Originally published by the Journal of Commerce, July 2017

No, this is not the latest Internet craze, but rather evidence of just how persistently Customs and Border Protection (CBP) is enforcing antidumping evasion in the U.S.  It has been routine for CBP to send Requests for Information  to importers seeking production records establishing the individual shipment is actually made at the factory listed as the manufacturer.  Added to the bag of enforcement tricks is raising right to make entry issues and even prosecution of criminal cases!

When antidumping duty is imposed on specific categories of goods made in a given country, for example, China, many honest suppliers relocate production to a country where the antidumping duty does not apply, for example, Vietnam. Many other less honest suppliers work deals with Vietnamese suppliers that allow the Chinese-made goods to be labeled Made in Vietnam and either be shipped directly from China to the U.S. buyer, or the goods are moved to Vietnam long enough to be turned around and shipped out to the U.S. buyer. When these sorts of games are played, it is called evasion.  It is also called cheating, and obviously is a violation of the law.  When evasion happens, it is the importer who suffers, even if he does not know it is going on.  We have seen many cases where the importer visited the factory and saw his goods being made, only to have CBP say the quantity of goods being claimed to originate in that factory is not supported by the information available about that factory! If that happens, the importer either does not get his goods or he ends up paying the antidumping duty – neither being a pleasant outcome!

Naturally, once antidumping duty is imposed, the quantities coming out of China go down significantly, and the quantities imported into the U.S. from Vietnam (staying with our example) go up correspondingly. When that happens, CBP has learned to suspect evasion.  As such, the agency starts asking questions of importers and relies on other means of fact gathering to determine whether or not importers are filing their entries correctly. Importers, of course, are the ones against whom CBP takes action since they are the ones over which it has jurisdiction.  CBP also expects importers will keep their suppliers honest, even if the supplier’s behavior is far from something the importer has the ability to influence, much less control.

The requests to importer for documentation take the form of CBP Forms 28 – Requests for Information.  Typically, CBP asks for all of the following information (and sometimes even more):

1)         A copy of the purchase contract and any revisions between the importer and the foreign seller;

2)         Descriptive literature about the product, including what it is and where and how it is made and used;

3)         A breakdown of the components by weight and cost at time of assembly into the final product being imported;

4)         The name and address of the actual manufacturer, not the seller of the goods;

5)         To provide a detailed description of the production process with supporting documents and identify any data which can be used to permit tracking of raw materials, parts, etc. through the production process;

6)         To provide a product specification sheet, including physical dimensions and material types,  sometimes including a request for photos of any labels appearing on the products;

7)         A copy of the purchase order from the American buyer to the American importer; and

8)         If raw materials were sourced from countries other than where production took place, provide those documents, including the names of the suppliers of those raw materials and where those raw materials originated;  if the raw materials were sourced in the same country where production took place, provide the same sourcing documents and details.

Obviously, for the American importer to have any chance of responding to such a request, the factory where the goods were made has to cooperate.  Often they will, and then the importer’s ability to succeed involves more than simply receiving the factory’s paperwork and handing it over to CBP.  One of the mistake we see made regularly is the importer fails to do anything to vet the factory documents. It is a major undertaking to submit a set of documents establishing production in a manner that is convincing to CBP. Yet, time and again,  importers fail to check the documents.  Is everything there? Are you fully responding to all of CBP’s requests? Does the documentation allow for tracking through each stage of production? Are the right quantities present? If you are importing 1,000 t-shirts, but the production records only stablish 750 t-shirts were made, you have not established your goods were made where you say they were made!  If this sounds time-consuming and laborious, you reached the correct conclusion.  But if the proper analysis is not done, you lose and that negative outcome generally impacts future imports as well.  Put another way, if you try to import another shipment of the same goods, you will get hit with another request for the same production documents – so best to get it right the first time.

As a general proposition, importers should review documents from the factory to make sure everything is complete and easy to understand.  If you as the importer cannot figure out the documents your factory provided, how do you think CBP is going to figure it out? Also, do not expect your customs broker to assist – they are not in the business of analyzing production records.

The latest enforcement tool CBP has begun implementing is to question whether the importer is the owner of the goods. If the importer neither owns nor has a financial interest in the goods, he does not qualify to be the importer of record.  This sort of inquiry typically starts with provide a copy of your purchase order to the seller along with proof of payment from the importer to the seller.  The latest variation has been expanded to include requests for:

1)         A copy of the entry package which includes the commercial and shipment documents;

2)         The broker’s power of attorney from the importer along with proof of the identity of the person who signed on behalf of the importer on both the power of attorney and the bond application;

3)         Proof of the importer’s legitimacy, for example, a copy of the company’s formation document verifiable with the secretary of state;

4)         An explanation about the relationship between the importer and the seller;

5)         Provide an “original” negotiable bill of lading transferring control (title) of the goods to the order of the entity named on the bill or to the bearer, as indicated by a stamp or a signature on the Bill of Lading that is labeled “negotiable”;

6)         Verification of the identity of the point of contact and the name of the company that takes control of the merchandise upon release of the freight;

7)         Proof of payment from the importer to the seller;

8)         A legible copy of the contract between the manufacturer and the importer, including the product description, quantity, price, delivery date, place of delivery, and the date or condition that caused the contract to expire, along with confirmation of the sale, indicated by the purchaser’s signature;

9)         An explanation about the specific role the importer plays in the importation and/or sale of the merchandise; and

10)       A legible copy of the contract between the importer and consignee, if other than the importer.

As if that was not a massive enough undertaking, in a recent case, we saw CBP make the following additional demand:  “A letter requested by the importer to the financial institution with whom the importer does business requesting confirmation from the financial institution that the importer has an account at that institution and identifying the importer’s EN/IRS number associated with that account. The financial institution will need to send this original letter directly to CBP. The letter should also include the name and telephone number of an officer of the financial institution who issues the letter, and confirmation that payment was made”.  And, that letter had to come directly from the bank to CBP!

Unlike the Request for Information process where the goods have been released and CBP has to decide whether a penalty and/or antidumping duties will be imposed, the right to make entry question is the other end of the extreme – the goods sit at the pier until the matter is resolved – and, boy, can that get expensive!

The other tool in CBP’s arsenal is criminal cases. These typically are pursued where significant antidumping duties have been evaded and there is evidence the American importer was a willing participant, by means of such steps as submission of false or altered documents.  These are rare, but are a reminder, CBP takes enforcement of antidumping duty seriously – as it is charged to do under the law.

CBP has long listed antidumping and countervailing duty as a priority trade issues. The other ones are: Import Safety, Intellectual Property Rights,  Revenue, Textiles/Wearing Apparel and Trade Agreements.  Most companies are involved with at least one of these topics, and many are exposed in multiple areas. Are you prepared to establish the bona fides of your imports? If not, you better get ready – we are all for an ever-increasing bumpy ride!