CBP to Lead Implementation of AD/CV Duty Collection Executive Order

Part of the executive order's directive for a plan to combat trade law violations calls for the Treasury and DHS secretaries to ensure CBP can share with intellectual property rights holders any information needed to determine IPR infringement, or regarding voluntarily abandoned merchandise before seizure, “if the Commissioner of CBP reasonably believes that the successful importation of the merchandise would have violated United States trade laws.” The fact sheet says: “Within 90 days, CBP will develop a strategy and implementation plan for enabling the interdiction and disposal of violative goods, with the ability to share information regarding merchandise voluntarily abandoned with intellectual property rights holders.”

The executive order also instructs the attorney general, in consultation with the DHS secretary, to devise recommended prosecution practices and to provide appropriate resources to ensure federal prosecutors treat significant trade offenses as a high priority. “CBP is currently reviewing the specific requests outlined in the Executive Order, and developing the plans requested,” the fact sheet says.

The executive order requires the DHS secretary to consult with the Treasury and Commerce secretaries, and the U.S. trade representative, in developing a plan by June 29 to require “covered importers” to “provide security” for AD and CV duty liability, potentially requiring first-time importers and importers delinquent on duty payments to submit to enhanced bonding processes. The executive order defines “covered importers” as importers of record for which CBP has no record of any imports, or has a record that the importer has failed to fully pay or not paid AD/CV duties. CBP would determine “covered importers” through a risk assessment, according to the executive order. The order references 19 USC 4321, a provision created by Section 115 of the Trade Facilitation and Trade Enforcement Act of 2015 that required CBP to develop a program to adjust bond amounts for importers based on risk assessments. Customs-Trade Partnership Against Terrorism Tier 2 and 3 participants are exempt under the statute.

Importers liable for paying AD and CV duties are often foreign entities with no assets in the U.S. or are "insufficiently capitalized" to pay the duties, customs lawyer Larry Friedman of Barnes Friedman said in a blog post (here). "Either way, the duties are uncollectable," he wrote. An obvious concern that the executive order raises for honest importers is that, if they discover failures to deposit AD or CV duties after the fact, they could be penalized for making a disclosure and voluntary tender, Friedman said. "The penalty would come in the form of increased bond requirements," he said. The executive order will also "raise the stakes" in post-entry audits where unpaid AD and CV duties are discovered, and the biggest burden will "clearly" fall on new importers who will likely see increased bonding requirements, Friedman said.

As for the portion of the executive order that instructs development of a plan to counter violations of U.S. trade and customs laws, Friedman said he is "curious" as to what methods other than seizure the government could deploy for interdiction and disposal, noting that exclusion and re-exportation "does not lead to 'disposal.'" In a list of questions and answers on the order (here), DHS said when an IPR violation is detected, importers of record can voluntarily abandon goods to avoid seizure, at which point the goods may be destroyed. Friedman also noted that, based off language in the executive order allowing more information sharing with IPR holders, they might be allowed to sue infringers in U.S. courts or seek exclusion orders from the International Trade Commission.

More criminal prosecutions of individuals for trade-related fraud and false statements can likely be expected, as the executive order's use of the word "prosecution" appears to specifically pertain to criminal offenses, as opposed to civil penalty cases, which are handled by the Justice Department's Civil Division, Friedman said. Other provisions of the executive order are nothing new, he said. "There is some specific instructions to apply risk assessments to importers of goods subject to antidumping and countervailing duty orders," he wrote. "I suspect, but can't prove, that people at CBP would tell you that the agency was already doing that."

U.S. honey and garlic producers applauded the executive order, noting in a statement issued through law firm Kelley Drye (here) a recent Government Accountability Office report that most uncollected AD and CV duties involve imports from China of fresh garlic, honey, canned mushrooms and crawfish (see 1608160032). "Failure to collect these penalties at the border means American producers must still compete with dumped honey in the U.S. marketplace," American Honey Producers Association (AHPA) President Kelvin Adee said in a statement. "AHPA welcomes the spotlight on this issue and is hopeful the Administration will also address other long-outstanding issues of utmost importance to our industry, including CBP's distribution of collected duties and interest to injured U.S. producers in accordance with the law."

CBP’s collection of AD/CV duty cash deposits rose more than 25 percent between fiscal year 2015 and fiscal year 2016, and by nearly 200 percent between FY 2014 and FY 2016, the fact sheet says. As of the end of FY 2016, $2.8 billion of AD and CV duties were owed to the U.S. government, for imports dating back to 2001, according to the fact sheet. Also in FY 2016, $14 billion in imports were subject to AD and CV duties, and CBP collected $1.5 billion in cash deposits. “This Executive Order gives CBP and our partners at U.S. Immigration and Customs Enforcement important and powerful new tools to further level the playing field for critical U.S. industries,” said Acting Commissioner Kevin McAleenan in a press release (here).