Surge of enforcement and surety-related cases filed at the U.S. Court of International Trade in the first half of 2011

News & Insights
Jul 8, 2011

Twelve new enforcement actions were filed at the U.S. Court of International Trade (CIT) in the first six months of 2011. The government is commendably increasing its efforts to investigate and prosecute duty evasion. These cases involve multiple circumvention schemes, such as mislabeling in Kenpo Jeans and Active Frontier Int’l where merchandise was identified as from Indonesia despite allegedly originating in China. Transshipment is featured in Rupari Food Services  that claims Chinese crawfish was repacked in Thailand to evade duties. This one of many new seafood enforcement actions attests to the government taking steps to address the rampant import fraud plaguing the U.S. seafood market.

Softwood lumber is another vital American natural resource industry that is the subject of recent CIT prosecution. Forest Products Northwest details a brazen evasion scheme where lumber was allegedly glued together for import as wood panels to avoid duties. According to the Complaint, the company admitted ripping the panels apart after import and then selling the lumber domestically. The CIT entered default against the only Defendant, leaving the government to collect monies owed. This may prove difficult if the company is insolvent.

These new enforcement actions typically seek uncollected duties from both the company importing the merchandise and its surety. In Country Flavor, Vietnamese fish fillets were misclassified as duty-free “broadhead” fish. Subsequent testing by U.S. Customs and Border Protection (Customs) revealed that the fish was in fact pangasius subject to duties. The CIT entered default against the seafood importer and the case will proceed against the surety. Y & L Enterprise, also a new seafood prosecution, asserts claims against two insurance companies in addition to the crawfish importer.

Sureties are both defendants and plaintiffs at the CIT this year. Hartford Fire Insurance is yet another new prosecution seeking unpaid duties on imported crawfish. Besides being the only Defendant in this enforcement action, Hartford Fire is aggressively suing the United States to recover duties paid under protest on frozen shrimp, garlic, honey, canned mushrooms, pencils, polyethylene bags, and wooden bedroom furniture. In 34 cases it filed so far this year, Hartford Fire claims that its bonds were unenforceable due to facial defects or unauthorized agency practice. These recent cases augment dozens of others brought by Hartford Fire since 2007 challenging its obligations to the U.S. Treasury. One new surety-related lawsuit, Ocean Duke, challenged the enhanced bonding requirements (EBRs) that Customs applied on shrimp imports subject to antidumping duties between 2005 and 2008. Different plaintiffs successfully invalidated their EBRs in 2009, when Judge Stanceu in Nat’l Fisheries Institute held that those EBRs were arbitrary and contrary to law. Ocean Duke tried having its EBRs cancelled administratively before filing the lawsuit in May that was dismissed as untimely by Judge Barzilay on July 18.

Taken together, these cases highlight the importance of bond requirements to the efficacy of our trade remedy laws. Absent appropriate security, Customs is left with little ability to address fraud such as that alleged in the CIT enforcement actions filed this year. At the same time, sureties and importers may resist efforts to improve bond obligations. CIT litigation to hold sureties accountable for duties owed will undoubtedly continue.

Yet Customs recognizes that action must be taken. In its May 2011 Report to Congress entitled Antidumping and Countervailing Duty Enforcement Actions and Compliance Initiatives: Fiscal Year 2010, Customs laments the CIT’s having struck down EBRs and states the need for “a risk-based bonding policy” setting higher amounts for merchandise frequently imported without applicable duties. Widespread evasion of antidumping duty orders is forcing Customs to revisit the bonding obligations for imports of products subject to antidumping duties. Customs has no choice but to develop bonding requirements that reduce the revenue risk posed by duty evasion.

For these measures to effectively address the problems presented and withstand judicial scrutiny, cooperation between trade-impacted domestic industries and sureties is essential. Domestic industries can help sureties understand and measure the risks of schemes to evade antidumping duty orders. Sureties can, in turn, better price the risk associated with specific importing patterns. This synergy will maximize duty collection at a time when the U.S. Treasury cannot afford the continued revenue loss caused by circumvention.