Background - Antidumping Laws

In the vibrant world of international trade, competition between companies located in various countries and, indeed, government-owned companies, is intense and there are tremendous economic benefits available for any company or nation that can obtain an advantage in exports via quality or pricing. Attaining a favorable balance of payments, influx of more stable currency, and expansion of domestic industries with corresponding increases in employment and tax revenues are powerful incentives to achieve that advantage in trade. 

There are various methods a government or company can utilize to reduce prices on its products to gain an advantage in the market. Some of those practices are considered unfair competition by certain nations and, indeed, by the World Trade Organization (WTO) which has both definitions of those prohibited acts and enforcement proceedings to stop those.

The United States has passed numerous laws and procedures to hinder those unfair practices. A typical method is using special customs duties being imposed on certain products to counteract prohibited import of products and these laws and methods are often termed, “Antidumping Laws.” The customs imposed can be significant, forty percent or much more, effectively making profitable imports nearly impossible. For the importer of products that have these special customs duties imposed, violation of paying the appropriate customs can result not only in significant fines but even criminal action being undertaken by the United States Attorney General’s office.

This article shall give an overview of the basic law applicable and some practical advice.

Definitions and Basic Law

Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges its domestic market and, at times, even below the cost of production to gain an increased share of the market before later raising prices. An antidumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.

Normally antidumping duties are applied to all imports of the subject products that occur on or after the date on which there is a preliminary determination of “dumping, injury, and causality.” WTO allows an antidumping duty shall remain in force as long as necessary to counteract dumping that is causing injury.

From the importer’s point of view, the direct result is a need to pay a very high customs duty on particular products imported. Normally several months’ notice is given to allow the importer to attempt to alter its business or provide notice to its customers of the new prices. 

How is Dumping Proven?

If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. 

The WTO agreement in force regarding dumping (hereafter “agreement”) does not pass judgment. Its focus is on how governments can or cannot react to dumping. It can discipline antidumping actions, and it is often called the “Antidumping Agreement”.

The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is significant (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that:

  1. dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and 

  2. show that the dumping is causing injury or threatening to do so.

The General Agreement on Tariffs and Trade (GATT), Article 6, also allows countries to take action against dumping. The Antidumping Agreement of WTO clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of not discriminating between trading partners. Typically, antidumping action means charging extra import duty on a particular product from a particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.

There are different ways of calculating whether a particular product is being dumped “heavily” or only “lightly”. The agreement narrows down the range of possible options. It provides three methods to calculate a product’s “normal value”. The primary method is based on the price in the exporter’s domestic market. When this cannot be used due to imprecise information from the exporter country, two alternatives are available: the price charged by the exporter in another third country, or a calculation based on the combination of the exporter’s production costs, other expenses, and normal profit margins. The agreement also specifies how a fair comparison can be made between the export price and what would be a normal price.

However, calculating the extent of dumping on a product is not sufficient to allow the country to impose antidumping duties. Antidumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question.

Only if the investigation shows dumping is taking place and domestic industry is being hurt, can the customs duty be justified and note that the exporting company can undertake to raise its price to an agreed level in order to avoid antidumping import duty.

Detailed procedures are set out on how antidumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence.

Further, there is a time limit for antidumping methods remaining in effect. Antidumping measures must expire five years after the date of imposition unless an investigation shows that ending the measure would lead to injury.

Antidumping investigations end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product. Although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports).

Antidumping actions

The agreement says member countries must inform the Committee on Antidumping Practices about all preliminary and final antidumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTO’s dispute settlement procedure.

Subsidies and Counter Measures

The WTO agreement contains a definition of “subsidy.” It also introduces the concept of a “specific” subsidy, i.e. a subsidy available only to an enterprise, industry, group of enterprises, or group of industries in the country (or state, etc.) that gives the subsidy. They can be domestic or export subsidies.

The agreement defines two categories of subsidies: prohibited and actionable. The agreement applies to agricultural goods as well as industrial products.

Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade and are therefore likely to hurt other countries’ trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately, or the complaining country can take countermeasures. If domestic producers are hurt by imports of subsidized products, a countervailing duty can be imposed.

Actionable subsidies: in this category, the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise, the subsidy is permitted. The agreement defines three types of damage they can cause. One country’s subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third-world markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn, or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, a countervailing duty can be imposed.

Countervailing duty (the parallel of antidumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for antidumping action. There are detailed rules for deciding whether a product is being subsidized, which is not always an easy calculation, criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty.

Allowed Subsidies in Past: 

Subsidies may play a vital role in developing countries and the transformation of centrally planned economies to market economies. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries were given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003; for other developing countries the deadline was 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002.

Bringing in the United States Government:

Under the Tariff Act of 1930, United States industries may petition the government for relief from imports that are sold in the United States at less than fair value (i.e., dumped) or that benefit from subsidies provided through foreign government programs. 

Under the law, the U.S. Department of Commerce (“USDC”) determines whether dumping or subsidizing exists and, if so, the margin of dumping or the amount of the subsidy. The United States International Trade Commission (“USITC”) determines whether there is material injury or threat of material injury to the domestic industry because of dumped or subsidized imports. For industries not yet established, the USITC may also be asked to determine whether the establishment of an industry is being materially retarded because of the dumped or subsidized imports.

Antidumping and countervailing duty investigations are conducted under Title VII of the law. The USITC conducts the injury investigations in preliminary and final phases.

Enforcement in the United States

In the United States antidumping regulations are enforced as follows: 

1)   Plaintiffs representing a particular industry file a petition with the U.S. Department of Commerce and the U.S. International Trade Commission.

2)   The plaintiffs must satisfy two elements to succeed in obtaining antidumping relief:

a.   The price of the imports must be unfairly low, meaning it must be below “normal value,” which is defined in order of priority by domestic market prices, foreign market prices, or based on a constructed value.

b.   There must be a material injury or threat of injury to the plaintiffs’ industry by virtue of importing the dumped goods. 

3)   If the plaintiff establishes dumping that caused injury to the domestic injury, then a dumping duty order is issued. 

a.   A foreign producer cannot reimburse an importer for the duties. The duties are intended to have a chilling effect on imports. Under 19 C.F.R. 351.402(f), importers must file a certificate regarding reimbursement of antidumping duties. 

4)   The dumping duty order is the primary form of relief for the plaintiffs. It sets a floor for prices so that domestic producers can effectively compete.

Civil and Criminal Penalties

Penalties for circumventing antidumping laws can be crippling to a business. In a nutshell, circumvention of dumping duties can result in penalties from U.S. Customs & Border Protection (“CBP”) and even criminal liability under certain circumstances.

1)   CBP can impose penalties for such things as fraud, gross negligence, and ordinary negligence (19 U.S.C. §1592).

2)   If an importer makes false statements in order to avoid dumping duties, and thus fails to pay amounts that are legitimately owed, CBP can impose penalties that equal the commercial value of the merchandise itself, in addition to collecting the underpaid or unpaid duties.

3)   Separately, importers can be liable for civil and/or criminal penalties for “conspiracy to commit offense or to defraud the United States” (18 U.S.C. §371), and for making false statements or entries generally (18 U.S.C. §1001). These penalties are the most significant that CBP can apply and can easily add up to amounts that far exceed the value of the imported goods.

Therefore, in summary, there are three ways by which an importer can violate customs regulations in relation to antidumping:

      a)   inaccurate country of origin marking;

      b)   misclassification of goods;

      c)   failure to pay antidumping duties.

It is important to note that the doctrine of respondeat superior applies in antidumping violation cases. Compliance programs are thus extremely important to ensure that employees and agents do not expose the importer to potential criminal and civil liability. If your local agent violates the law and even if he does not so advise you, you are potentially liable in full. 

There is no specific criminal statute related to violation of antidumping laws. Criminal liability associated with antidumping is asserted through violation of other existing criminal statutes, such as 18 U.S.C. section 1519, concerning the "Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy." Fraud, negligence, and gross negligence elements in antidumping criminal cases are standard.

A review of recent case law exemplifying the application of criminal liability to antidumping violations is warranted to better understand the application of these principles to actual businesses operating in the United States. 

In US v. Wolff, et al. (2010), defendants transshipped Chinese-origin honey through third countries before exporting it to the US, to avoid 221% antidumping duties on Chinese-imported honey. When the honey arrived in the US, it was declared to customs as non-Chinese origin, and thus, not subject to antidumping duties. The section 1519 obstruction charges against the defendants included: falsifying US Customs entry forms and sales documentation and instructing co-conspirators to not write emails about their activities and to delete documents and emails. The two US defendants were sentenced to a year in jail (and probation) but faced 46-57 months sentences had they not cooperated with authorities.

In US v. Chen (2012), defendants bribed Taiwanese inspectors and conspired with importers to avoid antidumping duties by falsely labeling paper with "Made in Taiwan" stickers. Criminal liability was imposed. 

In US v. Chavez (2012), defendants avoided customs duties on Chinese-made goods by falsely claiming that they would not be sold in the US. 

Again, as in Wolff, the defendants were charged with broad criminal violations for specific customs violations.

Generally, in accordance with Section 592 of the Tariff Act of 1930, as amended (19 U.S.C. 1592), any person who, by fraud or negligence, enters merchandise into the United States by means of false data, statement, document, act, or omission, is subject to a penalty and criminal liability. CBP is empowered to seize merchandise to ensure payment of duties. If the penalty is not paid, the merchandise may then be forfeited in lieu of payment. 

A variety of criminal statutes cover customs fraud and imports. Title 18, United States Code, section 542 is a federal criminal statute and provides for sanctions to those presenting false information to Customs officers. It provides a maximum of two years' imprisonment, a fine, or both, for each violation involving an importation or attempted importation. The Money Laundering Control Act includes importation fraud violations as specific unlawful activities or predicate offenses within the Act.  Criminal penalties include imprisonment for up to 20 years for each offense.

Ultimately, antidumping violations can be subject to a variety of civil and criminal penalties, depending on the specific circumstances of the case. There is no unified antidumping criminal violation statute that provides a set of elements or penalties that apply in all or most antidumping cases. Usually, only civil penalties are applied, but in cases of clear egregious conduct involving fraud, gross negligence, and the like (basically intentional conduct), criminal charges may be filed. 

Practical Steps to Protect Oneself

Politics are an inherent part of international trade. 

The importer or exporter who seeks to ignore them is akin to a landlord who ignores rent control laws. Sooner or later, you will face enforcement actions from a governmental source that will be expensive, time-consuming, and possibly ruinous. It is vital for every exporter or importer to be fully aware of the laws concerning pricing, dumping, subsidies, and reporting requirements.

It is equally important to understand that your local agent may not only be ignorant of the relevant laws but may have no incentive to protect you. 

An agent in China exporting a commodity that is subsidized will be paid in full and not under any pressure from his or her government long before you find out that those goods you imported expose you to civil or even criminal penalties in the United States.

And those penalties are real, as exemplified in the cases cited above. The cost of defending yourself before a federal agency can also be massive and the government does not have the same cost-benefit criteria in making litigation decisions as you face. 

This requirement for your own investigation, education, and care is not ancillary to your import business: it is central to your future business well-being and, at times, personal well-being. 

This means that you must be proactive in learning the laws and duties imposed and flexible in adjusting to new duties that may be promulgated. New custom duties and antidumping rulings occur often, and it is vital to assign someone in your company to be aware of them. 

Usually, such rulings have a grace period before full implementation, but that grace period is often short and the alteration in your own business planning will at times be significant. The sooner you understand what the new duties are, the sooner you can adjust business practices to conform.

The worst thing to do is to ignore them or to misrepresent the source of the materials. That can lead to enforcement proceedings that can include criminal sanctions. And note that enforcement abroad against the agent who misadvised you will almost certainly not occur. Your competitors are often the source of information against you, but such information is likely to come out as you go through customs. To hope to “get away” with violation of those laws is to take a tremendous risk, never worth the profit.

A key element of the skill component you will require is flexibility in your business arrangements and plans. To suddenly find that your source of raw materials is now subject to prohibitive duty means that your entire business arrangement is likely invalid and must be reinvented. As an example, if raw materials from Indonesia of a particular type are now subject to a sixty percent customs duty, then you will have to find an alternative source or abandon that aspect of your business. It means that it is likely you will have to dispose of your inventory on the waves before the grace period ends and set up a new structure for your future business. 

One client abandoned the import business entirely, commenting that at least he didn’t expect a bomb to explode under his feet when dealing with domestic transactions. But that was an overreaction.