Antidumping and Countervailing Duties: CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk
Published: 2016-07-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States assesses AD duties on products imported at unfairly low prices (i.e., dumped) and CV duties on products subsidized by foreign governments. Nonpayment of AD/CV duties means the U.S. government has not fully remedied unfair trade practices and results in lost revenue.
GAO was asked to review CBP's efforts to improve the collection of AD/CV duties. This report (1) examines the status and composition of uncollected AD/CV duties, (2) the extent to which CBP has taken steps to improve its collection of such duties, and (3) the extent to which CBP assesses and mitigates the risk to revenue from potentially uncollectible AD/CV duties. GAO analyzed CBP AD/CV duty entry data for fiscal years 2001 through 2014, AD/CV duty billing data as of mid-May 2015, and Department of Commerce data for fiscal years 2002–2015. GAO also reviewed agency documents, interviewed agency and private sector officials, and analyzed CBP data to assess the risk of duty nonpayment.
section_title: What GAO Found
paragraphs: GAO estimates that about $2.3 billion in antidumping (AD) and countervailing (CV) duties owed to the U.S. government were uncollected as of mid-May 2015, based on its analysis of AD/CV duty bills for goods entering the United States in fiscal years 2001–2014. U.S. Customs and Border Protection (CBP) reported that it does not expect to collect most of that debt. GAO found that most AD/CV duty bills were paid and that unpaid bills were concentrated among a small number of importers, with 20 accounting for about 50 percent of the $2.3 billion uncollected. CBP data show that most of those importers stopped importing before receiving their first AD/CV duty bill. As GAO has previously reported, the U.S. AD/CV duty system involves the retrospective assessment of duties, such that the final amount of AD/CV duties an importer owes can significantly exceed the initial amount paid at the estimated duty rate when the goods entered the country.
CBP has undertaken efforts to improve its collection of AD/CV duties or to protect against the risk of unpaid final duty bills through bonding, but these efforts have yielded limited results. For example, CBP launched an initiative to reduce processing errors that result in CBP closing duty bills at the initial duty rate rather than the final duty rate, such that the initial duty paid may be significantly higher or lower than the final duty amount owed. Though the initiative has shown positive results, as of May 2016, its application had been limited. In addition, CBP had not collected and analyzed data systematically to help it monitor and minimize these duty processing errors. As a result, CBP does not know the extent of these errors and cannot take timely or effective action and avoid the potential revenue loss they may represent.
CBP's limited analysis of the risk to revenue from potentially uncollectible AD/CV duties (nonpayment risk) misses opportunities to identify and mitigate nonpayment risk. The standard definition of risk with regard to some negative event that could occur includes both the likelihood of the event and the significance of the consequences if the event occurs; however, CBP does not attempt to assess either of these risk components for any given entry of goods subject to AD/CV duties. GAO's analysis, applying standard statistical methods, demonstrates that a more comprehensive analysis of CBP data related to AD/CV duties is feasible and could help CBP better identify key factors associated with nonpayment risk and take steps to mitigate it.
section_title: What GAO Recommends
paragraphs: GAO recommends that CBP (1) issue guidance to collect and analyze data on a regular basis to find and address the causes of AD/CV duty liquidation errors and track progress; (2) regularly conduct a comprehensive risk analysis that considers likelihood as well as significance of risk factors related to duty nonpayment; and (3) take steps to use its data and risk assessment strategically to mitigate AD/CV duty nonpayment consistent with U.S. law and international trade obligations. CBP concurred with all three recommendations.

section_title: Letter
paragraphs: The United States and many of its trading partners have established laws  to remedy the unfair trade practices of other countries and foreign  companies that cause injury to domestic industries. U.S. law authorizes  the assessment of antidumping (AD) duties on products exported to the  United States at unfairly low prices (i.e., dumped) and countervailing (CV)  duties on products exported to the United States that are subsidized by  foreign governments. The Department of Commerce (Commerce) sets  an initial estimated AD/CV duty rate, based on the estimated margin of  dumping or amount of the subsidy, and later determines a final duty rate  based on actual imports. U.S. Customs and Border Protection (CBP) is  then responsible for collecting the duty amount owed. According to an  October 2015 CBP report to Congress, CBP identified the accumulated  AD/CV duty revenue uncollected as of the time of the report to be $3  billion, including principal and interest.
According to that CBP report, the vast majority of manufacturers,  exporters, importers, customs brokers, and other parties involved in  shipments of goods subject to AD/CV duties lawfully pay the duties  owed. However, as the CBP report notes, elements of the U.S. system  for determining and collecting AD/CV duties create an inherent risk that  some importers will not pay the full amount they owe in AD/CV duties. As  we have previously reported, three related factors create a heightened  risk of AD/CV duty nonpayment: (1) The U.S. system for determining  such duties involves the setting of an initial estimated duty rate upon the  entry of goods, followed by the retrospective assessment of a final duty  rate; (2) the amount of AD/CV duties for which an importer may be  ultimately billed can significantly exceed what the importer pays when the  goods enter the country; and (3) the assessment of final AD/CV duties  can occur up to several years after an importer enters goods into the  United States, during which time the importer may cease operations or  become unable to pay additional duties.
The persistently large and growing amount of uncollected AD/CV duties  has raised concerns in Congress and among domestic industries affected  by dumped or subsidized imports. You asked us to conduct a follow-up  review to provide an update on our 2008 report, which identified key  factors contributing to uncollected AD/CV duties and the steps CBP had  taken to address those factors. This report (1) examines the status and  composition of uncollected AD/CV duties, (2) the extent to which CBP has  taken steps to improve its billing and collection of AD/CV duties, and (3)  the extent to which CBP assesses and mitigates the risk to revenue from  potentially uncollectible AD/CV duties.
To examine the status and composition of uncollected AD/CV duties, we  analyzed CBP data on all open, delinquent duty bills for entries from  fiscal year 2001 through fiscal year 2014, as of May 12, 2015. For this  purpose, we combined three datasets from CBP’s Automated  Commercial System (ACS) containing information on entries and billed  amounts associated with entries. ACS is used by CBP to track, control,  and process all goods entering the United States. The first ACS dataset  contained AD/CV duty entry data; the second contained final assessed  AD/CV duty rate data; and the third contained importer AD/CV duty billing  data. As part of our examination of the status and composition of  uncollected AD/CV duties, we analyzed the extent to which CBP writes off  uncollectible bills. In addition to analyzing data to determine the status  and composition of uncollected AD/CV duties, we reviewed relevant  statutes, regulations, and agency reports, and interviewed CBP and  Commerce officials.
To examine the extent to which CBP has taken steps to improve its billing  and collection of AD/CV duties, we obtained and analyzed ACS data;  reviewed relevant statutes, regulations, and agency reports; and we  interviewed CBP, Commerce, and Department of the Treasury (Treasury)  officials. Customs bonds are used to safeguard revenue, and, according  to CBP officials, these bonds play an important role in CBP’s efforts to  improve AD/CV duty collections. For that reason, we met with three of  the major associations that represent the companies that issue customs  bonds.
To examine the extent to which CBP assesses and mitigates the risk to  revenue from potentially uncollectible AD/CV duties, we analyzed ACS  data on all open, delinquent duty bills for entries from fiscal year 2001  through fiscal year 2014, as of May 12, 2015. We also reviewed CBP’s  risk assessment and interviewed cognizant CBP officials to determine  what risk factors these officials identify in their analysis of AD/CV debts  and discuss in CBP reports to Congress. We assessed CBP’s risk  management efforts with regard to potentially uncollectible AD/CV duties  against federal internal control standards, which state that agency  managers should comprehensively identify risks and analyze them for  their possible effects. We also developed two regression models to  estimate the likelihood of nonpayment for any given entry as well as the  size of loss if nonpayment occurred; mathematically, these are the two  components of expected loss. We did this to show how a statistical model  could be constructed that addresses the association between potential  risk factors and the potential for nonpayment. Our regression models do  not establish whether a given factor causes nonpayment or is merely  correlated with this risk. To be useful for risk management, such a model  would need to be able to predict future nonpayment risk. As a result, to  assess the ability of the model to predict future losses, we repeatedly  tested its ability to identify nonpayment risk in data not used to construct  the model. We further analyzed the data for two separate 5-year periods  and conducted qualitative assessments of parameter stability. We  presented the results of our analysis to CBP officials on two occasions  and made adjustments to the methodology based on their feedback. The  models provide an example of how CBP data could be systematically  analyzed to provide insights into bill delinquency patterns, but we do not  intend them to be prescriptive.
In conducting our review, we assessed the reliability of the ACS and  Commerce data we used. We did this by (1) performing electronic testing  of required data elements, (2) reviewing existing information about the  data and the systems that produced them, and (3) interviewing agency  officials knowledgeable about the data and the systems that produced the  data. We identified a number of limitations to the data. As a result, we  excluded certain portions of the data from our analysis and included  several assumptions. After making these exclusions and assumptions, we  further tested the data and found it to be generally reliable for the  purposes of our analysis. See appendix I for a more complete description  of our scope and methodology, including a description of the limitations  we found and how we addressed them. See appendix II for a technical  appendix containing a full description of the regression analysis that we  performed.
We conducted this performance audit from January 2015 to July 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: The U.S. AD/CV Duty Collection Process
paragraphs: The process for importing goods into the United States generally involves  at least two private parties (exporters and importers) as well as the U.S.  government. The U.S. AD/CV duty collection process typically involves  the five steps summarized below and illustrated in figure 1.  1.  Commerce communicates the initial estimated duty rate to CBP:  Commerce issues an AD/CV duty order that specifies the products for  which importers must pay AD/CV duties. The order communicates  the initial estimated duty rates applicable to one or more specific  exporters, producers, or both, as well as a catchall rate or, if  appropriate, a countrywide rate for all other exporters and producers  that were not individually investigated and that did not receive a  specific rate. The order also instructs CBP to collect cash deposits  at the time of importation for estimated duties owed on all entries of  the applicable products. These duty rates represent Commerce’s  initial estimates of the level of dumping or subsidization. Commerce  typically communicates to the public the initial estimated duty rate that  must be applied in the Federal Register.  2.  CBP reviews importers’ assessments of duties owed and  collects the initial estimated duty from the importer: The importer  determines the value of estimated duties owed by applying the initial  rate set in the applicable AD/CV duty order to its imports. CBP  reviews the importer’s assertions for correctness and collects the  required cash deposits or bonds from the importer. According to CBP  officials, estimated duties are usually due within 10 days after CBP  has released the product for entry into the United States.  3.  Commerce determines and communicates the final duty rate to  CBP: Each year, during the anniversary month of the publication of an  AD or CV duty order, an interested party may ask Commerce to  conduct an administrative review to determine the actual amount of  dumping or subsidization and calculate a final duty rate. This can  occur if the party believes that the initial estimated rate is too high or  too low. During the administrative review, Commerce analyzes  previous imports to determine the actual level of dumping or  subsidization for those imports during the period under review. At the  conclusion of the administrative review (typically about 12–18 months  after the review began), Commerce establishes the final duty rate  (also known as the liquidation rate) for the goods. If an  administrative review is not requested, then the final duty rate is  generally the same as the initial estimated duty rate. Commerce  typically communicates to the public the final duty rate that must be  applied in the Federal Register. Commerce sends CBP liquidation  instructions communicating the final duty rate and designating the  importers, producers, or both that are associated with the entries to  which the rate must be applied. According to CBP officials, the  liquidation instructions are communicated first to the AD/CV Division,  a headquarters unit within CBP’s Office of Trade.  4.  CBP instructs ports to apply the final duty rate and calculate final  duties: CBP instructs staff at each applicable U.S. port of entry to  assess the final duties on all relevant goods (i.e., applying the final  rate to the value of applicable goods that have entered since the order  was issued).  5.  CBP liquidates the import entry and may issue a refund or a bill:  CBP liquidates the entry, which can result in CBP’s issuing a bill to the  importer (if the liquidation rate is higher than the initial estimated rate)  or refunding money (if the initial estimated rate is higher than the  liquidation rate). If the initial estimated and final duty rates are the  same, CBP liquidates the entry without issuing a bill or refund. CBP  must liquidate these entries within a 6-month time limit that begins  when CBP receives a notice, such as final duty rate instructions from  Commerce or notification from a court or another agency that the  suspension of liquidation that was placed on those entries has been  lifted. Otherwise, the entry will be liquidated by operation of law at  the initial estimated duty rate regardless of whether the final rate has  changed. This is referred to as a “deemed liquidation.”
section_title: CBP’s Bonding Process for Securing Financial Obligations
paragraphs: To ensure payment of unforeseen financial obligations to the U.S.  government, most importers are required to post a security, usually a  customs bond. The bond is like an insurance policy protecting the U.S.  government against revenue loss if an importer defaults on its financial  obligations. CBP allows importers to provide two types of basic  importation and entry customs bonds—a continuous entry bond and a  single transaction bond—to secure the duties, taxes, and fees associated  with the import of goods into the United States. Continuous entry bonds  are used to secure financial obligations for one or more entries for a  period of up to 365 days; single transaction bonds are used to secure  financial obligations related to a specific entry. If an importer fails to pay  the full amount owed on a final duty bill for an AD/CV duty entry, CBP will  attempt to collect payment from the company that underwrote the bond  for the entry (referred to as the “surety”). The amount CBP may be able to  collect from the surety depends on how much the bond covers. In some  cases, the bond issued by the surety may cover the entire amount owed;  in other cases, it may only cover a small portion of the debt—depending  on the size of the bond and size of the additional duties resulting from a  higher final duty rate. One of CBP’s key challenges is to set an accurate  bond amount for any given entry that reasonably protects the amount of  revenue that is potentially at risk of loss if the final duty bill for that entry is  not paid in full.
section_title: AD/CV Duty Billing Process
paragraphs: An importer who is billed for additional AD/CV duties has 180 days from  the date of liquidation to protest the bill amount. CBP will send the  importer monthly bills. According to CBP officials, if CBP does not receive  full payment of the bill for additional duties within approximately 8 months  of sending the bill and the importer does not file a protest, CBP sanctions  the delinquent importer by requiring full payment of all estimated duties,  taxes, and fees before any products subsequently imported by that  importer can be released by CBP into U.S. commerce. Separately, if the  bill has not been paid 60 days after it was issued, CBP will also request  payment from the surety that underwrote the bond that the importer  provided when the goods entered the United States. After CBP has  requested payment from a surety, that surety has 180 days to pay the  bond amount or protest the bill. Importers are responsible for the full  amount of additional duties owed; sureties will generally cover the cost of  a bill only up to the value of the bond. The AD/CV duty collection process  is completed when and if the importer, the surety, or the two together pay  the full amount of the duty and interest owed or the duty is written off.
CBP’s ports generally handle the bill creation process, including collecting  payments for duties that are not delinquent from importers. However, if a  bill becomes delinquent, the Revenue Division within CBP’s Office of  Finance takes the primary responsibility for collecting payment from either  the importer or the surety or both. In general, if CBP does not receive full  payment of duties and interest owed, CBP’s Revenue Division researches  the account and recommends next steps to CBP’s Office of Chief  Counsel, which determines whether options for collection are available  through the legal process. The Office of Chief Counsel in turn can refer  the matter to the Department of Justice for prosecution. When CBP  determines that a bill for additional AD/CV duties is uncollectible, the  Revenue Division and the Office of Chief Financial Officer, in conjunction  with the Office of Chief Counsel, can take steps to write off the bill.  Figure 2 illustrates the process for collecting payments on bills for  additional AD/CV duties and writing off uncollectible bills.
section_title: We Estimate $2.3 Billion in Unpaid AD/CV Duty Bills, but CBP Does Not Expect to Collect Most of That Amount
paragraphs: Our analysis shows that the total amount of unpaid AD/CV duty bills  issued for goods that entered the United States during fiscal years 2001  through 2014 was about $2.3 billion as of May 12, 2015.  However, in its  Performance and Accountability Report for fiscal year 2015, CBP  reported that it did not expect to collect about $1.6 billion in outstanding  AD/CV duty debt. Most AD/CV duty bills are paid: We estimate that, on  average, CBP collected duties owed for about 90 percent of the total  number of AD/CV duty bills issued for entries from fiscal years 2001  through 2014. However, CBP’s collection rate for AD/CV duties  measured by the total dollar amount paid as a portion of the total amount  owed averaged about 31 percent for bills issued on entries during this  time. Our analysis shows that AD/CV duty bills with unpaid amounts are  concentrated among a small number of importers, with 20 importers  accounting for about 50 percent of the $2.3 billion owed. CBP continues  to face challenges in collecting on AD/CV duty bills, attributable in part to  the U.S. government’s retrospective and complex process for determining  final AD/CV duty rates. The average lag time between entry of goods and  CBP issuing a bill for any additional duties during fiscal years 2001–2014  was about 2.6 years. Out of all AD/CV entries during this period that we  examined, the final duty rate was higher than the initial estimated rate  assessed upon entry about 18 percent of the time, and the final rate was  lower than the initial estimated rate about 19 percent of the time.  According to agency officials, CBP is considering the feasibility of  contracting with private collection agencies to pursue debts for which the  agency has exhausted all administrative collection efforts, including  claims against applicable surety bonds.
subsections: section_title: Unpaid Amounts on AD/CV Duty Bills Total about $2.3 Billion
paragraphs: Our analysis of CBP data on AD/CV duty bills for entries occurring in  fiscal years 2001 through 2014 identified about 41,000 unpaid bills  totaling about $2.3 billion, as of May 12, 2015. Antidumping duties  account for almost this entire amount, with only about $584,000 related to  countervailing duties. Of the $2.3 billion, about $2 billion (or 86 percent) is  principal, and the remaining $321 million (or 14 percent) is accrued  interest.
subsections: section_title: CBP Collects 90 Percent of AD/CV Duty Bills Issued but Collects About a Third of the Total Dollar Amount Owed
paragraphs: We calculated collection rates for bills issued for goods subject to AD/CV  duty orders that entered the United States since fiscal year 2001. We  found that while CBP’s collection rate for AD/CV duties is generally high  when measured as the percentage of bills collected, the rate is lower  when measured as the percentage of dollars collected. CBP collected,  on average, 90 percent of the bills issued, but about 31 percent of the  dollar amount owed, indicating that although CBP collects payment on  most bills it issues, it sometimes does not collect payment on bills with  large dollar amounts (see fig. 3).
For the approximately 41,000 unpaid bills for goods subject to AD/CV  duty orders and entering the United States in fiscal years 2001 through  2014, the average unpaid bill was about $57,000, and the median unpaid  bill was about $29,000. Our analysis identified 127 unpaid bills for at  least $1 million, with the largest unpaid bill totaling over $12 million.  Figure 4 shows the distribution of unpaid bills by amount of uncollected  AD/CV duties for entries during fiscal years 2001 through 2014. While  only about 26 percent of the bills issued are for $50,000 or more, these  bills represent about 77 percent of the total amount unpaid.
Importers that import products from China and 20 other countries are  responsible for all unpaid AD/CV duty bills as of May 12, 2015. Of the  $2.3 billion in unpaid bills, China is the country of origin for entries  associated with about $2.2 billion of the uncollected amount, or 95  percent. While products from China represent the majority of the  uncollected amount, China is also the largest exporter of goods subject to  AD/CV duties. Of the approximately $5.5 billion in total liquidated AD/CV  duties for goods imported into the United States in fiscal years 2001  through 2014, about $3.4 billion, or 62 percent, was for goods imported  from China. In analyzing CBP data for entries in fiscal years 2001 through  2014, we found that the top six product types—without regard to country  of origin—accounted for approximately 89 percent of the total amount of  uncollected AD/CV duties. These six product types were associated  with about a third of the 396 AD/CV duty orders in place during this period  that resulted in unpaid duties. Figure 5 shows the top product types  associated with uncollected AD/CV duties.
CBP data show that about 33,000 importers made entries subject to  AD/CV duties in fiscal years 2001 through 2014. Of those, 818 importers  (or 2.5 percent) had unpaid AD/CV duty bills as of May 12, 2015. Within  this group of importers with unpaid bills, the top 20 importers owe about  50 percent of the total $2.3 billion unpaid, and the top 4 importers owe  about 26 percent of that amount (see fig. 6).
Of the top 20 importers with unpaid duties, 17 stopped importing before  bills for their entries were issued. For example, the importer with the  largest dollar amount unpaid had 4,199 unpaid AD/CV duty bills,  amounting to $220 million, or 9.4 percent of the total $2.3 billion in unpaid  duties (see table 1). This importer, which imported wooden bedroom  furniture from China, had not paid about 98 percent of the total amount it  was billed for imports subject to AD/CV duties that entered the United  States from August 2004 through July 2007. CBP issued the first bills to  this importer for some of these entries in August 2010 after resolution of  litigation. Similarly, importer 18, which imported preserved mushrooms  from China, entered goods into the United States from February through  May 2012, and the first of this importer’s 162 delinquent bills for these  entries was issued in April 2014. All importers in table 1 were  sanctioned—meaning that CBP would require full payment of all  estimated duties, taxes, and fees before any products subsequently  imported by these importers could be released by CBP into U.S.  commerce.
In some cases, importers continued to be involved with importing after  being placed on sanction.
Importer 2, which imported pure magnesium ingot from China, owed  $169 million on 271 delinquent bills. According to CBP officials, this  importer may have subsequently incorporated under a different name,  enabling it to resume importing as a new entity. According to CBP  officials, the agency requested single transaction bonds on the new  entity’s imports. However, generally when importers reincorporate as  new entities, it is extremely difficult and resource-intensive to hold the  new entity liable for the previous entity’s AD/CV debt.
Importer 11, which imported preserved mushrooms from India,  entered goods into the United States from October 2000 through June  2012. While most of the 1,061 delinquent bills for these entries were  not issued until 2013, 92 of these bills were issued from July through  September 2008. The importer was able to continue importing despite  these unpaid bills because the importer began making payments that  ultimately totaled $2.5 million. However, after the importer stopped  making these payments, CBP sanctioned the importer in January  2010.
Further, in 2008, we reported the top 20 importers by amount of unpaid  AD/CV duties at that time. In 2015, CBP determined that all of the top 20  importers we listed in 2008 were no longer actively importing. However,  according to CBP officials, importer 14 from our 2008 report, which at that  time owed $10 million on 48 unpaid bills, was put on sanction in 2010.  While this company no longer acts as an importer of record, it has  continued to act as a consignee, meaning that another company imports  goods that are delivered to importer 14.
section_title: The Retrospective System Continues to Present Challenges to Collection
subsections: section_title: Retrospective Calculation of Duty Rates Creates Long Lag Times between Product Entry and Liquidation
paragraphs: CBP liquidates an entry with a duty bill, a refund, or closing the entry as  paid, depending on the final AD/CV duty rate determined by Commerce.  Many unpaid duty bills are associated with at least 2 years of lag time  between the entry of goods into the United States and when CBP  liquidates the entry with a duty bill. In 2008, we reported that according to  agency officials, a long lag time between entry of AD/CV goods and final  duty rate assessment increases the risk of uncollected duties because, in  the interim, importers may disappear, cease operations, or declare  bankruptcy. In 2015, CBP reported that the longer the lag time between  entry and liquidation, the more difficult it is to collect any additional duties  owed because of an increase in the final rate. Litigation may extend the  length of time between entry and liquidation by several years.
From fiscal year 2001 through fiscal year 2014, CBP liquidated entries  subject to AD/CV duties in about 31 months (or 2.6 years) on average.  The median time between entry and liquidation was about 24.5 months  (about 2 years). About 10 percent of entries were liquidated at least 66  months (5.5 years) or longer after entry of goods, with 169.1 months (14.1  years) being the longest time between entry and liquidation. Figure 7  shows the percentile distribution of the number of months between entry  and liquidation.
In analyzing CBP entry data in fiscal years 2001 through 2014, we found  that the final duty rates  increased 18 percent of the time; decreased 19 percent of the time, and;  remained unchanged 63 percent of the time.
In 2008, we reported that the retrospective assessment of a final duty rate  presents a challenge to CBP efforts to collect AD/CV duties because  whenever the final duty rate is higher than the initial estimated duty rate,  the importer may be unwilling or unable to pay the additional duties  owed. The average rate change for paid bills was about 48 percent, with  a median rate change of 36 percent. In contrast, however, our analysis of  entries that resulted in unpaid bills found that, in general, bills with higher  rate changes were more likely to be unpaid. For example, the average  increase for unpaid bills was 198 percent, with a median rate change of  81 percent. Further, bills with a 100 to less than 200 percent increase in  the rate went unpaid about 39 percent of the time; bills with a 200 to less  than 500 percent increase in the rate went unpaid about 79 percent of the  time. (See fig. 8.)
section_title: CBP Does Not Expect to Collect a Significant Amount of the Unpaid Bills
paragraphs: CBP has a process in place to collect delinquent AD/CV duty debt but  estimates that a significant portion of debt is likely uncollectible. When the  final duty rate exceeds the initial estimated duty rate, importers are billed  for the additional duties owed. When importers fail to pay their bills, CBP  takes several steps to collect. First, if the importer can be located, CBP  contacts the importer and attempts to secure payment. If necessary, CBP  takes steps to obtain valid contact information for the importer. Next, if the  entry is secured by a bond, CBP will collect from the surety that issued  the bond. If the surety has paid and the importer is not responsive, then  CBP investigates to determine whether the importer responsible for  paying the bill has domestic assets or a clear successor entity and refers  the bill to the Office of Chief Counsel, if appropriate. The amount of the  bill that remains unpaid after CBP has exhausted all efforts to collect from  the importer and the surety is considered uncollectible. According to  CBP officials, once CBP has taken all measures to collect and  determined that a bill is uncollectible, CBP terminates collection action. In  its Performance and Accountability Report for fiscal year 2015, CBP  reported that about $1.6 billion of AD/CV duty debt was uncollectible.
As noted earlier, CBP has reported that the length of time between the  entry of a product and the issuance of a bill for additional duties poses a  challenge to collecting AD/CV duties owed, indicating that the more time  that elapses before payment, the more difficult it is to collect. Our analysis  of CBP data on AD/CV duty bills for entries occurring in fiscal years 2001  through 2014 shows that, of the approximately 41,000 unpaid bills, the  average age was about 4 years, and the median age was 4.5 years. In  addition, 977 unpaid bills were issued between 10 and 13 years ago;  based on CBP’s reporting on challenges to collection, then, it seems that  CBP would have an extremely low likelihood of collecting those bills.  Figure 9 shows the distribution of delinquent AD/CV duty bills by age.
Once CBP has exhausted its collection efforts, the next step is for CBP  staff to prepare the bill for write-off by documenting what was found  during the investigation of the debt and submitting this documentation to  the Office of Chief Counsel and the Chief Financial Officer for review and  approval. CBP provides staff guidance on steps and documentation  required to prepare an unpaid bill for write-off but does not set specific  time frames for writing off uncollectible debt. While CBP staff may begin  the write-off process for uncollectible bills as they are identified, according  to agency officials, preparing bills for write-off is generally a lower priority  than pursuing debt considered collectible. As a result, CBP does not  consistently write off bills. Figure 10 shows the dollar amount of AD/CV  duty bills written off each year since 2001. As of October 2015, CBP had  written off about $252 million in AD/CV duties from 2001 through 2014.  CBP officials stated that the high dollar amount of write-offs in 2013 was  not attributable to a specific cause.
Currently, according to agency officials, CBP is considering the feasibility  of contracting with private collection agencies to pursue debts for which  the agency has exhausted all administrative collection efforts, including  claims against applicable surety bonds. According to agency officials, it is  not clear whether the proposal to use private collection agencies will go  forward. Further, officials stated that CBP’s write-off activity has slowed  while the agency considers this option.
section_title: Various CBP Efforts to Improve AD/CV Duty Collection and to Use Bonding to Mitigate Nonpayment Risk Have Produced Limited Results
paragraphs: CBP has undertaken several efforts to improve its collection of AD/CV  duties or to protect against the risk of uncollectible final duty bills through  enhanced bonding; however, these efforts had yielded limited results as  of May 2016. For example, CBP launched an initiative to reduce  processing errors that result in CBP closing duty bills at the initial  estimated duty rate rather than the final duty rate; in such cases, the initial  duty paid may be significantly higher or lower than the final duty amount  owed. Though the initiative has shown positive results, as of May 2016,  its application had been limited. In addition, CBP had not collected and  analyzed data systematically to help it monitor and minimize these duty  processing errors. As a result, CBP does not know the extent of these  errors and cannot take timely or effective action and avoid the potential  revenue loss they may represent. In another effort to improve its  collection of AD/CV duties, CBP formed a five-person AD/CV Duty  Collections Team. While this team, which focused on collecting  delinquent bills, produced some positive results, it has recently been  hampered by staffing turnover and unfilled positions. Finally, CBP has  taken steps to improve its use of bonding as a tool to protect revenue  when CBP believes there is a high likelihood that final duty bills will not be  paid. However, according to CBP officials, a ruling issued by the World  Trade Organization (WTO) has limited CBP’s ability to use bonding to  protect AD/CV duty revenue.
subsections: section_title: CBP Does Not Systematically Monitor Liquidations to Help Minimize Premature and Deemed Liquidation Errors; a Pilot Initiative Is Designed to Reduce These Errors
paragraphs: As of May 2016, CBP had not begun a systematic effort to regularly  collect, analyze, report, and monitor data and actions taken to help it  minimize entries liquidated at the initial estimated duty rate rather than at  the final duty rate. This can happen when an entry is either (1) liquidated  prematurely before CBP receives liquidation instructions or (2) deemed  liquidated. In either case, the entry is liquidated at the initial estimated  duty rate. Thus, when the final duty rate is greater than the initial  estimated duty rate, CBP might lose the opportunity to collect additional  revenue and may not be fully remedying unfair trade practices.  Alternately, when the final duty rate is lower than the initial estimated duty  rate, CBP fails to provide importers any refunds owed to them. From  calendar years 2008 through 2015, Commerce issued 6,447 messages  containing liquidation instructions. The process of liquidating entries can  be complex, requiring a considerable amount of work for CBP officials to  implement. After receiving Commerce’s liquidation instructions, among  other actions, CBP must ensure that the instructions are sufficiently clear  so that CBP officials located across the 338 ports of entry and other  locations that process AD/CV entries can identify the affected entries and  apply the appropriate rate. Each AD/CV duty order is unique because it  pertains to a specific combination of goods; country or countries of origin;  and exporters, producers, or both. In addition, CBP officials said that the  instructions in an AD/CV duty order may apply to only a few entries at a  single U.S. port, or to tens of thousands of entries at multiple ports, and  may cover entries over a span of several years.
subsections: section_title: CBP Liquidates AD/CV Duty Entries Prematurely to an Unknown Extent
paragraphs: According to CBP officials and documents, processing errors by officials  at the ports have resulted in entries that are liquidated too early, before  Commerce has issued its final liquidation instructions. CBP officials  attributed the premature liquidations typically to human error, but a  December 2015 CBP document also attributed the problem to a lack of  uniformity in the way individual ports and offices liquidate AD/CV duty  entries. CBP could not provide us with an analysis that assesses the  frequency of premature liquidations and its effects on revenue. According  to CBP officials, they collected some data from the ports about the  number of entries liquidated prematurely during the first 5 months of fiscal  year 2015. However, CBP officials said that the data were incomplete  since port participation was voluntary, and not all ports participated.  Those ports that did participate did not do so consistently over the 5- month period.
On the basis of our own analysis of data provided by CBP, we confirmed  that CBP has liquidated some entries before receiving liquidation  instructions from Commerce. We identified 94 AD/CV entries during the  October 2000 through September 2014 period we reviewed that were  subject to AD/CV duties where all the entry and final liquidation dates had  occurred relatively quickly—approximately 30 days apart. We then asked  CBP to determine why the liquidations had occurred so quickly for 20 of  these entries, when it typically takes over a year after the goods enter the  United States before CBP liquidates entries subject to AD/CV duties. CBP  officials told us that of the 20 entries we provided, 7 (or about 35 percent)  had been liquidated before CBP received final liquidation instructions  from Commerce, and 9 were liquidated after CBP received final  liquidation instructions. CBP could not determine whether the remaining 4  entries from our sample had been liquidated before receiving the final  liquidation instructions.
section_title: CBP Is Liquidating Entries outside the Statutory Time Limit, but the Extent Is Unknown
paragraphs: While CBP liquidates most AD/CV entries within the 6-month statutory  time limit, CBP data show that a number of entries are deemed  liquidated. Data CBP provided to us showed that of all the entries that  CBP liquidated from fiscal years 2008 through 2014, approximately 10  percent were deemed liquidated. However, according to CBP officials,  the data provided do not capture all of the entries that were deemed  liquidated. In June 2005, CBP issued guidance for ports and offices to  use a special code to identify all liquidations not completed within the  statutory time limit; however, according to CBP officials, many CBP  officials at the ports did not appropriately identify these liquidations using  the special code and were using other codes instead. In response to our  request for information on the possible effects that deemed liquidations  might have on revenue, in March 2016 CBP provided an estimate for the  3-year period from 2010 through 2012, explaining that it would be too  labor intensive to provide data for the entire 7-year period specified in our  request. According to the CBP officials, from 2010 through 2012, deemed  liquidations resulted in CBP not billing importers for approximately $13.9  million in duties owed because of an increase in the duty rate and not  refunding importers approximately $465,000 because of a decrease in the  duty rate; however, because these amounts represent only the entries  that were properly coded, they may understate the effects of deemed  liquidations during the 3-year period.
section_title: CBP’s Pilot Program to Centralize Oversight of the AD/CV Duty Liquidation Process Aims to Reduce Errors by Making the Processing of Liquidation Instructions More Uniform
paragraphs: In October 2014, CBP announced an initiative to centrally oversee the  AD/CV duty liquidation process and thus reduce the number of liquidation  processing errors that occur at the ports. To staff the pilot, in November  2015 CBP formed a nine-person team known as the Antidumping and  Countervailing Duty Centralization Team (ACT) within its Office of Trade.  The team was composed of representatives from CBP’s Centers of  Excellence and Expertise who were on temporary assignments, which  were scheduled to end in May 2016. According to a CBP document,  ACT is intended to provide uniformity in the interpretation and application  of the liquidation instructions and to provide CBP insight into processing  errors. The ACT’s role is to review liquidation instructions communicated  from CBP’s headquarters, identify affected entries, and communicate this  information to the ports and offices to help ensure the ports liquidate  entries within the statutory 6-month time limit as well as correct any  entries mistakenly liquidated before receiving Commerce’s liquidation  instructions. As of February 2016, CBP officials credited ACT with having  identified and liquidated approximately $780,000 associated with entries  at one port that otherwise would not have been liquidated in a timely  manner. CBP has estimated that the effort to centrally manage the AD/CV  duty liquidation process could save approximately $3.7 million in work  hours annually.
According to CBP officials, the number of ports and offices that  participated in the ACT pilot varied over time, since participation was  voluntary and inconsistent. Also, a few large ports did not participate. In  addition, CBP officials said that implementation of the ACT’s liquidation  advice to the ports was not mandatory. In April 2016, CBP issued  guidance to make the ACT a permanent structure, but CBP officials said  that, as of May 2016, CBP had not assigned any staff permanently.  CBP’s guidance also made it mandatory for all ports to work with the  ACT, although CBP officials at ports and offices will continue to play the  lead role in liquidating AD/CV entries as before. According to the April  2016 guidance, in the event of disagreement between the ACT and  officials of one or more ports and offices about how to resolve a  liquidation question, the relevant officials at the ports and offices are to  contact the appropriate officials within the AD/CV Division of the Office of  Trade to arrive at a decision.
As part of the ACT initiative, in February 2015 CBP developed a new  data-management ACT portal based on data from ACS and ACE to  enable team members to identify entries subject to Commerce liquidation  orders. According to CBP officials and documents, until the creation of  this portal, CBP had a limited ability to accurately identify entries that had  been liquidated prematurely or outside the 6-month statutory time limit.  These officials said that they plan to use the ACT portal to collect and  analyze data for management to avoid premature and deemed  liquidations and report on progress on a quarterly basis, but have not  issued guidance to this effect. CBP also had no plans to regularly collect  data to show the effects of premature and deemed liquidations on  revenue. According to CBP officials, fiscal year 2017 will be the first full  year when data from all ports are collected.
Federal standards for internal control state that in order for an agency to  run and control its operations efficiently and effectively, agency managers  must have sufficient information to compare actual performance against  planned or expected results. In addition, managers must collect data to  understand the reasons for any differences between the actual  performance and the planned or expected results. Finally, managers must  take steps to resolve these differences. For these reasons, internal  control standards for federal agencies stress the importance of (1)  obtaining and using quality information, (2) regularly monitoring that  information, and (3) taking steps to ensure that agencies achieve their  objectives. Because CBP does not systematically collect and analyze  data on a regular basis, CBP is not able to determine the extent to which  premature and deemed liquidations are taking place or take timely and  effective action to avoid premature or deemed liquidations and the  potential revenue loss they represent.
section_title: Other CBP Efforts Under Way or Planned to Improve AD/CV Duty Collection Are Expected to Produce Modest Results
subsections: section_title: CBP Formed a Small Team to Collect AD/CV Duty Debt, but Staff Turnover Has Hampered Its Efforts
paragraphs: As discussed previously, CBP’s Revenue Division within its Office of  Finance is responsible for collecting all debt owed to CBP, including  AD/CV duty debt. In March 2014, CBP formed a dedicated five-person  AD/CV Collections Team within the Revenue Division to focus strictly on  collecting unpaid AD/CV duty bills. The goals set out for the team include,  among other things: enhancing CBP’s technical expertise with regard to the unique  complexities of the AD/CV duty entry, suspension, liquidation, and  collection processes; enabling CBP to take a more systematic approach to the collection of  unpaid AD/CV duty bills rather than treating each unpaid bill as an  isolated transaction;  initiating collection activity on AD/CV duty debts earlier through  research and analysis; and assisting port officials in identifying importers that are unable or  unwilling to pay outstanding debts at an early stage and helping to  determine what actions, if any, CBP can take to reduce the possibility  that these importers will not fully pay their bills.
CBP officials credited the AD/CV Collections Team with several  accomplishments. According to CBP’s October 2015 report to Congress,  the team has enhanced CBP’s technical expertise with regard to the  complexities of the AD/CV duty entry, suspension, liquidation, and  collection processes. In conjunction with CBP’s National Targeting  Center, the Office of Chief Counsel, and the AD/CV National Targeting  and Analysis Group, in April 2015 the team initiated Operation Lost and  Found, which identified over 100 active importers with links to inactive  importers with delinquent bills. As a result, CBP successfully identified  approximately $1.4 million in AD/CV duty refunds that CBP owed to the  active importers and applied these funds against the debt owed to the  U.S. government by the delinquent importers. In April 2014, the team,  working with other CBP units and the Department of Justice, participated  in a surge effort that resulted in the liquidation of 72 AD/CV entries  associated with inactive importers but secured by bonds worth $14.2  million. The surge effort enabled CBP to collect revenue on bonds that  otherwise would have been lost. CBP officials also stated that the team  has had some success in collecting debt more efficiently and effectively.
According to CBP officials and data, staff turnover has hampered the  team’s ability to further improve CBP’s AD/CV duty collection efforts.  Since the formation of the AD/CV Collections Team, three of the five  original collection specialists with in-depth expertise have left their  positions. CBP has hired one specialist, but the team remains  understaffed by two positions as of April 2016.
section_title: CBP Plans to Ask Importers to Provide More Information, but Officials Downplay the Potential Impact
paragraphs: CBP has initiated efforts to revise the form it uses to obtain information  about importers in order to collect more comprehensive information, but  CBP officials noted that the revised form may have a limited impact on  collections. CBP’s form 5106, known as the Importer Identification Input  Record, is an important source of importer information for CBP and must  be submitted by an importer or his or her representative before the  importer’s goods can enter a U.S. port of entry. The information is used  by CBP in decisions involving bond coverage; the entry and release of  goods from the ports; the payment of taxes, duties, and fees; and the  issuance of bills and refunds. The revisions to the form are intended to  enhance CBP’s ability to assess the risk that an importer may not pay all  required duties, taxes, and fees.
The current form 5106 requires the importer to provide the company’s  name, mailing address, and physical address. For tracking purposes, the  form also requires the importer to provide a unique identifying number.  This can be an Internal Revenue Service Taxpayer Identification Number  (for a company), a Social Security Number (for an individual), or a unique  importer number assigned by CBP.
The revised draft of the form 5106 contains several fields not present in  the current form. For example, it contains fields for importers to submit  additional information about the company, such as the names of key  company officials, as well as the name of the importer’s primary banking  institution. The revised form also asks importers to estimate how many  entries they estimate they will have during a given year. In April 2016,  CBP officials stated that CBP’s Office of Trade was in the process of  finalizing the revised form for submission to the Office of Management  and Budget. However, CBP officials did not know when the Office of  Management and Budget’s approval of the revised form would occur.  CBP officials also did not know when importers would be required to  begin using the revised Importer Identification Input Record.
While the revised form will provide CBP some additional information  about importers that it does not collect now, CBP officials cautioned that  the collection and analysis of this information may have only a modest  impact on the collection of AD/CV duty debt because CBP will accept  revised forms with incomplete information. Moreover, deceptive importers  may provide false information. CBP officials said that by regulation,  importers are only required to provide the company’s name, mailing and  physical addresses, and unique identifying number in order for CBP to  process an entry; no other information is required. These officials also  stated that requiring importers to provide additional information would  require a change in the regulation, which CBP does not plan to make.  According to CBP officials, importers who do not provide the additional  information in the form will be viewed as high-risk importers, and could be  subject to added inspection at the time the import enters the United  States.
section_title: CBP Has Taken Steps to Improve Its Use of Bonding to Protect AD/CV Duty Revenue, but CBP Officials Say They Are Limited in Their Ability to Use This Tool
paragraphs: CBP has undertaken efforts to improve the use of bonds by taking steps  to centralize bond management and changing the bond formulas to  address the risk of uncollected AD/CV duties. However, according to CBP  officials, challenges such as limitations within ACS and an adverse WTO  ruling limit CBP’s ability to use bonds as a tool to protect against the risk  of uncollectible final duty bills.
subsections: section_title: CBP Has Taken Steps to Centralize and Improve the Tracking of Bonds
paragraphs: CBP began to centralize the management of continuous entry bonds in  June 2005 and plans to centralize the management of single transaction  bonds by July 23, 2016. For both types of bonds, centralization moves the  responsibilities for managing bonds and maintaining records to a single  unit within the Revenue Division of the Office of Finance. As part of the  process of transitioning from ACS to the Automated Commercial  Environment (ACE), CBP is also in the process of transitioning from a  paper-based customs bond system to an electronic customs bond system  called eBonds. Once importers are required to only use ACE, CBP  expects most bond transactions to occur through eBonds. According to  CBP officials, the creation of a central automated repository for eBonds  will make it easier for CBP to collect payments from sureties because it  will reduce errors often found in paper bonds, such as missing or  incomplete information. According to CBP officials, such errors are  frequently cited by sureties (the companies that underwrite the bonds) in  litigation and protests as a reason for not having to make payment.  According to surety association officials, CBP’s transition to an electronic  bond will also enable sureties to more closely control the issuance of  such bonds because brokers will now be required to electronically submit  all documentation used to underwrite customs bonds to the surety before  the surety can submit the bond to CBP.
In addition to facilitating the transition to an electronic bond system,  CBP’s full transition from ACS to ACE will also enable CBP to track the  existence of multiple bonds for a single entry. In some instances, an  import specialist at a port may decide that additional bond coverage is  needed. For example, a CBP official may determine, based on analysis of  the characteristics of an AD/CV duty entry and the importer’s record, that  the importer should obtain an additional single transaction bond. ACE has  fields for recording the existence of more than one bond for a single entry.  By contrast, ACS can only record the existence of one bond, and any  additional bonds (such as single transaction bonds) are recorded by the  port officials by entering that information in the “notes” section of ACS. In  a June 2011 report, the Department of Homeland Security Office of  Inspector General found that port officials did not consistently record the  existence of single transaction bonds in ACS. CBP officials we met with  in November 2015 told us that this continues to be a problem.  Consequently, CBP does not have an accurate count of single transaction  bonds. CBP plans to complete its transition to ACE by December 2016.
section_title: CBP Has Revised Its Bond Formulas to Better Protect Itself from the Risk of Unpaid AD/CV Duties
paragraphs: As shown previously in table 1 and as discussed in our 2008 report,  CBP’s standard continuous entry bond formula provides little protection of  AD/CV duty revenue when the final amount of AD/CV duties owed  significantly exceeds the amount of the bond. As part of its efforts to  utilize bonds more effectively, CBP updated the guidance it uses to  calculate the value of continuous entry bonds and single transaction  bonds to better protect against the risk of nonpayment.
Continuous entry bonds: CBP’s Office of Finance updated the formula  in January 2011, modifying the bonding requirements for importers  subject to AD/CV duties depending on whether they have unpaid bills.  Importers who do not have unpaid bills are assessed a bond equal to 10  percent of the amount the importer had to pay in duties, taxes, and fees  over the preceding 12 months. In contrast, importers with unpaid bills are  assessed a bond equal to 10 percent of the amount the importer had to  pay in duties, taxes, and fees over the preceding 12 months plus an  additional amount if the unpaid bill is more than 210 days old.
Single transaction bonds: CBP issued guidance to port officials in May  2012 for assessing the requirement for additional bonding as well as  determining the value of a single transaction bond in cases where port  officials have developed a reasonable belief that acceptance of an entry  secured by an existing continuous entry bond would place future financial  obligations in jeopardy. The guidance states that port officials should take  into account the amount of the importer’s continuous entry bond before  making a determination that an additional single transaction bond is  required. The guidance also states that CBP officials must judge each  transaction or shipment on a case-by-case basis and cannot depend  solely on product, country of origin, general trade data, noncompliance  within an industry, or allegations.
section_title: According to CBP Officials, WTO Ruling Limits CBP’s Use of Bonding as a Tool
paragraphs: CBP has attempted to utilize bonds more effectively to address the risk of  nonpayment of future obligations; however, according to CBP officials, a  July 2008 WTO ruling has constrained CBP’s use of bonds because CBP  had to change its methods for increasing bond requirements as a result of  the ruling. Because the standard bond formulas for continuous entry  bonds in general only cover a portion of the amount of revenue at risk of  loss if final AD/CV duties are not paid, CBP attempted an enhanced  bonding initiative in 2004. This initiative required all shrimp importers from  certain countries to obtain a continuous entry bond equal to 100 percent  of the estimated AD/CV duties for items imported over the previous 12  months. However, according to WTO documents, in July 2008 the  Appellate Body of the WTO reported that it determined that the enhanced  bonding initiative was inconsistent with WTO obligations. According to  CBP officials and documents, the WTO ruling resulted in CBP’s having to  eliminate the enhanced bonding requirement. Moreover, officials  explained that since the WTO found that CBP’s enhanced bonding  practices were not compliant with WTO obligations because CBP did not  sufficiently link the risk addressed by the bond to the entire shrimp  industry, the only option in increasing bond requirements to secure  revenue is to target individual importers based on their importing record.  According to CBP officials and reports, although the WTO found the  manner in which CBP applied its enhanced bonding requirement to be  inconsistent with WTO principles, it did not disagree with the concept of  appropriately addressing risk through revised bonding requirements. As  discussed previously, in January 2011 and May 2012, respectively, CBP  updated its formulas for setting continuous entry bond and single  transaction bond requirements.
As of June 2016, CBP continues to use both continuous entry bonds and  single transaction bonds as tools to attempt to ensure the payment of  unforeseen obligations to the U.S. government; however, according to  CBP officials, in response to the WTO ruling, CBP has exercised more  caution in using bonds, concerned about the risk of litigation, which could  tax agency resources and result in adverse rulings. According to CBP  officials, CBP now determines the requirement for an importer to obtain  both types of bonds on a case-by-case basis. For continuous entry  bonds, in practice, CBP’s application of bonding requirements is based  not solely on applying the January 2011 guidance described above, but  also on an assessment by CBP’s Revenue Division of whether an  importer’s current continuous entry bond will be sufficient to address his  or her estimated AD/CV duty requirements during the previous calendar  year or the last 12 months. Based on CBP’s assessment of current  continuous entry bond sufficiency, from January 2014 through January  2016 CBP issued formal demands to 35 importers of goods subject to  AD/CV duties to purchase a larger continuous entry bond. The  increases in the amount of the bond demanded ranged from $20,000 to  $550,000. For single transaction bonds, CBP required importers to submit  an additional single transaction bond on 40 occasions from July 2013  through November 2015. The value of the additional single transaction  bonds required ranged from $223 to $73,515. CBP did not have data for  any other period within the period of our review, fiscal years 2001 through  2014.
section_title: Insufficient Risk Analysis of Unpaid AD/CV Duties Has Resulted in CBP Missing Opportunities to Mitigate Lost Revenue
paragraphs: CBP’s limited analysis of the risk to revenue from potentially uncollectible  AD/CV duties (nonpayment risk) does not accurately assess country- and  product-associated risk or risks associated with other entry characteristics  and misses opportunities to identify and mitigate nonpayment risk. In its  2014 report to Congress on AD/CV duties, CBP presented a data  analysis to Congress that includes a summation of uncollected duties  from five cases associated with products from China representing the  largest dollar amount of uncollected duties. CBP officials said that, based  on this analysis of uncollected duties, entries of these five products from  China comprise the largest current risk of AD/CV duty nonpayment. The  standard definition of risk with regard to a negative event that could occur  includes both the likelihood of the event and the significance of the  consequences if the event occurs; however, CBP does not attempt to  assess either of these for any given entry of goods subject to AD/CV  duties entering U.S. customs. As our analysis of CBP data demonstrates,  a more comprehensive analysis of CBP’s available data is feasible and  could help CBP better identify key risk factors and mitigate nonpayment  risk, predict future risk levels for certain types of entries, and also  evaluate the effects of past policy changes, such as bonding  requirements, on nonpayment risk.
subsections: section_title: CBP’s Risk Assessment Is Limited and Could Result in Mistaken Conclusions
paragraphs: CBP assesses the general risk of uncollected AD/CV duties  retrospectively by examining its tally of the total dollars owed but does not  consider factors related to the probability of loss for any given entry, such  as the proportion of unpaid bills in that product. Federal internal control  standards state that agency managers should comprehensively identify  risks and analyze them for their possible effects. In doing so, managers  should consider all significant interactions between the entity and other  parties and changes within the agency’s external environment. In this  way, managers can estimate the risk’s significance, assess the likelihood  that the risk will occur, and decide what actions need to be taken to  manage the risk. CBP has a statutory responsibility to collect all  revenue due to the U.S. government that arises from the importation of  goods. For entries of goods subject to AD/CV duties, the risk to CBP’s  revenue collection from duty nonpayment, in terms of expected dollar  loss, is the probability of nonpayment (risk likelihood) times the net duties  owed to CBP (risk significance).
CBP’s 2014 report to Congress on outstanding AD/CV duties considers  total outstanding debt but not risk likelihood or risk significance at the  level of individual entries. It provides summary statistics on open bills— stating that importers of goods from China account for over 90 percent of  outstanding AD/CV duties as of April 1, 2014, and that the five largest  cases in terms of open AD/CV duty bills involve five products from China:  fresh garlic, wooden bedroom furniture, freshwater crawfish, honey, and  preserved mushrooms. CBP officials told us that they consider this to be  an assessment of how CBP views its AD/CV duty collection risk and that  entries of these five products comprise the largest current risk of AD/CV  duty nonpayment. CBP officials stated that their definition of risk, in  tallying total amount of duties uncollected, does not consider CBP’s total  exposure to a product category (which includes paid and unpaid bills) or  factors related to the probability of loss for individual entries. However, as  illustrated in figure 11, entities may have substantially different risk  profiles even if the total dollar loss—CBP’s measurement of risk—is the  same.
With regard to assessing the risk associated with entries subject to  AD/CV duties, CBP officials said that the agency was concerned only with  the total amount of AD/CV duties billed but not paid. However, these  officials also noted that this approach was a policy decision that could be  revisited. While CBP does not presently use its risk analysis to target  specific high-risk entries, CBP officials also said that the results of their  data analysis have been interpreted by some CBP and Commerce  officials as guidance that could be used for targeting. If CBP were to use  its current definition of risk to assess the risk level of individual entries,  such an analysis could identify entries with a lower probability of  nonpayment based on past history as relatively riskier than entries that  have a higher probability of nonpayment. We developed the following  examples to illustrate the comparative risk of entries according to this  definition of risk as a total of uncollected dollars.
An entry of product C, which is associated with a 1.1 percent overall  nonpayment rate and has imports of $100 million per year ($1.1  million total unpaid), would be considered a greater risk to revenue  than an entry of product D, which is associated with a 50 percent  nonpayment rate and has imports of $2 million per year ($1 million  total unpaid), even though a given entry of product D is statistically far  likelier to become associated with an uncollected bill.
An entry of product E, a product for which all uncollected duties date  from entries occurring 10 years ago, would be considered as  presenting a similar risk to revenue as an entry of product F, for which  the same amount of uncollected duties exists but from entries  occurring 1 or 2 years ago—even if all entries of product E have had  duties paid on time over the past 9 years.
section_title: More Comprehensive Analysis Could Help CBP Better Identify Key Risk Factors
paragraphs: Analyzing data on entries subject to AD/CV duties provided by CBP, we  applied standard statistical methods to explore nonpayment risk and  found that controlling for a range of country, product, and other entry  characteristics explains much of the risk of AD/CV duty nonpayment for  the time periods we evaluated. While we used a number of diagnostic  tests to assess the stability and predictive power of the risk factors  estimated by our model, additional data and alternative modeling  approaches could produce different results. Specifically, among other  things, our analysis shows the following:
Entries of products from countries other than China were estimated to  be likelier to be associated with AD/CV duty nonpayments. These risk  levels vary over time, meaning that some past risks are not  contemporary risks.
Products other than the five from China associated with cases that  CBP identifies as presenting the highest risk of nonpayment of AD/CV  duties were both estimated to be likelier to be associated with  nonpayments of such duties and to represent greater losses when  nonpayment occurs. These risks also vary over time.
Other entry characteristics, such as the dollar value of the importer’s  goods subject to duties, the use of a bond instead of cash to pay initial  estimated duties, and the size of the final duty bill increase over the  initial estimated duties were each estimated to be significantly  associated with the entry’s overall risk level for uncollected duties.  See figure 12 for additional examples, and see appendix II for further  discussion.
Because it singles out China, based on cumulative data over many years,  and does not control for changes in risk factors over time, CBP’s risk  analysis may lead CBP officials to misconstrue—overestimate or  underestimate—the risk associated with an entry’s country of origin. Our  analysis estimates that imports of products from China present a risk in  terms of the likelihood of nonpayment, as well as the dollar loss of  nonpayment, but it also estimates that imports of products from other  countries may actually pose a greater risk in some cases—all other entry  characteristics being equal. Our analysis also shows that risk factors,  including the risk associated with country of origin, vary over time.
While controlling for other entry characteristics, we computed the  additional expected loss associated with the country of origin of an  entry. We did this by computing probability of loss and loss given  nonpayment using two regression models. To investigate whether  estimated risks change over time, we divided the dataset into two 5-year  periods.
For 2009–2013, entries of imports from China accounted for the vast  majority of uncollected bills. However, as figure 13 shows, the estimated  risk of nonpayment on a given entry from China was actually lower than  for products from other countries, holding all other entry characteristics  equal. Specifically, our analysis estimates the following for the time  periods we evaluated:
For many types of products, entries of imports from China are not  likelier to result in unpaid duties than otherwise identical entries of  imports from other countries. While imports from China account for  about 84 percent of unpaid AD/CV duties associated with entries  during fiscal years 2009 through 2013, as of May 12, 2015, some of  the apparent risk from these entries can be explained by the large  volume of imports from China subject to AD/CV duties. In addition,  certain products imported in large volume from China in 2009–2013,  such as preserved mushrooms, are associated with increased  probability of nonpayment. Controlling for such high-risk product  types, in addition to the other shipment characteristics discussed  below, shows that relatively little risk is associated directly with an  entry’s being from China.
While the average unpaid AD/CV duty bill associated with imports  from China was more than 23 times larger than the average such bill  associated with imports from Mexico in 2009–2013, the estimated  likelihood of nonpayment was somewhat lower for imports from China,  and the estimated dollar loss per nonpayment was identical for  imports from the two countries (see fig. 13). In other words, an entry  from Mexico with the same characteristics as a given entry from  China, such as entry size and product type, had slightly greater  estimated risk. However, this result is not apparent without a  comprehensive analysis of data, such as the regression model we  developed, because the typical entry from Mexico had very different  characteristics than the typical entry from China.
Figure 13 shows how entries from certain countries have greater  estimated risk than those from China in terms of probability of  nonpayment. As shown in the chart, otherwise identical entries of  products from Denmark, Mexico, Japan, India, Thailand, and Vietnam  are associated with a greater probability of nonpayment than entries  of products from China in the 2009–2013 period.
Our analysis further shows that the estimated nonpayment risk  associated with the country of origin of an import can change  considerably over time. As figure 13 demonstrates, the nonpayment risks  associated with country of origin in the two periods we examined were  significantly different. In 2004–2008 the estimated nonpayment risks  associated with imports from the United Arab Emirates were nearly  identical to the estimated risks associated with imports from China. In this  earlier period, estimated losses per nonpayment were much lower for  imports from India and Denmark than for imports from China in 2004– 2008; in addition, while the estimated probabilities of nonpayment for  imports from Thailand and Vietnam remained higher, entries of products  from these countries were associated with lower estimated losses per  nonpayment. India, Thailand, and Vietnam all had equal loss per  nonpayment and greater probability of nonpayment than China in 2009– 2013. Thus, our model shows that imports from several countries became  riskier relative to Chinese imports over the time periods compared.
subsections: section_title: CBP’s Analysis of Product- Associated Risk May Not Reflect Current Program Risks
paragraphs: Most of the products in the five cases that CBP highlights in its 2014  report as presenting the greatest risk of generating unpaid AD/CV duties  were not among the products that our models estimated as presenting the  greatest risk of duty nonpayment.  Controlling for other entry  characteristics, we compared the estimated probability of nonpayment  and the dollar loss when nonpayment occurs for products associated with  more than 15 delinquent bills. We also controlled for whether a product’s  country of origin was China or some other country. Figure 14 illustrates  the results of our analysis across several products; see appendix II for all  products included in our model.
Two of the five products from China in cases identified by CBP in its  2014 report as presenting the highest risk—crawfish and honey— were not associated with any additional estimated risk of nonpayment  in the 2009–2013 period compared with other products. Further, the  estimated risk posed by wooden bedroom furniture from China was  lower than the estimated risk associated with otherwise identical  entries of many other products.
Our analysis shows that the estimated risk in 2009–2013 associated  with polyethylene retail carrier bags was greater than the estimated  risk associated with all five highest-risk cases from China identified by  CBP. In addition, steel nails from countries other than China and wire  hangers from China were associated with a greater estimated  probability of nonpayment than three of the five products identified as  riskiest by CBP, and woven ribbons from countries other than China  were associated with a substantially larger loss per nonpayment than  all five.
Our analysis further shows that estimated product-associated risk can  change over time. By examining these changes, CBP would be able to  more accurately assess risk of loss due to nonpayment of AD/CV duties.  As figure 14 demonstrates, the estimated product-associated risks posed  in 2004–2008 were very different compared with the same risks in 2009– 2013. During the 2004–2008 period, all five products identified by CBP as  riskiest were associated with a greater estimated probability of  nonpayment than other products.
section_title: CBP Does Not Comprehensively Examine Other Key Entry Characteristics
paragraphs: CBP does not comprehensively examine the extent to which key entry  characteristics other than country of origin and product type are  associated with nonpayment risk. This reduces CBP’s ability to accurately  assess the likelihood of nonpayment risk and the relative significance of  risk factors associated with country of origin and product type. Using data  provided by CBP, we identified a group of entry characteristics other than  country of origin or product type associated with nonpayment risk, such  as the length of an importer’s entry history and number of previous  delinquencies. Because these other entry characteristics correlate with  both nonpayment risk and certain product types and countries of origin,  controlling for these other characteristics is necessary to avoid incorrectly  overstating or understating the risks associated with the characteristics  country of origin and product type.
Our analysis suggests that, for products entered between 2009 and 2013,  six entry characteristics, in addition to country of origin and product type,  were significantly associated with either estimated likelihood of  nonpayment or estimated size of the loss per nonpayment, or both. These  six entry characteristics are (1) the size of the final duty bill, (2) the dollar  value of the goods being imported, (3) the length of importer history, (4)  the count of previous entries from the importer, and the number of  previous delinquent bills from (5) the same importer and (6) the same  manufacturer. (See fig. 15.) Our analysis suggests that these six  characteristics stayed largely consistent relative to one another over  time—each remained associated with a similar relative likelihood of  nonpayment and loss per nonpayment during the 2004–2008 period. In  contrast, the estimated risk associated with use of a bond in lieu of cash  to pay initial estimated duties was not consistent over time. Bond use was  associated with a large decreased risk of nonpayment in 2004–2008  compared with 2009–2013, when bond use had no estimated positive or  negative association with risk.
section_title: CBP Does Not Comprehensively Analyze Its Data to Identify and Mitigate Nonpayment Risk
paragraphs: CBP does not proactively and routinely use its data to identify entries at  risk of potentially uncollectible AD/CV duties, for example, by developing  quantitative risk assessment tools that could be used consistently on  newly arriving entries to help assess when additional risk mitigation  actions may be warranted. CBP officials said that currently port officials  investigate trends unsystematically, such as through anecdotal evidence  from port officials about problems with certain importers or products.  When a risk is identified through this process, these officials said that  CBP can increase the bonding requirements for an entry, which reduces  CBP’s exposure to potential losses from unpaid duties.
As previously noted, federal internal control standards state that agency  managers should comprehensively identify risks and analyze them for  their possible effects, as well as design responses to these risks as  necessary to mitigate these risks. Because governmental, economic,  industry, regulatory, and operating conditions continually change, the  standards also note that risk management efforts should include  mechanisms to identify and deal with ongoing changes in the likelihood or  significance of risk factors.
To date, however, CBP has undertaken a few limited efforts to use its  data to help identify and mitigate the risk of uncollected AD/CV duties. For  example, as discussed previously, CBP’s AD/CV Collections Team  initiated Operation Lost and Found in April 2015 to take advantage of  specialized databases and information maintained by the National  Targeting Center and the AD/CV National Targeting and Analysis Group  to identify active importers with ties to inactive, delinquent AD/CV debtors.
In 2015, CBP also briefly utilized a Department of Defense contract with  the Jet Propulsion Laboratory and Johns Hopkins University to examine  the use of systematic data analysis techniques to reduce AD/CV duty  evasion. CBP officials said a 3-week trial resulted in significant findings  and has determined that systematic data analysis techniques may be  useful for identifying importers attempting to evade AD/CV duties;  however, CBP has not yet determined whether and how such analysis  might be used to improve AD/CV duty collection.
Implementing a more comprehensive risk analysis system, using  standard statistical methods such as those we used in building our proof- of-concept model, CBP could better assess nonpayment risk with its  current data. Doing so would enable CBP to identify a more complete list  of risk factors ranked in order of priority. Such analysis would support a  decision-making process enabling CBP to take more effective actions to  mitigate the nonpayment risk. Any such actions would also need to take  into consideration U.S. international trade obligations as well as relevant  U.S. court rulings. Most of the factors we identified that explain  nonpayment risk are known to CBP at the time an entry arrives when  CBP collects initial AD/CV duties, such as the importer’s history and the  entry size. The remaining factors are known to CBP at the time it issues  the final AD/CV duty bill, such as the increase in final billed amount  relative to initial estimated duties. We determined that these entry  characteristics predict nonpayment risk well when using 4 or more years  of historical data and could be used to predict payment outcomes on  future bills. Therefore, as figure 16 illustrates, CBP could use regression  models similar to what we developed as an empirical tool for weighting  the importance of risk factors for AD/CV entries and importers. For  example, for newly arriving entries, these weighted risk factors, updated  periodically, would be multiplied by the observed characteristics of the  entry to yield estimated values for (1) probability of nonpayment and (2)  dollar loss if nonpayment occurs. Further multiplying these two  estimated values would yield expected loss—an estimate of the risk of  uncollected duties constituting a concise risk score that is comparable  across all entries of goods subject to AD/CV duties.
CBP could use such a risk score strategically to mitigate nonpayment risk  in a variety of ways, including, but not limited to, the following four ways:
Triggering the need for an entry review by officials. As described  above, when a newly arriving entry’s estimated risk score exceeds a  predetermined threshold, CBP could begin a process of qualitative  review by officials with appropriate expertise to determine whether a  larger bonding requirement is appropriate and would be consistent  with U.S. international trade obligations and relevant U.S. court  rulings. Our analysis shows that a substantial proportion of risk  associated with the likelihood of nonpayment and some of the risk  associated with the size of the loss can be explained with information  available to CBP at the time an entry arrives, even with our limited  dataset. More sophisticated models that could further incorporate  CBP’s institutional expertise would likely be able to predict risk even  more effectively. Such predictive modeling as described above—or a  similar approach—has the potential to be a valuable tool because, as  CBP officials noted, the time of entry is when CBP has the best  opportunity to enforce collection of the duties owed to the U.S.  government.
Targeting high-risk duty bills. When final duties are assessed for an  entry and a bill is issued, CBP may be able to enhance its collection  efforts by targeting high-risk bills using additional data available at that  time, recalculating the risk score assigned at time of entry. As  mentioned earlier, these additional data include, for example, risk  factors such as the length of the review process and the amount of  any increase over the initial estimated duties paid when the entry first  arrived.
Assessing ongoing aggregate risk posed by specific importers.  As we discussed earlier, many of the importers with the largest total  unpaid AD/CV duty bills imported 200 or more entries over a period  longer than a year. CBP may be able to use a predictive model to  assess the ongoing aggregate risk posed by an importer, even if final  bills have not yet been issued and, if applied in a manner consistent  with U.S. international trade obligations and relevant U.S. court  rulings, use this information to adjust the importer’s continuous entry  bond requirements. This may be particularly useful to mitigate risk  from high-volume importers from whom individual entries do not  present large expected losses.
Assessing the effectiveness of policy changes intended to  mitigate risk. CBP could use regression models such as the one we  developed—or similar approaches—to examine its data  retrospectively to assess the impact of policy changes intended to  mitigate the risk of uncollected AD/CV duties. For example, CBP  could assess whether there is a meaningful change in this risk for a  specific group of interest, such as bond users, associated with a  particular policy intervention, such as the changes to restrict access to  bonds used in lieu of cash to pay initial estimated tariffs in 2006 and  2011.
CBP officials cited limited staff resources and data systems as obstacles  to systematically model and predict risk of AD/CV duty nonpayment.  These officials said that CBP may not have the staff and resources that  would be required to engage in such an effort. They noted that CBP’s  recent efforts to use data more strategically have been limited and  depend on leveraging expertise from different units of CBP. In addition,  these CBP officials said that their data systems store information in a  manner that is difficult to access and analyze and that it may be missing  certain data necessary to undertake predictive modeling. Moreover,  CBP’s current information systems make it difficult to do large-scale data  runs and cannot generate real-time output. Nonetheless, we found that  standard statistical methods were sufficient to predict nonpayment risk,  and we were able to combine all necessary data pulled from CBP  databases using a commercial computer workstation and software; such  analysis would not necessarily require CBP to invest in special computing  systems or prohibitively expensive software. Finally, the risk-score  method described above would not require real-time data—only periodic  checks to update risk-factor weighting.
As discussed previously, CBP officials said that a past ruling by the WTO  has constrained CBP’s use of bonds because the WTO determined that  CBP’s application of an enhanced bonding policy on all shrimp importers  from certain countries was inconsistent with U.S. obligations at the  WTO. CBP officials explained that as a result of the WTO’s ruling, CBP  now determines the requirement for an importer to obtain a bond on a  case-by-case basis. However, CBP officials told us that targeting  analytics they currently perform, an analysis that is specifically tailored to  the individual shipment, would not be a blanket approach like past  enhanced bonding efforts on shrimp. Specifically, CBP officials explained  that although the WTO previously found the manner in which CBP applied  its enhanced bonding requirement to be inconsistent with WTO principles,  the WTO did not disagree with the concept of appropriately addressing  risk through revised bonding requirements. CBP officials stated that CBP  might be able to make good use of the statistical analysis methods GAO  presented. For example, such an analysis could be used to assess a  requirement for additional security in the form of bonds as part of an  enhanced bonding requirement, according to these officials. However,  they cautioned that the use of bonding in this way would have to be  carefully tailored in order to avoid a legal challenge.
section_title: Conclusions
paragraphs: We estimate the amount of uncollected duties on entries from fiscal year  2001 through 2014 to be $2.3 billion. While CBP collects on most AD/CV  duty bills it issues, it only collects, on average, about 31 percent of the  dollar amount owed. The large amount of uncollected duties is due in part  to the long lag time between entry and billing in the U.S. retrospective  AD/CV duty collection system, with an average of about 2-and-a-half  years between the time goods enter the United States and the date a bill  may be issued. Large differences between the initial estimated duty rate  and the final duty rate assessed also contribute to unpaid bills, as  importers receiving a large bill long after an entry is made may be  unwilling or unable to pay. In 2015, CBP estimated that about $1.6 billion  in duties owed was uncollectible. By not fully collecting unpaid AD/CV  duty bills, the U.S. government loses a substantial amount of revenue and  compromises its efforts to deter and remedy unfair and injurious trade  practices.
CBP faces a number of challenges in its efforts to improve its collection of  AD/CV duties. CBP does not know the extent to which it liquidates entries  in an untimely manner, nor does it know the effects such liquidations have  on revenue. To mitigate the number of entries liquidated at the initial  estimated duty rate instead of the final duty rate set by Commerce, CBP  has begun an initiative to centralize and improve oversight of liquidation  processing at the ports; however, CBP does not systematically collect  and analyze data from this effort or assess impact on revenue. CBP says  it has plans to collect and analyze data for management use once the  initiative is fully implemented in the beginning of fiscal year 2017 but as of  May 2016 had not issued guidance to this effect. Without systematically  collecting and analyzing data on a regular basis to ascertain liquidation  trends at ports of entry and offices, CBP cannot determine the extent to  which premature and deemed liquidations are taking place or take timely  and effective action to avoid premature or deemed liquidations and the  potential revenue loss they represent. In separate but related efforts, CBP  has created an AD/CV duty collections team, plans to collect more  information about importers, and has taken steps to centralize the  management of bonds—after revising its bonding formulas to better  enable it to protect AD/CV duty revenue. These efforts, however, have  yielded limited results to date.
Though its institutional knowledge about the nature of this risk is deep,  CBP has not used its extensive relevant data to conduct a comprehensive  risk assessment. The risk analysis it has presented in reports on AD/CV  duties is not useful for mitigating AD/CV duty nonpayment risk because it  merely examines a tally of the total dollars in AD/CV duties owed but  does not consider factors related to the likelihood of nonpayment for any  given entry and the size of revenue loss if nonpayment occurs.  Mathematically, the likelihood of nonpayment and the size of the loss if  nonpayment occurs are the two components of expected loss. Our  analysis shows that a substantial proportion of nonpayment risk can be  explained with information available to CBP at the time an entry arrives,  and even more could be explained at the time a final bill is issued.  Further, we found that CBP’s data are suitable for conducting such  analyses for risk predictions on future entries. More sophisticated models  that CBP could develop, incorporating its institutional expertise, would  likely be able to predict risk even more effectively than ours. As our  analysis demonstrates, a more comprehensive analysis of CBP data  related to AD/CV duties is feasible and could help CBP better identify key  risk factors associated with nonpayment risk. Without such a risk  analysis, CBP is also missing opportunities to take appropriate action  consistent with its mission to facilitate compliant trade while collecting  revenue.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Commissioner of CBP take the following three  actions:  1.  To better manage the AD/CV duty liquidation process, CBP should  issue guidance directing ACT to (a) collect and analyze data on a  regular basis to identify and address the causes of liquidations that  occur contrary to the process or outside the 6-month time frame  mandated by statute, (b) track progress on reducing such liquidations,  and (c) report on any effects these liquidations may have on revenue.  2.  To improve risk management in the collection of AD/CV duties and to  identify new or changing risks, CBP should regularly conduct a  comprehensive risk analysis that assesses both the likelihood and the  significance of risk factors related to AD/CV duty collection. For  example, CBP could construct statistical models that explore the  associations between potential risk factors and both the probability of  nonpayment and the size of nonpayment when it occurs.  3.  To improve risk management in the collection of AD/CV duties, CBP  should, consistent with U.S. law and international obligations, take  steps to use its data and risk assessment strategically to mitigate  AD/CV duty nonpayment, such as by using predictive risk analysis to  identify entries that pose heightened risk and taking appropriate action  to mitigate the risk.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to CBP,  Commerce, Treasury, and the United States International Trade  Commission. CBP was the only agency that provided formal agency  comments, which are reproduced in appendix IV. In its comments, CBP  concurred with all three of our recommendations. CBP also identified  several actions it intends to take in response to the recommendations.  For example, in response to our first recommendation, CBP said that its  Offices of Trade and Field Operations will be employing its annual self- inspection program to identify the causes of premature and deemed  AD/CV duty liquidations. CBP set forth two dates for completing both an  initial and expanded analysis of incorrect liquidations and addressing the  results of its analysis: September 30, 2016, to complete the initial  analysis, and September 30, 2017, to complete the expanded analysis. In  response to our second and third recommendations, CBP said that it has  initiated a comprehensive statistical risk analysis that assesses both the  likelihood and significance of risk factors related to AD/CV duty collection  and will use this risk analysis to develop a predictive model to identify,  and take appropriate action to mitigate, the risk from specific entries that  pose a higher likelihood of nonpayment of final AD/CV duties.
While concurring with our second and third recommendations, CBP  expressed concern that the statistical methodology we used may have  produced results that understate the impact of the duty evasion issues  relating to high-risk imports from China. However, CBP did not identify  any specific limitations in our methodology. CBP said that it will conduct  its own analysis using statistical methods based on country of origin and  other risk factors to identify high-risk entries and mitigate the risk of  nonpayment of final AD/CV duties. We encourage CBP to conduct its own  analysis of risk factors, in keeping with our recommendation. As  discussed in this report, our model is one of many possible models, and  risk factors are likely to change over time. Our model estimates that, for  the 2009–2013 period, entries from China were not associated with  additional nonpayment risk relative to otherwise identical entries of most  products from other countries; however, we found that entries of certain  specific products from China were associated with substantial increases  in nonpayment risk.
CBP, Commerce, Treasury, and the United States International Trade  Commission all provided technical comments, which we incorporated in  the report, as appropriate  As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to appropriate congressional  committees, the Commissioner of CBP, the Secretary of Commerce, and  other interested parties. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8612 or GianopoulosK@gao.gov. 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 key contributions to this  report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report (1) examines the status and composition of uncollected  antidumping (AD) and countervailing (CV) duties, (2) the extent to which  the U.S. Customs and Border Protection (CBP) has taken steps to  improve its billing and collection of AD/CV duties, and (3) the extent to  which CBP uses and could further use its data to assess and mitigate the  risk to revenue from potentially uncollectible AD/CV duties.
To examine the status and composition of uncollected AD/CV duties, we  analyzed CBP data on all open, delinquent duty bills for entries from fiscal  year 2001 through fiscal year 2014, as of May 12, 2015. For this purpose,  we combined three datasets from CBP’s Automated Commercial System  (ACS) containing information on entries and billed amounts associated  with entries. ACS is used by CBP to track, control, and process all goods  entering the United States. The first ACS dataset contained AD/CV duty  entry data; the second contained final assessed AD/CV duty rate data;  and the third contained importer AD/CV duty billing data. As part of our  examination of the status and composition of uncollected AD/CV duties,  we analyzed the extent to which CBP writes off uncollectible bills. The  data for this part of the analysis constitutes a fourth dataset, which was  also taken from ACS and was provided as of October 2015. The definition  of “uncollected duties” that we use in this report differs slightly from the  definition used in our 2008 report. That report defined “uncollected duties  as including all open, unpaid bills for AD/CV duties.” For this report, we  narrowed that definition to all open, delinquent bills for AD/CV duties.  According to statute, amounts due to CBP are considered delinquent if  they are unpaid within 30 days after issuance of the bill for such a  payment. Similar to our 2008 report, we excluded softwood lumber from  Canada from our analysis because the AD/CV duty collection processes  for this product are established through a binational agreement, which is  outside the typical practice. The CBP data we analyzed to determine  collection rates for AD/CV duty bills included key characteristics such as  the bill amount, importer information, dates of entry, and dates and  amounts of liquidation. Using these data, we calculated two different  collection rates: (1) the weighted average percentage of the number of  bills collected and (2) the weighted average percentage of the dollar  amount collected. To calculate this rate, we included data on entries  where the final duty rate was higher than the initial estimated duty rate,  indicating that a bill would have been issued. Where a bill was issued but  no data existed on an associated delinquent bill, we assumed the bill was  paid. Because the entry and billing data used to calculate these rates are  a snapshot as of May 12, 2015—the date our data request was filled— these collection rates are subject to change. For example, we included  data on entries from 2013 and 2014; however, about 42 percent of the  entries from 2013 and about 77 percent of the entries from 2014 had not  been liquidated as of March 2016. As more entries from these years are  liquidated, the collection rates may change due to a varying ratio of paid  to unpaid duty bills; in addition, the proportion of liquidations resulting in  any bill at all may change. After combining CBP’s data, we also used  these data to analyze several other characteristics of unpaid bills,  including their distribution by dollar amount, top products associated,  importers with the highest amounts of unpaid bills, the average time  between entry and liquidation across all entries, the frequency with which  large rate changes result in unpaid bills, and the age of the bills. In each  analysis, where relevant, we determined the mean and median amounts  for comparison. Our analysis consisted of more than 41,000 delinquent  bills. We determined that these data were sufficiently reliable for the  purposes of our report. In addition to analyzing data to determine the  status and composition of uncollected AD/CV duties, we reviewed  relevant statutes, regulations, and agency reports and interviewed CBP  and Department of Commerce (Commerce) officials.
To assess the reliability of the ACS data, we (1) performed electronic  testing of required data elements, (2) reviewed existing information about  the data and the systems that produced them, and (3) interviewed agency  officials knowledgeable about the data and the systems that produced  them. Our electronic testing consisted of automated checks to determine  inconsistencies in the data. We identified several inconsistencies in the  data and performed follow-up interviews and analysis to resolve the  inconsistencies. We found the ACS data to be generally reliable for  purposes of our analysis, with several limitations that required steps  outlined below. To analyze the status and composition of uncollected  AD/CV duties, we made several assumptions in order to process the  data.
We consolidated our data by unique combinations of entry number and  AD/CV duty case number.
Each AD/CV duty case number includes codes that indicate,  separately, the relevant product and country of origin. However, the  product code is not consistent between countries. For example, the  product code for lemon juice when an entry is from Mexico is the  same code used for sodium sulfate when an entry is from Canada.  We constructed a database using a large list of case numbers  provided by CBP. We then identified, where available, codes from  every country corresponding to a given product description. We  conducted a manual search for several missing case numbers.  Because of limitations in CBP’s database of open bills from ACS, we  were unable to determine which case number an open bill was  associated with. Therefore, in order to avoid falsely attributing open  bills to a given case, we dropped open bills associated with entries  containing more than one AD/CV duty case number. While we found a  relatively small number of bills containing more than one case number  (4,224, or 8 percent of the data), dropping these bills means that our  results somewhat understate the amount of uncollected duties.  Specifically, our methodology may underestimate the amount of  uncollected CV duties because, according to CBP, most CV entries  also include goods subject to an AD case, but the reverse is not true.
We restricted our analysis to entries that could have resulted in  uncollected duties—that is, entries that were liquidated and billed. In  describing the extent and nature of uncollected duties, we considered  the principal amount due and any interest accrued in order to present  the most comprehensive total picture of unpaid duties owed to CBP.  However, in estimating the risk of nonpayment, we considered only  the principal amount due and treated interest accumulated after  liquidation as endogenous to the decision not to pay the bill. (See  below for further details on our analysis of nonpayment risk.)
We conducted a distinct assessment of the reliability of the write-off data  because these data were provided separately. We interviewed an agency  official knowledgeable about the source and uses of these data and  reviewed the agency’s annual Performance and Accountability reports for  fiscal years 2013–2015, which include CBP’s financial statements and are  audited by an external accounting firm. Using these data, we calculated  the dollar amounts of AD/CV duties that CBP has written off by year. We  determined that these data were sufficiently reliable for our purposes.
To examine the extent to which CBP has taken steps to improve its billing  and collection of AD/CV duties, we obtained and analyzed data from ACS  for entries from fiscal year 2001 through fiscal year 2014, as of May 12,  2015; reviewed relevant statutes, regulations, and agency reports; and  interviewed CBP, Commerce, and Department of the Treasury (Treasury)  officials. For example, we obtained CBP data showing the extent to which  CBP liquidates entries prematurely as well as those it liquidates beyond  the 6-month statutory time frame for liquidating AD/CV entries, and we  interviewed CBP officials from the Office of Trade about these processing  errors. However, as discussed in the report, the data were incomplete.  We also obtained CBP documents about the establishment of the  Antidumping and Countervailing Centralization Team (ACT) and the  portal used by the team to identify applicable AD/CV entries for  liquidation. As discussed in the report, we did a check of CBP data and  identified 94 AD/CV entries during the period covered by our review. The  94 entries were all entries where the entry and final liquidation dates had  occurred relatively quickly—approximately 30 days apart. We then asked  CBP to check 20 of these entries to determine why the liquidations had  occurred so quickly. CBP officials told us that 7 (about 35 percent of the  20 entries) had been prematurely liquidated. On the basis of that  information, we asked CBP to provide additional information about the  number of liquidations that had occurred prematurely and any that had  occurred beyond the statutory 6-month time frame for liquidating entries.  CBP provided information from a February 2015 analysis. However, as  discussed in the report, prior to the ACT portal CBP had no means of  accurately tracking the number of premature and deemed liquidations  occurring. For that reason, the February 2015 analysis is not  comprehensive in nature.
To follow up on the finding from our 2008 report that CBP collects little  information regarding importers of record, we examined CBP’s planned  revisions to its form 5106, which CBP uses to collect key importer of  record information and make decisions regarding bonding and other  matters. We discussed the planned revisions with CBP officials. Customs  bonds are used to safeguard revenue and, according to CBP officials,  play an important role in CBP’s efforts to improve AD/CV collections. To  follow up on another finding from our 2008 report—that CBP’s standard  bond formula provides little protection of AD/CV duty revenue, we met  with three of the major associations that represent the companies (known  as sureties) that issue customs bonds. We discussed, among other  topics, how customs bonds are used by importers to pay for AD/CV  duties, changes in the sureties’ bond underwriting patterns that have  occurred since our 2008 report, and CBP’s introduction of an electronic  bond. We also met with CBP officials to understand how CBP has made  changes to address the concerns discussed in our 2008 report that the  standard bonding formula provides little protection of AD/CV duty  revenue. Two CBP offices currently play major roles in the management  of customs bonds used to pay AD/CV duties: the Office of Trade and the  Office of Finance. We discussed with officials from those offices CBP’s  efforts to centralize the management of all bonds and to change the  bonding formulas to address concerns that the standard bonding formulas  do not sufficiently protect revenue. We also obtained data showing how  CBP has required AD/CV importers to obtain both continuous entry bonds  and single transaction bonds to address the payment of unforeseen  obligations to the U.S. government.
As part of our analysis of CBP’s AD/CV duty collection process, we  examined bond use before and after the April 2006 through June 2009  suspension of the new shipper bonding privilege. To accomplish this, we  combined two separate datasets. The first was from a Commerce  database that documents new shipper reviews for fiscal years 2002  through 2015. The second was the previously described data from ACS  containing information on entries and billed amounts associated with  entries for fiscal years 2001 through 2014, as of May 12, 2015. Because  the Commerce and CBP datasets did not always use the same format or  spelling for the names of importers, we performed both an automated and  a manual matching of importer names in both datasets to identify the  universe of entries likely to be associated with a new shipper. We then  produced summary statistics for the amounts of delinquent duties  associated with new shippers as a group, with and without bonds, and  comparable statistics for the amount of delinquent duties associated with  all other shippers, with and without bonds. We also compared these data  for the pre- and post-2006 through 2009 periods. Because the time  frames associated with the Commerce and CBP datasets did not exactly  coincide, we decided to use in our analysis a timeframe common to both:  January 2002 through December 2013. We performed tests of the data  and determined, based on those tests and interviews, that the data were  sufficiently reliable for our analysis.
To examine the extent to which CBP assesses and mitigates the risk to  revenue from potentially uncollectible AD/CV duties, we combined the  three datasets from ACS into a single database. The database is  associated with entries from fiscal year 2001 through fiscal year 2014, as  of May 12, 2015. To develop a reasonable risk measurement for use in  addressing the risk of AD/CV duty nonpayment, we first examined agency  goals and criteria (including federal internal controls criteria) and identified  expected loss per shipment (in terms of uncollected duties). We also  reviewed CBP’s reports to Congress. To calculate an expected loss  score, we mathematically extrapolated expected loss into two measurable  components: (1) likelihood of AD/CV duty nonpayment and (2) the  amount of duties not paid contingent on nonpayment (loss per  nonpayment). In developing a regression model to analyze each of these  two risk measures, we created several variables that describe importer  and manufacturer characteristics derived from variables in ACS.
To determine associations with likelihood of duty nonpayment, we  calculated the coefficients of the regression of country, product, and other  shipment characteristics on the binary variable “delinquent.” As many of  our variables are indicator variables, we found that a linear fit was a good  approximation of a logistic regression and had the advantages of being  less computationally intensive and producing coefficients that fit intuitively  into a risk scorecard. To determine associations with size of nonpayment,  we regressed the same independent variables on the continuous variable  “amount delinquent.” To determine whether our models are appropriate  for forecasting, we ran a series of regressions over 2-year periods. We  selected several risk factors for review based on the size and statistical  significance of their coefficients in the full 2001–2014 period regression  model. We found that these risk factors, as evidenced by their  coefficients, are generally stable over time in our year-by-year regression  models, retaining the same sign and comparable magnitudes. However,  some risk factors also change over time, for example, large changes in  magnitude (e.g., Vietnam) or changing sign from positive to negative or  vice versa (e.g., Mexico). Our regression models do not establish whether  a given factor causes nonpayment or is merely correlated with this risk.  The models provide an example of how CBP data could be systematically  analyzed to provide insights into bill delinquency patterns, but we do not  intend them to be prescriptive.
To determine appropriate periods of time for analysis, we examined the  effect of including data from a range of periods. We sequentially  expanded the regression analysis to include data from 2011–2013,  adding additional years up to and including 2005–2013, as well as  groupings of 2005–2009 and 2004–2008. Expanding the period of  analysis may have several effects. For example, increasing the available  data will generally result in more accurate estimates and therefore more  accurate models. On the other hand, longer periods may be associated  with greater amounts of systemic change in risk factors and therefore  yield less accurate models. For each period, we constructed the model on  one portion of our data and tested the model’s ability to identify the  likelihood of nonpayment for entries outside of this sample (“out-of- sample predictive power”).
We measured the model fit for this cross-validation process for each  period and found that the model’s out-of-sample predictive power  improved until we included 5 years of data (2010–2013), at which point  the predictive power roughly plateaued with an R-squared value  estimated at 0.75 -0.77 out of sample for probability of nonpayment . As a  result, we believe that models constructed with 5–9 years of past data  would be reasonable. We selected 5-year periods (2004–2008 and 2009– 2013) for purposes of comparing useful models from distinct periods. This  allowed us to compare datasets from two equal periods, one  corresponding to the period of our 2008 report and the other  corresponding to the most recent period for which complete data were  available.
Because fewer data are available to CBP at entry than at liquidation, we  also ran out-of-sample tests without the variables for “net billed amount”  and “rate review period length.” We found that the model remains useful  at entry: Our ability to predict probability of nonpayment was unaffected,  while our ability to predict the loss per nonpayment was reduced by a  moderate amount. This reduction was expected given that loss per  nonpayment is a function of the amount billed, and the amount billed is  determined by CBP after entry, based on the final duty rate set by  Commerce. Using our full set of data, we found that duty rate increases  and decreases for many product types were systematically predictable.
We presented the results of our regression analysis to CBP on two  occasions. Based on their comments, we adjusted the methodology used  to derive our analysis.
As discussed previously, we assessed the reliability of the ACS data and  had to make several assumptions in order to process the data. Beyond  the assumptions discussed above, in order to perform our regression  analysis, we had to make several additional assumptions. These are  discussed in appendix II.
We conducted this performance audit from January 2015 to July 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Risk Assessment Model of CBP’s Antidumping and Countervailing Duty Collection
paragraphs: We conducted a systematic statistical analysis of U.S. Customs and  Border Protection (CBP) data to identify factors affecting the risk of  antidumping (AD) and countervailing (CV) duty nonpayment. CBP  provided data we requested from its Automated Commercial System  (ACS)—CBP’s data system for tracking, controlling, and processing all  goods imported into the United States—as well as from CBP billing data,  and we consolidated these data files into a single database. To  demonstrate how a statistical model could be constructed that explores  the association between potential risk factors and the potential for  nonpayment, we used CBP’s data to develop two regression models, one  to estimate the likelihood of nonpayment for any given entry and one to  estimate the size of revenue loss if nonpayment occurs. Mathematically,  the likelihood of nonpayment and the size of the loss if nonpayment  occurs are the two components of expected loss. Our regression models  do not establish whether a given factor causes nonpayment or is merely  correlated with this risk. To be useful for risk management, such a model  would need to be able to predict future nonpayment risk. As a result, to  assess the ability of the model to predict future losses, we aggregated,  cross-validated, and analyzed the data for two separate 5-year periods  and conducted qualitative assessments of parameter stability. Our  models provide a demonstration of how CBP could systematically analyze  its data to provide insights into bill delinquency patterns, but we do not  intend to be prescriptive. Our analysis merely demonstrates that a  substantial proportion of nonpayment risk can be explained with  information available to CBP at the time an entry arrives and, later, at  liquidation, even with the limited dataset that we used. More sophisticated  models that could further incorporate CBP’s institutional expertise would  likely be able to predict risk even more effectively.
subsections: section_title: Data Sources, Reliability, and Assumptions
paragraphs: Our analysis is based on data collected in ACS, CBP’s data storage  systems for imports subject to AD/CV duties. We combined these data  with information that CBP stores on open AD/CV duty bills. Our data  included information on entries from fiscal year 2001 through fiscal year  2014. For this analysis, with the exception of a product codes database  that we constructed from CBP sources, we did not incorporate any  external or additional databases in our analysis.
Prior to conducting our analysis, we assessed CBP’s databases and  found them to be generally reliable for purposes of our analysis. While we  used a number of diagnostic tests to confirm the stability and predictive  power of the risk factors estimated by our model, additional data and  alternative modeling approaches could produce different results. Our  model is based on a number of statistical assumptions, some of which  may not correspond to the underlying process that generates AD/CV duty  losses from nonpayment. These statistical assumptions may include the  linearity of risk factors in our functional form, the potential that variables  omitted because they were not in CBP’s databases or are otherwise  difficult to quantify would change estimates of risk, and the potential  sensitivity of our statistical inference to deviations from normality.
We processed the data from CBP by taking the following steps, which  required several additional assumptions as noted:  1.  We consolidated our data by unique combinations of entry number  and AD/CV duty case number.  2.  We identified the product type associated with each case number.
Each AD/CV duty case number includes codes that indicate,  separately, the relevant product type and country of origin.  However, the product code is not consistent between countries.  For example, the product code for lemon juice when an entry is  from Mexico is the same code used for sodium sulfate when an  entry is from Canada. We constructed a database using a large  list of case numbers provided by CBP. We then identified, where  available, cases from every country corresponding to a given  product description. We conducted a manual search for several  missing case numbers.  3.  We dropped open bills associated with entries containing more than  one AD/CV duty case number in order to avoid falsely attributing open  bills to a given case.
Because of limitations in CBP’s database of open bills, we were  unable to determine for any open bill its corresponding case  number.  4.  We removed a small number of entries that did not have information  recorded for the dollar value of the product being imported, which is a  necessary component of AD/CV duty rate determination.  5.  We restricted our analysis to entries subject to AD/CV duties that  could have resulted in uncollected duties—that is, entries that were  liquidated and billed.
Because of data limitations, we estimated billed amounts by  summing the final assessed duty with accumulated interest and  subtracting any initial payment; we retained only entries where this  “net bill” amount was greater than $0 (zero). While analytically  imperfect, this was a reasonable approach, according to CBP  officials.  6.  We considered only the principal amount due for open bills.
In assessing the amount of uncollected duties, we assumed that  interest accumulated after liquidation follows from the decision not  to pay the bill.
Because of limitations in the data provided by CBP, we are unable  to account for the proportion of duties owed that may have been  covered by surety bonds and thus potentially collectible by CBP in  the event of delinquency.  7.  We logarithmically transformed variables that contained long-tail  distributions.  8.  We identified delinquent bills as those that were 31 days old or older  with unpaid amounts, consistent with the requirements of 19 U.S.C. §  1505(d), which allows the charging of interest on billed but unpaid  amounts after 30 days.  9.  In order to reduce noise in our analysis, we did not test for the risk  associated with products and countries from which there were fewer  than 15 delinquent bills. Because of general policy interest in Chinese  entries, we controlled for the interaction effect of Chinese origin and  product type for products that met the volume criteria described  above. We retained these interaction variables for products with more  than 15 entries from China, and we removed redundant controls for  products entering almost exclusively from China (i.e., products for  which more than 99.5 percent of the entries originated from China).  10. We created several variables that describe importer and manufacturer  characteristics derived from variables in ACS. All variables included in  our model and their derivations are described in tables 2 and 3.  Summary statistics for these variables are included in tables 4 and 5.
section_title: Model Specification
paragraphs: We ran two regression models for each of two 5-year periods—full  calendar years 2004–2008 and 2009–2013. In order to determine  associations with probability of nonpayment, we regressed country of  origin, product, and other shipment characteristics on the binary variable  “delinquent.” As many of our variables are indicator variables, we found  that a linear fit was a good approximation of a logistic regression and had  the advantages of being less computationally intensive and producing  coefficients that fit intuitively into a risk scorecard. In order to determine  associations with size of nonpayment, we regressed the same  independent variables on the continuous variable “amount delinquent.”  See table 6 for regression coefficients from these models for each  relevant time period. We restricted this second model to entries  associated with a delinquent bill.
Model 1, run for each 5-year period:  delinquent = β0 + β1*loglinevalue + β2*bondind + β3*lognetbill +  β4*logentrytimegapman + β5*logentryspanman + β6*logentrytimegapimp  + β7*logentryspanimp + β8*logcountman + β9*logcountimp +  β10*logprevmeanman +β11*logprevmeanimp + β12*logdelimp +  β13*logdelman + β14*loghowlong + β15*earlydelin + β16*initialtar +  β* + β* +  β*  Model 2, run for each 5-year period:  logamtdelinquent = β0 + β1*loglinevalue + β2*bondind + β3*lognetbill +  β4*logentrytimegapman + β5*logentryspanman + β6*logentrytimegapimp  + β7*logentryspanimp + β8*logcountman + β9*logcountimp +  β10*logprevmeanman +β11*logprevmeanimp + β12*logdelimp +  β13*logdelman + β14*loghowlong + β15*earlydelin + β16*initialtar +  β* + β* +  β* (restricted to entries associated with a  delinquent bill)
section_title: Parameter Stability and Selection of Time Periods for Analysis
paragraphs: In order to determine whether risk factors were generally stable over  various periods of time and hence whether our models were in principle  appropriate for forecasting, we ran a series of regressions over 2-year  time periods. We selected several risk factors for review based on the  size and statistical significance of their coefficients in the full 2001–2014  period regression model. We found that these risk factors, as evidenced  by their coefficients, are generally stable over time in our year-by-year  regression models, retaining the same sign and comparable magnitudes.  However, some risk factors also change over time, for example, showing  large changes in magnitude or changing sign. These results suggest that  in principle models like the one we developed could be useful for  forecasting risk of loss and, further, that changes over time suggest risk  factor estimates should be updated periodically.
In order to determine appropriate time periods for analysis, we examined  the effect of including data from a range of time periods. We sequentially  expanded the regression analysis to include data from 2011–2013,  adding additional years up to and including 2005–2013, as well as  groupings of 2005–2009 and 2004–2008. Expanding the time period of  analysis may have several effects. For example, increasing the available  data will generally result in more precise estimates and therefore models  that are more likely to capture inherent, underlying risks. On the other  hand, longer time periods may be associated with greater amounts of  systemic change in risk factors and therefore models that are less  reflective of contemporary underlying risks.
For each time period, we constructed the model on one portion of our  data and tested the model’s ability to identify the likelihood of nonpayment  for entries outside of this sample (“out-of-sample predictive power”). We  measured the model fit for this cross-validation process for each time  period and found that the model’s out-of-sample predictive power  improved until we included 5 years of data (2009–2013), at which point  the predictive power roughly plateaued with an R-squared value  estimated at about 0.75-0.77 out of sample for probability of nonpayment  (see table 7). As a result, we believe that models constructed with 5–9  years of past data would be reasonable. We selected 5-year periods  (2004–2008 and 2009–2013) for purposes of comparing the results of our  models on datasets from distinct time periods. Our selection of these  particular 5-year periods allowed us to compare results from two full time  periods of data that correspond to the most current data available from  CBP and the data from approximately the time of our 2008 report on  AD/CV duties.
Because fewer data are available to CBP at entry than at liquidation, we  also ran out-of-sample tests without the variables for net billed amount  (“netbill”) and rate review period length (“loghoqlong”). We found that the  model remains useful at entry: our ability to predict probability of  nonpayment was unaffected, while our ability to predict the loss per  nonpayment was reduced from an R-squared value of 0.985 to a value of  0.27. This reduction is to be expected given that loss per nonpayment is a  function of the amount billed, and the amount billed is the result of CBP’s  application of the AD/CV duty rate determined by Commerce after entry;  “netbill” almost perfectly explains the size of loss if nonpayment occurs,  and we did not include it in this version of the model. However, we found  that the increase or decrease from the initial estimated duty rate to the  final duty rate was, to some extent, predictable using the information that  CBP has available at entry. Hence, the model works reasonably well for  predicting the size of loss if nonpayment occurs before Commerce has  set the final rate. Using our full set of data, not restricted to entries with  netbill>0, we found that the coefficients associated with many product  types were highly statistically significant, indicating that at least some can  meaningfully predict rate increases and decreases; hence, the lack of  information at entry about the liquidation that ultimately will be applied to  the entry is mitigated to some extent.
section_title: Appendix III: Analysis of the Effects of the Suspension of the New Shipper Bonding Privilege and Its Association with Unpaid Bills
paragraphs: We performed an analysis of importers’ use of the new shipper bonding  privilege before and after the suspension of the bonding privilege from  August 2006 through July 2009. Our analysis shows the following:
After the new shipper bonding privilege was reinstated, importers  made much less use of it to pay initial estimated AD/CV duties  compared with the period before the privilege was suspended.
Most of the importers that obtained the new shipper bonds, including  both before and after the suspension of the privilege, were associated  with unpaid bills.
New shippers that used a bond to pay estimated AD/CV duties did not  account for a significant amount of the total unpaid debt during either  of the two periods when the bonding privilege was in effect.
Over the entire time frame we examined, from January 2002 through  December 2013, new shippers that paid their estimated AD/CV duties  in cash were associated with many fewer unpaid bills than importers  that obtained new shipper bonds.
In August 2006, Congress temporarily suspended the “new shipper  bonding privilege” that allowed importers purchasing goods from  companies undergoing a new shipper review to provide a bond, instead of  cash, to cover estimated antidumping (AD) and countervailing (CV) duties  due at entry. As a result, importers of these goods were required to  provide a cash deposit to cover the estimated duties. However, the  temporary suspension expired and the privilege was reinstated in July  2009. In February 2016, the President signed legislation removing the  new shipper bonding privilege. Figure 17 shows when the new shipper  bonding privilege was and was not in effect for the period of our review.
We performed an analysis of importers’ use of the new shipper bonding  privilege before and after the suspension of the bonding privilege. We  also examined the extent to which these importers were associated with  unpaid bills. In addition, we examined the extent to which importers that  used a new shipper bond to pay for estimated AD/CV duties accounted  for the total amount of unpaid debt. Finally, for comparison, we examined  the extent to which new shippers that used cash instead of a bond to pay  for estimated AD/CV duties due at entry were associated with unpaid  bills. Our analysis of the new shipper bonding privilege focused on two  periods: from January 2002 through July 2006 (before the new shipper  bonding privilege was suspended) and from August 2009 through  December 2013 (after the new shipper bonding privilege was reinstated).  Because the use of a cash deposit was allowed during the entire period  from January 2002 through December 2013, we used this period to  analyze how the use of cash deposits by new shippers was associated  with unpaid bills.
The analysis shows that after the new shipper bonding privilege was  reinstated, importers made much less use of it to pay initial estimated  AD/CV duties compared with the period before the privilege was  suspended. From January 2002 through July 2006, 32 importers used  new shipper bonds. These importers used new shipper bonds to pay  duties on 1,558 entries subject to AD/CV duties assessed at  approximately $154 million. By comparison, in the period after the  reinstatement of the privilege, from August 2009 through December 2013,  only 1 importer used a new shipper bond. This importer used new shipper  bonds to pay for 3 entries subject to AD/CV duties worth approximately  $511,000. According to surety officials we interviewed, sureties tightened  their underwriting standards in 2009, and this could account for the vastly  reduced number of new shipper bonds issued.
Moreover, our analysis also shows that most of the importers that  obtained the new shipper bonds, including both before and after the  suspension of the privilege, were associated with unpaid bills. For  example, before the suspension (January 2002 through July 2006), 25 of  the 32 importers (or approximately 78 percent) that used a new shipper  bond had one or more unpaid bills. Approximately 76 percent of the bills  issued to these importers during this period went unpaid. The total  amount that went unpaid was approximately $89 million, with a median  bill amount of about $13,000 and an average bill amount of about  $75,000. After the suspension was lifted until December 2013, the 1  importer that used new shipper bonds did not pay any of its bills and the  total amount due was approximately $560,000. The median and average  bill amounts were approximately $180,000 and $187,000, respectively.
In addition, our analysis shows that new shippers that used a bond to pay  for estimated AD/CV duties did not account for a significant amount of the  total unpaid debt during either of the two periods when the bonding  privilege was in effect. For the period from January 2002 through July  2006, these new shippers accounted for about 11 percent of all unpaid  bills. For the period after the reinstatement of the privilege through  December 2013, the percentage of total unpaid debt associated with new  shippers that used a bond to pay for estimated AD/CV duties was less  than 1 percent.
Our analysis also shows that by comparison, over the entire time frame  we examined, new shippers that paid their estimated AD/CV duties in  cash were associated with many fewer unpaid bills. From January 2002  through December 2013, a total of 42 importers associated with a new  shipper review used a cash deposit instead of a bond to pay for estimated  AD/CV duties. Of the 42, only 1 was associated with an unpaid bill. This  importer had two unpaid bills worth a total of about $6,000.
section_title: Appendix IV: Comments from the Department of Homeland Security
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Christine Broderick (Assistant  Director), José M. Peña III, (Analyst in Charge), Kerri Eisenbach, Andrew  Kurtzman, and Cristina Ruggiero made key contributions to this report.  Also contributing were Ming Chen, Gergana Danailova-Trainor, David  Dayton, Michael Hoffman, Julia Jebo Grant, Mitchell Karpman, Grace Lui,  Michael Maslowski, Marc Molino, and Eddie Uyekawa.
section_title: Related GAO Products
paragraphs: Antidumping and Countervailing Duties: Key Challenges to Small and  Medium- Sized Enterprises’ Pursuit of the Imposition of Trade Remedies.  GAO-13-575. Washington, D.C.: June 25, 2013.
Antidumping and Countervailing Duties: Management Enhancements  Needed to Improve Efforts to Detect and Deter Duty Evasion.   GAO-12-551. Washington, D.C.: May 17, 2012.
Options for Collecting Revenues on Liquidated Entries of Merchandise  Evading Antidumping and Countervailing Duties. GAO-12-131R.  Washington, D.C.: November 2, 2011.
Agencies Believe Strengthening International Agreements to Improve  Collection of Antidumping and Countervailing Duties Would Be Difficult  and Ineffective. GAO-08-876R. Washington, D.C.: July 24, 2008.
Antidumping and Countervailing Duties: Congress and Agencies Should  Take Additional Steps to Reduce Substantial Shortfalls in Duty Collection.  GAO-08-391. Washington, D.C.: March 26, 2008.
International Trade: Customs’ Revised Bonding Policy Reduces Risk of  Uncollected Duties, but Concerns about Uneven Implementation and  Effects Remain. GAO-07-50. Washington, D.C.: October 18, 2006.
U.S.-China Trade: Eliminating Nonmarket Economy Methodology Would  Lower Antidumping Duties for Some Chinese Companies. GAO-06-231.  Washington, D.C.: January 10, 2006.
U.S.-China Trade: Commerce Faces Practical and Legal Challenges in  Applying Countervailing Duties. GAO-06-231. Washington, D.C.: June 17,  2005.