The Enforce and Protect Act of 2015, Section 421 (EAPA) established an administrative process through which trade-affected domestic industries could petition U.S. Customs and Border Protection (CBP) to take action against unfairly traded imports that were entered into the United States so as to fraudulently evade antidumping and/or countervailing duties. Under the legislation, EAPA proceedings are covered by strict timetables, including a requirement that CBP determine whether to take interim measures no later than ninety (90) days after the initiation of an investigation.
Coupled with CBP’s commitment to publish EAPA determinations on the agency’s website, the new administrative process augmented opportunities for the U.S. government to respond to widespread trade fraud in a timely manner that dis-incentivized duty evasion. Now with a year of experience under the new law, CBP is demonstrating that EAPA constitutes a vast improvement in the federal government’s approach to trade fraud.
Examples of Public Notice of Enforcement Actions Outside of EAPA
The easiest way to demonstrate the substantial impact of EAPA proceedings on anti-circumvention efforts is to compare results under EAPA to those under other vehicles for addressing trade fraud that involve some form of public disclosure.
On August 17th, the same day that CBP made public several documents related to determinations made in multiple EAPA investigations, the U.S. Department of Justice (Justice) filed a civil action in the U.S. Court of International Trade against Sanhua International, Inc., d.b.a. Dublin Distribution Company (SANHUA). See United States v. Sanhua International, Inc., Court No. 17-222 (Aug. 17, 2017). In its complaint, Justice alleged that between November 2008 and November 2009, SANHUA made twenty (20) import entries of frontseating service valves from China through false characterizations that allowed the importer to evade the payment of antidumping duties.
The antidumping duty order on frontseating service valves from China was revoked by the U.S. Department of Commerce in May 2014 (see 79 Fed. Reg. 27,573 (May 14, 2014)). This means that at the time that Justice filed its civil complaint, the enforcement action covered import entries that were nearly nine years old for a trade remedy that no longer existed.
Justice’s court filing explained that CBP issued its first penalty notice to SANHUA in February 2011 and thereafter issued a second penalty notice in July 2013, as well as a revised penalty notice in December 2013. In response to these notices, SANHUA paid the antidumping duties owed on the import entries, but did not pay the penalties assessed.
Justice’s filing of a civil suit is the first public notice of the enforcement actions taken by CBP regarding SANHUA’s alleged evasion of the frontseating service valve antidumping duty order. Prior to last month, the only party with formal knowledge that CBP was pursuing the payment of antidumping duties on old import entries would have been the importer responsible for the evasion.
As a practical matter, the lengthy delay in public notification handicaps the capacity of any trade-affected domestic industry to identify and monitor evasion schemes. For frontseating service valves, publication of CBP’s enforcement efforts did not come until after the trade remedy had been removed, meaning that antidumping duty evasion likely significantly undermined the effectiveness of the trade relief for the life of that antidumping duty order. Similar lengthy delays in public notification characterize other efforts to address circumvention.For example, the criminal case United States v. Pearl, Court No. 5:17-cr-00240 (N.D. Ohio), relates to allegations regarding imports of Chinese off-road tires made between August 2009 and November 2013. In the criminal action filed in June 2017, Justice describes a circumvention strategy wherein a Chinese exporter and a U.S. importer are alleged to have conspired to misidentify the manufacturer and exporter of off-road tires from China in order to evade the payment of antidumping duties for over four years. The materials placed on the public docket of the court by Justice provide substantial detail regarding the nature of the scheme, including the defendants’ responses to CBP’s investigation of these import entries in 2013. But these disclosures on the public record of a criminal action were made three to eight years after the imports at issue entered U.S. commerce.
In the civil proceeding, United States v. Blue Furniture Solutions, 1:15-cv-00588 (W.D. Texas) (a false claims act case brought by a U.S. manufacturer of wooden bedroom furniture), Justice submitted a complaint in intervention in August 2017 alleging that an importer knowingly misclassified import entries of furniture that should have been subject to antidumping duties continuously between 2011 and 2015. Although a U.S. company had originally filed the false claims act lawsuit in July 2015, the U.S. government did not signal its agreement with the allegations made until two years later. Thus, at the time of Justice’s intervention, the imports at issue had entered U.S. commerce two to six years prior.
Enforcement Through EAPA
Through EAPA proceedings, the possibility of obtaining relief against fraudulently entered imports, and public confirmation of enforcement activities, has sped up considerably. On September 22nd, CBP issued a notice of initiation of an investigation and interim measures taken as to two importers. On June 26, 2017, the Diamond Sawblades Manufacturers Coalition (DSMC) filed EAPA allegations regarding the two importers, Power Tek Tool, Inc. and Lyke Industrial Tool, LLC, asserting that they had been misclassifying diamond sawblades from China as “millstone diamond saw segments” in order to evade the payment of antidumping duties since July 2016. DSMC also claimed that Power Tek Tool was the successor of Lyke Industrial. Less than two months later, on August 11, 2017, CBP performed a cargo exam of merchandise imported by Power Tek and determined that these goods had been misclassified.
Accordingly, under the new EAPA proceedings, a domestic industry group identified a pattern of activity that it believed constituted evasion of a trade remedy and CBP took direct action to confirm and counter the evasion within thirteen months from when the circumvention scheme was first implemented.
While it is certainly true that, absent EAPA, CBP could have taken enforcement action on its own, outside of the administrative process, there would be no way for the domestic industry group to know whether any cessation in importing activity by Power Tek was the result of enforcement or whether the company had simply established another importing entity through which to misclassify entries. The EAPA process eliminates any ambiguity. To the extent any misclassification scheme was undertaken to evade an antidumping duty order, it was discovered and countered in August 2017 and notice of that action was issued to the public the following month.
Advocates for EAPA sought to expedite the timeframe for enforcement responses to evasion of trade remedies. Early returns indicate that the new administrative system can, in fact, meet this objective and that CBP’s enforcement achievements will have timely impacts in the market.