What Is Duty Evasion?

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What is an antidumping and/or countervaling duty order?

  • To obtain an antidumping (AD) or countervailing duty (CVD) order, a US industry files a Petition with the U.S. International Trade Commission ("ITC") and the U.S. Department of Commerce ("Commerce") requesting an AD/CVD investigation. AD cases investigate unfair pricing; CVD cases investigate improper subsidies.
  • AD/CVD cases are very complicated, time-intensive proceedings prosecuted in front of two separate government agencies over a 12-18 month period.
  • Commerce makes preliminary and final determinations if imported goods are sold in the U.S. at less than fair value ("dumped") and/or are subsidized by a foreign government. US trade laws provide a remedy if dumped and/or subsidized imports injure the US industry.
  • The ITC makes preliminary and final determinations if U.S. industry has been materially injured or is threatened with material injury by the dumped and/or subsidized imported goods.
    • Material injury is a high standard; the ITC examines:
      1. Volume of imports

        There must be large increases in absolute volume and/or market share. ITC looks at both volume and value.

      2. Price effects of imports

        The US industry must show underselling by imports, price decreases and/or inability to raise prices.

      3. Impact on US producers

        The US industry must have significant decreases in market share, production capacity, production, shipments, operating income, employment, capital expenditures and capacity utilization as well as demonstrating increases in importer market share and imports.

  • AD and CVD Orders are issued by the DOC after (i) the DOC has found that the products in question were being dumped and/or subsidized and (ii) the ITC has found that the US industry has suffered material injury (or is threatened with material injury) by reason of the dumped or subsidized imports.

What is duty evasion?

Transshipment is an illegal tactic used by manufacturers and exporters of goods subject to an AD or CVD order to evade the duties they have been ordered to pay by the US Government. Transshipment involves an importer falsely declaring the country of origin of the goods and failing to identify the goods as covered by an AD/CVD order. It may also involve using false shipping documents that identify a good as originating in a country other than the point of origin. For example, an importer may claim that merchandise is made in Malaysia and not subject to an Order – when in fact it was made in China and merely shipped through Malaysia for the sole purpose of evading the U.S. duties. Consistent with this, the importer will not identify the AD/CVD order that covers the goods on the entry documents presented to U.S. Customs and Border Protection. Each of these actions gives rise to a separate violation than may be penalized.

Misclassification is sending goods subject to an AD or CVD Order into the US under incorrect import classification codes or using inaccurate descriptions that wrongly identify the imports as goods that are not subject to the AD/CVD Order. This tactic is used frequently to evade antidumping and countervailing duties. Two examples of this are (1) shipping uncovered innerspring units subject to an AD Order into the US under the "mattress supports" classification code and (2) shipping shrimp subject to an AD Order into the US under the description "dusted shrimp," which is exempt from the Order.

Other duty evasion tactics include (a) deliberately undervaluing imports, to artificially reduce an importer's duty liability, (b) using false Customs declarations that claim imports are not subject to an AD and/or CVD order, and (c) falsely claiming that the imports were produced by an exporter either not covered by the AD/CVD order or who has a much lower duty rate than the actual producer of the goods. A common practice is to ship all goods subject to an AD/CVD order through the producer that obtained the lowest AD and/or CVD rate of that product.

Are there penalties for duty evasion?

Importers are required by law to pay duties, taxes and fees owed on imports into the United States, including antidumping and/or countervailing (AD/CVD) duties. Importers must also identify, at the time of importation, the country of origin of imported goods, and imports that are subject to AD/CVD orders.

Failure to identify imports subject to AD/CVD duties, and/or failure to pay AD/CVD duties, is a violation of U.S. law. The federal government can impose severe penalties, up to and exceeding the commercial value of goods, if an importer is found to have failed to comply with all laws related to importation. This is true even if the failure is inadvertent. If violations are sufficiently severe (i.e., Customs determines that an importer has engaged in fraud), the matter can be referred to the US Attorney for criminal prosecution.

In addition to owing AD/CVD deposits or duties, with interest, importers who evade paying legally required AD/CVD duties can be subject to a variety of severe penalties, including the following:

  • Criminal penalties including imprisonment for up to five years for each offense.
  • Monetary fines, ranging from two times the duties evaded up to the commercial value of the merchandise.
  • Seizure of the merchandise.
  • Penalties under other laws, such as food safety laws administered by the U.S. Food and Drug Administration and the U.S. Department of Agriculture.

Despite the serious consequences if caught, many importers are willing to evade lawfully owed duties, betting that they will not be caught. Recent years have witnessed a significant increase in the number of importers who are willing to disregard our laws, and foreign parties who are willing to openly advertise their services to assist such schemes. Legislation allocating additional resources to Customs and establishing disciplines to make enforcement of our laws a higher priority is critical to maintaining the effectiveness of our international trade laws.

Enforcing U.S. Law is not a Free Trade Issue

Evading antidumping and countervailing duties – a violation of U.S. law – is not a free trade issue. It is a rule of law issue and, as with any of our laws, the laws at our borders must be enforced. Allowing any party – manufacturers, importers, or distributors, U.S. or foreign – to deliberately skirt our laws is contrary to the most fundamental principles of our legal system, erodes confidence in our laws, and undermines our ability to rely on the commitments our trading partners have made.

The affected U.S. industries have followed the law. Two different government agencies have conducted full, transparent investigations and ruled in their favor [link here to "What is an AD/CVD Order?"], imposing special duties on unfairly traded imports. Despite this, unscrupulous U.S. importers and and foreign exporters purposely act to evade these duties, in direct violation of U.S. law. It's that simple.

Our laws must be respected, followed, and enforced. This is not a matter of trade policy – it is a matter of fundamental fairness.

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View Specific Examples of Duty Evasion