United States: Key Takeaways From CBPs First Final Determination Of Evasion Under EAPA

Last Updated: September 29 2017
Article by Olga Torres

​On August 14, 2017, U.S. Customs and Border Protection ("CBP") issued its first notification of final determination of antidumping duties ("ADD") evasion pursuant to the Enforce and Protect Act ("EAPA").1 This case unofficially began nearly a year earlier when CBP received an allegation from M&B Metal Products Company, Inc. claiming that a U.S. importer,  Eastern Trading NY, Inc. ("Eastern Trading"), imported steel wire hangers manufactured in China and transshipped through Thailand to evade paying ADD.  CBP found that the allegations "reasonably suggested" evasion of ADD order A 570 918, and on October 11, 2016, CBP initiated its investigation into the matter.

Importantly, prior to providing Eastern Trading with any notice of initiation of an investigation, CBP issued a CBP Form 28 ("CF 28") requesting Eastern Trading to provide information regarding the origin of the merchandise, factory profiles, number of employees, production capacity, and equipment used in the production of the merchandise in Thailand. Eastern Trading promptly responded to the information request and sent pictures of the Thai manufacturing factory.

Takeaway No. 1:  At the time it received and answered the CF 28, Eastern Trading was not barred from submitting a Prior Disclosure. However, if in response to the information provided by Eastern Trading in the CF 28, CBP had issued a CBP Form 29 Notice of Action ("CF 29") alerting Eastern Trading of the initiation of an investigation of alleged violations of 19 U.S.C. § 1592, then Eastern Trading would be barred from submitting a Prior Disclosure.

Pursuant to its evasion investigation, CBP also conducted a site visit to the Everbright factory in Thailand, the facility that Eastern Trading claimed was manufacturing the steel wire hangers ultimately imported into the U.S. At the site visit, CBP found discrepancies between the information submitted in the CF 28 and the actual factory site. For example, CBP found that the factory site was very small, there were not enough employees, and there was not enough machinery to produce all of the wire hangers that had been shipped to the U.S.  Additionally, the pictures of the manufacturing factory sent by Eastern Trading to CBP did not match the visited facility. Further, the production numbers that Everbright's factory manager claimed the facility could produce in a day were not consistent with the number of hangers shipped to the U.S. CBP determined that even if the Everbright facility ran non-stop for 365 days, it could not produce the quantity of steel wire hangers that Eastern Trading had imported into the U.S.

These discrepancies between the information provided by Eastern Trading and the actual production capacity of Everbright's facility partially supported CBP's "reasonable suspicion" of evasion. In addition to the CF 28 discrepancies, there were other factors that led to CBP's reasonable suspicion of evasion. For example, during the course of its initial investigation, CBP discovered the existence of corporate links between Everbright, Eastern Trading, and Everbright's Chinese supplier.

Takeaway No. 2: Transactions between related parties may increase suspicion of coordination in order to evade ADD.

When a reasonable suspicion is present and within 90 days2 after the initiation of an investigation, CBP will issue "interim measures," which include: (1) suspension of liquidation of unliquidated entries of covered goods entered on or after the date of initiation, (2) extension of the period for liquidating unliquidated entries of covered goods that entered before the date of initiation, and (3) taking any additional measures necessary to protect the revenue of the United States.

Takeaway No. 3: CBP found "reasonable suspicion," instituted interim measures, and proceeded with the investigation due, in part, to inconsistences found in the CF 28 answers. Had the answers not been so inconsistent with the information gained from the manufacturing facility site visit in Thailand, the threshold of reasonable suspicion may not have been so easily met.

The reasonable suspicion of evasion led to the issuing on December 13, 2016 of a combined Notice of Initiation and Notice of Interim Measures. This was the date on which Eastern Trading was first put on notice that it was subject to the EAPA investigation process. These notices must be issued within five days of CBP's decision to take interim measures and no later than 95 days after the investigation is originally initiated.

Takeaway No. 4: An importer may be under CBP investigation for ADD/CVD evasion for up to three months before receiving any notice of the investigation from CBP.

After the imposition of interim measures, CBP continues the investigation and works toward making a final determination of evasion. CBP has until 300 days after the initiation of an investigation to either (1) make a final determination or (2) extend the investigation in cases that are "extraordinarily complicated."

To reach a final determination of evasion, CBP must determine that (1) the merchandise is subject to an ADD or CVD, (2) the merchandise entered the U.S. by the importer under investigation, and (3) the merchandise entered the U.S. by evasion.3 Evasion is defined as "the entry of covered merchandise into the customs territory of the United States for consumption by means of any document or electronically transmitted data or information, written or oral statement, or act that is material and false, or any omission that is material and that results in any cash deposit or other security or any amount of applicable ADD/CVD being reduced or not being applied with respect to the merchandise."4

Before a final determination of evasion was reached, CBP issued a second CF 28 to Eastern Trading and a "Claimed Manufacturer Request for Information" to Everbright. Neither company answered within the time limits for a response. However, CBP coordinated with and received prompt cooperation from Thai and Chinese government officials regarding Everbright's imports of finished Chinese products into Thailand and Everbright's Chinese supplier's exports directly into the U.S.

Takeaway No. 5: CBP will coordinate with foreign government authorities to obtain information in furtherance of an EAPA investigation.

On August 14, 2017, the Trade Remedy Law Enforcement Directorate ("TRLED") delivered the notification of final determination of evasion to Eastern Trading. CBP determined that there was substantial evidence that Eastern Trading entered steel wire hangers covered by an ADD order into the customs territory of the U.S. through evasion.

As a result of CBP's final determination, CBP will continue to suspend the liquidation for any entry that entered on or after October 11, 2016, the day the investigation was initiated. CBP also requested that Eastern Trading post cash deposits of 187.25% on its entries of steel wire hangers, and on any future imports of covered hangers. Eastern Trading will have to post these cash deposits prior to the release of the imported goods. Interestingly, Eastern Trading has argued that its Chinese supplier's lower separate ADD rate (40.99%) should apply instead of the higher countrywide rate of 187.25% for "all others." CBP responded that Eastern Trading never claimed its wire hangers were sourced from a Chinese supplier with the lower ADD rate.

Takeaway No. 6: An importer claiming imports from a country not subject to ADD will likely not receive the benefit of the lower ADD rate of a particular supplier in an ADD-subject country after CBP makes a final determination of evasion. Rather, the importer will be required to pay the higher countrywide ADD rate.

Conclusion

As the first finding of evasion under the EAPA, the Eastern Trading investigation and final determination provide multiple takeaways from which importers may learn regarding the investigation process and how to best prepare for an investigation. The deadlines provided for evasion investigations can be complex and easily missed or misunderstood. If you or your company would like further explanation of anti-dumping/countervailing duty orders or the regulations controlling the initiation and evasion investigation, please do not hesitate to contact us.

Footnotes

1 On August 22, 2016, the U.S. Customs and Border Protection ("CBP") published an interim final rule pursuant to the Enforce and Protect Act of 2015 ("EAPA"). The EAPA is contained in the Trade Facilitation and Trade Enforcement Act of 2015 ("TFTEA") and it established a formal process for CBP to investigate allegations of ADD/CVD evasion. We have written more extensively about the interim final rule here.

2 For a better understanding of the EAPA investigation process and its deadlines, please see the CBP-created timeline, available at https://www.cbp.gov/sites/default/files/assets/documents/2017-Apr/EAPA%20Investigation%20Process%20Overview_FINAL%20%28002%29.PDF (last visited, Sept. 11, 2017). 

3 U.S. Customs and Border Protection, Public Version: Notice of Final determination as to Evasion, EAPA Case Number: 15135/7175, August 14, 2017.

4 19 C.F.R. § 165.1

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.

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