Antidumping/Countervailing Duty (AD/CVD)

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On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

On February 21, Commerce announced its affirmative final determinations in the antidumping duty (AD) investigations of imports of biodiesel from Argentina and Indonesia.

For Argentina (Case No. A-357-820), the ITA calculated final dumping rates of:

LDC Argentina S.A. 60.44 percent
Vicentin S.A.I.C. 86.41 percent
Renova S.A.
Oleaginosa Moreno Hermanos S.A.
Molinos Agro S.A.
Patagonia Energia S.A.
VFG Inversiones y Actividades Especiales S.A.
Vicentin S.A.I.C. Sucursal Uy
Trading Company X
Molinos Overseas Commodities S.A.
All other producers and exporters of biodiesel from Argentina 74.73 percent

For Indonesia (Case No. A-560-830), the ITA calculated final dumping rates of:

Wilmar Trading PTE Ltd. 92.52 percent
PT Musim Mas (based on adverse facts available) 276.65 percent
All other producers/exporters of biodiesel from Indonesia 92.52 percent

The U.S. International Trade Commission (ITC) is scheduled to make its final determinations on or about April 6, 2018.

 

The U.S. Court of Appeals Federal Circuit handed a win to a U.S. importer of glycine from China on January 23 when it determined that the U.S. Department of Commerce (DOC) could not amend a regulation promulgated through formal notice and comment rulemaking by means of a guidance document.

Specifically at issue was the DOC’s policy regarding extensions of time to withdraw from anti-dumping duty review requests. In accordance with the Administrative Procedure Act, the DOC promulgated rules for evaluating timely and untimely withdrawals from an administrative review:

  • (d) Rescission of administrative review—(1) Withdrawal of request for review. The Secretary will rescind an administrative review under this section, in whole or in part, if a party that requested a review withdraws the request within 90 days of the date of publication of notice of initiation of the requested review. The Secretary may extend this time limit if the Secretary decides that it is reasonable to do so. See 19 C.F.R. § 351.213(d)(1).

However, in 2011, the agency published a guidance document that indicated that extensions would only be granted under extraordinary circumstances. This new position effectively changed the last sentence of the regulation.

In 2012, Chinese glycine exporter Baoding Mantong and U.S. producer of chemicals GEO Specialty Chemicals (GEO) separately requested an administrative review of an anti-dumping order on imports of glycine from China. After Commerce announced that it was initiating the review, GEO filed a notice to withdraw its petition for review towards the end of the 90-day period. Baoding Mantong also filed its notice of withdrawal, accompanied with a request for extension of time to file its withdrawal, shortly after the 90-day period expired.

Commerce denied Baoding’s request to extend the 90-day time limit for a withdrawal, thus causing the withdrawal to be ineffective. That led the U.S. importer of glycine manufactured by Baoding Mantong, Glycine & More, to appeal to the U.S. Court of International Trade (CIT), arguing that Commerce had violated its own regulation by amending the 2011 notice.

The CIT agreed with the plaintiff in 2015 and remanded the case, which led Commerce to issue Baoding an extension. GEO asked the Federal Circuit to overturn the CIT’s ruling because the CIT allegedly failed to give proper deference to the Secretary’s interpretation of its own amended regulation. However, the Federal Circuit aligned with the CIT and Glycine & More, arguing that the purpose of a guidance document is to clear up ambiguities within the regulation, not to amend the regulation in its entirety as the DOC had done in this instance.

If importers did not have enough to worry about in the new trade protectionist environment – higher duties from dumping, subsidy, section 201 and section 232 cases and increased enforcement – now they also may have to contend with the increased risks of whistleblower cases brought under the False Claims Act (FCA).  31 U.S.C. §§ 3729-33.  The FCA has been around for more than 150 years, but recently, has been successfully used to allege underpayment of duties.  Actions under the FCA can be brought directly by the Department of Justice (DOJ) or by a private party, known as a relator, seeking recovery on behalf of the U.S. government in a qui tam action. There are strong incentives for relators to file qui tam suits in light of the statute’s treble damages and penalties and its provision allowing relators to receive a share of up to 30 percent of any recovery. Qui tam actions are filed under seal, and before the case is unsealed to the public, the government is given an opportunity to investigate and determine whether or not it will intervene in the action.  In some cases, the government’s investigation can last not just months but years, often involving extensive one-sided discovery that DOJ is granted under the FCA.  And, even when the government declines to intervene, a relator can still independently proceed with the litigation.  Only if the government affirmatively moves to dismiss the qui tam could the relator not proceed, something that DOJ has historically been extremely reluctant to do.

Traditionally, FCA suits have been based on allegations that a party improperly received payment from the government, but importers must also be aware of the potential exposure associated with the “reverse” FCA provision of the statute, which imposes liability on any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”  31 U.S.C. § 3729(a)(1)(G).  Under the statute, the knowledge element can be established by (1) actual knowledge (2) deliberate ignorance; or (3) reckless disregard.  See § 3729(b)(1).

Importers have become targets of reverse FCA claims associated with duty evasion in part because a recent case from the Third Circuit.  United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co. The Third Circuit held that a failure to mark country of origin could be actionable under a reverse FCA theory of liability if a company knowingly imported unmarked products in an effort to evade custom duties.  839 F.3d 242 (3d Cir. 2016).  The court found that Victaulic had an established obligation under 19 U.S.C. § 1484(a)(1) to disclose to Customs and Border Protection (CBP) the fact that its goods were unmarked or improperly marked and if Victaulic knowingly failed to notify the CBP of its pipe fittings’ non-conforming status, this could give rise to reverse false claims liability for the unpaid marking duties.  In May 2017, Victaulic filed a petition for a writ of certiorari but the Supreme Court denied the petition this past October, leaving Victaulic to defend itself in the district court. While that case has not reached a judgment, the concern for importers is clear given the court of appeals’ validation of such a theory under the FCA.

Other recent cases have targeted companies importing goods that are subject to antidumping and countervailing duties. In 2016, Z Gallerie LLC paid $15 million to settle whistleblower FCA allegations that it masked the type of furniture it imported from China in order to avoid extra dumping duties. Basset Mirror Company paid $10.5 million to settle a similar case on furniture from China just this past month.  The rise in FCA cases related to import duties was highlighted in the recent Wall Street Journal article, in which it stated that the DOJ collected $4.7 billion in fiscal 2016 and $3.7 billion as a result of False Claims suits brought by whistleblowers in fiscal 2017.

These cases, combined with increased duties as a result of numerous unfair trade proceedings, create a perfect storm – encouraging both FCA plaintiffs’ lawyers and whistleblowers alike to cash in on a company’s failure to comply with import laws.  FCA claims are not limited to marking or dumping matters.  Cases may be brought if importers incorrectly value or classify imported goods, or make incorrect duty free claims based on a free trade agreement.

With all this troubling news, there are steps that importers may take to mitigate the risks or defend against an FCA claim. First, importers should establish strong internal compliance programs. Even if internal controls fall short of ensuring 100% compliance with import laws, a strong compliance program can be important evidence if an importer is forced to defend an FCA suit because the plaintiff (whether DOJ or a relator) must establish that an importer acted with the requisite knowledge—i.e., the plaintiff must show that the noncompliance occurred because the importer acted with actual knowledge or at least reckless disregard.  The existence of robust internal controls could be essential in helping an importer overcome a finding of reckless disregard.  Second, and related to having a strong compliance program, taking steps to investigate, identify, and disclose to the government any errors made could foreclose FCA liability in other ways, too.  For instance, if a company makes a disclosure concerning a potentially improper practice and the agency response is to take no formal action, that may show that the practice is not material to the government’s decision to pay or the potential obligation for the company to pay (in the case of import duties).

The materiality of alleged false statements or claims has been receiving enormous scrutiny recently in the wake of the Supreme Court’s landmark FCA decision in 2016 in Universal Health Services v. Escobar, 136 S. Ct. 1989 (2016), with agency approval or failure to disapprove of allegedly fraudulent conduct repeatedly being cited in dismissing actions for failing to show materiality.  Moreover, if a company discloses to the government their practices or interpretations with respect to regulations they are subject to, what is known as the government knowledge bar can also foreclose a finding of FCA liability.  In short, while there is often no sure-fire way to avoid mistakes in transactions involving government dollars, there are various proactive measures a company can take to help prevent mistakes from turning into a case of alleged fraud.

On January 22nd, President Trump imposed new “safeguard” tariffs on imported solar panels and washing machines, which will be in place for the next three years before tapering downward.  For the renewable energy industry, this is another major blow from this administration. Solar panels, most of which currently come from China will have an additional tariff rate of 30% imposed. Notably, there are already more than 150 other U.S. trade measures in place against various Chinese products. This new measure threatens to handicap a $28 billion industry that relies on parts made abroad for 80 percent of its supply chain.

Trump has also imposed a tariff of 20% on imported washing machines.  This is the first use of safeguard tariffs by the United States since 2002 when President Bush used them to restrict steel imports.  This decision comes on the heels of a determination by the International Trade Commission (ITC) that imports of these goods had injured domestic producers.

While many have seen the action as a necessary means of protecting American manufacturers, members of the South Korean government have harshly criticized the move and signaled a willingness to formally air their grievances before the World Trade Organization (WTO).  Significantly, the 2002 safeguard tariffs imposed by the Bush Administration were ultimately withdrawn after an adverse ruling at the WTO put the United States under the threat of retaliation.

The Department of Commerce submitted its report on the impact of steel mill product imports on U.S. national security to President Trump on January 11.

In a statement on its website, the Department announced that the long-awaited results of the investigation, commonly known as the Section 232 Report, will not be made public until after the President makes his final decision. 

Although the president has 90 days to act, he has the discretion to announce his decision early. 

 

The U.S. Department of Commerce (DOC) has self-initiated an antidumping duty (AD) and countervailing duty (CVD) investigation of imports of common alloy aluminum sheet (common alloy sheet) from the People’s Republic of China (China). So far in 2017, the DOC has initiated 77 AD and CVD investigations in response to petitions filed by the domestic industry. This self-initiation brings the total to 79 – a 65 percent increase from 48 in the previous year. In 2016, imports of common alloy sheet from China were valued at an estimated $603.6 million. This self-inititated investigation is part of the Trump Administration’s continued effort to play hardball on trade issues with China. Further, this investigation is separate from the much broader probe on Aluminum products under Section 232 of the Trade Expansion Act of 1962, which could lead to duties being imposed on aluminum imports from a variety of countries to protect manufacturing interests that are critical to national security.

These AD and CVD investigations will proceed like any other trade remedy investigation. If the DOC determines that common alloy sheet from China is being dumped into the U.S. market, and/or receiving unfair government subsidies, and if the U.S. International Trade Commission (ITC) determines that dumped and/or unfairly subsidized U.S. imports of common alloy sheet from China are causing injury to the U.S. industry, the DOC will impose duties on those imports in the amount of dumping and/or unfair subsidization found to exist. The estimated dumping margin is 56.54 to 59.72 percent.

The ITC will make its preliminary determinations on or before January 16, 2018. If the ITC preliminarily determines that there is injury or threat of injury then the DOC investigations will continue, with a preliminary CVD determination scheduled for February 2018 and a preliminary AD determination scheduled for April 2018 – unless these deadlines are extended.

During the DOC investigation, the ITC will conduct its own investigations into whether the U.S. industry and its workforce are being injured, or threatened with injury, by such imports. If the DOC preliminarily determines that dumping or unfair subsidization is occurring, then it will instruct U.S. Customs and Border Protection (CBP) to start collecting cash deposits from all U.S. companies importing the subject aluminum sheet from China.

The merchandise subject to investigation is common alloy aluminum sheet, which is a flat-rolled aluminum product having a thickness of 6.3 mm or less, but greater than 0.2 mm, in coils or cut-to-length, regardless of width. Common alloy aluminum sheet is typically used in building and construction, transportation, basic electrical applications, appliances, etc. It may be made to ASTM specification B209-14, but can also be made to other specifications.

Common alloy sheet is currently classifiable under HTSUS subheadings: 7606.11.3060, 7606.11.6000, 7606.12.3090, 7606.12.6000, 7606.91.3090, 7606.91.6080, 7606.92.3090, and 7606.92.6080. Further, merchandise that falls within the scope of these investigations may also be entered into the United States under HTSUS subheadings 7606.11.3030, 7606.12.3030, 7606.91.3060, 7606.91.6040, 7606.92.3060, 7606.92.6040, 7607.11.9090. Although the HTSUS subheadings are provided by the DOC for convenience and customs purposes, the written description of the scope of these investigations is dispositive.

Final determinations by the DOC in these cases are scheduled for April 2018 for the CVD investigation, and July 2018 for the AD investigation, but those dates may be extended. If either the DOC finds that products are not being dumped or unfairly subsidized, or the ITC finds in its final determinations there is no harm to the U.S. industry, then the investigations will be terminated and no duties will be applied.

On September 15, the Department of Justice filed a complaint against California-based Perfectus Aluminum, accusing Perfectus of evading $1.5 billion in subsidy and dumping tariffs on Chinese imports of aluminum pallets.

According to the complaint, Perfectus is owned and controlled by Zhongtian Liu, a Chinese national, and the founder and chairman of China Zhongwang, one of the world’s largest industrial aluminum extrusion companies.

DOJ alleges Perfectus illegally imported 2.1 million aluminum pallets from Zhongwang Holdings Ltd. between 2011 and 2014. The government claims the pallets were actually aluminum extrusions, which carry a 374.15 percent countervailing duty (CVD) for the Zhongwang Group.

The complaint accused Perfectus Aluminum of merging several entities in 2014 to dispose of Zhongwang Holdings massive stockpile of aluminum. Pengcheng, Transport Aluminum, Century American Aluminum, American Apex Aluminum, Global Aluminum, Aluminum Source, and Aluminum Industrial were the Chinese companies included in the 2014 merger.

The complaint claims Liu also attempted to develop another facility in Barstow, California, by melting aluminum ballets to be sold as billet in the U.S. However, a stock analysis report alleged Liu Zhongtian of fraudulent activity, causing him to abandon the development. Instead, Liu shipped 6,337 shipping containers of pallets to Vietnam to melt the pallets and re-import the aluminum to the U.S. without having to pay Chinese duties on Vietnamese imports.

According to the DOJ, the purpose of the company’s action was not to use or sell the aluminum pallets, but instead to avoid antidumping and countervailing duties imposed by the U.S. Department of Commerce on certain types of Chinese aluminum.

For more information, contact: Dan Cannistra, Alex Schaefer, Cherie Walterman

Issues First Final Determination of Evasion against a U.S. Importer

On August 14, CBP issued its first final determination in an Enforce and Protect Act of 2015 (EAPA) investigation, finding substantial evidence that wire hangers were imported through evasion. The agency determined the hangers were transshipped by Eastern Trading NY Inc. (Eastern Trading) from China through Thailand in order to evade antidumping duties.

The case was initiated by CBP on October 11, 2016, as a result of an allegation submitted by M&B Metal Products Company (M&B Metal), the sole remaining U.S. producer of wire hangers. On December 13, 2016, the agency issued a notice of initiation of an investigation and notified the parties of its decision to take interim measures based on reasonable suspicion that Eastern Trading imported the merchandise into the U.S. through evasion.

Initiates Eight New Evasion Investigations against U.S. Wire Hanger Importers

As a result of CBP’s action, M&B Metal filed an additional eight allegations of evasion concerning the transshipment of wire hangers through Malaysia. CBP conducted eight on-site visits in Malaysia to investigate the new allegations. It found no production of wire hangers at any of the locations, and therefore concluded there was a reasonable suspicion the wire hangers were imported through evasion, instead of being produced in Malaysia, as claimed upon entry.

On August 17, CBP issued a consolidated notice for the decision on interim measures in those investigations. The notice of the final determination for these investigations is due March 15, 2018, if the investigations are not extended.

Investigates California Furniture Company for Evasion of Wooden Bedroom Furniture Duties

In April, the American Furniture Manufacturers Committee for Legal Trade (AMFC) filed an evasion allegation against Aspects Furniture International, Inc. of Chino Hills, CA. On August 14, CBP issued a notice of interim measures on its investigation into the company for evading AD duties on wooden bedroom furniture. The notice indicated the agency “was already reviewing Aspects’ entries, covering the entire calendar year of 2016, for potential evasion of AD duties before AFMC’s allegation was filed.” CBP expanded the scope of their investigation to include the new allegation.

In this environment, it is more important than ever for companies to ensure that they are importing from reliable manufacturers and sources.

For more information, contact: Frances Hadfield

According to a March 31 U.S. Customs and Border Protection (CBP) press release, the new Executive Order (EO) authorizes the Secretary of Homeland Security, through the Commissioner of CBP to:

  • Develop implementation plans within 90 days to require importers who CBP has determined pose a risk to the revenue of the United States to provide security for antidumping and countervailing duty (AD/CVD) liability through bonds.
  • Develop and implement a strategy and plan for enabling interdiction and disposal of inadmissible goods, including through methods other than seizure.

The EO enhances CBP’s ability to share information with rights holders to determine if Intellectual Property (IP) Rights infringements or violations have occurred, and information regarding merchandise voluntarily abandoned that violates trade laws. The Attorney General also is to develop prosecution practices and allocate resources to treat significant trade law violations as a high priority.

For more information, contact: John Brew, Dan Cannistra, Alex Schaefer, Bob LaFrankie, Jini Koh, Benjamin Blase Caryl