On July 16, 2012, the European Union published a determination that Malaysian exporters and Chinese producers of certain kinds of fiberglass have been circumventing an anti-dumping duty (AD) order imposed by the EU in 2011. This decision illustrates opportunities for U.S. authorities to take a more robust and forward-leaning approach to address the issues of duty evasion and circumvention, which have become serious challenges to our international trade laws and the assistance they are intended to provide to injured U.S. industries and workers.
The EU's 2011 AD order imposed duties of 62.9 percent on all Chinese exports to offset unfair pricing. Now, as a result of its circumvention investigation, the EU has extended the coverage of its order, and the 62.9-percent duties, to all exports of these fiberglass products from Malaysia.
In its circumvention investigation, the EU found that Chinese fiberglass products were being transshipped through Malaysia, and sent to the EU with false claims of being a product of Malaysia. While the EU's finding were limited by a lack of cooperation by the Malaysian exporters and the Chinese producers, it revealed activities typical of many duty evasion and circumvention schemes uncovered in recent years in both the EU and the United States.
The EU found that Malaysian exporters had falsified and altered documents, misclassified goods in order to claim Malaysian origin, and failed to report corporate relationships between the parties being investigated. These types of activity, unfortunately, have become frequent hallmarks of circumvention and duty evasion schemes affecting both EU and the U.S. industries with AD and countervailing duty (CVD) orders. Because several parties refused to cooperate in the investigation, however, the full scope of their activities is unknown.
Among other things, the EU investigation is noteworthy in that the EU investigated the activities of the entire Malaysian industry, rather than limiting its inquiry to a single exporter or two. This approach resulted in a remedy covering the entire Malaysian industry, with Malaysian exporters having an opportunity to demonstrate why they should not be covered.
It stands in significant contrast to the approach taken by the United States Department of Commerce in its circumvention inquires -- rather than taking a broad approach to addressing circumvention and examining exports from a country generally, as it does in AD and CVD investigations, Commerce conducts its investigations on an exporter-specific basis, and applies its determinations only on a producer-specific basis. This approach, which is not required by Commerce's statute, requires aggrieved parties to pursue circumvention by filing multiple requests over time -- a costly and burdensome proposition for companies trying to recover from injury caused by dumped or unfairly subsidized imports.
As a matter of policy, and as a matter of maximizing the effectiveness of AD and CVD orders, the EU's remedy-focused approach is attractive and easily could be implemented in the United States. As noted, the U.S. trade laws do not require Commerce to take the narrow approach it currently pursues. As an administrative matter, a change in approach would permit the agency to presumptively cover all exports from a country from which duty evasion and circumvention are found.
This approach would be a reasonable exercise of Commerce's powers as the authority charged with administering the U.S. trade laws and protecting the integrity and effectiveness of its AD and CVD orders. As the EU has done, Commerce could easily provide an opportunity for exporters to demonstrate that they should be excluded from the order's coverage, thus avoiding the overly broad imposition of duties.
As a separate matter, the use of Malaysia and other Pacific-region countries to transship Chinese goods highlights the importance of including specific provisions addressing duty evasion and circumvention in any multilateral trade agreement involving commonly used circumvention conduits, such as Malaysia, Vietnam, Thailand and Indonesia.
Negotiations regarding the Trans-Pacific Partnership, which are currently underway, provide a significant opportunity to get ahead of the circumvention/evasion issue by including provisions specifically addressing circumvention and duty evasion, with the goal of crafting meaningful obligations to allow signatories to promptly and effectively address circumvention of all types.
For example, any agreement like the TPP should allow customs officials to conduct on-site verifications during circumvention investigations, in order to determine the existence of legitimate production evasion is suspected. Measures like this would demonstrate the signatories' commitment to respecting the rules of the international trade system, and provide a transparent basis for all parties to ensure that evasion and circumvention are promptly stopped. In fact, including meaningful provisions to address circumvention and evasion may well deter would-be cheaters. As in so many other areas of life, an ounce of prevention may be worth a pound of cure.
Source: International Trade Law360.