Building a Dam: The ENFORCE Act

Once an AD/CVD provision is in place, all covered imports are subject to additional duties and other requirements.  Importers must declare the goods to be subject to these additional duties.  Not all importers volunteer the necessary information because (1) they may think they can get away with importing merchandise without paying; (2) they may believe that the goods are not within the scope of AD/CVD orders; or (3) they may not be aware of their obligations.  

Petitioners got the attention of Congress and successfully argued that Customs did not care enough about evasion of AD/CVD remedies.  Now, petitioners have the whip hand: they can go directly to Customs and force an investigation on any company that they feel is trying to avoid duties. Under the ENFORCE Act once a petition has been filed Customs & Border Protection has no alternative but to investigate the complaint and issue a preliminary determination of any potential wrong-doing within 90 days of the petition being filed.

In an article published by Steel Market Update one week ago, we explained what the new law is looking at preventing:

“Last week, the Senate passed the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).  The bill contains important provisions of the Enforcing Orders and Reducing Customs Evasion (ENFORCE) Act that have been promoted by the U.S. steel and manufacturing industries to combat evasion of antidumping and countervailing duties .

“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.  It also occurs when products are purposely shipped to a country not subject to duties (or to lower duties) and then sent on to the U.S. with a new country of origin declaration.

“The new provisions require the U.S. Customs and Border Protection (CBP) to initiate an investigation within 30 days of receiving a petition and issue a preliminary determination in 90 days. The final determination must be made within a year (300 days).  Violators found to have evaded AD/CVD orders will be subject to increased duties, potentially from the date of the initiation of the CPB investigation.  CPB is held accountable for its determinations by the Court of International Trade.

“Previously, CPB was not required to respond to allegations of duty evasion and lacked a formal mechanism for conducting an investigation. TFTEA provides new funding for trade enforcement efforts and increases the personnel at CPB devoted to identifying and punishing trade evasion.”

The key to our article was everyone in the steel industry must understand that the domestic mills believe there are companies/countries trying to evade or circumvent U.S. trade laws.  “’Rampant duty evasion undermines the impact of trade cases, thereby harming the domestic industry and its workforce,” said Steel Manufacturing Association President Philip Bell. “The passage of this legislation is an important step in ensuring that duties are collected and our nation’s trade laws are enforced.’”

If you are a trading company, and we have spoken to a few in the past week, the idea of circumventing U.S. trade laws on a systematic basis is fraught with risk. One trader told us in an email, “After this subject was discussed at length at your conference in Atlanta, during which the AISI representative [Kevin Dempsey] admitted that no case (zero) has ever been reported and/or documented, I wonder why this subject came up again, and why it needed that much room [he is referring to last weeks article in SMU].  From where I sit, there will always be attempts to get around these duties, but in practice, it’s not really that easy to do. After all, there is a clear possibility that the folks involved on this side are going to go to jail.”

Another former trader echoed those thoughts when he told me that he had never seen an effort by a flat rolled steel supplier to circumvent the trade laws and try to elude duty or bring in steel from a blocked country (like hot rolled from China).

The domestic mills disagree.  They believe there are companies out there trying to circumvent U.S. trade laws.  A 2010 report highlighted companies that apparently were willing to participate in deception to avoid duties (such as by transshipping merchandise and falsely declaring that the merchandise was produced in a country not subject to AD/CVD duties).  See the link in our February 16, 2016 article.  That report does not attempt to quantify the problem.  Traders think it’s a small issue (and the evidence is largely confined to China), while the domestic mills think it is huge.  There is no feasible way to bridge that gap.  In the ENFORCE Act, Congress took the side of the domestic producers.

If the domestic mills take duty evasion/circumvention seriously, then you can assume that they will use the law whenever they feel there is a question of improper evasion of duties. During the process the trading company or foreign steel mill (or both) will find themselves in the crosshairs of a Customs investigation in which the domestic mills will participate if not guide.  The targets will face legal bills that could go into the millions of dollars to defend themselves against any allegations whether the allegations ultimately are found to have substance or not.  Faced with this prospect, many traders may choose to avoid any involvement with the market.  

When the law was being discussed in Congress examples were provided having to do with Chinese companies, in particular, who were advertising their ability to change the origin of steel from one country to another and then shipping that steel to the United States in order to avoid any duties or penalties associated with the country of origin.

In order to prevent such illegal activities Congress has given petitioners (like the steel mills) the authority to go to Customs and insist that they do an investigation of any company. Customs would then investigate not only the trader but all of the trader’s sources of supply for any improprieties.

Failure to cooperate in the investigation would likely result in an assumption of guilt.

The ENFORCE Act is not the only method of increasing the impact of AD/CVD orders.  Anti-circumvention proceedings are also likely to be a key component of domestic mills’ strategy.  In an earlier case brought to our attention by Lewis Leibowitz, a Vietnamese company was found to be circumventing an AD order on tissue paper because they had Chinese inventory and could not prove that is was not used in shipments to the United States.  Commerce concluded that all the shipments to the US were Chinese and imposed duties on all of them.   

As Mr. Leibowitz puts it, “The power of investigation can be truly life changing for the targets.  Giving private companies the power to turn loose the ‘awesome power of the state’ on importers and trading companies, the potential disruptive effects will be multiplied.  Now that such power has been conferred on domestic companies, they must be responsible and prudent in exercising it.”

A special thank you to Lewis Leibowitz for his assistance in preparing this article. If you would like to communicate with Mr. Leibowitz on this or any other trade related topic he can be reached at: Lewis.Leibowitz@lellawoffice.com