In this article, the authors explain the legal mechanisms available to U.S. manufacturers to combat unfair import competition. They pay particular attention to petitions and investigations before the U.S. Department of Commerce and the U.S. International Trade Commission for antidumping and countervailing duties and circumvention inquiries. In addition, the authors explain the tools administered by U.S. Customs and Border Protection to address circumvention and duty evasion and they examine recent trends in the use of these mechanisms.
This article discusses how U.S. manufacturers are combatting unfair import competition through the use of antidumping and countervailing duty petitions and circumvention inquiries, as well as Enforce and Protect Act investigations and e-Allegations. It assesses current trends in the use of these mechanisms and how recent events, including the COVID-19 pandemic and ensuing global supply chain disruptions, have shaped their use. Many domestic industries may be facing increased supply and decreased demand due to greater import penetration and downward pricing pressure and should be aware of all of the legal remedies available to them.
Trends in Competition with Unfairly Traded Imports
Antidumping and countervailing (AD/CVD) duties are a common form of relief available to U.S. manufacturers in response to unfair import competition, meaning products sold at less than fair value (dumped) or unfairly subsidized by a foreign government.1 To request that these duties be applied, manufacturers, trade associations, or labor unions can file a petition simultaneously with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (the Commission), triggering concurrent and separate investigations. A single petition can request relief from imports from multiple countries, and may request either antidumping or countervailing duties, or both. The Commission determines if the petition shows material injury, or threat of such injury, to the domestic industry by reason of dumped or subsidized imports.2 The DOC determines whether and to what extent imports are dumped or subsidized. If both agencies reach affirmative determinations, then the DOC will issue an order to offset the level of unfair pricing from the investigated imports. The order lasts for five years, and is renewable every five years and subject to annual reviews before the DOC.
As of March 2024, there are 678 antidumping and countervailing duty orders in place on imports from 59 countries.3 American manufacturers and labor unions petitioned the U.S. government for this type of relief at an increasing rate through 2020. The number of petitions filed increased from 16 in 2018 and 2019 each, to 25 in 2020. Petitions then fell to 14 in 2021 and seven in 2022, but ticked up slightly to 12 in 2023.4 As shown in Figure 1, this led to a significant increase in trade orders imposed in recent years (as, again, a single petition brought against multiple countries can translate into numerous orders).5 So, what explains this trend? Before the COVID-19 pandemic, the strength of the U.S. economy and concomitant high pricing for goods attracted foreign companies to compete in the U.S. market with large volumes of products at prices that undercut American producers. For sales of price-sensitive commodity-type manufactured goods in particular, foreign suppliers used low pricing to make substantial market share gains in an environment of high demand. Despite strong demand, the sales, market share, and revenue lost by U.S. manufacturers in competition with low-priced imports caused material injury across entire industries. The result was a flurry of trade petitions as domestic producers sought to impose price discipline on unfairly traded imports, and for an opportunity to recover from the financial harm that those imports had caused.
Source: International Trade Administration.
The pandemic, however, significantly impacted the global trade landscape. In the United States, after a brief lockdown period, most manufacturers were deemed essential firms and returned to nearnormal operations. At the same time, demand quickly increased for goods utilized in supply chains for infrastructure, residential construction, and medical equipment (including plastics and textiles). Surging demand was fueled by a contraction—sometimes deep—in the supply of imports due to the global container shortage and supply chain disruptions, port closures, export restrictions, labor shortages, and high ocean freight rates. Imports that did reach U.S. ports were often higher priced, given the inflated cost of freight. As a result, market unpredictability abounded: U.S. manufacturers ramped up production to meet demand, but customers overordered, over-bought, and stockpiled inventory due to uncertainty.
AD/CVD investigations are retrospective in nature. The Commission examines evidence of injury over the three years plus any quarterly interim period prior to the petition filing date, while the DOC examines dumping by and subsidies to foreign producers generally over the immediate 12-month pre-petition period. Accordingly, while domestic industries sought trade relief at a growing pace in the years leading up to the pandemic, the number of petitions filed and the number of new AD/CVD orders imposed decreased with the onset of the pandemic and related (and anomalous) competitive market conditions.
Trends in Circumvention and Evasion Activity
For industries benefiting from existing trade orders, the macroeconomic story of the pandemic period meant shifting attention toward enforcing those orders. As manufacturing in foreign countries came back online after the first few months of the pandemic, foreign producers with massive production capacity found much of that capacity sitting idle. The need for new sales outlets—especially for suppliers that had long depended on export markets, but faced new bottlenecks due to global supply chain constraints—forced many to find creative ways to avoid existing trade restrictions like AD/CVD orders. The result has been an uptick in circumvention and evasion activity by imported goods.
One way for U.S. manufacturers to address circumvention of trade remedies is to request that the DOC examine attempts by foreign producers to avoid paying duties on an existing order. As with original investigations into dumped or subsidized imports, the DOC may self-initiate circumvention inquiries, but typically, the initial petitioner for the duties will request that the DOC open a circumvention inquiry. Compared to investigations by U.S. Customs and Border Protection (CBP) into circumvention or duty evasion, these proceedings before the DOC are generally more transparent, subject to a more stringent process and timeline, and involve more exchanges of confidential information between interested parties, their counsel, and the agency.
The DOC investigates essentially three types of duty circumvention. One form of circumvention is when merchandise has been completed or assembled in the United States or a third country from parts or components that are (1) themselves subject to an order, or (2) produced in a country subject to an order on the finished imported merchandise.6 For example, the DOC found circumvention of the AD order on certain refrigerant gas blends from China when the components of those blends, produced in China, were first exported and blended in India before being sold in the United States.7 Another form of circumvention is when merchandise has been altered in minor respects (for example, a change in shape or size) to avoid an order's definition of the scope of its application.8 Examples of this could resemble a foreign producer's practice of bending rebar ends so that they are no longer in straight lengths, or slightly changing the shape of a steel cylinder to shrink its storage capacity.9 A third form of circumvention is when merchandise has been developed after the DOC imposed an order but the merchandise is substantively the same as the product subject to the order.10 For this so-called later-developed merchandise, the DOC will consider a variety of factors and may find that the new product should also be covered by the trade order.
Sources: International Trade Administration and www.federalregister.gov.
Figure 2 demonstrates the recent trend in circumvention activity as the number of circumvention inquiries initiated by the DOC outpaced the level of petitions filed.
During the past six years, attempts by foreign producers to circumvent AD/CVD orders by way of completing or assembling merchandise in the United States or a third country have been by far the most common impetus for circumvention inquiries, accounting for 86 percent of these investigations.11 Filing a petition for relief is often the beginning, but not the end, to efforts by domestic industry to counter unfair imports.
The rise in circumvention activity, along with a more aggressive U.S. position toward trade relations with China, also correlate with another emerging trend: foreign manufacturers and U.S. importers are decoupling from China and moving production or sourcing materials from other countries in Asia (e.g., India, Indonesia, Malaysia, Thailand, and Vietnam), or even near-shoring by way of Mexico. Sometimes this production shift is not entirely divorced from the countries previously found to be dumping, leading to parts or components from those countries being used in new countries to make the same goods in an effort to avoid the letter of existing AD/CVD orders. In other industries, new global production capacity is creating unfair trade as those foreign firms aim to capture U.S. market share. Compared to prior years, the AD/CVD petitions filed since 2022 have sought relief from imports from a wide variety of countries, not just China.12
Another issue may arise for U.S. manufacturers after the DOC has imposed an order on imports from a specific country. When foreign producers move their production operations from one country to another, or when producers in countries not subject to an order see an opportunity in the U.S. market, American manufacturers may experience a "whack-a-mole" dynamic and be forced to file follow-on AD/CVD petitions or other form of trade relief in order to level the playing field. In 2023, a bicameral and bipartisan effort by members of Congress led to a bill that would help address this problem. Titled the Leveling the Playing Field 2.0 Act, this legislation would enable members of the domestic industry to use a "successive investigation" to address serial dumping or unfair subsidization.13 A successive investigation would be streamlined and expedited by incorporating agency findings from concurrent or recently completed investigations. The bill would also authorize the DOC to countervail subsidies provided by a government in one country to a company operating in a different country (known as cross-border subsidies), to countervail currency undervaluation, and to account for subsidized inputs that distort the cost of production of goods subject to an antidumping investigation.14 It would also codify aspects of the DOC's circumvention proceedings regarding deadlines and the collection of cash deposits upon an inquiry's initiation,15 and would empower the DOC to impose penalties and require certifications from importers.16
Enforce and Protect Act Investigations
Additional tools to counter import duty evasion are available to domestic industry through CBP enforcement. If an AD/CVD duty order is in place, manufacturers, trade associations, unions, or other entities may request CBP to investigate evasion of the duty payments by a particular importer.17 Enacted in 2016, the Enforce and Protect Act (EAPA) empowers CBP to investigate and counteract duty evasion in order to protect the federal government's AD/ CVD duty revenue.18 EAPA investigations are subject to statutory deadlines and must be completed within one year.19 In order to initiate an investigation, CBP must be provided with reasonably available information that suggests evasion of the duties owed.20 If CBP has a "reasonable suspicion" of evasion, it will implement interim measures to protect the government's ability to collect duty revenue.21 Upon opening an investigation, CBP will typically issue a formal request for information to the investigated importer and may take additional actions such as visiting a foreign producer's factory. If CBP determines, based on substantial evidence, that evasion occurred, the agency will impose or extend additional measures as may be appropriate.22
The types of AD/CVD evasion that CBP may investigate are not limited in form, which distinguishes this remedy from the DOC's inquiry into specific, statutorily defined forms of circumvention. Although CBP is a law enforcement agency, duty evasion need not be intentional on the part of an importer; fraud is not required. Many findings of evasion include failures of importers to declare imported goods as subject to an AD/CVD order, misclassifying the tariff code or country of origin to avoid duties, or transshipment. Unlike in the DOC's circumvention proceedings, parties to EAPA investigations are not as free to exchange confidential information with legal counsel and the agency, which has been criticized as a limitation on parties' ability to provide CBP with helpful input. The Leveling the Playing Field Act 2.0 would further clarify CBP's authority to implement new regulations to govern exchanges of confidential information in EAPA investigations.23 The bill would also expand CBP's mandate to protect duty revenue by empowering the agency to also investigate evasion of global safeguard actions under Section 201 of the Trade Act of 1974.24
Although EAPA investigations are a relatively new tool for domestic industries, U.S. manufacturers can use EAPA to great effect in order to assist CBP in collecting duty revenue and enforcing AD/ CVD orders. According to the EAPA determinations announced on CBP's website, the agency has issued 78 determinations as of March 2024.25 CBP found substantial evidence of evasion in approximately 90 percent of these determinations.26 The agency identified more than $280 million in AD/CVD duty revenue owed as a result of EAPA investigations during fiscal year 2020 and the first quarter of fiscal year 2021.27 That amount increased to $375 million during fiscal year 2021.28 Domestic industries benefiting from import relief measures, therefore, would be remiss to overlook this mechanism designed to strengthen trade law enforcement.
E-Allegations
Created in 2008,29 CBP's e-Allegation reporting mechanism is another tool available to anyone who suspects fraud or trade violations and, importantly, is not limited to suspected violations of an AD/CVD order. E-Allegations may report container marking violations, evasion of certain specialized trade measures (for example, Section 301 or Section 232 tariffs), misclassification, and other fraud or trade violations. Submitting an e-Allegation with CBP is a less formal process than submitting an EAPA allegation.30
Of the mechanisms to investigate and counter unfair trade practices discussed in this article, investigations by CBP in response to e-Allegations are the least transparent. Generally, CBP will only share general information with the reporting party about the status of an investigation, such as whether the case is open or closed, but even that information is released at the agency's discretion.31
In addition, although CBP aims to process e-Allegations "as quickly as feasible,"32 CBP is not bound by statutory or regulatory deadlines governing these investigations. An upside to these investigations, however, is that if an allegation leads to CBP recovering duty revenue wrongfully withheld from the government, the informant may be entitled to recover up to 25 percent (not exceeding $250,000 in total) of the net revenue recovery or the amount of fines, penalties, or other measures imposed.33
Usage of the e-Allegation reporting mechanism appears to be increasing. According to CBP, the agency received more than 1,739 e-Allegations in 2022.34 Of these, 255, or 15 percent, concerned a violation in connection with an AD/CVD order.35 That is more than double the 125 allegations concerning an AD/CVD order that CBP received in fiscal year 2021.36 In fiscal year 2020 through the first quarter of fiscal year 2021, the agency received 142 allegations concerning an AD/CVD order.37 Because e-Allegations require less time and resources to prepare and file than the other types of requests for investigations discussed above, and because the burden of presenting evidence that may not be readily available to a domestic firm is so much lower, this reporting mechanism can be a useful and accessible tool.
Takeaways
Trends in global trade and unfair import competition are dynamic and prone to swift changes. Recent events reveal that conditions of competition can be significantly impacted by global freight disruptions, labor shortages, geopolitical conflict, and public health crises—to a greater or lesser degree depending on the industry. But even against this variable backdrop, opportunistic imports can wreak havoc on a domestic industry when price-based competition drives sales. To respond under such circumstances, American manufacturers have several legal tools available to require foreign producers to price at fair levels and to abide by trade relief when it is in place. This article highlighted several of these tools. The use of these mechanisms to counter unfair import competition ebbs and flows, but overall, domestic producers are availing themselves of these procedures at increasing rates. In 2023, for example, domestic industry groups filed nearly twice the number of petitions for antidumping and countervailing duties as were filed in 2022.
Looking ahead, federal legislative proposals to bolster U.S. trade law enforcement may continue to emerge and take root. Foreign producers will continue to adapt to changing landscapes and trade defense mechanisms. American manufacturers must remain vigilant in combatting unfair import competition, and should consider the use of all means of relief available to them.
Footnotes
1. See Sections 701 and 731 of the Tariff Act of 1930, as amended (hereinafter, the Act), 19 U.S.C. §§ 1671, 1673.
2. See, e.g., Sections 703(a)(1) and 705(b)(1) of the Act, 19 U.S.C. §§ 1671b(a)(1), 1673b(a)(1).
3. See Int'l Trade Admin., U.S. Dep't of Com., Data Visualization: ADCVD Proceedings, https://www.trade.gov/data-visualization/adcvd-proceedings.
4. See Figure 2. The authors arrived at the data depicted in Figure 2 as follows. First, for circumvention inquiries initiated, the authors searched on the International Trade Administration's electronic records system, https://access .trade.gov, using the following search parameters: (1) segment (CIRC—Anti Circumvention Inquiry), (2) Document Type (FR_Notice_Published), and (3) Document Type (FR_Notice_Unpublished). To ensure completeness, the authors also conducted an advanced search on www.federalregister.gov using two search parameters: (1) Agency (International Trade Administration), and (2) Term or Citation (Initiation of Anti-Circumvention Inquiries). The authors counted circumvention inquiries initiated both by order type and by segmentspecific information. Second, for new petitions filed, the authors searched on the Commission's electronic document information system (EDIS), https:// edis.usitc.gov, using the search parameters Investigation Data Type (Import Injury), Document Data Security (Public), and Document Data Type (Petition). The authors excluded petition supplements and petitions for non-Title VII import injury relief. The authors confirmed this data by cross-referencing the Commission's database of new investigation requests, available at https:// www.usitc.gov/investigations/investigation_requests.
5. In creating Figure 1, the authors relied on public data compiled by the International Trade Administration, accessible at https://www.trade.gov/ data-visualization/adcvd-proceedings.
6. See Section 781(a)-(b) of the Act, 19 U.S.C. § 1677j(a)-(b).
7. Hydrofluorocarbon Blends from the People's Republic of China: Final Negative Scope Ruling on Gujarat Fluorochemicals Ltd.'s R-410A Blend; Affirmative Final Determination of Circumvention of the Antidumping Duty Order by Indian Blends Containing Chinese Components, 85 Fed. Reg. 61,930 (Dep't of Commerce Oct. 1, 2020).
8. See Section 781(c) of the Act, 19 U.S.C. § 1677j(c).
9. Steel Concrete Reinforcing Bar from Mexico: Final Affirmative Determination of Circumvention of the Antidumping Duty Order, 85 Fed. Reg. 35,065 (Dep't of Commerce June 8, 2020); Non-Refillable Steel Cylinders From the People's Republic of China: Final Affirmative Determination of Circumvention of the Antidumping and Countervailing Duty Orders, 89 Fed. Reg. 17,814 (Dep't of Commerce Mar. 12, 2024). Kelley Drye & Warren LLP represented the petitioner in the circumvention proceeding involving non-refillable steel cylinders from China.
10. See Section 781(d) of the Act, 19 U.S.C. § 1677j(d).
11. Based on the authors' tabulation and analysis of circumvention inquiries initiated, the data for which the authors collected in preparing Figure 2.
12. Based on the authors' analysis of import injury investigation requests by country, including the current and archived data available on the Commission's website, https://www.usitc.gov/investigations/investigation_requests.
13. See Leveling the Playing Field 2.0 Act, H.R. 3882, 118th Cong. (2023); Leveling the Playing Field 2.0 Act, S. 1856, 118th Cong. (2023).
14. See H.R. 3882, 118th Cong. §§ 101-103, 201, 204-205.
15. See id. § 301.
16. See id. § 302.
17. Any other federal agency, such as the DOC and the Commission, may also request CBP to initiate an EAPA investigation. See 19 U.S.C. § 1517(b)(3); 19 C.F.R. § 165.14(a). CBP's "interim regulations" became effective on August 22, 2016, via the interim rule implementing regulatory procedures for EAPA investigations. See Investigation of Claims of Evasion of Antidumping and Countervailing Duties, 81 Fed. Reg. 56,477 (Aug. 22, 2016). This article was written before CBP published its final rule adopting, with changes, the interim changes to its regulations on March 18, 2024. Investigations of Claims of Evasion of Antidumping and Countervailing Duties, 89 Fed. Reg. 19,239 (Mar. 18, 2024).
18. See Section 421 of the Trade Facilitation and Trade Enforcement Act of 2015, 19 U.S.C. § 1517 (amending the Tariff Act of 1930 by adding Section 517, codified at 19 U.S.C. § 1517).
19. See 19 U.S.C. § 1517(c)(1). For an overview of the timelines for EAPA investigations and administrative reviews, see U.S. Customs & Border Protection, Timeline for an EAPA Investigation and Administrative Review, https:// www.cbp.gov/trade/trade-enforcement/tftea/enforce-and-protect-act-eapa/ timeline.
20. See 19 U.S.C. § 1517(b)(1) (providing that the Commissioner of the CBP shall investigate upon determining that the information provided in the allegation or referral "reasonably suggests" evasion may be afoot); see also 19 C.F.R. § 165.12(a) (noting that CBP has 15 business days from the "date of receipt" of an allegation to determine whether to open an investigation).
21. See 19 U.S.C. § 1517(e)(1)-(3); 19 C.F.R. § 165.24(b)(i)-(iii).
22. See 19 U.S.C. § 1517(d); 19 C.F.R. § 165.28.
23. See H.R. 3882, 118th Cong. § 503.
24. See id. § 502.
25. See U.S. Customs & Border Protection, Notices of Action: Notices of Determination as to Evasion, https://www.cbp.gov/trade/trade-enforcement/ tftea/eapa/notices-action#2016NI.
26. See id.
27. U.S. Customs & Border Protection, U.S. Dep't of Homeland Sec., Antidumping and Countervailing Duty Enforcement Actions and Compliance Initiatives: FY 2020, at 3 (2021) (hereinafter CBP, FY 2020 Report).
28. U.S. Customs & Border Protection, U.S. Dep't of Homeland Sec., CBP Trade and Travel Report: FY 2021, at 14 (2022) (hereinafter CBP, FY 2021 Report).
29. U.S. Customs & Border Protection, U.S. Dep't of Homeland Sec., Privacy Impact Assessment for the e-Allegations Portal 2 (2019).
30. See U.S. Customs & Border Protection, e-Allegations Program, https://www.cbp.gov/trade/e-allegations.
31. See U.S. Customs & Border Protection, e-Allegations Program: e-Allegations Frequently Asked Questions, https://www.cbp.gov/trade/ e-allegations/faqs ("We can provide general information regarding your allegation, such as whether the case is open or closed. Any additional requests for information regarding your allegation should be filed through the Freedom of Information Act (FOIA) process.").
32. U.S. Customs & Border Protection, e-Allegations Program, supra note 30.
33. See U.S. Customs & Border Protection, e-Allegations Program: e-Allegations Frequently Asked Questions, supra note 31.
34. U.S. Customs & Border Protection, e-Allegations Program, supra note 30.
35. Id.
36. CBP, FY 2021 Report at 14.
37. CBP, FY 2020 Report at 4.
Originally published by The Global Trade Law Journal
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.