Initiation of evasion enforcement investigation
Evasion investigation procedure
Earlier this year, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015, which created a mandatory procedure for US Customs and Border Protection (CBP) to investigate allegations of evasion of anti-dumping or countervailing duty (AD/CVD) orders. On August 22 2016, CBP published interim regulations to implement this new investigative authority, setting out the procedural framework and interested parties' rights and obligations in the process. The interim rules have already taken effect, but a 60-day public comment period is now open and could result in revisions when the rules are finalised.
The Trade Facilitation and Trade Enforcement Act mandate reflects the frustration expressed by US manufacturers regarding CBP's prior process, which they have characterised as informal and largely non-transparent. CBP has long conducted investigations into allegations that merchandise subject to AD/CVD orders has been mis-declared at entry - either identified incorrectly or undervalued - to avoid or reduce AD/CVD liability. However, CBP was not required to provide alleging parties with any information about their role in the process or even to notify them of the outcome of the process.
The interim regulations come amid scrutiny of CBP's collection of anti-dumping and countervailing duties. In mid-August the General Accounting Office released a report entitled "Antidumping and Countervailing Duties: CBP Action Needed to Reduce Processing Errors and Mitigate Nonpayment Risk". The report estimated that CBP failed to collect $2.3 billion in duties between 2001 and 2014 and recommended that CBP undertake systemic risk assessment steps to reduce duty non-payment. An important cause of the under-collection of duties is the 'retrospective' system of AD/CVD collection used by the United States. Under this system, CBP collects estimated duties at the time of entry, but the final AD/CVD amount that an importer is obliged to pay may not be known for years, after the US Department of Commerce has conducted a review of the covered entries and any related litigation is completed. By then, some importers may no longer be found; and if the final duty rate is much higher than the deposits, the additional amounts owed may be difficult to collect. Despite the impediments to duty collection caused by the structure of the US duty assessment system, CBP is under increased pressure to improve its AD/CVD collection rate.
The new rules provide a means by which US producers, unions and competitors of the importers of goods that are subject to AD/CVD orders can present evasion allegations to CBP and participate actively in the investigation process. It also signals a heightened likelihood of such investigations and a potentially burdensome process for importers and foreign exporters/producers targeted by evasion allegations.
Initiation of evasion enforcement investigation
As mandated by the Trade Facilitation and Trade Enforcement Act, CBP has created a Trade Remedy Law Enforcement Directorate to handle AD/CVD evasion allegations. The regulations define 'evasion' as entering merchandise that is subject to AD/CVD orders by means of any statement or omission that is material and false, and that results in any AD/CVD amount being reduced or not applied or collected. Any interested party or federal agency may file an evasion allegation with the directorate. The evasion allegation must:
- identify the party making the allegation;
- explain how that party qualifies as an 'interested party';
- identify the party alleged to have evaded an order;
- describe the covered merchandise;
- identify the relevant AD/CVD order; and
- support the allegation with reasonably available information.
Evasion investigation procedure
CBP must determine whether to initiate an investigation within 15 business days of receiving an allegation. In making this initial determination, CBP must evaluate whether the information "reasonably suggests" that covered merchandise entered the United States through evasion. CBP then has five days to notify the alleging party (but not the importer targeted by the allegation) of the initiation. CBP will determine within 90 days of initiation whether a reasonable suspicion exists that covered merchandise entered through evasion. If so, CBP is authorised to take interim measures, including:
- suspending liquidation of unliquidated entries of covered merchandise that have entered the United States after initiation;
- extending the liquidation period for covered merchandise entering prior to initiation; and
- possibly requiring single transaction bonds or cash deposits, or even separately initiating or continuing measures against previously liquidated entries.
The interim regulations permit CBP to wait until this 90-day deadline has passed to notify the importer of the allegation and initiation of evasion enforcement proceedings. The interim regulations require CBP to notify the importer no later than 95 days after initiating the investigation or five business days after interim measures have been taken.
To conduct its investigation, the interim regulations authorise CBP to solicit information from interested parties though questionnaires and to place its own information on the administrative record. Parties to the investigation - which the interim regulations define as the party that filed the allegation and the importer alleged to have evaded duties - may submit factual information up to 200 calendar days after initiation and written arguments up to 230 calendar days after initiation. In addition, CBP may conduct on-site 'verifications' in the United States or abroad. To induce cooperation, CBP is authorised to apply inferences adverse to an importer or foreign exporter/producer that CBP determines has failed to cooperate to the best of its ability. An adverse inference may be based on the initial allegation of evasion.
CBP has 300 calendar days from the date of initiation to make a final determination as to whether merchandise covered by an AD/CVD order entered the United States through evasion. CBP may extend that timeframe up to 60 days if it determines that a given investigation is extraordinarily complicated. The process may be further extended if CBP decides to make a referral to the Department of Commerce to determine whether the merchandise described in the allegation is covered by the scope of the AD/CVD order in question. This referral tolls the deadlines for CBP until the Department of Commerce issues its determination.
If CBP determines that substantial evidence supports a determination that covered merchandise entered the United States through evasion, it will:
- notify the parties to the investigation within five business days;
- suspend or continue to suspend liquidation, or extend the period for liquidating unliquidated entries; and
- notify the Department of Commerce of the determination.
A negative determination will prompt CBP to terminate any interim measures and to liquidate entries in the normal course.
The regulations also provide for a 30-day period for a party to request a subsequent de novo administrative review by CBP's Regulations and Rulings, Office of Trade. Such requests must be based solely on information contained in the administrative record. After CBP accepts such an administrative appeal, it has 60 days to issue a determination. Judicial review, of either the determination or the administrative review is also available, within the exclusive jurisdiction of the US Court of International Trade.
The establishment of a process to address allegations of AD/CVD evasion will likely increase the inclination of domestic producers to present such allegations to CBP. US importers of goods that are subject to AD/CVD orders should therefore carefully consider how these new rules will affect them and what steps to take to avoid allegations of duty evasion and, if necessary, actively participate in investigations in order to protect their interests. US importers and foreign producers should also carefully consider how the interim regulations could be improved, such as by providing earlier notice of an investigation to importers or including foreign producers in the definition of 'parties to the investigation', and should take advantage of the public comment opportunity before the October 21 2016 filing deadline.
For further information on this topic please contact Neil R Ellis, Brenda Jacobs or David P Lyons at Sidley Austin LLP by telephone (+1 202 736 8000) or email ([email protected], [email protected] or [email protected]). The Sidley Austin LLP website can be accessed at www.sidley.com.