US Customs and Border Protection has been directed by Congress to be much more aggressive in policing antidumping and countervailing duty orders. Most significantly, CBP has been directed to investigate and enforce US trade remedy actions using a new procedure that, heretofore, has been the exclusive jurisdiction of the US Department of Commerce. Importers need to consider their exposure under these new rules, although there are many open questions as to how the new investigation procedures will operate.

In this alert we examine these new enforcement provisions. In a subsequent alert we will examine some of the collateral consequences.

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Trade Enforcement Provisions Of the 2015 Act

Title IV and VI of the new law have specific new provisions to deter and investigate evasion of AD/CVD orders. These enforcement provisions are among the most far reaching, and potentially game-changing, provisions for importers, including:

  • Directs formation of a new Trade Remedy Law Enforcement Division within CBP to direct enforcement efforts and develop risk assessment targeting for high risk cargos (e.g., steel imports). Section 411(a).
  • Establishes a National Targeting and Analysis Group to prevent and counter evasion through targeted risk assessment. Section 411(c).
  • For the first time, permits the Department Of Commerce and International Trade Commission to release proprietary information to CBP in investigating negligence, gross negligence, and fraud cases. Section 413
  • Requires CBP to engage in negotiations with other countries to prevent evasion. Section 414.
  • Establishes a “Trade Enforcement Trust Fund” with $15 million to monitor other countries” compliance with WTO and free trade agreements and to investigate emerging issues. Section 611.

New AD/CVD Evasion Procedure

Most important is the new normal “on the record” investigation procedure within the CBP Trade Remedy Law Enforcement Division to investigate AD/CVD evasion. Section 421 of the new law allows US producers or wholesalers, unions, foreign manufacturers or exporters, and trade associations of a domestic “like product” covered by an AD and/or CVD order (“covered merchandise”) to file an allegation that an importer has entered covered merchandise through evasion. In other words, an evasion allegation could come from a competitor. Further, Commerce and the ITC may also “refer” a matter to CBP for investigation. The only limit for an Agency referral is that they submit evidence that “reasonably suggests” a person has been evading an AD or CVD order.

Once a complaint is filed the process is as follows:

Click here to view the image.

Note that intent is not a factor. Evasion can be found based regardless of whether the acts were intentional or the importer knew the entry was an evasion. Once CBP finds that evasion has occurred, appropriate duties and deposits will be assessed, and bonding required. Sound more like a trade remedy proceeding? Yes and no. It is definitely not a penalty proceeding – that type of investigation would be separate but a finding of evasion may well lead to a penalty proceeding as an “additional enforcement measure,” and this proceeding is run by CBP, not Commerce.

Interim Regulations Must Be Issued By August 2016

The law requires CBP to issue implementing regulations within 180 days of enactment, or August 22, 2016. Open issues and hurdles to overcome include:

  1. There is little time to draft implementing regulations. CBP will use an interim rulemaking process where the new regulations will go into effect and comments will be received AFTER the regulations go live. This means any bugs in the rules will be sorted out while investigations are pending. We understand that CBP has drafted the regulations and they are in interagency review.
  2. These will be “on the record” proceedings, similar to a Commerce Department investigation or administrative review with statutory deadlines. CBP will not have discretion to stretch investigations out like current audits/investigations.
  3. CBP will have to establish an electronic record filing system to handle complaints, and investigations on the record. This will be a new system for CBP.
  4. CBP has pledged transparency in the process, although there is no provision for investigations to be public record proceedings.

There are many details to be worked out in the regulations process, and the first cases filed will be breaking new ground. The evasion procedure clearly has a trade remedy proceeding aspect to it, but it will be a CBP proceeding so expect the rules to follow a CBP approach. Knowledge of both trade remedy proceedings and CBP proceedings will be important as the new rules take effect.

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Some History

If the above process sounds familiar it should. It is the language from Finance Committee Ranking Member Ron Wyden (D-Ore.) and Senator Susan Collins (R-Me.) previously introduced ENFORCE Act. And in case there is any confusion about which country might be in the crosshairs of the new circumvention language, the answer can be found in a 2010 Senate Staff Report which helped give rise to the ENFORCE Act. In August 2010, Senator Wyden’s staff created a fake company called AvisOne Traders Inc and posted a company profile on Alibaba.com, China’s massive e-commerce website. It then asked Chinese companies to bid on orders for products covered by US AD and CVD orders and collected responses of companies willing to evade orders. CBP quickly congratulated Senator Wyden’s staff on the report.

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Importers Beware

All indications are that CBP will hit the ground running to implement and enforce the new anti-evasion law. CBP has already taken steps to beef up its enforcement operations, especially with respect to AD and CVD orders – it is possible that enforcement actions under these new provisions could begin as early as this August. Primary targets of these evasion proceeding are most likely to be steel imports, and other “sensitive” imports, particularly from China.

What does this mean for importers in the near-term? Importers will be receiving more frequent CF-28 requests for information on sensitive products, and if an allegation is accepted, far more intrusive AD/CVD evasion questionnaires from CBP. There will also be collateral consequences like enforcement proceedings and penalty actions. Therefore, it makes sense to take the necessary steps now to ensure that they understand the new law and consider whether current compliance systems are robust enough to prevent evasion claims.

Note that this law is part of a broader effort by both the Congress and CBP to “get tough” on trade enforcement, particularly with respect to AD and CVD evasion. CBP has already imposed “live–entry” requirements for steel imports from China (filers must provide all entry documents and pay duties before cargo gets released). Moreover, three bills have passed the US House of Representatives in the last few months to toughen border security. Still, the 2015 Trade Enforcement Act may contain some of the most aggressive measures to date. This enforcement mandate will only get tougher as the US moves forward with trade negotiations with both the Pacific Rim and Europe.