Recent developments indicate enhanced focus on AD and CVD enforcement

In brief

What happened?

US Customs and Border Protection (CBP) on March 18 published a Federal Register Notice adopting as final the interim amendments (with changes) to the regulations implementing procedures for investigating claims of antidumping and countervailing duties (AD and CVD) evasion. The final regulations take effect April 17, 2024.

Additionally, on March 25, 2024, the International Trade Administration (ITA) of the US Department of Commerce (Commerce) published a Federal Register Notice implementing final rules amending its regulations “to enhance, improve and strengthen its enforcement and administration” of the AD and CVD laws. The final regulations take effect April 24, 2024.

Meanwhile, on March 11 CBP announced that it launched a dynamic statistics dashboard focusing on Enforce and Protect Act (EAPA) actions. CBP has updated the mechanism for reporting suspected AD and CVD evasion, breaking out the portal for EAPA violations from other trade violations on its Trade Violations Reporting webpage.

In line with the increased focus on AD and CVD enforcement, the United States Attorney for the Western District of Washington announced that the US Department of Justice, on behalf of CBP, and Yakima Products Inc. (Yakima Products) have resolved allegations that Yakima knowingly failed to pay required antidumping and countervailing duties on extruded aluminum components imported from the People’s Republic of China (China).

Why is it relevant?

Changes to the AD and CVD enforcement regulations signal a renewed focus on this priority trade issue. CBP’s new EAPA allegations portal and dashboard also reflect the agency’s increasingly aggressive stance with respect to AD/CVD evasion. Moreover, CBP’s announcement of the settlement with Yakima Products is further evidence of a shift in its treatment of AD and CVD evasion allegations. This is directly relevant to all taxpayers that import goods potentially subject to AD or CVD orders.

Action to consider:

All companies importing goods that are potentially subject to AD and/or CVD orders should review their procedures for determining whether their goods are subject to, and the correct rates for, any applicable AD or CVD orders.

For more information on the CBP’s renewed approach to trade facilitation and enforcement, including with respect to AD and CVD, see this page on the CBP website.

New ITA regulations

The Federal Register Notice adopting amendments to the ITA regulations under 19 C.F.R. Part 351 also includes a summary of the public comments submitted, the ITA’s responses or clarifications, and resulting changes to the proposed regulations.

As set forth in the Federal Register Notice, the stated purpose of the ITA’s amendments is “to improve, strengthen and enhance the enforcement and administration of the AD/CVD laws, make such enforcement and administration more efficient, and to address factors which distort costs and prices.” Notably, the ITA’s final rule eliminates a current regulation prohibiting the countervailing of certain transnational subsidies. Key enforcement mechanisms codified under the amended regulations also include:

• application of a hierarchy in selecting adverse facts available (AFA) rates in CVD proceedings,
• treating government inaction (e.g., failure to collect a fee, fine, or penalty) as countervailable subsidies,
• considering nonexistent, weak, or ineffective property (including intellectual property), human rights, labor, and environmental protections that may distort costs of production in (1) selecting surrogate values, (2) determining if a product has been sold for less than adequate remuneration, and (3) determining whether a cost-based particular market situation (PMS) exists.   

In relation to scope rulings and circumvention inquiries, the final rule clarifies that the ITA may issue a scope clarification (i.e., interpretation of specific language in the scope of an order and addresses other scope-related issues) in any segment of a proceeding, and that such clarifications will not always be published in the Federal Register. Scope clarifications “may take the form of an interpretive footnote to the scope when the scope is published or issued in its instructions to CBP, in a memorandum issued in an ongoing segment of a proceeding, or, at the discretion of the Secretary, in a Federal Register document providing parties with at least 30 days to file comments with the Secretary.”

The final rule also allows interested parties (other than the applicant or a requestor) opportunities to submit comments on the adequacy of applications or to provide new factual information to rebut, clarify, or correct facts on the record. Additionally, the ITA clarified that it will only issue scope rulings on merchandise that has not yet been imported if that merchandise has been commercially produced and sold.

Other important considerations for the trade community include the ITA’s clarification of what information must be submitted on the official record of AD and CVD proceedings to be considered, and requirements for filing “Notices of Subsequent Authority” to assert that a new Federal court or Commerce decision impacts arguments before the ITA.

Observation: Importers and other parties interested in AD and CVD proceedings should be aware of the new provisions, and should be sure to examine current record scope language in AD and CVD cases for scope clarifications that are not published in the Federal Register.

Yakima Products settlement

Under the settlement agreement, Yakima does not admit wrongdoing, but seeks to resolve the matter to avoid the delay, uncertainty, and expense of protracted litigation. Pursuant to the settlement, Yakima will pay $3 million, of which $1,325,000 is restitution, over a one-year period.

The unsealed complaint alleges that Yakima acted fraudulently by submitting a voluntary prior disclosure of tariff classification errors in its import entries to CBP. The disclosure addressed tariff classification errors only, and not underpayment of AD or CVD. However, the complaint alleges that in making the disclosure Yakima certified that the disclosure set “forth, to the best of the disclosing party’s knowledge, the true and accurate information or data that should have been provided.” The unsealed complaint further alleges that Yakima knew when making the certification that certain products imported under entries covered by the disclosure were subject to AD and CVD, and that they had not been entered as such.

Notably, the “certification” alleged in the complaint does not appear to have been made explicitly by Yakima. Instead, the complaint appears to be relying on CBP regulations requiring that:

• “the person concerned discloses the circumstances of a violation,” including
• specifying “the material false statements, omissions or acts,” and
• setting forth, “to the best of the disclosing party's knowledge, the true and accurate information or data that should have been provided in the entry.”

19 C.F.R. § 162.74(a)-(b). 

The trade community generally has interpreted this regulatory provision as requiring only that the person concerned discloses the circumstances of the violation(s) they choose to disclose, along with information needed to correct the violation(s) they have elected to disclose. The basis for this understanding is, in part, informal CBP guidance stating that the disclosing party can “determine the scope of the prior disclosure.” CBP Informed Compliance Publication (hereinafter “ICP”), What Every Member of the Trade Community Should Know About: Prior Disclosure, p.12 (Aug. 2017). Additionally, CBP regulations also provide that “violations not disclosed or covered within the scope of the party's prior disclosure that are discovered by Customs … shall not be entitled to treatment under the prior disclosure provisions.” 19 C.F.R. § 162.74(h). 

Observation: While Yakima Products did not admit to any wrongdoing, and there is no indication of how the court would have ruled on the complaint, importers should be mindful of these arguments when considering future voluntary disclosures of violations to CBP.