U.S. Imports: Unit Values Vary Widely for Identically Classified Commodities
Published: 1995-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed the importation of eight classifications of commodities in fiscal year 1992, focusing on why unit values for identical types of imported commodities varied.
section_title: What GAO Found
paragraphs: GAO found that: (1) unit values for identical imports varied widely because of overly broad commodity classifications and product misclassifications; (2) although Customs used Census Bureau-developed parameters to screen filers' entries and detect possible unit value errors that could adversely affect the quality of trade data, most of the parameters were so broad that Customs only detected errors involving extremely high or low unit values; (3) the errors that were noted had little effect on quotas, duties, and fees for the 80 transactions reviewed; (4) although generalizations about the overall level of errors in the Import Detailed Data Base could not be made, the high number of errors found indicated the need to improve Automated Commercial System (ACS) data accuracy; (5) a high error rate could threaten the accuracy of U.S. trade statistics and Customs ability to screen transactions for errors or illegal activities; and (6) adding narrower unit value ranges to ACS would allow filers to identify and correct more errors during data entry.

section_title: Letter
paragraphs: Importers bringing a shipment of goods into the United States must provide information to the Customs Service that shows the quantity and overall value of each commodity being imported. Among other things, this information allows Customs to collect duties and fees; enforce any quantitative restrictions, such as import quotas; and develop information that can be used by the Bureau of the Census to develop trade statistics. In recent years, these statistics have been a cause for concern because unit values for the same type of commodity can vary over a wide range when they are used to calculate a value per unit imported.
The former Chairman of the Subcommittee on Oversight, House Committee on Ways and Means, requested that we determine why unit values for the same types of imported commodities vary. In this regard, we agreed to review documentation on the importation of eight classifications of commodities for fiscal year 1992 and to determine (1) how widely unit values for identical types of commodities varied and (2) why such variations occurred. This report discusses the results of our review and is addressed to you because these matters fall within the jurisdiction of your subcommittee. As requested, the appendixes include extensive analyses and comparisons of the unit values for each of the eight commodities we examined.
subsections: section_title: Background
paragraphs: More than 14,000 different types of commodities are imported into the United States, involving more than 15 million separate shipments or transactions each year. In 1992 and 1993, U.S. imports were valued at $532.7 billion and $580.5 billion, respectively.
Customs has the primary responsibility for processing imports to ensure that they do not violate U.S. laws and regulations. Also, Customs is responsible for ensuring that duties and fees are paid and, with more than $21.6 billion collected in fiscal year 1993, is second only to the Internal Revenue Service in its revenue-producing function.
Customs also accumulates basic information on imports in its ACS database for oversight and statistical purposes. For about 94 percent of the ACS entries, importers or licensed brokers—referred to as “filers”—electronically enter data directly into ACS and generally follow this with a manually prepared entry summary. For the remaining 6 percent of the ACS entries, the filers elect not to file the entry electronically, and Customs must enter the information into ACS from the manually prepared entry summaries.
Periodically, Census extracts data from ACS for use in developing and publishing trade statistics. The Census data are available in two forms. The first and most comprehensive is the Import Detailed Data Base, which contains information on individual transactions and is restricted to official use. The second consists of various reports and publications that summarize trade statistics and are made available to the public.
In 1990, two professors at Florida International University (FIU), using the summary Census data, found wide variations in the unit values for seemingly identical commodities. For example, the professors found that the unit value for razors varied from $0.03 to $34.81 each. They also found that emeralds from Panama had an average unit value of $974.58 a carat, compared with $5.29 a carat for those from Brazil. Other commodities showed similar disparities.
As the results of the FIU study became known, concerns were raised that the differences in unit value could be the result of criminal activities, such as money laundering. For example, a person in the United States could transfer money to another country simply by paying far too much for an imported product in an exchange that would otherwise appear legitimate.
section_title: Objectives, Scope, and Methodology
paragraphs: As discussed with the Subcommittee, we determined that statistical sampling of a database as large as ACS’ was impractical, given the time constraints of our work. Instead, we agreed to judgmentally select eight commodities for detailed examination. We selected these commodities from the Harmonized Tariff Schedule (HTS) of the United States, which classifies and describes all commodities subject to importation and lists the applicable duties, fees, and quotas for each commodity. We selected a broad variety of commodities that generally had narrow definitions and provided some overlap with previous studies by Customs and FIU. Three of the eight commodities were subject to quotas.
To meet our first objective of determining how widely unit values for identical types of commodities varied, we used the Import Detailed Data Base for fiscal year 1992 to compute and analyze unit values and to develop statistical profiles for each of the eight commodities. To meet our second objective of determining why these variations occurred, we selected 10 transactions across a wide range of values under each of the 8 commodities. For each of these 80 transactions, we then examined supporting documentation, such as entry summaries, invoices, and shipping manifests, to verify that the commodity was appropriately classified and to recalculate the unit values that should have been reported. Our objectives, scope, and methodology are discussed in more detail in appendix I.
Appendix II provides a summary comparison of the commodities we selected for analysis. Appendixes III through X show the results of these analyses by commodity, including (1) comparisons of high, low, average, and median unit values by U.S. port of entry, country of export, importer, and method of transport; (2) quantities shipped and unit values at each decile across the range of values; and (3) a comparison of the unit value we computed with those in the ACS database for the selected transactions.
We obtained written comments on a draft of this report from Customs and Census. Their comments are evaluated at the end of this letter and are reprinted in appendixes XI and XII.
We did our work between November 1993 and August 1994 in accordance with generally accepted government auditing standards.
section_title: Unit Values of Imported Commodities Varied Widely
paragraphs: Just as the FIU study, we found wide variations in unit values for transactions within the same commodity classification. Table 1 shows the highest, lowest, and average unit values for each of the eight commodities. Appendixes III through X show the unit values for each commodity across percentile ranges and provide further comparisons by U.S. port of entry, country of origin, importer, and method of shipment.
As seen from table 1, variations in unit value were the norm for the eight commodities we examined. Raw cane sugar had the most narrow unit value range and, even then, the highest value of $1.75 a kilogram was four times the lowest value of $0.43 a kilogram. At the other extreme, the high unit value of $3,809 per meter for wood dowel rods was 952,250 times the lowest unit value of $0.004 per meter.
Some unit values appeared implausible. Such was the case with facsimile machines valued at $5.62 each, pantyhose for $1,267.50 a dozen pair, or hypodermic syringes as low as $0.01 and as high as $3,485 each. Also, 185 shipments of scrap gold, which accounted for 783,380 grams (or 4.3 percent of the total quantity), each had a unit value of more than $11.60 a gram—the price of pure gold at the time. Overall unit values for scrap gold ranged from $0.02 to $4,368 a gram, with an average unit value of $3.75 a gram.
section_title: Broad Commodity Definitions and Data Entry Errors Caused Wide Variations in Unit Values
paragraphs: In examining the supporting documentation for individual transactions, we found two causes for variations in unit values. First, the commodity classifications used by Customs were so broad that a particular code could cover a wide assortment of products with natural variations in value. In practice, Customs can do little about the wide commodity definitions, since they are determined through a combination of law, international agreement, and agreements among various U.S. agencies, including Customs.
Second, filers frequently made errors in entering the commodity code, quantity, or total value into ACS. While Customs could correct these errors if it knew of them, the current parameters used to detect unit value anomalies are so broad that they identify only those errors involving extremely high or low unit values.
subsections: section_title: Commodity Definitions Were Broad
paragraphs: In coding commodities for entry, Customs requires filers to choose from the more than 14,000 codes specified by the HTS. The HTS is subdivided into sections, chapters, and specific commodity types. The codes range from 4 to 10 digits in specificity, depending on the degree to which a particular commodity is subdivided. For example, facsimile machines are at the 10-digit level (8517.82.00.40) under “electrical machinery and equipment” (Chapter 85), the 4-digit level (8517) under “electrical apparatus for line telephony or telegraphy,” and the 6-digit level (8517.82) under “telegraphic.”
Even with the large number of specialized codes, commodities within a particular HTS classification can vary by type, quality, and intended use. As shown in the transaction analyses in table 8 of appendixes III through X, these variations in products lead to variations in unit values. For example, the facsimile machine classification described in appendix V covers everything from inexpensive and mass-produced, home-use models to machines that are highly specialized and designed to be used in complex and sophisticated communications systems. We analyzed the supporting documentation for the 10 facsimile machine transactions and found machines that were properly valued as low as $264.14 per unit and as high as $26,425 per unit.
Similarly, the pantyhose classification discussed in appendix IV is broad enough to include such diverse products as pantyhose of differing grades and sizes, tights, and support hose. For the 10 pantyhose transactions, we analyzed the supporting documentation and found products that were properly valued from as low as $3.50 a dozen pair to as high as $156.59 a dozen pair. Two of the transactions, with unit values of $156.59 and $66.64 a dozen pair, were special orders intended for promotional uses.
The scrap gold classification is broad because it covers gold waste and scrap, regardless of the weight, purity, or metals to which it is clad. For example, we examined the supporting documentation for one transaction where the commodity was described on the invoice as “scrap gold for refining” and was properly valued at $9.26 a gram. We examined the supporting documentation for another transaction and found the scrap gold was properly valued at $0.22 a gram and, according to the invoice, consisted of gold and brass “floor sweeps.”
The U.S. International Trade Commission publishes the HTS, following guidelines set by law, international agreement, and agreements among U.S. agencies. As one of these agencies, Customs can only recommend changes in the level of specificity within individual HTS classifications. Customs officials said they would not necessarily make changes in the definitions even if they could do so. According to these officials, while narrower product definitions would reduce the range of unit values within a particular commodity code, the higher level of specificity also would increase the number of codes with which Customs and the filers would have to contend.
section_title: Filers Entered Erroneous Data Into ACS
paragraphs: Another reason unit values for imports varied so widely is that the Import Detailed Data Base contains errors. Such errors occur when the filer enters the wrong HTS code, quantity, or total value into ACS and the data are not corrected prior to being extracted by Census. We examined the supporting documentation for 80 transactions, and we found that 45 transactions contained one or more types of errors.
subsections: section_title: Wrong HTS Code
paragraphs: For 14 of the 45 transactions with errors, the filer entered the wrong HTS code. Thus, while the unit value may have been computed properly, it was entered under the wrong commodity classification. The following are examples of valuation errors created by the filer having entered the wrong HTS code:
Four of the 10 facsimile machine transactions were wrongly coded because the products shipped were not facsimile machines. Two of these transactions, with unit values of $492.84 and $5.62 each, actually were for spare parts. A third transaction, with a unit value of $29.23 each, was for a shipment of modems. The fourth transaction—and by far the largest single unit value we analyzed—was for a telegraph machine with a unit value of $147,292.
Three of the 10 raw cane sugar transactions—accounting for 64.7 percent of the total volume shipped during 1992—were wrongly coded. Since the product did not meet the commodity definition of raw sugar, it should have been listed under another cane sugar category.
Three shipments of unsweetened cocoa, with unit values of $234.43, $2.62, and $0.24 a kilogram, were wrongly coded. Even though the products contained cocoa, one shipment was a specialty concentrate and the other two shipments were cocoa cake. Each type of product has its own HTS classification.
section_title: Wrong Quantity or Total Value
paragraphs: For 36 of the 45 transactions with errors, the filer entered either the wrong quantity, the wrong total value, or both the wrong quantity and total value into ACS. Five of these 36 transactions contained errors because the filer had also entered the wrong HTS. The following are examples of the types of quantity and value errors we found:
On a shipment of hypodermic syringes, the filer showed the quantity as 600,000 when it should have been 60,000. Since the total value was properly shown as $135,000, the unit value was computed as $0.23 each when the correct unit value was $2.25 each.
On a shipment of wood dowel rods, the quantity was incorrectly shown as 2 meters when it should have been 4,618 meters. This resulted in the computation of the unit value as $3,809 per meter when the correct value was $1.65 per meter. The opposite occurred on another shipment, when the quantity was shown as 2,709,190 meters instead of 225,765 meters. Thus, the unit value should have been $0.05 per meter instead of $0.004 per meter.
A shipment of gold had a unit value of $4,368 a gram, or 379 times the going rate for pure gold at the time, because the filer had entered the wrong quantity. The supporting invoice showed the quantity as 2.05 kilograms and, apparently, the filer showed this as 2 grams in making the entry. The correct unit value of the scrap gold was $4.26 a gram, or less than half of the then market price of $11.54 a gram for pure gold.
Eighteen shipments of unsweetened cocoa showed a unit value of $0.00 a kilogram because, in each case, no quantity was shown on the Import Detailed Data Base. We analyzed the supporting documentation on one of these shipments and found that the quantity should have been 8,164 kilograms. Since the total value was properly entered at $14,940, the unit value should have been $1.83 a kilogram.
section_title: Effects of Filer Errors on Revenues, Trade Statistics, and Customs’ Ability to Detect Errors
paragraphs: For the transactions we examined, the effect of the filer errors on revenues was minimal. However, the errors raise questions about the accuracy of trade statistics and Customs’ ability to use unit values as a screening mechanism in ACS to detect data errors or to identify problems, such as quota violations or improper payment of duties and fees.
subsections: section_title: Filer Errors We Found Did Not Result in Revenue Loss but Did Affect Trade Statistics
paragraphs: The filer errors we found had only a minimal effect on revenues. Of the 45 transactions we found with errors, we identified only 5 transactions where we could determine the duties or fees were wrong, with a net overcollection of $114.57. Each of these incorrect duties or fees was caused by a quantity or value error. We could not determine the effect on duties for two other transactions because the supporting documentation did not contain sufficient information to identify the HTS code that should have been entered.
None of the classification errors resulted in a dollar loss because the duties and fees actually paid were equal to or greater than what should have been paid. Similarly, most of the remaining errors involved quantity, whereas duties and fees typically are tied to total value.
Quantity errors could be a problem where quotas are concerned, and three of the commodities we selected—raw cane sugar, tire cord fabric, and pantyhose—were subject to quotas. Again, however, the errors we found did not raise concerns that quotas may have been exceeded significantly. In two cases, the quantities were overstated because of errors, so the quota was not exceeded. In the third case, the quantity understated was minimal, amounting to only 0.026 percent of the total quantity shipped for the year.
Errors in the Import Detailed Data Base can affect trade statistics. When the filer enters the wrong quantity or value into ACS, the effect is limited to the HTS classification being examined. In those cases where the wrong HTS is entered, the quantity and value data will be in error for both the classification that was entered by mistake and the classification that should have been entered.
Since we did not randomly sample commodities or transactions, we cannot project the overall effect of filer errors on trade statistics. However, raw cane sugar, one of the commodities we selected, had only 32 transactions for 1992. We analyzed 10 of the 32 transactions and found that 3 transactions were improperly coded. The three transactions accounted for 64.6 percent of the total quantity and 55.7 percent of the total value reported. The effect of these three classification errors was an overstatement of both quantity and total value in the raw cane sugar category. If not for these 3 errors, the total quantity would have been 931,237 instead of the reported 2,632,911 and the total value would have been $630,491 instead of $1,422,070. Presumably, the categories that should have been entered were understated by like amounts.
section_title: Census Unit Value Ranges Are Too Broad to Detect All Filer Errors
paragraphs: As a means to detect potential errors in the trade data drawn from the Import Detailed Data Base, Census developed a series of screening parameters that provide a warning that the information entered is outside of the norm. Two types of warnings involve unit value—one warning if it is too high and one warning if it is too low. In effect, the warnings provide a range within which the unit value should fall for a particular commodity code. Table 2 shows the Census unit value ranges for each of the eight commodities we selected for analysis.
The Census ranges are integrated into Customs’ ACS, which is to use them to screen each automated entry for unit value anomalies. When the unit value of a particular entry falls above or below the Census range, ACS is to first warn the filer, who then can review the data entered and make corrections if necessary. If the numbers are accurate, but outside the range, Customs is to require the filer to provide supporting documentation with the paper entry summary that follows the electronic submission. ACS is also to alert Customs officials that the entry is outside of the range, and they can review the supporting documentation and ask the filer for more details, if desired.
A unit value outside the Census range does not necessarily mean that Customs will review the transaction or make changes to its database. For example, Customs’ procedures provide that no changes to the Import Detailed Data Base generally are required for nontextile commodities if the total value of the transaction is less than $10,000 and no quota or voluntary restraint agreement is involved. Also, Customs officials may choose to take no action or correct only portions of the data, such as those necessary to ensure the proper collection of duties and fees.
We examined the supporting documentation for 80 transactions and found that 15 had unit values that were either higher or lower than the Census ranges. In all but 1 of these 15 cases, the filers had made errors in entering the HTS code, the quantity, or the total value into ACS. The only transaction that fell outside of the Census ranges, but was properly entered, was a shipment of tire cord fabric in which the high unit value of $44.64 a kilogram was due to its being a prototype item with a small quantity. Customs officials had not made corrections to the Import Detailed Data Base on any of the 14 transactions we examined and on which we found errors. In some cases, however, the officials had made corrections to the entry summary documents, duties and fees charged, or other modules of ACS.
One limitation in the Census ranges is that they are so broad they are of little use in identifying any but the most extreme variations from the norm. This limitation occurs because the Census ranges were designed to detect only those unit values it considered most likely to be erroneous. According to Census, a group of transactions falling outside of a range may indicate the need to adjust the range for a number of reasons, including natural value fluctuations, a change in the diversity of the products included in a particular category, incorrect reporting, or new products entering the trade flow. For the 8 commodities we selected, only 196 (or 1.8 percent) of the 11,100 transactions in 1992 fell outside of the Census ranges.
section_title: Customs Has Addressed Some Valuation Problems and Is Considering Other Actions
paragraphs: The Trade Agreements Act of 1979 (P.L. 96-39) established one primary valuation method—transaction value—and four secondary methods for determining customs value. Under the transaction value method, Customs generally accepts the price agreed to between the buyer and the seller as the basis for Customs’ valuation as compared to the more complex procedures of the prior valuation system. In practice, Customs officials said that Customs relies on the value declared by the filer unless it has some reason to question the value’s accuracy.
In 1990, Customs officials became concerned that valuation had become a low priority within Customs and performed an internal valuation review. The study confirmed the need to re-emphasize valuation in the entry process so that Customs would be better equipped to detect importer attempts to manipulate valuation laws and regulations.
Since its 1990 study, Customs has taken several courses of action to address concerns on the valuation of imports. These actions include establishing valuation as one of six priorities in Customs’ Trade Enforcement Strategy Plan, creating a National Valuation Center to help implement the Strategy Plan, increasing training of import specialists on valuation issues, increasing analysis of valuation in enforcement and compliance activities, and implementing an Entry Summary Review Program to increase uniformity in the classification and appraisement of imports.
Customs’ analyses of unit values identified the same types of anomalies we found in our review. For example, an enforcement initiative in 1992, which studied shipments into the Miami District, found asparagus valued at $7 a kilogram compared with a world average of $1.38 a kilogram and dryers with a unit value range of $4.24 to $746,723 each. Similarly, in 1993, national import specialists in New York analyzed 1,199 shipments of automatic typewriters and word processing machines and found unit values that ranged from $1.83 to $17,937 each, with an average of $124.67 each.
Customs also identified some of the same causes for unit value variations that we identified. An April 1994 Quality Assurance Review draft report, which dealt with the statistical reporting of trade data, pointed out that the wrong HTS codes were entered in ACS because (1) the codes were difficult to interpret and use, (2) the filers did not have sufficient expertise in determining the proper code, and (3) there were few disincentives for using the wrong code. The report also agreed that the Census ranges on valuation were too broad. The report made a number of recommendations for improving the entry, use, and screening of valuation data. These recommendations were preliminary and had been disseminated for field comment; thus, we did not evaluate them.
Customs currently is redesigning its entry summary selectivity process, which defines the procedures followed in selecting import documentation for further review by import specialists. This redesign is part of a larger redesign effort, which also is considering changes in the way cargo is selected for physical inspection. Customs officials have not yet determined the degree to which valuation will be a part of the entry summary selectivity process redesign, although they said it may play a prominent role.
Customs officials said that changing the way the Census ranges are used presents a dilemma. The Customs officials said that they realize the current ranges are too broad to detect many errors and that they had considered narrowing them. However, while narrowing the ranges would identify more problem entries, this action also would (1) create the need for reviewing more entries that do not have a problem and (2) divert Customs’ resources from other endeavors. Nevertheless, Customs officials said they will continue to look for ways to improve the use of unit value screening mechanisms.
We asked the Customs officials whether they had considered using two sets of ranges—one fairly narrow set for the filer and a broader set for Customs and Census. Such a system would place more of the burden on the filers who are making the errors and would encourage these filers to use greater care when entering data. Since Customs and Census could continue to use the broader ranges for their own purposes, any increased workload for the agencies would be minimized.
One of the commodities we selected for analysis, hypodermic syringes, can be used as a hypothetical example of how narrower ranges may be beneficial. At the time of our review, the acceptable Census range for this commodity was from $0.01 to $500 each, with only 2 of the 417 transactions for the year falling outside of this range. However, had the Census range been $0.05 to $6.68 each—the unit values at the 20th and 80th percentiles for all transactions during fiscal year 1992 ranked by descending unit values—125 of the 417 transactions would have fallen outside of the range. Included in the transactions that would have been questioned under the new range, but not the old range, was a shipment of 600 syringes with a unit value of $95.35 each. We determined that this shipment should have been recorded at a quantity of 319,800 and a unit value of $0.18. While we could not determine how many other transactions were in error, we did note that a total of 24 transactions had a unit value of more than $40 each, which Customs officials said is improbable for a single syringe.
Customs officials said that, while a two-tiered set of unit value ranges merited consideration, they had not considered such a process and were not sure whether it could be done within the current system. The officials planned to study the feasibility of a two-tiered process, but they had not done so at the completion of our work.
section_title: Conclusions
paragraphs: On the basis of our analysis of eight commodities imported during 1992, unit values did vary widely, with the highest values ranging from 4 times to almost 1 million times the lowest values. Certain unit values—such as pantyhose priced as low as $0.00 a dozen pair and as high as $1,267.50 a dozen pair—appeared implausible.
We found two primary causes for these wide-ranging values. First, the commodity definitions themselves may be so broad that they cover a diverse group of products with correspondingly diverse values. Second, the importers and brokers may enter the wrong classification code, quantity, or total value into Customs’ ACS. Thus, many of the unit values being calculated from the Import Detailed Data Base may be incorrect.
Our analysis does not allow us to make any generalizations about error rates across all commodities or even within the commodities we examined. However, the high overall error rate (errors in 45 of 80 transactions); the frequency of errors in HTS codes, which affects both the incorrect commodity and the correct commodity; and the fact that Customs’ own research has also shown a high number of errors lead to concerns about the accuracy of these data. The errors we found did not cause a loss of revenues or problems with quotas in relation to the limited number of commodities and transactions we examined. However, our analysis has demonstrated the potential for errors to affect revenues, quotas, and trade statistics. The errors also could lead to difficulties for Customs in using unit value ranges to identify data errors and import compliance problems. To improve the quality of filer data, Customs could consider adding narrower unit value ranges to ACS at the point of data entry, thereby weighing the benefits of such a change against the costs to importers.
section_title: Recommendation
paragraphs: We recommend that the Secretary of the Treasury direct the Commissioner of Customs to determine the feasibility of adding narrower unit value ranges to Customs’ ACS that will allow the filer to identify and correct more errors at the point of data entry. If the Commissioner finds that such ranges are feasible and cost effective, he should take the appropriate steps to implement them.
section_title: Agency Comments
paragraphs: The Customs Service and the Bureau of the Census provided written comments on a draft of this report. Customs agreed with our conclusions and recommendation and discussed recent actions that it had taken to increase the accuracy of data that are reported for trade statistics. Customs stated that, by placing emphasis on improving overall compliance levels through its Compliance Measurement program, major improvements will be made in the level of compliance with a resultant increase in the quality of trade data. Customs also discussed a pilot program that will use reasonable maximum and minimum unit values to screen entries for potential errors and discrepancies. Also, Customs said it is working in partnership with Census to ensure that the ACS redesign program will provide a long-term basis for overall statistical improvement.
Census stated that it believed the report should have specified that ACS provides Customs with the capability to override numerous Census edits including price range and quantity requirements. We agree with this point. On pages 10 to 11, we discuss ACS procedures for screening each automated entry for unit value anomalies and Customs’ review of particular entries that fall above or below the Census range. Our primary concern is Customs’ use of the data to ensure compliance and to generate accurate trade statistics. In this regard, we recommend that Customs determine the feasibility and cost effectiveness of developing narrower unit value ranges for its own use.
Census also believed clarification was needed in our statement that Census may broaden the unit value range when too many transactions fall outside the range. Census stated that it does not automatically adjust a range and that the more likely scenario is that adjustments are a reaction to new products entering the trade flow. One of the ways of identifying new products is through groups of transactions falling outside an established range. We have modified the language on page 11 accordingly. Our main point is that the ranges are too broad for any practical use of the unit values as a screening device by Customs in ensuring compliance and accuracy of transaction data.
We are providing copies of this report to the Secretary of the Treasury, the Secretary of Commerce, the Commissioner of Customs, and other interested parties. Copies also will be made available to others upon request.
Major contributors to this report are listed in appendix XIII. If you need additional information or have any questions, please contact me at (202) 512-8777.
section_title: Objectives, Scope, and Methodology
paragraphs: On October 23, 1992, the Chairman of the Subcommittee on Oversight, House Committee on Ways and Means, requested that we conduct a study of unit values of imports and exports. His concerns were based on work in 1990 by two professors from Florida International University (FIU), which found significant variations in the unit values of seemingly identical commodities. Specifically, the Chairman asked us to assess the risk of false pricing of imports and exports as a cover for money laundering, how such schemes were being used, the pervasiveness of the problem, and the federal response needed.
On September 14, 1993, we briefed the Subcommittee on our work to date. We said that laundering money through manipulative import and export pricing is possible, however, it would be difficult since (1) illicit currency would already have to be laundered once by getting it into the banking system and (2) easier methods of laundering money exist, such as simply smuggling it out of the country. Neither we nor the Customs Service had found evidence of any widespread import and export pricing schemes. On the basis of our analyses of selected transactions, we believe the more likely explanation was that the variations were the product of erroneous data being provided to Customs by the industry.
The Subcommittee noted that the original request letter was broad and it was concerned with the overall issue of import valuation, not just money laundering. They asked that we continue our work, but refocus our analysis. In this regard, we agreed to limit our scope to imports and to revise our objectives to determine (1) how widely unit values for identical types of commodities varied and (2) why such variations occurred. They further agreed to our providing detailed analyses of judgmentally selected commodities and transactions, recognizing that the results would be illustrative, but not projectable.
As the focus of our study, we obtained from Customs the Import Detailed Data Base, commonly referred to as the IM115 database, for fiscal year 1992, which was the most recent year available. These data, extracted from Customs’ Automated Commercial System (ACS) for use by Census in developing trade statistics, include all import transactions for the year. In total, the files included 15,022,423 records.
We used the Harmonized Tariff Schedule (HTS) of the United States as the source for selecting commodities. The HTS provides the official classification codes and descriptions for more than 14,000 types of commodities subject to importation into the United States. The HTS also provides information on the duties, fees, and quotas.
We selected eight commodities for detailed analysis. These were pantyhose, raw cane sugar, scrap gold, tire cord fabric, unsweetened cocoa, wood dowel rods, hypodermic syringes, and facsimile machines. While the selections were judgmental, we followed some general criteria. Thus, we chose commodities that would appear to have a relatively narrow product description. The one exception was facsimile machines, which were known to have a broad definition and were chosen for comparison. We chose three commodities (raw cane sugar, tire cord fabric, and pantyhose) that were subject to quotas. We chose two commodities (scrap gold and pantyhose) that had been studied earlier by Customs and were known to have unit value anomalies. We also chose one (scrap gold) that had been included in the FIU study.
At Customs’ recommendation, we restricted our analysis of the Import Detailed Data Base to entries listed as “consumption entry” or “warehouse withdrawals.” This restriction was to ensure we were looking at original entries only and to prevent double counting. We then extracted data from the following fields on each of the commodities selected: entry date, importer, consignee, quantity of items in shipment, Customs’ valuation of shipment, port of entry, method of transportation, and country of origin. At Customs’ recommendation, we did not use the unit price variable in the Import Detailed Data Base, but rather calculated unit value on our own by dividing the Customs valuation by quantity shipped.
For each commodity, we ranked the individual shipments or transactions in descending order by unit value. We then divided the overall distribution of transactions for each commodity into deciles. Since many transactions had the same unit value, the number of transactions in each decile varied in some instances. We also developed analyses for each commodity showing the number of transactions, total quantity, total value, highest unit value, lowest unit value, median (by quantity and number of shipments) unit value, and average unit value by country of origin, importers, U.S. port of entry, and method of transport.
For our transaction analysis, we selected 10 transactions for each of the 8 commodities. Again, we selected these judgmentally but used some broad criteria in making the selections. We selected transactions that would give us a range of values across (although not necessarily in each of) the deciles, a representation of the extremely high and extremely low unit values, a range across importers, a comparison of transactions by the same importer, comparisons between the number of shipments and quantity shipped by the same importer, and a range of quantities shipped. We also used individual criteria for selected commodities. For example, we were interested in transactions of scrap gold where the unit value was more than the value of pure gold, a transaction of raw cane sugar that accounted for more than half of the quantity imported during the year, and transactions on quota commodities where the quantities appeared too small for the values cited. Because we did not randomly sample the commodities or transactions, we cannot generalize about the overall level of errors in the Import Detailed Data Base.
To verify the correct unit value for each of the transactions, we obtained the supporting documentation maintained by Customs. These documents included such items as the entry summary, invoices, shipping documents, packing lists, certifications of quota eligibility, laboratory reports, and miscellaneous memoranda. We compared the quantities, values, and HTS codes shown in the Import Detailed Data Base with these documents. Where we noted discrepancies or could not determine the correct amount, we contacted the cognizant officials at Customs’ ports and districts to determine what the correct entries should have been.
We also discussed each commodity and transaction with Customs’ cognizant National Import Specialist in New York as well as with Customs’ port representatives when more information was needed. We obtained and analyzed other data on the transactions from Customs’ ACS to determine the amounts of duties and fees paid, questions, if any, raised and resolved during the entry process, etc. In some cases, Customs officials obtained information directly from the importers or brokers for our use; however, we did not contact the importers and brokers ourselves.
Because the only unit value screens in Customs’ ACS were the ranges devised by the Census Bureau, we discussed each of the commodities selected with Census officials and attempted to determine how transactions with unit values outside the Census ranges were resolved. The data available were limited, because neither Census nor Customs maintains a complete record of what was questioned or how the matter was resolved.
We met with Customs officials in Washington, D.C.; Atlanta; Miami, FL; and New York to discuss enforcement activities, activities related to the entry selectivity redesign project, quality assurance reviews, and other special projects. We also held telephone discussions with Customs’ import specialists at various Customs’ ports and districts nationwide.
section_title: Summary Data on Eight Commodities Analyzed by GAO, Including Transactions Selected for Analysis of Supporting Documentation
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Scrap Gold
paragraphs: UNIT OF MEASUREMENT: Gram DESCRIPTION: This category includes gold waste and scrap, including metals clad with gold. It does not include sweepings containing other precious metals or gold-plated items. No distinction is made within the code for the weight or purity (e.g., 10 carat, 14 carat, 24 carat, etc.).
Quantity (grams)
Quantity (grams)
Quantity (grams)
Quantity (grams)
Includes France, Andorra, and Monaco.
subsections: section_title: Table III.6: Average Unit Value Comparison - Importer
paragraphs: Quantity (grams)
Importer name deleted to avoid identification with trade-sensitive data.
section_title: Table III.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (grams)
Includes pipeline and powerhouse.
Quantity (grams)
Quantity understated by 2,048 grams. No effect on duties and fees. Unit value changed.
Quantity understated by 4,601 grams. No effect on duties and fees. Unit value changed.
Quantity understated by 175,660 grams. No effect on duties and fees. Unit value changed.
Quantity understated by 181,878 grams. No effect on duties and fees. Unit value changed.
Quantity and total value understated by 6,000 grams and $5,000, respectively. No effect on duties and fees. Unit value changed.
Quantity overstated by 2,340 grams. No effect on duties and fees. Unit value changed.
Quantity overstated by 41,800 grams. No effect on duties and fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Pantyhose
paragraphs: UNIT OF MEASUREMENT: Dozen pair DUTY: The duty ranges from free to 72 percent of value, depending on the country.
DESCRIPTION: Products in this category include hosiery from fabric that is made of synthetic fibers measuring less than 67 decitex per single yarn. The level of decitex in the hosiery determines the sheerness or the heaviness of the material; a low level means that the stocking is sheer, and a higher level means that it will be heavier. The range of products includes various styles and ranges of pantyhose, tights, and stockings for varicose veins.
Quantity (dozen pair)
Quantity (dozen pair)
Quantity (dozen pair)
Quantity (dozen pair)
Quantity (dozen pair)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table IV.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (dozen pair)
Quantity (dozen pair)
Quantity understated by 145 dozen pair. No effect on duties and fees. Unit value changed.
Quantity overstated by 24 dozen pair and total value understated by $270.00. Duties underpaid by $45.90. Fees underpaid by $0.34. Unit value changed.
Quantity overstated by 35,750 dozen pair. No effect on duties and fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Facsimile Machines
paragraphs: UNIT OF MEASUREMENT: Each unit DUTY: The duty ranges from free to 35 percent of the value, depending on the country.
DESCRIPTION: This commodity is an electrical apparatus which electronically transmits and reproduces printed material. The category is extremely broad, covering items from simple units for home use to elaborate units integrated into complex commercial applications.
Quantity (each)
Quantity (each)
Quantity (each)
Quantity (each)
Quantity (each)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table V.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (each)
Quantity (each)
Entry should have been made under another category covering other telegraphic apparatus (HTS 8517.82.00.80). No effect on duties and fees.
Total value overstated by $27,654. No effect on duties and fees. Unit value changed.
Quantity understated by 135 units. No effect on duties and fees. Unit value changed.
Entry should have been made under another category covering other parts of telegraphic apparatus (HTS 8517.90.80.00). Quantity and value overstated by 200 units and $42,100. No effect on duties and fees. Unit value changed.
Entry should have been made under another category covering modems for automatic data processing machines (HTS 8517.40.10.00). No effect on duties and fees.
Quantity overstated by 1,056 units. No effect on duties and fees. Unit value changed.
Entry should have been made under another category covering parts for telegraphic terminal apparatus (HTS 8517.90.70.00). No effect on duties and fees.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Hypodermic Syringes
paragraphs: UNIT OF MEASUREMENT: Each unit DUTY: The duty ranges from free to 60 percent of value, depending on the country.
DESCRIPTION: A hypodermic syringe is an instrument used in medical, surgical, dental, or veterinary procedures to inject fluids. This particular HTS is for hypodermic syringes (with or without needle), which are used for medical purposes.
Quantity (each)
Quantity (meters)
Quantity (each)
Quantity (each)
Quantity (each)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table VI.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (each)
Quantity (each)
N/A Entry should have been made under other instruments and appliances (HTS 9018.19.80.60). Quantity understated by 19 units. Duty overpaid by $146.37. No effect on fees. Unit value changed.
Quantity understated by 319,200 units. No effect on duties and fees. Unit value changed.
Quantity understated by 3,009,096 units. No effect on duties and fees. Unit value changed.
Quantity overstated by 540,000 units. No effect on duties and fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Raw Cane Sugar
paragraphs: UNIT OF MEASUREMENT: Kilogram QUOTA: Sugar is under a tariff rate quota and only those countries with a quota can export sugar to the United States. The United States imposes a quantitative sugar quota on over 50 countries, and imports in excess of the quota are subject to a higher duty.
DUTY: The regular duty for this type of sugar ranges from free to $0.043817 per kilogram, depending on the country. Imports in excess of the quota are subject to a duty of $0.37386 per kilogram. In addition, sugar imports are subject to a sugar fee of $0.022 per kilogram.
DESCRIPTION: This category includes raw cane sugar, which is in solid form and (1) contains no added flavoring or coloring matter; (2) has a dry-state sucrose content that, by weight, corresponds to a polarity reading of less than 99.5 degrees; and (3) is not to be further refined or improved in quality. This is a relatively small and narrow category of sugar, falling between the still-to-be processed raw sugar traded on the world market and the highly refined sugars commonly available for general use as a sweetener.
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table VII.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (kilograms)
Quantity (kilograms)
Quantity overstated by 16 kilograms. No effect on duties and fees.
Total value overstated by $13,077. No effect on duties and fees. Unit value changed.
Quantity overstated by 668 kilograms. No effect on duties and fees. Unit value changed.
Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees.
Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees.
Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Wood Dowel Rods
paragraphs: UNIT OF MEASUREMENT: Meter DUTY: The duty ranges from free to 5 percent of the value, depending on the country.
DESCRIPTION: Wood dowel rods are round pieces of wood of various lengths and diameters. They have many uses, such as in the manufacturing of furniture, mop and broom handles, and coat racks.
Quantity (meters)
Quantity (meters)
Quantity (meters)
Quantity (meters)
Quantity (meters)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table VIII.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (meters)
Quantity (meters)
Quantity understated by 4,616 meters. No effect on duties and fees. Unit value changed.
Quantity and value overstated by 200 meters and $1,270 respectively. No effect on duties; fees overpaid by $2.15.
Quantity overstated by 1,027,783 meters. No effect on duties and fees. Unit value changed.
Quantity overstated by 2,483,425 meters. No effect on duties and fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Tire Cord Fabric
paragraphs: UNIT OF MEASUREMENT: Kilogram DUTY: The duty ranges from 0.7 to 25 percent of value, depending on the country.
DESCRIPTION: Tire cord fabric is a strong, heat resistant material that is used to manufacture tires. The fabric has a high level of tenacity.
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Quantity (kilograms)
Importer name deleted to avoid identification with trade-sensitive data.
subsections: section_title: Table IX.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (kilograms)
Quantity (kilograms)
Entry should have been made under another category of tire cord. Effect on duties unknown because correct HTS is unknown. No effect on fees.
Quantity overstated by 1,832 kilograms. Entry should have been made under polyurethane impregnated textile fabric (HTS 5903.20.25.00). No effect on duties and fees. Unit value changed.
Quantity overstated by 296 kilograms. No effect on duties and fees. Unite value changed.
Quantity overstated by 317 kilograms. No effect on duties and fees. Unit value changed.
Quantity overstated by 297 kilograms. No effect on duties and fees. Unit value changed.
Quantity and value overstated by 1,269 kilograms and $264 respectively. Duties overpaid by $10.30 and fees overpaid by $0.18. Unit value changed.
Quantity overstated by 144 kilograms. Entry should have been made under another category of tire cord. Effect on duties unknown because correct HTS is unknown. No effect on fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Analysis of Fiscal Year 1992 Import Quantity and Value - Unsweetened Cocoa
paragraphs: UNIT OF MEASUREMENT: Kilogram DUTY: The duty ranges from free to $0.066 per kilogram, depending on the country.
DESCRIPTION: This category covers cocoa powder that contains no added sugar or other sweetening matter. It does not include similar commodities, such as cocoa butter, paste, or chocolate preparations.
Quantity (kilograms)
subsections: section_title: Table X.3: Unit Value Comparison - Percentiles
paragraphs: Quantity (kilograms)
Quantity (kilograms)
section_title: Table X.5: Average Unit Value Comparison - Country of Origin
paragraphs: Quantity (kilograms)
Quantity (kilograms)
Importer name deleted to avoid identification with trade-sensitive data.
section_title: Table X.7: Average Unit Value Comparison - Method of Transport
paragraphs: Quantity (kilograms)
Quantity (kilograms)
section_title: Unit value None
paragraphs: Entry should have been made under another category covering chocolate and other food preparations containing cocoa (HTS 1806.20.80.60). No effect on duties and fees.
Quantity understated by 10,100 kilograms. No effect on duties and fees. Unit value change.
Entry should have been made under another category of cocoa (HTS 1803.20.00.00), also quantity understated by 97,200 kilograms. No effect on duties and fees. Unit value changed.
Quantity and total value overstated by 20,123 kilograms and $22,210, respectively. No effect on duties and fees. Unit value changed.
Quantity and total value overstated by 250 kilograms and $152, respectively. Duty overpaid by $1.55 and fees overpaid by $0.26.
Entry should have been made under another category of cocoa (HTS 1803.20.00.00). No effect on duties and fees.
Quantity understated by 8,164 kilograms. No effect on duties and fees. Unit value changed.
Legend: N/A = Not applicable.
section_title: Comments From the Customs Service
section_title: Comments From the Bureau of the Census
section_title: Major Contributors to This Report
subsections: section_title: General Government Division, Washington, D.C.
section_title: Atlanta Field Office
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subsections: section_title: Address Correction Requested