Written by: Philip Sutter, GTM Governance, Global
As an importer, you must ensure that proper visibility and attention is given to reduce or eliminate your company’s exposure to antidumping duties (ADD) and countervailing duties (CVD). ADD/CVD duties can be substantial. Duty percentages are sometimes in the double or triple digits. However, with the proper due diligence, surprises can be avoided and appropriate business plans established.
ADD/CVD are duties assessed on imports in reaction to unfair trade practices.
- ADD duties are assessed when a foreign firm sells merchandise in the U.S. market at “less than fair value” (a price lower than the price it charges for a comparable product sold in its home market).
- CVD duties are assessed when foreign governments unfairly subsidize industries that export to the U.S.
From a U.S. perspective, the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) administer ADD/CVD proceedings. Cases may be initiated in response to a petition from the competing domestic industry or under the DOC’s own authority. The DOC determines whether the imports in question are being dumped and/or unfairly subsidized, and if so, by how much. The ITC determines whether the imports are causing material injury or threat of material injury to the competing domestic industry, or whether the establishment of an industry is materially harmed by reason of imports that are being sold at less than fair value and/or subsidized.
If both agencies find dumping/subsidizing and material injury have occurred, the DOC then issues an order directing U.S. Customs and Border Protection (CBP) to levy a duty equal to the amount by which the price of the import is less than the fair value and/or offset by unfair subsidies. Importers are then required to post a cash deposit equal to the amount of the estimated antidumping and/or countervailing duties pending liquidation of entries of the merchandise.
The subject goods are defined by a written description or “scope”. The scope is dispositive, not the Harmonized System (HS) classification. However, HS classifications are listed in the scope of orders and are used to begin most ADD/CVD analyses.
When issues arise…
Sometimes, issues arise because the descriptions of subject merchandise contained in the DOC’s determinations must be written in general terms. When such issues arise, the DOC issues ‘‘scope rulings’’, generally at the importer’s request, that clarify the scope of an order. Frequently, the U.S. Court of International Trade (CIT) must intercede to settle disputes. For example, the order on aluminum extrusions from China is especially complicated due to the parameters for exclusions from the order. There are sixty scope rulings issued to-date and there have been 25 CIT decisions on this specific commodity.
It is important to study the scope rulings and court cases to be well informed on the parameters that may relate to your product. However, these rulings are very product-specific, so if your product falls in a gray area, it may be prudent to request your own scope ruling.
When ADD applies
CBP is responsible for collecting all revenue due to the U.S. government, inclusive of the ADD/CVD. If an order is issued retroactively, this requires CBP to issue bills to importers, possibly years after an entry has occurred. Tracking the progress of potential orders can at least provide some time to advise management of the possible risk.
When ADD does apply, the importer is required by law to submit a certificate to CBP attesting that the exporter has not reimbursed the importer for the ADD. If the certificate is not submitted, CBP will assess the importer two times the ADD when the entry is finalized.
ADD and CVD by the numbers
As of March 2017, there are 224 different products that encompass 586 open ADD/CVD orders. There are 59 different countries of origin involved in these orders.
The top five countries of origin subject to these orders are China 26.8%, India 7.7%, Korea 6.3%, Taiwan 5.3%, and Japan 4.1%. The products impacted are typically metal industrial inputs and products, minerals, chemicals, but anything is possible.
Avoid surprises. Be prepared.
From a company compliance perspective, the place to start the analysis is with the current active orders. The CBP’s Automated Commercial Environment (ACE) portal will provide you with an active case list. Any suspect products should undergo a deep-dive analysis to determine if it meets the scope definition of an open order. Obtain copies of the orders from the Federal Register and study the scope rulings and court cases.
Communication is important, upstream departments such as Purchasing should be aware of the impact or potential impact of importing parts subject to ADD/CVD. It’s essential to have supply chain integrity and know who you are buying from. Some foreign exporters route goods through third party countries or show a different country of origin on shipping documents in order to evade ADD/CVD on sales to the United States. The importer is liable for duties and penalties in these instances.
Classification analysts should be trained to identify and flag potential in-scope part numbers. Engineers may be called on to help you to understand a product’s scope applicability.
Downstream, you should establish business rules with your broker to capture potential hits and have them referred to you for review prior to entry submission. You should also retroactively audit entry records as a further control in the event the broker did not capture the applicable ADD/CVD.
ADD/CVD is perpetually a priority enforcement issue. However, a General Accounting Office (GAO) audit revealed significant issues with enforcement effectiveness. The GAO estimated that about $2.3 billion in ADD/CVD owed to the U.S. government were uncollected as of mid-May 2015. President Trump’s 2018 budget addresses this gap through additional funding of for the International Trade Administration’s ADD/CVD investigations.
On February 24, 2016, the U.S. Congress passed the Enforce and Protect Act of 2015 or EAPA. EAPA establishes formal procedures for submitting and investigating ADD/CVD allegations of evasion against U.S. importers, such as transshipment or false invoicing. CBP has responsibility for tracking and reporting allegations of evasion from initial receipt, vetting and enforcement actions, to final disposition of an investigation.
On March 31, 2017, President Trump signed an executive order that will, by June 29, 2017, subject importers of record with no record of imports or a record of failing to pay ADD/CVD to be subject to a CBP risk assessment. CBP will be empowered to require enhanced bonding and impose other legal measures.
ADD/CVD is an area that can be a source of concern if not a total surprise when non-compliance is discovered. The duty exposure and penalty potential are significant. The wise compliance manager should know and preach within the organization that preparation and risk analysis on this subject is well worth the investment.