 2003.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments in each of the 4 years that  disbursements have been made. CBP identified two companies. We  surveyed both recipient companies, and both provided completed surveys.
To identify non-recipients, we consulted the recipient companies to identify  their competitors, and we obtained information on domestic producers  from the ITC’s final determination on DRAM and DRAM Modules from  Korea. There are two U.S. subsidiaries of Korean companies that are  considered domestic producers who opposed the petition for the current  order. We attempted to contact these companies but were unsuccessful in  our efforts. We did not attempt to contact a fifth company that is also  considered a domestic producer; this company does not list the major  DRAM producers as competitors, and has no fabrication facilities. ITC  listed other domestic producers for the purposes of its investigation, but  these companies have since ceased DRAM production or have ceased to  exist.

	Views on CDSOA from Recipients and Non- Recipients in Crawfish Industry

		Background

Crawfish are freshwater crustaceans that resemble lobsters but are  considerably smaller. U.S. commercial production of crawfish is  concentrated within a relatively small area of southern Louisiana, where  crawfish are harvested in the wild by fishermen and farmed in ponds.  Crawfish may be sold whole and live, whole and boiled, or as fresh or  frozen tail meat. Whole crawfish and fresh tail meat is consumed primarily  in Louisiana and neighboring states, where there is generally a preference  for local products in season. Tail meat is also sold more broadly throughout  the United States. U.S. producers supply whole crawfish and fresh and  frozen tail meat, whereas imports, mainly from China, are primarily frozen  tail meat. U.S. businesses that process whole crawfish into tail meat are  primarily small, family-owned concerns. Inexpensive imports and poor  harvests have driven many domestic crawfish processors out of business in  recent years. It is estimated that there were over 100 processors in  Louisiana in the 1980s and early 1990s, but that number has dropped by  more than half.
In 1996, the Crawfish Processors Alliance, an industry association, and the  Louisiana Department of Agriculture and Fisheries, filed a petition alleging  that U.S. processors of crawfish tail meat were being injured by dumped  imports of crawfish tail meat from China. Significant imports of tail meat  began in the mid-1990s, and ITC estimates that imports’ share of  consumption grew from just over 60 percent in 1997 to about 87 percent in  2002. In 1997, Commerce issued an anti-dumping order on crawfish tail  meat and imposed anti-dumping margins that ranged from about 92 to  about 202 percent.
Table 20 depicts the top 10 CDSOA recipients for crawfish in fiscal years  2001-2004.

	CDSOA Effects on Crawfish Processing Companies

		Crawfish Recipients Reported Positive Effects from CDSOA Payments

CDSOA recipient respondents in the crawfish tail meat processing industry  stated that the program has generally had positive effects for the industry  and their companies. Several recipient respondents credited CDSOA with  saving the domestic crawfish processing industry. Because of the program,  they said, businesses remained open, employees kept their jobs, and  crawfish fishermen continued to fish. The areas in which positive effects  were most often cited were income; profits; investment in property, plants,  and equipment; employment; and ability to compete. The program was  generally seen as having little or no effect on prices, research and  development, and market share. Many recipients stated that the program  had encouraged them to purchase and process more crawfish and freeze  more tail meat for sale in the off-season, leading to increased employment  among some processors and higher sales volumes for crawfish farmers and  fishermen.
Many respondents noted the poor collection rate and enforcement of the  AD order for crawfish and viewed the CDSOA program as providing their  only effective relief from dumped imports. (CBP disbursed about $9.8  million to crawfish processors in fiscal year 2003 but reported that the  uncollected duties related to crawfish in that year were about $85.4 million.  In fiscal year 2004, CBP disbursed about $8.2 million to the industry, but  uncollected duties rose to about $170 million. Nearly two-thirds of all  uncollected duties in fiscal year 2004 were related to the crawfish order.)  Recipients complained that widespread non-payment of duties means  Chinese crawfish continues to enter the U.S. market unabated. In its 2003  review to evaluate continuation of the AD order, ITC found that Chinese  tail meat undersold (was sold at a lower price) domestic tail meat to the  same degree with the AD order in place as it had before the order was  issued, suggesting that the order has not affected the price of imported tail  meat.
Although CDSOA disbursements in this industry have been small compared  to certain other industries, these payments have been significant for some  recipients when compared to net sales. Among the 16 recipients that  responded to our survey, their fiscal year 2004 CDSOA disbursement as a  percent of their 2004 net sales ranged from a low of about 4 percent for one  company to a high of about 350 percent for another. Among the other  respondents, four companies’ fiscal year 2004 disbursement was about 15  to 18 percent of their net sales that year, five companies’ disbursement was  about 27 to 33 percent of their net sales, and four companies’ disbursement  was between 52 and 96 percent of their net sales. One company did not  report any net sales information to us.

		Non-Recipients Reported Negative Effects

Non-recipients crawfish processors that responded to our survey said that  the CDSOA program has helped recipient companies, but has harmed non- recipient companies by creating conditions of unfair competition among  domestic processors. Most non-recipients cited negative effects for their  companies in terms of ability to compete, net sales, profits, income,  investment, and employment, which are generally the areas where  recipients saw positive effects. Several non-recipients stated that they were  unable to compete with the CDSOA recipients. For example, several non- recipients said that recipient companies were offering tail meat for sale at  prices that were below the cost of production and were able to do so  because their CDSOA funds would compensate them for any losses. In  such conditions, some non-recipients said they cannot operate profitably  and some decided to stop producing tail meat in recent years.
Table 21 provides crawfish recipients and non-recipients’ responses to our  questionnaire on CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Table 22 provides these companies’ responses to our question on CDSOA’s  effect on their ability to compete in the U.S. market.

		Company Uses of CDSOA Funds

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. Recipient companies reported a wide range  of uses for the funds. For example, most of the companies that reported  this information said they purchased or upgraded equipment, buying new  or larger delivery trucks, boilers, ice machines, freezers, coolers, and  vacuum-pack machines. Several companies bought more crawfish to peel  and hired more employees, thereby increasing their production of tail meat.  Several companies said that they made investments and repairs to their  plants, such as installing or expanding docks for receiving shipments of  whole crawfish. Several also paid off long-standing company and personal  debts. For example, the head of one small family-run company said he paid  off mortgages on the plant and his residence, bought new equipment, and  made needed repairs without incurring new financing costs. One company  said that it started a pension plan for its employees.

		Net Sales and Employment Trends

More than half of the recipient companies that we surveyed had growing  net sales in the 2001 through 2004 time frame. Other companies’ net sales  fluctuated, decreased, or were relatively stable. Several respondents said  that one of the most significant outcomes of the CDSOA program was to  encourage them to purchase and process more crawfish and freeze more  tail meat for sale in the off-season, thereby improving their year-round cash  flow. Most non-recipients that responded to our survey did not provide net  sales information.
More than half of the crawfish recipient respondents also reported growth  in employment levels, and some of these increases were significant. One  company quadrupled the number of production and related workers during  the 2001 through 2004 period (from 28 to 111) and the number of such  workers at three other companies doubled. Several stated CDSOA enabled  them to hire more people. Three recipients reported net decreases in the  number of production and related workers in this time period. Non- recipients also generally did not report employment information.

		Extent of Overseas Production

Survey respondents said they process tail meat exclusively in the United  States. We did not gather any information that disclosed whether, in the  course of doing business, any of these processors also import or offer  imported tail meat for sale.

	Scope and Methodology

To obtain crawfish tail meat processing companies’ views on CDSOA’s  effects, we sent out a set of structured questions to certain crawfish  CDSOA recipients and non-recipients. CDSOA payments are made in this  industry under one AD order.
To identify CDSOA recipients, we obtained information from CBP about  the companies that have received payments in each of the three years that  disbursements have been made and the amount of disbursements they have  received. Using this information, we developed a list of 35 recipients and  ranked them by their total CDSOA receipts. CBP provided additional  information that indicated that certain companies had received funds  under different names in different years. Because of time and resource  constraints, we decided to survey 20 of the top recipients that had received  about 90 percent of the total payments made under this order. We received  16 completed surveys. These 16 companies accounted for about 73 percent  of CDSOA payments to this industry; their views may not be representative  of all recipients, particularly those that received relatively small CDSOA  disbursements.
The size of the universe of crawfish non-recipients not known. We sought  to obtain views from a comparable number of non-recipients as recipients,  but we had difficulty identifying non-recipient crawfish companies. To  identify these companies, we obtained information from associations or  others that were knowledgeable about the industry. Specifically, we  obtained contact information for current and former tail meat processors  that are non-recipients from (1) a law firm that represents the Crawfish  Processors Alliance, an entity that was a petitioner in this case; (2) the  Louisiana Department of Agriculture and Fisheries, an entity that was a  petitioner in this case; (3) the Louisiana Department of Health and  Hospitals, which licenses and inspects processors; and (4) certain other tail  meat processors. We lacked accurate contact information for several of  these companies. We surveyed 17 current and former processors, from  which we received 9 completed surveys. The views of these respondents  may not be representative of all non-recipients.

	Views on CDSOA from Recipients and Non- Recipients in Softwood Lumber Industry

		Background

Softwood lumber generally comes from conifers or evergreen trees  including pine, spruce, cedar, fir, larch, Douglas fir, hemlock, cypress,  redwood, and yew. Softwood is easy to saw and used in structural building  components. It is also found in other products such as mouldings, doors,  windows, and furniture. Softwood is also harvested to produce chipboards  and paper. U.S. softwood lumber producers are generallly located in the  southeast and northwest, with the northwest softwood lumber being  comparable to Canadian softwood lumber. CDSOA disbursements to the  softwood lumber industry went to 143 companies in fiscal years 2003 and  2004. According to one estimate, about half of the softwood lumber  companies are eligible to receive these disbursements.
Canada’s share of the U.S. lumber market rose from less than 3 billion  board feet (BBF) and 7 percent of the market in the early 1950s to more  than 18 BBF per year and 33 percent of the market in the late 1990s. In  2003, U.S. imports of softwoods were 49,708 thousands of cubic meters,  and the ratio of these imports to consumption was 37.4 percent. Since 1981,  the United States and Canada have been involved in several softwood  lumber disputes, leading to, among other things, a 15 percent Canadian tax  on lumber exports in 1986; a countervailing duty of 6.51 percent on  Canadian imports in 1992, which ended in 1994; and a 1996 Softwood  Lumber Agreement restricting Canadian exports for five years, until 2001.
The U.S. again imposed antidumping and countervailing duties on  Canadian imports in 2002. From May 2002 to December 2004 most  Canadian softwood lumber exported to the United States was subject to a  combined antidumping and countervailing duty of 27 percent. In December  2004 this combined duty was reduced to 21 percent. These two duty orders  funded about $5.4 million in CDSOA disbursements to U.S. softwood  lumber companies in fiscal years 2003 and 2004. Leading U.S. softwood  lumber producers are among the industry’s top CDSOA recipients.  However, major U.S. producers are also among those ineligible to receive  CDSOA disbursements. CBP has received over $3.7 billion in deposits to  cover estimated duties from softwood lumber imports from Canada.
Table 23 depicts the top 10 CDSOA softwood lumber recipients for fiscal  years 2003-2004.

	CDSOA Effects on Softwood Lumber Companies

		Softwood Lumber Recipients and Non- Recipients Reported Little or No Effects from CDSOA Payments

Recipient and non-recipient companies generally noted that, because  CDSOA disbursements had been so small in fiscal years 2003-2004, totaling  about $5.4 million, they had had little or no effect on their companies.
Although recipient companies vary greatly in their overall size, these  companies do not vary significantly in terms of the amount they have  received through CDSOA as a percentage of their sales in fiscal year 2004.
Specifically, CDSOA disbursements to company sales amounted to less  than 1 percent for the recipient companies in our study.
However, some recipient and non-recipient companies emphasized that, if  the United States ever were to liquidate and disburse the large amount of  softwood lumber duties currently being held in deposit by Treasury, these  disbursements would have major effects on both recipient and non- recipient companies. One recipient company noted that these  disbursements would have positive effects on its company, while a non- recipient company emphasized negative effects. Because capital is a major  function in competitiveness, a non-recipient company stated that, if  recipient companies were to invest large CDSOA disbursements on new  mills, they would be able to dramatically increase their efficiency, output,  and market share.
Table 24 provides softwood lumber recipients and non-recipients’  responses to our questionnaire on CDSOA’s effects.

		CDSOA Effect on Company Ability to Compete in U.S. Market

Recipient and non-recipient companies generally reported that the CDSOA  disbursements had had no effect on their companies’ ability to compete in  the U.S. market.
Table 25 presents these companies responses to our question on CDSOA’s  effect on their ability to compete in the U.S. market.

		Company Uses of CDSOA Payments

We also asked companies to describe how they used the CDSOA payments  that they received. However, the law does not require that distributions be  used for any specific purpose. Overall, companies noted that they had used  the payments for a variety of purposes, such as paying debt, past qualifying  expenditures, general operating expenses, general corporate expenses, and  capital investment. Others noted that the payments had been too small to  track their use in any area.

		Net Sales and Employment Trends

Overall, recipient and non-recipient companies we contacted vary  significantly in size. Both show slight increase in net sales and employment  over the 4 years that CDSOA has been in effect. Leading U.S. producers are  among the CDSOA recipient and non-recipient companies.

		Extent of Overseas Production

Most recipient companies we contacted produced CDSOA-related products  domestically. Some non-recipient companies we contacted produced these  products domestically. Others produced them both domestically and  abroad.

	Scope and Methodology

To obtain softwood lumber companies’ views on CDSOA’s effects, we sent  out questionnaires to certain softwood lumber CDSOA recipients and non- recipients. CBP made CDSOA payments to recipients in this industry in  fiscal years 2003 and 2004 under an AD order and a CV order both issued in  2002.
To identify CDSOA recipients, we obtained information from CBP about  the companies that had received CDSOA payments in the 2 fiscal years and  the amount of disbursements they had received. Using this information, we  developed a list of 143 recipients and ranked them by their total CDSOA  receipts in the 2 fiscal years. Because of time and resource constraints, we  decided to survey the top 14 recipients that had received about 60 percent  of the total softwood lumber payments. CBP provided contact information  on these companies to us. From these 14 companies, we received 13  completed surveys. These 13 companies accounted for about 59 percent of  all softwood lumber disbursements. Their views may not be representative  of all recipients, particularly those that received relatively small CDSOA  disbursements.
Given that about half of the industry is eligible to receive CDSOA  disbursements, we sought to obtain views from a comparable number of  recipients and non-recipients. To identify non-recipient companies, we  obtained information from public and private sources that are  knowledgeable about the industry. Specifically, we obtained information on  non-recipients from the ITC and softwood lumber companies. We surveyed  15 companies and we received six completed surveys from them. These  respondents included a wide range of top non-recipients, including one of  the largest companies in the industry. However, their views may not be  representative of all non-recipients.

Comments from Customs and Border Protection

GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

Kim Frankena served as Assistant Director responsible for this report, and  Juan Tapia-Videla was the Analyst-in-Charge.  In addition to those named  above, the following individuals made significant contributions to this  report: Shirley Brothwell, Ming Chen, Martin de Alteris, Carmen Donohue,  John Karikari, Casey Keplinger, Jeremy Latimer, and Grace Lui.  The team  benefited from the expert advice and assistance of Jamie McDonald, Jena  Sinkfield, Tim Wedding, and Mark Speight.

Summary:
Why GAO Did This Study

Between fiscal years 2001 and 2004, the Continued Dumping and Subsidy Offset Act (CDSOA) provided over $1 billion funded from import duties to U.S. companies deemed injured by unfair trade. Some supporters state CDSOA helps U.S. companies compete in the face of continuing unfair trade. Some opponents believe CDSOA recipients receive a large, unjustified windfall from the U.S. treasury. Also, 11 World Trade Organization (WTO) members lodged a complaint over the law at the WTO. This report assesses (1) key legal requirements guiding and affecting agency implementation of CDSOA; (2) problems, if any, U.S. agencies have faced in implementing CDSOA; and (3) which companies have received CDSOA payments and their effects for recipients and non-recipients; and describes (4) the status of WTO decisions on CDSOA.

What GAO Found

Congress enacted CDSOA to strengthen relief to injured U.S. producers. The law's key eligibility requirements limit benefits to producers that filed a petition for relief or that publicly supported the petition during a government investigation to determine whether injury had occurred. This law differs from trade remedy laws, which generally provide relief to all producers in an industry. Another key CDSOA feature requires that Customs and Border Protection (CBP) disburse payments within 60 days after the beginning of a fiscal year, giving CBP limited time to process payments and perform desired quality controls. This time frame, combined with a dramatic growth in the program workload, presents implementation risks for CBP. CBP faces three key implementation problems. First, processing of company claims and CDSOA payments is problematic because CBP's procedures are labor intensive and do not include standardized forms or electronic filing. Second, most companies are not accountable for the claims they file because they do not have to support their claims and CBP does not systematically verify the claims. Third, CBP's problems in collecting duties that fund CDSOA have worsened. About half of the funds that should have been available for disbursement remained uncollected in fiscal year 2004. Most of the CDSOA payments went to a few companies with mixed effects. About half of these payments went to five companies. Top recipients we surveyed said that CDSOA had beneficial effects, but the degree varied. In four of seven industries we examined, recipients reported benefits, but some non-recipients noted CDSOA payments gave their competitors an unfair advantage. These views are not necessarily representative of the views of all recipients and non-recipients. Because the United States has not brought CDSOA into compliance with its WTO obligations, it faces additional tariffs on U.S. exports covering a trade value of up to $134 million based on 2004 CDSOA disbursements. Recently, Canada, the European Union, Mexico, and Japan imposed additional duties on various U.S. exports. Four other WTO members may follow suit.