Commerce Declares No "Free Pass" To Commit Fraud In Trade Cases

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Trade remedies provide much needed relief to domestic industries battered by unfairly traded imports. But their effectiveness can be gravely undermined when exporters resort to deceit and outright fraud to skirt around antidumping orders. Last month, in the final results of an administrative review of lightweight thermal paper ("LWTP") from Germany, the Department of Commerce ("Commerce") made very clear that fraudulent activity will not be tolerated.

In the LWTP case, Papierfabrik August Koehler AG ("Koehler"), a large German exporter, devised a scheme to conceal sales used in the dumping calculations by transshipping the merchandise through third countries. In its initial questionnaire response to Commerce, Koehler omitted the transshipped sales in an effort to eliminate its existing 4.33 percent dumping margin. When the petitioner learned of the scheme through a confidential source, it brought the matter to Commerce's attention.

What is unique about this case is what happened next. Rather than issue the standard denials, Koehler acknowledged the scheme and immediately attempted to report the previously concealed sales. The company argued that the omission of sales represented a "deficiency" in its initial response, and that Commerce was obliged to let it correct the response (and calculate a relatively low dumping margin) rather than toss out the entire response (and apply a dumping margin based on adverse facts available ("AFA")). In effect, Koehler suggested that the law entitles respondents to commit fraud in their initial responses and – in the event of discovery – to remedy the response and receive the same cooperative margin that would have been calculated had no fraud been undertaken in the first place.

Commerce disagreed, and it assigned to Koehler an AFA margin of 75.36 percent. As Commerce explained, the intentional concealment of sales is not a mere "deficiency":

{T}o permit Koehler to submit its "corrected" home market sales database after its fraudulent conduct was revealed by the petitioner would create {a} situation … which would allow respondents to submit misleading responses with impunity. We agree with the petitioner's assessment that "if respondents such as Koehler know that they will get a 'free pass' to commit fraud in their initial questionnaire responses, secure in the knowledge that they will have an opportunity to 'correct' the fraud should it be discovered, there would be no disincentive with respect to such behavior. Under such a framework, a rational respondent would always take its best shot to lower its margin through deception, concealment, and outright fraud in the initial questionnaire response."

Lightweight Thermal Paper from Germany, 78 Fed. Reg. 23220 (April 18, 2013) (final results), Issues & Decision Memorandum at 12.

This decision serves as a much-needed warning to exporters that there is no "free pass" to commit fraud in trade cases. If intentional misreporting is discovered and confirmed, application of AFA is nearly automatic. Koehler stated in its brief that such a policy might backfire by discouraging exporters from ever acknowledging their fraud. Koehler suggested that it would not have admitted to the scheme had it known this would be the result. As Commerce explained, the fraud was discovered by the petitioner, and Koehler acknowledged it only after having been caught. Commerce, by refusing to accept Koehler's belated "correction," sent a clear and simple message to other exporters: don't commit fraud in the first place.

U.S. manufacturers and their workers have reason to applaud Commerce's decision. While it may not prevent all future exporter misconduct, the decision goes a long way in strengthening the effectiveness of the trade remedies upon which domestic industries rely to ensure a level playing field. King & Spalding represented the U.S. petitioner in this case.

By Daniel Schneiderman