Court of International Trade Rejects CBP’s Bond Sufficiency Determinations for Certain Entries of Magnesia Carbon Bricks

News & Insights
Jul 6, 2015

Domestic industries considering whether to utilize the trade remedy laws must confront an essential question up front: even if the petition results in the imposition of a trade remedy, will the measure be enforceable?

Although enforcement risks differ substantially depending on product, the use of fraud to evade and circumvent antidumping duty and/or countervailing duty orders is an ever present threat that must be taken into account when considering the pursuit of a trade remedy. The tools available to the agencies responsible for administering and enforcing trade remedies – U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), Homeland Security Investigations (HSI), the U.S. Department of Commerce (Commerce), and the U.S. International Trade Commission (ITC) – are severely limited. As a practical matter, the deck is stacked heavily in favor of unscrupulous importers and exporters. At best, most of the available tools permit these agencies to address and respond to fraud only after unfairly goods have entered the U.S. market and further harmed the domestic industry.

Nevertheless, there are a few available options for addressing fraud before any adverse impact in the market is felt. Chief amongst these is the authority and discretion granted by Congress to CBP to require additional security where the agency deems it necessary for the protection of the revenue. Under this authority, where the agency believes that certain entries of merchandise pose a threat to revenue – because such entries are likely to result in future duty liability that will not be satisfied by the importer of record or any existing security tied to the entries – CBP may find existing bonds insufficient and require additional security.

Last week, the U.S. Court of International Trade (CIT) issued a decision striking down a CBP determination to require single transaction bonds (STBs) with respect to certain entries of magnesia carbon bricks (MCBs) claimed to have originated from Vietnam and imported by one particular importer. Because the antidumping duty order covers only MCBs from China, MCBs that importers claim to source from Vietnam would not ordinarily require any security against future antidumping duty liability. The STBs provide security in the event that such MCBs are ultimately found covered by the order and the importer fails to pay owed antidumping duties

The Court’s opinion, Fedmet Resources Corp. v. United States, observes that HSI had been investigating the MCB imports of Fedmet Resources claimed to have originated in Vietnam. As a result of that criminal investigation, a federal judge had issued a search warrant and grand jury proceedings had begun. Upon the recommendation of the HSI Special Agent conducting the investigation, CBP’s National Targeting and Analysis Group (NTAG) issued a “User Defined Rule” (UDR) that was issued to all ports regarding the need for additional security on MCB imports to Fedmet Resources claimed to have originated in Vietnam. Further, based on consultation with an HSI Special Agent, a port official rejected entries of MCBs that Fedmet Resources had attempted to import.

Fedmet Resources brought suit at the CIT challenging CBP’s demand that an STB accompany its rejected entries of MCB imports from Vietnam. In response, the CIT found that CBP’s decision to require an STB as a condition of release was “arbitrary and capricious” and could not be sustained. The Court held that the regulation authorizing port directors to demand additional security regarding entries “must be construed according to the statute authorizing its promulgation.” In this instance, 19 U.S.C. § 1623(a) authorizes the demand for additional security when it is “necessary for the protection of the revenue,” not, the Court opined, when it is “merely ‘advisable’ or ‘desirable’ for the protection of the revenue.” On their own, the facts that a search warrant had been issued by another federal judge and grand jury proceedings had begun were insufficient to justify the demand for additional security.In finding CBP’s action arbitrary and capricious, the CIT rejected the Department of Justice’s arguments regarding the separation of responsibilities between HSI and CBP, such that CBP relies upon HSI to conduct criminal investigations. The Department of Justice observed that because CBP plays no role in the criminal investigations, information from HSI’s investigations is not disclosed to CBP. The CIT rejected the Government’s position, stating:

Defendant’s arguments concerning restraints on disclosure of information fail to convince the court, for several reasons. First, the court’s resolution of the issue raised by Fedmet’s claim does not involve, and will not affect, the ability of ICE to conduct an investigation. With respect to the December 2 entry, the court’s responsibility is limited to adjudicating Fedmet’s claim challenging a bond requirement on that entry according to the {Administrative Procedure Act} “arbitrary and capricious” standard. Second, defendant would have the court presume that it was not possible for the government to place before the court, in a judicial proceeding conducted on an agency record, more than the minimal amount of information that Customs placed on the record in this case. And third, regardless of whether or not the court could agree with the presumption (the validity of which has not been demonstrated), the court still must conclude that the minimal information on the record is insufficient to allow it to sustain the challenged agency decision, particularly in light of the unsatisfactory explanation presented in the Entry/Summary Rejection sheet for the December 2 entry. Concerning the factual basis for the ICE investigation, defendant appears to admit that Customs did not have “information related to the investigation in its possession,” Def.’s Opp’n 28, yet defendant seeks an adjudication of Fedmet’s claim that necessarily would rest on speculation that such information, were it on the record, would suffice to sustain the Customs decision that a single transaction bond for the December 2 entry was “necessary for protection of the revenue,” {19 U.S.C. § 1623(a)}.

Accordingly, the CIT concluded that in this circumstance (where an HSI criminal investigation implicating a threat to revenue is ongoing), CBP was not authorized to take steps to protect the revenue from future losses absent an independent consideration of the factual evidence comprising HSI’s investigation and a determination that this evidence – while warranting grand jury proceedings – is also sufficient to demonstrate that additional security would be “necessary” to protect the revenue.

Fedmet Resources is subject to appeal and not binding on other cases. Nevertheless, the decision constitutes precedent imposing limits upon CBP’s discretion to demand additional security pursuant to 19 U.S.C. § 1623(a) and is likely to invite future challenges to attempts by the agency to protect the revenue where evasion or circumvention of trade remedies through fraud is suspected.