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GAO Recommends Changing AD/CV Duty System but Lawmakers Appear Cautious

The Government Accountability Office recently released a report urging lawmakers to consider whether the U.S. should change its system of imposing anti-dumping and countervailing duties. This system is currently retrospective, meaning that final AD and CV duties are not assessed until well after the subject goods are entered into U.S. commerce. As part of an investigation into U.S. Customs and Border Protection's ongoing difficulties collecting such duties, however, the GAO said it could be beneficial to switch to a prospective system where final duties are collected at the time of importation. Although the GAO's work often informs the development of legislation, initial indications are that while Congress may follow the GAO's recommendation to look further into the matter no fundamental changes to the system are likely anytime soon.

The report found that uncollected AD/CV duties continue to be a significant problem for CBP and that imports from China account for a preponderant share of the total. Over $613 million in AD/CV duties from fiscal years 2001 through 2007 were uncollected as of September 2007. Ninety percent of this amount was attributable to importers purchasing from China, including an overwhelming 84 percent associated with just four products: crawfish tail meat, honey, garlic and mushrooms. Importers purchasing from companies undergoing a new shipper review, a tactic that both Congress and CBP have sought to discourage in the past because it is often used by unscrupulous importers and exporters, accounted for 40 percent of the total. Finally, over a third of all uncollected AD/CV duties were associated with just four importers.

Four key factors contribute to uncollected AD/CV duties, the report stated. First, the retrospective component of the U.S. AD/CV duty system creates the risk of uncollected duties because the final amount an importer owes can exceed the amount it paid when goods entered the country. While AD duty rates typically stay the same (60 percent of the time) or decline (24 percent of the time) when they are finalised, when they increase they can go up significantly (the average is 62 percent). The long lag time between the entry of goods and the assessment of final duties, which averages more than three years, increases this risk because it allows importers to bring in large volumes of subject goods before final duties are imposed.

Second, the Department of Commerce's new shipper reviews pose two risks. One is that importers were, until August 2006, able to provide a bond in lieu of a cash deposit to cover estimated AD/CV duties on goods from exporters undergoing a new shipper review. Congress attempted to address this risk by suspending the bonding privilege and requiring cash deposits for such entries until July 2009. The second risk is linked to the fact that U.S. law does not specify any minimum amount of exports or number of transactions that an exporter has to make to be eligible for a new shipper review, which can lead to a significant underestimate of the amount of AD/CV duties owed.

Third, CBP's standard formula for calculating the general bond required to cover all types of duties provides little protection of AD/CV duty revenue because it often sets bond requirements at a low level. CBP revised this formula in July 2004, but that revision has only been applied to shrimp from six countries and has been partially struck down by U.S. courts and the World Trade Organisation. Fourth, CBP collects minimal information regarding importers and does not conduct background or financial checks.

The GAO offered two sets of options for improving AD/CV duty collections. First, Congress could revise U.S. law so that final duties are assessed when a product arrives in the U.S. instead of years afterward, as is often the case under the current system. The report acknowledges that this would be a fundamental alteration and that its implications for a variety of stakeholder groups, including affected domestic producers, exporters, importers and relevant federal agencies, would have to be weighed before any decision to proceed is made.

CBP expressed support for a prospective system, stating that it would provide importers with more certainty about their costs, which in turn could make it easier for them to do business with Chinese exporters. A prospective system could also alleviate the duty collection issues CBP faces, which could help reduce the perception among U.S. businesses and lawmakers that mainland companies are skirting the rules to undercut their U.S. competitors. Finally, CBP stated, such a change could substantially reduce its administrative burden and allow it to focus more fully on AD/CV enforcement issues.

Comments from two key senators, however, indicate that a change to the AD/CV duty system may not be forthcoming. Senate Finance Committee Chairman Max Baucus (Democrat-Montana) said he would focus on pressuring the Bush administration to collect all AD/CV duties owed and report on those that are uncollected, although the report noted that nearly $300 million of the outstanding balance is likely to be written off. Committee Ranking Member Charles Grassley (Republican-Iowa) said the government should do a better job of dealing with "the few bad apples" that he said are implicated in the report for most of the AD/CV duty collection problems. The Finance Committee is expected to address this and other CBP-related issues at a hearing likely to be held sometime in May.

The second set of options involves making adjustments within the existing system. One would be revising the process or standards for assigning AD/CV duty rates for new shippers, and in fact the GAO said Congress should consider providing the DOC with the authority to establish a minimum amount or value of exports from companies requesting a new shipper review. This could make it more difficult for Chinese companies to obtain individual AD duty rates, which is generally a necessary condition for entering the U.S. market because the China-wide rates to which they would otherwise be subject tend to be prohibitive.

Another possibility is amending CBP's bonding requirements; e.g., expanding the application of the July 2004 bond policy revision or setting bond requirements based on an assessment of an importer's likely ability to pay AD/CV duties. Such a step could increase the cost to U.S. buyers of importing goods from the mainland or run afoul of U.S. law or international obligations, and the GAO urged federal agencies to investigate these issues further. Other options the report mentions include tightening the requirements for becoming an importer of record and lengthening the time that CBP has to liquidate entries subject to AD/CV duties.

The GAO recommended that Congress require the departments of Commerce, Homeland Security and the Treasury to report on the relative advantages and disadvantages of prospective and retrospective AD/CV duty systems. This report should address the extent to which each system would likely achieve the goals of remedying injurious dumping or subsidised exports, minimising uncollected duties, reducing incentives and opportunities for importers to evade AD/CV duties, effectively targeting high-risk importers and creating a minimal administrative burden.

Content provided by Hong Kong Trade Development Council
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