More than 14,000 different types of commodities are imported into the United States, involving more than 15 million separate shipments or transactions each year. In 1992 and 1993, U.S. imports were valued at $532.7 billion and $580.5 billion, respectively. Customs has the primary responsibility for processing imports to ensure that they do not violate U.S. laws and regulations. Also, Customs is responsible for ensuring that duties and fees are paid and, with more than $21.6 billion collected in fiscal year 1993, is second only to the Internal Revenue Service in its revenue-producing function. Customs also accumulates basic information on imports in its ACS database for oversight and statistical purposes. For about 94 percent of the ACS entries, importers or licensed brokers—referred to as “filers”—electronically enter data directly into ACS and generally follow this with a manually prepared entry summary. For the remaining 6 percent of the ACS entries, the filers elect not to file the entry electronically, and Customs must enter the information into ACS from the manually prepared entry summaries. Periodically, Census extracts data from ACS for use in developing and publishing trade statistics. The Census data are available in two forms. The first and most comprehensive is the Import Detailed Data Base, which contains information on individual transactions and is restricted to official use. The second consists of various reports and publications that summarize trade statistics and are made available to the public. In 1990, two professors at Florida International University (FIU), using the summary Census data, found wide variations in the unit values for seemingly identical commodities. For example, the professors found that the unit value for razors varied from $0.03 to $34.81 each. They also found that emeralds from Panama had an average unit value of $974.58 a carat, compared with $5.29 a carat for those from Brazil. Other commodities showed similar disparities. As the results of the FIU study became known, concerns were raised that the differences in unit value could be the result of criminal activities, such as money laundering. For example, a person in the United States could transfer money to another country simply by paying far too much for an imported product in an exchange that would otherwise appear legitimate. As discussed with the Subcommittee, we determined that statistical sampling of a database as large as ACS’ was impractical, given the time constraints of our work. Instead, we agreed to judgmentally select eight commodities for detailed examination. We selected these commodities from the Harmonized Tariff Schedule (HTS) of the United States, which classifies and describes all commodities subject to importation and lists the applicable duties, fees, and quotas for each commodity. We selected a broad variety of commodities that generally had narrow definitions and provided some overlap with previous studies by Customs and FIU. Three of the eight commodities were subject to quotas. To meet our first objective of determining how widely unit values for identical types of commodities varied, we used the Import Detailed Data Base for fiscal year 1992 to compute and analyze unit values and to develop statistical profiles for each of the eight commodities. To meet our second objective of determining why these variations occurred, we selected 10 transactions across a wide range of values under each of the 8 commodities. For each of these 80 transactions, we then examined supporting documentation, such as entry summaries, invoices, and shipping manifests, to verify that the commodity was appropriately classified and to recalculate the unit values that should have been reported. Our objectives, scope, and methodology are discussed in more detail in appendix I. Appendix II provides a summary comparison of the commodities we selected for analysis. Appendixes III through X show the results of these analyses by commodity, including (1) comparisons of high, low, average, and median unit values by U.S. port of entry, country of export, importer, and method of transport; (2) quantities shipped and unit values at each decile across the range of values; and (3) a comparison of the unit value we computed with those in the ACS database for the selected transactions. We obtained written comments on a draft of this report from Customs and Census. Their comments are evaluated at the end of this letter and are reprinted in appendixes XI and XII. We did our work between November 1993 and August 1994 in accordance with generally accepted government auditing standards. Just as the FIU study, we found wide variations in unit values for transactions within the same commodity classification. Table 1 shows the highest, lowest, and average unit values for each of the eight commodities. Appendixes III through X show the unit values for each commodity across percentile ranges and provide further comparisons by U.S. port of entry, country of origin, importer, and method of shipment. As seen from table 1, variations in unit value were the norm for the eight commodities we examined. Raw cane sugar had the most narrow unit value range and, even then, the highest value of $1.75 a kilogram was four times the lowest value of $0.43 a kilogram. At the other extreme, the high unit value of $3,809 per meter for wood dowel rods was 952,250 times the lowest unit value of $0.004 per meter. Some unit values appeared implausible. Such was the case with facsimile machines valued at $5.62 each, pantyhose for $1,267.50 a dozen pair, or hypodermic syringes as low as $0.01 and as high as $3,485 each. Also, 185 shipments of scrap gold, which accounted for 783,380 grams (or 4.3 percent of the total quantity), each had a unit value of more than $11.60 a gram—the price of pure gold at the time. Overall unit values for scrap gold ranged from $0.02 to $4,368 a gram, with an average unit value of $3.75 a gram. In examining the supporting documentation for individual transactions, we found two causes for variations in unit values. First, the commodity classifications used by Customs were so broad that a particular code could cover a wide assortment of products with natural variations in value. In practice, Customs can do little about the wide commodity definitions, since they are determined through a combination of law, international agreement, and agreements among various U.S. agencies, including Customs. Second, filers frequently made errors in entering the commodity code, quantity, or total value into ACS. While Customs could correct these errors if it knew of them, the current parameters used to detect unit value anomalies are so broad that they identify only those errors involving extremely high or low unit values. In coding commodities for entry, Customs requires filers to choose from the more than 14,000 codes specified by the HTS. The HTS is subdivided into sections, chapters, and specific commodity types. The codes range from 4 to 10 digits in specificity, depending on the degree to which a particular commodity is subdivided. For example, facsimile machines are at the 10-digit level (8517.82.00.40) under “electrical machinery and equipment” (Chapter 85), the 4-digit level (8517) under “electrical apparatus for line telephony or telegraphy,” and the 6-digit level (8517.82) under “telegraphic.” Even with the large number of specialized codes, commodities within a particular HTS classification can vary by type, quality, and intended use. As shown in the transaction analyses in table 8 of appendixes III through X, these variations in products lead to variations in unit values. For example, the facsimile machine classification described in appendix V covers everything from inexpensive and mass-produced, home-use models to machines that are highly specialized and designed to be used in complex and sophisticated communications systems. We analyzed the supporting documentation for the 10 facsimile machine transactions and found machines that were properly valued as low as $264.14 per unit and as high as $26,425 per unit. Similarly, the pantyhose classification discussed in appendix IV is broad enough to include such diverse products as pantyhose of differing grades and sizes, tights, and support hose. For the 10 pantyhose transactions, we analyzed the supporting documentation and found products that were properly valued from as low as $3.50 a dozen pair to as high as $156.59 a dozen pair. Two of the transactions, with unit values of $156.59 and $66.64 a dozen pair, were special orders intended for promotional uses. The scrap gold classification is broad because it covers gold waste and scrap, regardless of the weight, purity, or metals to which it is clad. For example, we examined the supporting documentation for one transaction where the commodity was described on the invoice as “scrap gold for refining” and was properly valued at $9.26 a gram. We examined the supporting documentation for another transaction and found the scrap gold was properly valued at $0.22 a gram and, according to the invoice, consisted of gold and brass “floor sweeps.” The U.S. International Trade Commission publishes the HTS, following guidelines set by law, international agreement, and agreements among U.S. agencies. As one of these agencies, Customs can only recommend changes in the level of specificity within individual HTS classifications. Customs officials said they would not necessarily make changes in the definitions even if they could do so. According to these officials, while narrower product definitions would reduce the range of unit values within a particular commodity code, the higher level of specificity also would increase the number of codes with which Customs and the filers would have to contend. Another reason unit values for imports varied so widely is that the Import Detailed Data Base contains errors. Such errors occur when the filer enters the wrong HTS code, quantity, or total value into ACS and the data are not corrected prior to being extracted by Census.