CAFC: EAPA Process Really Does Violate Due Process

Hot on the heels of my complaining about how the EAPA law and process is stacked against importers, the Court of Appeals for the Federal Circuit has issued an important decision that will have a major impact on how those cases work. If you are unfamiliar with evasion cases under the Enforce and Protect Act and how Customs and Border Protection handles them, go back and look at these two posts: Part 1, Part 2.

Royal Brush Manufacturing, Inc. v. United States, is the decision in an evasion case against Royal Brush involving pencils allegedly transshipped from China through the Philippines. Customs determined that there was evasion of an antidumping duty order based in part on evidence that was not disclosed to Royal. Specifically, Customs sent a representative to the facility in the Philippines to photograph the interior and provide a report. Customs refused to disclose all the photographs to Royal. Moreover, CBP's report concluded that the facility did not have sufficient capacity to produce the number of pencils allegedly made in the Philippines and exported to the U.S. In its report, Customs refused to disclose the numbers it used to calculate production capacity. Customs also withheld other information it gathered. 

Photo by David Perkins on Unsplash

Royal challenged Customs' withholding of the information on which it based the affirmative evasion determination. The U.S. Court of International Trade ordered Customs to provide a summary of the redacted information (as it is required to do under the regulations), but also held that there is no requirement that Customs disclose business confidential information. 

A second issue related to Royal's effort to respond to Customs' "Verification Report." Customs rejected the rebuttal on the grounds that it had not relied on any new factual information. 

The CIT sustained Customs' determination and Royal appealed.  In the meantime, and contrary to the way EAPA is supposed to work, Customs liquidated the subject entries, with antidumping duties assessed on two of them. As a result of the liquidation, the government tried to get the appeal dismissed as moot because the government believes that liquidation is magic.

On the mootness question, it is true that most issues involving the assessment of duties that result from a decision by Customs can only be challenged through the administrative protest process. The Court of International Trade can then review the denied protest. Absent a protest, the liquidation is final and conclusive. In this case, Customs assessed duties when it liquidated the entries and Royal did not protest. According to the government, that should end the matter.

The Federal Circuit did not agree. The EAPA statute includes a specific authorization to challenge the evasion determination that is distinct from challenging the liquidation. The evasion determination has consequences beyond the liquidated entries including the possibility that Customs will use it to bootstrap a penalty case, as is allowed under subsection (h) of the EAPA. That does not mean that Royal will get back the antidumping duties it paid. That issue was not brought before the Court, but it seems likely that a protest would have been needed to challenge CBP's erroneous liquidation. On the other hand. the Federal Circuit retained jurisdiction over the appeal, which is a good thing given the result.

The meat of this decision has to do with whether Customs may legally withhold relevant information from the imported to protect confidential business information. Presumably this is the confidential information obtained from the producer and not the importer's own info. At the outset, we can stipulate that Customs comes into possession of a lot of valuable confidential business information. Customs is and should be very careful to prevent disclosure of that information. The Trade Secrets Act applies to Customs employees and prohibits them from disclosing trade secret information "to any extent not authorized by law." 

The government's argument on this point was that there is no authorization by law in EAPA or elsewhere to disclose the confidential information. Unlike antidumping and countervailing duty cases, there is no statute or regulation that creates a protective order to prevent unauthorized disclosure. In the absence of that mechanism, the argument goes, Customs was not permitted to disclose the information to Royal. 

None of that matters because the Constitution requires disclosure. The Federal Circuit referred to this as a "relatively immutable principle" of due process. The Court held that where an agency makes an adjudicative decision that seriously injures an individual, due process includes the right to know what evidence is being used against that individual. Business confidential information is not exempt from this constitutional requirement. For purposes of the Trade Secrets Act, the Constitution is the authorization by law. 

Given the constitutional mandate to disclose, Customs has the "inherent authority" to create a protective order mechanism. That system can allow the importer access to the full record to evaluate and rebut the evidence against it while protecting the information from unnecessary public disclosure. According to the Court, "There is no basis for CBP to violate Royal Brush's due process rights by failing to provide the information on which it relied to Royal Brush." This holding is probably broad enough to mandate that Customs create a protective order system for EAPA, which it can do by adopting some version of the system the Commerce Department uses in trade cases.

The last issue was whether Customs improperly denied Royal the opportunity to rebut new evidence Customs added to the record following "verification" in the Philippines. This also has a constitutional aspect but is directly addressed in the regulations at 19 CFR 165.23(c)(1):

If CBP places new factual information on the administrative record on or after the 200th calendar day after the initiation of the investigation (or if such information is placed on the record at CBP's request), the parties to the investigation will have ten calendar days to provide rebuttal information to the new factual information.

 The government's argument was that this regulation did not apply because no new factual information was put on the record. This argument was refuted by Customs' own report indicating that new information was provided in the Verification Report. Thus, Royal established that it had a right to an opportunity to both see and rebut that information.

All in all, this is a big win for importers who are subject to an evasion investigation and their foreign exporters. This decision will necessarily add to the transparency of that process and allow importers a full opportunity to review and address the evidence against them. This aligns nicely with the "visceral and negative" reaction I described in the previous post on EAPA. 

The decision may have broader implications as well. Importers have expressed similar concerns about the transparency of the forced labor enforcement process. A common refrain is that importers do not know what information Customs has gathered indicating that forced labor is being used in the supply chain and, therefore, the importer has no way to rebut that evidence. If this decision on the due process rights of importers subject to Customs' administrative adjudication applies generally, it may require that Customs make its administrative record fully available, including confidential information. That might be an interesting unintended consequence of this EAPA case.