Officials Testify on over $1B in AD/CV Duty Evasion, Changes Needed

Over $1B in AD/CV Duties Uncollected due to Evasion, Mostly by China Cos

Since FY 2001, the federal government has been unable to collect over $1 billion in AD and CV duties, losing out on a substantial amount of duty revenue to the U.S. Treasury.

The 5 top products that pose the biggest challenge for AD/CV duty evasion are currently honey, fresh garlic, crawfish, mushrooms, and wooden bedroom furniture from China; $878 million in duty owed on these products are uncollected.

“Deemed Liquidation” Process Contributing to Collection Problem

One cause of uncollected AD/CV duties is the “deemed liquidation” process. Once the Commerce Department determines the final AD/CV duty, it publishes a notice in the Federal Register, and U.S. Customs and Border Protection has 6 months to complete the liquidation process. If CBP fails to complete the liquidation process within 6 months, an entry is “deemed liquidated” at the rate asserted by the importer at the time of entry.

Once an entry has been deemed liquidated, CBP cannot attempt to collect any supplemental additional duties that might have been owed because of an increase in the AD/CV duty rate from initial to final.

CBP noted that 60% of the approximately 160,000 AD/CV entries that were closed out in FY 2010 had the same duty rate as was initially assessed when the final AD/CV duty amount was determined; 24% had lower duties and the government issued refunds; 16% had increases in the duty amounts, causing importers to owe additional money. When there is a significant increase, some importers cannot afford to pay the additional duties owed. In addition, there are two surety companies that are in receivership because they also did not count on such a high increase in money being owed.

CBP Continues to Explore Changes to Enhanced Bonding Requirements

CBP noted that it has also tried to require enhanced bonds for shrimp imports (due to elevated collection risks), but these efforts were litigated at both the Court of International Trade and at the World Trade Organization, and were struck down. However, CBP continues to explore changes to enhanced bonding requirements.

(See ITT's Online Archives or 01/04/11 news, 11010419, for most recent BP summary of this CIT litigation.)

Immediate Needs Include Better Information and Better Agency Communication

In the immediate future, to get the most effective use of current resources, the government could address the following 2 needs:

Need for better information. In 2008 GAO found that uncollected duties were highly concentrated -- four products (shrimp, fresh garlic, crawfish, and mushrooms) accounted for 84% of the uncollected duties; importers purchasing from China accounted for 90%; and new shippers accounted for 40% of the uncollected duties. This information (1) helped the agencies, Congress, and other stakeholders understand the nature of the problem; (2) and suggested ways to improve operations and find solutions. However, it seems as if CBP and Commerce have not yet updated most of these statistics. It was recommended that the agencies get up-to-date information and utilize it to identify the key risks and reduce the uncollected duties.

Need for better agency communication. There is a need for better communication among the agencies to reduce the incidence of uncollected duties. Better communication among the agencies may allow them to make their individual efforts more efficient. The agencies need to identify bad actors - in 2008, 20 firms represented 63% of uncollected duties -- suggesting that early warnings are needed and should be shared.

CBP Needs to be More Innovative and Assertive to Combat AD/CVD Evasion

CBP needs to be more innovative and assertive to combat increasing complex strategies used to evade AD and CV duties. CBP faces the challenge of combating the following schemes, which can be used together, to evade AD/CV duty collection: illegal transshipments, undervaluation, failure to manifest (i.e. smuggling), misclassification, and other techniques such as employing shell companies or the use of foreign businesses outside the reach of CBP’s authority.

To address these challenges, CBP uses a layered approach to import enforcement for goods before and after they enter the U.S. Before goods arrive, CBP gathers information on the imported goods and uses this information to assess risk of the incoming shipments. After goods are imported, CBP may sample the goods to assess country of origin, and performs verifications to further assess risk and to determine if additional action should be taken.

(See ITT’s Online or 05/10/11 news, 11052026, for BP summary of CBP testifying on the agency developing new approaches and undertaking additional activities for AD/CVD enforcement.)

Officials also State that New Shipper Program is a Problem

When asked what other areas each agency would like changed in order to help them stem the problem of AD/CV duty evasion, the CBP, ICE, and Commerce officials all stated that the new shipper program needed to be reviewed to ensure that the bonding option isn’t used as a loophole to evade duties..

ICE added that they wanted an analysis done on retrospective vs. prospective AD/CV collection systems, as they want to investigate one rate.

(See ITT’s Online Archives or 08/22/06 news, 06082205, for BP summary of the Pension Protection Act of 2006 provision that temporarily suspended (unless excluded) the option that allowed ITA to instruct CBP to collect a bond or other security in lieu of a cash deposit during the conduct of a new shipper review, for estimated AD or CV duties.

See ITT’s Online Archives or 12/08/10 news, 10120807, for BP summary of ITA reporting to Congress on retrospective and prospective AD/CV duty collection systems.

See ITT's Online Archives or 03/31/10 news, 10033145, for BP summary of ITA requesting comments on AD/CV duty collection systems. See ITT's Online Archives or 04/26/10 news, 10042644, for BP summary of comments submitted.)

Senator Asks if Failure to Collect is Due to Weak Authorization Law

Senator Landrieu was curious what was the cause of this failure to collect - is it because of a weak authorization law which potentially needs to be strengthened, a lack of resources, a failure of the agencies to communicate, a deliberate lack of aggressiveness, or a combination of the above.

¹At the Subcommittee on Homeland Security hearing, officials testified from U.S. Customs and Border Protection, Immigration and Customs Enforcement, the Government Accountability Office, and the Commerce Department.