Customs is about to get new responsibilities in the antidumping and countervailing duty (“AD/CVD”) areas that will require the agency to undertake evasion investigations. This could lead to substantial additional liabilities for importers. However, companies that recognize the threat to their bottom line, and act to remove it, will be at a competitive advantage when Customs gains this responsibility.
AD/CVD duties are collected by United States Customs and Border Protection on certain imports. These imports have generally been found to be harming a U.S. industry, and represent either unfairly low prices in the United States (antidumping duties) or unfair subsidies by foreign governments (countervailing duties).
Antidumping duties are calculated based on a comparison of sale prices in the United States and sales prices in the “home market,” which is usually the country of export. Countervailing duties are calculated to offset the benefit derived by the exporter or producer from an unfair government subsidy. These duties can be very substantial, with rates of 200 percent or 300 percent of the value of the imported merchandise not uncommon.
Due to the very high duties in many cases, some manufacturers or importers resort to deceptive means to avoid paying the duties. In these situations the manufacturers or importers obscure the true identity of the producer, the country of origin of the merchandise, and/or the nature of the goods. In some cases this means the goods are shipped through a third country, with that country declared as the origin of the goods. In other cases the goods are classified as articles other than what they are, often as parts of goods. These actions are against U.S. law and cost the United States millions of dollars.
These actions also perpetuate injury to the U.S. industry that is harmed by the imports and put honest foreign manufacturers, as well as honest importers, at a competitive disadvantage. On the other hand, there also are circumstances where products are legitimately exported from a country subject to an AD/CVD order and are transformed into a product of a third country that is not subject to the order, or the product is otherwise exempt from the order. Knowing how to distinguish these two types of situations is the key to a strong defense of evasion allegations made against importers.
Customs has long had the authority to investigate allegations that goods had their origins falsified or were improperly described. In fact, if undertaken by the importer these means of evasion are already violations of 19 U.S.C. 1592.
However, for a variety of reasons, Customs has not pursued allegations of evasion as aggressively as domestic parties would like. Therefore, Congress is considering legislation that would focus on evasion without regard to whether the importer acted to evade the law. Where Customs finds evasion of these orders, even innocent importers can face antidumping or countervailing duty bills that are 200 percent or 300 percent the value of the imported goods. This is not the penalty; it merely represents the lawful duties owed.
In recent years a variety of industries have alleged that there has been AD/CVD evasion. These industries include such diverse products as steel wire hangers, wooden bedroom furniture, uncovered inner springs, steel nails, steel plate, diamond saw blades, tissue paper, honey, laminated woven sacks, crawfish, and ferrovanadium. In some of these cases there have been criminal prosecutions; in others there has been no apparent action by Customs.
As a result, Congress has drafted legislation that will mandate that Customs formally investigate allegations of evasion and sets strict time limits for those investigations. The law also will require periodic reports to Congress regarding the evasion investigations undertaken by Customs. There is broad support for this legislation and we fully expect it to become law.
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