EAPA Part 2 - What's The Problem?
In my last post, we covered the mechanical aspects of evasion investigations conducted by U.S. Customs and Border Protection. These are cases CBP may initiate on its own, but which seem to more usually be initiated following an allegation by a domestic producer that an importer has evaded the payment of antidumping duties, countervailing duties, or both. The most common means of evasion is transshipping a product subject to an AD or CV duty order through a country not subject to the order and misidentifying the country of origin.
In this post, I want to run through some of the concerns that have been expressed by importers (and their lawyers) dealing with EAPA cases. You'll see that these cases require a whole new approach to customs enforcement. Because judicial review in EAPA is limited to facts in the agency record with a very deferential standard of review, these look a lot more like antidumping and countervailing duty cases minus the safeguard of complete information disclosure to the parties. As you'll see below, a lot of this feels unjust to customs lawyers who are used to a being able to deploy standard litigation tools including discovery and witness testimony to prove their case.
As an example, you should take a look at Leco Supply, Inc. v. United States, but similar to the last post, I am not going to review that decision in detail. It is just a good example of the issues importers are raising. The underlying issue in Leco was as challenge to CBP's finding that Leco has evaded antidumping duties on wire hangers from Vietnam by declaring that the hangers originated in Laos. The evidence in the case indicates, among other things that the supplier provided potentially counterfeit certificates of origin and payment records.
First, and separate from the specific legal issues, an often-unstated frustration is the very practical concern that importers can only do so much. I wrote about this for Law360. For decades, importers have generally understood their obligation to be to exercise reasonable care in reporting accurate and complete information to Customs. That includes the country of origin of merchandise and whether the imports are subject to an antidumping or countervailing duty order. Customs has, for years, talked about taking a risk-based approach to enforcement. Customs, for example, "uses risk-based analysis and intelligence to pre-screen, assess and examine 100 percent of suspicious containers." The office formerly known as Regulatory Audit "uses a risk-based approach to assess compliance with trade laws and regulations . . . ."
For importers, compliance risk management generally starts with gathering information from a potential supplier. That information will include the physical nature of the merchandise in sufficient detail to allow the importer to determine the tariff classification. Sometimes, that information comes from the importer, who may have designed the item or provided a detailed specification to the seller. In cases where the importer is buying an existing product, it can examine the merchandise and make its own determination as to its physical characteristics. Or the buyer/importer can specify the exact nature of the product in the purchase order and other documents, making the exporter contractually responsible for supplying merchandise that matches the order.
Because customs value is usually (but not always) based on the price to the buyer in the United States, value is also something importers can usually report with a degree of confidence. Value is, however, sometimes a problem for importers who are not familiar with the complex valuation rules. Value is also complicated by factors such as related party transactions, imports that are not subject to a sale, and the application of first sale for value.
Origin is a much tougher risk to manage. First, there are multiple and inconsistent rules at play. Second, the standard substantial transformation test based on a change in name, character, or use has become overly burdened with additional factors including the so-called "essence test" and whether the imported parts have a pre-determined end use. While there is some indication that the Courts may add clarity, for now, clarity is not abundant.
The underlying assumption in most commercial transactions is that the seller is not lying to the buyer. Buyers assume that sellers who do not deliver merchandise matching the order understand they are not likely to receive subsequent orders. That also applies to merchandise quality, on time delivery, price, and other elements of the deal.
On top of the business and economic considerations, importers who are smart and worried about compliance take additional steps to confirm that they are getting the merchandise ordered and that the purchase does not create other risks. In this context, the "additional risks" might include, for example, the presence of forced labor in the supply chain, a determination that the merchandise is subject to Section 301 duties, or that it is subject to AD/CV duties due to its actual country of origin. Methods reasonable importers employ to limit those risks include:
- Contract terms (up to and including indemnification for losses)
- Certificates of origin
- Certificates of conformity, test reports, mill certificates, and other quality documents
- Supplier codes of conduct
- Third party audits
- Site visits to observe manufacturing and confirm that the equipment, materials, and personnel exist in sufficient quantity to make the goods
|Photo by Markus Winkler on Unsplash