Customs Modernization Legislation Draft Released

Nov. 8, 2021
By: Michael N. Coopersmith

This week the office of Senator Bill Cassidy (R-LA) released a discussion draft of the customs modernization legislation that has been considered as part of its 21st Century Customs Framework. According to an accompanying fact sheet published by the National Customs Brokers & Forwarders Association of America, the bill is designed to address changes to the international trade landscape which has “shifted significantly” over the past three decades due in large part to growth in e-commerce and an expansion of the global marketplace.

If passed, the 22-page bill would amend seventeen sections of the Tariff Act of 1930 and one provision of the 2015 Trade Facilitation and Trade Enforcement Act. At a high level the Act aims to both expand CBP’s authority to collect and use information from importers and exporters and to bolster CBP’s enforcement capabilities, particularly as to the low-value imports that dominate e-commerce imports.

On the information collection front the bill would authorize importers of record to file information “in advance of entry of the merchandise,” stating that any advance information filed would need to be accurate “to the best of the knowledge and belief of the party.” Those who failed to meet this accuracy standard would be subject to penalties. The bill also seeks to lift restrictions on how CBP can use mandatory advance electronic cargo information. Under the current regulations, CBP can only use advance information “for ensuring cargo safety and security, preventing smuggling, and commercial risk assessment targeting,” explicitly stating that such information shall not be used for any commercial enforcement purposes. The bill aims to allow CBP to use such information “for any lawful purpose.”

The bill additionally seeks to amend CBP’s data-collection policies by clarifying and expanding the scope of documentation and information the agency may collect from importers. When dealing with de minimis entries, which typically applies to entries for goods valued at less than $800 USD, the bill would allow CBP to request information relating to the future sale of an article in order to determine if it qualifies for de minimis entry under 19 USC 1321. A catch all provision in the bill would additionally authorize CBP to collect any information “otherwise reasonably necessary to determine whether the article” qualifies for de minimis entry. These changes are particularly important to CBP due to the continued growth of e-commerce. Many e-commerce transactions are imported using the “informal entry” process afforded to de minimis entries, entries that can typically enter the U.S. tariff-free. The bill proposes a penalty of $5,000 for first time civil violations of these regulations and a $10,000 penalty for subsequent violations.

In addition to expanding CBP’s authority to collect and use information from importers and exporters, a large portion of the bill also seeks to bolster CBP’s enforcement capabilities. If passed, the bill would broaden the agency’s authority to suspend exporters for certain activities and expand CBP’s options for handling and disposing of counterfeit merchandise, as well as CBP’s ability to assess and impose liability for false or fraudulent submissions.

The bill would expand the scope of entities from whom CBP may demand information from during the course of an investigation, and would expand CBP’s ability to work with investigators, allowing the agency to provide investigators with “nonpublic information” relating to any entity that may have played a role in the sale, importation, or facilitation of the importation of merchandise into the US. Additionally, the bill would allow CBP to declare merchandise which infringes on intellectual property rights to be “summarily forfeited” in certain instances.

Finally, the bill seeks to address issues relating to fraud and negligence under 19 USC 1592, which currently prohibits persons from either introducing or attempting to enter or introduce any merchandise into US commerce by means of fraud, gross negligence, or negligence. The bill would modify the current text by adding a “Standards for Fraud and Negligence” section to 19 USC 1592 that defines both fraud and negligence, striking the term “gross negligence” altogether. Based on the new definitions the term gross negligence would be subsumed into the new definition of fraud, which is defined in the bill as “an act … or omission, done knowingly or with deliberate ignorance or reckless disregard of the offender’s obligations to act in accordance with applicable provisions of law.” The bill defines negligence as an “act … or omission done through the failure to exercise the degree of reasonable care.”

At this point it is not clear whether there is support for eliminating gross negligence from 1592. Fraud requires that Customs prove intentional acts or omissions by the importer (or other party subject to penalty) while neither gross negligence nor negligence requires such a showing. This change is potentially beneficial for importers in that it would turn all violations of law short of fraud into negligence cases.

If you have questions relating to this discussion draft or Customs regulations in general do not hesitate to contact an attorney at Barnes, Richardson & Colburn LLP.

CIT Finds the EAPA Process Does Not Violate Due Process Rights

Nov. 9, 2021
By: Meaghan E. Vander Schaaf

The Customs process for determining whether importers are evading antidumping and/or countervailing duties is conducted under the Enforce and Protect Act (“EAPA”). Companies under investigation under EAPA for evasion are not informed they are under investigation until Customs completes at least a preliminary investigation. Diamond Tools Technology LLC (“Diamond Tools”) received an affirmative final determination of evasion of the antidumping duty order issued by U.S. Customs and Border Protection and sued, claiming the process violated their due process rights.

Diamond Tools imports diamond sawblades, a circular cutting tool. On November 4, 2009, the Department of Commerce issued an antidumping duty order on imports of diamond sawblades and parts thereof from China. On February 24, 2017, DSMC, a group of U.S. producers of diamond sawblades, filed an EAPA allegation that Diamond Tools was evading the 2009 Order by transshipping Chinese diamond sawblades through Thailand. On March 22, 2017, Customs initiated an investigation under the EAPA in response to DSMC’s allegation. As part of their investigation, Customs visited Diamond Tools Thailand’s operation and concluded that the company “does not have sufficient capacity to produce to the amount needed to export to the [United States].” On June 23, 2017, Customs imposed interim measures.

Diamond Tools Thailand responded that the company manufactured diamond sawblades onsite at its facility in Thailand; however, some of the components used were sourced from China. Customs concluded that it was “unable to determine whether the merchandise at issue [diamond sawblade components sourced from China and joined in Thailand] is covered merchandise” under the 2009 Order and referred the matter to Commerce. In July 2019, Commerce made a final determination that diamond sawblades made with certain Chinese components were circumventing the 2009 Order. On September 17, 2019, Customs issued its final affirmative evasion determination agreeing with Commerce and stating, “Because Commerce did not place any temporal limitation or provide liquidation instructions to [Customs] with respect to entries covered by the EAPA investigation, we find that Commerce’s response to the covered merchandise referral applies to all entries covered by the EAPA investigation.

Diamond Tools challenged Customs’ Final Determination on four grounds.

1. Customs’ suspension of liquidation on entries that pre-dated December 1, 2017, was a retroactive application of Commerce’s circumvention determination and not in accordance with law;
2. Customs’ evasion determination related to Diamond Tools USA’s entries before December 1, 2017, was arbitrary, capricious and an abuse of discretion, and otherwise not in accordance with law;
3. Customs’ conduct during the EAPA proceeding deprived Diamond Tools USA of its due process rights; and,
4. Customs’ imposition of interim measures was not in accordance with law because Customs failed to make a “reasonable suspicion” determination by the statutory deadline.

Diamond Tools was unsuccessful in all four arguments; however, the due process claim is noteworthy. Diamond Tools claimed that Customs’ conduct during the investigation deprived the company of its due process rights to be heard and to defend itself. The company based this claim on the fact that Customs imposed interim measures without notice and the opportunity to comment and Customs denied the company the opportunity to review or comment on proprietary evidence during the EAPA proceeding.

Ultimately, the court found that Diamond Tools had not properly established that it had a protected interest under the Constitution to be protected. However, with respect to the ability to view the proprietary evidence against the company the court found Diamond Tools failed to demonstrate how access to the proprietary information would have helped the company during the administrative proceeding. In fact, the language used by the company did not suggest that they were denied 'a meaningful opportunity to participate in the administrative proceeding.’ The court found that Customs complied with its regulation concerning public summarization of confidential information, and as a result, did not violate Diamond Tool’s due process rights.

Despite losing on the due process issue, Judge Timothy Reif remanded the case to CBP ruling that the actual finding of evasion was not supported because there was no "material and false statement" made by Diamond Tools. Although the judge did uphold CBP's authority to find that Diamond Tool's entries made before the related anti-circumvention inquiry were "covered merchandise."

Royal Brush I and Royal Brush II address similar arguments with similar outcomes. If you have any questions about antidumping or countervailing duties or EAPA please contact any Barnes, Richardson & Colburn attorney.