New U.S. Trade Law Exposes Importers to Duty Evasion Allegations and Targets Currency Manipulation, Among Other Changes

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This week Congress amended U.S. customs law to create new risks and opportunities for companies importing goods into the United States.  Most significantly, the Trade Facilitation and Trade Enforcement Act (TFTEA) will require the U.S. Customs and Border Protection (CBP) to investigate a company alleged to have imported goods that are subject to antidumping (AD) and countervailing duties (CVD) orders, but which did not declare those goods as subject to AD/CVDs upon importation.  The TFTEA also enacts new provisions targeting alleged currency manipulation and contains other provisions that affect import operations of U.S. companies, as described below.

Investigations of Alleged AD/CVD Evasion

The TFTEA establishes new procedures for CBP to investigate alleged evasion of AD/CVD orders.  Evasion is defined as failing to declare imports as subject to an AD/CVD order or declaring imports as subject to a lower AD/CVD rate.  Allegations of evasion may be filed by the U.S. industry competing with imported merchandise or other importers, foreign producers or exporters of merchandise subject to AD/CVDs.  CBP will formally initiate an investigation if it finds the allegation contains information reasonably suggesting that specified imports evaded AD/CVDs.  CBP generally must complete its investigations within a year.  Companies found to have evaded AD/CVD orders will have to pay increased duties, possibly going back to the date of initiation of the CBP investigation.  Companies that fail to exercise reasonable care in determining whether their imports are subject to AD/CVD orders also face fines. 

The new investigations could be time consuming and cumbersome for U.S. importers and their non-U.S. suppliers.  The TFTEA allows CBP to issue questionnaires to the importer and non-U.S. suppliers and to make negative inferences where a company fails to fully respond.  In instances where CBP cannot determine whether evasion occurred, CBP may refer matters to the U.S. Department of Commerce International Trade Administration (Commerce), the agency that determines the scope and amount of AD/CVDs.  CBP’s determinations are subject to judicial review at the Court of International Trade.

Under prior law, CBP was not required to respond to allegations of AD/CVD duty evasion and no formal mechanism existed for investigating duty evasion.  Domestic industries have long claimed that, due to the lack of resources and formal procedures, CBP investigations of evasion lack transparency and often languish.  Other changes in the law increase the number of CBP personnel devoted to identifying and punishing evasion. 

Evasion is not always an obvious matter involving an importer that purposefully tries to avoid AD/CVDs.  It also can occur inadvertently where products are processed in third countries prior to entry into the United States or have technical characteristics that are not clearly covered under the scope of an AD/CVD order.  Commerce regularly takes many months or even years before finding that a particular product is within the scope of an AD/CVD order.  Under the TFTEA, products determined to be within the scope of an AD/CVD order may be deemed to have evaded an order and subjected to duties dating back to the initiation of CBP’s investigation.  Before the TFTEA, CBP often would not apply AD/CVD duties to imports until Commerce ruled a product was within the scope of an order or formally opened a scope inquiry.

TFTEA provides additional reasons for U.S. companies that depend on imported merchandise to carefully analyze the risks that their supply chain might suddenly become subject to AD/CVDs or that their suppliers may face time-consuming investigations that result in imposition of AD/CVDs for previous import entries.  The duty evasion provisions are set to take effect 180 days after the president signs the bill into law. 

Additional Changes to U.S. Trade Law

Other notable aspects of the TFTEA include the following:

Currency Manipulation.  The final bill creates an Advisory Committee on International Exchange Rate Policy and requires that the U.S. Secretary of the Treasury submit biannual reports to Congress on the macroeconomic and currency exchange rate policies of major trading partners.  Although Congressional Democrats had pushed to make currency undervaluation subject to U.S. CVD law, the final language does not include such a provision.  Instead, the TFTEA:  (1) provides economic criteria to be used by the U.S. Department of the Treasury (Treasury) to identify currency manipulation in its biannual reports on international exchange rates; (2) requires bilateral talks with countries identified by Treasury as currency manipulators; and (3) provides the president with remedial measures should bilateral talks prove ineffective.  

Greenhouse Gas Emissions.  The TFTEA includes a provision to prevent trade agreements from establishing greenhouse gas obligations for the United States.  If a negotiated  trade agreement includes obligations regarding U.S. greenhouse gas emissions, the agreement is disqualified from fast track trade authority procedures and can be considered only under regular Congressional procedures (i.e., the agreement can be amended).    

Imports Produced by Prison or Forced Labor.  The TFTEA eliminates the “consumptive demand” exception to the prohibition on imports produced by prison or forced labor.  Under prior law, imports made by prison labor were permissible if the products imported were necessary to meet U.S. demand and were not produced by a U.S. industry.  This exception has been eliminated.  In addition, CBP must issue a report on all goods denied entry into the United States because those goods were produced by prison or forced labor.

Drawback.  Importers may claim drawback refunds of import duties if an exported item has a lower tariff rate than the imported item and other conditions are met.  The TFTEA amends the drawback provisions to permit CBP to establish procedures to use averages instead of line-by-line calculations of drawback claims.  In addition, the TFTEA amends the drawback provisions to limit the value of drawback claims made for imported goods subsequently incorporated into goods that are exported.

De Minimis Imports.  The TFTEA increases the de minimis threshold for imports that may be entered duty free to $800 from $200.

Companies importing goods into the United States should review the TFTEA changes to see whether their import practices should be re-assessed in light of new risks and opportunities.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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