Customs Penalty Litigation Demonstrates How Evasion of Antidumping Duties Fundamentally Undermines Trade Remedy Law

News & Insights
Jan 12, 2017

In May 2015, all six commissioners of the U.S. International Trade Commission unanimously determined that the revocation of the antidumping duty order on imports of saccharin from China would not be likely to lead to the continuation or recurrence of material injury to the domestic saccharin industry within a reasonably foreseeable time. The Commission made this determination after the U.S. producer that originally petitioned for trade relief in 2002 – PMC Specialties Group of Cincinnati, Ohio – asked the federal agency to revoke the antidumping duties.

In its prehearing brief to the Commission, PMC claimed to have:

provided persuasive evidence to the {Commission} that there are ongoing problems with circumvention of the anti dumping order that have reduced the order‘s effectiveness to the point that PMCSG cannot justify keeping it in place. Specifically, the continued circumvention of the order has resulted in a situation in which {Chinese} manufacturers and not the U.S. industry, have reaped the order’s benefits.

Although one U.S. company (Kinetic Industries, Inc.) requested that the Commission maintain the order, the petitioner (PMC) asserted that Kinetic was not a U.S. producer of saccharin and that PMC had amassed evidence of the “surreptitious circumvention of the antidumping order by Shanghai Fortune, a non-producer of saccharin and its affiliate Kinetic Industries, Inc. via Gibraltar Trading Company.”

At the time that the antidumping duty order was revoked, imports of saccharin from China were subject to a cash deposit rate of 329.94%, with the exception of saccharin exported by Shanghai Fortune Chemical Company, Ltd., which was subject to a 0% cash deposit rate.

Despite the high antidumping duty rate, the trade relief appeared to have a limited impact in the U.S. market for saccharin.  In determining to impose an antidumping duty order, the Commission found that in 2002 the U.S. had imported 3.5 million pounds of saccharin from China worth $5.6 million.  In determining to revoke the antidumping duty order, the Commission found that in 2014 the U.S. had imported 1.4 million pounds of saccharin from China worth $6.4 million.  Information reported by U.S. Customs and Border Protection (CBP) indicates that between fiscal years 2010 and 2015, Chinese saccharin worth $38.0 million was imported into the United States subject to the antidumping duty order, but that over these six years only $350,592 in antidumping duties had been deposited with CBP at importation.

Yet, despite the tattered history of antidumping duties on saccharin imports from China, the now abandoned trade relief is currently having substantial effects on the saccharin market well after its demise.  In August 2015, the U.S. government filed a lawsuit at the U.S. Court of International Trade seeking to recover over $47 million in unpaid antidumping duties and penalties from Univar USA, Inc., an importer of saccharin, stemming from the alleged transshipment of saccharin from China through Taiwan into the United States.

Four years earlier, in July 2011, Kinetic Industries, Inc. had brought a qui tam action pursuant to the False Claims Act in a federal district court in the Western District of Washington alleging that Univar was misstating the country of origin of its imports of saccharin.  The U.S. government declined to intervene in the private litigation and Kinetic terminated the action in February 2014.

Separately, the U.S. government, through CBP and U.S. Immigration and Customs Enforcement (now called Homeland Security Investigations) had been investigating Univar’s imports of saccharin.  Based on this investigation, in June 2015, CBP issued a penalty decision to Univar, asserting that the importer had been grossly negligent (or, in the alternative, negligent) and demanding payment of a penalty in the amount of $47,888,851 plus the payment of lost revenue of $36,088,718.  After Univar declined to pay the amount demanded by CBP, the U.S. Department of Justice sought recovery of funds through a civil action pursuant to 19 U.S.C. § 1592.Before the Court of International Trade, Univar has challenged the evidence put forward by CBP in support of its penalty decision.  However, in a decision issued on December 22, 2016, Court declined to act on the importer’s objections.  United States, v. Univar USA, Inc., CIT Slip Op. 16-119.

Specifically, Univar asserted that CBP could not supplement its evidence in support of penalty enforcement before the court and, in addition, sought to limit the number of entries subject to the penalty notice.  The court disagreed and explained that the 2015 decision of the U.S. Court of Appeals for the Federal Circuit in United States v. Nitek Electronics, Inc., 806 F.3d 1376, held that CBP may not enforce a penalty claim for a culpability level that was not pursued administratively by CBP.

In contrast, CBP was not limited to only submitting evidence in the court case that had been previously disclosed in the administrative proceeding and the penalty notice.  The Court pointed to another recent case in which the court held that CBP had disclosed all material facts, and the importer was adequately apprised, when the agency’s pre-penalty notice indicated that merchandise was purchased from aquaculture ponds in China, but the importer had declared the country of origin as Thailand, thus breaching its duty of reasonable care.  United States v. American Casualty Corp. of Reading Pa, 91 F.Supp. 1324 (2015).

As a result of the Court’s holding, the Univar saccharin penalty litigation will continue, with the CBP contending that Univar was negligent and breached its duty of reasonable care when, despite repeated warnings, Univar took no action other than to ask the alleged transshipper whether its merchandise was produced in Taiwan.

The evidence placed on the docket by the U.S. government indicates that PMC Specialties Group had, beginning in August of 2004, contacted Univar directly alleging that the importer’s Taiwanese supplier was “not a producer, but is instead importing Chinese product and relabeling it.” The next month, PMC Specialties Group again contacted Univar, this time informing the importer that it had conducted lab tests of Univar’s Taiwanese supplier and determined that the saccharin was Chinese, not Taiwanese, in origin. Nevertheless, despite these complaints and concerns expressed by others, Univar is alleged to have continued to source from the same Taiwanese supplier. Six years after PMC Specialties first raised its concern, U.S. Immigration and Customs Enforcement informed Univar in February 2010, that it was under investigation for the importation of Chinese saccharin that had been transshipped through Taiwan in order to evade antidumping duties. Five years after that, CBP made its penalty determination that is now the subject of the litigation before the Court of International Trade.

Following the decision, Univar has sought discovery against Kinetic Industries. Kinetic, in turn, has petitioned the Court to participate in the case as amicus curiae and has opposed Univar’s discovery requests.

While the litigation regarding past imports of saccharin will continue, current imports of Chinese saccharin are not subject to any border measures.  In its submissions to federal government agencies, PMC Specialties Group repeatedly expressed grave frustration regarding widespread evasion of antidumping duties.  In the absence of enforcement, PMC eventually concluded that the trade relief was of no value to domestic saccharin manufacturers.  In this way, the saccharin antidumping duty order presents an extreme example of the threat posed by evasion to U.S. trade remedy laws.