International Affairs:

Agencies Believe Strengthening International Agreements to Improve Collection of Antidumping and Countervailing Duties Would Be Difficult and Ineffective

GAO-08-876R: Published: Jul 24, 2008. Publicly Released: Jul 24, 2008.

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The United States and many of its trading partners have enacted laws to remedy the unfair trade practices of other countries and foreign companies that cause injury to domestic industries. U.S. law authorizes the imposition of additional duties on importers to remedy these unfair trade practices. Specifically, antidumping (AD) duties are imposed on imports that are "dumped" in the United States (i.e., sales in the U.S. market at less than the market price in the item's home market) and countervailing (CV) duties are imposed on imports that are subsidized by foreign governments. Importers are responsible for paying all duties, taxes, and fees on products when they are brought into the United States (including AD/CV duties). Importers can be located either domestically or overseas. Since fiscal year 2001, U.S. Customs and Border Protection (CBP), which is responsible for collecting import duties, has been unable to collect hundreds of millions of dollars in AD/CV duties. In March 2008, we reported that over $600 million in AD/CV duties were uncollected. Our analysis revealed four key factors contributing to uncollected AD/CV duties: (1) the retrospective component of the U.S. AD/CV duty system, (2) "new shipper" reviews, (3) insufficiency of CBP's standard bond requirements for importers, and (4) minimal information required from importers. We identified two sets of options for Congress and agencies to consider in attempting to improve the collection of AD/CV duties. One option was to eliminate the retrospective component of the U.S. AD/CV duty system and make it prospective; the other was to adjust specific aspects of the current U.S. AD/CV duty system while retaining its retrospective nature. Under the current U.S. AD/CV duty system, importers pay cash deposits equal to the estimated AD/CV duties at the time of importation, but the final duty amount is determined much later and may exceed the amount of cash deposited. On average, this process takes more than 3 years, during which importers could cease operations or become unable to pay additional duties. To address this situation and help improve the collection of AD/CV duties, we suggested several improvements to Congress and executive branch agencies. As a result, this report describes agencies' views on (1) obstacles (if any) to strengthening international agreements to help the United States collect AD/CV duties from importers without attachable assets in the United States and (2) whether strengthened international agreements would improve duty collection.

Agency officials identified two key obstacles to strengthening international agreements to improve collection of AD/CV duties from importers with no attachable assets in the United States. These obstacles are: (1) Finding countries that are willing to enter into negotiations--unlike the United States, other major trading partners have AD/CV duty systems that establish the final amount of AD/CV duties when goods enter the country. As a result, the existence of significant uncollected AD/CV duties is unique to the United States, so other countries do not have a shared interest in improving collections after products have entered the country. (2) U.S. and foreign government practice--according to CBP and Department of Justice (Justice) officials, under the practice of some countries, they will not enforce a claim based upon the revenue laws of another country. According to agency officials, if the United States negotiated an international agreement to strengthen its ability to collect duties owed by importers whose assets are overseas, there may be unintended consequences. For example, since the agreement would likely be reciprocal, some agency officials expressed concern that this could require the United States to enforce decisions it found arbitrary. Our analysis of international agreements to which the United States is a party identified agreements that establish rules for calculating and assessing AD/CV duties and other agreements that outlined mutual assistance between countries' customs administrations, some of which explicitly exclude assistance regarding the recovery of duties. However, consistent with the challenges posed by negotiations and international practice, neither our analysis nor our discussions with agency officials identified any international agreements that facilitate collecting AD/CV duties from importers with no attachable assets in the United States. Agency officials believe that strengthening international agreements would not substantially improve the collection of AD/CV duties. They cited two key reasons why it is likely that this would be ineffective: Retrospective nature of the U.S. AD/CV duty system. Strengthened international agreements would not address a key factor we identified in our March 2008 report as contributing to uncollected AD/CV duties--the retrospective nature of the U.S. AD/CV duty system. Under this system, the final amount of duties owed may exceed the amount of cash deposits the importer paid at the time of entry, and CBP must attempt to collect from the importer long after the products enter the country. By the time CBP is able to take collection action, illegitimate importers (foreign or domestic) may have disappeared in order to evade the duties, and legitimate importers may be financially unable to pay the duties. As a result, Justice has advised CBP that claims involving a foreign company with no discernable U.S. assets may be classified as uncollectible and do not need to be referred to Justice. CBP has not referred any cases to Justice involving the collection of AD/CV duties from importers with no attachable assets in the United States in the past 5 years. High cost of litigation. According to Justice officials, even if international agreements were strengthened, Justice would still likely have to litigate overseas in order to collect duties owed. Conducting litigation in a foreign country can be very expensive because of the need to hire foreign counsel. These high costs need to be weighed against the amount owed and the amount likely to be collected. However, agency officials noted that strong corporate secrecy laws and weak pretrial discovery rules in some countries may make it impossible to know whether the U.S. government would be able to recoup the costs of the litigation.

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