Thursday, January 17, 2013

Reimbursement Certificates

This is the Customs Law Blog, not the Trade Remedies Blog. Nevertheless, Customs and Border Protection is the agency that enforces the trade laws and, therefore, we sometimes run into issues involving antidumping and countervailing duty law.

One such issue has to do with the reimbursement of antidumping duties. As you likely know, antidumping duties ("ADD") are assessed on imports where the Department of Commerce has found that the goods are sold in the U.S. at a price that is less than the price for the like product in the home market. So, Bruce in Sydney sells his locally made wombat food for $10 per pound in Australia and $8 per pound in the U.S., Bruce is dumping the goods and the margin on that particular sale is $2. Before the U.S. will take any action, the International Trade Commission must also find that the $2 margin on wombat food causes or threatens to cause injury to the U.S. industry producing the like product over here.

If we assume that Bruce's wombat food is dumped and causing injury, it will be subject to antidumping duties when entered into the United States. The amount of duty to be deposited is subject to a lot of math and often a lot of litigation at the Court of International Trade. For illustration, let's just assume that the duty deposit will be 20%.

As you might imagine, a 20% increase in total landed cost does not sit well with the average importer. Of course, that is exactly the point. The goal of the ADD is to increase Bruce's price in the U.S. to eliminate unfair competition with the domestic producers. We can argue all day and night about whether the economic and policy rationale is sensible. [Hint, it makes the most sense in a world of market segmentation.] But, just accept that this is done to remedy--not punish--unfair trade.

What might a rational importer do? One possibility is to turn to Bruce and say, "This dumping business is your problem, not mine. If you want me to continue buying, you need to reimburse me for these dumping duties." That way, the buyer continue to get the goods at the same price and the exporter absorbs the cost of the dumping duties.

Unfortunately for the importer, the United States has determined that it wants the importer to feel the brunt of the ADD. If the importer is reimbursed for the ADD, Commerce responds by deducting from the export price (or constructed export price) of the goods the amount of the reimbursement. This has the effect of further reducing the U.S. price of the goods and, thereby, increasing the margin. In other words, it puts the reimbursement back into the equation.

Once, a very long time ago, I wrote a section of a brief to the Court of Appeals for the Federal Circuit making a very cogent argument that this regulation was invalid for some legal reasons. As you might guess from this discussion, I did not win on that point.

According to Commerce Department regulations, importers of goods subject to ADD are required to file a certificate stating whether they have entered into an agreement to receive reimbursement of the ADD. This can be done on paper or via ACE. For entries made after April 27, 1989, the certificate must be filed prior to liquidation. See 19 CFR 351.402(f). Certificates may be done for individual transactions or on a blanket basis.

I am thinking about this because Customs and Border Protection has apparently been thinking about it. Here is a link to a notice from CBP about the certificate requirements.

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