IKADAN and EAPA

I have not yet addressed cases brought under the Enforce and Protect Act ("EAPA"). These are important and controversial cases, so we need to change that. Also, there have been a few at this point, so we need to get going.

As a starting point, EAPA is part of the Trade Facilitation and Trade Enforcement Act of 2015. It sits in the customs laws at 19 USC 1517. The act seeks to address the "evasion" of antidumping and countervailing duties by means of written, oral, or electronic statements (or data) that contain material and false statements or omissions that result in "any cash deposit or other security or any amount of applicable antidumping or countervailing duties being reduced or not being applied with respect to the merchandise."

The act is directed at imports of "covered merchandise," which is products that, when imported, are subject to antidumping or countervailing duties. "Interested parties," who are most likely domestic producers of the covered product, may make an allegation to Customs that an importer is evading the deposit of estimated duties or the payment of duties. This may be, for example, the result of an incorrect tariff classification, false statement of origin, understated value, or another alleged scheme.

Upon receiving an allegation, Customs is required to evaluate it and determine whether it contains information that "reasonably suggests" evasion. If so, Customs initiates an investigation and has 300 days (which it can extended to 360) to make a determination of whether covered merchandise was entered through evasion. Within 90 days of initiation, Customs may impose "interim measures." That means it may suspend further liquidations of entries made after initiation and extend liquidations of entries made prior to initiation.

After an affirmative determination, Customs can suspend the liquidation of any unliquidated entry made on or after the date Customs initiated the investigation. Customs can also extend the liquidation of any unliquidated entry of covered merchandise made prior to the date of initiation. The importer will then be required to post cash deposits on those entries. 

In summary, EAPA forces CBP to investigate allegations of evasions of AD/CVD orders. Where there is a reasonable indication of evasion, Customs can prevent liquidations to ensure that any AD/CV duties ultimately determined to be owed are paid. When in doubt about the scope of the order, Customs can refer that question to Commerce.

The initial determination is the responsibility of the Trade Remedy & Law Enforcement Directorate. An importer or the interested party that made the allegation can, within 30 days of the determination, seek review of the decision within Customs. Customs must make a review decision within 60 days. The review is handled by Regulations and Rulings. After that, whichever side remains angry about the decision (positive or negative) can seek judicial review in the U.S. Court of International Trade. That case must be filed within 30 days of the administrative review decision. 

The scope and standard of review in an EAPA case is pretty narrow. These cases are done as a review of the agency record. That means no new evidence, no discovery, no witnesses, and no trial. The Court's role is not to determine the facts. Instead, the Court only decides (1) whether Customs followed the required procedures and (2) whether Customs' conclusion is "arbitrary, capricious, an abuse of discretion or not otherwise in accordance with law." The Court, therefore, will uphold a decision that is based on "a reasoned analysis or explanation." The decision must include a rational connection between the facts in the record and the ultimate decision. At least for the moment, if there is any ambiguity or gap in the law, the Court will defer to Customs' reasonable interpretation of the statute. This is the threatened Chevron doctrine. 

These cases are much more like antidumping and countervailing duty cases than like traditional de novo customs litigation. The limited scope of review and deferential standard of review make this pretty perilous for the importer.

Evasion should not be confused with circumvention, though both are tools to enforce AD/CVD orders. Circumvention is a diabolical rule that allows the Commerce Department to find that merchandise that is otherwise outside the scope of the order or from a country not subject to the order is nevertheless subject to the order. Commerce can do this when, for example, it finds that although made in a non-subject country, the product was made from materials from the subject country and was made with comparatively minimal processing. Circumvention can also apply where the product did not exist at the time of the order or is a minor variation of the product covered by the scope of the order.

Unlike circumvention, EAPA is aimed at merchandise that is (arguably) within the scope of the order but is entered without the deposit of the AD/CV duties.

Ikadan Systems USA v. United States is a recent example of judicial review of EAPA enforcement actions. Rather than get into the specifics of Ikadan, I am going to use it as a jumping off point to illustrate how EAPA cases work and why importers should be concerned about them. 

First, in a "normal" customs penalty case, a violation does not exist unless the someone made a material false statement or omission as a result of negligence, gross negligence, or fraud. Ikadan argued that "evasion" of duties should also require some level of culpability and not just a false statement or omission (which might be a good faith error). The Court held that the EAPA does not contain a discussion of culpability and, therefore, the Court deferred to what it considered to be Customs' reasonable interpretation of the statute as imposing strict liability, without regard to whether the importer acted negligently or knowingly. The only exception in the statute is for true clerical errors, which indicates that Congress intended this to be a strict liability mechanism.

Next, in a "normal" antidumping or countervailing duty case, Customs' role in interpreting the scope of the order is pretty limited. Commerce is the agency with primary authority to interpret and, as needed, clarify the scope of an order. And yet, for entries to happen, Customs routinely makes scope determinations. These should be the easy calls where merchandise is either in or out of the scope. All of the "gray area" should be resolved by Commerce. 

In an EAPA case, Customs is specifically required to make a decision on whether the merchandise is within the scope of the order. If that is unclear, Customs can refer the question to Commerce for guidance. 

The tricky part is that there is a disconnect in terms of judicial review. The question before the Court in an EAPA case is whether Customs' decision was arbitrary and capricious. That means determining whether Customs made a reasoned decision that is in accordance with law even if the Court might not agree with that decision. Customs is likely to rely on published Commerce Department scope rulings. But the question before the Court will not be whether those underlying ruling are correct. The question will only be whether Customs' application of those rulings was reasonable. At least in the EAPA context, that seems to give Commerce a pass when Customs does not seek scope guidance and relies on prior scope rulings.

Ikadan also challenged Customs' decision to suspend the liquidation of entries of merchandise that Ikadan believes to be outside the scope of the order. The Court declined to take up that issue because of its limited role in reviewing only Customs' determination of whether evasion has occurred, not the administrative steps Customs takes to implement that decision. The application of the EAPA finding to particular entries is, according to this decision, subject to the protest and de novo review process.

Let's end this here. I will come back with a second post on the constitutional challenges to EAPA.