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TRANSCRIPT
Top Ten Risks Of Importing Products Covered By AD/CVD Orders
Midwest Global Trade Association
November 21, 2014Presented by: Douglas Heffner
Outline of PresentationOverview of antidumping (“AD”) and countervailing duty (“CVD”)
proceedings.
Top ten risks for importers when importing products subject (or possibly subject) to AD and CVD orders.
Scope considerations.
Group breakout on hypothetical AD/CVD scenarios.
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AD and CVD Overview
Unfair import pricing and foreign government subsidies:
- distort the free flow of goods;
- adversely affect American business in the U.S. market.
Intended to offset these unfair practices by imposing duties equal to the amount of the dumping or subsidies. The amount of the offset is called the AD or CVD “margin.”
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What Are AD Cases?
The antidumping laws are designed to protect a U.S. industry from imports that:
- Are sold at a lower price to the U.S. market than in the foreign producer’s home (or comparison) market; and
- are causing material injury or threat of material injury to the U.S. industry.
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AD Fundamentals
Basis of Calculation: DOC calculates the difference between two weighted average prices:
- 1) The foreign producer’s ex-factory home (or comparison) market prices of merchandise; and
- 2) The foreign producer’s ex-factory prices for sales to its customers in the United States.
When Does Dumping Occur: Dumping occurs if the foreign producer’s ex-factory price to the U.S. is below its ex-factory home (or comparison) market price.
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Non-Market Economies: Watch Out!Exception: cases involving China and Vietnam.
Why? DOC considers China and Vietnam to be non-market economies. DOC believes that the home market prices cannot be trusted because of communist governmental influences.
As such, DOC compares the net U.S. prices to a constructed price based in part on “factors of production” in a “surrogate country,” i.e., estimated costs if the product were produced in a market economy of comparable economic development.
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Non-Market Economy CalculationFor example, if it takes a Chinese company 1 ton of coal to
make 10 tons of steel, DOC will value the coal based on the cost of coal imported into a market economy, such as Indonesia.
Because of this methodology, the dumping margins are usually unpredictable and high.
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What Are CVD Cases?The United States imposes countervailing duties (“CVDs”) when:
- foreign producers receive government subsidies;
- importation of subsidized goods causes (or threatens) material injury to U.S. industry.
Intended to offset the subsidy.
May be imposed in addition to any applicable antidumping duties.
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CVD FundamentalsSubsidies are financial contributions or benefits conferred by a
foreign government to a particular firm or industry, usually to achieve some economic or social goal.
Subsidies can take many forms, such as direct cash payments, credits against taxes, loans at terms that do not reflect market conditions, and subsidized inputs and raw materials.
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Overview Of Investigations
U.S. Antidumping Investigations are Conducted Between Two Different Federal AgenciesU.S. Department of Commerce (“DOC”)
Collects extensive sales, price and cost information and calculates antidumping margins
U.S. International Trade Commission (“ITC”)
Determines whether domestic industry suffers from material injury or threat thereof by reason of imports
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AD and CVD Cases: Risks to Importers Importers are invariably unaware of the many risks associated
with importing goods subject to antidumping and countervailing duty orders.
The next few slides will explore the top ten risks and more, including the retrospective system used by the U.S. government for the assessment of antidumping and countervailing duties, and common misperceptions held by importers when importing goods subject to antidumping and countervailing duty orders.
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Risk 1The importer of record – and not the exporter -- is liable for all antidumping cash deposits and final antidumping duty assessments.
- If your product is covered by an antidumping duty order, request that the exporter become the importer.
- If not, get ready for uncertainty.
- The best defense is knowing how the system works.
- Foreign exporters are not allowed to reimburse the importers otherwise Commerce will double the antidumping duties owed.
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Risk 2Although the importer may pay estimated antidumping duties at the time of entry, those may not be the final antidumping duties owed!
- The Unites States has a retrospective system: The initial investigation by Commerce sets the antidumping cash deposit rate, while actual antidumping duties are assessed in an administrative review.
- If no administrative review is requested of the exporter, DOC will liquidate the entries – calculate the final duties owed – at the cash deposit rate.
- If an administrative review is requested of your exporter, if the dumping rate calculated by Commerce is higher than the cash deposit rate, then the importer owes the difference, plus interest.
- If the dumping rate calculated by Commerce is lower than the cash deposit rate, then the U.S. government refunds the difference, plus interest.
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Risk 2 (Continued) For example, the respondent could be assigned a cash deposit rate
of 10 percent pursuant to an AD investigation.
One year after the Order is put into effect, the company (or petitioner) has the opportunity to request an administrative review, covering US entries since the beginning of suspension of liquidation.
- If no review is requested, then actual liquidation of past entries will be liquidated at the 10 percent rate.
- However, if respondent go through the administrative review, then a different rate will be determined for the company for sales in that period.
- If the new calculated rate is 15 percent, then the importer must pay an additional 5 percent, plus interest, for most of those past entries.
- If the new calculated rate is 7 percent, then the importer of record receives the difference (3 percent) back from Customs, plus interest.
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Risk 3The retrospective system creates business uncertainty for
importers.
- Ultimate liability for antidumping duties may not be known for 18 months or more.
- In addition, if there is an appeal, ultimate liability might not be known for several years.
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Risk 4If your company is not one of the largest exporters, it may not have control over its own antidumping rate because Commerce may not calculate an antidumping rate based on the company’s own pricing practices.
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Risk 4 (Cont.)Commerce calculates three types of rates:
- Individual rates for companies that it selects to fully participate in the investigation. This is typically reserved for the top two or three exporters;
- An average rate for companies that participated, but were not selected to be individually reviewed.
- A high adverse facts available rate for those companies who did not participate, did not cooperate, or could not prove that they were free from government control (for non-market economies).
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Risk 4 (Cont.)Even if your exporter is not dumping, Commerce may assign
your exporter the average antidumping rate of the individually reviewed companies.
For AD cases involving China and Vietnam, If your exporter is majority owned by an entity of the government, it may not be entitled to either an individual calculated rate or an average rate. Instead, it could be assigned country-wide rate, which is usually very high.
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Risk 5You cannot count on the exporter of your product to cooperate in an administrative review or to try to monitor its selling practices to minimize the antidumping duties that the importer will pay.
- Unless the exporter is affiliated with the importer, it is unlikely that the exporter cares whether it is dumping or not.
- After all, it is the importer that is liable for the antidumping duties, not the exporter.
- Example: Shanghai Maoji for wooden bedroom furniture
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Risk 6The risk of high dumping margins increases when dealing with China and Vietnam because DOC treats those countries as a non-market economies.
- Because China and Vietnam are not considered to be market economies, Commerce does not trust selling prices in those countries.
- Therefore, Commerce compares U.S. selling prices to a constructed price based on “factors of production” in a “surrogate country,” i.e., estimated costs if the product were produced by the Chinese (or Vietnamese) producer in a market economy of comparable economic development.
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Risk 7Even if you are selling at a profit or at market prices, or selling a product that is not made by a U.S. manufacturer, your entries may still be dumped.
- Commerce does not compare your exporter’s U.S. selling price to the selling prices of domestic producers; rather, it compares your exporter’s selling price to a constructed price.
- Even if an identical or similar product is not produced in the U.S., the antidumping duty order still applies.
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Risk 8The U.S. industry often drafts the scope of antidumping duty orders to be broad and vague. Therefore, it is not always evident whether your products are covered.
- When in doubt, do not assume. The monetary consequences of assuming incorrectly that a product is not covered could be enormous.
- You can ask Commerce to rule whether the product is included within the scope of an antidumping order (a “scope ruling”).
- Do not rely on your broker; instead, ask an attorney that specializes in antidumping matters.
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Risk 9Failure to pay antidumping duties could result in the importer paying the antidumping duties, plus Customs penalties.
- The Department of Commerce (Commerce) is responsible for calculating antidumping duties owed.
- U.S. Customs and Border Protection is responsible for collecting the antidumping duties owed by importers.
- Customs can go back 5 years to impose penalties.
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Risk 10Your exporter may not be truthful about whether a product is subject to the scope of the antidumping duty order or the country of origin of the product.
- Remember, the goal of the exporter is to sell product. In many instances, it simply does not care whether the importer has to pay antidumping duties.
- Be especially careful of exporters who previously exported from China but are now exporting that same product allegedly from a third country.
- Commerce and Customs will investigate and punish incorrect country of origin claims. In addition to antidumping duties, civil and criminal fines could apply.
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Scope IssuesAs you will later today from Mr. Peter Coniff from Customs, AD
and CVD enforcement is a high trade priority of Customs.
As such, we will explore some of the issues surrounding scope issues, which are some of the most vexing issues for importers.
I will then give you some hypotheticals and you can break into groups.
You can then report back on the best way you believe to handle the particular scope issue.
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DOC’s Responsibilities Regarding AD/CVD Scope IssuesDOC issues the final order which defines the scope of the
order’s application to covered products.
The scope of ADD/CVD orders are intentionally drafted with broad language.
HTSUS tariff classification numbers are provided for reference only.
Written language controls.
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Customs’ Responsibilities Regarding AD/CVD Scope IssuesCustoms is responsible for enforcing ADD/CVD orders and collecting revenue.
- This includes antidumping and countervailing duties.
Customs has initial review of whether a product is or is not subject to the scope of an AD or CVD order.
DOC, however, has final say whether a product is included or excluded from the scope of an order.
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Scope Issue Considerations
Written description in AD/CVD Order is controlling, not HTSUS classification.
Customs may provide opinion on scope of ADD/CVD Order, but only Commerce can provide a binding interpretation.
Scope Ruling Requests are submitted to DOC.- Reasonable Care.- Opinion from Expert.
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Protecting Your Company If You Find Your Goods Are Covered By AD/CVD OrdersTiming: Did you discover that your goods may be covered before or
after importation?If before, cancel shipment. If you cannot cancel the shipment, inform your
broker to declare a type 03 entry and make deposits of AD/CVD duties.
If after importation, get mobilized:
Have you received a CF-28 from Customs?
File prior disclosure with Customs to protect against penalties
Contact legal counsel about the possibility of a scope ruling request
File scope ruling with Commerce
File an administrative review request of exporters if deposit rate is high
When is the request month for administrative reviews?
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Sources for ADD/CVD Scope InformationCustoms website - http://addcvd.cbp.gov/
- Prior Scope Rulings- Liquidation Instructions- Customs rulings - http://rulings.cbp.gov/
Federal Register -http://www.gpoaccess.gov/fr/index.html- ADD/CVD Orders (products covered by AD/CVD orders)- Other Notices (e.g., administrative review results, scope rulings)
ITC website - http://usitc.gov/- Preliminary and Final Results
Dep’t of Commerce - ITA website - http://www.trade.gov/ia/- Scope Language- Scope Rulings Notices- Federal Register Notices
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Exploring scenarios through breakout group discussionsScenario 1: Your company receives a CF-28 from Customs asking whether
a particular product imported from China is possibly within the scope of an AD order. Attached is the scope of the order. The current cash deposit for non-reviewed companies is 400%. What should you do?
Scenario 2: Your company receives a CF-28 from Customs for goods imported from a country not covered by an AD/CVD order. However, there is an AD/CVD order in place from China. Customs is asking you to prove the country of origin is not China. If the country of origin is China, what are the potential consequences? What do you do?
Scenario 3: Both your company and your competitor import the same product from China. That product is allegedly covered by the scope of an AD/CVD order. Your competitor requests and obtains a scope exclusion from Commerce. Is your merchandise also covered by that exclusion? If yes, why? If not, what can you do to have it excluded?
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DBR’s Comprehensive International Trade ServicesTrade Remedies
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Contact InformationDouglas J. Heffner
(202) 230-5802
Drinker Biddle & Reath LLP
1500 K Street, N.W.
Washington, D.C. 20005
http://www.drinkerbiddle.com/people/attorneys/heffner-douglas-j
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