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entitled 'International Trade: Issues and Effects of Implementing the
Continued Dumping and Subsidy Offset Act' which was released on
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Report to Congressional Requesters:
September 2005:
International Trade:
Issues and Effects of Implementing the Continued Dumping and Subsidy
Offset Act:
GAO-05-979:
GAO Highlights:
Highlights of GAO-05-979, a report to congressional requesters:
Why GAO Did This Study:
Between fiscal years 2001 and 2004, the Continued Dumping and Subsidy
Offset Act (CDSOA) provided over $1 billion funded from import duties
to U.S. companies deemed injured by unfair trade. Some supporters state
CDSOA helps U.S. companies compete in the face of continuing unfair
trade. Some opponents believe CDSOA recipients receive a large,
unjustified windfall from the U.S. treasury. Also, 11 World Trade
Organization (WTO) members lodged a complaint over the law at the WTO.
This report assesses (1) key legal requirements guiding and affecting
agency implementation of CDSOA; (2) problems, if any, U.S. agencies
have faced in implementing CDSOA; and (3) which companies have received
CDSOA payments and their effects for recipients and non-recipients; and
describes (4) the status of WTO decisions on CDSOA.
What GAO Found:
Congress enacted CDSOA to strengthen relief to injured U.S. producers.
The law’s key eligibility requirements limit benefits to producers that
filed a petition for relief or that publicly supported the petition
during a government investigation to determine whether injury had
occurred. This law differs from trade remedy laws, which generally
provide relief to all producers in an industry. Another key CDSOA
feature requires that Customs and Border Protection (CBP) disburse
payments within 60 days after the beginning of a fiscal year, giving
CBP limited time to process payments and perform desired quality
controls. This time frame, combined with a dramatic growth in the
program workload, presents implementation risks for CBP.
CBP faces three key implementation problems. First, processing of
company claims and CDSOA payments is problematic because CBP’s
procedures are labor intensive and do not include standardized forms or
electronic filing. Second, most companies are not accountable for the
claims they file because they do not have to support their claims and
CBP does not systematically verify the claims. Third, CBP’s problems in
collecting duties that fund CDSOA have worsened. About half of the
funds that should have been available for disbursement remained
uncollected in fiscal year 2004.
Most of the CDSOA payments went to a few companies with mixed effects.
About half of these payments went to five companies. Top recipients we
surveyed said that CDSOA had beneficial effects, but the degree varied.
In four of seven industries we examined, recipients reported benefits,
but some non-recipients noted CDSOA payments gave their competitors an
unfair advantage. These views are not necessarily representative of the
views of all recipients and non-recipients.
Because the United States has not brought CDSOA into compliance with
its WTO obligations, it faces additional tariffs on U.S. exports
covering a trade value of up to $134 million based on 2004 CDSOA
disbursements. Recently, Canada, the European Union, Mexico, and Japan
imposed additional duties on various U.S. exports. Four other WTO
members may follow suit.
Five Companies Received about Half of All CDSOA Payments through Fiscal
Year 2004:
[See PDF for image]
[End of figure]
What GAO Recommends:
In considering whether to keep, modify, or repeal CDSOA, Congress
should consider whether the law is achieving its purposes of
strengthening U.S. trade remedy laws, restoring conditions of fair
trade, and assisting U.S. producers. If Congress decides to modify the
law, Congress should also consider extending the time frame for
disbursing payments. In addition, we recommend that CBP take several
steps to improve processing of CDSOA claims and payments, verification
of claims, and collection of import duties.
www.gao.gov/cgi-bin/getrpt?GAO-05-979.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Key CDSOA Features Restrict Company Eligibility, Determine Share of
Disbursements, and Set Tight Time Frame for Disbursing Payments:
CBP Faces Three Key Problems Implementing CDSOA:
CDSOA Payments Largely Concentrated on a Few Companies and Industries,
with Mixed Effects Reported:
Retaliation Against U.S. Producers Underway for U.S. Failure to Comply
with WTO Ruling on CDSOA:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Top CDSOA Recipient Companies:
CDSOA Payments to the Top Recipient Companies:
CDSOA Effects on Top Recipient Companies:
Appendix III: CDSOA Recipient and Non-Recipient Companies in Seven
Industries:
Views on CDSOA from Recipients and Non-Recipients in the Bearings
Industry:
CDSOA Effects on Bearings Companies:
Scope and Methodology:
Views on CDSOA from Recipients in the Steel Industry:
CDSOA Effects on Steel Companies:
Scope and Methodology:
Views on CDSOA from Recipients and Non-Recipients in the Candle
Industry:
CDSOA Effects on Candle Companies:
Scope and Methodology:
Views on CDSOA from Pasta Company Recipients and Non-Recipients Pasta:
CDSOA Effects on Pasta Companies:
Scope and Methodology:
Views on CDSOA from Recipients in the DRAM Industry:
CDSOA Effects on DRAM Companies:
Scope and Methodology:
Views on CDSOA from Recipients and Non-Recipients in Crawfish Industry:
CDSOA Effects on Crawfish Processing Companies:
Scope and Methodology:
Views on CDSOA from Recipients and Non-Recipients in Softwood Lumber
Industry:
CDSOA Effects on Softwood Lumber Companies:
Scope and Methodology:
Appendix IV: Comments from Customs and Border Protection:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: CBP's CDSOA Program Staff, Responsibilities, and Workload:
Table 2: Fiscal Years 2001-2004 CDSOA Distributions to Top Recipient
Companies:
Table 3: CDSOA Effects on Top Recipient Companies:
Table 4: CDSOA Effect on Companies' Ability to Compete in U.S. Market:
Table 5: Fiscal Years 2001-2004 Bearings CDSOA Recipients:
Table 6: CDSOA Effects on Bearings Companies:
Table 7: CDSOA Effect on Bearings Companies' Ability to Compete in U.S.
Market:
Table 8: Top 10 Fiscal Years 2001-2004 Steel CDSOA Recipients:
Table 9: CDSOA Effects on Steel Companies:
Table 10: CDSOA Effect on Steel Companies' Ability to Compete in U.S.
Market:
Table 11: Fiscal Years 2001-2004 Candle CDSOA Recipients:
Table 12: CDSOA Effects on the Candle Companies:
Table 13: CDSOA Effect on Candle Companies' Ability to Compete in U.S.
Market:
Table 14: Fiscal Years 2001-2004 CDSOA Pasta Recipients:
Table 15: CDSOA Effects on Pasta Companies:
Table 16: CDSOA Effect on Pasta Companies' Ability to Compete in U.S.
Market:
Table 17: Fiscal Years 2001-2004 DRAM CDSOA Recipients:
Table 18: CDSOA Effects on DRAM Companies:
Table 19: CDSOA Effect on DRAM Companies' Ability to Compete in U.S.
Market:
Table 20: Top 10 Fiscal Years 2001-2004 Crawfish CDSOA Recipients:
Table 21: CDSOA Effects on Crawfish Companies:
Table 22: CDSOA Effect on Crawfish Companies' Ability to Compete in the
U.S. Market:
Table 23: Top 10 FY 2003-2004 Softwood Lumber CDSOA Recipients:
Table 24: CDSOA Effects on Softwood Lumber Companies:
Table 25: CDSOA Effect on Softwood Lumber Companies' Ability to Compete
in U.S. Market:
Figures:
Figure 1: CBP's and Treasury's Units Involved in CDSOA Efforts:
Figure 2: Potential Fiscal Year 2004 AD/CV Duties Available for
Distribution under CDSOA and Actual CDSOA Disbursements:
Figure 3: FY 2001-2004 CDSOA Payments to the Top Five Companies and to
the Remaining Companies:
Figure 4: Fiscal Year 2001-2004 Distribution of CDSOA Payments to the
39 Leading Recipient Companies:
Figure 5: Top 24 Product Groups Receiving CDSOA Disbursements, FY 2001-
2004:
Figure 6: Number of AD/CV Petitions Filed 1980-2004:
Figure 7: Timeline of WTO-Related Events on CDSOA:
Figure 8: Fiscal Year 2001-2004 CDSOA Disbursements by Industries:
Abbreviations:
AD: antidumping:
CBO: Congressional Budget Office:
CV: countervailing:
CDSOA: Continued Dumping and Subsidy Offset Act:
CBP: Customs and Border Protection:
EU: European Union:
IG: Inspector General:
NCA: National Candle Association:
ITC: International Trade Commission:
USTR: Office of the U.S. Trade Representative:
WTO: World Trade Organization:
Letter September 26, 2005:
The Honorable E. Clay Shaw, Jr.:
Chairman:
Subcommittee on Trade:
Committee on Ways and Means:
House of Representatives:
The Honorable Jim Ramstad:
Chairman:
Subcommittee on Oversight:
Committee on Ways and Means:
House of Representatives:
The Honorable Judy Biggert:
House of Representatives:
The Honorable John A Boehner:
House of Representatives:
The Continued Dumping and Subsidy Offset Act (CDSOA)[Footnote 1] of
2000 has provided over $1 billion[Footnote 2] to hundreds of U.S.
companies in industries deemed to have been injured by unfair
competition from dumped or subsidized imports. Before CDSOA's
enactment, these funds, which come from duties (import taxes) imposed
and collected on such imports, went to the Department of the Treasury's
(Treasury) general revenue fund. Some of CDSOA's defenders argue that
the law gives U.S. firms and their employees a reasonable chance to
compete and invest, despite facing continued unfair trade from foreign
competitors. However, since the act's enactment, various domestic and
international interests have opposed its implementation. Some domestic
opponents contend, among other things, that CDSOA recipients receive a
large, unjustified windfall from the U.S. treasury. Also, several
nations lodged a complaint over the law against the United States at
the World Trade Organization (WTO) in 2001. Nevertheless, defenders of
CDSOA say that U.S. trading partners have been unable to demonstrate
they actually suffered adverse effects from the law.
The President has proposed repealing the CDSOA three times.[Footnote 3]
However, legislation recently introduced[Footnote 4] to do so faces
strong bipartisan opposition.
Given the pending legislation and disagreements over CDSOA's
implementation and effects, you asked us to assess (1) what key legal
requirements guide and have affected agency implementation of CDSOA;
(2) what problems, if any, U.S. agencies have faced in implementing
CDSOA; and (3) which U.S. companies and industries have received
payments under CDSOA and what effects these payments have had for
recipient and non-recipient companies; and to describe (4) the status
of the WTO decisions on CDSOA.
To identify legal requirements guiding and problems facing U.S.
agencies in implementing CDSOA, we examined CDSOA legislation and
regulations, obtained and analyzed agency documents such as procedures
and disbursement reports, conducted field work at Customs and Border
Protection's (CBP) Revenue Division in Indianapolis, and met with
officials of CBP and the U.S. International Trade Commission (ITC) in
Washington, D.C. To identify company recipients, we obtained and
analyzed CBP disbursement data for fiscal years 2001 through 2004. To
assess the effect of disbursements on companies, we relied upon the
views of the top recipients of all CDSOA funds, and of selected leading
recipient and non-recipient companies in seven industries via standard
data collection questionnaires. A total of 24 of the 32 top recipient
companies we contacted responded to our questionnaires. In the seven
industries, a total of 92 of the 151 leading companies responded to
structured questions we sent them,[Footnote 5] ranging from 2 to 25
respondents per industry. The views of these companies are not
necessarily representative of all recipient and non-recipient
companies. To describe the current status of the WTO decisions, we
analyzed official U.S., foreign government, and WTO documents. We also
met with U.S. officials. We conducted our work from September 2004
through September 2005 in accordance with generally accepted government
auditing standards. Appendix I contains a more detailed description of
our scope and methodology.
Results in Brief:
CDSOA has the following three key features that guide agency
implementation:
* First, in passing CDSOA, Congress aimed to strengthen the remedial
nature of U.S. trade laws, restore conditions of fair trade, and assist
domestic producers. However, the law provides criteria restricting
company eligibility for disbursements to a subset of domestic
producers. Only those companies that filed or publicly supported
petitions that resulted in an antidumping or a countervailing (AD/CV)
duty order, while the government was conducting its investigation for
injury, and remain in operation producing the product subject to the
AD/CV order, are eligible for CDSOA disbursements. As a result, a
number of U.S. companies, such as those that began production after
orders covering their products came into effect, are ineligible. This
means that CDSOA operates differently from trade remedies, such as
AD/CV duties, which generally provide relief to all producers in an
industry.
* Second, the law identifies AD/CV duties collected as the source of
funds for the disbursements and provides a pro rata formula for
allocating disbursements so that those making the largest claims
generally receive the largest payments.
* Third, the law requires CBP to disburse all AD/CV duties collected in
a given fiscal year within 60 days after the first day of the following
fiscal year. CBP officials say this tight time frame means payments are
sent to companies before the agency can complete all the desired
quality controls.
CBP has faced three major problems in implementing CDSOA: (1)
processing CDSOA claims and payments, (2) verifying claims, and (3)
collecting AD/CV duties. First, processing of CDSOA claims and payments
is labor intensive and its associated workload is increasing; however,
the agency lacks plans for managing and improving its CDSOA program's
processes, staffing, and technology. Because CBP does not require
companies to file claims using a standardized method (e.g., an
electronic form), CDSOA program staff must review each claim to ensure
it contains the required information, enter the data into a
"standalone" database, and check for data entry errors. CBP uses
complex procedures to manually calculate the amounts available for
distribution and allocate disbursements among companies because its
computer systems do not have the capabilities to produce these figures.
CBP's CDSOA program is facing more than a 10-fold increase in its claim
processing workload in fiscal year 2005. Second, although CBP has
disbursed over $1 billion under CDSOA, CBP generally does not require
companies to provide any claims-related supporting documentation. It
has comprehensively verified the claims of only 1 of the 770 companies
receiving disbursements. Even though this verification revealed
significant problems, CBP does not plan to systematically verify CDSOA
claims. Finally, CBP only distributed about half of the CDSOA money
that should have been available for distribution in 2004 because it
failed to collect about $260 million in applicable AD/CV duties. CBP
has taken some steps to identify and address AD/CV duty collection
problems, which undermine both the effectiveness of related trade
remedies and the size of the amount available for disbursement under
CDSOA. However, because its actions to date have not fixed these
problems, CBP recently reported to Congress that it is working with
other U.S. agencies to develop legislative proposals and other
solutions by the end of 2005.
Most of the $1 billion in CDSOA disbursements in fiscal years 2001-2004
were concentrated in only a few companies and industries, with mixed
effects reported. About half of all CDSOA disbursements in terms of
value went to only 5 of the 770 recipient companies, and 80 percent of
all disbursements went to 39 companies. Similarly, two-thirds of the
payments went to three industries: bearings, candles, and steel. Top
recipient companies that responded to our questions generally indicated
that the CDSOA disbursements had beneficial effects on their companies
and industries, but the degree varied from slight to substantial.
Leading recipient and non-recipient companies we contacted in the seven
industries also reported mixed effects. In two industries--steel and
semiconductors--leading recipients we contacted reported positive
effects. In four other industries--crawfish, candles, bearings, and
pasta--recipients generally reported benefits, but some non-recipients
said that disbursements to competitors were having negative effects on
them. Several non-recipients complained that, although they would like
to receive disbursements, they were ineligible to receive them. In the
final industry, softwood lumber, both recipient and non-recipient
respondents indicated that disbursements to date have been too small to
have a discernable effect, but non-recipient respondents expressed
concern about potential future adverse effects because disbursements
might grow dramatically. Critics have expressed concerns that CDSOA may
increase the number of AD/CV petition filings and the scope and
duration of AD/CV duty orders. However, the available evidence is
inconclusive.
Some U.S. industries are facing the imposition of additional tariffs by
key U.S. trading partners as authorized by the WTO because CDSOA does
not comply with WTO agreements.[Footnote 6] In response to separate
complaints about CDSOA by 11 WTO members, the WTO ruled in January 2003
that CDSOA violated U.S. WTO obligations. The rationale for the WTO's
ruling was that CDSOA was not among the allowed trade remedy responses
to injurious dumping and subsidies specifically listed in the
applicable WTO agreements. The United States pledged to comply with the
adverse ruling, but it did not do so by the December 2003 deadline.
Although the President proposed CDSOA's repeal, no change has been
enacted by Congress. Three countries agreed to give the United States
more time to come into compliance; the other eight members requested
and received WTO authorization to retaliate by imposing additional
tariffs on imports from the U.S. WTO arbitrators found that each of the
eight members would be entitled to suspend concessions against U.S.
exports in an amount equal to 72 percent of the CDSOA disbursements
associated with AD/CV duties on that member's products each year. The
total suspension authorized for 2005 could be up to $134 million based
on the fiscal year 2004 CDSOA disbursements. Specifically, for the
fiscal year 2004 disbursements, the WTO arbitrators authorized the
imposition of additional duties covering a total value of trade not
exceeding $0.3 million for Brazil, $11.2 million for Canada, $0.6
million for Chile, $27.8 million for the European Union (EU), $1.4
million for India, $52.1 million for Japan, $20.0 million for Korea,
and $20.9 million for Mexico. On May 1, 2005, Canada and the EU began
the imposition of additional duties on various U.S. exports. On August
18, 2005, Mexico began imposing additional duties on U.S. exports. On
September 1, 2005, Japan began imposing additional duties on U.S.
exports as well. The remaining four members say they might suspend
concessions.
This report contains matters for congressional consideration and
recommendations to CBP. Specifically, given the results of our review,
as Congress carries out its CDSOA oversight functions and considers
related legislative proposals, it should consider whether CDSOA is
achieving the goals of strengthening the remedial nature of U.S. trade
laws, restoring conditions of fair trade, and assisting domestic
producers. If Congress decides to retain and modify CDSOA, it should
also consider extending CBP's 60-day deadline for completing the
disbursement of CDSOA funds. If Congress retains the law, we also
recommend that CBP take several steps to improve the processing of
claims and payments, the verification of claims, and the collection of
AD/CV duties.
We received written comments on a draft of this report from CBP (see
app. IV) indicating that it concurred with our recommendations. We also
received technical comments on this draft from CBP, the ITC, and the
Office of the U.S. Trade Representative (USTR), which we have
incorporated where appropriate.
Background:
The United States and many of its trading partners have long used laws
known as "trade remedies" to mitigate the adverse impact of certain
trade practices on domestic industries and workers, notably dumping
(i.e. sales at below fair market value), and foreign government
subsidies that lower producers' costs or increase their revenues. In
both situations, U.S. law provides that a duty intended to counter
these advantages be imposed on imports. Such duties are known as AD/CV
duties. The process involves the filing of a petition for relief by
domestic producer interests, or self-initiation by the U.S. Department
of Commerce (Commerce), followed by two separate investigations: one by
Commerce, which determines if dumping or subsidies are occurring, and
the other by the ITC, which determines whether a domestic U.S. industry
is materially injured by such unfairly traded imports. If both agencies
make affirmative determinations, Commerce issues an order to CBP
directing it to collect the additional duties on imports. These are
known as AD/CV duty orders.[Footnote 7] No later than 5 years after
publication of these orders, Commerce and the ITC conduct a "sunset
review" to determine whether revoking the order would likely lead to
the continuation or recurrence of dumping and/or subsidization and
material injury.
Congress enacted CDSOA on October 28, 2000, as part of the Agriculture,
Rural Development, Food and Drug Administration and Related Agencies
Appropriations Act to strengthen the remedial nature of U.S. trade
laws, restore conditions of fair trade, and assist domestic producers.
Congress noted in its accompanying findings that "continued dumping and
subsidization . . . after the issuance of antidumping orders or
findings or countervailing duty orders can frustrate the remedial
purpose"[Footnote 8] of U.S. trade laws, potentially causing domestic
producers to be reluctant to reinvest or rehire and damaging their
ability to maintain pension and health care benefits. Consequently,
Congress enacted the CDSOA, reasoning that "U.S. trade laws should be
strengthened to see that the remedial purpose of those laws is
achieved."[Footnote 9] CDSOA instructs Customs to distribute AD/CV
duties directly to affected domestic producers. Previously, CBP
transferred such duties to the Treasury for general government use.
Two agencies are involved in CDSOA implementation. The law gives each
agency--ITC and CBP--specific responsibilities for implementing CDSOA.
The ITC is charged with developing a list of producers who are
potentially eligible to receive CDSOA distributions and providing the
names of these producers to CBP.[Footnote 10] CBP has overall
responsibility for annually distributing duties collected to eligible
affected domestic producers. CDSOA also makes CBP responsible for
several related actions. Specifically, it charges CBP with establishing
procedures for the distribution of payments and requires that CBP
publish in the Federal Register a notice of intent to distribute
payments and, based on information provided by the ITC, a list of
affected domestic producers potentially eligible for the distribution.
Both agencies had some start-up challenges and have made improvements
in response to reports by their Inspectors General (IG). In September
2004, ITC's IG found that the ITC had effectively implemented its part
of the act but made several suggestions for enhancing the agency's
CDSOA efforts.[Footnote 11] For example, it suggested that the ITC
better document its policies and procedures for identifying and
reporting eligible producers to CBP and improve its communication with
companies regarding eligibility. In response, the ITC implemented these
suggestions to, among other things, formalize and strengthen its
procedures for identifying eligible producers, developing a list of
potentially eligible producers, and transmitting the list to CBP. For
example, the ITC updated its desk procedures, clarified certain
responsibilities to support the staff responsible for maintaining the
ITC list, and added additional guidance on CDSOA requirements to its
website.
In June 2003, the Treasury's IG issued a report finding several major
deficiencies in CBP's implementation of CDSOA and made several
recommendations.[Footnote 12] The Treasury's IG found that CBP was not
in compliance with the law because it did not properly establish
special accounts for depositing and disbursing CDSOA payments, did not
pay claimants within the required time frame, and did not institute
standard operating procedures or adequate controls for managing the
program. Specifically, Treasury's IG noted that the absence of proper
accounts, accurate financial data, and adequate internal controls had
resulted in "overpayments of at least $25 million, and likely more."
Treasury's IG also emphasized that several other issues warranted
attention, including no routine verification of claims and significant
amounts of uncollected AD/CV duties. In response, CBP consolidated the
processing of claims and payments by establishing a CDSOA team in
Indianapolis, Indiana; instituted procedures for processing claims and
disbursements, and for conducting claim verification audits; and
started proceedings to secure reimbursements from the companies that
had received overpayments. Despite these efforts, CBP still faces
issues raised by the Treasury IG, such as the issue of uncollected
duties.
The United States has an obligation that its trade remedy actions
conform to its legal commitments as part of the WTO, an international
body based in Geneva, Switzerland. The WTO agreements set forth the
agreed-upon rules for international trade. The WTO provides a mechanism
for settling disputes between countries, and serves as a forum for
conducting trade negotiations among its 148 member nations and separate
customs territories. WTO trade remedy rules involve both procedural and
substantive requirements, and a number of U.S. trade remedies have been
challenged at the WTO.[Footnote 13] WTO members that believe other
members are not complying with their WTO obligations can file a dispute
settlement case. The resulting decisions by a dispute settlement panel,
once adopted, are binding on members who are parties to the dispute,
and WTO rules create an expectation of compliance. Under WTO rules and
U.S. law, however, compliance is not automatic. WTO dispute settlement
panels cannot order the United States to change its law. Alternatively,
the United States may choose not to comply with WTO agreements and
instead may choose to offer injured members mutually-agreed upon trade
compensation or face retaliatory suspension of trade concessions by the
complainant members. A new round of global trade talks aimed at
liberalizing trade barriers is now underway and includes discussions of
possible clarifications and improvements to the WTO rules on
antidumping and on subsidies and countervailing measures. U.S. trade
with members of the WTO totaled $2.1 trillion in 2004, giving the
United States a considerable stake in these WTO negotiations, which aim
to liberalize trade in agriculture, industrial goods, and
services.[Footnote 14]
Key CDSOA Features Restrict Company Eligibility, Determine Share of
Disbursements, and Set Tight Time Frame for Disbursing Payments:
Three key features of CDSOA guide and affect agency implementation.
These features (1) determine company eligibility to receive CDSOA
disbursements, (2) shape the allocation of CDSOA disbursements among
companies based on their claimed expenditures, and (3) specify
milestones that agencies must achieve when implementing the act,
including a tight time frame for disbursing funds.
CDSOA's Criteria for Company Eligibility Restricts Benefits:
CDSOA establishes criteria that restrict eligibility for CDSOA
disbursements. As guidance for agency implementation, these criteria
raise issues because (1) two-thirds of the orders in effect predate
CDSOA, (2) ITC investigative procedures were not designed to, and do
not result in, collecting information on support of petitions from all
industry participants, and (3) other factors further limit company
eligibility. Some companies deemed ineligible regard these criteria as
unfair, and several have initiated legal action to secure eligibility.
CDSOA Restricts Eligibility:
The law restricts eligibility to "affected domestic producers"--namely,
any "manufacturer, producer, farmer, rancher, or worker representative
(including associations of these persons)" that (1) petitioned[Footnote
15] the ITC or supported a petition for relief to the ITC that resulted
in an AD/CV duty order and (2) remains in operation. The law also
requires the ITC to prepare a list of potentially eligible producers
for CBP, which publishes it in advance of each annual distribution. The
law only applies to orders in effect on or after January 1, 1999. CDSOA
further specifies that support must be communicated to the ITC through
a letter from the company or a response to an ITC questionnaire.
Successor companies or members of an association may also be eligible
for CDSOA distributions.[Footnote 16] Conversely, CDSOA deems as
ineligible those companies that (1) opposed a petition, (2) ceased
production of a product covered by an order, or (3) were acquired by
companies that opposed a petition.
Most Orders Predate CDSOA:
These eligibility criteria create special problems when older AD/CV
orders are involved. Our analysis of ITC data reveals that roughly two-
thirds of (234 out of 351) AD/CV duty orders in effect as of April 15,
2005, precede CDSOA. The application of CDSOA to orders that predate
the law's enactment raises concern. This is because, for AD/CV relief
petitions that were investigated before CDSOA was enacted, producers
had no way of knowing that their lack of expression of support for the
petition would later adversely affect their ability to receive CDSOA
disbursements. Moreover, firms that began operations or entered the
U.S. market after the ITC's original investigation are not eligible to
receive CDSOA distributions. For petitions that have been investigated
since CDSOA was enacted, producers would likely be aware of this
linkage. The ITC and CBP told us that in a recent case involving
shrimp, industry associations reached out broadly to ensure producers
were aware of the need to communicate support to the ITC. Similarly,
officials from a law firm that works with importers told us they were
aware of such industry association efforts in cases involving live
swine. However, in examining seven industries, we spoke to several
ineligible companies that were frustrated because they had not
expressed support during, or in some cases had not even known about,
AD/CV investigations conducted before CDSOA's adoption.
ITC Sometimes Does Not Collect Data from All Industry Participants:
The ITC relies on company data that is sometimes incomplete, and this
further limits eligibility. CDSOA's criteria link companies'
eligibility to a process the ITC has long followed in investigating
AD/CV petitions by U.S. domestic industry interests for relief from
unfair imports. However, the ITC's investigative process does not
result in collecting information from all industry participants,
because it is intended for purposes other than CDSOA. The ITC's primary
role in AD/CV investigations is to define the scope of the industry
that is affected by competition from imported goods and to determine
whether the industry has suffered or been threatened with material
injury as a result of dumped or subsidized imports. The ITC collects
information from U.S. producers, primarily by surveying them. ITC
officials told us that they generally strive to cover 100 percent of
industry production in their surveys and usually receive responses from
producers accounting for a substantial share of production. In
situations with a relatively small number of producers, ITC officials
said they often succeed in getting coverage of 90 percent of the
domestic industry. However, in certain circumstances, such as with
agricultural products, which have a large number of small producers,
ITC surveys a sample of U.S. producers instead of the entire
industry.[Footnote 17] In these situations, it is not uncommon for the
share of production reflected in the ITC's questionnaire responses to
account for 10 percent or less of production.
Other Factors May Further Limit List of Eligible Producers ITC Provides
CBP:
The following four factors additionally define the list of eligible
producers:
* The questionnaires that the ITC sends to domestic producers during
its investigations have only asked respondents to indicate their
position on the petition since 1985. For cases prior to 1985, only
petitioners and producers who indicated support of the petition by
letter in the ITC's public reports or documents have been considered
"affected domestic producers."
* The ITC considers the most recent answer a company provides as the
one that determines eligibility. In its investigations, the ITC sends
out both preliminary and final surveys in which producers are asked
about support for petitions. Presently, producers have the option of
checking one of three boxes: (1) support, (2) take no position, and (3)
oppose. According to ITC officials, because the statute requires
support, only those firms that check the "support" box are considered
eligible. Moreover, ITC's practice has been to look to the most recent
clear expression of a company's position on the petition to determine
its CDSOA eligibility. For example, if a company's response was
"support" on the preliminary survey but "take no position" on the final
survey, the ITC interprets "take no position" as non-support, and
considers the company ineligible for CDSOA disbursements.
* The ITC limits its list of potentially eligible producers to those
who indicate their support can be made public. The ITC is required by
statute to keep company information, including positions on petitions,
confidential, unless the company waives its confidentiality
rights.[Footnote 18] CDSOA requires CBP to publish the list of
potentially eligible producers; as a result, the list the ITC provides
CBP only includes companies who have affirmatively indicated
willingness (in the original investigation or after) to have their
support be made public.
* Because of CDSOA's interpretation of the phrase "support of the
petition," the ITC only considers evidence of support during its
initial investigation to satisfy CDSOA requirements. Once an
investigation is over, a producer that has not communicated its support
to the ITC cannot later become eligible for CDSOA disbursements, even
if it supports the continuation of an existing order at the time of the
5-year "sunset review."
Several Companies Have Challenged CDSOA's Eligibility Restrictions:
Several companies have brought legal action challenging agency
decisions that rendered them ineligible to receive disbursements, but
none of these challenges have been successful. The following examples
illustrate challenges to agency decisions:
* A case was brought by candle companies to compel the payment of CDSOA
distributions to them.[Footnote 19] The companies were not on the ITC's
list of potentially eligible producers and did not file timely
certifications with CBP. The companies asserted that the ITC had
violated CDSOA by failing to include them on the list of affected
domestic producers and that this omission excused their failure to
timely file their certifications.[Footnote 20] A federal appellate
court held that the ITC properly excluded the two producers from the
list of affected domestic producers because the producers provided
support for the AD petition in a response to a confidential
questionnaire and failed to waive confidentiality.[Footnote 21] The
court also held that when the ITC properly excludes a producer from the
list, the producer still must file a timely certification with CBP to
obtain retroactive consideration for CDSOA distributions.[Footnote 22]
As a result, the court found that the firms were not entitled to CDSOA
disbursements for the years in question.
* Another set of candle companies, which had opposed the relevant
petition and subsequently acquired companies in support of the same
petition, brought a case seeking to obtain CDSOA disbursements on
behalf of the acquired companies.[Footnote 23] An appellate court held
that CDSOA bars claims made on behalf of otherwise affected domestic
producers who were acquired by a company that opposed the investigation
or were acquired by a business related to a company that opposed the
investigation.[Footnote 24] The court also found that the acquired
companies are also barred from claiming disbursements for
themselves.[Footnote 25]
* A seafood producer brought a case seeking an evidentiary hearing
and/or inclusion of affidavits in the agency record where the producer
was excluded from the list of affected domestic producers because the
ITC had no record of the producer's support for the petition.[Footnote
26] The producer claimed that it had mailed a questionnaire response
indicating support to the ITC on time and wanted to have its affidavits
in support of the contention included in the agency's records.[Footnote
27] The U.S. Court of International Trade held that because the
producer failed to allege the proper reasons for amending the agency
record, affidavits concerning the timely mailing of a questionnaire
could not be added to the agency record and considered when reviewing
the producer's eligibility for a CDSOA distribution.[Footnote 28]
Two other legal challenges are still pending and involve claims that
CDSOA violates the First Amendment of the U.S. Constitution ("free
speech") by conditioning the distribution of benefits on a company's
expression of support for an AD/CV relief petition.[Footnote 29]
Monies Collected on All Active Orders Fund Annual CDSOA Disbursements;
Company Claims Determine Share of Disbursements:
The second key CDSOA feature provides for CDSOA funding and a pro rata
mechanism for allocating funds among the companies that claim
disbursements based on a broad definition of qualifying expenditures.
Partly as a result of the incentive this creates, company claims
approached $2 trillion in fiscal year 2004.
AD/CV Duties Fund CDSOA Disbursements:
Each fiscal year's duty assessments on all AD/CV duty orders that were
in effect for that year fund annual CDSOA disbursements. Each fiscal
year, CBP creates a special account that acts as an umbrella over
multiple holding accounts used to track collections by specific active
AD/CV duty orders and deposits collected duties under an order into its
respective account. Within these accounts, CBP indicates that the
dollar amounts attributable to each specific case are clearly
identifiable. For example, a total of 351 AD/CV duty orders were in
effect as of April 15, 2005, covering 124 products from 50 countries.
In other words, as of that date, CBP intended to allocate CDSOA
disbursements not from "one CDSOA pie" but from "351 CDSOA pies." Each
of these accounts constitutes a separate fund from which CBP makes
annual distributions. After the fiscal year closes, CBP distributes the
duties collected and interest earned under a given order that year to
the affected eligible producers filing timely claims related to the
specific order.
The agency cannot distribute funds collected from one order to
producers that were petitioners under other orders. For example, funds
collected from the order on pineapples from Thailand cannot be used to
pay producers covered by the frozen fish from Vietnam order. As a
result, in fiscal year 2004, the one U.S. producer of pineapples
received all the money collected under that order, but CBP did not make
CDSOA disbursements to U.S. producers of frozen fish because the agency
had not collected any funds under that order.
CDSOA Has Broad Definition of Qualifying Expenditures:
CDSOA's definition of expenses companies can claim is very broad. The
law defines ten categories of qualifying expenditures, such as health
benefits and working capital expenses, incurred during the production
of the product under the order.[Footnote 30] According to CBP officials
we spoke with, this broad definition means companies can include a wide
range of expenses in their certifications. Moreover, CDSOA allows
companies to claim any expenses incurred since an order was issued, a
period that may span as far back as the early 1970s for some
orders.[Footnote 31] Indeed, 68 of the 351 orders in effect have been
in place for 15 years or more. Companies can also make claims under
multiple AD/CV orders. For example, in fiscal year 2004, one of the top
recipient companies filed claims for different products under 89 AD/CV
orders. Finally, the law allows companies to submit claims for
qualified expenditures that have not been reimbursed in previous fiscal
years. However, CBP implementing regulations require that producers
relate claimed expenditures to the production of the product that is
covered by the scope of the order or finding.
CDSOA Disbursements Are Proportional to Company Claims:
CDSOA uses a pro rata formula to allocate disbursements under a given
order among the eligible companies filing claims, with percentages
determined according to the claims of qualifying expenditures
submitted. If the amount collected under an order is insufficient for
all claims to be paid in full, as is often the case, each company
receives its pro rata share of the amount collected. This pro rata
formula creates an incentive for producers to claim as many expenses as
possible relative to other producers so that their share of the funds
available under an order is as large as possible. CBP officials cited
the increase in claims--from $1.2 trillion in fiscal year 2001 to just
under $2 trillion in fiscal year 2004--as an indication of this
incentive.
CDSOA Sets a Tight Time Frame for Disbursing Payments:
The third key feature of CDSOA is that it sets a strict deadline by
which CBP must distribute payments for a fiscal year. Most disbursement-
related activities cannot begin until the fiscal year ends. As a
result, CBP has a significant workload in October and November and
cannot perform all the desired quality controls prior to disbursement.
CDSOA gives CBP a flexible time frame for processing claims and the CBP
has used its discretion to give itself more time. Specifically, the law
directs CBP to publish a Federal Register notice of its intent to
distribute payments, and the list of affected domestic producers
potentially eligible to receive payments under each order, at least 30
days before distributions are made. However, CBP has scheduled the
publication, which is the first step in processing claims, at least 90
days before the end of the fiscal year for which distributions are
being made. For the fiscal year 2004 disbursements, CBP actually
published the notice on June 2, 2004--about 120 days before the end of
the fiscal year. CBP requires producer claims/certifications to be
submitted within 60 days after this notice is published. The fiscal
year 2004 deadline for submitting claims was August 2, 2004. This gave
CBP the months of August and September to examine certifications, seek
additional information from the producers, send acceptance or rejection
letters to producers, and finalize a list of recipients.
The law is not flexible in the time frame allowed for processing
disbursements for a given fiscal year, specifying that payments must be
made within 60 days after the first day of the following fiscal year.
Because of the need to calculate funds available based on a completed
fiscal year, CBP cannot commence these calculations until the following
fiscal year. This tight time frame means that during October and
November, CBP must perform the bulk of the tasks associated with
calculating the funds available for disbursement under each order and
the funds that will be distributed to each recipient company under an
order. In discussions with us, CBP officials said CDSOA's 60-day time
frame for disbursing payments was tight, posing the biggest risk
associated with running the program. For instance, in fiscal year 2002,
the program missed this deadline by about 2 weeks and, in the process,
overpaid some producers. Efforts to collect these overpayments have
yielded some results but are still continuing. An extension of 30 days
in the disbursement deadline would give CBP additional time to
undertake desired quality control measures before sending the
instructions to Treasury and issuing payments. The present schedule
does not allow sufficient time for quality control, forcing CBP to ask
companies for repayment if errors are subsequently detected.
CBP Faces Three Key Problems Implementing CDSOA:
CBP faces three key problems in implementing CDSOA. First, despite some
recent improvements, CBP's processing of CDSOA claims and disbursements
is labor intensive, and the agency is facing a dramatic increase in its
2005 workload. Second, the agency does not systematically verify claims
and thus cannot be sure it appropriately distributes disbursements.
Third, CBP disbursed only about half the funds that should have been
available in fiscal year 2004 because of ongoing problems collecting
AD/CV duties.
Figure 1 depicts how the various units of CBP and Treasury interact
when processing claims, verifying claims, and making payments.
Following the consolidation of CBP's CDSOA program within the Revenue
Division at Indianapolis in 2004, the division is now fully responsible
for processing claims and disbursements. The division issues payment
instructions for Treasury's Financial Management Service, which
actually issues CDSOA disbursement checks to U.S. companies. CBP's
Regulatory Audit Division may selectively perform claims verifications
upon request of the CDSOA program.
Figure 1: CBP's and Treasury's Units Involved in CDSOA Efforts:
[See PDF for image]
[End of figure]
In addition to these offices within CBP, the Office of Regulations and
Rulings addresses legal matters, the Office of the Chief Counsel
addresses litigation, the Office of Information Technology provides
necessary reports, and the Office of Field Operations is responsible
for liquidations.
CBP's CDSOA Program Faces Problems Processing Claims and Payments:
The CDSOA program's efforts to process claims and disbursements are
cumbersome and likely to become more challenging with impending
workload increases. The processing of claims and disbursements requires
intensive manual efforts, in part because CBP does not require
companies to file claims using a standardized form. Also, existing
computer systems do not have the capabilities to produce the data
needed to calculate amounts available for distribution. CBP's guidance
for filing claims is not sufficiently specific and causes confusion,
requiring extra effort by CBP staff to answer questions from companies.
CBP officials are concerned that, despite recent staffing increases,
the number and experience level of staff may not be sufficient to
handle the dramatic workload increase in fiscal year 2005. Despite
being aware of these problems, CBP's CDSOA program lacks plans for
improving its processes, staff, and technology.
Processing of Claims Is Labor Intensive:
CDSOA claims processing is cumbersome and labor intensive. Through
fiscal year 2004, CBP only received updates to the list of potentially
eligible companies from the ITC in hard copy. As a result, CBP had to
manually update its electronic database of potentially eligible
producers. During the course of our review, ITC officials took the
initiative to provide the list to CBP in hard copy and in electronic
format to facilitate CBP's processing of this information. CBP
officials noted that getting the file electronically was very helpful.
However, because CBP still needed to perform considerable data re-entry
to get the list into the format they preferred, ITC and CBP officials
told us they are exploring whether to formalize and improve this file
exchange in the future. Because CBP does not require companies to
submit claims electronically using a standardized form, program staff
scan all the documents received for electronic storage and subsequently
archive all paper copies of the documents. CDSOA program staff must
review each claim to ensure it contains the required information,
contact claimants to clarify basic information, and send out letters
concerning rejected claims.[Footnote 32] Staff must manually enter
information from accepted claims into a "standalone" database, and
perform repeated checks to ensure that they followed the prescribed
procedures and that their data entries are valid and accurate.
Gaps in Computer Systems Force Reliance on Manual Calculations of
Disbursements:
The payments processing component is also labor intensive because
existing computer systems do not have the capabilities to provide
precise information on the amounts available for disbursement under
each order or the amounts to be disbursed to each claimant. CBP's CDSOA
program continues to face a risk in this area because its staff must
manually perform the calculations and any inaccurate calculations can
result in over or underpayments. Multiple data elements are required to
determine the amounts available for disbursement, and these come from
different computer systems. In some instances, the computer systems
produce conflicting information, and program staff must manually
reconcile these differences. While internal control procedures are in
place to ensure the validity and accuracy of the calculations, the
process is nonetheless subject to human error. Program officials told
us that the new computer system being implemented agencywide will not
have the financial component needed to perform this task for several
more years.
Guidance to Companies Generates Questions to CBP and Uncertainty by
Companies:
Claims processing is further complicated because the guidance about how
to file CDSOA claims is very general and open to interpretation. As a
result, CDSOA program staff field many phone calls from claimants
regarding their claims, including clarification questions on how to
file claims. Respondents to GAO's questions generally praised CBP for
its handling of these calls. However, a recent CBP verification of a
company's claims raised various claims-related questions. For example,
CDSOA provides that companies can receive disbursements for qualifying
expenditures not previously reimbursed, but officials involved in the
verification said it was not clear whether companies must subtract all
past disbursements when making claims under multiple orders, or only
those disbursements related to a particular order. Also, one CDSOA
recipient company reported that, because of uncertainty about whether
cumulative expenses could be claimed, it claimed only 1 year's
expenses. As a result, it received a much smaller share of
disbursements than it otherwise could have.
CDSOA Program Has Increased Staff but Faces Dramatic Growth in
Workload:
Although the number of staff assigned to process claims and payments
has grown, program officials noted that this increase may not be
sufficient to handle the dramatic workload increase expected in fiscal
year 2005. Specifically, the number of eligible claimants has grown by
500 percent between fiscal years 2004 and 2005, and the number of
claims might increase more than 10-fold, from 1,960 to over 29,000.
This growth is largely due to AD duty orders on certain warm-water
shrimp or prawns recently coming into effect. Table 1 shows the number
of program staff for fiscal years 2003-2005 and the program's
responsibilities and workload during those years.
Table 1: CBP's CDSOA Program Staff, Responsibilities, and Workload:
Fiscal year: 2003;
Number of staff: 4;
Responsibilities: Process payments forwarded by CBP's Office of
Regulations and Rulings; Prepare for consolidation of the program;
Workload:
* Eligible claimants-1,000;
* Claimants that filed-545;
* Claims filed-2,196;
* Claims per staff-549.
Fiscal year: 2004;
Number of staff: 7;
Responsibilities: Process CDSOA claims and payments;
Workload:
* Eligible claimants-1,100;
* Claimants that filed-493;
* Claims filed-1,960;
* Claims per staff-280.
Fiscal year: 2005;
Number of staff: 9;
Responsibilities: Process CDSOA claims and payments;
Workload:
* Eligible claimants-5,400;
* Claimants that filed-unknown;
* Claims to be filed (est.)-29,300;
* Claims per staff (est.) 3,255.
Source: GAO analysis of CBP data.
[End of table]
Program officials are concerned about fiscal year 2005 processing
activities because only about half of the staff has processed claims
and payments before. The rest are new and not experienced with the
procedures. Moreover, if the workload becomes unmanageable, CBP may be
unable to quickly bring new staff on board and up to speed. This is
because new employees must undergo a 4 to 6 month background check and
initial training of entry-level college graduates takes 3 to 4 months.
New staff attains full proficiency only after they complete a full
annual cycle of processing claims and payments.
Despite these challenges, the CDSOA program does not have formal plans
for improving its processes, technology, and staff. In our efforts to
help improve the federal government's performance, we regularly
emphasize that processes, staff, and technology are vital to agency
performance and that planning is central to managing and improving
these three organizational components.[Footnote 33] For instance, our
work on human capital issues throughout the government has revealed the
importance of having a human capital plan in place to address problems,
such as those faced by the CDSOA program, and ensure that staff with
the right skills and abilities is available continuously and can meet
changing organizational needs.[Footnote 34]
CBP Has Not Verified Claims Systematically:
Claims verification poses another implementation problem for CBP.
Companies are not held accountable for the claims they file because CBP
does not require them to provide any supporting documentation for their
claims and does not systematically verify company claims. The only
comprehensive verification conducted to date found significant issues.
Although CBP has put in place procedures for verifying CDSOA claims, it
does not plan to implement them on a systematic or routine basis.
Program officials told us they basically accept the information in
company claims and rely on complaints from competitors to initiate
verifications. In reviewing certain claims and CBP's procedures, we
found that claims are generally not questioned even though top CDSOA
recipient companies have claimed over $2 trillion since fiscal year
2001 (see app.II). CBP normally does not take steps to determine that
companies are still in business and producing the item covered by the
order under which they are making a claim. Neither CDSOA nor CBP
require companies to explain their claims, provide supporting
documentation about their claims, or follow a format when listing their
qualifying expenditures. For example, in reviewing the 2004 claims
filed by top CDSOA recipients, we found that most companies did not
provide any details about their claimed expenditures. Indeed, one
company listed all of its claimed expenditures under the category of
raw materials. CDSOA and CBP do not require that companies have their
claims reviewed by a certified public accountant or a party outside of
the company.
CBP has only verified the claims of a handful of claimants. One of
these verifications was comprehensive and revealed significant
problems. In the first 3 years of the CDSOA program, staff in CBP's
Office of Regulations and Rulings conducted four, 1-day site visit
verifications that revealed no substantive issues. Subsequently, CBP's
Regulatory Audit Division decided to conduct a fifth verification using
the detailed verification procedures the division developed in mid-
2004. This verification, which took about a year and was completed in
June 2005, revealed significant problems, including substantial
overstatement of claimed expenses. According to CBP, the primary cause
of the CDSOA expenditure overstatement was the company's failure to
maintain an internal control system to prepare and support its CDSOA
claims. This prevented the company from identifying the non-qualifying
products and costs associated with them. As a result, the company
included expenditures incurred in the production of products not
covered by the scope of the AD/CV orders. The company acknowledged that
it had wrongly claimed expenditures and subsequently took corrective
action.
CBP does not plan to change its present reactive approach or to
systematically target more companies for verifications. Although the
law does not require verification of claims, CBP has recognized over
time the need for them but has always stopped short of implementing a
systematic verification plan. In the third year of CDSOA
implementation, a CBP working group under the direction of the Deputy
Commissioner's office developed a statement of work to, among other
things, verify claims according to a risk-based plan. However, CBP does
not have any evidence that this plan was ever developed or implemented.
Despite having new claim verification procedures in place and having
performed an in-depth verification as a prototype review to determine
the extent of work involved in the verification, Regulatory Audit
Division officials told us they do not plan to verify claims
systematically or on a routine basis. Instead, CBP will continue to
rely on complaints from competitors to select companies for
verification. According to CBP officials, this approach is logical
because the pro rata formula for allocating disbursements among firms
creates an incentive for other companies to police their competitors.
Although CBP has an agencywide risk-based plan for targeting companies
for audits, this plan does not target the CDSOA program's recipients
because the agency does not consider the program a high risk to revenue
or a high priority for policy reasons.
CBP's current position is at odds with its own Inspector General's (IG)
position and our work on financial management, which highlights the
importance of verifying claims. In its audit of the CDSOA program,
Treasury's IG emphasized the need for more robust claim verification.
In the report, the IG questioned why CBP was not reviewing CDSOA claims
on an annual basis, and particularly the expenditures claimed. The IG
went on to note that certifications are legally subject to verification
and that these certifications would serve as a deterrent against the
submission of deceptive claims. Moreover, it emphasized that untimely
verifications could result in the loss of revenue for other deserving
companies if, in fact, deception was later discovered. Our overall work
on claims and disbursements throughout the government shows that the
systematic verification of claims before they are processed (or after
they are paid) is key to ensuring the validity of transactions and to
avoid disbursement problems such as improper payments.[Footnote 35]
This work also reveals the importance of internal controls, such as
verification, to ensure that only valid transactions are initiated in
accordance with management decisions and directives.
CBP's Problems in Collecting AD/CV Duties Worsen:
Collecting AD/CV duties has been another problem for CBP, compromising
the effectiveness of AD/CV trade remedies generally and limiting
funding available for distribution under CDSOA. CBP reported that the
problem has grown dramatically in the last couple of years. For
example, it distributed about half of the money that should have been
available under CDSOA in fiscal year 2004. CBP's efforts to date to
address the causes of its collections problems have not been
successful, leading CBP to pledge further steps in a July 2005 report
to Congress.
Customs collections problems have been evident since mid-2003 and have
two distinct components. Specifically, the 2003 report on CDSOA by
Treasury's IG highlighted CBP's collections problems, raising
particular concerns about the following two AD/CV collection issues:
* Unliquidated entries make the eventual collection of duties owed less
certain. Liquidation is the final determination of duties owed on an
import entry. Liquidation of import entries subject to AD/CV duties
only occurs after Commerce issues a final order, determines final
dumping margins or final net countervailable subsidies (i.e. duty), and
issues liquidation instructions to CBP. Upon receipt of liquidation
instructions, CBP calculates and seeks to collect the actual duties
owed. In some cases, such as softwood lumber, liquidation is being
suspended due to ongoing litigation. While neither Commerce nor CBP can
hasten collection of duties tied up in litigation, Treasury's IG report
found that, in some cases, CBP was not collecting duties because
Commerce had failed to issue proper liquidation instructions to CBP. In
other cases, the report said CBP had overlooked Commerce liquidation
instructions. The report said clearing up the liquidation backlog
should be given a high priority given the substantial dollars involved-
-about $2 billion in 2003. Clearing the backlog is also urgent because
discrepancies between unliquidated duties and final duties often means
that CBP must attempt to collect additional sums from producers that
did not expect to pay more, or that went out of business.[Footnote 36]
* Open (unpaid or uncollected) duty bills are liquidated entries for
which final bills have been issued but not paid. The Treasury's IG
report expressed concern that CBP had not collected $97 million in
duties owed and said that the agency might not be able to recover some
of these funds. Treasury's IG said its discussion with CBP personnel
suggested recovery could be difficult because: (1) port personnel are
accepting bonds that are not sufficient to cover the duties owed plus
interest when the entry is liquidated, and (2) the length of time
between entry and liquidation is often several years, and in that time,
some importers go out of business, leaving CBP with no way to go back
for collection of additional duties.
In response, CBP and Commerce took steps to identify and address the
causes of CBP's collections problems. CBP attributes the uncollected
duties problem largely to "new shippers" with little import
history,[Footnote 37] a problem that is particularly prevalent in the
agriculture and aquaculture industries. According to CBP, one of these
new shippers accounted for $130 million in uncollected duties in fiscal
year 2004. To address this problem, in 2004, Commerce changed its new
shipper review process and listed several steps it has taken to
strengthen it. These included steps such as making the bondholder
liable for duties owed on each import entry, and formalizing a
checklist to ensure the legitimacy of new shippers and their sales.
Subsequently in 2004, CBP announced an amended directive to help ensure
that duties on agriculture and aquaculture imports were collected
properly by reviewing and applying a new formula for bonds on these
imports, effectively increasing these bonds by setting them at higher
rates.
Nevertheless, since the problem and its basic reasons became known in
2003, the size of CBP's collections problem has more than doubled. As
figure 2 shows, according to CBP data, $4.2 billion in AD/CV duties
remained unliquidated and $260 million in AD/CV duties were unpaid at
the end of fiscal year 2004. According to CBP, a large amount of the
unliquidated entries involves duties on softwood lumber from Canada
(about $3.7 billion). In February 2005, CBP reported to Congress that
it had developed a plan to isolate suspended entries that were beyond
the normal time frames of an AD/CV case and then worked with Commerce
to obtain liquidation instructions, reducing the inventory of one
million suspended entries by 80,000. However, many unliquidated entries
remain and some of the unliquidated entries are still due to problems
within CBP's and Commerce's control. CBP estimates that over 90 percent
of all unliquidated AD/CV entries are awaiting Commerce instructions
for liquidation. Regarding unpaid duties, a large percentage pertains
to imports from China. Specifically, nearly two-thirds of these unpaid
duties (about $170 million) relate to an AD order on crawfish tail meat
from China. The second largest amount (about $25 million) relate to an
AD order on fresh garlic from China.
Figure 2: Potential Fiscal Year 2004 AD/CV Duties Available for
Distribution under CDSOA and Actual CDSOA Disbursements:
[See PDF for image]
[End of figure]
CBP's continued collections problems have led to calls for more drastic
measures. Several industry groups, including representatives of the
garlic, honey, mushroom, and crawfish industries, have advocated for
elimination of the new shipper bonding rules in favor of cash deposits
on entries for new AD orders. Most crawfish and some steel recipients
responding to our questionnaire also raised concerns about CBP's
collection efforts and quality of communication about ongoing problems.
As a result, CBP is pursuing additional measures. In a February 2005
report to Congress, CBP said it is working with Treasury to address
financial risks associated with bond holders' insolvency and monitoring
of agriculture/aquaculture importers' compliance with its new bonding
requirements on a weekly basis. In its July 2005 report to Congress,
CBP highlights that it has begun working with other U.S. agencies to
develop legislative proposals and other solutions to better address
AD/CV duty collection problems. CBP notes that it plans to forward the
results of this interagency effort to Congress by December 2005.
Meanwhile, Congress is considering legislation that would change new
shipper privileges.[Footnote 38]
CDSOA Payments Largely Concentrated on a Few Companies and Industries,
with Mixed Effects Reported:
Most CDSOA payments went to a small number of U.S. producers and
industries, with mixed effects reported. Top recipient companies
reported that the payments had positive overall effects, although their
assessments of the extent of the benefits varied. Leading recipient
companies within the seven industries we examined also reported varying
positive effects. In four of these industries--bearings, candles,
crawfish, and pasta--recipients we contacted reported benefits, but
some non-recipients said that CDSOA payments were having adverse
effects on their ability to compete in the U.S. market. Although some
have argued that CDSOA has caused increases in the number of AD/CV
petitions filed and in the scope and duration of AD/CV duty orders, the
evidence to date is inconclusive.
A Few U.S. Producers and Industries Received the Bulk of CDSOA
Payments:
From fiscal year 2001 to fiscal year 2004, CBP has distributed
approximately $1 billion in CDSOA payments to 770 companies from a
broad range of industries. These payments have been highly concentrated
in a few companies. Figure 3 shows the share of payments going to the
top five companies and the share received by the remaining CDSOA
recipients. One company, Timken, a bearings producer, received about
twenty percent of total distributions, approximately $205 million,
during fiscal years 2001-2004.[Footnote 39] Five companies, including
Timken, received nearly half of the total payments, or about $486
million.
Figure 3: FY 2001-2004 CDSOA Payments to the Top Five Companies and to
the Remaining Companies:
[See PDF for image]
[End of figure]
Figure 4 shows the distribution of payments to the top 39 recipient
companies that have received 80 percent of total CDSOA disbursements.
These top recipient companies included several producers of steel,
candles, and pasta. They also included producers of cement, chemicals,
cookware, pencils, pineapples, and textiles.
Figure 4: Fiscal Year 2001-2004 Distribution of CDSOA Payments to the
39 Leading Recipient Companies:
[See PDF for image]
Notes:
[A] The data for Torrington reflects the payments it received for
fiscal years 2001 and 2002, prior to its acquisition by Timken.
[B] In 1972 Candle-lite was acquired by Lancaster Colony Corporation of
which it remains a division today. For fiscal years 2001-2003,
Lancaster Colony received CDSOA distributions under the name Candle-
lite. The amount paid to Candle-lite and Lancaster Colony should be
added together for an accurate account of CDSOA distributions made to
the Candle-lite Division of Lancaster Colony Corporation. Total fiscal
year 2001-2004 distributions equal $82,985,544 or 58.21 percent of
total distributions to the candle industry.
[C] New World Pasta acquired Hershey Foods Corporation in 1999. CBP
also made CDSOA distributions to New World Pasta. The amount paid to
Hershey Foods (New World Pasta) does not include these separate
distributions to New World Pasta, which were $3,584,898.
[D] Eramet Marietta is included in this figure as a top recipient
company because it is listed by CBP as having received CDSOA funds for
fiscal year 2002. After contacting this company, we discovered that it
was required to send back its CDSOA money to CBP due to a CBP
overpayment error.
[End of figure]
For most of the top recipient companies responding to our
questionnaire, the ratio of CDSOA payments to sales was less than 3
percent. Specifically, the ratio of payments to sales ranged from less
than 1 percent to over 30 percent. The ratio was generally the smallest
for steel companies and the largest for candle companies.
In analyzing CDSOA distributions by industry, or product group, the
payments are similarly concentrated among only a few industries or
product groups. For example, approximately two-thirds of total CDSOA
distributions went to three product groups--bearings, candles, and iron
and steel mills--which recieved approximately 40 percent, 14 percent,
and 12 percent respectively. Also, 95 percent of all total payments
went to 24 out of the 77 product groups. Figure 5 shows the leading
industries or product groups that received CDSOA distributions.
Figure 5: Top 24 Product Groups Receiving CDSOA Disbursements, FY 2001-
2004:
[See PDF for image]
[End of figure]
Companies Report Mixed Effects from CDSOA Payments:
Top Recipients of CDSOA Payments Reported Varying Positive Effects:
As detailed in appendix II, the 24 companies that responded to our
survey of top CDSOA recipients indicated that the CDSOA disbursements
had positive effects, but the extent of benefit varied from slight to
substantial.[Footnote 40] We asked these companies to assess CDSOA's
effects at both the industry and company level on a number of different
dimensions including prices, investment, employment, and ability to
compete. The top recipients reported that CDSOA had the most positive
impact in areas such as net income and employment. For example, one
company commented that CDSOA payments have allowed for substantial
investments in its factory and workers, providing, among other things,
supplemental health care benefits. Another company reported that CDSOA
payments have been helpful in justifying continued investment during
periods when prices are depressed, due to dumping or subsidization. The
top recipients reported that CDSOA had less of an effect in other areas
such as prices and market share. For example, a company commented that
disbursements have had little or no effect on prices for its CDSOA
product because such prices are ultimately determined by market forces.
Companies in Seven Industries Reported a Mix of Positive and Negative
Impacts:
As detailed in appendix III, in our examination of seven industries
that received CDSOA payments--bearings, steel, candles, pasta, dynamic
random access memory (DRAM) semiconductors, crawfish, and softwood
lumber--leading recipients we contacted generally reported benefits to
varying degrees, and the non-recipients we contacted either complained
about being disadvantaged or did not report effects.[Footnote 41] In
four industries--bearings, candles, crawfish, and pasta--recipients
generally reported benefits, but some non-recipients complained that
the disbursements were having negative effects on them. These
industries all involve cases that predate CDSOA. In general, the non-
recipients that complained of negative effects are ineligible for
disbursements and several complained about their ineligibility.
* Bearings. The leading domestic producer of bearings is eligible for
CDSOA disbursements, but several large foreign-owned companies with
longstanding production in the United States are its major competitors
and ineligible. Three bearings recipient companies commented that CDSOA
has had positive effects, although they varied in their assessments of
the extent of the benefit. One company stated that the disbursements
helped it to replace equipment and enabled it to recover to the
position it had held prior to being injured from dumping. Another
recipient commented that, while the CDSOA disbursements were helpful,
they were distributed several years after the initial injury and did
not fully compensate the company for lost profits due to unfair trade.
Two non-recipients provided views. One non-recipient commented that
CDSOA harms global bearings companies because the antidumping duties
they pay are transferred directly to a competitor. It further commented
that not only is it forced to subsidize competitors through CDSOA, but
the money it is paying in duties limits its ability to invest in and
expand its U.S. operations. The other said it is too early to know what
injurious effect CDSOA disbursements would have on non-recipients.
* Steel. In this industry, the largest U.S. producers are CDSOA
recipients.[Footnote 42] Recipient companies reported that payments--
though small relative to company size and the challenges they face in
their capital-intensive industries--had positive effects. Steel
accounts for the single largest industry share of outstanding dumping
orders, and most major U.S. producers receive CDSOA payments under
numerous AD/CV orders on different products. Steel recipients we
contacted varied in their assessments of CDSOA's effects, but generally
agreed that the program benefited them by providing greater
opportunities for making needed capital investments in their plant and
equipment. Steel recipients also commented, though, that CDSOA has not
been a complete solution to the serious problems they faced. When the
Asian financial crisis spawned rising imports, falling steel prices,
and consolidating of firms, the receipt of CDSOA disbursements did not
prevent several steel producers from joining numerous others in the
industry in filing for bankruptcy.[Footnote 43]
* Candles. Ten of the estimated 400 U.S. candle companies are eligible
and receive CDSOA disbursements. A number of recipients contended that
distributions have helped keep them in business, enabling them to
develop newer, better, and safer candles through investment in
equipment and research and development. One recipient stated that it
has been able to offer employees more consistent and comprehensive
benefits packages due to CDSOA. Several large candle producers that are
comparable in size to leading recipients complained that they are in
favor of the order but are ineligible to receive CDSOA disbursements.
Some non-recipients argue that recipients have an unfair advantage in
their ability to keep prices lower than they otherwise would. For
instance, a major non-recipient company has closed two of four of its
domestic manufacturing facilities and has reduced shifts at others. A
smaller non-recipient company contended that when it matched its
competitors' lower prices, it was not able to make a profit. As a
result, the company stated that it was forced to exit this segment of
the candle business and release some workers.
* Crawfish. About 30 small, family-owned crawfish processors have
received CDSOA disbursements.[Footnote 44] Recipients said CDSOA
payments provided the industry with its first effective relief against
dumped imports in several years and enabled them to buy and process
more crawfish, make long-needed repairs and investments, hire more
employees, and pay off debts. In June 2003, the ITC reported that CDSOA
disbursements to some domestic producers had converted an industrywide
net loss into net income.[Footnote 45] The 16 crawfish tail meat
processors who received CDSOA distributions that we spoke with
generally believe that the program has had positive effects on the
industry and their companies, keeping businesses open and employees
working. Non-recipients we spoke with in this industry said that CDSOA
had helped recipient companies---but had put them at a competitive
disadvantage. These companies want to be eligible for CDSOA
disbursements and several reported they had contacted certain
government and congressional sources to try to address their
eligibility status, but were told they did not meet the law's
eligibility requirements regarding the expression of support during the
investigation. As discussed previously, two of these companies brought
legal action to challenge agency decisions on their eligibility status.
Because they also have to compete against cheap Chinese imports, these
non-recipients viewed the application of the law as unfair. In
addition, several said they were not able to compete with recipient
companies that offer processed tail meat at prices below their cost of
production and appear to be able to do so because the recipients' CDSOA
disbursements will compensate them for any losses. In such conditions,
some non-recipients said they cannot operate profitably and some
decided to stop processing tail meat.
* Pasta. Three of the four leading U.S. pasta makers received CDSOA
disbursements, but the fourth producer is ineligible. The top two CDSOA
recipients in this industry did not respond to our questions, and one
of them has filed for bankruptcy. The four CDSOA recipients that
responded said they had used the funds to increase or upgrade
equipment, invest in research and product development, defray
manufacturing costs, and expand production capacity. Nevertheless,
CDSOA payments, while not insignificant, were not large relative to
sales or enough to offset other problems that the industry faces, such
as decreased demand for pasta due to low-carbohydrate diets and low
margins. Most non-recipients we contacted said CDSOA had no effect, but
a few non-recipients said that the funds had created an uneven playing
field and decreased their ability to compete in the marketplace.
Several of these companies tried to file for CDSOA funds, but were
found ineligible. The large non-recipient company said the money it
pays in duties transferred to its competitors could have been used for
product development, capital investment, and expansion of its new U.S.
operations.
* DRAMs. All four major DRAM producers in the United States currently
have production facilities in the United States as well as abroad;
however, three of these companies are U.S. subsidiaries of foreign
producers and have entered the market within the last decade. A CV
order is in effect for DRAMs produced by one Korean company
only,[Footnote 46] but the bulk of the distributions were made under an
AD order on DRAMs of one megabit and above from Korea issued in 1993
and revoked in 2000, as well as on an AD order on SRAMs (static random
access memory chips) issued in 1998 and revoked in 2002. A leading
CDSOA recipient was the sole recipient of duties on these revoked
orders. Fabrication facility costs are high and require complete
replacement every few years. The DRAM industry is cyclical in nature
and subject to "booms and busts," where demand is driven by investments
in computers and other end products. Both CDSOA recipients reported
some net losses. One company reported benefits from receiving payments
and another reported fewer effects; both payments were small relative
to their net sales.
* Softwood Lumber. Both CDSOA recipients and non-recipients include
leading softwood lumber producers. Recipients and non-recipients that
we contacted indicated that disbursements to date have been too small
to have a discernable effect. However, non-recipients expressed concern
about potential adverse effects in the future, should the $3.7 billion
in AD/CV duties being held on deposit pending liquidation ever be
distributed. These duties are presently in escrow pending the outcome
of litigation by Canadian interests against the U.S. duties.
Effects of CDSOA on the Number of AD/CV Relief Petition Filings Not
Clear:
Current evidence does not clearly demonstrate that CDSOA is linked to
an increasing number of AD/CV petition filings. Critics have raised
concerns that, by awarding a portion of the tariff revenue that results
from successful petitions, CDSOA could potentially lead to more AD/CV
petition filings and thereby more restrictions on imports, to the
detriment of the U.S. economy. However, the evidence we analyzed was
inconclusive.
Because CDSOA provides direct financial benefits to firms participating
or supporting AD/CV petitions by awarding them a proportion of the
tariff revenue, some analysts have warned that CDSOA could lead to more
petitions and to more companies supporting the filings because only
companies who supported the petition would receive
disbursements.[Footnote 47] A report by the Congressional Budget
Office[Footnote 48] (CBO) supports this view, arguing on economic
incentive grounds that CDSOA encourages more firms to file or support
petitions and discourages settling cases. CBO also argues that firms
may resume production or increase their output due to CDSOA, which
would result in inefficient use of resources and would be harmful to
the U.S. economy and consumers.
Our examination of the actual number of filings shows that there is no
clear trend of increased AD/CV petition filings since CDSOA.[Footnote
49] Figure 6 shows that since the passage of CDSOA in 2000, the number
of petitions spiked in 2001 and then sharply declined over the next
three years. Moreover, this fits the historical pattern of the number
of AD/CV petition filings, which also do not show a clear upward trend.
The number of AD/CV petitions filed each year has fluctuated widely,
ranging from a maximum of 120 in 1985 to a minimum of 16 cases in 1995.
Economists have found evidence that the number of antidumping filings
is closely linked to macroeconomic conditions and real exchange
rates.[Footnote 50]
Figure 6: Number of AD/CV Petitions Filed 1980-2004:
[See PDF for image]
[End of figure]
Our analysis of company responses to our case study questions similarly
reveals mixed evidence but no trend. In general, companies told us
CDSOA had little impact on their decision whether to file AD/CV relief
petitions. Most companies that responded to our questions said that
filing and winning new cases was too expensive, and the receipt of
CDSOA payments was too speculative, for CDSOA to be a major factor in
their filing decision. For example, producers accounting for a sizeable
share of U.S. softwood lumber production freely chose not to support
the case, despite being aware of the prospect of sizeable CDSOA
disbursements. However, bearings companies that had not supported
earlier cases subsequently supported a later case on China brought
after CDSOA's passage.
Effects of CDSOA on Scope and Duration of AD/CV Duty Orders Also Not
Clear:
In addition to the number of filings, our interviews and responses from
companies in the seven industries we examined revealed a few
allegations that CDSOA resulted in orders that cover imports of more
products for longer periods--that is, through wider-than-necessary
product scopes of AD/CV duty orders and longer-than-warranted retention
of existing orders. However, these allegations contradicted other
examples, and we could not independently verify them.[Footnote 51] One
steel user, for example, complained that CDSOA disbursements were a
factor in the denial of its request for narrowing the scope of an order
and claimed the result has been to put certain U.S. fastener makers at
a disadvantage. In contrast, one steel company noted that the domestic
industry has no incentive to overly broaden the scope of an AD/CV
relief petition because doing so could undermine its ability to prove
injury and to obtain an order in the first place. Bearings recipient
companies similarly responded that CDSOA has not affected the scope or
duration of AD/CV duty orders and said regular "sunset" reviews should
ensure the government terminates unwarranted orders. Bearings non-
recipients, on the other hand, drew a connection between the main CDSOA
beneficiary within the industry and its support for continuance of
orders. In the candle industry, companies universally reported that
they are united in supporting retention of the existing order, but
divided over efforts by some candle firms to expand its scope.
Retaliation Against U.S. Producers Underway for U.S. Failure to Comply
with WTO Ruling on CDSOA:
After finding the CDSOA inconsistent with WTO agreements and after the
United States' failure to bring the act in compliance with the
agreements, in 2004 the WTO gave 8 of the 11 members that complained
about CDSOA authorization to suspend concessions or other WTO
obligations owed to the United States. Canada, the European Unian (EU),
Mexico and Japan have consequently applied additional tariffs to U.S.
imports, and others are authorized to follow.
WTO Rules CDSOA Not in Compliance with U.S. WTO Obligations:
In 2003, the WTO found the CDSOA inconsistent with U.S. obligations
under WTO agreements and asked the United States to bring the act into
conformity with WTO Agreements.[Footnote 52] Eleven members had brought
complaints about the CDSOA to the WTO and prevailed in their claims
that the CDSOA is inconsistent with WTO agreements. [Footnote 53] The
WTO found that CDSOA was not consistent with U.S. WTO obligations
because it was not one of the permitted specific actions against
dumping and subsidization specifically listed in applicable WTO
agreements.[Footnote 54]
The United States Pledges to Comply, but Has Not Yet Done So:
The following the ruling, the United States indicated its intention to
comply. WTO gave the United States until December 27, 2003, to bring
the CDSOA into conformity with the organization's pertinent agreements.
However, all efforts to repeal the law have thus far been unsuccessful.
Meanwhile, the United States is also pursuing negotiations at the WTO
to address the right of WTO members to distribute AD/CV duties.
The President proposed repealing CDSOA in his fiscal year 2004, 2005,
and 2006 budget submissions. Senate Bill 1299[Footnote 55] was
introduced in Congress in 2003 to amend the CDSOA and House Bill
3933[Footnote 56] in 2004 to repeal the CDSOA. Neither of these efforts
succeeded during that legislative session of Congress and thus expired.
In a March 10, 2005, status report to the WTO, the United States
reaffirmed its commitment to bringing the CDSOA into conformity with
WTO agreements.[Footnote 57] The United States also reported that House
Bill 1121[Footnote 58] had been introduced on March 3, 2005, to repeal
CDSOA and that it had been referred to the Committee on Ways and Means.
Also in 2005, Senator Grassley introduced Amendment 1680 to the
Departments of Commerce and Justice, Science and Related Agencies
Appropriations bill to prohibit any further CDSOA distributions until
the USTR determines that such distributions are not inconsistent with
U.S. WTO obligations.[Footnote 59] However, as of the date of
publication of this report, Congress has not passed House Bill 1121 and
the Senate Committee on Appropriations has not adopted Amendment 1680.
Since late 2001, the United States has been engaged in WTO negotiations
at the Doha Round, which may include changes to the WTO agreements
under which CDSOA was challenged. Following a congressional mandate to
the USTR and Commerce that negotiations shall be conducted within the
WTO to recognize the right of its members to distribute monies
collected from antidumping and countervailing duties,[Footnote 60] the
United States submitted a paper to the WTO Rules Negotiating Group
stating that "the right of WTO Members to distribute monies collected
from antidumping and countervailing duties"[Footnote 61] should be an
issue to be discussed by the negotiating group. USTR officials told us
that, to date, the U.S. proposal has not attracted support from any
other WTO member.
WTO Authorizes Eight of Its Members to Retaliate; Canada, the European
Union, Mexico, and Japan Have Imposed Additional Tariffs:
In January 2004, 8 of the 11 complainants--Brazil, Canada, Chile, the
EU India, Japan, Korea, and Mexico--sought and secured authorization to
retaliate against the United States. As a result of binding arbitration
regarding the level of authorized retaliation, the eight members
received authorization to impose an additional import duty on U.S.
exports covering a total value of trade up to 72 percent of the total
of disbursements made under the CDSOA for the preceding year relating
to AD/CV duties on that member's products each year.[Footnote 62] The
total suspension authorized for 2005 could be up to $134 million based
on the fiscal year 2004 CDSOA disbursements. Specifically, for fiscal
year 2004 disbursements, the WTO arbitrators authorized the imposition
of additional duties covering a total value of trade not exceeding $0.3
million for Brazil, $11.2 million for Canada, $0.6 million for Chile,
$27.8 million for the EU, $1.4 million for India, $52.1 million for
Japan, $20.0 million for Korea, and $20.9 million for Mexico. On May 1,
2005, Canada and the European Communities began the imposition of
additional duties on various U.S. exports. In particular, Canada has
imposed a 15 percent tariff on live swine, cigarettes, oysters, and
certain specialty fish (including live ornamental fish and certain
frozen fish) and the EU have imposed a 15 percent tariff on various
paper products, various types of trousers and shorts, sweet corn, metal
frames, and crane lorries. On August 18, 2005, Mexico began imposing
additional duties on U.S. exports such as chewing gum, wines, and milk-
based products. On September 1, 2005, Japan began imposing additional
duties on U.S. exports such as steel products and bearings. The
remaining four members say they might suspend concessions.
The three members that did not request authorization to retaliate--
Australia, Indonesia, and Thailand--have agreed to extend the deadline
for requesting authorization indefinitely.[Footnote 63] As agreed, the
countries will give the United States advance notice before seeking
authorization to retaliate. In return, the countries retain the ability
to request authorization to retaliate at any point in the future, and
the United States agreed not to seek to block those requests. See
figure 7 for a timeline of events related to the WTO decision on CDSOA.
Figure 7: Timeline of WTO-Related Events on CDSOA:
[See PDF for image]
[End of figure]
Conclusions:
Congress' stated purposes in enacting CDSOA were to strengthen the
remedial nature of U.S. trade laws, restore conditions of fair trade,
and assist domestic producers. Our review suggests that the
implementation of CDSOA is achieving some objectives more effectively
than others. One reason is that, as a result of some of the key
features of CDSOA, the law in practice operates differently from trade
remedies. For instance, while trade remedies such as AD/CV duties
generally provide relief to all producers in a particular market, the
eligibility requirements of CDSOA limit relief to only a subset of
domestic producers--only those that petitioned for relief or that
publicly supported the petition by sending a letter to the ITC or
filling an ITC questionnaire while the agency was conducting its
original investigation and remain in operation. Our analysis of CDSOA
disbursement data and company views on the effects of CDSOA indicate
that CDSOA has provided significant financial benefits to certain U.S.
producers but little or no benefits to others. As a result, CDSOA has,
in some cases, created advantages for those U.S. producers that are
eligible and receive the bulk of disbursements over those U.S.
producers that receive little relief or are ineligible, by choice or
circumstance. Moreover, because the WTO found that CDSOA did not comply
with WTO agreements, the EU, Canada, Mexico, and Japan recently
retaliated against U.S. exports and this imposes costs on a number of
U.S. companies exporting to those markets.
In implementing CDSOA, CBP faces problems processing CDSOA claims and
payments, verifying these claims, and collecting AD/CV duties. The
CDSOA program's time frame for processing payments is already too tight
to perform desired quality controls. The dramatic growth in the
program's workload--an estimated 10-fold increase in the number of
claims in fiscal year 2005 and the potential disbursement of billions
of dollars from softwood lumber duties--heighten program risks. CBP's
labor-intensive process for claims could be streamlined through steps
such as regularly obtaining from the ITC electronic updates of the list
of potentially eligible companies and having companies file CDSOA
claims using a standard form and submit them electronically. CBP's
recent comprehensive company claim verification effort also indicates
that the agency needs additional guidance in place for filing claims.
In addition, CBP lacks plans for managing and improving its CDSOA
program's processes, staff, and technology. For instance, it needs a
human capital plan for enhancing its staff in the face of dramatic
growth in workload processing for both CDSOA claims and payments.
Accountability for the accuracy of the claims is virtually non-existent
and CBP has no plans to verify claims systematically or on a routine
basis. Finally, CDSOA has helped highlight CBP's collection problems.
Despite reports to Congress on its efforts to address these problems,
CBP faced a doubling in the AD/CV collections shortfall in fiscal year
2004, to $260 million. This shortfall not only reduces the amount
available for disbursement under CDSOA, but also undermines the
effectiveness of the trade remedies generally.
Matters for Congressional Consideration:
Given the results of our review, as Congress carries out its CDSOA
oversight functions and considers related legislative proposals, it
should consider whether CDSOA is achieving the goals of strengthening
the remedial nature of U.S. trade laws, restoring conditions of fair
trade, and assisting domestic producers.
If Congress decides to retain and modify CDSOA, it should also consider
extending CBP's 60-day deadline for completing the disbursement of
CDSOA funds. Meeting this deadline has been a problem in the past, and
may be even more difficult in the future given that the program is
experiencing a dramatic growth in its workload. For instance, extending
the deadline for processing payments for another 30 days would give the
program's staff additional time for processing payments and for
pursuing additional internal control activities.
Recommendations for Executive Action:
To the extent that Congress chooses to continue implementing CDSOA, we
recommend that the Secretary of Homeland Security direct the
Commissioner of Customs and Border Protection to enhance the processing
of CDSOA claims and payments, the verification of these claims, and the
collection of AD/CV duties. Specifically, we recommend that:
* To improve the processing of CDSOA claims, CBP should implement labor
savings steps such as working with the ITC to formalize and standardize
exchanges of electronic updates of the list of eligible producers, and
requiring that company claims follow a standard form and be submitted
electronically. This would also reduce data entry-related errors.
* To further improve the processing of claims, CBP should provide
additional guidance for preparing CDSOA certifications or claims.
* To enhance the processing of claims and payments in the face of a
growing workload, CBP should develop and implement plans for managing
and improving its CDSOA program processes, staff, and technology. For
instance, a human capital plan would help ensure that the CDSOA program
has staff in place with the appropriate competencies, skills, and
abilities.
* To enhance accountability for claims, CBP should implement a plan for
systematically verifying CDSOA claims. This plan should aim to ensure
that companies receiving CDSOA disbursements are accountable for the
claims they make. CBP should also consider asking companies to justify
their claims by providing additional information on their claims, such
as an explanation of the basis for the claim, supporting financial
information, and an independent assessment of the claim's validity and
accuracy.
* To better address antidumping and countervailing duty collection
problems, CBP should report to Congress on what factors have
contributed to the collection problems, the status and impact of
efforts to date to address these problems, and how CBP, in conjunction
with other agencies, proposes to improve the collection of antidumping
and countervailing duties.
Agency Comments and Our Evaluation:
We provided a draft of this report to the U.S. International Trade
Commission, Customs and Border Protection, and the Office of the U.S.
Trade Representative. We obtained written comments from CBP (see app.
IV). CBP concurred with our recommendations. We also received technical
comments on this draft from our liaisons at CBP, the ITC and USTR,
which we have incorporated where appropriate.
We are sending copies of this report to interested congressional
committees, the U.S. International Trade Commission, Customs and Border
Protection, and the Office of the U.S. Trade Representative. We will
also make copies available to others upon request. In addition, the
report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4347. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix V.
Signed by:
Loren Yager, Director:
International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
At the request of the Chairman of the House Subcommittee on Trade,
Committee on Ways and Means, as well as several House Members, we
examined the implementation and effects of the Continued Dumping and
Subsidy Offset Act (CDSOA) of 2000. Specifically, we assessed (1) what
key legal requirements guide and have affected agency implementation of
CDSOA; (2) what problems, if any, U.S. agencies have faced in
implementing CDSOA; and (3) which U.S. companies and industries have
received payments under CDSOA and what effects these payments have had
for recipient and non-recipient companies; and described (4) the status
of the World Trade Organization (WTO) decisions on CDSOA.
To determine the key legal requirements that guide and have affected
agency implementation of CDSOA, we obtained and reviewed legislation
and regulations establishing the requirements and procedures for the
International Trade Commission (ITC) to determine company eligibility
to receive CDSOA funds and for the Department of Homeland Security's
Customs and Border Protection (CBP) to implement CDSOA. We discussed
these requirements and their relationship to agency implementation with
officials at the ITC and CBP that carry out the agencies' respective
roles. We also reviewed judicial opinions and other documents
associated with certain legal cases that have been brought to challenge
key requirements of CDSOA, and incorporated the viewpoints expressed by
some companies that we contacted in addressing our third objective,
which illustrated the impacts of certain requirements.
To assess the problems, if any, U.S. agencies have faced in
implementing CDSOA, we first determined the agency roles and
responsibilities that CDSOA established. We then obtained and analyzed
ITC and CBP documents outlining their procedures for carrying out their
CDSOA responsibilities and discussed with agency officials the actions
the agencies have taken to implement CDSOA. We reviewed evaluations of
CDSOA operations in both the Department of the Treasury (Treasury) and
ITC conducted by the Inspectors General (IG) of those agencies. We also
obtained from CBP a statement of work that had been developed for
improving CBP's management of the CDSOA program. We discussed agency
implementation of CDSOA with officials from the Departments of Commerce
and Agriculture, as well as certain industry representatives, affected
companies, and law firms that handle CDSOA-related actions for their
clients. We also reviewed GAO's documents on human capital and
disbursements[Footnote 64] for additional criteria to assess the
agencies' implementation of CDSOA. Our work focused on certain problems
at CBP:
* To assess CBP's claims and payments processing procedures, we
conducted field work at CBP's Revenue Division in Indianapolis where we
met with officials and staff of the CDSOA Team. After they gave us a
comprehensive briefing of their CDSOA operations, we observed these
operations, reviewed documentation of their procedures, and discussed
challenges they face in implementing the law. We discussed changes in
the CDSOA Team's workload over time with these officials and obtained
data on their workload and staff resources. We discussed the team's
procedures for counting and recording eligible and actual claimants and
claims, which included information they obtain from the ITC on eligible
producers and internal controls the team applies to ensure accuracy in
receiving and processing claims. We determined that their data were
sufficiently reliable for the purpose of analyzing the changing
relationship between the team's workload and staff resources.
* To assess CBP's approach to verifying claims, we discussed the
approach and the extent of claim verification since the program's
inception with CBP officials and we reviewed CBP procedures for
verifying company claims that were developed in 2004. We also reviewed
documentation of a comprehensive verification of one company's CDSOA
claims that was conducted using these new procedures. Because this
verification raised issues about the quality and consistency of CBP's
guidance regarding claims submission, we examined the fiscal year 2004
claim files for 32 top CDSOA recipients to ascertain the prevalence of
these issues and also obtained the viewpoints of certain CDSOA
recipients on CBP's claims guidance.
* To describe CBP's efforts to collect the anti-dumping (AD) and
countervailing (CV) duties that fund CDSOA, we obtained and reviewed
data on CBP's annual CDSOA disbursements and AD/CV duty liquidations
and collections. To assess the reliability of the data on unliquidated
AD/CV duties, we compared them to data used by Treasury's IG in its
2003 report and performed basic reasonable checks. We determined the
data were sufficiently reliable to support the finding that there had
been a substantial increase in unliquidated AD/CV duties since 2002. We
also reviewed CBP reports to Congress in 2004 and 2005 that reported on
AD/CV duty collections issues and problems and the section of the 2003
Treasury IG report that addressed CBP's efforts related to liquidating
and collecting AD/CV duties. Finally, we incorporated the viewpoints of
certain companies and industry groups about the status of uncollected
duties, and CBP's efforts to collect them.
To determine which U.S. companies and industries have received payments
under CDSOA and what effects these payments have had for recipient and
non-recipient companies, we obtained and analyzed CBP's annual
disbursement data for fiscal years 2001 to 2004 and collected
information from top CDSOA recipients and from recipients and non-
recipients in seven industries. Specifically, we identified 770
companies that had received disbursements at some point during fiscal
years 2001 through 2004 and combined the multiple disbursements that
companies may have received to calculate the total amount of
disbursements made to each company during this period. Some companies
received disbursements under different names or were acquired by, or
merged with or were otherwise affiliated with, other companies on the
list during this period. We did not make adjustments to the number of
companies, but rather retained the company distinctions in the data as
CBP provided it. We then identified 39 companies that had received the
top 80 percent of the disbursements made during fiscal years 2001
through 2004 and we reported information about these disbursements.
Using this data, we also identified the top 24 product groups that
received 95 percent of disbursements during fiscal years 2001 through
2004, and we reported information about these disbursements.
We assessed the reliability CBP's CDSOA disbursements data, and the
related Harmonized Tariff Schedule data, and Census Bureau's data
matching the Harmonized Tariff Schedule to the North American Industry
Classification System by (1) performing electronic testing of required
data elements, (2) reviewing existing information about the data and
the system that produced them, and (3) interviewing agency officials
knowledgeable about the data. We determined that the data were
sufficiently reliable for the purposes of this report.
To further determine the effects of CDSOA payments on recipients and
non-recipients, we primarily relied on the views provided by top CDSOA
recipient companies and of certain recipients and non-recipients in 7
of the top 24 industries (bearings, steel, candles, pasta, DRAMs,
crawfish, and softwood lumber) to which CDSOA payments have been
made.[Footnote 65] We selected these industries based on a range of
criteria including: the leading recipients of CDSOA funds; industries
with the most AD/CV duty orders; industries receiving press coverage
related to CDSOA; and industries considered by certain experts to have
unique or noteworthy situations. In selecting these industries, we also
considered including different types of industries and industries with
differing numbers of CDSOA recipients. We consulted with experts at the
ITC, the Departments of Commerce and Agriculture, and relevant trade
associations to help define the industries and identify leading non-
recipients companies within them. In addition, we obtained industry
background from ITC investigative reports and other official industry
sources.
To obtain these companies' views on CDSOA, we developed and sent out a
questionnaire to top CDSOA recipient companies, and a set of structured
questions to selected recipient and non-recipient companies in the
seven case study industries. We developed and pretested the
questionnaire between February and April 2005. Our structured questions
were based on the items in our questionnaires.
We sent surveys to 32 of the top 39 recipient companies we had
identified.[Footnote 66] Twenty-four of these companies provided
written responses to our questions. Their views are not necessarily
representative of all CDSOA recipients.
We selected non-probability samples of CDSOA recipients and non-
recipients that are U.S. producers for each of our seven case study
industries.[Footnote 67] We selected recipient companies based
primarily on the amount of CDSOA funds they had received between fiscal
year 2001 and 2004. However, in certain industries with small numbers
of recipients, including bearings, DRAMs, and candles, we sent
structured questions to all recipient companies. We selected non-
recipient companies based on industry experts' views of the importance
of the companies and recipient company views of their major non-
recipient competitors. We also considered available lists of companies
by industry, but found that these lists had limitations in terms of
coverage and could not be used to draw probability samples. Overall, we
selected 69 recipient and 82 non-recipient companies in the seven
industries.
In total, we received 61 written responses from recipient companies and
31 written responses from non-recipient companies. Appendix III
provides details on how many companies we contacted and received
information from for each industry. All recipient companies in the
bearings, DRAMs, and candles industries provided responses, and these
responses can be generalized. For recipient companies in the other four
industries, and for non-recipient companies in all the industries, the
responses we received cannot be generalized because of the non-
probability samples we used and/or the number of responses we received.
Thus, in these cases, the views we report are not necessarily
representative of their respective groups. However, we supplemented the
information we received with telephone interviews to verify, and in
some cases, expand upon, the information that some companies provided.
We also compared the overall responses in each industry with industry
experts' views and the information contained in available studies, such
as ITC reports, and found the information we gathered to be broadly
consistent with these sources.
Finally, within this objective, we also conducted an analysis on the
trends in the filings of AD/CV relief petitions. We collected data on
the number, type, and status of AD/CV duty orders from the ITC and
Commerce. We verified this information directly with the Federal
Register notices, which are the official sources for AD and CV orders.
We determined that the data were sufficiently reliable for the purposes
of this report. In addition, we reviewed literature on the determinants
of AD petition filings. We applied regression analysis to study the
effects of macroeconomic conditions, real exchange rates, and CDSOA
itself on the number of petition filings. We also asked the companies
we surveyed to discuss CDSOA's impact on AD/CV filings and interviewed
industry representatives to gain an understanding of what affects their
decision to file or support AD/CV petitions, and whether CDSOA was a
significant factor in their decision.
To determine the status of the WTO decisions on CDSOA, we analyzed
official U.S., foreign government, and WTO documents. We also
interviewed officials from the Office of the U.S. Trade Representative
and the Department of State.
We conducted our work in Washington, D.C., and Indianapolis, Indiana,
from September 2004 to September 2005 in accordance with generally
accepted government auditing standards.
[End of section]
Appendix II: Top CDSOA Recipient Companies:
This appendix provides information on the CDSOA payments[Footnote 68]
received by the top recipient companies and the views of these
companies on CDSOA's effects.
CDSOA Payments to the Top Recipient Companies:
Table 2 lists the top 39 companies that received 80 percent of the
total CDSOA payments during fiscal years 2001-2004. This table also
presents each company's percentage of the total payments and the
cumulative percentages. Each company's industry is also listed.
Table 2: Fiscal Years 2001-2004 CDSOA Distributions to Top Recipient
Companies:
Dollars in thousands.
Rank: 1;
Company: The Timken Company[A];
Amount paid: $205,328,783;
Amount claimed: $59,990,348,732;
Percentage of total payments: 19.83%;
Cumulative percentage of total payments: 19.83%;
Industry: Bearings.
Rank: 2;
Company: The Torrington Company[A];
Amount paid: $135,349,304;
Amount claimed: $22,175,725,680;
Percentage of total payments: 13.07%;
Cumulative percentage of total payments: 32.90%;
Industry: Bearings.
Rank: 3;
Company: Candle-lite[B];
Amount paid: $56,759,989;
Amount claimed: $1,285,509,591;
Percentage of total payments: 5.48%;
Cumulative percentage of total payments: 38.38%;
Industry: Candles.
Rank: 4;
Company: MPB Corporation[C];
Amount paid: $55,131,485;
Amount claimed: $9,158,867,720;
Percentage of total payments: 5.32%;
Cumulative percentage of total payments: 43.71%;
Industry: Bearings.
Rank: 5;
Company: Zenith Electronics Corporation;
Amount paid: $33,412,990;
Amount claimed: $; 23,270,258,343;
Percentage of total payments: 3.23%;
Cumulative percentage of total payments: 46.93%;
Industry: Television sets.
Rank: 6;
Company: Micron Technology;
Amount paid: $33,389,988;
Amount claimed: $9,093,423,782;
Percentage of total payments: 3.22%;
Cumulative percentage of total payments: 50.16%;
Industry: DRAMs.
Rank: 7;
Company: Lancaster Colony Corporation[B];
Amount paid: $26,225,555;
Amount claimed: $1,382,869,375;
Percentage of total payments: 2.53%;
Cumulative percentage of total payments: 52.69%;
Industry: Candles.
Rank: 8;
Company: United States Steel Corporation;
Amount paid: $22,925,628;
Amount claimed: $590,935,208,013;
Percentage of total payments: 2.21%;
Cumulative percentage of total payments: 54.91%;
Industry: Steel products.
Rank: 9;
Company: Home Fragrance Holdings;
Amount paid: $20,394,804;
Amount claimed: $444,243,884;
Percentage of total payments: 1.97%;
Cumulative percentage of total payments: 56.88%;
Industry: Candles.
Rank: 10;
Company: Wellman;
Amount paid: $15,681,319;
Amount claimed: $1,291,294,651;
Percentage of total payments: 1.51%;
Cumulative percentage of total payments: 58.39%;
Industry: Polyester fibers.
Rank: 11;
Company: Carpenter Technology Corporation;
Amount paid: $13,991,133;
Amount claimed: $24,272,753,229;
Percentage of total payments: 1.35%;
Cumulative percentage of total payments: 59.74%;
Industry: Steel products.
Rank: 12;
Company: E.I. du Pont de Nemours and Company;
Amount paid: $12,485,357;
Amount claimed: $6,188,244,053;
Percentage of total payments: 1.21%;
Cumulative percentage of total payments: 60.95%;
Industry: Chemical products.
Rank: 13;
Company: Emerson Power Transmission;
Amount paid: $12,132,932;
Amount claimed: $6,518,385,490;
Percentage of total payments: 1.17%;
Cumulative percentage of total payments: 62.12%;
Industry: Bearings.
Rank: 14;
Company: AK Steel Corporation;
Amount paid: $11,337,171;
Amount claimed: $273,729,695,233;
Percentage of total payments: 1.09%;
Cumulative percentage of total payments: 63.21%;
Industry: Steel products.
Rank: 15;
Company: Allegheny Ludlum Corporation;
Amount paid: $11,107,788;
Amount claimed: $42,821,265,506;
Percentage of total payments: 1.07%;
Cumulative percentage of total payments: 64.29%;
Industry: Steel products.
Rank: 16;
Company: American Italian Pasta Company;
Amount paid: $11,052,969;
Amount claimed: $8,063,794,100;
Percentage of total payments: 1.07%;
Cumulative percentage of total payments: 65.35%;
Industry: Pasta.
Rank: 17;
Company: Muench-Kreuzer Candle Company;
Amount paid: $10,695,594;
Amount claimed: $212,476,879;
Percentage of total payments: 1.03%;
Cumulative percentage of total payments: 66.39%;
Industry: Candles.
Rank: 18;
Company: International Steel Group;
Amount paid: $10,374,465;
Amount claimed: $568,595,773,448;
Percentage of total payments: 1.00%;
Cumulative percentage of total payments: 67.39%;
Industry: Steel products.
Rank: 19;
Company: The Gates Rubber Company;
Amount paid: $10,208,272;
Amount claimed: $2,037,888,247;
Percentage of total payments: 0.99%;
Cumulative percentage of total payments: 68.37%;
Industry: Rubber products.
Rank: 20;
Company: Regal Ware;
Amount paid: $9,804,074;
Amount claimed: $1,364,648,692;
Percentage of total payments: 0.95%;
Cumulative percentage of total payments: 69.32%;
Industry: Stainless steel cooking ware.
Rank: 21;
Company: North American Stainless;
Amount paid: $9,697,133;
Amount claimed: $35,786,766,024;
Percentage of total payments: 0.94%;
Cumulative percentage of total payments: 70.26%;
Industry: Steel products.
Rank: 22;
Company: Maui Pineapple Company;
Amount paid: $9,376,864;
Amount claimed: $335,327,969;
Percentage of total payments: 0.91%;
Cumulative percentage of total payments: 71.16%;
Industry: Pineapples.
Rank: 23;
Company: General Wax & Candle;
Amount paid: $9,297,725;
Amount claimed: $150,256,642;
Percentage of total payments: 0.90%;
Cumulative percentage of total payments: 72.06%;
Industry: Candles.
Rank: 24;
Company: Hershey Foods (New World Pasta)[D];
Amount paid: $8,136,032;
Amount claimed: $4,853,308,844;
Percentage of total payments: 0.79%;
Cumulative percentage of total payments: 72.85%;
Industry: Pasta.
Rank: 25;
Company: Maverick Tube Corporation;
Amount paid: $7,295,447;
Amount claimed: $35,919,351,631;
Percentage of total payments: 0.70%;
Cumulative percentage of total payments: 73.55%;
Industry: Steel products.
Rank: 26;
Company: Reed Candle Company;
Amount paid: $7,214,429;
Amount claimed: $152,164,485;
Percentage of total payments: 0.70%;
Cumulative percentage of total payments: 74.25%;
Industry: Candles.
Rank: 27;
Company: Eramet Marietta[E];
Amount paid: $6,274,365;
Amount claimed: $32,661,954;
Percentage of total payments: 0.61%;
Cumulative percentage of total payments: 74.85%;
Industry: Manganese metal.
Rank: 28;
Company: J&L Specialty Steel;
Amount paid: $6,227,041;
Amount claimed: $21,580,366,304;
Percentage of total payments: 0.60%;
Cumulative percentage of total payments: 75.46%;
Industry: Steel products.
Rank: 29;
Company: Bethlehem Steel Company;
Amount paid: $5,975,849;
Amount claimed: $277,902,636,707;
Percentage of total payments: 0.58%;
Cumulative percentage of total payments: 76.03%;
Industry: Steel products.
Rank: 30;
Company: Sanford;
Amount paid: $5,892,337;
Amount claimed: $478,764,505;
Percentage of total payments: 0.57%;
Cumulative percentage of total payments: 76.60%;
Industry: Cased pencils.
Rank: 31;
Company: Lumi-Lite Candle Company;
Amount paid: $5,625,486;
Amount claimed: $89,582,027;
Percentage of total payments: 0.54%;
Cumulative percentage of total payments: 77.15%;
Industry: Candles.
Rank: 32;
Company: Holcim (US);
Amount paid: $4,726,614;
Amount claimed: $6,986,480,910;
Percentage of total payments: 0.46%;
Cumulative percentage of total payments: 77.60%;
Industry: Cement.
Rank: 33;
Company: Lafarge North America;
Amount paid: $4,633,793;
Amount claimed: $6,850,627,559;
Percentage of total payments: 0.45%;
Cumulative percentage of total payments: 78.05%;
Industry: Cement.
Rank: 34;
Company: USEC;
Amount paid: $4,401,004;
Amount claimed: $411,300,000;
Percentage of total payments: 0.43%;
Cumulative percentage of total payments: 78.47%;
Industry: Low enriched uranium.
Rank: 35;
Company: Neenah Foundry Company;
Amount paid: $4,307,616;
Amount claimed: $5,849,676,065;
Percentage of total payments: 0.42%;
Cumulative percentage of total payments: 78.89%;
Industry: Iron castings.
Rank: 36;
Company: Allied Tube & Conduit;
Amount paid: $4,198,722;
Amount claimed: $21,792,742,720;
Percentage of total payments: 0.41%;
Cumulative percentage of total payments: 79.30%;
Industry: Steel pipe.
Rank: 37;
Company: Olin Corporation;
Amount paid: $3,987,611;
Amount claimed: $7,517,617,388;
Percentage of total payments: 0.39%;
Cumulative percentage of total payments: 79.68%;
Industry: Brass sheet and strip.
Rank: 38;
Company: A. Zerega's Sons;
Amount paid: $3,889,333;
Amount claimed: $2,290,556,634;
Percentage of total payments: 0.38%;
Cumulative percentage of total payments: 80.06%;
Industry: Pasta.
Rank: 39;
Company: Armco Steel Corporation;
Amount paid: $3,716,372;
Amount claimed: $155,054,850,596;
Percentage of total payments: 0.36%;
Cumulative percentage of total payments: 80.42%;
Industry: Steel products.
Total;
Amount paid: $563,228,970;
Amount claimed: $2,236,867,713,610;
Percentage of total payments: 80.42%;
Cumulative percentage of total payments: 80.42%.
Source: GAO analysis of CBP data.
Notes:
[A] Timken acquired Torrington in February 2003. The CDSOA
distributions we report for Torrington in this table reflect the
distributions received by Torrington in FY 2001 and FY 2002.
[B] In 1972 Candle-lite was acquired by Lancaster Colony Corporation of
which it remains a division today. For fiscal years 2001-2003,
Lancaster Colony received CDSOA distributions under the name Candle-
lite. The "amount paid" for Candle-lite and Lancaster Colony should be
added together for an accurate account of CDSOA distributions made to
the Candle-lite Division of Lancaster Colony Corporation Total fiscal
year 2001-2004 distributions equal $82,985,544 or 58.21 percent of
total distributions to the candle industry. Likewise, the amount
claimed for Lancaster Colony Corporation is applicable to Candle-lite.
[C] MPB Corporation is a subsidiary of Timken. CDSOA distributions are
listed separately for Timken and MPB because they reflect the CDSOA
distributions as reported by CBP.
[D] New World Pasta acquired Hershey Foods Corporation in 1999. CBP
also made CDSOA distributions to New World Pasta. The amount paid to
Hershey Foods (New World Pasta) does not include these separate
distributions to New World Pasta, which were $3,584,898.
[E] Eramet Marietta is included in this table as a top recipient
company because it is listed by CBP as having received CDSOA funds in
fiscal year 2002. After contacting this company, we discovered that it
was required to send back its CDSOA money to CBP due to a CBP
overpayment error.
[End of table]
CDSOA Effects on Top Recipient Companies:
Top Recipients of CDSOA Payments Reported Varying Positive Effects:
We sent surveys to the companies that received 80 percent of the CDSOA
payments from 2001 through 2004, asking for their views on CDSOA's
effects.[Footnote 69] We asked these companies to assess CDSOA's
effects on a number of different dimensions including prices,
employment, and ability to compete.
We asked the companies to rate CDSOA's effect, ranging from 1 (very
positive) to 5 (very negative) for each particular company
dimension.[Footnote 70]
The top recipients reported that CDSOA had the most positive impact in
the areas of net income and employment.[Footnote 71] In its written
comments, one company stated that CDSOA payments have allowed it to
make substantial investments in its plant and its workers, including
providing supplemental health care benefits. The top recipients
reported that CDSOA had less of effect in areas such as prices, net
sales, and market share. Several companies commented that, for example,
disbursements have had little or no effect on prices for its CDSOA
products, since such prices are ultimately determined by market forces.
The ratio of CDSOA payments to company net sales ranged from less than
1 percent to over 30 percent. However, this ratio was less than 3
percent for all but five companies.
In table 3 we present summary information on these companies'
responses.
Table 3: CDSOA Effects on Top Recipient Companies:
Category: Prices;
Positive effects: 2;
Little or no effects: 20;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 22.
Category: Net sales;
Positive effects: 5;
Little or no effects: 15;
Negative effects: 0;
No basis to judge: 3;
Number of respondents: 23.
Category: Gross profits;
Positive effects: 12;
Little or no effects: 10;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 23.
Category: Net income;
Positive effects: 20;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 23.
Category: Property, plant, and equipment;
Positive effects: 17;
Little or no effects: 6;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 24.
Category: Research and development;
Positive effects: 16;
Little or no effects: 6;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 23.
Category: Employment;
Positive effects: 17;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 23.
Category: Ability to compete;
Positive effects: 14;
Little or no effects: 9;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 23.
Category: Market share;
Positive effects: 4;
Little or no effects: 17;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 22.
Source: GAO analysis of company questionnaires.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 4 shows that 17 of the 24 companies reported that CDSOA had
increased their ability to compete in the U.S. market.
Table 4: CDSOA Effect on Companies' Ability to Compete in U.S. Market:
Increased: 17;
Stayed about the same: 7;
Decreased: 0;
Don't know/no basis to judge: 0;
Number of respondents: 24.
Source: GAO analysis of company questionaires.
[End of table]
[End of section]
Appendix III: CDSOA Recipient and Non-Recipient Companies in Seven
Industries:
This appendix provides information on the CDSOA payments[Footnote 72]
received by recipient companies in seven industries: bearings, steel,
candles, DRAMs, pasta, crawfish, and softwood lumber. It also discusses
the views of recipient and non-recipient companies in these industries
on CDSOA's effects.[Footnote 73]
Figure 8 shows the share of CDSOA disbursements received by U.S.
companies in the seven industries and in the remaining industries.
Figure 8: Fiscal Year 2001-2004 CDSOA Disbursements by Industries:
[See PDF for image]
[End of figure]
Views on CDSOA from Recipients and Non-Recipients in the Bearings
Industry:
Background:
Bearings are used in virtually all mechanical devices and are used to
reduce friction in moving parts. Types of bearings include ball
bearings, tapered roller bearings, and spherical plain bearings. The
market for bearings is global and dominated by only a few multinational
companies.[Footnote 74] Within the U.S. market the degree of
concentration among different segments of the industry varies; the
Census Bureau listed 19 producers of tapered roller bearings and 65
producers of ball bearings in 2003. The Timken Company is the largest
U.S. bearings company, but several foreign-owned companies have also
had a long-standing presence in this country as bearings producers and
are Timken's main competitors in the U.S. market. One foreign-owned
producer, for example, has operated U.S. production facilities for over
80 years, while two others have produced in this country for over 25
years. These companies have not been eligible to receive CDSOA
disbursements because they did not support the original cases.
In 1975 the ITC determined that tapered roller bearings from Japan were
harming the domestic industry and a dumping finding was published the
following year. The Department of Commerce subsequently published
antidumping orders on tapered roller bearings against Japan, China,
Hungary, and Romania in 1987. Commerce then issued antidumping orders
for ball bearings, cylindrical roller bearings, and spherical plain
bearings from a number of other countries in 1989. Currently, there are
eight bearings orders in effect against seven countries. Import
penetration of the U.S. market has grown from 5 percent of consumption
in 1969 to approximately 25 percent in 2003. When Commerce levied ball
bearing dumping duties against Japan, Singapore, and Thailand in 1989,
an opportunity arose for China. All of the world's major bearing
companies, including Timken, now have manufacturing facilities in
China.
Timken and Torrington are the two largest CDSOA recipient companies.
Together, they received over 80 percent of all disbursements to the
bearings industry and one-third of disbursements to all companies in
CDSOA's first four years. Table 5 shows CDSOA recipients in the
bearings industry from fiscal years 2001 through 2004.
Table 5: Fiscal Years 2001-2004 Bearings CDSOA Recipients:
1;
Company: The Timken Company;
Amount paid: $205,328,783;
Amount claimed: $59,990,348,732;
Amount paid as a percentage of total paid to industry: 49.7%.
2;
Company: The Torrington Company[A];
Amount paid: $135,349,304;
Amount claimed: $22,175,725,680;
Amount paid as a percentage of total paid to industry: 32.7%.
3;
Company: MPB Corporation[B];
Amount paid: $55,131,485;
Amount claimed: $9,158,867,720;
Amount paid as a percentage of total paid to industry: 13.3%.
4;
Company: Emerson Power Transmission;
Amount paid: $11,574,736;
Amount claimed: $6,503,215,604;
Amount paid as a percentage of total paid to industry: 2.8%.
5;
Company: McGill Manufacturing[C];
Amount paid: $2,703,403;
Amount claimed: $653,293,608;
Amount paid as a percentage of total paid to industry: 0.7%.
6;
Company: Pacamor/Kubar Bearings;
Amount paid: $2,267,413;
Amount claimed: $442,474,178;
Amount paid as a percentage of total paid to industry: 0.6%.
7;
Company: Kubar Bearings[D];
Amount paid: $1,132,137;
Amount claimed: $259,875,305;
Amount paid as a percentage of total paid to industry: 0.3%.
Source: GAO analysis of CBP data.
Notes:
[A] Timken acquired Torrington in February 2003. The CDSOA
distributions we report for Torrington in this table reflect the
distributions received by Torrington in FY 2001 and FY 2002.
[B] MPB Corporation is a subsidiary of Timken. CDSOA distributions are
listed separately for Timken and MPB because they reflect the CDSOA
distributions as reported by CBP.
[C] McGill Manufacturing is owned by Emerson Power Transmission. CDSOA
distributions are listed separately for McGill Manufacturing and
Emerson Power Transmission because they reflect the CDSOA distributions
as reported by CBP.
[D] CBP listed separate CDSOA distributions to Pacamor/Kubar Bearings
and Kubar Bearings in its Annual Reports on CDSOA.
[End of table]
CDSOA Effects on Bearings Companies:
Bearings Recipients Reported Positive Effects from CDSOA Payments:
We obtained the views of three bearings recipient companies. These
companies commented that CDSOA has had positive effects, although they
varied in their assessments of the extent of the benefit. Bearings
recipients reported that CDSOA's greatest impact has been in the areas
of net income, employment, and ability to compete. These companies also
commented that CDSOA has had less of an effect on prices, sales, and
profits. One company stated that the disbursements helped it to replace
equipment and become more competitive, enabling it to recover to the
position it had held prior to being injured from dumping. Another
recipient commented that while the CDSOA disbursements were helpful,
they were distributed years after the initial injury and did not fully
compensate the company for lost profits due to unfair trade.
The bearings recipient companies vary greatly in their overall size.
These companies are also significantly different in terms of the amount
they have received through CDSOA, overall and as a percentage of their
sales. For the recipient companies in our case study, in fiscal year
2004, CDSOA disbursements as a percentage of company sales ranged from
just over 1 percent to 21 percent with the larger recipients generally
at the low end of this scale.[Footnote 75]
Non-Recipients Reported Varying Effects:
We obtained the views of two non-recipients, one of which reported
negative effects, while the other said it is too early to tell the
extent of the harm that CDSOA has caused. One company commented that
CDSOA is harmful because the antidumping duties it pays are transferred
directly to a competitor. The company further stated that the money it
is paying in duties limits its ability to invest in its U.S.
operations. The other non-recipient company emphasized the size of the
CDSOA disbursements in the bearings industry, but commented that it is
still too early to know the injurious effect these disbursements will
have on non-recipient producers. The leading non-recipient producers
have not been eligible to receive CDSOA payments because they did not
support the original cases.
Table 6 provides bearings recipient and non-recipients' responses to
our questionnaire on CDSOA's effects.
Table 6: CDSOA Effects on Bearings Companies:
Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Net sales;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Net income;
Positive effects: 3;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Property, plant, and equipment;
Positive effects: 2;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Research and development;
Positive effects: 1;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Employment;
Positive effects: 3;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Ability to compete;
Positive effects: 2;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Category: Market share;
Positive effects: 1;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 3.
Non-Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 2.
Category: Net sales;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Net income;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Property, plant, and equipment;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Research and development;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Employment;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Ability to compete;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Category: Market share;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 1;
No basis to judge: 1;
Number of respondents: 2.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 7 provides these companies' responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 7: CDSOA Effect on Bearings Companies' Ability to Compete in U.S.
Market:
Recipients:
Increased: 2;
Stayed about the same: 1;
Decreased: 0;
Don't know/no basis to judge: 0;
Number of respondents: 3.
Non-Recipients:
Increased: 0;
Stayed about the same: 0;
Decreased: 1;
Don't know/no basis to judge: 1;
Number of respondents: 2.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. The bearings recipient
companies varied in their responses to this question. One company
responded that it has used the disbursements to rebuild production
equipment, maintain employment levels, and add more technical personnel
for pursuing bearings customers. A second company commented that it
does not earmark funds for a specific project; thus the funds have been
spent on debt reduction. The third company did not specify how it used
the funds, reiterating that the disbursements were based on previous
qualified expenditures and emphasizing that its investments in U.S.
bearings production have exceeded the money it received through CDSOA.
Net Sales and Employment Trends:
No clear trend emerged from these companies' production and employment
data over the 4 years that CDSOA has been in effect. One recipient's
net sales increased from 2001 to 2004, for example, while another's
declined. Similarly for employment, one recipient's number of workers
decreased over the 4 years, while another's remained about the same.
The responses from the non-recipients also did not show a clear trend
for production or employment. For two of the three companies,
employment declined, while all three companies' net sales increased to
varying degrees.
Extent of Overseas Production:
Most of the bearings companies that we contacted indicated that they
had both domestic and overseas production operations. Of the three
recipient companies, only one reported that it imports CDSOA products,
but its imports make up a small share of its overall sales.
Scope and Methodology:
To obtain bearings companies' views on CDSOA's effects, we sent out a
set of structured questions to certain CDSOA recipients and certain non-
recipients in the bearings industry. CDSOA payments are made in this
industry under multiple AD orders that were issued in different years.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments in each of the four years
that disbursements have been made and the amount of disbursements they
have received. Using this information, we developed a list of seven
recipients and ranked them by their total CDSOA receipts. We obtained
additional information from company representatives and CBP resulting
in our combining certain recipients and treating them as three distinct
companies.[Footnote 76] For example, CBP sometimes listed in its annual
reports on CDSOA, as separate distributions, payments to entities that
were divisions or subsidiaries of other companies that also received
CDSOA distributions. We surveyed the three companies, and all of them
provided completed surveys.
The universe of bearings non-recipients is larger than the universe of
recipients.[Footnote 77] We sought to obtain views from a comparable
number of non-recipients as recipients. To identify these companies, we
obtained information from associations or others that were
knowledgeable about the industry. Specifically, we obtained information
about non-recipient bearings companies by (1) identifying members of
the American Bearings Manufacturing Association, (2) asking recipient
companies to identify their competitors, and (3) conducting our own
research. We surveyed three non-recipient companies, of which two
provided completed surveys.[Footnote 78] These two non-recipients are
multi-national companies that are among the leading global producers of
bearings and have had a long-standing history of production in the
United States. The views of the non-recipients that responded to our
questions may not be representative of all non-recipients.
Views on CDSOA from Recipients in the Steel Industry:
Background:
For this case study, we defined the scope of the steel industry to
include companies that produce steel by melting raw materials.[Footnote
79] The two main types of producers of raw steel are integrated mills
and minimills. Integrated producers use older, blast furnaces to
convert iron ore into steel. They mainly produce "flat" products, such
as plate and hot-rolled steel that are used in transportation
equipment, construction, and heavy machinery. The minimills are a scrap-
based industry, producing steel from recycled metal products, such as
crushed cars or torn-down buildings. They use newer, electric-arc
furnaces, and account for almost all of the industry's "long"
production, including wire-rod and rebar. The top three domestic steel
producers--Mittal, U.S. Steel, and Nucor--together account for about
half of overall domestic steel production, which is approximately 100
million tons a year.[Footnote 80] A third, much smaller sector of the
industry is the specialty, or stainless, sector. These producers also
use electric-arc furnaces and represent about 2 percent of the overall
industry output and about 10 percent of value. The steel industry is by
far the largest user of AD/CV duty orders, with over 125 iron and steel
mill orders in place as of June 2005.
Several industrywide trends occurring at the same time as CDSOA
disbursements are relevant. Between 1997 and 2003 period, 40 steel
companies declared bankruptcy, with some of them ceasing operations
altogether. CDSOA recipients were not immune from this general trend;
several of them have declared bankruptcy and various firm
consolidations have also occurred. The Asian financial crisis was an
important factor in increasing steel imports to this country, as Asian
demand for steel dropped and foreign steel companies increasingly
looked to the United States as a market for their products.[Footnote
81] The surge in imports led to the filing of relief petitions on hot-
rolled steel against Russia, Japan, and Brazil beginning in 1998.
Companies subsequently filed relief petitions against 11 other
countries. In 2002, the President also took action under section 201 of
the Trade Act of 1974,[Footnote 82] which allows him to implement
temporary relief when an industry has been seriously injured by surging
imports. Under this authority the President announced a series of
safeguard tariffs of up to 30 percent on a range of steel products.
These tariffs, which were imposed in addition to the AD/CV duties,
remained in place from March 2002 until late 2003. Much of the industry
returned to profitability in 2004, when prices rose.
Table 8 depicts the top 10 CDSOA recipients for steel in fiscal years
2001 through 2004.
Table 8: Top 10 Fiscal Years 2001-2004 Steel CDSOA Recipients:
1;
Company: United States Steel Corporation;
Amount paid: $22,610,280;
Amount claimed: $589,595,769,913;
Amount paid as a percentage of total paid to industry: 17.6%.
2;
Company: Carpenter Technology Corporation;
Amount paid: $13,991,133;
Amount claimed: $24,272,753,229;
Amount paid as a percentage of total paid to industry: 10.9%.
3;
Company: AK Steel Corporation;
Amount paid: $11,337,171;
Amount claimed: $273,729,695,233;
Amount paid as a percentage of total paid to industry: 8.8%.
4;
Company: Allegheny Ludlum Corporation;
Amount paid: $11,107,788;
Amount claimed: $42,821,265,506;
Amount paid as a percentage of total paid to industry: 8.6%.
5;
Company: International Steel Group;
Amount paid: $10,374,465;
Amount claimed: $568,595,773,448;
Amount paid as a percentage of total paid to industry: 8.1%.
6;
Company: North American Stainless;
Amount paid: $9,697,133;
Amount claimed: $35,786,766,024;
Amount paid as a percentage of total paid to industry: 7.5%.
7;
Company: J&L Specialty Steel;
Amount paid: $6,227,041;
Amount claimed: $21,580,366,304;
Amount paid as a percentage of total paid to industry: 4.8%.
8;
Company: Bethlehem Steel Company;
Amount paid: $5,975,849;
Amount claimed: $277,902,636,707;
Amount paid as a percentage of total paid to industry: 4.6%.
9;
Company: Armco Steel Corporation;
Amount paid: $3,716,372;
Amount claimed: $155,054,850,596;
Amount paid as a percentage of total paid to industry: 2.9%.
10;
Company: Maverick Tube Corporation;
Amount paid: $3,454,452;
Amount claimed: $13,870,701,890;
Amount paid as a percentage of total paid to industry: 2.7%.
Source: GAO analysis of CBP data.
[End of table]
CDSOA Effects on Steel Companies:
CDSOA Recipients Commented That Disbursements Have Had a Moderately
Positive Effect:
Recipient steel companies varied in their assessments of the payments'
effects, but generally agreed that they had a positive impact in the
areas of net income and investing in plant, property, and equipment.
For example, several recipients said disbursements enabled them to make
investments needed to survive the steel crisis and be competitive in
the future. The companies also generally stated that CDSOA
disbursements have had little or no effect on prices, net sales, and
market share. Some steel recipients also commented that CDSOA has not
been a complete solution to the problems they faced due to unfairly
traded imports. One recipient commented, for example, that while CDSOA
payments could be presumed to have had a tangible benefit for the
industry, they have not come close to erasing the years of financial
injury brought on by unfairly traded steel products.
Some steel companies acknowledged that the CDSOA disbursements have not
been significant in relation to their size or capital expenditure
needs. For each of the 13 steel companies in our case study, the CDSOA
disbursements they received amounted to less than 1 percent of their
net sales in fiscal year 2004.[Footnote 83]
Table 9 provides steel recipients' responses to our questionnaire on
CDSOA's effects.
Table 9: CDSOA Effects on Steel Companies:
Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 11;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 11.
Category: Net sales;
Positive effects: 0;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 12.
Category: Gross profits;
Positive effects: 6;
Little or no effects: 6;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 12.
Category: Net income;
Positive effects: 10;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 12.
Category: Property, plant, and equipment;
Positive effects: 9;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 13.
Category: Research and development;
Positive effects: 8;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 12.
Category: Employment;
Positive effects: 6;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 12.
Category: Ability to compete;
Positive effects: 8;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 12.
Category: Market share;
Positive effects: 1;
Little or no effects: 10;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 11.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 10 provides these companies' responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 10: CDSOA Effect on Steel Companies' Ability to Compete in U.S.
Market:
Recipients:
Increased: 9;
Stayed about the same: 4;
Decreased: 0;
Don't know/no basis to judge: 0;
Number of respondents: 13.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. The steel recipient
companies generally did not provide specific replies to this question.
General comments by these companies included that they used the CDSOA
payments to make capital investments, reduce debt, and assisted in the
acquisition of steel-making assets.
Net Sales and Employment Trends:
Sales, profit, and income figures generally improved markedly for the
steel companies between 2003 and 2004, as the overall industry enjoyed
a strong rebound from the previous years. In some cases companies went
from showing net losses to net income between these 2 years. Some
companies also expanded greatly among all categories as they grew by
acquiring the assets of other companies. Overall, some companies gained
employees, while other companies lost them.
Extent of Overseas Production:
None of the recipient steel companies responding to our questionnaire
reported that they are involved in overseas production or importation
of CDSOA products.
Scope and Methodology:
To obtain steel companies' views on CDSOA's effects, we sent out a set
of structured questions to certain steel CDSOA recipients and non-
recipients. CDSOA payments are made in this industry under multiple
steel and steel-related AD and CV orders that were issued over several
years. For this case study, we defined the scope of the steel industry
to only include companies that produce steel by melting raw
materials.[Footnote 84] Our scope excludes companies that primarily
make steel-related products (such as pipe or tubing) from purchased raw
steel. As discussed below, we were not able to obtain information from
steel non-recipients on CDSOA's effects.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments, according to our definition
of the industry, in each of the 4 years that disbursements have been
made and the amount of disbursements they have received. We obtained
information from representatives of the ITC, Commerce, and industry
associations to determine precisely which companies fit under our
definition of the steel industry. Using this information, we developed
a list of 69 recipients and ranked them by their total CDSOA
receipts.[Footnote 85] Because of time and resource constraints, we
decided to survey the top 15 steel recipient companies that had
received 90 percent of the distributions made under the orders included
in our scope. Two of these companies had ceased operations. We surveyed
the remaining 13 companies and received completed surveys from all of
them. The 13 respondents accounted for about 72 percent of the CDSOA
payments to this industry; their views may not be representative of all
recipients, particularly those that received relatively small CDSOA
receipts.
The universe of steel non-recipients is larger than the universe of
recipients.[Footnote 86] We sought to obtain views from a comparable
number of non-recipients as recipients. To identify these companies, we
obtained information from associations or others that were
knowledgeable about the industry. Besides ITC, we spoke with several
steel industry associations (American Iron and Steel Institute, Steel
Manufacturers Association, and the Specialty Steel Industry of North
America) to identify leading steel non-recipients. We also asked
recipient companies to identify their competitors. Based on these
meetings and our own research, we surveyed 12 leading non-recipient
steel companies, from which we received 1 completed survey. However,
this survey did not include comments or views on CDSOA's effects. As a
result, we are not able to present the views of steel non-recipient
companies on CDSOA's effects.
Views on CDSOA from Recipients and Non-Recipients in the Candle
Industry:
Background:
Petroleum wax candles are produced in several forms including columns
or pillars, wax-filled containers, tapers or dinner candles, votives,
and novelty candles. They are sold to consumers through retail outlets,
the largest percentage of which are through mass merchandisers (such as
Wal-Mart or Target); these are followed by department stores, discount
retailers, card and gift shops, and door-to-door sales through
membership groups. The majority of petroleum wax candles are produced
and imported for national markets. The number of domestic producers has
grown from over 100 when the ITC performed its original investigation
in 1986 to over 400 at the time of its second 5-year review in 2005.
Only 10 domestic candle producers are eligible for CDSOA payments.
Table 5 shows these companies' CDSOA disbursements and claims.
According to the ITC, these recipients, in addition to approximately 35
other candle producers, make up 70 percent of U.S. candle production.
In 1985 a petition was filed by the National Candle Association (NCA)
alleging that the U.S. candle industry was materially injured by dumped
imports of petroleum wax candles from China.[Footnote 87] The ITC
determined injury in 1986, and Commerce issued an antidumping duty
order of 54 percent on all Chinese producers and exporters. The ITC
conducted a 5-year, expedited review in 1999, and the duty doubled from
54 percent to 108 percent after another expedited review in 2004. U.S.
producers' share of the market by quantity (pounds) went from 43
percent in calendar year 1999 to 53 percent in calendar year 2004.
Imports from China, which some perceive as lower-end candles, accounted
for 20 percent in 1999, rising to 27 percent in 2004. U.S. producers
and Chinese suppliers have both gained market share in recent years.
U.S. producers' share of candles dollar value was 66 percent in 1999
rising to 70 percent in 2004, while China's share rose from 10 percent
in 1999 to 14 percent in 2004. The ITC is presently conducting a full 5-
year "sunset" review of this order, and recently presented its findings
to Commerce. Also, Commerce is considering whether the scope of the
order should be changed, inquiring whether mixed wax candles composed
of petroleum wax and varying amounts of either palm or vegetable wax
alter the product so that they are not subject to the current order.
Table 11 depicts CDSOA recipients for candles in fiscal years 2001
through 2004.
Table 11: Fiscal Years 2001-2004 Candle CDSOA Recipients:
1;
Company: Candle-lite[A];
Amount paid: $56,759,989;
Amount claimed: $1,285,509,591;
Amount paid as a percentage of total paid to industry: 39.81%.
2;
Company: Lancaster Colony Corporation[A];
Amount paid: $26,225,555;
Amount claimed: $1,382,869,375;
Amount paid as a percentage of total paid to industry: 18.39%.
3;
Company: Home Fragrance Holdings;
Amount paid: $20,394,804;
Amount claimed: $444,243,884;
Amount paid as a percentage of total paid to industry: 14.30%.
4;
Company: Meunch-Kreuzer Candle Company;
Amount paid: $10,695,594;
Amount claimed: $212,476,879;
Amount paid as a percentage of total paid to industry: 7.50%.
5;
Company: General Wax & Candle;
Amount paid: $9,297,725;
Amount claimed: $150,256,642;
Amount paid as a percentage of total paid to industry: 6.52%.
6;
Company: Reed Candle Company;
Amount paid: $7,214,429;
Amount claimed: $152,164,485;
Amount paid as a percentage of total paid to industry: 5.06%.
7;
Company: Lumi-Lite Candle Company;
Amount paid: $5,625,486;
Amount claimed: $89,582,027;
Amount paid as a percentage of total paid to industry: 3.95%.
8;
Company: A.I. Root Company;
Amount paid: $3,338,318;
Amount claimed: $163,393,408;
Amount paid as a percentage of total paid to industry: 2.34%.
9;
Company: Candle Artisans;
Amount paid: $1,171,570;
Amount claimed: $57,421,924;
Amount paid as a percentage of total paid to industry: 0.82%.
10;
Company: Cathedral Candle Company;
Amount paid: $1,155,876;
Amount claimed: $56,565,862;
Amount paid as a percentage of total paid to industry: 0.81%.
11;
Company: Will & Baumer;
Amount paid: $691,842;
Amount claimed: $913,379;
Amount paid as a percentage of total paid to industry: 0.49%.
Source: GAO analysis of CBP data.
[A] In 1972 Candle-lite was acquired by Lancaster Colony Corporation of
which it remains a division today. For fiscal years 2001-2003,
Lancaster Colony received CDSOA distributions under the name Candle-
lite. The "amount paid" for Candle-lite and Lancaster Colony should be
added together for an accurate account of CDSOA distributions made to
the Candle-lite Division of Lancaster Colony Corp. Total fiscal year
2001-2004 distributions equal $82,985,544 or 58.21 percent of total
distributions to the candle industry. Likewise, the amount claimed for
Lancaster Colony is applicable to Candle-lite.
[End of table]
CDSOA Effects on Candle Companies:
Candle Recipients Reported Positive Effects from CDSOA Payments:
Recipients report that CDSOA distributions have had positive effects on
their net income; on their property, plant and equipment; and on
research and development. One of the larger recipients of CDSOA
distributions claims that these payments have lessened the need to
consider outsourcing their candle products from abroad. However, the
company reported that because of the effects of dumped Chinese candles,
they continue to lay off workers, though fewer than they may have
absent the CDSOA funds. Other recipients claim to have developed new,
better, and safer candles with research and development reinvestment of
CDSOA disbursements.
Fiscal year 2004 CDSOA disbursements as a percentage of company sales
range from 0.4 percent to 34.7 percent for the 10 recipient candle
companies, with most companies' shares in the higher end of this
range.[Footnote 88]
Candle Non-Recipients Reported Negative Effects:
Non-recipients report that CDSOA distributions to their competitors
have had negative effects on their ability to compete in the market, on
their gross profits, and on net income. They also reported very
negative effects on industry competition. One non-recipient company has
closed two of four domestic manufacturing facilities, eliminated or
reduced shifts, and its released workers. Another non-recipient company
claims that their CDSOA-recipient competitors could reduce selling
prices. While the company matched competitors' lower prices, they made
no profit. Because of this, they have recently exited this segment of
the candle business and released workers accordingly. Some non-
recipients also expressed the view that their ineligibility for CSDOA
disbursements is unfair. One non-recipient company joined the NCA as a
leader of the organization a few years after the issuance of the order,
but stated that they have no institutional memory of receiving an ITC
questionnaire during its original investigation in 1986. This company
said it has supported the order as well as NCA's efforts to defend the
order since joining the NCA. Another non-recipient is ineligible by
virtue of being acquired by a firm that opposed the original
investigation, and was unsuccessful in its legal challenge of this.
Table 12 shows candle recipient and non-recipients' responses to our
questionnaire on CDSOA's effects.
Table 12: CDSOA Effects on the Candle Companies:
Recipients:
Category: Prices;
Positive effects: 1;
Little or no effects: 9;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 10.
Category: Net sales;
Positive effects: 2;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 3;
Number of respondents: 10.
Category: Gross profits;
Positive effects: 6;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 10.
Category: Net income;
Positive effects: 9;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 10.
Category: Property, plant and equipment;
Positive effects: 9;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 10.
Category: Research and development;
Positive effects: 8;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 10.
Category: Employment;
Positive effects: 6;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 10.
Category: Ability to compete;
Positive effects: 6;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 10.
Category: Market share;
Positive effects: 2;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 4;
Number of respondents: 10.
Non-Recipients:
Category: Prices;
Positive effects: 1;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 3;
Number of respondents: 8.
Category: Net sales;
Positive effects: 1;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 3;
Number of respondents: 8.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 4;
Number of respondents: 8.
Category: Net income;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 4;
Number of respondents: 8.
Category: Property, plant and equipment;
Positive effects: 1;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 3;
Number of respondents: 8.
Category: Research and development;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 3;
No basis to judge: 3;
Number of respondents: 8.
Category: Employment;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 3;
No basis to judge: 3;
Number of respondents: 8.
Category: Ability to compete;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 4;
Number of respondents: 8.
Category: Market share;
Positive effects: 1;
Little or no effects: 0;
Negative effects: 4;
No basis to judge: 3;
Number of respondents: 8.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 13 depicts these companies' responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 13: CDSOA Effect on Candle Companies' Ability to Compete in U.S.
Market:
Recipients:
Increased: 7;
Stayed about the same: 2;
Decreased: 0;
Don't know/no basis to judge: 1;
Number of respondents: 10.
Non-Recipients:
Increased: 1;
Stayed about the same: 0;
Decreased: 4;
Don't know/no basis to judge: 3;
Number of respondents: 8.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. Several recipients
claim that they have used CDSOA funds to invest in new and better
equipment, and in research and development. One recipient company
reports that it has been able to offer employees consistent and
comprehensive benefits packages due to CDSOA funds.
Net Sales and Employment Trends:
For smaller candle companies--both recipients and non-recipient
respondents alike--net sales have stagnated, as has employment of
production and related workers. Some of the larger non-recipient
respondents appear to have experienced some growth in these categories,
while some of the larger recipients seem to have experienced some
decline or stagnation in net sales and some growth or stagnation in
production and employment.
Extent of Overseas Production:
Most candle companies are strictly domestic producers; however, one non-
recipient stated that it would start to import some of its candle
products from Asia in order to keep its costs down.
Scope and Methodology:
To obtain the views of candle companies on CDSOA's effects, we sent out
a set of structured questions to candle CDSOA recipients and certain
non-recipient companies within the industry. CDSOA payments are made
under one AD order that was issued in 1986.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments in each of the 4 years that
disbursements have been made. Using this information, we developed a
list of 11 recipients and ranked them by their total CDSOA receipts.
One of these companies now receives CDSOA payments under the name of
its parent company, leaving 10 distinct companies. We sent surveys to
all recipient companies, and all of them provided completed surveys.
The universe of candle non-recipients is larger than the universe of
recipients.[Footnote 89] We sought to obtain views from a comparable
number of non-recipients as recipients. To identify these companies, we
obtained information from associations or others that were
knowledgeable about the industry. Specifically, we (1) obtained a list
of members of the NCA from its website; (2) corroborated this list with
information from a recent ITC publication; and (3) obtained information
about certain non-NCA members based on our own research. Because of
time and resource constraints, most of the non-recipient candle
companies we contacted are members of the NCA. Surveys were sent to non-
recipient candle companies for which an E-mail address could be
obtained either from the NCA list or from the company directly. We
surveyed 26 non-recipient candle makers, of which 8 provided completed
surveys. Respondents included two relatively large candle companies
whose net candle sales were similar in magnitude to one of the largest
candle CDSOA recipients, and several smaller candle companies whose net
sales were similar to or slightly larger than several of the smaller
CDSOA candle recipients. The views of these respondents may not be
representative of all non-recipients.
Views on CDSOA from Pasta Company Recipients and Non-Recipients Pasta:
Background:
The bulk of pasta production in the United States is dry pasta, with
production of frozen or refrigerated pasta constituting a smaller
portion of the U.S. industry. After several decades of mergers and
acquisitions, and the 2001 sale of one major producer's production
facilities and brand names to two of its competitors, the industry's
current structure reflects a high degree of concentration among a few
large producers. The four largest U.S. producers as of 2001, based on
ITC data, were American Italian Pasta Company, New World Pasta, Dakota
Growers Pasta Company, and Barilla America, Inc. (a U.S. subsidiary of
an Italian pasta company that was set up in 1998 after antidumping and
countervailing duty orders on Italian dry pasta imports were issued).
An industry expert estimated that these four companies currently
account for about 80 percent of dry pasta production in the United
States, with the remainder supplied by smaller or specialty
companies.[Footnote 90] Three of the four are eligible for CDSOA
disbursements, but Barilla America, Inc., whose share of U.S.
production is growing and which said it only imports a small percentage
of the pasta it sells here, is not. Overall demand for dry pasta in the
United States has been declining since the late 1990s, a trend that has
been exacerbated, according to dry pasta companies and industry
experts, by diets that emphasize low-carbohydrate intake.[Footnote 91]
Further, the industry has been experiencing decreased sales, excess
capacity, and plant closures. Among the more significant indicators of
the downturn, New World Pasta--a leading CDSOA recipient--filed for
Chapter 11 bankruptcy protection in 2004. According to ITC, about three-
fourths of U.S. consumption of dry pasta in 2000 was supplied by
domestic producers, with the remainder supplied by imported products.
At that time, the largest sources of imported pasta were Italy, Canada,
Korea, and Mexico.
Several U.S. producers petitioned for relief from rapidly growing
imports in 1995. In 1996, Commerce issued antidumping and
countervailing duty orders on certain pasta imports from Italy and
Turkey.[Footnote 92] Initial AD duties rated from 0 to about 47 percent
on Italian pasta and about 61 to 63 percent on Turkish pasta, while
initial CV duties ranged from about 0 to 11 percent on Italian pasta
and about 4 to 16 percent on Turkish pasta. Since Commerce issued the
order, dry pasta imports from Italy have declined and Turkey is no
longer a leading supplier of pasta to the United States. The ITC
completed a sunset review in 2001 that extended the orders until 2006.
The top seven CDSOA recipients have received about 99 percent of the
payments made to the industry, with American Italian Pasta Company and
New World Pasta/Hershey Foods receiving 70 percent of total payments.
Table 14 shows total payments made to all dry pasta CDSOA recipients in
fiscal years 2001 through 2004.
Table 14: Fiscal Years 2001-2004 CDSOA Pasta Recipients:
1;
Company: American Italian Pasta Company;
Amount paid: $11,052,969;
Amount claimed: $8,063,794,100;
Amount paid as a percentage of total paid to industry: 34.0%.
2;
Company: Hershey Foods (New World Pasta);
Amount paid: $8,136,032;
Amount claimed: $4,853,308,844;
Amount paid as a percentage of total paid to industry: 25.0%.
3;
Company: A. Zerega's Sons;
Amount paid: $3,889,333;
Amount claimed: $2,290,556,634;
Amount paid as a percentage of total paid to industry: 12.0%.
4;
Company: New World Pasta;
Amount paid: $3,584,898;
Amount claimed: $8,213,502,091;
Amount paid as a percentage of total paid to industry: 11.0%.
5;
Company: Dakota Growers Pasta Company;
Amount paid: $2,328,690;
Amount claimed: $3,285,863,416;
Amount paid as a percentage of total paid to industry: 7.2%.
6;
Company: Philadelphia Macaroni Company;
Amount paid: $2,002,478;
Amount claimed: $1,176,503,668;
Amount paid as a percentage of total paid to industry: 6.2%.
7;
Company: Gooch Foods;
Amount paid: $744,737;
Amount claimed: $30,137,692;
Amount paid as a percentage of total paid to industry: 2.3%.
8;
Company: Pasta USA;
Amount paid: $463,953;
Amount claimed: $698,654,710;
Amount paid as a percentage of total paid to industry: 1.4%.
9;
Company: Fould's;
Amount paid: $185,155;
Amount claimed: $260,992,108;
Amount paid as a percentage of total paid to industry: 0.6%.
10;
Company: S.T. Specialty Foods;
Amount paid: $112,247;
Amount claimed: $282,512,767;
Amount paid as a percentage of total paid to industry: 0.4%.
11;
Company: D. Merlino & Sons;
Amount paid: $31,067;
Amount claimed: $43,778,230;
Amount paid as a percentage of total paid to industry: 0.1%.
Source: GAO analysis of CBP data.
[A] New World Pasta acquired Hershey Foods Corporation in 1999.
[End of table]
CDSOA Effects on Pasta Companies:
Pasta Recipients Reported Mostly Positive Effects From CDSOA Payments:
The four pasta recipients that responded to our survey viewed the CDSOA
program as having mostly positive effects on their companies. The two
largest recipients did not respond to our survey, and we did not
contact the three smallest recipients. All respondents cited the most
positive company effects in the areas of profit; income; and investment
in property, plant, and equipment; and most cited positive effects on
net sales and ability to compete. Some recipient companies noted that
the program has enhanced their ability to increase production through
plant expansions and upgrades; improved their cash flow, allowing them
more operating flexibility; reduced manufacturing costs; and enhanced
some companies' competitive position. Funds have also helped some
companies develop new products.
CDSOA disbursements to the pasta industry have been small compared to
each company's net sales. For example, fiscal year 2004 CDSOA payments
to the pasta companies that responded to our survey represented about 1
percent or less of each company's 2004 net sales.[Footnote 93]
Non-Recipients Reported Minimal or Negative Effects:
Among the six pasta non-recipients that responded to our survey, views
about the effect of CDSOA funds were mixed. A few said the funds had
impacted their companies negatively in certain areas or created an
unfair competitive environment in the industry, while others thought
effects were minimal or could not judge the program's effects. About
half of the non-recipients thought the program has had little or no
effects for their companies in the areas of employment, prices, sales,
investment, or market share. Some non-recipients thought the program
had negatively impacted their company's profits, income, and ability to
compete. Some non-recipients said that the program has probably helped
recipients cut prices, and that this has created an unfair advantage in
the industry for recipients. One non-recipient stated that it has had
to transfer substantial sums of money to its competitors because of
CDSOA, and that these funds would likely have been used for product
development, capital investment, and expansion at its U.S. facility.
Table 15 provides pasta recipients' and non-recipients' responses to
our questionnaire on CDSOA effects.
Table 15: CDSOA Effects on Pasta Companies:
Recipients:
Category: Prices;
Positive effects: 2;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Net sales;
Positive effects: 3;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Gross profits;
Positive effects: 4;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Net income;
Positive effects: 4;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Property, plant, and equipment;
Positive effects: 4;
Little or no effects: 0;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Research and development;
Positive effects: 2;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 4.
Category: Employment;
Positive effects: 3;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Ability to compete;
Positive effects: 2;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 4.
Category: Market share;
Positive effects: 1;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 4.
Non-Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 1;
No basis to judge: 2;
Number of respondents: 6.
Category: Net sales;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 1;
No basis to judge: 2;
Number of respondents: 6.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 2;
No basis to judge: 2;
Number of respondents: 6.
Category: Net income;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 2;
No basis to judge: 2;
Number of respondents: 6.
Category: Property, plant, and equipment;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 1;
No basis to judge: 2;
Number of respondents: 6.
Category: Research and development;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 1;
No basis to judge: 3;
Number of respondents: 6.
Category: Employment;
Positive effects: 0;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 2;
Number of respondents: 6.
Category: Ability to compete;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 2;
No basis to judge: 2;
Number of respondents: 6.
Category: Market share;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 1;
No basis to judge: 2;
Number of respondents: 6.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 16 provides these companies' responses to our question on CDSOA's
effects on their ability to compete in the U.S. market.
Table 16: CDSOA Effect on Pasta Companies' Ability to Compete in U.S.
Market:
Recipients:
Increased: 3;
Stayed about the same: 1;
Decreased: 0;
Don't know/no basis to judge: 0;
Number of respondents: 4.
Non-Recipients:
Increased: 0;
Stayed about the same: 1;
Decreased: 3;
Don't know/no basis to judge: 2;
Number of respondents: 6.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. Recipients used CDSOA
funds for a variety of purposes. For example, some said they used the
funds to purchase new equipment or upgrade existing equipment; reduce
manufacturing costs and improve cash flow; increase production
capacity; and invest in research and product development. This, in
turn, led to increased production and employment among some companies.
One company that did not respond to our survey disclosed in its 2003
annual report that it used a significant portion of the funds to
increased investment in brand building activities and to strengthen the
company's organization. One recipient noted that CDSOA funds have been
helpful because margins in the industry are very thin and competition
is strong. As CDSOA improved one company's bottom line, it was able to
obtain more attractive financing rates.
Net Sales and Employment Trends:
Our information about the effect of CDSOA on net sales and employment
in this industry is limited because the two largest companies did not
respond to our survey. Although press coverage of the industry has
noted generally declining net sales among U.S. dry pasta companies in
recent years, the companies that responded to our questions reported
general increases in net sales during 2001 through 2004. Specifically,
two companies reported increased sales in the 2001 through 2004 time
frame, and two companies reported fluctuating sales that were higher at
the end of the period than at the beginning. Among recipient
respondents, two companies' employment levels generally increased, and
two companies' employment levels generally decreased since the
implementation of CDSOA. Among non-recipient respondents, net sales and
employment showed mixed trends. Three companies reported increased
sales, one company reported fluctuating sales that were higher at the
end of 2004, and two companies reported decreased net sales. Three
companies reported generally increased employment levels and three
reported general decreases.
Extent of Overseas Production:
All of the recipient pasta companies that responded to our survey
produce their product only in the United States. However, the top CDSOA
recipients that did not respond to our survey produce pasta
domestically and in other countries. Four of the non-recipients produce
exclusively in the United States, and two produce both domestically and
overseas.
Scope and Methodology:
To obtain pasta companies' views on CDSOA's effects, we sent out a set
of structured questions to certain pasta CDSOA recipients and non-
recipients. CDSOA payments are made in this industry under two AD and
two CV orders that were issued simultaneously.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments in each of the 4 years that
disbursements have been made and the amount of disbursements they have
received. Using this information, we developed a list of 11 recipients
and ranked them by their total CDSOA receipts. CBP provided additional
information that indicated there were actually 10 distinct
companies.[Footnote 94] Because of time and resource constraints, we
decided to survey the top seven companies that had received 99 percent
of the total payments made under these orders, from which we received
four completed surveys.[Footnote 95] The two pasta companies that are
top CDSOA recipients did not respond to our survey. Our information
about CDSOA effects for recipients is limited to the four pasta
companies that responded, which together accounted for about 27 percent
of CDSOA payments to this industry.
The universe of dry pasta non-recipients is larger than the universe of
recipients.[Footnote 96] We sought to obtain views from a comparable
number of non-recipients as recipients, but we had difficulty
identifying non-recipient dry pasta companies. To identify these
companies, we obtained information from associations or others that
were knowledgeable about the industry. Specifically, we obtained
company names and contact information from (1) the website of the
National Pasta Association, which presently carries out only limited
activities on behalf of the industry; (2) an association management
company that handles administrative matters for the National Pasta
Association; (3) a directory of pasta companies published on
[Hyperlink, http://bakingbusiness.com], a division of Milling and
Baking News, which is a business news organization that ITC had
identified as closely following the pasta industry; and (4) other pasta
companies. Many of the companies we identified through these sources
were not makers of dry pasta as defined in the orders, but were instead
makers of egg noodles, fresh or refrigerated pasta, couscous, and boxed
or frozen foods that use pasta, or were flour mills or other companies
linked to the production of dry pasta. We surveyed eight non-recipient
dry pasta manufacturers, from which we received six completed surveys.
The respondents include the fourth-largest dry pasta manufacturer in
the United States, several smaller pasta companies that produce durum
wheat pasta, one company that produces wheat-free pasta, and one
company that produces exclusively organic pasta. The views of these
respondents may not be representative of all non-recipients.
Views on CDSOA from Recipients in the DRAM Industry:
Background:
Dynamic random access memory (DRAM) semiconductors are considered
commodity products and compete largely on the basis of price; DRAMs of
similar density, access speed, and variety are generally
interchangeable regardless of the country of fabrication. Today, four
companies produce DRAMs in the United States:[Footnote 97] Micron
Technologies is a U.S. company, Infineon Technologies is a spin-off of
the German company Siemens, and Samsung Electronics[Footnote 98] and
Hynix Semiconductor[Footnote 99] are Korean companies. All of these
companies now have production facilities in the United States as well
as abroad, but the latter three have entered the U.S. industry within
the past decade. The DRAM industry is cyclical in nature, where demand
is driven by investments in computers and other end-products.
Fabrication facility costs are high and require complete replacement
approximately every 10 years. Due to high fixed costs, chip
manufacturers cannot afford to scale down production; they must
constantly produce chips and invest or go out of business.
One countervailing duty order is currently in effect for DRAMs produced
by Hynix only.[Footnote 100] This duty order came into effect in 2003
and its duty rate is currently 44 percent. Micron Technology received
the bulk of distributions in this industry because it was the sole
recipient of duties from two antidumping orders dating from the 1990s
on DRAMs and other kinds of chips. Payments were made to Micron on
DRAMs of 1 megabit and above under one AD order issued in 1993 and
revoked in 2000, as well as on an AD order on SRAMs (static random
access memory chips) issued in 1998 and revoked in 2002. The vast
majority of CDSOA disbursements to the industry (approximately $33
million) in fiscal years 2001 through 2004 were related to these
orders. Infineon did not incorporate in the United States until 2000
and, therefore, did not participate in the earlier investigations. Both
Infineon and Micron are eligible and received disbursements under the
current order but Hynix and Samsung are not eligible because they
opposed the petition. Because DRAMs are a technologically dynamic
product, it is expected that Commerce will revoke these orders when the
subject products are obsolete. New products open themselves to new
petitions and orders, thereby allowing new potential CDSOA recipients.
Table 17 depicts CDSOA recipients for DRAMs in fiscal years 2001-2004.
Table 17: Fiscal Years 2001-2004 DRAM CDSOA Recipients:
1;
Company: Micron Technology;
Amount paid: $33,389,988;
Amount claimed: $9,093,423,782;
Amount paid as a percentage of total paid to industry: 99.98%.
2;
Company: Infineon Technologies Richmond;
Amount paid: $5,974;
Amount claimed: $590,776,005;
Amount paid as a percentage of total paid to industry: 0.02%.
Source: GAO analysis of CBP data.
[End of table]
CDSOA Effects on DRAM Companies:
CDSOA Disbursements Have Mixed Effects on DRAM Companies:
The two recipients of CDSOA disbursements reported mixed effects. One
recipient reported that, although at the time it was operating at a net
loss, CDSOA distributions improved its profitability, investment,
employment, and research and development. The company noted that it
would be of greater help if payments were made soon after other
countries began their unfair trade practices. Another recipient
reported that disbursements were immaterial to their operations.
Fiscal year 2004 CDSOA disbursements are equal to less than 1 percent
of both companies' sales.[Footnote 101]
Table 18 presents DRAM recipients' responses to our questionnaire on
CDSOA's effects.
Table 18: CDSOA Effects on DRAM Companies:
Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Net sales;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Gross profits;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Net income;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Property, plant, and equipment;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Research and development;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Employment;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Ability to compete;
Positive effects: 1;
Little or no effects: 1;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Category: Market share;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 2.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 19 shows companies' responses to our question on CDSOA's effect
on their ability to compete in the U.S. market.
Table 19: CDSOA Effect on DRAM Companies' Ability to Compete in U.S.
Market:
Recipients:
Increased: 1;
Stayed about the same: 1;
Decreased: 0;
Don't know/no basis to judge: 0;
Number of respondents: 2.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. One recipient uses
CDSOA distributions to fund U.S. operations and to invest in new U.S.
production equipment. The other recipient also uses distributions in
operations.
Net Sales and Employment Trends:
Historically, the DRAM market is subject to periods of "boom and bust."
Both CDSOA recipients reported some net losses and have experienced
slight declines in production and related workers during the past 4
fiscal years.
Extent of Overseas Production:
One company has DRAM production facilities in three U.S. states as well
as Japan, Italy, and Singapore. The other indicated that it has both
domestic and foreign production facilities; they also noted that DRAMs
manufactured in the United States can be sold abroad, and DRAMs
manufactured abroad can in turn be sold here.
Scope and Methodology:
To obtain the views of DRAM-producing companies on CDSOA's effects, we
sent a set of structured questions to the two CDSOA recipients. Current
CDSOA payments on DRAMs are made on a CV order issued in 2003.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments in each of the 4 years that
disbursements have been made. CBP identified two companies. We surveyed
both recipient companies, and both provided completed surveys.
To identify non-recipients, we consulted the recipient companies to
identify their competitors, and we obtained information on domestic
producers from the ITC's final determination on DRAM and DRAM Modules
from Korea.[Footnote 102] There are two U.S. subsidiaries of Korean
companies that are considered domestic producers who opposed the
petition for the current order. We attempted to contact these companies
but were unsuccessful in our efforts. We did not attempt to contact a
fifth company that is also considered a domestic producer; this company
does not list the major DRAM producers as competitors, and has no
fabrication facilities.[Footnote 103] ITC listed other domestic
producers for the purposes of its investigation, but these companies
have since ceased DRAM production or have ceased to exist.
Views on CDSOA from Recipients and Non-Recipients in Crawfish Industry:
Background:
Crawfish are freshwater crustaceans that resemble lobsters but are
considerably smaller. U.S. commercial production of crawfish is
concentrated within a relatively small area of southern Louisiana,
where crawfish are harvested in the wild by fishermen and farmed in
ponds. Crawfish may be sold whole and live, whole and boiled, or as
fresh or frozen tail meat. Whole crawfish and fresh tail meat is
consumed primarily in Louisiana and neighboring states, where there is
generally a preference for local products in season. Tail meat is also
sold more broadly throughout the United States. U.S. producers supply
whole crawfish and fresh and frozen tail meat, whereas imports, mainly
from China, are primarily frozen tail meat. U.S. businesses that
process whole crawfish into tail meat are primarily small, family-owned
concerns. Inexpensive imports and poor harvests have driven many
domestic crawfish processors out of business in recent years. It is
estimated that there were over 100 processors in Louisiana in the 1980s
and early 1990s, but that number has dropped by more than half.
In 1996, the Crawfish Processors Alliance, an industry association, and
the Louisiana Department of Agriculture and Fisheries, filed a petition
alleging that U.S. processors of crawfish tail meat were being injured
by dumped imports of crawfish tail meat from China. Significant imports
of tail meat began in the mid-1990s, and ITC estimates that imports'
share of consumption grew from just over 60 percent in 1997 to about 87
percent in 2002. In 1997, Commerce issued an anti-dumping order on
crawfish tail meat and imposed anti-dumping margins that ranged from
about 92 to about 202 percent.
Table 20 depicts the top 10 CDSOA recipients for crawfish in fiscal
years 2001-2004.
Table 20: Top 10 Fiscal Years 2001-2004 Crawfish CDSOA Recipients:
1;
Company: Atchafalaya Crawfish Processors;
Amount paid: $3,054,297;
Amount claimed: $5,940,653;
Amount paid as a percentage of total paid to industry: 12.0%.
2;
Company: Seafood International;
Amount paid: $2,394,144;
Amount claimed: $4,231,815;
Amount paid as a percentage of total paid to industry: 9.4%.
3;
Company: Catahoula Crawfish;
Amount paid: $2,136,763;
Amount claimed: $4,033,844;
Amount paid as a percentage of total paid to industry: 8.4%.
4;
Company: Crawfish Enterprises;
Amount paid: $1,722,957;
Amount claimed: $5,559,354;
Amount paid as a percentage of total paid to industry: 6.8%.
5;
Company: Prairie Cajun Seafood Wholesale Distributors;
Amount paid: $1,711,875;
Amount claimed: $3,063,186;
Amount paid as a percentage of total paid to industry: 6.7%.
6;
Company: Bayou Land Seafood;
Amount paid: $1,512,866;
Amount claimed: $3,083,890;
Amount paid as a percentage of total paid to industry: 6.0%.
7;
Company: Acadiana Fishermen's Co-Op;
Amount paid: $1,297,685;
Amount claimed: $2,635,910;
Amount paid as a percentage of total paid to industry: 5.1%.
8;
Company: Bonanza Crawfish Farm;
Amount paid: $1,086,372;
Amount claimed: $2,084,090;
Amount paid as a percentage of total paid to industry: 4.3%.
9;
Company: Riceland Crawfish;
Amount paid: $1,061,156;
Amount claimed: $2,192,214;
Amount paid as a percentage of total paid to industry: 4.2%.
10;
Company: Cajun Seafood Distributors;
Amount paid: $1,052,414;
Amount claimed: $2,172,290;
Amount paid as a percentage of total paid to industry: 4.1%.
Source: GAO analysis of CBP data.
[End of table]
CDSOA Effects on Crawfish Processing Companies:
Crawfish Recipients Reported Positive Effects from CDSOA Payments:
CDSOA recipient respondents in the crawfish tail meat processing
industry stated that the program has generally had positive effects for
the industry and their companies. Several recipient respondents
credited CDSOA with saving the domestic crawfish processing industry.
Because of the program, they said, businesses remained open, employees
kept their jobs, and crawfish fishermen continued to fish. The areas in
which positive effects were most often cited were income; profits;
investment in property, plants, and equipment; employment; and ability
to compete. The program was generally seen as having little or no
effect on prices, research and development, and market share. Many
recipients stated that the program had encouraged them to purchase and
process more crawfish and freeze more tail meat for sale in the off-
season, leading to increased employment among some processors and
higher sales volumes for crawfish farmers and fishermen.
Many respondents noted the poor collection rate and enforcement of the
AD order for crawfish and viewed the CDSOA program as providing their
only effective relief from dumped imports. (CBP disbursed about $9.8
million to crawfish processors in fiscal year 2003 but reported that
the uncollected duties related to crawfish in that year were about
$85.4 million. In fiscal year 2004, CBP disbursed about $8.2 million to
the industry, but uncollected duties rose to about $170 million. Nearly
two-thirds of all uncollected duties in fiscal year 2004 were related
to the crawfish order.) Recipients complained that widespread non-
payment of duties means Chinese crawfish continues to enter the U.S.
market unabated. In its 2003 review to evaluate continuation of the AD
order, ITC found that Chinese tail meat undersold (was sold at a lower
price) domestic tail meat to the same degree with the AD order in place
as it had before the order was issued, suggesting that the order has
not affected the price of imported tail meat.[Footnote 104]
Although CDSOA disbursements in this industry have been small compared
to certain other industries, these payments have been significant for
some recipients when compared to net sales. Among the 16 recipients
that responded to our survey, their fiscal year 2004 CDSOA disbursement
as a percent of their 2004 net sales ranged from a low of about 4
percent for one company to a high of about 350 percent for
another.[Footnote 105] Among the other respondents, four companies'
fiscal year 2004 disbursement was about 15 to 18 percent of their net
sales that year, five companies' disbursement was about 27 to 33
percent of their net sales, and four companies' disbursement was
between 52 and 96 percent of their net sales.[Footnote 106] One company
did not report any net sales information to us.
Non-Recipients Reported Negative Effects:
Non-recipients crawfish processors that responded to our survey said
that the CDSOA program has helped recipient companies, but has harmed
non-recipient companies by creating conditions of unfair competition
among domestic processors. Most non-recipients cited negative effects
for their companies in terms of ability to compete, net sales, profits,
income, investment, and employment, which are generally the areas where
recipients saw positive effects. Several non-recipients stated that
they were unable to compete with the CDSOA recipients. For example,
several non-recipients said that recipient companies were offering tail
meat for sale at prices that were below the cost of production and were
able to do so because their CDSOA funds would compensate them for any
losses. In such conditions, some non-recipients said they cannot
operate profitably and some decided to stop producing tail meat in
recent years.
Table 21 provides crawfish recipients and non-recipients' responses to
our questionnaire on CDSOA's effects.
Table 21: CDSOA Effects on Crawfish Companies:
Recipients:
Category: Prices;
Positive effects: 3;
Little or no effects: 13;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 16.
Category: Net sales;
Positive effects: 9;
Little or no effects: 7;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 16.
Category: Gross profits;
Positive effects: 11;
Little or no effects: 4;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 15.
Category: Net income;
Positive effects: 14;
Little or no effects: 2;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 16.
Category: Property, plant, and equipment;
Positive effects: 11;
Little or no effects: 3;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 14.
Category: Research and development;
Positive effects: 5;
Little or no effects: 9;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 14.
Category: Employment;
Positive effects: 11;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 16.
Category: Ability to compete;
Positive effects: 10;
Little or no effects: 6;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 16.
Category: Market share;
Positive effects: 5;
Little or no effects: 9;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 14.
Non-Recipients:
Category: Prices;
Positive effects: 2;
Little or no effects: 1;
Negative effects: 5;
No basis to judge: 1;
Number of respondents: 9.
Category: Net sales;
Positive effects: 0;
Little or no effects: 1;
Negative effects: 8;
No basis to judge: 0;
Number of respondents: 9.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 1;
Negative effects: 8;
No basis to judge: 0;
Number of respondents: 9.
Category: Net income;
Positive effects: 0;
Little or no effects: 1;
Negative effects: 7;
No basis to judge: 1;
Number of respondents: 9.
Category: Property, plant, and equipment;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 7;
No basis to judge: 0;
Number of respondents: 9.
Category: Research and development;
Positive effects: 0;
Little or no effects: 3;
Negative effects: 4;
No basis to judge: 2;
Number of respondents: 9.
Category: Employment;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 7;
No basis to judge: 0;
Number of respondents: 9.
Category: Ability to compete;
Positive effects: 0;
Little or no effects: 0;
Negative effects: 9;
No basis to judge: 0;
Number of respondents: 9.
Category: Market share;
Positive effects: 0;
Little or no effects: 2;
Negative effects: 6;
No basis to judge: 1;
Number of respondents: 9.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Table 22 provides these companies' responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 22: CDSOA Effect on Crawfish Companies' Ability to Compete in the
U.S. Market:
Recipients:
Increased: 12;
Stayed about the same: 3;
Decreased: 0;
Don't know/no basis to judge: 1;
Number of respondents: 16.
Non-Recipients:
Increased: 0;
Stayed about the same: 1;
Decreased: 8;
Don't know/no basis to judge: 0;
Number of respondents: 9.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Funds:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. Recipient companies
reported a wide range of uses for the funds. For example, most of the
companies that reported this information said they purchased or
upgraded equipment, buying new or larger delivery trucks, boilers, ice
machines, freezers, coolers, and vacuum-pack machines. Several
companies bought more crawfish to peel and hired more employees,
thereby increasing their production of tail meat. Several companies
said that they made investments and repairs to their plants, such as
installing or expanding docks for receiving shipments of whole
crawfish. Several also paid off long-standing company and personal
debts. For example, the head of one small family-run company said he
paid off mortgages on the plant and his residence, bought new
equipment, and made needed repairs without incurring new financing
costs. One company said that it started a pension plan for its
employees.
Net Sales and Employment Trends:
More than half of the recipient companies that we surveyed had growing
net sales in the 2001 through 2004 time frame. Other companies' net
sales fluctuated, decreased, or were relatively stable. Several
respondents said that one of the most significant outcomes of the CDSOA
program was to encourage them to purchase and process more crawfish and
freeze more tail meat for sale in the off-season, thereby improving
their year-round cash flow. Most non-recipients that responded to our
survey did not provide net sales information.
More than half of the crawfish recipient respondents also reported
growth in employment levels, and some of these increases were
significant. One company quadrupled the number of production and
related workers during the 2001 through 2004 period (from 28 to 111)
and the number of such workers at three other companies doubled.
Several stated CDSOA enabled them to hire more people. Three recipients
reported net decreases in the number of production and related workers
in this time period. Non-recipients also generally did not report
employment information.
Extent of Overseas Production:
Survey respondents said they process tail meat exclusively in the
United States. We did not gather any information that disclosed
whether, in the course of doing business, any of these processors also
import or offer imported tail meat for sale.
Scope and Methodology:
To obtain crawfish tail meat processing companies' views on CDSOA's
effects, we sent out a set of structured questions to certain crawfish
CDSOA recipients and non-recipients. CDSOA payments are made in this
industry under one AD order.
To identify CDSOA recipients, we obtained information from CBP about
the companies that have received payments in each of the three years
that disbursements have been made and the amount of disbursements they
have received. Using this information, we developed a list of 35
recipients and ranked them by their total CDSOA receipts. CBP provided
additional information that indicated that certain companies had
received funds under different names in different years. Because of
time and resource constraints, we decided to survey 20 of the top
recipients that had received about 90 percent of the total payments
made under this order. We received 16 completed surveys. These 16
companies accounted for about 73 percent of CDSOA payments to this
industry; their views may not be representative of all recipients,
particularly those that received relatively small CDSOA disbursements.
The size of the universe of crawfish non-recipients not known.[Footnote
107] We sought to obtain views from a comparable number of non-
recipients as recipients, but we had difficulty identifying non-
recipient crawfish companies. To identify these companies, we obtained
information from associations or others that were knowledgeable about
the industry. Specifically, we obtained contact information for current
and former tail meat processors that are non-recipients from (1) a law
firm that represents the Crawfish Processors Alliance, an entity that
was a petitioner in this case; (2) the Louisiana Department of
Agriculture and Fisheries, an entity that was a petitioner in this
case; (3) the Louisiana Department of Health and Hospitals, which
licenses and inspects processors; and (4) certain other tail meat
processors. We lacked accurate contact information for several of these
companies. We surveyed 17 current and former processors, from which we
received 9 completed surveys.[Footnote 108] The views of these
respondents may not be representative of all non-recipients.
Views on CDSOA from Recipients and Non-Recipients in Softwood Lumber
Industry:
Background:
Softwood lumber generally comes from conifers or evergreen trees
including pine, spruce, cedar, fir, larch, Douglas fir, hemlock,
cypress, redwood, and yew. Softwood is easy to saw and used in
structural building components. It is also found in other products such
as mouldings, doors, windows, and furniture. Softwood is also harvested
to produce chipboards and paper. U.S. softwood lumber producers are
generallly located in the southeast and northwest, with the northwest
softwood lumber being comparable to Canadian softwood lumber. CDSOA
disbursements to the softwood lumber industry went to 143 companies in
fiscal years 2003 and 2004. According to one estimate, about half of
the softwood lumber companies are eligible to receive these
disbursements.
Canada's share of the U.S. lumber market rose from less than 3 billion
board feet (BBF) and 7 percent of the market in the early 1950s to more
than 18 BBF per year and 33 percent of the market in the late 1990s. In
2003, U.S. imports of softwoods were 49,708 thousands of cubic meters,
and the ratio of these imports to consumption was 37.4 percent. Since
1981, the United States and Canada have been involved in several
softwood lumber disputes, leading to, among other things, a 15 percent
Canadian tax on lumber exports in 1986; a countervailing duty of 6.51
percent on Canadian imports in 1992, which ended in 1994; and a 1996
Softwood Lumber Agreement restricting Canadian exports for five years,
until 2001.
The U.S. again imposed antidumping and countervailing duties on
Canadian imports in 2002. From May 2002 to December 2004 most Canadian
softwood lumber exported to the United States was subject to a combined
antidumping and countervailing duty of 27 percent. In December 2004
this combined duty was reduced to 21 percent. These two duty orders
funded about $5.4 million in CDSOA disbursements to U.S. softwood
lumber companies in fiscal years 2003 and 2004. Leading U.S. softwood
lumber producers are among the industry's top CDSOA recipients.
However, major U.S. producers are also among those ineligible to
receive CDSOA disbursements. CBP has received over $3.7 billion in
deposits to cover estimated duties from softwood lumber imports from
Canada.
Table 23 depicts the top 10 CDSOA softwood lumber recipients for fiscal
years 2003-2004.
Table 23: Top 10 FY 2003-2004 Softwood Lumber CDSOA Recipients:
1;
Company: International Paper;
Amount paid: $761,907;
Amount claimed: $3,450,790,984;
Amount paid as a percentage of total paid to industry: 13.98%.
2;
Company: Sierra Pacific Industries;
Amount paid: $549,622;
Amount claimed: $2,479,493,488;
Amount paid as a percentage of total paid to industry: 10.09%.
3;
Company: Stimson Lumber;
Amount paid: $350,766;
Amount claimed: $1,587,151,896;
Amount paid as a percentage of total paid to industry: 6.44%.
4;
Company: Hampton Resources;
Amount paid: $321,954;
Amount claimed: $1,459,096,581;
Amount paid as a percentage of total paid to industry: 5.91%.
5;
Company: Potlatch Corporation;
Amount paid: $261,543;
Amount claimed: $1,186,058,000;
Amount paid as a percentage of total paid to industry: 4.80%.
6;
Company: Temple Inland Forest;
Amount paid: $165,907;
Amount claimed: $763,770,440;
Amount paid as a percentage of total paid to industry: 3.04%.
7;
Company: Plum Creek Reek Timber;
Amount paid: $141,260;
Amount claimed: $650,304,609;
Amount paid as a percentage of total paid to industry: 2.59%.
8;
Company: Swanson Group Inc;
Amount paid: $135,481;
Amount claimed: $623,700,679;
Amount paid as a percentage of total paid to industry: 2.49%.
9;
Company: Gilman Building Products;
Amount paid: $120,249;
Amount claimed: $550,635,410;
Amount paid as a percentage of total paid to industry: 2.21%.
10;
Company: Seneca Sawmill;
Amount paid: $107,278;
Amount claimed: $483,738,802;
Amount paid as a percentage of total paid to industry: 1.97%.
Source: GAO analysis of CBP data.
[End of table]
CDSOA Effects on Softwood Lumber Companies:
Softwood Lumber Recipients and Non-Recipients Reported Little or No
Effects from CDSOA Payments:
Recipient and non-recipient companies generally noted that, because
CDSOA disbursements had been so small in fiscal years 2003-2004,
totaling about $5.4 million, they had had little or no effect on their
companies.
Although recipient companies vary greatly in their overall size, these
companies do not vary significantly in terms of the amount they have
received through CDSOA as a percentage of their sales in fiscal year
2004.
Specifically, CDSOA disbursements to company sales amounted to less
than 1 percent for the recipient companies in our study.[Footnote 109]
However, some recipient and non-recipient companies emphasized that, if
the United States ever were to liquidate and disburse the large amount
of softwood lumber duties currently being held in deposit by Treasury,
these disbursements would have major effects on both recipient and non-
recipient companies. One recipient company noted that these
disbursements would have positive effects on its company, while a non-
recipient company emphasized negative effects. Because capital is a
major function in competitiveness, a non-recipient company stated that,
if recipient companies were to invest large CDSOA disbursements on new
mills, they would be able to dramatically increase their efficiency,
output, and market share.
Table 24 provides softwood lumber recipients and non-recipients'
responses to our questionnaire on CDSOA's effects.
Table 24: CDSOA Effects on Softwood Lumber Companies:
Recipients:
Category: Prices;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Net sales;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Gross profits;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Net income;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Property, plant, and equipment;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Research and development;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Employment;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Ability to compete;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Category: Market share;
Positive effects: 1;
Little or no effects: 12;
Negative effects: 0;
No basis to judge: 0;
Number of respondents: 13.
Non-Recipients:
Category: Prices;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Net sales;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Gross profits;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Net income;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Property, plant, and equipment;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Research and development;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Employment;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Ability to compete;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Category: Market share;
Positive effects: 0;
Little or no effects: 5;
Negative effects: 0;
No basis to judge: 1;
Number of respondents: 6.
Source: GAO analysis of company responses to structured questions.
[End of table]
CDSOA Effect on Company Ability to Compete in U.S. Market:
Recipient and non-recipient companies generally reported that the CDSOA
disbursements had had no effect on their companies' ability to compete
in the U.S. market.
Table 25 presents these companies responses to our question on CDSOA's
effect on their ability to compete in the U.S. market.
Table 25: CDSOA Effect on Softwood Lumber Companies' Ability to Compete
in U.S. Market:
Recipients:
Increased: 2;
Stayed about the same: 8;
Decreased: 0;
Don't know/no basis to judge: 3;
Number of respondents: 13.
Non-Recipients:
Increased: 0;
Stayed about the same: 2;
Decreased: 1;
Don't know/no basis to judge: 3;
Number of respondents: 6.
Source: GAO analysis of company responses to structured questions.
[End of table]
Company Uses of CDSOA Payments:
We also asked companies to describe how they used the CDSOA payments
that they received. However, the law does not require that
distributions be used for any specific purpose. Overall, companies
noted that they had used the payments for a variety of purposes, such
as paying debt, past qualifying expenditures, general operating
expenses, general corporate expenses, and capital investment. Others
noted that the payments had been too small to track their use in any
area.
Net Sales and Employment Trends:
Overall, recipient and non-recipient companies we contacted vary
significantly in size. Both show slight increase in net sales and
employment over the 4 years that CDSOA has been in effect. Leading U.S.
producers are among the CDSOA recipient and non-recipient companies.
Extent of Overseas Production:
Most recipient companies we contacted produced CDSOA-related products
domestically. Some non-recipient companies we contacted produced these
products domestically. Others produced them both domestically and
abroad.
Scope and Methodology:
To obtain softwood lumber companies' views on CDSOA's effects, we sent
out questionnaires to certain softwood lumber CDSOA recipients and non-
recipients. CBP made CDSOA payments to recipients in this industry in
fiscal years 2003 and 2004 under an AD order and a CV order both issued
in 2002.
To identify CDSOA recipients, we obtained information from CBP about
the companies that had received CDSOA payments in the 2 fiscal years
and the amount of disbursements they had received. Using this
information, we developed a list of 143 recipients and ranked them by
their total CDSOA receipts in the 2 fiscal years. Because of time and
resource constraints, we decided to survey the top 14 recipients that
had received about 60 percent of the total softwood lumber payments.
CBP provided contact information on these companies to us. From these
14 companies, we received 13 completed surveys. These 13 companies
accounted for about 59 percent of all softwood lumber disbursements.
Their views may not be representative of all recipients, particularly
those that received relatively small CDSOA disbursements.
Given that about half of the industry is eligible to receive CDSOA
disbursements, we sought to obtain views from a comparable number of
recipients and non-recipients. To identify non-recipient companies, we
obtained information from public and private sources that are
knowledgeable about the industry. Specifically, we obtained information
on non-recipients from the ITC and softwood lumber companies. We
surveyed 15 companies and we received six completed surveys from them.
These respondents included a wide range of top non-recipients,
including one of the largest companies in the industry. However, their
views may not be representative of all non-recipients.
[End of section]
Appendix IV: Comments from Customs and Border Protection:
U.S. Department of Homeland Security:
Washington, DC 20528:
September 7, 2005:
Mr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
Thank you for the opportunity to comment on draft report GAO-05-979,
International Trade: Issues and Effects of Implementing the Continued
Dumping and Subsidy Offset Act. The Department appreciates the work
done in this review to identify areas within the Continued Dumping and
Subsidy Offset Act (CDSOA) program that need to be improved.
The Department of Homeland Security's (DHS's) U.S. Customs and Border
Protection (CBP) generally concurs with the report's five
recommendations to enhance the processing of CDSOA claims and payments
and the collection of antidumping or countervailing (AD/CV) duties.
Following are comments specific to the recommendations. Technical
comments were provided under separate cover.
Recommendation 1:
To improve the processing of CDSOA claims, CBP should implement labor
savings steps such as working with the ITC to formalize and standardize
exchanges of electronic updates of the list of eligible producers, and
requiring that company claims follow a standard form and be submitted
electronically. This would also reduce data entry-related errors.
Response:
CBP representatives met with the U.S. International Trade Commission
(ITC) on August 16, 2005 to establish a preliminary methodology on how
to formalize and standardize exchanges of electronic updates. During
December 2005, CBP will work in conjunction with the ITC to formalize
this process. CBP agrees that a standard form is necessary and will
have the regulations revised accordingly before the 2006 cycle. While
CBP supports electronic filing, we will have to determine if existing
statutes give us the authority to require electronic filing. If so, we
will work with other government agencies to develop this capability.
Recommendation 2:
To further improve the processing of claims, CBP should have in place
clear guidance for preparing CDSOA certifications or claims.
Response: CBP believes the regulations pertaining to preparing CDSOA
certifications or claims are adequate; however, several issues have
been identified that should be clarified. To clarify these issues, we
will work to modify the regulations prior to the 2006 filing period. If
this deadline cannot be met, we will use the Federal Register to
clarify the issues.
Recommendation 3:
To enhance the processing of claims and payments in the face of a
growing workload, CBP should develop and implement plans for managing
and improving its CDSOA program processes, staff, and technology. For
instance, a human capital plan would help ensure that the CDSOA program
has staff in place with the appropriate competencies, skills, and
abilities.
Response: CBP has already implemented a formal process with established
procedures for handling CDSOA; however, these procedures are
continually refined. Except for the areas noted in the previous
recommendation, technology issues cannot truly be addressed until the
full implementation of the Automated Commercial Environment program in
2009. CBP will develop a human capital plan and execute this plan to
conform with budgetary and operational requirements.
Recommendation 4:
To enhance the verification of claims, CBP should implement a plan for
systematically verifying CDSOA claims. This plan should aim to ensure
that companies receiving CDSOA disbursements are accountable for the
claims they make. CBP should also consider asking companies to justify
their claims by providing additional information on their claims, such
as the explanations of the basis for the claim, supporting financial
information, and an independent assessment of the claim's validity and
accuracy.
Response:
CBP agrees that companies receiving CDSOA disbursements should be
accountable for the claims they make and should provide additional
information when the claim is filed. The additional information will
aid CBP in determining the risk of inaccurate disbursements for claims
that cannot be justified. In addition, CBP concurs that a method for
systematically verifying CDSOA claims prior to payment of the funds
should be implemented. CBP will work to formalize this process by April
1, 2006.
Recommendation 5:
To better address antidumping and countervailing duty collection
problems, CBP should report to Congress on what factors have
contributed to the collections problems, the status and impact of
efforts to date to address these problems, and how CBP, in conjunction
with other agencies, proposes to improve the collection of antidumping
and countervailing duties.
Response: CBP has already committed to coordinate with other affected
agencies and to report to Congress not later than December 31, 2005, on
legislative, regulatory, and procedural suggestions to improve the
collection of antidumping and countervailing duties. An Interim Report
was completed on July 7, 2005.
We thank you again for the opportunity to provide comments on this
draft report and look forward to working with you on future homeland
security issues.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4347:
Staff Acknowledgments:
Kim Frankena served as Assistant Director responsible for this report,
and Juan Tapia-Videla was the Analyst-in-Charge. In addition to those
named above, the following individuals made significant contributions
to this report: Shirley Brothwell, Ming Chen, Martin de Alteris, Carmen
Donohue, John Karikari, Casey Keplinger, Jeremy Latimer, and Grace Lui.
The team benefited from the expert advice and assistance of Jamie
McDonald, Jena Sinkfield, Tim Wedding, and Mark Speight.
(320289):
FOOTNOTES
[1] 19 U.S.C § 1675c.
[2] All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the
short time span and fairly low inflation rate over the period covered
by our analysis.
[3] The President proposed the repeal of the CDSOA in three budget
submissions, for fiscal years 2004, 2005, and 2006.
[4] In March 2005, Congressman Ramstad introduced H.R. 1121, 109TH
Cong. (2005) to repeal CDSOA.
[5] In the seven industries we examined, 61 of 69 recipient companies
and 31 of 82 non-recipient companies responded to our structured
questions.
[6] These members were Australia, Brazil, Canada, Chile, the European
Union, India, Indonesia, Japan, Korea, Mexico, and Thailand.
[7] For further background see Vivian Jones, Trade Remedies: A Primer,
a publication of the Congressional Research Service, Order Code RL
32371.
[8] Pub. L. No. 106-387, Title X, sec. 1002, 114 Stat. 1549, 1549A-72
(2000).
[9] § 1002, 114 Stat. 1549A-72.
[10] The names are to be transmitted to Customs within 60 days of the
issuance of an AD/CV duty order. See 19 U.S.C. § 1675c.
[11] U.S. ITC, Implementation of the Continued Dumping and Subsidy
Offset Act of 2000, OIG-IR-01-04, Washington, D.C. September 30, 2004.
[12] Department of the Treasury, Financial Management: Bureau of
Customs and Border Protection Needs to Improve Compliance with the
Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), OIG-03-085,
Washington, D.C. June 17, 2003.
[13] For background see GAO, World Trade Organization: Standard of
Review and Impact of Trade Remedy Rulings, GAO-03-824 (Washington, D.C.
July 30, 2003), and World Trade Organization: Issues in Dispute
Settlement, GAO/NSIAD-00-210 (Washington, D.C. Aug. 9, 2000). The
relevant WTO agreements for trade remedies are the Antidumping
Agreement, the Agreement on Subsidies and Countervailing Measures, and
parts of the General Agreement on Tariffs and Trade 1994.
[14] For background see GAO, World Trade Organization: Global Trade
Talks Back on Track, but Considerable Work Needed to Fulfill Ambitious
Objectives, GAO-05-538 (Washington, D.C. May 31, 2005). This is the
latest in a series of GAO reports on these negotiations.
[15] A petitioner is a manufacturer, producer, or wholesaler in the
United States of a domestic like product; a certified union or
recognized union or group of workers which is representative of an
industry engaged in the manufacture, production, or wholesale in the
United States of a domestic like product; a trade or business
association a majority of whose members manufacture, produce, or
wholesale a domestic like product in the United States; an association,
a majority of whose members is composed of the aforementioned parties
with respect to a domestic like product; and in any investigation
involving an industry engaged in producing a processed agricultural
product, a coalition or trade association which is representative of
either: (i) processors, or (ii) processors and producers, or (iii)
processors and growers. See 19 U.S.C. §§ 1671a, 1673a.
[16] A successor company may be eligible if it has succeeded to the
operations of a predecessor company that appeared on the ITC list of
potentially eligible companies and files a certification to claim a
distribution behalf of the predecessor company. If a member company of
an association appearing on the ITC list does not itself appear on the
ITC list, the member company may file a claim, as long as the member
was a member at the time of the petition and also meets the other
requirements of the statute. However, according to the law, companies
that had supported petitions but were acquired by a company that did
not support a petition are not eligible to receive distributions. See
19 U.S.C. § 1675c and 19 C.F.R. § 159.61.
[17] In situations where the ITC has good information about the
universe of producers, the agency takes a stratified sample by dividing
the universe of companies into different groups by size. It then draws
a random sample from each group. However, in situations where the ITC
has no information about the size of the industry, it simply takes a
random sample.
[18] See 19 U.S.C. § 1677f.
[19] Cathedral Candle Co. v. United States Int'l Trade Comm'n, 400 F.3d
1352 (Fed. Cir. 2005).
[20] Id. at 1360.
[21] Id. at 1361, 1367.
[22] Id. at 1372.
[23] Candle Corp. of America v. United States Int'l Trade Comm'n, 374
F.3d 1087 (Fed. Cir. 2004).
[24] Id. at 1094.
[25] Id. at 1094.
[26] Bergeron's Seafood v. United States Int'l Trade Comm'n, 306
F.Supp.2d 1353 (CIT 2004).
[27] Id. at 1357.
[28] Id. at 1359.
[29] See PS Chez Sidney, L.L.C. v. United States Int'l Trade Comm'n,
Court No. 02-00635 and Bergeron's Seafood v. United States Int'l Trade
Comm'n, Court No. 03-00448.
[30] Namely, these expenditures might include expenses for
manufacturing facilities; equipment; research and development;
personnel training; acquisition of technology; health care benefits
paid by the employer; pension benefits paid by the employer;
environmental equipment, training, or technology; acquisition of raw
materials and other inputs; and working capital or other funds needed
to maintain production.
[31] Specifically, producers can claim expenses incurred after the
issuance, and prior to the termination, of an order.
[32] Claims may be rejected if a claimant is not an eligible producer
or fails to meet certain other CDSOA criteria.
[33] See Human Capital: Managing Human Capital in the 21ST Century,
GAO/T-GGD-00-77 (Washington, D.C. Mar. 9, 2000).
[34] See Human Capital: Major Human Capital Challenges at SEC and Key
Trade Agencies, GAO-02-662T (Washington, D.C. Apr. 23, 2002); A Model
of Strategic Human Capital Management, GAO-02-373SP, (Washington, D.C.
March 2002); Human Capital: Key Principles for Effective Strategic
Workforce Planning, GAO-04-39 (Washington, D.C. Dec. 2003); and Human
Capital: Observations on Final DHS Human Capital Regulations, GAO-05-
391T (Washington, D.C. Mar. 2, 2005).
[35] See, for example, GAO's Policy and Procedures Manual for Guidance
of Federal Agencies, title 7--Fiscal Guidance, ch. 6, Disbursements,
pp. 7.6.1-7.6.16, (Washington, D.C. May 18, 1993); Streamlining the
Payment Process While Maintaining Effective Internal Control, GAO/AIMD-
21.3.2 (Washington, D.C. May 2000); Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C. August 2001) p.41; and
Strategies to Manage Improper Payments, Learning from Public and
Private Sector Organizations, GAO-02-69G (Washington, D.C. October
2001).
[36] In the interim between the entry of imports after an AD/CV duty is
first imposed and the final liquidation and collection of duties, CBP
requires posting of cash deposits or, in limited circumstances, bonds
to cover estimated duties. CBP also requires additional security,
usually in the form of a continuous bond, on the entry. Because the
final AD/CV rate often differs from the rates used to calculate these
deposits, there are cases where CBP has collected less money than what
is finally due. Moreover, the length of time that can elapse is
sometimes several years, which further compromises duty collection. It
also means that any measure CBP takes based on estimated duties, such
as increasing continuous bond coverage, may not cover duties owed.
[37] A "new shipper" is a foreign exporter or producer that did not
export, and is not affiliated with, an exporter or producer that
exported to the United States during the period of AD/CV investigation
and that has begun to export to the United States. This shipper can
request a separate, expedited review (called a "new shipper" review) to
establish his own estimated dumping margin. The new shipper has the
option of posting a bond or security in lieu of cash once Commerce
determines that the company meets the requirements and initiates a
review. Commerce conducts the review based on at least one shipment.
The United States has expressed concern about abuse of such privileges,
which were provided for in article 9.5 of the WTO Antidumping Agreement
and subsequently codified in U.S. law and regulations at 19 U.S.C. §
1675 (a)(2)(B)(iii). The concern is that, based on a single
transaction, new shippers have received very low rates that allow them
to post bonds at low rates and ship goods at low prices, subverting
entirely or delaying relief to domestic producers from injurious
imports. Moreover, CBP has had problems collecting duties when
Commerce, after completing its review and finding higher dumping
margins, has issued orders for CBP to liquidate the prior entries at
higher rates. When CBP has tried to collect these higher rates (on
goods that originally entered at a low rate), both new shippers and
bondsmen have not been able to pay the duties owed. For example, CBP
confirmed that it only collected $25.5 million of the $195.5 million in
AD duties owed on crawfish between 2002 and 2004. The antidumping order
against freshwater crawfish tail meat from the People's Republic of
China has involved numerous new shipper reviews. In many of these
cases, new shippers were initially granted a very low rate, which was
later raised significantly upon review. For example, one Chinese
exporter was granted a rate of 0 percent (no duty) in May 1999 after
requesting a new shipper review. However, an administrative review
completed in April 2000 raised its rate to 201.63 percent.
[38] See H.R. 3283, 109TH Cong. (2005).
[39] The fourth-leading recipient, MPB Corporation, is a subsidiary of
the Timken Company. For fiscal years 2001, 2003, and 2004, CBP
distributed CDSOA distributions separately to Timken and MPB. Timken
also acquired the Torrington Company, the second-leading CDSOA
recipient, in February 2003.
[40] We did not verify the accuracy of statements from these CDSOA
recipients.
[41] We did not verify the accuracy of statements from CDSOA recipients
and non-recipients in these seven industries.
[42] Within the steel industry, the non-recipients tended to be smaller
and typically were not direct competitors of the leading recipients.
Only one non-recipient steel company responded to our questionnaire on
CDSOA, and it did not provide views on the program.
[43] According to data provided by a steel industry representative, 42
steel companies declared bankruptcy and 19 ceased operations from 1997
to 2003. Many of these companies were subsequently acquired by larger
companies.
[44] Although CBP data indicates payments were made to 35 different
companies between fiscal year 2002 and 2004, several of these companies
reported under different names in different years.
[45] See U.S. International Trade Commission Crawfish Tail Meat from
China, Investigation No. 731-TA-752 (Review), Publication 3614,
(Washington, D.C. July 2003).
[46] Recipients for this CV order include the U.S. company, and a U.S.
subsidiary of a German company. The U.S. subsidiaries of the two Korean
companies opposed the petition and therefore are ineligible to receive
distributions.
[47] See, for example, Kara Olson, Subsidizing Rent Seeking:
Antidumping Protection and the Byrd Amendment, American University,
2004.
[48] See Economic Analysis of the Continued Dumping and Subsidy Offset
Act of 2000, The Congressional Budget Office, 2004.
[49] For example, our regression analysis of the number of filings each
year, versus macroeconomic conditions, which include real exchange
rates, and CDSOA's passage, was inconclusive and did not show clear
evidence that CDSOA had an impact on the number of filings.
[50] Generally, there tend to be more AD/CV filings following years
with slower U.S. economic growth and when the U.S. dollar appreciates
against foreign currencies, which makes imports cheaper. See, for
example, Michael Knetter and Thomas Prusa, Macroeconomic Factors and
Antidumping Filings: Evidence from Four Countries, NBER Working Paper
8010, 2000; Douglas Irvin, The Rise of Antidumping Actions in
Historical Perspective, Department of Economics, Dartmouth College,
2004; and Richard Feinberg, U.S. Antidumping Enforcement and
Macroeconomic Indicators: What Do Petitioners Expect, and Are They
Correct?, Department of Economics, American University, 2004.
[51] We were unable to obtain detailed scope-related AD/CV duty orders
data from U.S. agencies because this data is not currently available.
For instance, the number of petitioners and supporters of an order, the
number of products covered by an order, and the number of products
excluded from an order after it went into effect are not readily
available for the years preceding and following the enactment of CDSOA.
[52] United States --Continued Dumping and Subsidy Offset Act of 2000,
WT/DS217/AB/BRA,CHL, EEC, IND, JPN, KOR; WT/DS234/AB/CAN, MEX.
[53] These members were Australia, Brazil, Canada, Chile, the European
Union, India, Indonesia, Japan, Korea, Mexico, and Thailand.
[54] WT/DS217/AB/EEC, paragraph 274.
[55] Bill to amend the Trade Act of 1974 to provide trade readjustment
and development enhancement for America's communities, and for other
purposes, S. 1299, 108TH Cong. (2003).
[56] Bill to repeal section 754 of the Tariff Act of 1930, H.R. 3933,
108TH Cong. (2004).
[57] WT/DS217/16/Add.14 and WT/DS234/16/Add.14.
[58] Bill to repeal section 754 of the Tariff Act of 1930, H.R. 1121,
109TH Cong. (2005).
[59] See Amendment No. 1680 to the appropriations bill for Science, the
Departments of State, Justice, and Commerce, and related agencies for
the fiscal year ending September 30, 2006, H.R. 2862, 109TH Cong.
(2005).
[60] See Consolidated Appropriations Act of 2005, Pub. L. No. 108-447,
Div. B, title II, 118 Stat. 2809, 2872, 2874 (2004).
[61] TN/RL/W/153.
[62] United States --Continued Dumping and Subsidy Offset Act of 2000,
WT/DS217/ARB/BRA, CHL, EEC, IND, JPN, KOR and WT/DS234/ARB/CAN, MEX.
[63] See WT/DS217/44, WT/DS217/45, and WT/DS217/46.
[64] See GAO, Internal Control and Management Evaluation Tool, GAO-01-
1008G (Washington, D.C. August 2001).
[65] We were not able to verify the accuracy of statements from CDSOA
recipients and non-recipients.
[66] We sent surveys to the 32 of the 39 companies that received 80
percent of CDSOA payments from 2001-2004. Six of the seven companies
that we did not survey either were no longer in operation or had been
acquired by another company that did respond to our survey. The
additional company that we did not survey was required to send back its
CDSOA payments to CBP due to a CBP overpayment error. Eight of the top
recipients that we contacted did not respond to our survey.
[67] Some of the recipients and non-recipients may be U.S. producers
that are foreign-owned. We did not exclude these companies from our
sample because CDSOA does not restrict foreign-owned U.S. producers
from receiving CDSOA payments.
[68] All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the
short time span and fairly low inflation rate over the period covered
by our analysis.
[69] We sent surveys to 32 of the 39 companies that received 80 percent
of CDSOA payments for fiscal years 2001-2004. Six of the seven
companies that we did not survey either were no longer in operation or
had been acquired by another company that did respond to our survey.
The additional company that we did not survey was required to send back
its CDSOA payments to CBP due to a CBP overpayment error. Eight of the
top recipients that we contacted did not respond to our survey.
[70] To conserve space in table 3 we combined the company responses of
"very positive" and "positive" into one category for positive effects.
Similarly we combined the "very negative" and "negative" categories
into one category for negative effects.
[71] We were not able to verify the accuracy of statements from these
CDSOA recipients.
[72] All CDSOA disbursements are in nominal dollars. We also analyzed
disbursement data in constant dollars, but the differences between
disbursements in nominal and constant dollars are minimal given the
short time span and fairly low inflation rate over the period covered
by our analysis.
[73] We were unable to obtain the views of CDSOA non-recipients from
the steel and DRAMs industries. We also were not able to verify the
accuracy of statements from CDSOA recipients and non-recipients in
these seven industries.
[74] Public information on the comparative size and market share of
leading bearings producers is limited, but a report by the Department
of Commerce stated that in 1999, the world's 10 largest producers
accounted for about 80 percent of total production.
[75] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help take account of these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
[76] Timken, Emerson Power Transmission, and Pacamor/Kubar Bearings.
[77] Whereas there are seven CDSOA bearings recipients, in 2003, the
Census Bureau listed 19 producers of tapered roller bearings and 65
producers of ball bearings.
[78] We also sent out and received back a survey from an additional
company. We did not include this survey in our results because this
company does not produce bearings within the United States.
[79] We excluded from our scope companies that make steel-related
products, such as pipe or tubing, from purchased raw steel.
[80] In 2003, according to the Census Bureau, there were 226 producers
of carbon steel, 64 producers of alloy steel, and 74 producers of
stainless steel in this country.
[81] We identified the vulnerability of the U.S. steel and
semiconductor industries (among others) to surging imports in the wake
of the Asian financial crisis, as well as concerns over dumping and
subsidies, in a 1999 report to Congress. See GAO, International
Monetary Fund: Trade Policies of IMF Borrowers, GAO/NSIAD/GGD-99-174
(Washington, D.C. Jun. 23, 1999), pp. 29-35.
[82] 19 U.S.C. § 2251.
[83] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help account for these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
[84] These are classified under the North American Industry
Classification System (NAICS) code, 331111 -Iron and Steel Mills.
[85] The calculation of the total number of steel companies to receive
CDSOA funds may include some payments that were received separately by
different divisions of the same company. In calculating the total
number of recipient steel companies we added the number of entities to
receive distributions for steel products, as listed by CBP.
[86] Whereas there are 69 CDSOA steel recipients, in 2003, the Census
Bureau listed 226 producers of carbon steel, 64 producers of alloy
steel, and 74 producers of stainless steel.
[87] The ITC determined in the original investigation that beeswax
candles should not be included within the domestic like product.
Beeswax candles are composed of more than 50 percent beeswax,
manufactured by U.S. producers principally for religious and specialty
markets, and priced considerably higher than petroleum wax candles.
[88] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help take account of these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
[89] Eleven candle companies received CDSOA disbursements during fiscal
years 2001-2005. According to ITC estimates, the U.S. candle industry
contains about 400 candle producers and 45 of these producers represent
approximately 70 percent of the domestic candle industry.
[90] According to the U.S. Census Bureau, there were 182 dry pasta
companies in 2002, down from 249 in 1997.
[91] Information on U.S. demand for pasta for the 1997-2000 period was
available from ITC. More recent information was obtained from annual
assessments of the pasta industry published by Milling & Baking News, a
trade magazine that follows the pasta industry.
[92] The orders cover non-egg dry pasta in packages of 5 pounds or
less.
[93] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help take account of these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
[94] One recipient had acquired another recipient.
[95] One company said it lacked information to answer our questions
because its CDSOA-eligible subsidiary was no longer producing pasta.
[96] Whereas only 11 pasta recipient companies have received CDSOA
disbursement, the U.S. Census Bureau identified 182 dry pasta companies
in its 2002 economic census. See U.S. Census Bureau, Dry Pasta
Manufacturing: 2002 Economic Census (Washington, D.C. December 2004).
[97] The Department of Commerce's final determination defines the
imported merchandise within the scope of its investigation as DRAMs
from the Republic of Korea (ROK), whether assembled or unassembled.
Processed wafers fabricated outside of the ROK and assembled into
finished semiconductors in the ROK are not included in the scope.
[98] Samsung Electronics Co. Ltd. of Korea is associated with Samsung
Austin Semiconductor LLC in Texas. Wafers fabricated in the Austin
facility are sent to Samsung facilities in Korea for cased DRAM
assembly and in some cases module assembly. These do not fall under the
scope of the order.
[99] Hynix Semiconductor, Inc. of Korea has two U.S. subsidiaries in
California and Oregon. However, DRAM wafers fabricated in Oregon are
sent to Korea for assembly. These do not fall under the scope of the
order.
[100] The Department of Commerce determined that the Government of
Korea directed credit to the Korean semiconductor industry through 1998
and specifically to Hynix and companies that continue to be, or were
part of, the Hyundia Group from 1999 through June, 2002.
[101] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help take account of these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
[102] See ITC, DRAM and DRAM Modules from Korea, Investigation No. 701-
TA-431 (Final), Publication 3616 (Washington, D.C. August 2003).
[103] According to the ITC, companies that only package DRAMs into DRAM
modules and fabless design houses do not engage in sufficient
production-related activities to warrant their inclusion in the
domestic industry. Nonetheless, ITC included this company in a list of
domestic producers for the purposes of its investigation.
[104] See ITC, Crawfish Tail Meat from China, Investigation No. 731-TA-
752 (Review), Publication 3614 (Washington, D.C. July 2003).
[105] The ratio of a company's fiscal year 2004 CDSOA disbursement to
its 2004 net sales may not be representative of this ratio for prior
years or of the average ratio of disbursements to net sales for the
company since CDSOA's inception, because of fluctuations in the size of
CDSOA disbursements and net sales. Calculating average ratios would
help take account of these fluctuations, but we did not calculate such
ratios because we lacked consistent information about disbursements and
net sales for all CDSOA recipients that responded to our case study
questions.
[106] This includes information for two companies based on their fiscal
year 2003 disbursements and net sales because we lacked information to
calculate the ratio for fiscal year 2004.
[107] Precise information about the number of crawfish processors is
unavailable. According to ITC, more companies are licensed to process
crawfish than are active in any given year. In a 2003 report to
evaluate the effects of the order, ITC received information from 42
crawfish processors, of which 27 were CDSOA recipients. See ITC,
Crawfish Tail Meat from China, Investigation No. 731-TA-752 (Review),
Publication 3614 (Washington, D.C. July 2003).
[108] We sent surveys to all current processors that we identified,
with the exception of one company that had just entered the business
and felt it lacked perspective on the questions. Included in the
definition of current processors are certain companies that are not
currently employing people to process tail meat but that continue to
hold licenses to process crawfish and/or have engaged other companies
to process tail meat on their behalf. We also sent surveys to former
processors that had processed tail meat at any time since 2002, when
CDSOA disbursements to this industry began.
[109] The ratio of a company's fiscal year 2004 CDSOA disbursements to
its 2004 new sales may not be representative of this ratio for prior
fiscal years or of the average ratio of disbursements to net sales for
the company since CDSOA's inception, because of fluctuations in the
size of CDSOA disbursements to net sales. Calculating average ratios
would help take account of these fluctuations, but we did not calculate
such ratios because we lacked consistent information about
disbursements and net sales for all CDSOA recipients that responded to
our case study questions.
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