Soup Du Jour: Understanding CBP’s New
Antidumping and Countervailing Duty Evasion Law


October 5, 2016

It certainly seems like every time we turn around that there is a new favorite issue of the day that importers have to be concerned about, and certainly the talk of the trade community this year has been the new Antidumping and Countervailing Duty Evasion law that is mandated by section 421 of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). Antidumping and countervailing compliance has been a trade priority item for CBP for quite some time and has been the primary focus CBP’s Importer Audit program for the past several years. This new law, however, goes several steps forward and requires CBP to establish regulations and procedures to investigate claims of evasion of antidumping (AD) and countervailing duty (CVD) orders when there is a reasonable basis to believe that the goods under investigation are subject to an AD or CVD order. CBP has recently released its proposed regulations to implement section 421 of the TFTEA. CBP has also launched a webpage for the Enforce and Protect Act (EAPA) with a timeline for an EAPA Investigation and Administrative Review. An overview of EAPA Investigations is also provided.

What are Antidumping and Countervailing Duty Orders?

Antidumping and Countervailing Duty Orders are intended to remedy certain specific types of unfair trade practices by foreign exporters and/or governments for goods exported to the United States.

An AD order provides for increased duties on imported products that the United States Department of Commerce (Commerce) has found to have been exported to the U.S. at prices that are below the fair market value in their home country.

A CVD order provides for an increase in duties on imported products that have been found to have benefitted from an export subsidy from a foreign government or public entity. Export subsidies include items like direct cash payments, credits against taxes, or loans at terms that do not reflect market conditions.

In both situations, there must also be a finding that a domestic industry in the United States is being materially injured, or threatened with material injury, by such conduct.

If there is an affirmative determination of dumping or that there exists a countervailable subsidy, Commerce issues an AD and/or CVD order that establishes deposit rates for additional duties on entries of the type of merchandise subject to the order. These duties are equal to the difference in price or at the value of the subsidy. In some cases, this can be up to 200 or 300 percent or more of the declared value of the imported merchandise. Later, these entries will be liquidated at the cash deposit rate, unless interested parties request an administrative review to establish a revised final dumping or countervailing duty rate for the goods being entered. If there is a final rate that is higher than the deposit rate, the importer will be sent a bill for the additional duties owed.

CBP is responsible for assessing and collecting cash deposits and final duties on imports of subject merchandise at the rates established by Commerce and published in the Antidumping and Countervailing Duty Orders.

Evasion of Antidumping and Countervailing Duty Orders

Evasion refers to the importation of merchandise into the United States by an act or omission that is material and false, and which results in antidumping or countervailing duties being reduced, not applied to, or collected on the merchandise. Examples of evasion include:

  • Misrepresenting the true country of origin of the merchandise (e.g., through fraudulent country of origin markings on the product itself or false sales),
  • Undervaluing the merchandise, or misrepresenting the actual manufacturer or exporter using false or incorrect documentation so as to pay lower amounts, or
  • Misreporting the merchandise’s physical characteristics.

Currently, CBP can take enforcement action against importers who attempt to evade AD/CVD orders, which include the collection of unpaid AD/CVD duties and the assessment of civil penalties of several times the loss of revenue up to the domestic value of the merchandise.

Prior to implementation of the Enforce and Protect Act (EAPA), however, CBP was not required to investigate allegations of evasion submitted by private parties or afford the parties an opportunity to participate in the investigation. CBP was also not required to notify parties that submitted allegations of evasion as to the outcome of CBP’s review.

The Enforce and Protect Act of 2015

The EAPA creates a framework for CBP to investigate allegations of evasion of AD/CVD orders and then take action to remediate the evasion of AD/CVD orders if such conduct is found to exist.

While CBP currently has many tools to fight evasion of AD/CVD orders by unscrupulous foreign exporters and importers, the EAPA goes a step further and mandates that CBP investigate alleged evasions of AD/CVD orders made by domestic parties and to report back on their findings. The EAPA also allows domestic parties to appeal a negative finding by CBP of evasion.

To facilitate the investigation process, the TFTFA created the Trade Remedy Law Enforcement Directorate (TRLED) in the Office of Trade in CBP.

The EAPA requires CBP to initiate an investigation within 15 business days of receipt of an allegation from an interested party that reasonably suggests that merchandise covered by an existing AD/CVD order has entered into the United States through evasion.

If the allegation is found to be credible by CBP, it is required to determine, within 300 calendar days of the initiation of investigation, whether there is substantial evidence that merchandise was entered into the customs territory of the United States through evasion.

If any of the parties (including the importer, foreign exporter or producer, or alleging party) to the investigation refuse to cooperate, submit incomplete information, or otherwise do not act to the best of their ability to provide the requested information, CBP may make an adverse inference from that failure to adequately respond.

Following the completion of its investigation, CBP has five business days to communicate its decision to the interested party who made an allegation that initiated the evasion investigation. If CBP makes an affirmative determination of evasion, CBP is to:

  • Suspend the liquidation of unliquidated entries of the covered merchandise that is subject to the determination;
  • Extend the period for liquidating the unliquidated entries of covered merchandise that entered before the initiation of the investigation;
  • When necessary, notify Commerce of the determination and request that Commerce determine the appropriate duty rates for such covered merchandise;
  • Require importers of covered merchandise to post cash deposits and assess duties on the covered merchandise; and/or
  • Take any additional enforcement measures as CBP deems appropriate, including (but not limited to) modifying CBP’s procedures for identifying future evasion, reliquidating entries as provided by law, and referring the matter to ICE for a possible civil or criminal investigation.

In order to ensure that appropriate duties can be collected on entries of covered merchandise made during the pendency of an EAPA investigation, the act provides for what is referred to as “interim measures.”

Establishing Interim Measures

Under the “interim measures” mechanism, CBP must determine within 90 calendar days of initiation of an EAPA investigation whether there exists reasonable suspicion that the merchandise subject to an allegation was entered through evasion.

If CBP determines that reasonable suspicion exists that covered merchandise subject to an allegation was entered through evasion, it is required, within 90 days of initiation, to:

  • Suspend the liquidation of unliquidated entries of the covered merchandise entered after the date of initiation;
  • Extend the period for liquidating the unliquidated entries of covered merchandise that entered before the initiation of the investigation; and
  • Take any additional measures necessary to protect the ability to collect appropriate duties, which may include requiring a single transaction bond or posting cash deposits or reliquidating entries as provided by law with respect to entries of the covered merchandise.

If, during the course of an EAPA investigation, CBP determines that the merchandise poses a health or safety risk, CBP can notify the appropriate Federal agencies of that risk and will exercise its administrative powers, as appropriate, including possible seizure and forfeiture under 19 USC 1595a(c).

Administrative and Judicial Review of EAPA Decisions

The EAPA provides a period of 30 business days after a determination for the interested party who made the allegation of evasion or the person determined to have entered the merchandise subject to the evasion determination to request a de novo administrative review.

CBP will then have 60 business days to complete the review and issue a final administrative determination.

Parties that are dissatisfied with the administrative decision may then request judicial review of the final administrative determination and the original determination as to evasion. A request for judicial review must be made not later than 30 business days after completion of the final administrative determination. The request for judicial review must be made to the U.S. Court of International Trade (CIT).

Publication of Interim Regulations for EAPA Investigations

In August, CBP released its Interim regulations for EAPA Investigations and created Part 165 of the Customs Regulations (Title 19 CFR). While the regulations and procedures are in effect as of August 22, 2016; CBP is soliciting comments through October 21, 2016.

Who Can Bring an Allegation of Evasion?

Section 165.1 defines an interested party for the purpose of filing an allegation of evasion as:

  1. A manufacturer, producer, or wholesaler in the United States of a domestic like product;
  2. A certified union or recognized union or group of workers that is representative of an industry engaged in the manufacture, production, or wholesale in the United States of a domestic like product;
  3. A trade or business association a majority of the members of which manufacture, produce, or wholesale a domestic like product in the United States;
  4. An association a majority of the members of which is composed of interested parties described above with respect to a domestic like product; or,
  5. If the merchandise is a processed agricultural product, a coalition or trade association that is representative of processors; processors and producers; or processors and growers.

Initiating an Allegation of Evasion

The following information must be included in a request for an investigation of an alleged evader:

  1. Name of importer against whom the allegation is brought;
  2. Description of the covered merchandise;
  3. Applicable AD/CVD orders;
  4. Information that reasonably suggests that an importer has entered covered merchandise into the customs territory of the United States through evasion;
  5. Identification of a point of contact at the agency; and
  6. Notification of any knowledge of or reason to suspect that the covered merchandise poses any health or safety risk to U.S. consumers.

Criteria for Initiation

CBP is to initiate an investigation if the following criteria are satisfied:

  1. The merchandise described in the allegation is properly within the scope of an AD/CVD order. If CBP lacks sufficient information to make such determination as to the scope of the order, then it may refer the matter to Commerce for a determination, and,
  2. The information provided in the allegation reasonably suggests that the merchandise has been entered for consumption into the customs territory of the United States through evasion as it is defined in § 165.1.

The terms “evade” and “evasion” refer to the entry of merchandise 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 covered merchandise.

CBP will not initiate an investigation if there was clerical error. The term “clerical error” is not defined in the proposed regulations or by the statute with any particularity. However, the Court of International Trade has, in the context of 19 USC 1520(c), defined clerical error as "a mistake made by a clerk or other subordinate, upon whom devolves no duty to exercise judgment, in writing or copying the figures or in exercising his intention." Chrysler Corp. v. United States, 24 C.I.T. 75 (Ct. Int'l Trade 2000).  It is unclear if it will also include a mistake of fact or by reason of inadvertence.  So, for instance, if the importer has made a mistake of fact with regard to the origin the goods or the manufacturer, or the goods or relied on information provided by a foreign suppler, it may not be able avoid an investigation.

A clerical error, is not evasion, although CBP will take appropriate actions to ensure that AD/CVD duties are assessed and collected.

Initiation of Investigations

CBP is to make a determination as to whether to initiate an investigation on or before the 15th business day after the date on which a properly filed allegation is received. 

If CBP determines that it will not initiate an investigation, it will notify the interested party who filed the allegation within five business days of that determination. Otherwise, the parties to the investigation will be notified no later than 95 calendar days after the decision has been made, and the actual date of initiation will be specified therein. However, notification to all parties to the investigation will occur no later than five business days after interim measures are taken.

To carry out the investigative process, CBP will establish questionnaires for allegers of AD/CVD violations, alleged evaders of AD/CVD orders, and other interested parties, such as the foreign producer, exporter or a foreign government. CBP estimates that it will take 25 hours to complete a questionnaire by an alleged evader of an AD/CVD order.

The parties will have 200 calendar days after the date of initiation in which to submit factual information and respond to CBP questionnaires, and 230 calendar days from initiation in which to submit written comments. Parties will then have ten calendar days from the date of service of any factual information or from the date of placement of any factual information on the record to provide rebuttal information to that factual information.

Confidentiality of Information Issues

The TFTFA does not include a provision for the protection of sensitive business or financial information by an Administrative Protective Order. Rather, all information submitted, regardless of whether submitted by an alleger or by an alleged evader or other interested party, will be accessible as a part of the administrative record. Parties, can, however, request confidential treatment for the protection of sensitive business information. 

Section 165.4 addresses how an interested party may make a claim for business confidential treatment in a submission to CBP for an EAPA proceeding. Any interested party that makes a submission to CBP in connection with an investigation may request that CBP treat any part of the submission as business confidential information except for the following information:

  1. Name of the party to the investigation providing the information and identification of the agent filing on its behalf, if any, and e-mail address for communication and service purposes;
  2. Specification as to the basis upon which the party making the allegation qualifies as an interested party;
  3. Name and address of importer against whom the allegation is brought;
  4. Description of covered merchandise; and
  5. Applicable AD/CVD orders.

Business confidential treatment will be granted if the requirements are satisfied and the information for which protection is sought consists of trade secrets and commercial or financial information obtained from any person, which is privileged or confidential in accordance with 5 U.S.C. 552(b)(4). 

An interested party filing a submission containing claimed business confidential information must also file a public version of the submission. The public version must be filed on the same date as the business confidential version and contain a summary of the bracketed information in sufficient detail to permit a reasonable understanding of the substance of the information.

Meaning and Effect of Adverse Inferences

If the party to the investigation that filed an allegation, the importer, or the foreign producer or exporter of the covered merchandise fails to cooperate and comply to the best of its ability with a request for information made by CBP, CBP may apply an inference adverse to the interests of that party in selecting from among the facts otherwise available to make the determination as to evasion.

An adverse inference described in this section may be used with respect to the importer of the covered merchandise, or the foreign producer or exporter of the covered merchandise without regard to whether another party involved in the same transaction or transactions under examination has provided the information sought by CBP, such as import or export documentation.

Concluding Thoughts

For now, the new regulations present more questions than they answer. For instance, what constitutes a reasonable suspicion that evasion is taking place such that CBP will take action to initiate an investigation? If CBP initiates an investigation of evasion, how soon will it notify the importing party of the investigation, or will it wait until it implements “interim measures” before notifying the importer of the investigation? Will CBP wait the full 95 days before informing the importer of the investigation and, thus, allowing the importer to perhaps unknowingly import goods that may otherwise be subject to an AD/CVD order? Will importers have sufficient time and cooperation from foreign suppliers, exporters, and manufacturers to adequately respond to questionnaires and submit factual information? How will CBP deal with the issue of “clerical error” verses “mistake of fact” with regard to the origin or manufacturer of the goods?

Determining country of origin can be difficult, and it certainly seems likely that in many cases of alleged “evasion,” the importer will be the party that is lied to or deceived with respect to the true origin or manufacturer of the goods.

Whatever else can be said about the EAPA, it will place importers at a significant disadvantage. Importers and their brokers will need to be more vigilant than ever with regard to determining the origin of their goods, particularly if the class or type of goods that are being imported are subject to an AD and or CVD order. Important steps to take include proper classification of imported merchandise, and screening HTS classifications against CBP’s database of HTS numbers subject to AD and CVD orders and scope descriptions. If there are questions about whether a particular good falls within the scope of an AD and or CVD order, it may be prudent to obtain a scope ruling from Commerce or take additional steps to verify the country of manufacture and whether any downstream process that might have occurred in a third country is sufficient to take the article out of the scope of the order.

If you have any questions about these or other customs matters, please contact George R. Tuttle, III at george.tuttle.iii@tuttlelaw.com or at (415) 986-8780.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in the San Francisco Bay Area.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2016 by Tuttle Law Offices.
All rights reserved. 

Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

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