Antidumping and Countervailing Duties: Management Enhancements Needed to Improve Efforts to Detect and Deter Duty Evasion
Released: 2012-05-17T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The United States imposes AD/CV duties to remedy unfair foreign trade practices, such as unfairly low prices or subsidies that cause injury to domestic industries. Examples of products subject to AD/CV duties include honey from China and certain steel products from South Korea. Importers that seek to avoid paying appropriate AD/CV duties may employ methods of evasion such as illegally transshipping an import through a third country to disguise its true country of origin or falsifying the value of an import to reduce the amount of duties owed, among others. AD/CV duty evasion can harm U.S. companies and reduces U.S. revenues. CBP, within the Department of Homeland Security, leads efforts to detect and deter AD/CV duty evasion.

GAO was asked to examine (1) how CBP detects and deters AD/CV duty evasion, (2) factors that affect CBP’s efforts, and (3) the extent to which CBP tracks and reports on its efforts. To address these objectives, GAO reviewed CBP data and documents; met with government and private sector representatives in Washington, D.C.; and conducted fieldwork at three domestic ports.

section_title: What GAO Found
paragraphs: U.S. Customs and Border Protection (CBP) detects and deters evasion of antidumping and countervailing (AD/CV) duties through a three-part process that involves (1) identifying potential cases of evasion, (2) attempting to verify if evasion is occurring, and (3) taking enforcement action. To identify potential cases of evasion, CBP targets suspicious import activity, analyzes trends in import data, and follows up on allegations from external sources. If CBP identifies a potential case of evasion, it can use various techniques to attempt to verify whether evasion is occurring, such as asking importers for further information, auditing the records of importers suspected of evasion, and inspecting shipments arriving at ports of entry. If CBP is able to verify evasion, its options for taking enforcement action include (1) pursuing the collection of evaded duties, (2) imposing civil penalties, (3) conducting seizures, and (4) referring cases for criminal investigation. For example, between fiscal years 2007 to 2011, CBP assessed civil penalties totaling about $208 million against importers evading AD/CV duties.

Two types of factors affect CBP’s efforts to detect and deter AD/CV duty evasion. First, CBP faces several external challenges in attempting to gather conclusive evidence of evasion and take enforcement action against parties evading duties. These challenges include (1) the inherent difficulty of verifying evasion conducted through clandestine means; (2) limited access to evidence of evasion located in foreign countries; (3) the highly specific and sometimes complex nature of products subject to AD/CV duties; (4) the ease of becoming an importer of record, which evaders can exploit; and (5) the limited circumstances under which CBP can seize goods evading AD/CV duties. Second, gaps in information sharing also affect CBP efforts. Although communication between CBP and the Department of Commerce (Commerce) has improved, CBP lacks information from Commerce that would enable it to better plan its workload and help mitigate the administrative burden it faces in processing AD/CV duties—an effort that diminishes its resources available to address evasion. Additionally, CBP has encouraged the use of larger bond amounts to protect AD/CV duty revenue from the risk of evasion, but CBP has neither a policy nor a mechanism in place for a port requiring a larger bond to share this information with other ports in case an importer withdraws its shipment and attempts to make entry at another port to avoid the higher bond amount.

While CBP has made some performance management improvements, it does not systematically track or report key outcome information that CBP leadership and Congress could use to assess and improve CBP’s efforts to deter and detect AC/CV duty evasion. First, CBP cannot readily produce key data, such as the number of confirmed cases of evasion, which it could use to better inform and manage its efforts. Second, CBP does not consistently track or report on the outcomes of allegations of evasion it receives from third parties. As GAO reported in March 2011, the Government Performance and Results Modernization Act of 2010 underscores the importance of ensuring that performance information will be both useful and used in decision making. Without improved tracking and reporting, agency leadership, Congress, and industry stakeholders will continue to have little information with which to oversee and evaluate CBP’s efforts to detect and deter evasion of AD/CV duties..

section_title: What GAO Recommends
paragraphs: To enhance CBP’s efforts to address AD/CV duty evasion and facilitate oversight of these efforts, GAO makes several recommendations, including that CBP create a policy and a mechanism for information sharing among ports regarding the use of higher bond amounts and develop and implement a plan to track and report on these efforts. CBP and the Department of Commerce generally concurred with GAO’s recommendations.

section_title: Letter
paragraphs: The United States imposes antidumping and countervailing (AD/CV)  duties to remedy unfair foreign trade practices that cause injury to  domestic industries. Importers that seek to avoid paying appropriate  AD/CV duties may attempt to evade them through methods such as  illegally transshipping an import through a third country to disguise its true  country of origin or falsifying the value of an import to reduce the amount  of duties owed, among others. Evasion of AD/CV duties undermines  U.S. AD/CV duty laws—the intent of which is to level the economic  playing field for U.S. industry—and deprives the U.S. government of  revenues it is due. U.S. Customs and Border Protection (CBP), within the  Department of Homeland Security, leads U.S. efforts to detect and deter  AD/CV duty evasion. Congress and domestic industries have expressed  concern that unscrupulous actors continue to find ways to evade duties,  leaving U.S. industry at risk.

In response to your request for a review of CBP’s efforts to address  AD/CV duty evasion, this report examines (1) how CBP detects and  deters evasion, (2) factors that affect CBP’s efforts to detect and deter  evasion, and (3) the extent to which CBP tracks and reports on its efforts.

To address these objectives, we reviewed a range of documents and data  from CBP related to its efforts to detect and deter AD/CV duty evasion,  such as annual planning and reporting documents; internal memos and  other documents; and data on products subject to AD/CV duties,  allegations of evasion from external sources, and enforcement outcomes.

We also met with officials in CBP’s Offices of International Trade, Field  Operations, and Intelligence and Investigative Liaison; U.S. Immigration  and Customs Enforcement (ICE); and the Departments of Commerce  (Commerce) and the Treasury, as well as a coalition of U.S. industries  affected by AD/CV duty evasion. Additionally, we conducted fieldwork at  the ports of Miami, FL; Seattle, WA; and Los Angeles, CA; as well as the  National Targeting and Analysis Group for AD/CV duty issues in  Plantation, FL. See appendix I for a complete description of our  objectives, scope, and methodology.

We conducted this performance audit from June 2011 to May 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: The U.S. Import Process
paragraphs: The process for importing products into the United States involves several  different private parties, as well as the U.S. government. These private  parties include exporters, carriers, and importers, among others.  Exporters are companies that sell goods manufactured or produced in  foreign countries to the United States. Carriers are companies that  transport the goods to the United States. Importers may be companies  that purchase the goods from exporters or simply may be responsible for  facilitating the importation of the goods. The importer of record is  responsible for paying all estimated duties, taxes, and fees on those  products when they are brought into the United States. Importers of  record are also required to obtain a general bond to secure the payment  of their financial obligations. CBP is responsible for, among other things,  managing the import process (see fig. 1); collecting the duties, taxes, and  fees assessed on those products; and setting the formula for establishing  importers’ general bond amounts.

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. laws authorize  the imposition of AD duties on imports that were “dumped” (i.e., sold at  less than normal value) and CV duties on imports subsidized by foreign  governments. As we reported in March 2008, the U.S. AD/CV duty  system is retrospective, in that importers initially pay estimated AD/CV  duties at the time of importation, but the final amount of duties, reflecting  the actual amount of dumping or subsidization, is not determined until  later. Commerce is responsible for calculating the appropriate AD/CV  duty rate. CBP is then responsible for collecting the estimated AD/CV  duties when goods enter the United States, and subsequently processing  the final AD/CV duties (called “liquidation”) when instructed by  Commerce. Liquidation may result in providing importers with a refund  or sending an additional bill.

A wide range of imported goods are subject to AD/CV duties, such as  agricultural, chemical, steel, paper, and wooden products. Each set of  AD/CV duties—detailed in an AD/CV duty order—is for a type of product  from a specified country. The written “scope” of each AD/CV duty order  describes the specific type of product that is subject to the duties. The  duty order also lists one or more Harmonized Tariff Schedule codes  associated with the product. There are duty orders in place for some  types of products from several countries. For example, there are currently  AD duty orders on frozen warmwater shrimp from five countries—Brazil,  China, India, Thailand, and Vietnam. For some other types of products,  there is a duty order in place on only one country, such as saccharin from  China. As of March 2012, there were 283 AD/CV duty orders in effect,  with more duty orders on products from China than from any other  country (see table 1).

Importers that seek to avoid paying appropriate AD/CV duties may  attempt to evade them by using a variety of techniques. These techniques  include illegal transshipment to disguise a product’s true country of origin,  undervaluation to falsify the price of an import to reduce the amount of  AD/CV duties owed, and misclassification of merchandise such that it falls  outside the scope of an AD/CV duty order, among others (see fig. 2).  According to CBP, importers sometimes use more than one evasion  method at a time to further disguise the fact that they are importing goods  subject to AD/CV duties. Because the techniques used to evade AD/CV  duties are clandestine, the amount of revenue lost as a result is unknown.

section_title: CBP Uses a Three- Part Process to Detect and Deter AD/CV Duty Evasion
paragraphs: CBP detects and deters AD/CV duty evasion through a three-part process  that involves (1) identifying potential cases of evasion, (2) attempting to  verify if evasion is occurring, and (3) taking enforcement action.

CBP begins its detection of AD/CV duty evasion by identifying potential  instances of evasion, using two primary sources of information: import  data and allegations from external sources. Import data is generated from  the documents submitted by importers as part of the import process.  Allegations are collected electronically through e-Allegations, an online  system created by CBP in 2008. CBP also collects allegations via other  means (such as telephone and e-mail, among others) and stores them in  the e-Allegations system. As of September 2011, there were almost 400  allegations related to AD/CV duty evasion in the e-Allegations system,  mostly from sources associated with affected industries.

To look for anomalies that may be indicators of evasion, CBP personnel  at both the local and national levels conduct targeting, analyze trends in   Local import data, and follow up on allegations from external sources. targeting and analysis is conducted by CBP personnel stationed at more  than 300 ports of entry, while national targeting and analysis is conducted  by officials at CBP headquarters and its National Targeting and Analysis  Group (NTAG) for AD/CV duty issues located in Plantation, FL. CBP  officials explained that most of their targeting involves identifying entries  filed under the Harmonized Tariff Schedule codes associated with a given  product that is subject to AD/CV duties and then examining the import  documentation for those entries for anomalies that may suggest evasion  is occurring. Examples of such anomalies in import documents include,  but are not limited to being filed under the same tariff code as a product that is subject to  AD/CV duties but not being declared as subject to such duties, listing a country of origin that is not capable of producing the goods  (or the quantity of the goods) imported—a potential indicator of illegal  transshipment, and  showing a monetary value for the goods imported that appears to be  too low for the quantity or weight of goods imported—a possible sign  of undervaluation.

Once CBP identifies a potential instance of evasion, it can use a variety of  techniques at different points in the import process to attempt to verify if  evasion is occurring. These include, but are not limited to, the following:  targeting additional shipments made by the importer of record and  conducting further data analysis to look for other anomalies that may  be evidence of evasion; requesting that the importer provide further information, such as  product invoices and other documents that can help CBP understand  the transactions involved in producing and importing a good and  ascertain if evasion occurred; sending referrals to ICE to initiate criminal investigations and gather  evidence of evasion from foreign countries, such as by visiting  production facilities overseas and collecting customs documents from  foreign counterparts; performing cargo exams to inspect shipments arriving at ports of  collecting samples of products potentially brought in through evasion  and conducting laboratory analysis of these samples to attempt to  identify their true country of origin and other technical details that can  help CBP determine if the products should be subject to AD/CV  duties; and auditing importers suspected of evading AD/CV duties by collecting  company records (such as purchase orders, shipping documents, and  payment records) and examining them for discrepancies.

Figure 3 shows where in the import process CBP typically uses these  techniques.

In cases where CBP is able to verify evasion, its options for taking  enforcement action to deter evasion include (1) pursuing the collection of  evaded duties, (2) imposing civil penalties, (3) conducting seizures, and  (4) referring cases to ICE for criminal investigation. As we discuss later in  this report, CBP lacks complete data on the amount of evaded duties it  has pursued and collected in cases of evasion. From fiscal years 2007 to  2011, CBP assessed 252 civil penalties totaling about $208 million  against 237 importers that evaded AD/CV duties. Over the same period,  CBP also made 33 seizures related to AD/CV duty evasion, with a total  domestic value of nearly $4 million. In instances where CBP suspects that  criminal laws may have been violated, it can refer cases to ICE for  criminal investigation. Between fiscal years 2007 and 2011, ICE  investigations of AD/CV duty evasion led to 28 criminal arrests, 85  indictments, and 37 criminal convictions.

As discussed later in this report, some products that are subject to AD/CV duties fall  under the same tariff codes as other products that are not subject to AD/CV duties.  Consequently, the tariff code for an entry may be insufficient for CBP to determine  whether or not the entry is subject to AD/CV duties; additional information may be needed. wood flooring and were also preparing to assess civil penalties on 14  importers.

At another port we visited, CBP officials described a case that began with  an anonymous fax alleging evasion of the AD duties on steel nails from  China. After reviewing import data, the officials were able to confirm that  the importer named in the allegation had brought an entry of steel nails  into their port and that the importer’s broker had filed the entry as not  subject to AD duties. Because the AD duty order on steel nails from  China provides an exemption for roofing nails, the port officials then sent  a formal request for information to the importer to ask for a sample of the   The port officials sent  steel nails imported, which the importer provided.the sample to a CBP laboratory to determine if the nails provided were  roofing nails or not. After the laboratory determined that the sample nails  were not roofing nails, the port officials concluded that the steel nails were  subject to the AD duty order and, consequently, should have been  declared as such. The officials subsequently told us that this would result  in a penalty against the importer and that 34 additional entries by the  importer at six ports were also under review for evasion.

section_title: External Obstacles and Gaps in Information Sharing Hamper CBP Efforts to Address Evasion
paragraphs: Two types of factors affect CBP’s efforts to detect and deter AD/CV duty  evasion. First, CBP faces several external challenges in attempting to  gather conclusive evidence of evasion and deter parties from evading  duties. Second, although interagency communication has improved, and  CBP has encouraged the use of higher bonding requirements to protect  revenue, gaps in information sharing with Commerce and within CBP may  limit the effectiveness of these initiatives.
subsections: section_title: CBP Faces Challenges Mostly Beyond Its Control in Proving Evasion Has Occurred and Taking Deterrent Action
paragraphs: Several challenges mostly outside of CBP’s control impede its efforts to  prove that evasion has occurred and deter parties from evading AD/CV  duties. These challenges include (1) the inherent difficulty of verifying  evasion conducted through clandestine means; (2) limited access to  evidence of evasion located in foreign countries; (3) the highly specific  and sometimes complex nature of products subject to AD/CV duties;   (4) the ease of becoming an importer of record, which evaders can  exploit; and (5) the limited circumstances under which CBP can seize  goods brought in through evasion.

CBP officials we met with stated that verifying evasion of AD/CV duties is  one of the agency’s most challenging and time-consuming trade  enforcement responsibilities. As these officials emphasized, proving that  evasion is occurring is a key precondition for taking enforcement action  against importers evading AD/CV duties. However, because AD/CV duty  evasion is inherently deceptive and clandestine in nature, it can be  extremely difficult for CBP to gather conclusive evidence to prove that  evasion is occurring. According to CBP, not only can different methods of  evasion be employed at once—often involving the collusion of several  parties, including the manufacturer, shippers, and importer— but entities  engaging in evasion are using increasingly complex schemes. In  particular, CBP officials identified the growing use of illegal transshipment  as a key concern, noting that the Internet has made it very easy for  importers to find companies willing to transship goods subject to AD/CV  duties through third countries to mask the goods’ true country of origin.  Because such schemes often involve adding false markings and  packaging designed to mimic legitimate production in other countries, it  can be very difficult for CBP to determine a product’s country of origin  through visual inspection or through reviews of shipping documents.  Undervaluation can be similarly difficult to prove, according to CBP,  especially if the producer and importer collude to create false values.

In addition to being inherently difficult, verifying evasion of AD/CV duties  can also be very time-consuming. According to CBP, it can easily take  over a year or more to collect the evidence needed to verify a potential  case of evasion. For example, CBP’s ability to target additional shipments  from an importer suspected of evading duties hinges on whether or not  importation is ongoing. However, CBP documentation notes that  shipments of some goods may be seasonal in nature, resulting in months  of inactivity until the next shipment can be targeted. Additionally, in cases  where CBP requests additional information from the importer, the  importer has 30 days in which to respond to the request, but CBP can  extend the deadline in additional 30-day increments if the importer fails to  respond or needs more time to gather the required information. Similarly,  according to CBP, it typically takes up to 30 days to conduct a laboratory  analysis of a product sample, but it can take up to 120 days if, for  instance, new analytical methods need to be developed. CBP officials  stated that their audits of importers suspected of evading AD/CV duties  are also time-consuming in nature, taking nearly 8 months to complete on  average. Given these timelines— and the fact that CBP may need to use  several such verification techniques to successfully prove a single case of  evasion—the process of proving evasion may become quite lengthy.

According to CBP and ICE officials, they have limited access to evidence  located in foreign countries that can be vital to proving that evasion has  occurred, particularly in cases of illegal transshipment. These officials  explained that collecting customs documents from foreign counterparts or  gaining access to facilities in a foreign country listed as the country of  origin for a suspicious entry can help them prove that the goods in  question originated elsewhere. For example, ICE officials investigating a  case concerning Chinese honey suspected of being illegally transshipped  through Thailand helped determine that evasion occurred, in part by  visiting the sites in Thailand where the honey was allegedly produced and  determining that the facilities were not honey manufacturing plants (see  fig. 5). Similarly, CBP laboratory scientists explained that their ability to  use chemical analysis to determine whether an importer falsely declared  a good’s country of origin is contingent on gathering reference samples  from as many countries as possible for comparison purposes.

To collect information located outside of U.S. jurisdiction, CBP and ICE  need to obtain the permission of host nation governments. However, both  CBP and ICE explained that the level of host nation cooperation varies.  According to ICE, even when the United States has bilateral agreements  in place to share customs information, the extent of information shared by  foreign counterparts varies by country. For example, ICE officials stated  that although most of their investigations of evasion involve goods from  China—with which the United States has a customs cooperation  agreement in place—they have never received permission to visit  facilities in China as part of their investigations. Similarly, according to  ICE officials, although the United States has bilateral agreements with  several countries that are thought to be common transshipment points— such as Indonesia, India, and the Philippines—ICE’s ability to visit these  and other countries during the course of investigations depends on  factors such as each country’s political climate, the nature of its bilateral  relationship with the United States, and the extent to which the host  nation government has ties to the company or industry under  investigation. CBP laboratory scientists have also had mixed results in  gaining access overseas. They noted that the Indonesian government  recently allowed them access to collect samples of shrimp from  Indonesian producers. However, the Malaysian government initially gave  them approval to visit honey and shrimp producers in their country but  ultimately rescinded its approval without explanation. CBP officials also  noted that although the U.S. free trade agreement with Singapore— another country thought to be a common transshipment point—allows for  cooperation on customs issues, the agreement explicitly excludes matters  related to AD/CV duties.

According to CBP officials, the highly specific and complex nature of  some products subject to AD/CV duties can make it extremely difficult to  identify evasion. As noted earlier, most of CBP’s targeting for potential  evasion involves examining entries that have the same Harmonized Tariff  Schedule codes as products subject to AD/CV duties in order to look for  any not filed as subject to AD/CV duties. For example, to target potential  evasion of the AD duties on saccharin from China, CBP can examine  entries from China that have the tariff code for saccharin and determine if  any have been filed as not subject to AD/CV duties. However, in some  cases, no unique tariff code exists for the specific products that  Commerce investigated and issued a duty order for; rather, these  products fall under the same tariff code as a broader category of products  that are not subject to AD/CV duties. Consequently, the tariff codes listed  on a given entry may be insufficient for CBP to determine if goods  imported as part of that shipment are subject to AD/CV duties; additional  information may be needed. An example is petroleum wax candles from  China, which are subject to AD duties. Because there is no specific tariff  code for petroleum wax candles—only one for candles—CBP cannot  conclude, absent other evidence, that an entry from China under the tariff  code for candles is petroleum wax candles, as it may be another type of  candle that is not subject to AD duties. Instead, CBP has to turn to other  means of verification to attempt to gather conclusive evidence that the  entry is petroleum wax candles and, therefore, subject to AD duties. For  example, CBP may decide to ask the importer for additional information,  such as product invoices containing further details on the type of candles  imported. CBP may also target additional shipments of candles and  potentially collect a sample for laboratory analysis. However, as  described earlier, each of these steps would take additional time,  lengthening the verification process.

According to CBP officials, the complex nature of some products covered  by AD/CV duty orders can also make it difficult for CBP personnel to  visually identify the products during cargo exams. For instance, CBP  officials stated that AD/CV duty orders on steel typically cover steel  products with a certain chemical composition—an aspect that cannot be  determined through visual inspection. Another example is the AD/CV duty  order on honey, which applies not only to natural honey and flavored  honey, but also to honey blends that contain more than 50 percent natural  honey by weight—a characteristic that cannot be ascertained by sight  alone. In such cases, CBP personnel can extract a sample from the  shipment and send it for laboratory analysis. However, CBP laboratory  scientists stated that chemical analysis does not always return a definitive  judgment of whether or not a product sample analyzed should fall within  the scope of an AD/CV duty order. For example, chemical analysis of a  honey blend can return inconclusive results if certain additives are  present in the blend. CBP officials stated that CBP cannot take  enforcement action without conclusive proof of evasion.

Entities engaging in evasion can exploit the ease of becoming an importer  of record, impeding CBP’s ability to target and take deterrent action  against them. As noted earlier, importers of record are responsible for  paying all estimated duties, taxes, and fees on products when they are  brought into the United States. However, importers seeking to evade  AD/CV duties can exploit the ease of becoming an importer of record in  several ways. First, according to CBP officials, companies can easily  adopt new importer names and identification numbers, making it difficult  for CBP to track their importing activity and gather evidence needed to  prove that they are engaging in evasion. CBP officials stated that they  suspect some importers evading AD/CV duties set up new names and  identification numbers in advance to have ready for use in anticipation of  CBP targeting efforts. Second, as our prior work has noted, CBP collects  a minimal amount of information from companies applying to be importers  of record, which evaders can take advantage of to elude CBP efforts to   For instance, companies are not  locate and collect revenues from them.subject to any credit or background checks before being allowed to import  products into the United States. Third, foreign companies and individuals  are allowed to import products into the United States, but CBP can have  difficulty collecting duties and penalties from foreign importers—especially  illegitimate ones—when the importers have no attachable assets in the  United States. For example, as of February 2012, CBP had collected  about $5 million, or about 2 percent, of the approximately $208 million it  assessed in civil penalties between fiscal years 2007 and 2011. CBP  attributed its collection difficulties, in part, to challenges experienced in  collecting from foreign importers of record. CBP officials stated that, due  to this risk of noncollection, a factor they consider when deciding whether  or not to impose a penalty against a confirmed evader is whether or not it  has assets in the United States.

As we have previously reported, CBP or Congress could heighten the  requirements for becoming an importer of record; however, such action  could lead to unintended consequences.could include mandatory financial or background checks. However,  performing these checks would create a significant new burden on CBP,  which would need to conduct or oversee these financial or background  checks. Additionally, it is possible that, to ensure fairness, the heightened  requirements would be imposed on all importers. Given that the vast  majority of importers comply with customs laws and pay their duty  liabilities, such a broad approach may not be cost-effective and could  potentially restrict trade.

CBP is able to seize goods imported through evasion under limited  circumstances. CBP officials explained that unlike goods that are illegal to  import, such as those violating import safety or intellectual property laws,  goods imported through evasion are not necessarily illegal to import.  Specifically, according to CBP, although misclassification and  undervaluation are commonly used evasion schemes, U.S. trade law  limits the seizure of shipments that are misclassified or undervalued. By contrast, CBP is permitted to seize shipments brought in through other  forms of evasion, such as through falsifying the country of origin of goods  (illegal transshipment) or failing to declare goods on entry documents  (smuggling).and 2011, at least 28 were related to false country of origin or smuggling.  For instance, CBP officials at one port seized a shipment of plastic bags  following a cargo exam that revealed the shipment’s country of origin had  been falsified. However, as CBP has testified before Congress, entities  engaging in evasion often use false markings and packaging that make it  very difficult to determine country of origin through visual examination  alone, complicating the task of establishing grounds for seizure.  Moreover, as noted earlier, verifying evasion is an inherently difficult and  time-consuming process. CBP officials stated that, by the time CBP is  able to verify an instance of evasion, the associated goods typically have  already entered the United States and cannot be seized.

section_title: Interagency Communication Has Improved and CBP Has Promoted Use of Higher Bonding Requirements to Protect Revenue, but Weaknesses in Information Sharing Remain
paragraphs: Communication between Commerce and CBP has improved since our  2008 report on AD/CV duties, and CBP has encouraged port officials to  use higher bonding requirements to protect AD/CV duty revenue when  they suspect incoming shipments of evasion. However, CBP lacks  information from Commerce that would enable it to better plan its  workload and minimize the burden of the U.S. retrospective system on its  efforts to address evasion. Additionally, CBP has neither a policy nor a  mechanism in place for a port requiring a higher bond to share this  information with other ports in case an importer attempts to “port-shop,”  i.e., chooses to withdraw its shipment and attempts to make entry at  another port in an attempt to avoid the larger bond requirement.

CBP officials cited the administrative burden of the U.S. retrospective  system as a factor that diminishes the resources they have available for  detecting and deterring evasion of AD/CV duties. Under the U.S.  retrospective system, importers that properly declare their products as  subject to AD/CV duties (i.e., do not evade) pay the estimated amount of  duties when products enter the United States, but the final amount of  duties owed is not determined until later. The documentation for the  entries remains at the ports while CBP awaits liquidation instructions  conveying the final duty rate from Commerce. Commerce’s review to  determine the final duty rate—a process that culminates with the issuance  of liquidation instructions—typically takes up to 18 months to complete  and can take months or years longer if litigation is involved. At one port  we visited, CBP officials stated that they had approximately 20,000  entries awaiting instructions to liquidate for food-related products alone.  At another port, officials showed us the file room where they store entries  awaiting liquidation instructions (see fig. 6). Moreover, each of the  thousands of entries subject to AD/CV duties must be liquidated through  manual data entry, which is resource- and time-intensive and diverts CBP  personnel from their efforts to detect and deter evasion.

Under U.S. law, CBP has 6 months to liquidate entries from the time that   According to  it receives notice of the lifting of suspension of liquidation.CBP officials, this 6-month deadline can be very difficult to meet,  especially when a large volume of imports needs to be liquidated.order to begin liquidating entries, CBP must first receive liquidation  instructions from Commerce.

Since our 2008 report, Commerce has taken steps to improve the  transmission of its liquidation instructions to CBP. We found in 2008 that,  about 80 percent of the time, Commerce failed to send liquidation  instructions within its self-imposed deadline of 15 days after the  publication of the Federal Register notice. Furthermore, we reported that  the instructions were sometimes unclear, thereby causing CBP to take  extra time to obtain clarification.  Consequently, we identified untimely  and unclear liquidation instructions from Commerce as an impediment to  CBP’s ability to liquidate entries. In response to our recommendation to  identify opportunities to improve liquidation instructions, Commerce took  steps to improve the transmission of liquidation instructions to CBP. For  instance, Commerce deployed a system for tracking when it sends  liquidation instructions, which according to Commerce, has greatly  improved its timeliness. Documentation from Commerce indicates that, in  the first half of fiscal year 2012, Commerce sent liquidation instructions on  a timely basis more than 90 percent of the time.  In addition, Commerce  and CBP jointly established a mechanism for CBP port personnel to  submit questions directly to Commerce regarding liquidation issues.  According to CBP officials, these steps have improved the ability of port  personnel to ask Commerce to clarify its liquidation instructions.

GAO-08-391. in May 2011 that, without advance notice from Commerce on upcoming  liquidation instructions, it can be very difficult for CBP to make workforce  planning and staffing decisions. CBP officials at headquarters and at  ports we visited stated that liquidation instructions arrive with little warning  but need to be acted on immediately due to the 6-month deadline for  liquidating entries. They said that this sudden shift in workload diverts key  personnel from efforts to address evasion to focus on manually liquidating  thousands of entries instead. In the absence of advance notice from  Commerce on upcoming liquidation instructions, CBP attempts to roughly  estimate where its workload peaks will occur on the basis of the 18-month  time frame within which Commerce typically completes liquidation  instructions. However, CBP officials stated that no such estimation is  possible in cases involving litigation, which are not subject to time frames.  According to CBP, cases involving litigation are particularly burdensome  because of the considerable length of time it can take to resolve some  cases, during which an extremely large number of entries can accumulate  at the ports—all of which CBP eventually has to attempt to liquidate within  the 6-month deadline. However, Commerce does not currently inform  CBP when a court reaches a decision on a case in litigation—information  that would enable CBP to conduct some workload planning. According to  CBP officials, since CBP is not a party to such cases, it would be helpful if  Commerce provided them with some notification once decisions are  reached. Commerce officials stated that they do not know when courts  will reach decisions on cases in litigation, but said that they could work  with CBP to identify opportunities to share information regarding the  status of litigation.

In response to a CBP request, Commerce recently provided CBP some  information for the first time to help with workload planning. In June 2011,  Commerce officials provided their counterparts in CBP headquarters with  a list of instructions planned for issuance over the next 6 months. CBP  officials at headquarters acknowledged receiving the list from Commerce,  stating that, although the list did not address their need to know when  courts reach decisions on cases involving litigation, they found it useful  for general workload planning purposes. They noted that they would like  to receive this type of list from Commerce on a quarterly basis to have  more up-to-date information on hand to incorporate into their workload  planning decisions. Commerce officials stated that they would be willing  to work with CBP to develop a schedule for sharing this list on a regular  basis.

CBP has encouraged the use of higher bonding requirements, called  single transaction bonds (STB), to protect AD/CV duty revenue from the  risk of evasion; however, it has not ensured that a port requiring an STB  shares this information with other ports in case an importer withdraws its  shipment and attempts to make entry at another port to avoid the STB. As  noted earlier, all importers are required to post a security, usually a  general obligation bond, when they import products into the United  States. This bond is an insurance policy protecting the U.S. government  against revenue loss if an importer defaults on its financial obligations as  well as ensuring compliance with the law. However, given CBP’s  concerns that this general bond inadequately protects AD/CV duty  revenue, CBP has encouraged port officials to protect additional revenue  by requiring STBs for individual shipments they suspect of evasion. The  amount of the STB is generally one to three times the total entered value  of the merchandise plus duties, taxes, and fees, depending on the  revenue risk. According to CBP officials, STBs serve as additional  insurance in cases where CBP has not been able to collect enough  evidence before a shipment’s arrival to prove that evasion is occurring,  but where enough suspicion exists about the shipment to warrant  protection of the anticipated AD/CV duty revenue. An importer that is  required to obtain an STB can either choose to post the bond in order to  enter its shipment, or can opt against obtaining the bond and withdraw its  shipment. If an importer decides to post the STB, and CBP later confirms  that AD/CV duties are indeed owed, CBP first tries to collect from the  importer. However, if CBP is unable to collect from the importer, it can  collect significantly more money from the surety (insurance) company that  underwrote the STB than it would typically be able to collect from the  surety on a general bond, given the larger amount of revenue protected  by the STB.

While CBP has encouraged the use of STBs to protect revenue related to  imports suspected of AD/CV duty evasion, vulnerabilities exist due to  gaps in port-level information sharing. CBP gives each port the discretion  to decide when to require an STB. However, CBP has no policy or  mechanism in place for ports requiring such a bond to share this  information with other ports in case an importer attempts to port-shop,  i.e., chooses to withdraw its shipment and attempts to make entry at  another port in an attempt to avoid the larger bond requirement. Instead,  CBP port officials currently rely on informal e-mail and telephone  communication to notify other port officials of importers potentially  seeking to port-shop. Officials we met with cited specific instances where  this informal approach had been ineffective in notifying other ports of  suspected evasion before the importer could enter the goods at another  port. For example, CBP officials at one port described a case where an  importer that decided against posting an STB at their port was able to  make entry in another port before they were able to e-mail a warning  about that particular importer to other ports. In another case, an importer  succeeded in entering a shipment of furniture in Newark after officials at  the initial port of entry on the West Coast failed to notify other ports that  the importer had decided to withdraw its entry instead of posting an STB.  In both cases, CBP port officials suspected evasion but did not take  additional action in time to warn other ports of entry about the potential for  port-shopping.

Although CBP is currently formulating policy to guide the use of STBs, the  policy may not fully address the risk of port-shopping. In February 2012,  CBP officials stated that they were in the process of completing a policy  that will further encourage port officials to use STBs and provide them  with guidance on circumstances under which the use of STBs is   Officials stated that the policy will also instruct officials at a  appropriate.port requiring an STB to review any other shipments from the importer in  question before releasing them. They added that they had not yet decided  whether or not to automatically instruct ports nationwide to conduct the  same level of review.

section_title: CBP Has Made Some Performance Management Improvements but Does Not Systematically Track or Report on Its Efforts to Detect and Deter Evasion
paragraphs: While CBP has improved its performance measures for addressing  AD/CV duty evasion and enhanced its monitoring of STBs, it does not  systematically track or report key outcome information that CBP  leadership and Congress could use to assess and improve CBP’s efforts  to detect and deter AD/CV duty evasion. First, CBP cannot readily  produce key data on AD/CV duty evasion, such as the number of  confirmed cases of evasion, which it could use to better inform and  manage its efforts. Second, CBP does not consistently track or report on  the outcomes of allegations of evasion it receives from third parties. As  we have previously reported, internal control is a major part of managing  an organization and should be generally designed to assure that ongoing  monitoring occurs in the course of normal operations. Furthermore, our  prior work has noted the need for agencies to consider the differing  information needs of various users, such as agency top leadership and  Congress. Specifically, as we reported in March 2011, the Government  Performance and Results Modernization Act of 2010 underscores the  importance of ensuring that performance information will be both useful  and used in decision making.
subsections: section_title: CBP Has Improved Performance Measures and Began Monitoring the Use of STBs
paragraphs: In the past year, CBP has made enhancements in the following two areas  to track its efforts related to combating AD/CV duty evasion:

CBP has taken steps to improve the performance measures for its  efforts to detect and deter AD/CV duty evasion. CBP told us that in  fiscal years 2010 and 2011, a majority of the performance measures  for AD/CV duty enforcement either lacked sufficient data or were  declared to be “not measurable.” For example, CBP considered one  measure for fiscal year 2011—”analysis completed and enforcement  alternatives concurred”— too broad to collect data and report on,  given the large number of CBP offices that conduct analysis and  enforcement. In another example, CBP did not provide a response to  the fiscal year 2011 performance measure related to the results of  cargo exams because, according to CBP officials, cargo exams are  conducted at the local level and not tracked, creating a dearth of  reportable data. In addition, CBP was unable to track and assess its  efforts over time because its measures were inconsistent from year to  year.

By contrast, CBP’s fiscal year 2012 action plan includes a new set of  performance metrics with measurable targets consistent from fiscal  years 2012 through 2017. For example, the performance measure for  penalties issued has targets to increase the amount of penalties  issued each year by 10 or 15 percent. There are similar measures  with targets for increasing the percentage of AD/CV duties collected  and the number of audits related to AD/CV duties.

CBP is working to improve its ability to track and report on the use of  STBs. In June 2011, after finding that CBP could not determine the  total number of STBs used at the ports, the Department of Homeland  Security Inspector General recommended that CBP appoint a  centralized office responsible for reporting STB-related activities and  monitoring results. The Inspector General’s report also  recommended that CBP automate the STB process to provide  enhanced tracking ability. CBP concurred with these  recommendations, stating that it had begun the process of centralizing  STB-related roles and responsibilities and developing a system to  automate the STB process. Moreover, one of the new measures in  the fiscal year 2012 action plan tracks the number of STBs used for  AD/CV duty evasion.

section_title: CBP Lacks Key Data to Effectively Manage Its Efforts to Detect and Deter Evasion
paragraphs: While CBP has reported anecdotes about its successes in addressing  AD/CV duty evasion and collects some statistics on its efforts, it lacks key  data that it could use to assess and improve its management practices  and that could enhance congressional oversight. Over the past year, CBP  has publicly reported anecdotes of successful efforts to detect and deter  AD/CV duty evasion. For example, in testimony before Congress in May  2011, the Assistant Commissioner for CBP’s Office of International Trade  described five recent cases where CBP and ICE uncovered instances of  evasion and penalized those responsible. Similarly, in a report to  Congress on fiscal year 2010 efforts to enforce AD/CV duties, CBP cited  eight cases that led to enforcement action against parties engaging in  evasion. CBP has also produced publicly available videos illustrating a  successful case where CBP worked with ICE to arrest and convict an  importer who evaded the AD/CV duties on wire hangers.

CBP collects some statistics on its efforts to detect and deter AD/CV duty  evasion but lacks other key data on these efforts. For example, CBP  provided us with statistics on civil penalties and seizures related to AD/CV  duty evasion. However, CBP lacks data on  the total number of confirmed cases of AD/CV duty evasion;  the total amount of duties assessed and collected for confirmed cases  of evasion; the country of origin, product type, and method of evasion for each  confirmed case of evasion; and the number of confirmed cases of evasion involving a foreign importer  of record.

CBP attributed this lack of data to the absence of a policy requiring  officials to record confirmed cases of AD/CV duty evasion. CBP officials  explained that although CBP has a database in which instances of  evasion could be recorded, current policy does not require officials to  record such instances. Consequently, CBP cannot conduct a simple data  query to identify all confirmed cases of evasion. Without the ability to  identify cases of evasion, CBP cannot easily access other related data on  AD/CV evasion that could help improve management decisions and  oversight. For example, CBP is currently unable to produce data on the  total amount of duties assessed and collected for confirmed cases of  evasion—figures that would provide CBP leadership and Congress  visibility over some of the results of CBP’s efforts to address evasion.  Similarly, comprehensive data on the country of origin, product type, and  method of evasion for each confirmed case of evasion could potentially  help CBP identify trends and shifts in evasive activity and make  adjustments accordingly.

CBP also lacks complete data on the country of origin and product type  associated with the 252 civil penalties it imposed for AD/CV duty evasion  between fiscal years 2007 and 2011 (see fig. 7). CBP attributed these  missing data items to CBP personnel not recording them in CBP’s  automated system for tracking penalties. Due to these missing data  items, CBP lacks a complete picture of the countries and commodities  involved in its penalty cases—information it could use to guide and  improve its efforts. For example, CBP could identify which types of  commodities have led to penalties most often and decide whether or not  to focus more resources and detection efforts on those types of  commodities.

According to CBP officials, CBP addresses all allegations of AD/CV duty  evasion it receives, including e-Allegations received online, but it does not  routinely track or report on the outcomes of these allegations. As a result,  Congress and industry stakeholders lack information about the outcomes  of the allegations, which both parties have cited as a cause of concern.  Data from CBP indicate that it generally assigns allegations to its national  targeting staff for AD/CV duty issues (i.e., the NTAG) within 2 days of  receipt. The NTAG then assesses the validity of the allegation using  targeting and other analytical tools. If the NTAG determines that the  allegation may be valid, it will typically refer the allegation to the  appropriate port or to ICE for further investigation and possible  enforcement action. As of September 2011, CBP had confirmed or  referred nearly one-quarter of the approximately 400 allegations it  received from 2008 to August 2011. About half could not be validated,  and another one-quarter were still under analysis.

Although CBP has stated that it addresses all allegations of AD/CV duty  evasion it receives, it has reported little information to date on the  outcomes of its efforts to follow up on these allegations. For instance,  CBP’s report to Congress on AD/CV duty enforcement efforts in fiscal  year 2010 mentions that CBP has received hundreds of allegations from  the trade community, but the report includes no information on the  outcomes of those allegations. In January 2011, in response to a  congressional request, CBP produced a spreadsheet of the allegations it  had received since June 2008. CBP officials told us that this spreadsheet  was created upon request and is not something CBP updates or uses for  management or policy purposes. While this document lists certain details,  such as the source of each allegation, and identifies allegations of  evasion that CBP confirmed as valid, it does not include any information  on the associated enforcement outcomes. During the course of our  review, CBP provided us with expanded versions of the spreadsheet in  response to our request for details on the results of the allegations.  However, these expanded versions provide little insight into the results of  the allegations. For instance, the most recent version of the spreadsheet  that we received, from September 2011, documents the enforcement  outcome for only one of the 24 allegations labeled as “allegation  confirmed.” CBP was also unable to determine if the allegations referred  to ports and ICE by the NTAG were subsequently confirmed as valid or  resulted in enforcement outcomes.

CBP’s limited reporting on the outcomes of allegations is due, in part, to  inconsistent, decentralized tracking of such information. CBP officials  stated that once the NTAG has referred an allegation to a port or to ICE  for further action, CBP considers the allegation to be closed and may or  may not follow up to track its outcome. While CBP creates a record within  its Commercial Allegation and Reporting System for each allegation it  receives, there is no requirement for either the NTAG or the entity  receiving the allegation referral to update these records with details on its  enforcement outcomes. Instead, port officials and ICE store information  on enforcement outcomes in other data systems that are not linked to the  Commercial Allegation and Reporting System. CBP officials at  headquarters told us that aggregating data from these various systems to  link allegations with their associated outcomes would be difficult and time- consuming. Additionally, according to ICE, it does not specifically track  cases generated as a result of allegations referred by CBP.   Consequently, since ICE cannot identify which of its cases involve  allegations referred from CBP, it also cannot identify the associated  outcomes.

An additional cause of CBP’s limited reporting on the outcomes of  allegations is legal restrictions on the types of information it can share.  During our review, we met with representatives of a coalition of domestic  industries affected by AD/CV duty evasion. Some of these  representatives stated that they had submitted allegations of evasion to  CBP and expressed frustration that although they had requested updates  from CBP on the outcomes of the allegations they submitted, CBP had  not provided them with the information requested. CBP officials attributed  this, in part, to the Trade Secrets Act, which they said restricts their ability  to disclose the specific kinds of information requested. Additionally, CBP  officials stated that they cannot disclose information about allegations  involving active ICE investigations. Furthermore, CBP does not report on  the results of its efforts at an aggregate level, which would avoid divulging  restricted information while keeping key stakeholders informed. CBP  officials stated that they are currently exploring ways to legally share what  information they can on allegations with the parties that filed them.

section_title: Conclusions
paragraphs: Evasion of AD/CV duties undermines U.S. AD/CV duty laws—the intent of  which is to level the economic playing field for U.S. industry—and  deprives the U.S. government of revenues it is due. While CBP employs a  variety of techniques to detect and deter such evasion, its efforts are  significantly hampered by a number of factors primarily beyond its control.  These include the inherently difficult and time-consuming process of  uncovering evasive activity conducted through clandestine means,  inconsistent access to foreign countries that limits CBP’s ability (as well  as ICE’s) to gather necessary evidence, and the ease with which  importers attempting to evade duties can change names and identification  numbers to elude detection. Nonetheless, some improvements have been  made since we last reported, including better communication between  Commerce and CBP and CBP’s encouragement of the use of higher  bonding requirements to protect additional AD/CV duty revenue in  instances where it suspects evasion. However, CBP lacks information  from Commerce that it needs to better plan its workload and mitigate the  impact of the time- and resource-intensive liquidation process on its  efforts to address evasion. Further, CBP has no policy or mechanism for  port officials to minimize the risk of port-shopping by notifying other ports  about their use of higher bonding requirements. Unless these gaps in  information sharing are closed, these recent initiatives may be  compromised, thereby limiting the effectiveness of CBP’s efforts to  address AD/CV duty evasion.

CBP has also made some improvements in managing its efforts to  address AD/CV duty evasion, including by developing better performance  measures and monitoring its use of higher bonding requirements.  However, it lacks key data on AD/CV duty evasion, including on  confirmed cases of evasion and penalties, which could help it assess and  improve its approach to addressing evasion and also inform agency and  congressional decision makers about its efforts. Moreover, CBP has  neither tracked nor reported the outcomes of the allegations of evasion it  has received from third parties. Without improved tracking and reporting,  agency leadership, Congress, and industry stakeholders will continue to  have insufficient information with which to oversee and evaluate CBP’s  efforts.

section_title: Recommendations for Executive Action
paragraphs: To enhance CBP’s efforts to address AD/CV duty evasion and facilitate  oversight of these efforts, we make the following recommendations:  First, to help ensure that CBP receives the information it needs from  Commerce to plan its workload and mitigate the impact of the liquidation  process on its efforts to address evasion, the Secretary of Commerce  should work with the Secretary of Homeland Security to identify  opportunities for Commerce to  regularly provide CBP advance notice on liquidation instructions, and notify CBP when courts reach decisions on AD/CV duty cases in  litigation.

Second, to help minimize the risk of port-shopping by importers seeking  to avoid higher bond requirements, the Secretary of Homeland Security  should direct CBP to create a policy and a mechanism for information  sharing among ports regarding the use of higher bond requirements.

Third, to inform CBP management and to enable congressional oversight,  the Secretary of Homeland Security should ensure that CBP develop and  implement a plan to systematically track and report on  instances of AD/CV duty evasion and associated data—such as the  duties assessed and collected, penalties assessed and collected, and  the country of origin, product type, and method of evasion for each  instance of evasion—and the results, such as enforcement outcomes, of allegations of evasion  received from third parties.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of the Department of  Homeland Security, the Secretary of Commerce, and the Secretary of the  Treasury for their review and comment. We received technical comments  from the Departments of Homeland Security, Commerce, and Treasury,  which we incorporated where appropriate. We also received written  comments from the Departments of Homeland Security and Commerce,  which are reprinted in appendixes II and III, respectively. The Department  of the Treasury did not provide written comments.

In commenting on a draft of this report, the Department of Homeland  Security concurred with our recommendations addressed to the  department that CBP (1) create a policy and a mechanism for information  sharing among ports regarding the use of higher bond requirements and  (2) develop and implement a plan to track and report systematically  instances of AD/CV duty evasion and the results of CBP’s enforcement  actions.

The Department of Commerce generally concurred with the  recommendation addressed to the department to work with CBP to  identify opportunities for Commerce to (1) regularly provide CBP with  advance notice of liquidation instructions and (2) notify CBP when courts  reach decisions on AD/CV duty cases in litigation.

In its response, Commerce stated that both CBP and Commerce receive  copies of injunctions from the U.S. Court of International Trade and  attached a copy of a preliminary injunction to demonstrate how both  agencies are generally served copies of the injunctions. However, when a  court orders an injunction, such as the one Commerce provided,  Commerce and CBP are enjoined from issuing liquidation instructions or  otherwise causing or permitting liquidation of the entries that are the  subject of the litigation. As a result, the injunction does not provide CBP  with the information it needs to help with workload planning because it is  not a court action that constitutes notice of the lifting of a suspension of  liquidation, which would start the 6-month period in which CBP must  liquidate entries. While an injunction can provide CBP information to help  with workforce planning, it does not address CBP’s concern for regular  advance notice of forthcoming liquidation instructions. CBP needs  information from Commerce on when final court decisions are reached to  help enable the agency to better plan its workload and help mitigate the  administrative burden it faces in processing AD/CV duties—an effort that  diminishes the resources it has available to address evasion.

We are sending copies of this report to the appropriate congressional  committees, the Departments of Homeland Security, Commerce, the  Treasury, and other interested parties. In addition, the report is available  at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-4101 or gomezj@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 IV.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To examine how the Department of Homeland Security’s U.S. Customs  and Border Protection (CBP) detects and deters the evasion of  antidumping and countervailing (AD/CV) duties, we examined agency  documents that outline CBP’s process and methods for identifying  evasion of AD/CV duties; reviewed laws and other documents that  identify the enforcement options CBP uses to deter evasion; and  analyzed data from CBP and U.S. Immigration and Customs Enforcement  (ICE) on deterrence activities such as civil penalties, seizures, criminal  arrests, indictments, and criminal convictions.

To identify factors that affect CBP’s efforts to detect and deter AD/CV  duty evasion, we examined CBP documents that highlight the challenges  and the timeline associated with verifying evasion; analyzed data on the  amount of civil penalties CBP has collected from importers evading  AD/CV duties; and reviewed legislation governing CBP’s use of seizures,  internal memos on the use of single transaction bonds, and previous  GAO reports on AD/CV duties.

To assess the extent to which CBP tracks and reports on its efforts to  detect and deter AD/CV duty evasion, we reviewed CBP annual plans  that identify its performance measures for addressing AD/CV duty  evasion; documents that show CBP’s performance against these  measures; CBP testimony and videos publicizing successful efforts to  address evasion; a CBP report to Congress on fiscal year 2010 efforts to  enforce AD/CV duties; and a report by the Department of Homeland  Security Inspector General on CBP’s bonding process, including its use  and tracking of single transaction bonds. Additionally, we analyzed data  on civil penalties CBP has imposed for AD/CV evasion and allegations of  evasion received from third parties.

Additionally, in the Washington, D.C., area, we discussed our objectives  with officials in CBP’s Offices of International Trade, Field Operations,  and Intelligence and Investigative Liaison; ICE; and the Departments of  Commerce and the Treasury, as well as a coalition of U.S. industries  affected by AD/CV duty evasion.

To obtain a more in-depth understanding of U.S. efforts to detect and  deter AD/CV duty evasion, we conducted fieldwork at the ports of Miami,  FL; Seattle, WA; and Los Angeles, CA. We selected the port of Miami  due, in part, to its proximity to CBP’s National Targeting and Analysis  Group (NTAG) for AD/CV duty issues; the port of Seattle due, in part, to  the high number of civil penalties it imposed for AD/CV duty evasion over  the last 5 years; and the port of Los Angeles because it processed the  most imports subject to AD/CV duties, by value, of any U.S. port. At each  port, we met with officials from CBP and ICE to discuss the efforts they  undertake to detect and deter AD/CV duty evasion at their port, the  challenges they face in detecting and deterring evasion, and the process  they use to track and report the results of these efforts. We also met with  representatives of the NTAG for AD/CV duty issues in Plantation, FL, to  discuss their methods for detecting evasion, both through their own  targeting efforts and through analyzing allegations of evasion they receive  from third parties.

To determine the reliability of the data we collected on AD/CV duty  orders, civil penalties, seizures, ICE enforcement outcomes (i.e., arrests,  indictments, and criminal convictions), and allegations received from third  parties, we compared and corroborated information from different  sources; checked the data for reasonableness and completeness; and  asked agency officials how the data are collected, tracked, and reviewed  for accuracy. Based on the checks we performed, our discussions with  agency officials, and the documentation the agencies provided to us, we  determined that the data we collected were sufficiently reliable for the  purposes of this engagement.

We conducted this performance audit from June 2011 to May 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Comments from the Department of Homeland Security

section_title: Appendix III: Comments from the Department of Commerce

section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Christine Broderick (Assistant  Director), Aniruddha Dasgupta, Julia Jebo, Diahanna Post, Loren Yager,  Ken Bombara, Debbie Chung, Martin De Alteriis, Etana Finkler, and  Grace Lui made key contributions to this report. Joyce Evans, Jeremy  Latimer, Alana Miller, Theresa Perkins, Jena Sinkfield, Sushmita Srikanth,  Cynthia S. Taylor, and Brian Tremblay provided technical assistance.


Question-summary annotations: questions: question: What does the U.S. Customs and Border Protection do?
answer: U.S. Customs and Border Protection (CBP) detects and deters evasion of antidumping and countervailing (AD/CV) duties through a three-part process that involves (1) identifying potential cases of evasion, (2) attempting to verify if evasion is occurring, and (3) taking enforcement action.
child_questions: question: How does CBP detect evasion?
answer: To identify potential cases of evasion, CBP targets suspicious import activity, analyzes trends in import data, and follows up on allegations from external sources. If CBP identifies a potential case of evasion, it can use various techniques to attempt to verify whether evasion is occurring, such as asking importers for further information, auditing the records of importers suspected of evasion, and inspecting shipments arriving at ports of entry.

question: How does CBP take enforcement action?
answer: If CBP is able to verify evasion, its options for taking enforcement action include (1) pursuing the collection of evaded duties, (2) imposing civil penalties, (3) conducting seizures, and (4) referring cases for criminal investigation. For example, between fiscal years 2007 to 2011, CBP assessed civil penalties totaling about $208 million against importers evading AD/CV duties.

questions: question: What challenges affect CBP's efforts to gather evidence of evasion?
answer: First, CBP faces several external challenges in attempting to gather conclusive evidence of evasion and take enforcement action against parties evading duties. These challenges include (1) the inherent difficulty of verifying evasion conducted through clandestine means; (2) limited access to evidence of evasion located in foreign countries; (3) the highly specific and sometimes complex nature of products subject to AD/CV duties; (4) the ease of becoming an importer of record, which evaders can exploit; and (5) the limited circumstances under which CBP can seize goods evading AD/CV duties.

question: How could communication between CBP and the Department of Commerce improve processing of AD/CV duties?
answer: Although communication between CBP and the Department of Commerce (Commerce) has improved, CBP lacks information from Commerce that would enable it to better plan its workload and help mitigate the administrative burden it faces in processing AD/CV duties—an effort that diminishes its resources available to address evasion.
child_questions: question: What other efforts have been made to protect AD/CV duty revenue?
answer: Additionally, CBP has encouraged the use of larger bond amounts to protect AD/CV duty revenue from the risk of evasion, but CBP has neither a policy nor a mechanism in place for a port requiring a larger bond to share this information with other ports in case an importer withdraws its shipment and attempts to make entry at another port to avoid the higher bond amount.

questions: question: What is one weakness of CBP's performance management reporting?
answer: While CBP has made some performance management improvements, it does not systematically track or report key outcome information that CBP leadership and Congress could use to assess and improve CBP’s efforts to deter and detect AC/CV duty evasion.
child_questions: question: Why doesn't CBP track or report key outcome information?
answer: First, CBP cannot readily produce key data, such as the number of confirmed cases of evasion, which it could use to better inform and manage its efforts. Second, CBP does not consistently track or report on the outcomes of allegations of evasion it receives from third parties.

question: Why is tracking and reporting key outcome information important?
answer: As GAO reported in March 2011, the Government Performance and Results Modernization Act of 2010 underscores the importance of ensuring that performance information will be both useful and used in decision making.
child_questions: question: Until tracking and reporting are improved, what difficulties will continue?
answer: Without improved tracking and reporting, agency leadership, Congress, and industry stakeholders will continue to have little information with which to oversee and evaluate CBP’s efforts to detect and deter evasion of AD/CV duties..

questions: question: Why does the United States impose AD/CV duties?
answer: The United States imposes AD/CV duties to remedy unfair foreign trade practices, such as unfairly low prices or subsidies that cause injury to domestic industries.
child_questions: question: What are some examples of foreign trade practices the United States are targeting?
answer: Examples of products subject to AD/CV duties include honey from China and certain steel products from South Korea.

question: How do importers attempt to evade AD/CV duties?
answer: Importers that seek to avoid paying appropriate AD/CV duties may employ methods of evasion such as illegally transshipping an import through a third country to disguise its true country of origin or falsifying the value of an import to reduce the amount of duties owed, among others.

question: What harms can AD/CV duty evasion cause?
answer: AD/CV duty evasion can harm U.S. companies and reduces U.S. revenues.