On June 21, U.S. Customs and Border Protection (CBP) announced that it had arrested five individuals from three separate companies indicted on three counts of conspiracy to smuggle goods into the U.S., as well as conspiracy to commit money laundering. Specifically, the defendants were accused of having provided CBP with fabricated documents to avoid paying approximately $26.7 million in anti-dumping (ADD) and countervailing duties (CVD) assessed on  their imported merchandise. If convicted, the individuals may have to pay the Government $26.7 million in unpaid duties in addition to $6.9 million for money laundering.  They also face up to 20 years in prison. While this recent case is an example of what appears to be a willful failure to comply with the payment of ADD/CVD obligations, it should also remind importers that CBP is serious about the enforcement of ADD/CVD. Importers should be aware of whether their products fall within the scope of an ADD/CVD order , take actions to limit liability, and be prepared to fight the assessment of ADD/CVD against their products if need be.

Anti-dumping and Countervailing Duties: Creating a Level Playing Field

Through the assessment of ADD/CVD, the U.S. government seeks to ensure a level playing field for U.S. manufacturers and suppliers who may be hurt by importers receiving subsidies from a foreign government, or who are selling their products at artificially low prices in the U.S. In a two-step process, the International Trade Commission (ITC) determines whether an industry in the U.S. has been harmed, or is at risk of being harmed, from the importation of certain products. Depending on the ITC’s determination, the International Trade Administration (ITA) determines the existence of subsidies or dumping. If both the ITC and ITA’s findings come back positive, they will assess ADD or CVD. This assessment is then enforced by CBP.

The Preliminary Investigation

An adverse ADD/CVD determination can have huge impacts on an importer’s business, even before the determination is finalized. When the ITA and ITC begin their investigation they issue preliminary determinations. If the preliminary determinations show the existence of dumping or subsidies, and harm or threat of harm to a U.S. manufacturer, CBP will suspend liquidation of entries of the merchandise at issue. This means that importers will be required to post a bond to cover an estimated amount for the additional duties which will be collected in the event that a final ADD/CVD order is issued upon completion of the investigation. The final phase of an ITA and ITC investigation takes 12 to 18 months to complete after initiation, which may result in an importer having a lot of money tied up with CBP over a long period of time.

The Final Determination

A final ADD/CVD order can result in extraordinarily high duty rates depending on the ITA and ITC findings. It is not unheard of for companies to pay triple-digit duty rates on imported goods.  The impact of such duties can be particularly onerous for companies unaware their products fall within the scope of an ADD/CVD order. This can result in unexpected liability for shipments shipped under an incorrect duty rate. Given enough shipments, this liability can be crushing for an importer if the importer did not budget for it.

How Importers Can Challenge an ADD/CVD Investigation

Importers have the opportunity to provide information to the ITA and ITC during an investigation and can also appeal final determinations by the ITA and ITC. First, importers can provide information during the investigation phase by responding to ITA questionnaires, submitting case briefs and attending public hearings. Second, final determinations may be appealed to the U.S. Court of International Trade in New York City or to a bi-national panel organized under NAFTA for cases involving Canada or Mexico.  Finally, ADD/CVD cases can be reviewed on an annual basis at an importer’s request in order to determine if the rates ordered by the Government are still appropriate.

Preventive Measures

There are several strategies importers can adopt to help avoid the application  of ADD/CVD in the first place.

•         Know your products – If you are importing a product you must always verify whether  your product falls within the scope of an ADD/CVD order. The scope of antidumping and countervailing duty orders can be found in several places:

 o        Federal Register notices from the Department of Commerce at http://ia.ita.doc.gov/frn/index.html;

o        Written instructions from Commerce to CBP available in CBP’s Automated Commercial Environment (ACE);

o        The International Trade Administration’s website, www.trade.gov/ia; and

o        CBP’s ADD/CVD message website listing all messages for a each case in one place at http://addcvd.cbp.gov/index.asp.

 •         Do not deal in goods subject to ADD/CVD. Make sure suppliers understand not to include goods subject to ADD/CVD in your shipments.

 •         Scan the horizon. Stay on top of trade publications and monitor competitors to prepare for the likelihood of an ADD/CVD action.

•         Consult with the experts. Consult with counsel and brokers to gain accurate assessments of your liability and plan accordingly.

 Final Words of Advice

ADD/CVD orders have continually increased throughout the years with a particular emphasis on products originating from China. The related penalties are designed to make your goods less competitive in the U.S. market place, so why deal in them? The simple solution is to find a different point of origin for your products if possible, although this might not be what your company planned for.  On the other hand, your company may find that even with the assessment of ADD/CVD your products remain competitive.  In that case, just remember to exercise special care in completing and submitting entry documents. However, under no circumstances should your company attempt to deceive or not cooperate with the government agencies involved in the administration of ADD/CVD. This can only make matters worse and expose your company to both civil and criminal liability. It is crucial that your company constantly monitors ADD/CVD orders, verifies its imports do not fall within the scope of any of those orders, and is prepared to either challenge those orders or make the appropriate changes to avoid them.

By:  Devon Sefton, Attorney