CBP Authority to Address Risk to Revenue by Dumped Merchandise Under Attack

News & Insights
Sep 18, 2014

The problem of assessed antidumping duties that cannot be collected by U.S. Customs and Border Protection (“CBP”) has been an increasing problem undermining the effectiveness of relief against unfair trade in the United States.  Through fiscal year 2012 – the last year for which data are available – CBP reported a total of nearly $1.8 billion in open (uncollected) antidumping and countervailing duty bills.

The vast majority of the $1.8 billion in uncollected duties relate to just five antidumping duty orders:  (1) fresh garlic from China; (2) crawfish tail meat from China; (3) wooden bedroom furniture from China; (4) honey from China; and (5) preserved mushrooms from China. Of these, a remarkable $541 million in antidumping duties has been assessed and not collected on imports of fresh garlic.

Open BillsAmount
Fresh Garlic (China)$541,363,410.35
Crawfish Tail Meat (China)$393,659,583.32
Wooden Bedroom Furniture (China)$369,281,676.77
Honey (China)$177,889,035.81
Preserved Mushrooms (China)$120,486,569.10
Fish Fillets (Vietnam)$25,247,551.99
Polyethylene Retail Carrier Bags (Thailand)$22,505,206.27
All Other AD/CVD Orders$139,947,826.02

Trade enforcement and duty collection with respect to imports of fresh garlic has, accordingly, posed a substantial challenge to CBP.  A review of bills of lading information indicates that trade in Chinese garlic is typified by a changing cast of exporting and importing companies that appear and disappear on a regular basis.  A review of the history of the U.S. Department of Commerce’s (“Commerce”) administration of the antidumping duty order on fresh garlic from China evidences a large number of “new shipper reviews” wherein companies attempt to obtain low cash deposit rates based on a minimal number of shipments – often based on a single sale into the market.  Once a low cash deposit rate is achieved, the company can export large quantities of merchandise into the market that may be ultimately subject to far greater assessment rates.

CBP has responded to these challenges by increasing scrutiny of fresh garlic imports entering the United States from China that claim eligibility for low cash deposit rates.  Last year, CBP took action regarding shipments of fresh garlic from a Chinese exporter, Jinxiang Hejia Co., Ltd., to a U.S. importing company named Yin Xin International Trading Company, Ltd., after the agency found what it believed to be inconsistencies in Hejia and Yin Xin’s documentation.  In result, CBP required that Yin Xin post single-transaction bonds (“STBs”) for all entries of fresh garlic from Hejia to protect against the risk to revenue. Yin Xin challenged CBP’s STB requirement at the U.S. Court of International Trade, also seeking a temporary restraining order (“TRO”) against enforcement of the requirement.  Yin Xin initially won a TRO at the Court, only to have the order removed a week later after the Court reviewed documentation and argument presented by the U.S. government in support of the STB requirement.  In reversing its prior grant of the TRO, the Court observed:  “After reviewing Defendant’s response, it is apparent that the court improvidently granted Plaintiffs’ Application for a TRO.”  Based on the facts presented in that proceeding, the Court drew the following conclusions while weighing the public policy considerations for and against the grant of a TRO:

Customs is responsible for protecting the revenue of the United States.  19 U.S.C. § 1623 and 19 C.F.R. § 113.13 demonstrate a strong public interest in protecting that revenue and assuring compliance with the laws by requiring additional security to cover potential liabilities arising from imports.  Permitting the subject imports to enter the stream of commerce without additional security would, in effect, contravene the will of Congress that antidumping duties be collected in accordance with Commerce’s antidumping duty determinations and would place the revenue of the United States in jeopardy.  Defendant has shown that without the additional security the potential loss of revenue is substantial.  Consequently, the public interest favors Customs’ request for additional security from Yin Xin.

And, in fact, the risk to revenue posed by import entries of fresh garlic shipped from Hejia has come to fruition.  Those shipments that were able to enter prior to CBP’s STB requirements were imposed are subject to an administrative review currently being administered by Commerce.  On September 12th, Hejia, through counsel, informed Commerce that it was withdrawing from that administrative review and would no longer participate.  In result, the assessment rates for the antidumping duties to be imposed on Hejia’s past entries will be substantially in excess of cash deposits made at the time of entry.  In these circumstances, the importing company has often been a paper company created principally as a vehicle to mitigate against future liability for antidumping duties.  Thus, once a final assessment rate is issued by Commerce at the conclusion of the current administrative review, the amount of uncollected antidumping duties related to fresh garlic entries is likely to climb even higher.

CBP’s scrutiny of imports of Chinese fresh garlic has continued and last week two different U.S. importers filed suit at the Court of International Trade challenging the application of STBs on entries of garlic from their respective suppliers.  Earlier this week, both importers filed requests for TROs seeking to prevent application of the STB requirements.

Both lawsuits present similar facts, with the respective Chinese suppliers having received low cash deposit rates through new shipper reviews that were completed in 2008 and both suppliers thereafter not shipping any fresh garlic to the U.S. market.  Both Chinese exporting companies, Jining Yongjia Trade Co., Ltd. and Qingdao Tiantaixing Foods Co., Ltd., remained dormant in the U.S. market until 2014.  According to the respective declarations submitted by officials with the two different U.S. importing companies accompanying the TRO applications, the two different Chinese exporters did not subsequently ship fresh garlic to the U.S. market after obtaining the low cash deposit rates from new shipper reviews “due to some business issues . . . .”  The respective declarations from the two U.S. importing companies, International Fresh Trade Corporation and Kwo Lee, Inc, appear to indicate that neither of the importing companies had any prior history of importing fresh garlic and that both “entered into an agreement . . . to purchase fresh garlic” in June 2014, with the agreement based on the importer “providing security to” CBP.  Moreover, both declarations assert that CBP has demanded that – in the absence of the ability to post the requisite STBs – “we either destroy or re-export the containers,” and that neither importer has “the financial ability to re-export the garlic and by destroying the garlic” both would be “losing its customers in the U.S. and faces damage for failing to deliver the garlic to its customers.”

As the Court observed in the Yin Xin suit, the grant of a TRO “would place the revenue of the United States in jeopardy.”  Consistent with that sentiment, routine grants of TROs in circumstances where substantial risks to revenue are presented would fatally undermine one of the few tools CBP has available to protect against the undercollection of antidumping duties.