A new duty evasion investigation process, implemented through interim regulations issued by Customs and Border Protection on August 22, has the potential to be a game changer for a lot of importers. In our previous alert, we discussed Section 421 of the Trade Facilitation and Trade Enforcement Act, which provides for the new antidumping/ countervailing duty evasion investigations that will be conducted by CBP. Comments on the interim regulations are due on October 21, 2016, but the new rules go into effect immediately.

  CBP’s new evasion investigations are an additional tool in its efforts to enforce AD and CVD orders. CBP may still assess penalties pursuant to 19 U.S.C. § 1592 in cases involving the evasion of AD and CVD orders. We anticipate the new procedures to be popular with US steel and manufacturing industries, so importers of sensitive products subject to AD/CVD orders need to be vigilant. We provide some details on the process below, as well as commentary on issues that they present.

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Key Points

  • The process applies only to allegations of AD/CVD duty evasion. Allegations may be made by a revamped e-Allegations process.
  • Interested parties may participate in the proceeding and have access to information designated as “public” submitted by other interested parties. Interested parties will also be notified of basic CBP decisions whether to investigate and whether evasion took place.
  • CBP may also seek information from the Department of Commerce if there is uncertainty whether the subject merchandise is within the scope of the applicable AD/CVD order. The process is tolled while Commerce reviews the information.
  • The regulations establish timelines for the process and submission of information for the administrative record of the proceeding. The timelines have the potential to put importers in a precarious situation, whereby they will be subject to potentially costly interim measures before an investigation is complete.

Filing an Allegation (§ 165.11)

  • Evasion investigations are limited to entries made within one year before the receipt of an allegation. (§ 165.2). 
  • Any interested party may file an allegation that an importer has evaded AD/CVD duties. Interested parties include not only US producers, unions, and trade associations, but may also include competing importers. (§165.1)
  • An allegation must include the name of the party making the allegation, why it qualifies to be an interested party, the name and address of the importer against whom the allegation is brought, description of the covered merchandise, and the relevant AD/CVD order. (§ 165.11)
    • This information remains public and cannot be protected as business confidential information. (§ 165.4(c)). As a result of the public identification of the importer alleged to be evading duties, the reputation of any importer subject to an investigation may be adversely impacted beyond the investigation itself. It is unclear how CBP plans to allow “transparency” in these proceedings.
    • The process allows participating interested parties to see public versions of the submissions filed by other interested parties. It is unclear whether CBP would announce there was an investigation to the public, although there does not appear to be a process whereby CBP would announce an investigation.
    • Conversely, there does not appear to be anything in the new regulations that would prevent an interested party from discussing information contained in the publically available information in the proceeding – or to comment that a proceeding had commenced.
    • Additionally, it is unclear whether the information would be subject to Freedom of Information Act requests.
  • A complaining party is only expected to provide “information reasonably available” to them to support its allegation that the importer engaged in evasion, but the interim regulations do not expand on what is considered to be “information reasonably available.” Commerce employs the same standard in initiating AD and CVD investigations and it is a low threshold in that context. Whether CBP will follow Commerce’s “relaxed” standard remains an open question.

Other Federal agencies may request an investigation by providing information that reasonably suggests evasion, but the agency will not be considered a party to the investigation. Therefore, when submitting information to other agencies, one must consider the risks of the agency sharing the information with CBP.

Timeline for CBP Investigation

  • CBP has 15 days to determine whether to initiate an investigation; it may take up to 95 days to issue notification of its decision to initiate. (§ 165.15(d)) 
  • Importers that are alleged to have evaded orders will be particularly disadvantaged by this lag time because within 90 days of initiation, CBP may impose interim measures, as explained below. Therefore, it is possible, that the first time an importer learns that it is being investigated is when CBP imposes interim measures. (§ 165.24)

For ease of reference, an overview of the estimated timeline for a proceedings under these Regulations is provided. 

"Interim Measures” – Impact on Importers 

  • Importers may be impacted as soon as 90 days after the initiation of an investigation through imposition of interim measures on both liquidated and unliquidated entries. (§ 165.24).
  • If CBP determines there is “reasonable suspicion” that an importer entered merchandise into the US through evasion, it may take a variety of actions for unliquidated entries, including:
    • Suspending the liquidation of unliquidated entries that entered after initiation of investigation;
    • Extending the period of liquidation for unliquidated entries that entered before the initiation of the investigation; and
    • Requiring single transaction bond, cash deposits, or additional security.
  • For liquidated entries, CBP may initiate or continue any appropriate measures separate from the evasion investigation. Theoretically, this would grant CBP wide latitude to recover duties for entries that are liquidated.
  • Notably, CBP did not provide any explanation of what it considers to be sufficient to meet the “reasonable suspicion” standard. This standard is likely to be established during the first phase of investigations, which brings additional uncertainty to the administration of the early evasion investigations.
  • If CBP determines that it has substantial evidence to determine that an importer has evaded an AD/CVD order at the end of the investigation, it may take the same actions as it takes for interim measures. (§ 165.27)

Factual Information

  • Interested parties may request that CBP treat any part of the submission as business confidential information, except identifying information as explained above. Business confidential treatment will be granted to information that consists of trade secrets and commercial or financial information obtained from any person, which is privileged or confidential in accordance with 5 U.S.C. § 552(b)(4). (§ 165.4(a)).
  • A public version of all written submissions by interested parties must be filed the same day as the business confidential version and served on all other parties to the investigation. Similar to Commerce, a detailed summary of the redacted business confidential information must be provided in order to allow a reasonable understanding of the substance of the information (§ 165.4(a)).
  • CBP is authorized to obtain information from its own files, other agencies, through questionnaires and correspondence, and through field work by its officials. (§ 165.5(a)).
  • Similar to AD/CVD proceedings before Commerce, CBP may apply adverse inferences where it finds that an alleging party, the importer, or foreign producer or exporter fail to cooperate and comply to the best of their ability with a request for information made by CBP. (§ 165.6). The term adverse inferences is undefined, and again, the question is whether CBP will simply apply the Commerce standard.
  • Parties must certify to the veracity of the information, and also certify that they are providing information from their own business records and not business confidential information of another entity or information that is public. (§ 165.4(d)).
  • CBP may, in its discretion, verify information in the United States or foreign countries. (§165.25). CBP has not provided any information regarding how verifications will be conducted.
  • Similar to proceedings before Commerce, CBP will maintain an administrative record of all evidence submitted in connection with the evasion determination and any related administrative review. (§ 165.21)
  • Unlike Commerce proceedings, however, there is no Administrative Protective Order process for CBP’s new evasion investigation proceedings. As a result, interested parties in an evasion investigation will not be able to review and comment on the business confidential information submitted by the other parties but rather will submit responses to the public version of written arguments based on the public information and detailed summary of business confidential information. 

Investigation & Appeal Process

  • CBP has 300 days, or 360 days if extended, to make its initial determination based on whether there is “substantial evidence” as to whether a covered merchandise entered the US through evasion. Parties to the investigation will be informed five days after the determination is made. (§165.27)
  • CBP provides opportunities for parties to submit written comments on the administrative record. However, without an APO in place, counsel for parties will not be able to review and evaluate business confidential information submitted by other parties and therefore will be limited to provided comments on public factual information. (§165.26)
  • Once CBP makes its initial evasion determination, it will require the posting of cash deposits and assess duties on entries of covered merchandise. (§165.28(c))
  • Within 30 business days after the issuance of the initial determination, parties may request an administrative review of the initial determination with the Executive Director, Regulations and Rulings, Office of Trade. (§ 165.41(d))
    • After parties submit comments, Regulations and Rulings applies a de novo standard of review. It reviews the entire administrative record for the initial determination, along with any additional information it requests, and must issue a decision within 60 business days of the commencement of the review. (§ 165.45)

While this all may look familiar to those who are used to Commerce AD/CVD investigations and reviews, it is important to keep in mind that CBP is a separate agency from Commerce, and is not bound by Commerce’s interpretations of the provisions. For example, one such variance in interpretation as evident in the way that CBP treats the concept of substantial transformation for Customs purposes, which is quite different from Commerce’s interpretation of the concept in a scope proceeding.