In 2015 Congress passed the Enforce and Protect Act (“EAPA”). Among other things, the EAPA created a process by which Customs could investigate alleged “evasion” of antidumping and countervailing duty (“AD/CVD”) orders. Evasion, under the statute, is defined as:
entering covered merchandise into the customs territory of the United States by any document or electronically transmitted data or information, written or oral statement, or act that is material and false, or any omission that is material, and that results in any cash deposit or security or any amount of applicable antidumping or countervailing duties being reduced or not being applied with respect to the merchandise.
This definition is very broad and doesn’t require that importers intend to avoid AD/CVD to be an “evader” under the law. In addition, the statute allows Customs to investigate allegations of evasion without notifying the manufacturer or importer. Therefore, the importer is generally unaware of the investigation until it is over. This has led many importers to acquiesce to Customs findings of evasions without actually challenging the findings. In some cases, the AD/CVD assessed against them may be enough to put the importer out of business.
However, a recent Court of International Trade decision shows at least one path to challenge EAPA findings. In Royal Brush Mfg. v. United States, the importer of pencils from the Philippines (although allegedly of Chinese origin) was informed that Customs had undertaken a EAPA investigation and was suspending liquidation of pencils going back roughly 15 months. It was the opinion of Customs that it had compiled record evidence that “created a reasonable suspicion of evasion.”
After the announcement of the investigation and interim measures, Customs continued to gather evidence, including conducting a verification at the manufacturing facility in the Philippines. Customs issued a strongly negative report, indicating that it did not believe that the Philippine facility could, or did, produce the quantity of pencils it sold to the United States, and that Customs agents had seen physical evidence of transshipment of Chinese articles. Importantly, Royal Brush sought to file a submission addressing the findings in the verification report, but that filing was rejected by Customs because the verification report did not “contain new information” and could not, therefore, be the subject of a filing.
Customs then issued a final affirmative determination of evasion, finding that pencils claimed to be of Philippine origin were actually of Chinese origin and subject to AD/CVD. Royal Brush sought administrative review of that decision in which Customs ultimately concluded that the finding of evasion was supported, in part, because Royal Brush and the manufacturer “failed to provide sufficient evidence” that the pencils were manufactured in the Philippines.
Royal Brush then sued Customs on the theory that Customs had not followed its own regulations with respect to the investigation and review. First, Customs rejected the rebuttal comments to the verification report without explaining the rational basis for its decision. The court noted that Customs simply made a conclusion and did not explain what “new information” is or how that definition applied to the verification report. The decision requires Customs to set forth a reasoned basis for rejecting the rebuttal, or to accept the rebuttal and address them.
Second, Royal Brush noted that there were parts of the record that were heavily redacted, making it almost impossible for Royal Brush to understand the contents of the documents, and thus address the allegations in them. Customs has a regulation requiring a public summary be created of any redacted documents. Customs either did not do this or created insufficient summaries. Therefore, the decision requires Customs to create appropriate public summaries, share them with Royal Brush, and allow Royal Brush to use that information to “meaningfully be heard” in the proceeding.
Ultimately Royal Brush only requires Customs to reopen its EAPA record and either receive rebuttal information or allow the importer a meaningful chance to review elements of the record and respond to them. Even after that is done, it is very possible that the importer will still face an evasion finding. However, Royal Brush is important for ensuring that Customs is held to its regulations in creating an EAPA record and affirming the Due Process right of an importer to meaningfully have their voices heard during EAPA processes.