April, 2018
Evading Antidumping Duties—A New Day
Has Dawned
Mark K. Neville, Jr.
Leaky shoes are the bane of all of us in rainy weather. In fact, there’s an old Irish proverb that refers to leaky shoes, and see if you don’t agree that it is directly on point to this month’s discussion,
We cannot be too “cute,” to use another Irish turn of phrase, here—the title has already given it away. So, let’s get right to it—the administration of the antidumping or countervailing duty law would not count for anything at all if imports that should be subject to additional duties pursuant to an Antidumping Duty Order or Countervailing Duty Order1 (your umbrella) were allowed to escape the imposition of those duties due to fraud in the customs entry process (your shoes are leaking). You would still be suffering from unfair competition even if there was an Order in place (you’d still be wet and miserable even if you are wielding an umbrella). Congress listened to all of those domestic companies sloshing around with sodden shoes. We are reporting recent developments to keep those feet dry.
Clearly the US domestic industries that had undertaken the effort to prepare and file a petition, alleging dumping or unfair subsidies, and then had invested a major effort in monitoring administrative agency and had participated actively in the investigations and reviews, had a vested interest in ensuring that the remedial duties that followed a successful participation were in fact collected. “Evasion” Defined The EAPA was Congress’s response to US domestic producers’ years’ long effort to combat “evasion,” which is defined as
So how does this anti-evasion program work? It all starts with the opening of an investigation by Customs and Border Protection (CBP). In fact, the statute works at one of those points where the trade laws and the customs laws come together.
If CBP has a question whether the imported merchandise that is the subject of an allegation is within the scope of the Order, then CBP refers the matter to the Commerce Department (the “administering authority”) for determination. An interested party—either the foreign producer, shipper or importer on the one hand or a domestic producer, trade association or labor union on the other—has the right to challenge a Commerce determination at the CIT.12
No later than 30 business days after the conclusion of such a review, the importer or the domestic party that filed the allegation can seek judicial review at the U.S. Court of International Trade (CIT). At the CIT, the court will examine whether the statutory procedures were followed and, substantively, the standard of review is whether the determination or findings made were arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.20
If course, if the production of wire hangers was fully shifted from China to Malaysia, then that would not make for a case of evasion, as the wire hangers would be of Malaysian and not of Chinese origin. But if the wire hangers were still produced in China and then merely transited Malaysia, their status as being within the scope of the AD Order would remain intact. Any subsequent importation into the US claiming falsely a Malaysian origin for the transshipped goods would make for a case of evasion.
As part of its efforts, CBP made use of on-site visits, as in the days of its “jump teams,” who had been used to investigate transshipments during the hay days of the textile and apparel quota regime in the 1990s and early 2000s.
The facts developed showed that there was no doubt of evasion. These include, inter alia:
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It’s no use carrying an umbrella if your shoes are leaking
Ireland, and indeed the whole of the British Isles, are indeed famous for rainy or damp weather—think of the famous Irish description of a drizzling as a “soft day.” But, as is the case of all proverbs, the saying is entirely based on a strong factual predicate, grounded in experience, and not simply an amusing fancy, and generally needs no further explanation.We cannot be too “cute,” to use another Irish turn of phrase, here—the title has already given it away. So, let’s get right to it—the administration of the antidumping or countervailing duty law would not count for anything at all if imports that should be subject to additional duties pursuant to an Antidumping Duty Order or Countervailing Duty Order1 (your umbrella) were allowed to escape the imposition of those duties due to fraud in the customs entry process (your shoes are leaking). You would still be suffering from unfair competition even if there was an Order in place (you’d still be wet and miserable even if you are wielding an umbrella). Congress listened to all of those domestic companies sloshing around with sodden shoes. We are reporting recent developments to keep those feet dry.
Trade Act of 2015
As we reported two years ago,2 Congress passed the Trade Enforcement and Trade Facilitation Act of 2015 (Trade Act), which was the most comprehensive trade legislation in years.3 Title IV of the Trade Act4 was devoted entirely to measures to plug any loopholes or to take up any slack in the statutory and administrative framework that allowed circumvention of any Orders issued by the Commerce Department after actionable violations and material injury had been found under the unfair trade remedy laws. Imported merchandise which is subject to an Order is referred to as “covered merchandise.”5Clearly the US domestic industries that had undertaken the effort to prepare and file a petition, alleging dumping or unfair subsidies, and then had invested a major effort in monitoring administrative agency and had participated actively in the investigations and reviews, had a vested interest in ensuring that the remedial duties that followed a successful participation were in fact collected. “Evasion” Defined The EAPA was Congress’s response to US domestic producers’ years’ long effort to combat “evasion,” which is defined as
Entering covered merchandise into the customs territory of the United States by means of any document or electronically transmitted data or information, written or oral statement, or act that is material and false, or any omission that is material, and that results in any cash deposit or other security or any amount of applicable antidumping or countervailing duties being reduced or not being applied with respect to the merchandise.6
To be sure, there is an exception made for clerical error,7 but the statutory focus on using false documentation, such as false declarations of origin, or any act, such as presenting an article with a false country of origin label, does not require a showing of specific intent. Mere carelessness will be enough to make a showing of evasion if the clerical error is attributable to a pattern of negligent conduct.8So how does this anti-evasion program work? It all starts with the opening of an investigation by Customs and Border Protection (CBP). In fact, the statute works at one of those points where the trade laws and the customs laws come together.
Opening Investigation
The investigation is prompted by a credible allegation by an interested party—read, the domestic industry or affected labor union—or a referral from the Commerce Department, the International Trade Commission or another federal agency.9 The statute sets up a program of support for the domestic industry, with CBP to provide technical assistance and advice to the domestic interested parties in the preparation of an allegation.10 As part of its mission under the EAPA, CBP set up a separate “Trade Remedy & Law Enforcement Division” within its Office of Trade.11If CBP has a question whether the imported merchandise that is the subject of an allegation is within the scope of the Order, then CBP refers the matter to the Commerce Department (the “administering authority”) for determination. An interested party—either the foreign producer, shipper or importer on the one hand or a domestic producer, trade association or labor union on the other—has the right to challenge a Commerce determination at the CIT.12
Investigation Process
As for the investigation processes, the law and regulations provide for the consolidation of allegations and referrals and the ensuing investigations.13 This is not surprising since it can be expected that at least some of the foreign producers and the importers of goods covered by an Order can make common cause and search for and arrive at a “work around” solution. Nor is it surprising that the law has real “teeth” for those parties who elect not to cooperate to the best of their ability. As is the case with the antidumping and countervailing duty laws themselves,14 such a party faces an “adverse inference” determination by the agency.15 That means that CBP will use the information provided in the allegation, determinations by CBP in another investigation or any other available information.Determination and Effects
The investigation process has a statutory span of 300 days from date of initiation to the date of CBP’s determination, which should be based on substantial evidence.16 If CBP makes an affirmative determination, the immediate effect is not good for the importer or foreign interested parties. CBP will- Suspend liquidation of all open entries or to extend such suspension if already in place
- Delay liquidation for up to 4 years from date of entry
- Send a request to Commerce for the applicable remedial duty rate
- Require the posting of cash deposits
- Take other enforcement actions such as initiating a civil penalty proceeding, requiring the payment of estimated duties at time of entry (eliminating immediate withdrawal privileges) and referring the matter for civil or criminal investigation.17
Administrative and Judicial Review
If there has been a determination of evasion, the statute and regulations provide an importer or the domestic interested party that filed the allegation with the right to file for administrative review by CBP, which will be undertaken on a de novo basis.19No later than 30 business days after the conclusion of such a review, the importer or the domestic party that filed the allegation can seek judicial review at the U.S. Court of International Trade (CIT). At the CIT, the court will examine whether the statutory procedures were followed and, substantively, the standard of review is whether the determination or findings made were arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.20
Administrative Experience
There have been several past and current investigations into evasion of Antidumping Orders opened by CBP after allegations were received from domestic interests. One such investigation was into charges of transshipments of Chinese diamond sawblades through Thailand and another was concerned with wooden bedroom furniture from China. Another dealt with eight charges of transshipments of Chinese wire coat hangers via Malaysia.21 These investigations were consolidated and we cite from the Notice of Investigation to provide some insight into this regime in practice.Wire Coat Hangers from China
There is one remaining US producer of these wire coat hangers and that company filed the allegations with CBP on April 16, 2017. CBP acknowledged receipt of the allegations and the investigations were duly opened on May 12, 2017. The AD Order on Chinese wire hangers has been in place since 2008.22 In the interim, import volumes of wire hangers from Malaysia soared by 3,000 percent from32013 to 2014 and doubled again from 2104-2015. At the same time, wire hanger imports from China decreased by 1000 percent.If course, if the production of wire hangers was fully shifted from China to Malaysia, then that would not make for a case of evasion, as the wire hangers would be of Malaysian and not of Chinese origin. But if the wire hangers were still produced in China and then merely transited Malaysia, their status as being within the scope of the AD Order would remain intact. Any subsequent importation into the US claiming falsely a Malaysian origin for the transshipped goods would make for a case of evasion.
As part of its efforts, CBP made use of on-site visits, as in the days of its “jump teams,” who had been used to investigate transshipments during the hay days of the textile and apparel quota regime in the 1990s and early 2000s.
The facts developed showed that there was no doubt of evasion. These include, inter alia:
- Foreign market research and physical inspection of the facilities of a small group of Malaysian manufacturers that were claimed to be the manufacturing locations revealed vacant lots, non-existent addresses, or activity that had nothing to do with wire coat hanger production (e.g., plastic household goods, radiator repair shop, rubber and latex glove making). In short, the on-site visits revealed no wire hanger production at any of the addresses.
- Detailed importer responses to CF28 Requests for Information from 5 of the 8 importers (3 did not respond) purported to show a wealth of data, complete with photos in the case of 4 companies, about physical facilities, personnel, production plant and equipment, production records, electricity bills. Apparently all of this information was bogus.
- Electricity bills that purported to support production by the putative companies were shown to be false. The corporate ownerships revealed patterns of ownership between the Chinese owners of Chinese factories.
- Financial records and filings with the Malaysian government showed little or no activity by the companies. Two of the companies had filed documents with the Malaysian government that they were dormant, had never commenced business operations and had never engaged in foreign currency transactions. They reported identical assets—cash on hand of the equivalent of US$0.45. Yet these two companies had supposedly exported, on a combined basis, 335 shipments in 2015 and a further 89 shipments in the first quarter of 2016.
- There was a link between one of the importers and a Chinese company that had been found in an earlier investigation to have evaded duties by transshipping via Thailand.
- One of the importers had a non-existent address in the U.S.
Conclusion
There has been much criticism about the onerous nature of the trade remedy regime. And we can be sympathetic to some or indeed many importer complaints about that administrative process. But there can be no denying that there has been evasion of trade remedy Orders. The EAPA will prove to be an effective means of thwarting those illicit endeavors....................................................................................................................
1. Issued under 19 USC § 1763e or 19 USC § 1671e, respectively.
2. Neville, “Trade Facilitation and Trade Enforcement Act of 2015,”27 JOIT No. 5 at 22 (May, 2016).
3. Pub. L. 114-125, Act of Feb. 24, 2016.
4. The title is referred to as the “Enforce And Protect Act” (EAPA).
5. 19 USC § 1517 (a) (3), with the regulations contained at 19 CFR §§ 165.1et seq.
6. 19 USC § 1517 (a) (5) (A).
7. 19 USC § 1517 (a) (5) (B) (i). In the face of clerical error, covered merchandise that was entered without payment of duty due to clerical error will still be amenable to the payment of any duties that are applicable. 19 USC § 1517 (a) (5) (B) (iv).
8. 19 USC § 1517 (a) (5) (B) (ii).
9. 19 USC §§ 1517 (b) (2) and (3).
10. 19 USC 1517 § (b) (7).
11. Now classed as a Directorate, the office was established pursuant to Section 411 of the EAPA, codified at 19 USC § 4371.
12. 19 USC § 1516a (2) (vi) by virtue of 19 USC § 1517 (b) (4) (D).
13. 19 USC § 1517 (b) (5), 19 CFR § 165.13 (b).
14. 19 USC § 1677e (b), 19 CFR § 351.308.
15. 19 USC § 1517 (c) (3), 19 CFR § 165.6.
16. 19 USC § 1517 (c) (1). In the case of extraordinary complications, this can be extended for a further 60 calendar days. Subsection (c) (2).
17. 19 USC § 1517 (d).
18. 19 USC § 1517 (e).
19. 19 USC § 1517 (f), 19 CFR §§ 165.41-.47.
20. 19 USC § 1517 (g).
21. Notice of Initiation of Investigation and Interim Measures Taken as to Certain Importers of Wire Hangers from Malaysia Concerning Evasion of the Antidumping Order on Garment Hangers from the People’s Republic of China, Consol. Case No. 7191 (August 1, 2017) available at https://www.cbp.gov/newsroom/national-media-release/us-customs-and-border-protection-exercises-eapa-authority-launches. An earlier investigation had found transshipment of wire coat hangers through Thailand.
22. Notice, 73 Fed. Reg. 58111 (Oct. 6, 2008).
2. Neville, “Trade Facilitation and Trade Enforcement Act of 2015,”27 JOIT No. 5 at 22 (May, 2016).
3. Pub. L. 114-125, Act of Feb. 24, 2016.
4. The title is referred to as the “Enforce And Protect Act” (EAPA).
5. 19 USC § 1517 (a) (3), with the regulations contained at 19 CFR §§ 165.1et seq.
6. 19 USC § 1517 (a) (5) (A).
7. 19 USC § 1517 (a) (5) (B) (i). In the face of clerical error, covered merchandise that was entered without payment of duty due to clerical error will still be amenable to the payment of any duties that are applicable. 19 USC § 1517 (a) (5) (B) (iv).
8. 19 USC § 1517 (a) (5) (B) (ii).
9. 19 USC §§ 1517 (b) (2) and (3).
10. 19 USC 1517 § (b) (7).
11. Now classed as a Directorate, the office was established pursuant to Section 411 of the EAPA, codified at 19 USC § 4371.
12. 19 USC § 1516a (2) (vi) by virtue of 19 USC § 1517 (b) (4) (D).
13. 19 USC § 1517 (b) (5), 19 CFR § 165.13 (b).
14. 19 USC § 1677e (b), 19 CFR § 351.308.
15. 19 USC § 1517 (c) (3), 19 CFR § 165.6.
16. 19 USC § 1517 (c) (1). In the case of extraordinary complications, this can be extended for a further 60 calendar days. Subsection (c) (2).
17. 19 USC § 1517 (d).
18. 19 USC § 1517 (e).
19. 19 USC § 1517 (f), 19 CFR §§ 165.41-.47.
20. 19 USC § 1517 (g).
21. Notice of Initiation of Investigation and Interim Measures Taken as to Certain Importers of Wire Hangers from Malaysia Concerning Evasion of the Antidumping Order on Garment Hangers from the People’s Republic of China, Consol. Case No. 7191 (August 1, 2017) available at https://www.cbp.gov/newsroom/national-media-release/us-customs-and-border-protection-exercises-eapa-authority-launches. An earlier investigation had found transshipment of wire coat hangers through Thailand.
22. Notice, 73 Fed. Reg. 58111 (Oct. 6, 2008).
Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.