Introduction:

In the competitive world of international trade, industries often encounter competition from abroad that is assisted by foreign governments, either directly or by lax enforcement of labor or environmental laws that allow less expensive products to enter the market. 

While such competition may be difficult for United States business to confront, it is not necessarily illegal or in violation of trade laws unless it can be shown that the products are being imported into the United States by means of either governmental subsidy or other means to allow the product or materials to be sold into the United States for a price that is below “normal value,” often meaning at an effective loss to the producer and/or importer assuming normal market value is considered. This memorandum provides an overview of anti-dumping laws as well as potential financial implications of such laws on domestic importers.

The Basic Law:

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 which benefit from subsidies provided through foreign government programs. Under the law, the United States Department of Commerce (“USDC”) determines whether the dumping or subsidizing exists and, if so, the margin of dumping or amount of the subsidy while the United States International Trade Commission (“USITC”) determines whether there is material injury or threat of material injury to the domestic industry by reason of the dumped or subsidized imports. 

For industries not yet fully established, the USITC may also be asked to determine whether the establishment of an industry is being materially retarded by reason of the dumped or subsidized imports.

The relief that is normally available is the imposition of duties onto the “dumped” products to both equalize the market and act as a revenue source for the United States government. Antidumping and countervailing duty investigations are conducted under title VII of the law. The USITC conducts the injury investigations in preliminary and final phases.

China is often the target of such complaints and many industries have complained of their practice of alleged dumping resulting in various special custom duties being invoked. Anti-dumping laws are established to shield domestic producers from low-priced foreign goods being “dumped” into the domestic market. AS an example, the anti-dumping laws now directly apply to wood flooring imports from China.  

Enforcement

In the United States, anti-dumping regulations are enforced as follows:  

  1. Plaintiffs representing a particular industry file a petition with the United States Department of Commerce and the United States International Trade Commission.
  2. The plaintiffs must satisfy two elements to succeed in obtaining anti-dumping relief:
    1. 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.
    2. There must be a material injury or threat of material 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.
    1. 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 lack of 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 anti-dumping laws can be crippling to a business. In a nutshell, circumvention of dumping duties can result in penalties from United States Customs & Border Protection (“CBP”) and even criminal liability under certain circumstances.

  1. CBP can impose penalties for such acts 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 statement or entries generally (18 U.S.C. §1001). These penalties are the most significant that CBP can impose and can easily add up to amounts that far exceed the value of the imported goods.

In short, 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. Thus, the employer or principal may be liable for acts of agents or employees even if not specifically directed to engage in prohibited acts by employer.  Compliance programs are thus extremely important to ensure that employees and agents do not expose the importer to potential criminal and civil liability.

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 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 United States, in order to avoid 221% antidumping duties on Chinese-imported honey.  When the honey arrived in the United States, 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 United States defendants were sentenced to a year in jail (and probation), but faced 46-57 month sentences had they not cooperated with authorities.

In US v. Chen (2012), defendants bribed Taiwanese inspectors and conspired with importers to avoid anti-dumping 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 United States.  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.  Customs fraud may result in both civil and criminal penalties.  

A variety of criminal statues 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. 

Anti-Dumping Duty Order 

After the USDC issues an anti-dumping order and the USITC makes an affirmative injury determination, importers are required to pay anti-dumping duties on subject merchandise that entered the United States on or after the publication date of the preliminary determination. The importer may then request that the USDC determine the actual amount of antidumping duties to be paid on the entries.  The USDC makes such a determination in an annual administrative review, pursuant to section 751(a)(2)(c) of the Tariff Act.

The USDC will calculate an importer-specific ad valorem assessment rate for each importer of subject merchandise covered by the administrative review. (19 C.F.R. 351.212(b)(1)). Importer-specific assessment rates will be calculated in the same manner as the exporter's dumping margin, based on average-to-average comparisons using only the transactions associated with that importer with offsets being provided for non-dumped comparisons.”

(see https://www.federalregister.gov/articles/2012/02/14/2012-3290/antidumping-proceedings-calculation-of-the-weighted-average-dumping-margin-and-assessment-rate-in)

Importing From An Alternate Country

If an importer determines that it is economically advantageous to import from a different country to avoid anti-dumping duties, it must first be determined whether the USDC considers any country with anti-dumping duties in effect as a surrogate country for the proposed alternate country. In such case, the USDC could still use surrogate country data to determine the fair market value of wood flooring in the different country. For example, if a company began to import wood flooring from Indonesia or the Philippines instead of China which is already subject to an anti-dumping order, and there was not enough data on wood flooring in those countries, the USDC could determine that China is a surrogate country for the purposes of fair market value assessment of the product at issue. Assuming that the fair market value in the new supply country is similar to China, it is likely that China’s anti-dumping duties could be utilized and enforced (in fact, Thailand, Indonesia, and the Philippines have been previously assessed as surrogate countries for China). 

Administrative Review in Advance 

In order to avoid the uncertainty, the current status quo leaves, as well as to mitigate financial risk, Struxtur, Inc. may wish to apply to the USDC for administrative review to determine its specific importer anti-dumping rate. Struxtur, Inc. can then either (a) pay the applicable rate, (b) change suppliers in China (as discussed above, certain sellers in China enjoy selectively lower anti-dumping rates), or (c) attempt to import from a different country altogether. Struxtur, Inc. should identify all suppliers the company intends to purchase from moving forward to determine applicable importer anti-dumping rates associated with purchasing from such suppliers. 

Conclusion:

The law is in constant change both due to the politics inherent in the international situation and the effect of new rulings. It is critical for any person interested in this topic to determine the latest rulings of the various governmental entities. 

 

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