An area of trade law that is getting a lot of attention these days is Anti-dumping and Countervailing duties (AD and CVD). AD and CVD orders are issued by the U.S Department of Commerce, and impose additional duties on certain products after an investigation has revealed that the products are either being “dumped” into the U.S.; i.e., sold at a price lower than their cost of production or fair value, or were manufactured with the benefit of certain governmental subsidies and sold into the U.S. at a lower price due to the subsidies. AD and CVD orders are enforced at the border by U.S. Customs and Border Protection (CBP). Also recent government initiatives have increased the focus on enforcement of AD and CVD orders to make sure importers of goods covered by AD or CVD orders declare them as such to CBP and pay all required additional duties.
A recent development that raises the bar for importers of goods subject to AD/CVD occurred on Friday, March 31, 2017, when President Trump issued an Executive Order “Establishing Enhanced Collection and Enforcement of Antidumping and Countervailing Duties and Violations of Trade and Customs Laws.” This order is aimed at collecting unpaid antidumping and countervailing duties on U.S. imports of foreign goods. For additional information on the Executive Order, visit www.dhs.gov/executiveorders/
U.S. Customs and Border Protection will begin to implement the Executive Order by establishing enhanced measures to collect duties and will adopt a heightened enforcement posture for trade violations that threaten the safety and economic security of the United States. The Order flows from the recognition that Importers unlawfully evade antidumping and countervailing duties, depriving the Federal Government of billions of dollars in revenue. As of May 2015, $2.3 billion in antidumping and countervailing duties owed to the Government remained uncollected, often from importers that lack assets located in the United States. Not only will certain importers who are determined to pose an unacceptable risk be subject to increased bonding requirements under new plans that CBP must develop over the next 90 days but worse some importers may find themselves the target of a criminal investigation. In fact, the Attorney General is also instructed to develop prosecution practices and allocate resources to treat significant trade law violations as a high priority.
The message is clear – companies need to critically and carefully assess the merchandise they import and should determine whether any of that merchandise is subject to AD/CVD. Long gone are the days that importers can say – “We rely on our Customs Brokers to ensure any applicable AD/CVD duties are paid”. More than ever before prudent importers must have procedures and controls in place to monitor AD/CVD cases so that applicable duties are properly declared.
But in certain cases, some importers seek to wrongly evade AD and CVD duties using means such as transshipment through a third country, or otherwise concealing the true nature of the goods or their country of origin. Efforts such as these are clearly contrary to law and are a primary target of the increased enforcement initiatives. However, in many cases importers may run afoul of AD or CVD requirements simply due to lack of knowledge or failure to exercise adequate diligence in their import activities.
There are close to 400 active AD / CVD cases covering goods from nearly 40 countries. As AD and CVD rates can be many times greater than the purchase price of covered merchandise, and in view of the heightened enforcement environment, it is very important that importers make sure whether an AD or CVD order, or both, apply to the merchandise they wish to import. It is critical that this review take place prior to importation, as once goods have been entered into the U.S. and cleared through Customs, nothing can be done to “undo” the import transaction.
Common categories of merchandise subject to AD / CVD include products made from steel, aluminum and copper, other metals and metal products, chemicals, machinery products, food products, solar panel products, plastics, paper products, textiles and furniture. The largest exporter of AD / CVD merchandise is China; however other top countries include Canada, India, Indonesia, Japan, Korea, Mexico, Taiwan, and Thailand.
The U.S. Department of Commerce publishes a listing of all active AD and CVD cases on its website. See: http://enforcement.trade.gov/stats/inv-initiations-2000-current.html. Also, it is recommended that you consult with your customs advisor, or trade professional, on a periodic basis to stay up-to-date regarding any changes or developments in the AD / CVD area.
Ordinarily AD or CVD orders will specify the HTS codes that are identified as being covered by the particular order, and at the time of importation an electronic “flag” should be generated by the Automated Broker Interface (ABI) system notifying the importer’s customs broker that the HTS of the subject merchandise is included under an existing AD or CVD order. Therefore, it is critical that importers instruct their brokers to communicate all such ABI flags immediately, and refrain from entering the merchandise until specific approval is obtained from the importer.
While ABI flags are helpful in preventing inadvertent entry of merchandise subject to AD / CVD, for a variety of reasons the flags are not always effective in preventing inadvertent AD / CVD imports. In certain cases the ABI flag may simply be missed, or communication issues between the broker and the importer prevent effective communication of the AD / CVD issue. In other cases the subject merchandise may not be classified correctly, or the merchandise classification may not be identified in the AD / CVD order, resulting in the failure of the ABI system to generate a flag. In other cases a flag may be generated and the importer properly notified, but the importer may incorrectly override the flag based on a misunderstanding as to whether the goods are in fact covered under the AD / CVD order.
Frequently importers that have inadvertently entered merchandise subject to AD / CVD become aware of the fact only after receiving a formal communication or notification from CBP. If CBP suspects imported merchandise is subject to AD / CVD, it will typically issue a “Request for Information” to the importer requiring the importer to provide full details related to the imported product. On this basis CBP will then evaluate the information and determine if the merchandise is subject to AD / CVD. Other times CBP may forgo the request for information and directly issue a “Notice of Action” advising that they have determined the merchandise is subject to AD /CVD, and must be entered accordingly and additional duties paid. In other cases an importer will receive a “Notice of Rejection” indicating that the entry is being rejected and a new entry must be filed declaring the goods as subject to AD / CVD with additional duties paid.
Additionally, an importer may determine that merchandise is subject to undeclared AD / CVD through a self-review or possibly in connection with a due diligence review performed in connection with an acquisition or divestiture. It is important to note that importers remain responsible for errors associated with undeclared AD / CVD going back five years.
If an importer becomes aware that they have failed to declare imported merchandise potentially subject to AD / CVD, they then need to take the matter very seriously and obtain legal counsel before proceeding. Counsel can assist in performing a review of the imported merchandise and determining whether the merchandise in fact falls within the scope of the AD / CVD order, or whether arguments exist that the merchandise is not subject to the AD / CVD order. Furthermore, if it is unclear whether imported merchandise is covered by an AD / CVD order, counsel can assist in obtaining a formal ruling from the Department of Commerce to determine whether the merchandise is covered or not. Also, if warranted, counsel can assist in the preparation and submittal of a prior disclosure to protect the importer from the imposition of fines or penalties. Given that enforcement is being stepped up and audits of importers on AD/CVD are proliferating, companies are well advised to address any uncertainty head on and sooner than later.
By: Adrienne Braumiller, Partner & Founder of Braumiller Law Group PLLC and Paul Fudacz, BLG Senior Attorney