Abuse of the procedure occurs when new shippers request that Commerce review a single sale deliberately undertaken for the purpose of calculating a low duty deposit rate. If successful, importers can enter merchandise from the “new” shipper with minimal security against future duties owed. Because many of the importers are “shell” or paper companies with no physical assets, once final duties are calculated and assessed, the importers disappear and the duties go uncollected. Commerce attempts to prevent abuse of the procedure by carefully reviewing the “single sale” that is the basis of the new shipper review request to ensure that it is “bona fide.” If a sale is not determined to be bona fide, the new shipper review is terminated and this vehicle for the evasion of payment of substantial duties is foreclosed.
In recent CIT cases, new shippers challenged Commerce’s termination of their reviews after the agency found that the single sale was not bona fide. Foshan Nanhai Jiuijiang Quan Li Spring Hardware Factory v. United States involved a Commerce determination that the lone sale of Chinese innersprings had abnormal quantity and price compared with data from U.S. Customs and third countries. When questioned by Commerce, the importer admitted no other innersprings imports, gave contradictory responses as to the merchandise’s use, and refused to provide corroborating records. The CIT upheld the new shipper review termination: “Commerce properly determined that the totality of the circumstances evidenced in the administrative record supported a finding that the Foshan’s companies’ U.S. sale was not bona fide.”
Jinxiang Yuanxin Import & Export Co. v. United States has a similar fact pattern yet Commerce was found to have acted unlawfully. Commerce determined that the single sale of Chinese garlic had abnormal price compared with data from U.S. Customs and third countries. The CIT held that Commerce failed to explain its departure from agency practice against comparing single-clove garlic (in that sale) with multi-clove garlic (in the Customs data). Commerce also improperly speculated in analyzing the third country data. The CIT deferred considering “Commerce’s finding that plaintiff’s sole entry was of an unusually small quantity” but found “reasonable Commerce’s conclusion that the circumstances surrounding Yuanxin sales were ‘atypical of normal business practice.'”
Even with Commerce’s scrutiny, the agency faces significant obstacles in preventing abuse of the new shipper review process. The law allowing for new shipper reviews is permissive and did not contemplate widespread abuse. Given the vast amount of uncollected duties as a result of new shipper reviews – estimated to exceed $100 million on Chinese crawfish alone in a 2006 report for Congress – legislative action is warranted. A recent bill entitled the Preventing Recurring Trade Evasion and Circumvention (PROTECT) Act not only makes it more difficult for “new shippers” to export during the pendency of a review, but also requires that new shipper reviews be “based solely on the bona fide United States sales.” The law would require that new shippers have at least two sales – doubling the amount of evidence for the bona fide assessment by Commerce. While not a panacea for new shipper mischief, enacting this PROTECT provision would significantly augment Commerce’s ability to prevent further abuse of the new shipper review process.