New Anti-Evasion Rules and Procedures Are Issued, as CBP Flexes Its Muscles on Trade Remedy Enforcement in AD and CVD Cases

Do you import goods subject to antidumping (AD) or countervailing duty (CVD) orders? If so, get ready for potentially tougher increased investigations.When it comes to enforcing AD and CVD orders, there is a new sheriff in town. On August 22, 2016, new trade remedy enforcement regulations were issued by U.S. Customs and Border Protection (CBP), which include new powers to investigate potential evasion of AD and/or CVD orders, as authorized by the “Enforce and Protect Act” passed by Congress earlier this year. The release of these interim final regulations signals the latest of CBP’s efforts to increase its focus on investigating potential instances of evasion by importers and enforcing trade remedy laws. The updated regulations are set forth in 19 C.F.R. Part 165.

Protectionism Is High and Evasion Is a New Target. In today’s environment, political rhetoric in the United States over free trade and protectionism is running high. A July 29, 2016 New York Times article identified a shift toward protectionism as one of the sole issues of apparent common political ground, observing, “Democrats and Republicans agreed on almost nothing at their conventions this month, except this: free trade, just a decade ago the bedrock of the economic agendas of both parties, is now a political pariah.” Presidential hopefuls of both major parties have embraced this growing resistance to global free trade principles while on the campaign trail. Republican nominee Donald Trump recently pledged to withdraw the United States from long-standing free trade agreements, including NAFTA, if they remain unchanged, and vowed to resist more recently proposed agreements, such as the Trans-Pacific Partnership (TPP). In recent weeks, Democratic nominee Hillary Clinton has also made headlines for her newfound lack of support on free trade deals like TPP, despite having supported many trade deals in the past— including during her time as Secretary of State in the Obama administration. Regardless of November’s presidential and congressional election results, the next four years seem likely to bring with them a measurable change in U.S. support for current free trade deals and a shrinking pool of political will in Washington to pursue new free trade projects on the international stage.

GAO Estimates $2.3 Billion in Uncollected AD and CVD Duties. At the same time, Congress has expressed increasing concern over the enforcement of compliance with trade remedy rules and AD/CVD orders. On August 15, 2016, the Government Accountability Office (GAO), Congress’s primary investigatory and audit agency, released a lengthy audit report of CBP, finding that an estimated $2.3 billion in AD and CVD duties has gone uncollected between 2001 and 2014. In its report, the GAO urged CBP to issue regular guidance on the collection and analysis of data as a means of addressing AD and CVD liquidation errors, and to take steps to mitigate nonpayment, using data and risk assessment strategies. While the GAO attributed the majority of the unpaid bills to only a few importers—with nearly half of total missing duties being owed by just 20 importers—members of Congress have used the report’s findings to exhort the Obama administration to take strong action to enforce U.S. trade rules. On August 15, House Ways and Means Chairman Kevin Brady (R-TX) issued a statement that the GAO report “highlights that the Administration needs to do much more to enforce our trade laws.” Rep. Brady’s statement urged the administration to show it is serious about enforcement.

New Enforcement Directorate Ready to Take Charge. In February 2016, Congress passed the Trade Facilitation and Trade Enforcement Act, which among its many provisions incorporated the Enforce and Protect Act of 2015, establishing within CBP’s Office of Trade a “Trade Remedy Law Enforcement Directorate” (TRLED), and laying the statutory framework for a new, robust process at CBP with specific procedures and strict deadlines for investigations into evasion of AD and CVD laws. CBP has embraced this shift toward a more robust investigatory process, identifying “Antidumping and Countervailing Duties” as one of the agency’s five current high-risk issues, known as Priority Trade Issues (PTIs). According to testimony from CBP Commissioner Kerlikowske in a recent hearing before the Senate Committee on Finance, in April 2016 CBP established a Trade Enforcement Task Force within its Office of Trade, to focus on issues related to enforcement of AD and CVD duty law (as well as the prohibition of imported products made with forced labor, also strengthened in the 2016 Customs bill). In addition to concerns about harm to the domestic economy or the health of the American people, in their support for this new mission Congress and CBP appear to be equally motivated by the pursuit of more robust revenue collection. As Commissioner Kerlikowske was quick to note upon the enactment of the bill, the duties, taxes, and fees collected by CBP are the U.S. government’s second largest source of revenue.

The newly created Trade Remedy Law Enforcement Directorate, to be led by a director and a dedicated National Targeting Analysis Group (NTAG), is tasked with developing policies to prevent and counter circumvention, directing enforcement and compliance assessments efforts for these policies, creating commercial risk assessment models, and issuing Trade Alerts to port directors that recommend the examination or testing of certain incoming merchandise to ensure compliance. Most importantly, the Directorate now has an established enforcement process under the Act and new regulations, at 19 C.F.R. Part 165, for initiating investigations after receiving either (i) an allegation of evasion filed with the CBP by an interested party, accompanied by information reasonably available to the party and suggesting evasion (19 C.F.R. § 165.11), or (ii) a request for investigation from any other federal agency with information that reasonably suggests evasion (19 C.F.R. § 165.14), regarding entries made within one year before receipt of the allegation or request. “Interested parties” in an investigation are broadly defined as not only the alleged evading importer, but also importers of covered merchandise who bring allegations against other competing importers. In its investigation, CBP may issue questionnaires to those alleging evasion, as well as to those importers alleged to evade, and may draw adverse inferences for failures to cooperate (19 C.F.R. § 165.6).

The following chart provides a timeline of key steps in the investigation process:

CBP Initiation of Investigation

CBP must decide whether to initiate an investigation no later than 15 business days after receiving an allegation by an interested party or request for investigation from another federal agency.

19 C.F.R. § 165.15(a)

CBP Referral to Dep’t of Commerce (Optional)

CBP may refer the question of whether merchandise is properly within the scope of an AD/CVD order to the Department of Commerce, when required. Until Commerce renders a determination, this referral tolls the timeline of the investigation.

19 C.F.R. § 165.16

CBP Interim Measures

CBP may take interim measures no later than 90 calendar days of its decision to initiate an investigation, if there is a “reasonable suspicion” of evasion. This measure may include suspension of liquidation of covered entries and requiring a single transaction bond, posting of a cash deposit, or other action.

19 C.F.R. § 165.24(a)

CBP Notification of Investigation

CBP must notify all parties to the investigation no later than 95 calendar days 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)

Party Submission of Arguments

Parties to the investigation may submit written arguments no later than 230 calendar days after CBP’s decision to initiate an investigation. Other parties may respond to the arguments no later than 15 calendar days after their submission.

19 C.F.R. § 165.26(a)–(b)

CBP Initial Determination of Evasion

CBP must make a determination of evasion based on “substantial evidence” no later than 300 calendar days after its decision to initiate an investigation. This deadline may be extended where the investigation is “extraordinarily complicated” or where additional time is necessary to make the determination. CBP must notify all parties to the investigation no later than 5 business days after its determination.

19 C.F.R. § 165.22(a) &

19 C.F.R. § 165.27

Party Request for Review

Parties to the investigation may file a request for de novo review no later than 30 business days after the initial determination of evasion.

19 C.F.R. § 165.41

CBP Final Determination of Evasion

CBP must make a final determination of evasion no later than 60 business days after commencement of the review and assignment of a case number.

19 C.F.R. § 165.45

Prior Changes under the Trade Preferences Extension Act. CBP’s new authority comes at a time when Congress has already been making strides to increase regulatory agency power and discretion in the trade remedy investigation process. In June 2015, Congress passed the Trade Preferences Extension Act, which among other things significantly amended several important AD- and CVD-related rules to provide the Commerce Department and the International Trade Commission (ITC) with additional discretion to impose AD and CVD orders, assess higher duty rates, and impose stiffer penalties on uncooperative or nonresponsive interested parties.

The confluence of a heightened political environment for domestic business support, a new enforcement Directorate in place, new rules and tools for tracking and confirming duties owed, and several billion dollars in lagging duty collection leads to the anticipated robust enforcement of AD and CVD Orders. In short, if you import goods under AD and CVD orders, beware, the taxman cometh.