CBP Initiating Quicker, More Transparent Investigations for AD/CVD Enforcement

On August 22, 2016, U.S. Customs and Border Protection (CBP) published long-awaited interim regulations implementing the procedures for conducting investigations of alleged antidumping (AD) or countervailing duty (CVD) evasion. These new investigatory procedures were enacted to address ongoing concerns by U.S. producers that AD/CVD duties have been illegally avoided.

These rules are likely to usher in an era of increased and aggressive enforcement of AD/CVD orders by CBP and related agencies.  Under these procedures, CBP has quick deadlines to determine whether to initiate AD/CVD investigations in response to interested party allegations, including allegations by domestic manufacturers or competing U.S. importers. CBP’s mandate is to initiate an investigation when it receives information that “reasonably suggests” that merchandise is entering the U.S. without proper AD/CVD duties being paid. CBP is also encouraging the electronic submission of allegations from parties in the trade community through its e-Allegations website.  Affirmative determinations of evasion will result in the collection and assessment of AD/CVD duties on importers’ entries of merchandise, regardless of the merchandise’s claimed country of origin, and could result in additional civil or criminal penalty actions or investigations.

AD/CVD evasion can take many forms and many levels of sophistication, and does not always look like garden-variety fraud.  Suppliers may, without an importer’s knowledge, simply ship subject merchandise to a third country and apply new country of origin labels to avoid the assessment of AD/CVD duties.  Other transshipment schemes may involve repacking of parts and materials in third countries or doctoring products to mask their original country of origin, or intentionally misclassifying merchandise to avoid “flags” for AD/CVD treatment.

Importers—especially importers of merchandise subject to AD/CVD orders or closely related merchandise from other countries—should take care to understand the implications of these new rules and how they impact their business.  Importers should have controls in place to ensure that entries of merchandise subject to AD/CVD orders are being correctly reported to CBP, and that third-country manufacturers are legitimately producing merchandise that would be subject if sourced from a different country. 

The obligation to report and pay AD/CVD duties falls on the U.S. importer of record, as does the responsibility to know where their merchandise is being sourced and whether their foreign suppliers are legitimately producing the goods in question.  CBP will also likely target the U.S. importers in these investigations for most of its efforts to obtain information to determine whether evasion is taking place.

Importers should also be aware of the consequences of taking these investigations lightly or ignoring requests for information.  Allegations of AD/CVD evasion need to meet only a relatively light standard—a “reasonable suggestion” that evasion is taking place—for CBP to initiate an investigation.  Such allegations need not be airtight, or even true; it is possible for even substantially speculative allegations to “reasonably suggest” evasion under CBP’s new standards.  Once an investigation commences, however, CBP is under rigid deadlines to make its determinations.  Should an importer fail to cooperate to the best of its ability in the process, CBP has the authority to make decisions based on “adverse inferences.”  This can include CBP making inferences of evasion based on those largely speculative allegations in its final determination.  Even if an importer believes that an allegation against it is not legitimate, it will need to fully participate and cooperate in order to avoid a determination that may impact its imports.

The entire notice is available at this link, and a summary of the administrative process follows:

The Administrative Process

As background, antidumping (or “AD”) and countervailing duty (or “CVD”) orders are established by the U.S. government in response to a claim that a U.S. industry is being materially injured or threatened with injury due to merchandise from a targeted country that is being sold at “less than fair value” (in AD cases) or unfairly subsidized by the home country’s government (in CVD cases).  These AD/CVD orders result in additional duties that U.S. importers are obligated to deposit on the subject merchandise at the time of entry.  These deposits are later finalized and assessed by the U.S. Department of Commerce, and CBP is tasked with administering Commerce’s determinations and collecting AD/CVD revenue.

CBP had long been under a great deal of scrutiny for perceived lax collection of AD/CVD duties.  Some of this is attributable to the retrospective manner in which duties are collected and assessed, and some of it is due to certain entities “evading” these orders by importing subject merchandise without properly reporting them to the government.  The U.S. Government Accountability Office recently published a report estimating that $2.3 billion in AD/CVD revenue over the past fifteen years has gone uncollected.

These regulations implement the new Enforce and Protect Act of 2015 (EAPA), which was included in the comprehensive Trade Facilitation and Trade Enforcement Act of 2015.  Under the new CBP regulations, allegations of evasion of antidumping or countervailing duty orders may be presented to CBP by any “interested party,” which can include U.S. producers, certain trade or business associations, or other importers of covered merchandise.  CBP indicates that it will update its established “e-Allegations” online portal for making specific allegations of evasion under the EAPA, but parties do not have to use this portal to submit their allegations. CBP may also initiate evasion investigations at the request of another Federal agency. Generally, allegations should relate to entries that were made not more than one year ago, but CBP appears to have given itself discretion to investigate older entries if appropriate.

Investigations will be handled through CBP’s Trade Remedy Law Enforcement Directorate, a newly established division created under the EAPA.  Once an allegation or request is received, CBP will have 15 days to decide whether to initiate an investigation.  If CBP does not initiate an investigation, it will notify the party who made the allegation within 5 business days.  If CBP initiates in investigation, it will make its determination within 300 days from that date, or 360 days if the case is considered “extraordinarily complicated.”
If CBP makes an affirmative determination of evasion, it will suspend liquidation of unliquidated entries of covered merchandise that were entered before the initiation of the investigation, and extend the liquidation period for unliquidated entries of covered merchandise made before the initiation of the investigation.  It will also assess duties and require posting of cash deposits for entries of covered merchandise.  For entries that had already liquidated, CBP will “initiate or continue any appropriate actions separate from this proceeding,” i.e., seek to collect duties and possibly impose penalties under a separate § 1592 penalty investigation.  Affirmative determinations of evasion are reviewable, first by the agency in a de novo administrative proceeding, then before the U.S. Court of International Trade.

There are other aspects as to the timing of these investigations that interested parties should understand, as the regulations as set forth could result in unpleasant surprises to entities under investigation.  For example, CBP will suspend or extend liquidation of an investigated party’s entries within 90 days of initiation if it finds a “reasonable suspicion” that evasion has taken place.  It may also require the importer of the covered merchandise to post bonds or cash deposits for the increased duties within that time.   In comparison, the deadline for CBP to actually notify all known parties to the investigation is within 95 days of the date of initiation. This means CBP can build an administrative record in an investigation and take interim measures against an importer before the importer is even notified that it is under investigation.

There are more than a few procedures here that borrow from familiar concepts in Department of Commerce investigations, for those who are familiar with that agency’s investigatory procedures.  For example, CBP may make “adverse inferences” if parties to the investigation do not cooperate to the best of their ability, including an adverse inference that subject merchandise is being imported by means of evasion.  Other parts of the investigation stand in stark contrast.  For example, while parties may request confidential treatment for certain business proprietary information, there is no Administrative Protective Order provided for in these investigations to further safeguard the transmission and maintenance of that information.  Parties will need to be far more careful in how they handle and submit confidential information to CBP in these investigations.

The interim procedures and regulations set forth in CBP’s notice become effective on August 22, 2016. However, any interested parties may file comments on the current format of these regulations by October 21.  Rock Trade Law LLC is available to assist with the filing of comment submissions.