Board regulations require consideration of several criteria in approving production applications, including consistency with U.S. trade and tariff law and effects on U.S. employment, but board staff didn’t document consideration of all required criteria for two of three applications the GAO reviewed in its examination, the GAO said.
Board procedures don’t require such documentation, but the GAO’s “Green Book,” which sets standards for an effective internal control system for federal agencies, holds that management should document its rationale for determining a criterion isn’t relevant and make the documentation readily available for examination, the GAO report says.
“Without such documentation, the board lacks an institutional record that all required criteria were considered and also lacks assurance that its decisions comply with U.S. trade and tariff law and public policy,” the GAO said.
The Commerce Department, which houses the executive secretariat of the board, concurred with the GAO’s recommendation that Commerce should require board staff to document consideration of all criteria required in board regulations when evaluating production applications.
Sens. Amy Klobuchar, D-Minn., Cory Gardner, R-Colo., and Pat Roberts, R-Kan., and Rep. Tom Emmer, R-Minn., asked GAO to review the FTZ Board’s processes for evaluating production notifications and applications, and the report examines the extent to which the board has established and followed procedures aligned with regulations for evaluating notifications and applications.
GAO analyzed a nongeneralizable sample of 59 of 293 notifications the board evaluated from April 2012 through September 2017, as well as all three applications the board issued decisions on during that period, according to the report.
The GAO found that the board has procedures that generally align with its regulations for evaluating production notifications and followed these procedures for all 59 notifications it reviewed during the period evaluated.
Notifications are filed by companies proposing to bring foreign components into an FTZ for use in manufacturing finished products, and companies may submit a more detailed application if a notification isn’t approved or is approved with restrictions, the GAO noted.
Based on production notifications and applications, the FTZ Board can decide what components to authorize for exemption from duty payments, authorize the activity for a limited time period or authorize the activity for a specified quantity of the component to be brought into the FTZ, among other things.
The GAO’s analysis of board case records and interviews with board staff and Commerce, Treasury and U.S. Customs and Border Protection officials showed that the board adhered to its procedures in collecting required information from applicants, inviting public comments in response to Federal Register notices, requesting reviews from specialists at other agencies and Commerce, and for most notifications, requesting CBP comments, though regulations don’t require board staff to request CBP comments.
“We found that board staff followed the board’s procedures in reviewing comments and other relevant factors for all notifications in our sample and providing recommendations to the board regarding authorization of the notifications,” the GAO report says.
The requests for comments from CBP — which the FTZ Board submitted for 53 of the 59 reviewed notifications — focused on CBP’s ability to provide oversight.
Some of the factors considered by board staff included whether similar production authority had been granted in the past for another company and whether domestic industries had raised concerns.
For example, for one notification requesting production authority for wind turbine components, the board’s staff evaluation noted that the board previously approved production authority involving wind turbines and related components for other companies, the GAO said.
More than half of the board staff evaluations of GAO-reviewed notifications included a discussion of economic factors, and almost a third included discussion of threshold factors, such as consistency with U.S. trade and tariff law, and an assessment of whether FTZ Board approval of the reviewed activity would seriously prejudice U.S. tariff and trade negotiations or other initiatives, according to the report.
However, while board regulations don’t call for staff to document consideration of all criteria for notification decisions, the GAO found that a lack of consistent documentation by the FTZ Board made it difficult to verify that the board considered all required criteria for reviewed applications, the report says.
For example, in one of the three reviewed applications, the examiner’s report didn’t include documentation to demonstrate that board staff had considered required threshold factors.
Reports for two of the applications didn’t include documentation that staff considered several required economic factors, including retention or creation of value-added activity, extent of value-added activity and overall effects on import levels of relevant products, the GAO said.
But the records for all three of the reviewed applications documented the consideration of the proposed production activity’s potential significant public benefits, according to the report.