International Trade:

Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but Concerns about Uneven Implementation and Effects Remain

GAO-07-50: Published: Oct 18, 2006. Publicly Released: Nov 15, 2006.

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Since 2003, the Department of Homeland Security's U.S. Customs and Border Protection (CBP) has been unable to collect at least $480 million in antidumping (AD) and countervailing (CV) duties. In July 2004, CBP revised its policy regarding the continuous bonds (CB) that importers post. The policy potentially significantly increases the amount of the bonds for affected importers. Following the application of the policy to imports of shrimp as a "test case," U.S. importers and trading partners initiated legal action to prevent CBP from continuing to apply the policy. GAO examined why and how CBP revised its CB policy, how CBP implemented the revised policy, and the effects of the revised policy.

CBP revised its CB policy to reduce the risk of uncollected AD/CV duties. CBP determined that the traditional bond formula provides little protection of duty revenue. In addition, time lags and duty increases associated with the U.S. AD/CV duty system heighten the risk of importers' bonds being insufficient, which led to large amounts of uncollected duties. CBP developed the revised CB policy internally, and then conducted some outreach prior to applying it to imports of shrimp as a "test case." An internal CBP working group identified options for improving collection of AD/CV duties and recommended revising the CB policy. The revised policy significantly increased bond amounts for some shrimp importers. Before implementing the policy, CBP conducted outreach, but some importers criticized CBP's outreach as insufficient. CBP's implementation of the revised CB policy lacked transparency and consistency. CBP implemented the policy in February 2005 and required shrimp importers to obtain larger bonds. According to CBP, many importers inquired about lowering their bond requirement, and CBP lowered bond requirements under certain circumstances. However, CBP's procedures for adjusting bond requirements were not formally written and were not public. GAO's review of CBP and importer records showed that CBP set bond requirements on the basis of different data time periods for different importers and used inconsistent criteria when considering bond requests. The revised CB policy is expected and reported to have a variety of effects on revenue protection, importers, and imports. CBP reports that the revised CB policy protects additional revenue, but the degree of success cannot be known yet. Importers report facing higher costs as a result of the revised policy, which they say leads them to change business practices and has reduced profitability. Trade data show that some import patterns shifted after the AD petition but before the revised CB policy was announced.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Following GAO's report, CBP established guidance and provided additional information on the process for applying its Continuous Bond (CB) policy, and sought public comment on the guidance via a Federal Register Notice in October 2006. After this public comment period and an adverse decision by the World Trade Organization, CBP subsequently decided to terminate its application of the CB policy in January 2009. In making this decision, CBP acted in a manner that was consistent with our recommendations in that they made a decision on the overall policy based on the lessons learned in applying this bonding policy to shrimp imports. Since the policy is no longer being applied, there was no need for CBP to undertake any further review to examine lessons learned or whether the policy appropriately addressed the underlying risks to CBP's collection of AD/CV duties.

    Recommendation: To ensure that CBP's goal of ensuring collection of AD/CV duties without imposing an excessive burden on importers or international trade and commerce is achieved, the Commissioner of CBP should conduct a formal review of the lessons CBP can learn from implementing the revised CB policy on shrimp imports. Given CBP's stated desire not to unnecessarily burden importers, this review should include specific steps to systematically obtain importers' views on the policy. Moreover, the review should examine whether the policy appropriately addresses the underlying risks to CBP's collection of AD/CV duties.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

  2. Status: Closed - Implemented

    Comments: Following GAO's report, CBP established guidance and provided additional information on the process for applying its Continuous Bond (CB) policy, and sought public comment on the guidance via a Federal Register Notice in October 2006. After this public comment period and an adverse decision by the World Trade Organization, CBP subsequently decided to terminate its application of the CB policy in January 2009. In making this decision, CBP acted in a manner that was consistent with our recommendations in that they made a decision on the overall policy based on the lessons learned in applying this bonding policy to shrimp imports. Since the policy is no longer being applied, there was no need for CBP to undertake any further review to examine lessons learned or whether the policy appropriately addressed the underlying risks to CBP's collection of AD/CV duties.

    Recommendation: To ensure full transparency and remedy inconsistent implementation of the CB policy, the Commissioner of CBP should develop clear and consistent guidance for implementing the policy, take steps to inform covered importers of the basis upon which CBP will reduce importers' bond requirement, and ensure the guidance is uniformly applied.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

 

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