U.S. Customs and Border Protection Issues Interim Regulations on Duty Evasion
Business Law Articles
By Philip A. Butler, Stewart and Stewart
Earlier this year, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015, Pub. L. 114-125, 130 Stat. 122, 155 (Feb. 24, 2016) (“the Act”). Included under Title IV of the Act is the Enforce and Protect Act of 2015 (“EAPA”), which establishes new procedures for U.S. Customs and Border Protection (“CBP”) to investigate claims of evasion of antidumping duties (“AD”) and countervailing duties (“CVD”). Pursuant to Section 421 of the Act (codified at 19 U.S.C. § 1517), on August 22, 2016, CBP published interim regulations detailing new procedures for investigations into allegations of duty evasion.[1] The new law and regulations help with the enforcement of antidumping and countervailing duty orders by providing CBP with a stronger tool for preventing and countering duty evasion. They also increase the importance to the import community of elevating its standards to ensure that the correct import duties are paid on goods subject to antidumping duty orders and countervailing duty orders.
I. Background
U.S. trade remedy law provides for increased import duties on products that the Department of Commerce (“Commerce”) has found to have been sold at prices below fair market value (antidumping duties) and/or benefited from a government subsidy (countervailing duties). For an AD order and/or CVD order to issue, the International Trade Commission (“ITC”) must also find that the imports have materially injured a domestic industry or threaten a domestic industry with material injury. Once an order is issued by Commerce, CBP is responsible for the collection of cash deposits and final duties on the subject imports.
However, certain importers seek to avoid paying the appropriate AD/CVD duties by using a variety of evasion methods, including illegal transshipment to disguise a product’s true country of origin, false or incorrect shipping and entry documentation, and the misclassification of merchandise. In a submission last year to the World Trade Organization, the United States noted that it had “witnessed a dramatic increase in activities expressly designed to evade the application of antidumping duties.”[2] While the pre-EAPA law allowed CBP to take enforcement action against the evasion of AD/CVD orders, including the assessment of civil penalties against importers who evaded such orders, the enforcement process lacked accountability and transparency. There was no formal process for parties to participate, and there were no deadlines by which CBP had to make determinations of evasion. The EAPA was enacted to address these shortcomings in order to more fully enforce AD and CVD orders by reducing duty evasion.
II. Process for Addressing Claims of Duty Evasion
The new law and CBP’s new regulations provide that any interested party may file an allegation of duty evasion. Interested parties include foreign and domestic producers, exporters, importers, trade unions, and business associations. Additionally, any Federal agency, including Commerce and the ITC, may file an allegation. The EAPA establishes, within CBP, the Trade Remedy Law Enforcement Division (“TRLED”) to conduct investigations of alleged evasions. The regulations also require that CBP work under strict deadlines to make its determination.
Once an allegation is filed, CBP has 15 business days to determine whether it will initiate an investigation. If CBP initiates an investigation, it has 300 days after the date of initiation to determine whether the subject goods entered the country through means of evasion. CBP may extend the investigation by as much as 60 days. No later than 90 days after initiating an investigation, CBP has the authority to issue interim measures if there is a reasonable suspicion that the importer entered covered merchandise into the United States through evasion. These include the suspension of liquidation on entries that entered the country before and after the date of initiation, as well as taking additional measures that CBP determines necessary.
Significantly, the new law and regulations require CBP to maintain an administrative record and give CBP broad authority to collect information. For example, CBP may issue questionnaires to the parties or gather information from other U.S. agencies or through its own fieldwork. Factual information obtained from the parties may be subject to verification. Parties are also allowed to submit written argument and responses.
The law and regulations also give CBP tools for enforcing prompt and honest participation by the parties. The regulations provide that parties that fail to participate are subject to an inference adverse to their interests. This is based on the presumption that a party who possesses relevant evidence would have participated if the evidence were supportive. As such, if a party fails to provide CBP with requested information, CBP may select adverse facts in determining whether duties were evaded. Additionally, untimely submissions will be rejected, in which case CBP may also apply adverse inferences. False statements may result in CBP using adverse facts, as well as potentially lead to prosecution.
Following CBP’s determination, parties have 30 days to file a request for administrative review by CBP. A final determination must be submitted by CBP within 60 days of the commencement of the review. Judicial review in the U.S. Court of International Trade is also provided. The table below provides a timeline of key steps in the new investigation process.
The EAPA undoubtedly provides CBP, as well as U.S. manufacturers, producers, importers, unions, and other interested parties, a significantly stronger tool to fight duty evasion. It will also likely lead to an increase in such cases. Given the firm timeline that CBP must operate under, parties will be required to provide CBP with information under short deadlines. Moreover, the regulations provide CBP with the means to enforce their deadlines and to ensure cooperation with them. This also means that the import community must be vigilant. To avoid any potential penalties, importers should ensure that they are properly depositing the appropriate amount of AD/CVD duties on subject imports and that they have correctly determined that goods for which they are not depositing AD/CVD duties are indeed outside the scope of current AD/CVD orders.
CBP is soliciting public comments on the new regulations. Written comments on CBP’s interim rule must be submitted on or before October 21, 2016. See 81 Fed. Reg. 56477 for instructions on submission of comments.
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Initiation of Investigation |
After receiving an allegation of evasion, CBP has 15 business days to initiate an investigation or request an investigation from another federal agency. |
19 C.F.R. § 165.15(a) |
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Interim Measures |
No later than 90 calendar days from initiation, CBP may take interim measures if there is a reasonable suspicion of evasion. |
19 C.F.R. § 165.24(a) |
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Notification of Investigation |
No later than 95 calendar days, CBP must notify all parties of its decision to initiate an investigation, or, if interim measures are taken, within 5 business days of such measures. |
19 C.F.R. § 165.15(d)(1) |
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Factual Information |
CBP may issue questionnaires or employ other means to gather necessary factual information. |
19 C.F.R. § 165.5 (a) |
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Submission of Arguments |
No later than 230 calendar days after CBP’s decision to initiate, parties may submit written arguments. Parties have 15 calendar days to respond to submissions. |
19 C.F.R. § 165.26 (a)-(d) |
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Initial Determination of Evasion |
No later than 300 days after CBP’s decision to initiate, CBP must make a determination of evasion. This deadline may be extended by sixty days. |
19 C.F.R. § 165.22(a) |
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Request for a Review |
No later than 30 business days after the initial determination of evasion, parties may file a request for review. |
19 C.F.R. § 165.41 |
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Final Determination of Evasion |
No later than 60 business day after commencement of a review and assignment of a case number, CBP must make a final determination of evasion. |
19 C.F.R. § 165.45 |
If you have any questions about CBP’s new regulations and how the changes may affect your business, please contact Terence P. Stewart or Philip A. Butler.
DISCLAIMER: This material provides background information only. It does not constitute legal advice or establish an attorney-client relationship with any recipient. This material should not be viewed as comprehensive. Modifications can occur at any time. Stewart and Stewart does not represent, warrant, or guarantee that this material is complete, accurate, or up-to-date. Anyone with a question or need to know about the relevant laws, regulations, rules, and requirements should contact a lawyer or relevant government agencies.
[1] See Investigation of Claims of Evasion of Antidumping and Countervailing Duties, 81 Fed. Reg. 56477 (CBP August 22, 2016); 81 Fed. Reg. 62004 (CBP September 8, 2016) (correction).
[2] Committee on Anti-Dumping Practices Informal Group on Anti-Circumvention, Antidumping Duty “Evasion Services,” Paper from the United States, G/ADP/IG/W/54 (17 March 2015).