Customs and Border Protection Details New Regulatory Tool to Fight Antidumping and Countervailing Duty Evasion

The interim rule governing the Enforce and Protect Act of 2015 (EAPA) was released by Customs and Border Protection (CBP) on August 22, 2016.   The EAPA is specifically designed to increase the transparency and effectiveness of CBP’s antidumping and countervailing duty (AD/CVD) evasion enforcement by establishing a formal procedure which allows interested parties to file allegations of AD/CVD evasion with CBP.

The EAPA, which is expected to result in significantly more AD/CVD evasion enforcement actions, comes as a welcome addition to the current AD/CVD enforcement mechanisms such as the False Claims Act.   The primary direct beneficiaries of this increased evasion enforcement are expected to be U.S. industry groups who have struggled to gain trade protection by implementing AD/CVD orders only to have the duties continually evaded and law abiding importers who are disadvantaged by competitors who cheat AD/CVD orders.

What are Antidumping and Countervailing Duties?

Antidumping and countervailing duties are vital tools used by the United States to counteract unfair trade practices by foreign corporations and foreign nations.  When a foreign entity is aggressively importing their products into the United States at prices that are below the cost of production simply to grab market share, an AD/CVD order can be issued.  After the AD/CVD order is issued, the unfairly imported products are taxed at a duty level that counter-balances the subsidies the foreign companies receive and account for the cost of production.  The AD/CV duties can be as much as 300% of the value of the imports and this high duty rate creates a strong incentive for fraudulent evasion of the duties.  Schemes to evade AD/CV duties can take many forms but generally have involved misrepresenting the merchandise’s true country of origin, false shipping and entry documentation, or misreporting the merchandise’s physical characteristics.

AD/CVD Order Enforcement and Evasion Prosecution Has Become a Major CBP Initiative

Due to the hyper-aggressive trade practices of foreign corporations and even some foreign governments AD/CVD orders have been on the rise in recent years, which also has led to a rise in AD/CVD evasion.  Because the economic implications of AD/CV duties are so substantial and evasion so pervasive, CBP has made AD/CVD enforcement a major agency priority.  This has led to an increase in AD/CVD evasion False Claims Act cases, such as the recent $3 million settlement by Frohsin & Barger, U.S. ex rel. G.E.S. v. Ameri-source.  Prior to the enactment of the EAPA the administrative mechanism used to detect AD/CVD duty evasion, known as an E-Allegation, did not afford parties an opportunity to participate in the investigation nor did CBP have a duty to notify the party that submitted the allegations of the outcome.

How Does the EAPA Work?

Under the current “interim” EAPA rule, an interested party who believes that another entity is engaging in AD/CVD evasion may submit an allegation to CBP that reasonably suggests that merchandise covered by an AD/CVD order entered the United States without paying the requisite duties.  After receipt of the allegation, CBP must decide whether to initiate an investigation within 15 business days and if initiated must determine within 300 days whether there is “substantial evidence” that merchandise covered by AD/CVD order evaded the AD/CV duties.

CBP may investigate allegations by methods CBP considers appropriate.  One method specifically mentioned by the EAPA is the use of questionnaires to discover information relevant to AD/CVD evasion.  CBP may make an “adverse inference” (essentially viewing the information or lack of information unfavorably) if a party did not act to the best of its ability to provide requested information.  If through this investigative process, “substantial evidence” of evasion is found, CBP has several methods available to recover the evaded duties and may refer the matter for possible civil or criminal investigation.

The EAPA also provides for an even faster temporary remedy, known as the “interim measures mechanism.”  Under this provision, CBP will determine within 90 calendar days of initiation of an EAPA investigation whether “reasonable suspicion” exists that AD/CV duties were evaded.  If CBP determines that such “reasonable suspicion” exists, there are multiple measures CBP may take to collect the appropriate duties, including reassessing duties or requiring a bond or cash deposit to import the goods.

The EAPA, in divergence from the lack of disclosure that hampered the effectiveness of the E-Allegation procedure, requires CBP to communicate its determination to the party who made the allegation within five days.

Under the current interim version of EAPA, the interested party who makes the allegation is not rewarded with any type of monetary benefit, including no reward of attorney’s fees for reporting this information to CBP.  The absence of a reward is puzzling.  An EAPA allegation is essentially a whistleblower complaint as it alerts the government to the fraudulent evasion of AD/CVD duties, a destructive practice which can also carry severe civil and criminal penalties.  Comparatively, other Federal agencies such as the SEC and IRS include whistleblower rewards in the framework of their fraud reporting regulations.  Further, the same type of allegations that would form an EAPA allegation have constituted successful qui tam False Claims Act complaints, which mandate that the whistleblower would receive 15-30% of the amount recovered by the government as well as attorney’s fees.

However, the law states EAPA investigations are not meant to be the exclusive means or only statutory authority by which CBP can investigate allegations of evasion of AD/CVD orders but instead to provide a transparent investigative procedure to address allegations.  Therefore, the existing AD/CVD enforcement mechanisms such as filing a civil case under False Claims Act, prosecuting a criminal case through U.S. criminal smuggling laws and the administrative E-Allegation procedure, are still available.

The interim rule became effective on August 22, 2016 and CBP is accepting comments by interested parties until October 21, 2016.

How Does the EAPA protect American Industry and Law-Abiding Importers?

The passage and implementation of the EAPA demonstrates the strength of the United States’ commitment to not only protecting the American economy from unfair trade practices but also adequately enforcing the trade remedies that have been implemented.  The EAPA also signals that AD/CVD evasion is now a primary focus of CBP and with the increased focus there will be an increase in the detection of AD/CVD evasion schemes.  Overall, the additional resources, streamlined procedure and greater accessibility provided by the EAPA are a step in the right direction to curtail AD/CVD evasion and allow the AD/CVD orders achieve the goal for which they were implemented: to protect the U.S. economy from unfair trade.

If you have questions about the Enforce and Protect Act of 2015, or AD/CVD evasion, please contact Frohsin, Barger & Walthall.