US Textile Import Enforcement Faulted
GAO report cites failure to stop illegal transshipments
WASHINGTON, DC - 01/27/04 - Congress' investigative agency has found fault with the US Customs and Border Protection's (CBP) enforcement of laws preventing illegal textile transshipments to the United States.
In a recent report,?Congress' General Accounting Office (GAO) said that the CBP's parent agency, the Department of Homeland Security, agreed with the report's recommendations.
One of the weaknesses the GAO identified was with what the CBP call its in-bond system, which allows foreign textiles to be transported from the original US port of arrival to another US port for formal entry into US commerce or for export to a third country.
The GAO said it found that importers were illegally diverting such in-bond cargo from destinations in Mexico to the US market, violating US quotas and evading duties.
"The CBP has experienced serious challenges in deterring illegal textile transshipment due to a lengthy and complex investigative process and competing priorities," the GAO added.
The GAO report said that the CBP will lose important authority to conduct inspections of foreign textile factories at the end of 2004 when quotas expire under a World Trade Organization agreement even though transshipment will remain a threat because of preferential tariff rates for US textile imports from some countries.
The entire report can be viewed at http://www.gao.gov/new.items/d04345.pdf.
The following is an excerpt from the report:
Results in Brief
To identify potential illegal textile transshipments to the United States, the CBP targets countries, manufacturers, shipments, and importers that it determines to be at a higher risk for textile transshipment. The CBP uses a targeting process that relies heavily on analyzing available trade data and other information to focus limited review and enforcement resources on the most suspect activity.
First, the CBP identifies the countries in which trade flows and other information indicate a large potential for transshipment.
Second, the CBP focuses on selected manufacturers in those high-risk countries for overseas factory visits, known as Textile Production Verification Teams. The teams attempt to verify that factories are able to produce the shipments they have claimed or to discover evidence of transshipment, such as counterfeit documents.
If evidence of transshipment is found, the CBP uses this information to target shipments to the United States for review and potential exclusions, seizures, or penalties.
In 2002, the CBP targeted and selected for review about 2,500 textile and apparel shipments out of more than 3 million such shipments it processed that year. The CBP also targets importers based on high-risk activity, and conducts internal control audits that include verifying whether the importers have controls against transshipment.
However, resource constraints limit the number of foreign factories and shipments that the CBP can target and review annually to a small share of textile and apparel trade.
The CBP's textile review process for preventing illegal textile transshipment has adapted to the changing security environment, but CBP faces challenges in its monitoring and enforcement activities. The textile review process includes analysis of entry documents, inspection of shipments, and verification of foreign production.
CBP ports increasingly depend on information received from targeting the most high-risk shipments, the results of the CBP's Textile Production Verification Team foreign factory visits, and other intelligence to do so, given the decreasing level of resources available at the ports for illegal textile transshipment enforcement.
However, the CBP's Textile Production Verification Team reports are not always finalized and provided to CBP ports, other agencies, or the foreign governments for follow-up in a timely manner. With the expiration of the World Trade Organization's textile quota regime in 2005, the CBP will lose its authority to conduct foreign factory visits in former quota countries.
Additionally, supplementing the enforcement information provided to the ports will be important because textile transshipment will remain a concern due to tariff differentials resulting from free trade agreements and trade preference programs.
Information from overseas Customs Attach頯ffices, now used on a limited basis, and cooperative efforts by foreign governments can provide important information for port inspections.
The CBP has not effectively monitored movements of textiles in its in-bond system, due to weak internal controls that enable cargo to be illegally diverted from the supposed destination. The in-bond system allows cargo, including foreign textiles, to be transported from the original US port of arrival (such as Los Angeles) to another US port (such as Cleveland) for formal entry into US commerce or for export to a foreign country. The effect of illegal diversion is that quota restrictions have been circumvented and payment of duties avoided.
For example, a 2003 CBP investigation of in-bond diversion of foreign textiles found that the US importer was filing false CBP documents reflecting export into Mexico when, in fact, the textile shipments were turned around before reaching the border and diverted into the US market.
Internal control weaknesses include a lack of an automated system to track in-bond shipments; inconsistencies across ports in targeting and inspecting in-bond shipments; in-bond regulations that allow importers to change in-bond shipments' final destinations without notifying CBP and allow extensive time intervals for in-bond shipments to reach their final destination, and; inadequate verification that in-bond shipments destined for Mexico are actually exported.
Although we [the GAO] reported on the in-bond system in 1994 and 1997 and made recommendations to the CBP, not all have been implemented. Since we began our recent review, the CBP has implemented some new measures and has made some improvements to the in-bond system. However, internal control problems remain.
CBP has experienced serious challenges in deterring illegal textile transshipment due to a lengthy and complex investigative process and competing priorities. The CBP has extensive authority to enforce textile transshipment violations - from'seizing the textiles, to penalizing or prosecuting the violator, to totally excluding the textiles from entering US commerce. However, the CBP relies on exclusions because, among other reasons, they require less evidence than seizures and eliminate the need to penalize or prosecute the violator.
Furthermore, enforcing violations under the in-bond system presents challenges due to the CBP's weak internal controls and mitigation guidelines that can allow reduction of liquidated damages to a fraction of the total amount. The CBP also employs other means to deter illegal transshipment by informing the US importer community of violations.
Additionally,'the CBP?and the interagency Committee for the Implementation of Textile Agreements maintain various lists of foreign violators, in part to help deter transshipment by the importer community. The CBP also regularly meets with the textile trade community to keep it informed of the latest enforcement information.
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