International Trade:

Observations on U.S. Government Efforts to Address Textile Transshipment

GAO-09-813T: Published: Jun 18, 2009. Publicly Released: Jun 18, 2009.

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This testimony provides GAO's perspective on the issues associated with textile transshipment. It is particularly important in the current economic environment that the United States does everything it can to ensure that U.S. laws regarding the entry of illegal goods are fully enforced at the U.S. borders. Effective monitoring of textile and apparel imports are also important because duties on textile and apparel products account for a significant share of U.S. duty collections. However, this enforcement takes place in the challenging and busy environment of U.S. ports of entry - - in fiscal year 2008, there were nearly 29 million trade entries processed at more than 300 ports of entry throughout the United States. This testimony will summarize key findings from our prior reports on (1) U.S. government efforts to enforce laws related to imports of textiles and other goods, including transshipment, and (2) the revenue implications of these efforts, as well as discuss the recommendations we made to improve those efforts. GAO's last report on the subject of textile transshipment was published in 2004 and there have been many changes in world trade and in customs enforcement since that time. However, we have consulted with Customs and Border Protection (CBP) since that report was issued on the status of their response to the GAO recommendations to improve that system. In addition, we have completed additional studies on customs enforcement issues, which provide important insights into the challenges CBP faces as it addresses textile transshipment. One of those reports covered the in-bond system, which was a key subject in the 2004 report on textiles, and a second is on CBP's ability to maintain an emphasis on revenue such as duties collected from textile and apparel imports. In addition, we have also completed numerous studies on intellectual property enforcement by CBP and other U.S. agencies, and there is considerable overlap between those efforts and textile enforcement efforts.

Our prior reports identified three key challenges to effectively addressing textile transshipment. First, in 2004 we found that CBP's Textile Production Verification Team reports were not always finalized and provided to CBP ports, other agencies, or foreign governments for follow-up in a timely manner. CBP adopted our recommendation to improve the timeliness of this follow-up. We also found that information from overseas Customs Attache' offices and cooperative efforts by foreign governments can provide important information for port inspections. Since the time of our report, CBP has increased the number of attaches in foreign ports to 20 in 2009. In addition, ICE has also increased its overseas personnel to over 50 in 2009. The in-bond program creates the risk that importers can circumvent trade rules, including those applying to textile imports. To facilitate trade, the U.S. customs system allows imported cargo intended for either U.S. or foreign markets to move from one U.S. port to another without being assessed duties or quotas and without officially entering U.S. commerce. This cargo--referred to as an in-bond shipment, requires a responsible party to be covered by a CBP-approved bond and to agree to comply with applicable regulations. Some CBP port officials have estimated that in-bond shipments represent from 30 percent to 60 percent of goods received at their ports. In our original report on textile transshipment and in a later review, we found that CBP's ability to assess and manage the risks of the in-bond cargo system was impaired by both (1) the limited information it collected on in-bond cargo and (2) the limited analysis it performed on available information. CBP was not able to tell us, for example, the extent of the system's use, what products are shipped in-bond, or what shipments are expected for entry (and thus expected revenue collection from applicable trade duties) at inland ports. In reviewing the in-bond system, we also found that CBP had failed to perform basic analyses of available information. CBP was not able to tell us, for example, the extent of the system's use, what products are shipped in-bond, or what shipments are expected for entry (and thus expected revenue collection from applicable trade duties) at inland ports. Despite prior audit recommendations, important management weaknesses persisted in CBP's tracking of in-bond cargo, with the result that CBP still does not know whether in-bond cargo shipments of greatest security or revenue interest are in fact entered into U.S. commerce or exported as required. In particular, CBP continued to have high numbers of open in-bond transactions with uncertain disposition. In addition to needed improvements on specific programs, we also found that CBP had to find a way to better balance security and important trade functions such as revenue collection. Although CBP's priority mission relates to homeland security, it collected more than $34 billion in fiscal year 2008, making it the second largest revenue generator for the federal government. Because of the high concentration of duties collected on textiles and apparel--four percent of U.S. imports generate approximately 40 percent of U.S. duties collected--any efforts to focus on revenue functions would likely generate improved oversight of textile and apparel imports. Our previous findings suggest that Congress' concerns about the potential effects of moving customs revenue functions into DHS, whose priority mission is homeland security, were warranted. We found that this shift in mission contributed to reduced focus and resources devoted to customs revenue functions. Specifically, the number of staff in most customs revenue positions declined since the creation of DHS, despite a legislative mandate that they should not. In addition, the number of Auditors in the Office of Inspector General dedicated to customs issues has declined as the office's resources were focused in other areas.

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