China: Evading Remedies: Why The Marked Increase In Fraud In China-Related AD/CVD Cases Should Concern You

Last Updated: 20 November 2011
Article by Michael J. Coursey

Foreign party fraud is rampant in many of the federal government's enforcement proceedings against imports from China under the antidumping (AD) and countervailing duty (CVD) laws. This is not to say that fraud taints all, or even most, AD and CVD proceedings against Chinese imports. But incidents of fraud in these cases have become legion.

Because Chinese imports covered by AD/CVD orders constitute but a fraction of all U.S. imports from China, some might question whether increased fraud in AD/CVD proceedings is cause for concern. However, many imports from China that are not subject to AD/CVD orders are nevertheless subject to other U.S. regulations - including those related to food and consumer-product safety - that are maintained for the benefit and protection of Americans. There is no question that dishonest traders of Chinese-made goods are avoiding these regulations through fraudulent schemes similar to those used to avoid AD/CVD orders. This portends real trouble for anyone in this country that buys or consumes goods made in China - which, of course, includes all of us.

Unfortunately, reducing the fraud that has become too common in AD/CVD enforcement proceedings against Chinese imports is more easily said than done.

Enforcement Proceedings Under AD/CVD Orders

Three federal agencies are charged with enforcing separate aspects of the AD/CVD laws. The U.S. Commerce Department (Commerce) determines whether imports are being "dumped" into this country ( i.e ., sold at prices below those in the country of manufacture or below the cost of production), or are being "unfairly subsidized" by the exporting country's government. If Commerce's determination is affirmative, the U.S. International Trade Commission (ITC) determines whether such unfair trading has materially injured the domestic producers that compete with the imports.

If both agencies issue affirmative determinations, Commerce issues an AD or CVD order, and subsequently conducts annual "administrative reviews" of the order to determine the exact amount by which new imports were dumped or unfairly subsidized. After each review, Commerce instructs the third government agency - U.S. Customs and Border Protection (Customs) - to bill the relevant U.S. importers the amount of AD or CVD duties determined by Commerce. These duties increase the price the importer originally paid for the imports to the non-dumped or non-subsidized price, thereby eliminating - or "remedying" - the injury to domestic producers that would otherwise result from the sale's original price.

Fraud In Commerce's Proceedings

Dishonest foreign exporters and U.S importers have two general opportunities to avoid the remedial effects of AD/CVD orders by submitting fraudulent information to the government. The first is during Commerce's original investigation, or its annual administrative reviews of an issued order, during which the agency determines the amount by which imports during the covered period were dumped or unfairly subsidized.

Commerce's determinations typically are based on information submitted by the imports' foreign producers and exporters that the agency has "verified" (audited) in the country of export. This information as submitted frequently includes unintentional mistakes, most of which are ultimately corrected. But there is always the possibility that a foreign producer or exporter will succumb to the temptation of intentionally submitting false data.

In fact, through 2000 Commerce rarely found that a foreign party had intentionally submitted false information in an AD/CVD proceeding. Since then, however, the number of such incidents has sharply increased. Not surprisingly, virtually all of these cases involve imports from China.

In one notorious case Commerce agreed to conduct the verification of a Chinese seafood producer in a hotel conference room on the pretext that the producer's office was too small.1During the verification a Commerce investigator discovered that a team was forging "records" for the producer in a guest room retrofitted with computers and other equipment. There followed much unpleasant shouting, pleading and threats, and a building-wide blackout obviously induced to force the verification team out of the hotel. Finally, the producer's U.S. attorneys announced that the producer was formally withdrawing from the verification and the administrative review, and refused to allow the Commerce investigators to leave the hotel until they surrendered all of the producer's information.

Less breathtaking - but more troubling and common - are incidents that involve forged or altered "documents of authenticity," which are intended to identify the facility in which the relevant goods were made and show that the goods comply with the referenced product standards. A good example is a "mill" certificate, which metal foundries have long used to record the chemical and physical qualities of each batch (or "heat") of metal they make.

In the recent CVD investigation of certain steel grating from China, a major issue was whether the sole participating Chinese grating fabricator had purchased subsidized input steel from mills owned by the Chinese Government.2Commerce ultimately rejected as unreliable (and likely fraudulent) all of the mill certificates the fabricator submitted to show it had purchased only non-subsidized steel from private Chinese mills. Commerce noted that many of the certificates reflected a chemical composition that differed materially from that of the steel used and that others improbably repeated the same obvious errors reported on certificates from other mills.

In other administrative reviews, Chinese exporters have been caught falsely certifying that they did not export covered merchandise to the United States during the relevant period, or were not related to any Chinese exporters that did.3 Commerce also has caught schemes in which a Chinese exporter with a relatively low AD deposit rate unlawfully "licensed" it for a per-container fee to an exporter with a higher rate and then claimed in the review that the higher-rate exporter had used the exporter's lower rate without its permission.4Commerce also has caught Chinese companies in submitting false or altered commercial documents such as invoices, bills of lading, and credit/debit memos.

Fraud In Customs' Proceedings

Dishonest traders also avoid AD/CVD duties on Chinese imports through two schemes involving the submission of false information to Customs. In the "false classification" scheme, an importer falsely reports that the proper classification for imported goods under the U.S. Harmonized Tariff Schedule (HTS) is one that is not covered by the relevant AD/CVD order. Thus, for a new entry of canned mushrooms from China that would be subject to the AD order on that product, the importer would falsely list on the entry documents the HTS classification for frozen mushrooms. However, Customs' ability to easily detect this type of fraud by inspecting imports upon entry tends to discourage dishonest importers from using the false-classification scheme.

In the "third-country evasion" scheme, an importer falsely reports that the country-of-origin for a new entry is a country other than the true country. This scheme is typically preferred over the false-classification scheme because it is more difficult for Customs to detect. But this scheme is not risk-free, for Customs retains the many documents an importer must submit for each entry for years, which means Customs can investigate an entry's claimed country-of-origin long after the imported goods have been released.

In recent years, dishonest traders have very effectively used the third-country evasion scheme to avoid many AD/CVD orders on imports from China. For example, in 2003 such traders began avoiding the newly issued AD order on honey imports from China by entering tens of millions of pounds of Chinese honey into the United States by reporting a false country-of-origin. In 2008, following years of complaints from the domestic honey industry about this evasion, the U.S. Department of Justice (DOJ) and U.S. Immigration and Customs Enforcement (ICE) announced the first in a series of arrests, indictments and convictions related to a major Chinese honey circumvention scheme run by German food conglomerate Alfred L. Wolff GmbH (Wolff).5

To date, 16 individuals have been indicted in connection with this scheme, including 10 Wolff managers and several Chinese nationals. Those persons, and seven Wolff-owned companies operating in as many countries, have been charged with unlawfully importing $40 million in Chinese honey into the United States over six years by falsely claiming it was produced in nine other countries with the goal of avoiding $80 million in AD duties and the FDA's ban on Chinese honey that has been adulterated with four dangerous antibiotics.6

Despite Customs' strong enforcement efforts against the Wolff group, third-country evasion schemes for Chinese honey - and many other imports from China - persist.

Prospects For Reform

Why is fraud so rampant in enforcement proceedings under AD/CVD orders on imports from China? The bottom line is that the perpetrators of this fraud believe they face little risk of being caught and little risk of being punished if they are caught.

In fact, Commerce and Customs dedicate relatively few resources to fraud detection and typically will not investigate possible fraud unless presented with material evidence by domestic producers. Further, obtaining such evidence is extremely difficult in China, where collecting what is viewed as public information in all other countries is still criminalized as industrial espionage. And China's infrastructure has few of the reliable, independent testing facilities essential to achieving the commercial transparency we take for granted.

Even when the agencies have substantial evidence of fraud in hand, they shy from seeking the full range of penalties prescribed by U.S. law. For example, it is a criminal offense under federal law - punishable by a significant fine and up to five years in jail - for anyone to knowingly make a materially false statement to the U.S. government.7 Yet DOJ has never prosecuted anyone under this statute for submitting false information in a Commerce AD/CVD proceeding. Even when confronted with hard evidence of fraud, Commerce too often concludes it lacks the authority to do anything about it. For example, a federal appeals court recently reversed Commerce's decision that it had no authority to re-open a completed administrative review despite having later obtained hard evidence from that a Chinese producer had submitted forged documents in that review.8

Commerce and Customs can best reduce the incidence of fraud in AD/CVD proceedings against imports from China by prosecuting the perpetrators to the fullest extent possible in cases where they have the evidence to do so. The agencies' failure to do this will likely increase fraud in these proceedings because such inaction will reinforce the current view of dishonest traders that there is little risk of being caught or punished for their fraud.


1 See 68 Fed. Reg. 58,064, 58067 (October 8, 2003).

2 See 75 Fed. Reg. 32,362, 32,364 (June 8, 2010).

3 See, e.g., 73 Fed Reg. 35639 (June 24, 2008).

4 See, e.g., 69 Fed. Reg. 54,635, 54,638 (September 9, 2004).

5DOJ Press Release (May 27, 2008), pr0527_02.pdf.

6DOJ Press Release (September 1, 2010), pr0901_01.pdf.

718 U.S.C. § 1001.

8 Home Products International, Inc. v. U.S., 633 F.3d 1369 (Fed.Cir. 2011).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions