The Sudden Spike of Anti-Circumvention Inquiries

The Sudden Spike of Anti-Circumvention Inquiries

Allegations of circumvention are rife across many anti-dumping (“AD”) and countervailing (“CV”) duty proceedings. Circumvention is a trade practice designed to avoid the payment of AD or CV duties imposed on a product imported from a given country. Businesses can use different means to “circumvent” an AD or CV duty order, including minor alterations, transshipment, or by shipping parts not subject to the order for assembly in either the final destination country or a third country. This has the effect of superficially changing the country of origin for the product, resulting in an unlawful circumvention of the order.

In recent months, there has been a sudden spike of anti-circumvention inquiries by the Department of Commerce (“Department”). Since June 2019, the Department has initiated the following anti-circumvention inquires:

* Certain Uncoated Paper Products From Australia, Brazil, the People’s Republic of China, and Indonesia: Initiation of Anti-Circumvention Inquiry of Antidumping and Countervailing Duty Orders, 84 Fed. Reg. 202, 55915 (Dep’t Commerce Oct. 18, 2019).
* Corrosion-Resistant Steel Products From the People’s Republic of China: Initiation of Anti-Circumvention Inquiries on the Antidumping Duty and Countervailing Duty Orders, 84 Fed. Reg. 162, 43585 (Dept Commerce Aug. 21, 2019).
* Hydrofluorocarbon Blends From the People's Republic of China: Initiation of Anti-Circumvention Inquiry of Antidumping Duty Order; Unfinished Blends, 84 Fed. Reg. 117, 28276 (Dep’t Commerce June 18, 2019).
* Steel Concrete Reinforcing Bar From Mexico: Initiation of Anti-Circumvention Inquiry of Antidumping Duty Order, 84 Fed. Reg. 210, 58132 (Dep’t Commerce Oct. 30, 2019).

What is an Anti-Circumvention Inquiry?

Section 781(b)(1) of the Tariff Act provides that the Department may find circumvention of an AD or CV duty order when the product of the same class or kind subject to the order is completed or assembled in a foreign country other than the country to which the order applies, provided that the process of assembly or completion in the United States is minor or insignificant. To determine whether manufacturers of subject merchandise produced in either the importing country (the United States) or a third country are engaging in circumvention practices, the Department look at the price ratio of imported parts from the country subject to AD duties in the finished product, or the composition ratio of the subject merchandise produced from those parts. The Department may also take into account patterns of trade, the relationship between exporters and importers, changes in import volumes, levels of investment and research and development in the United States or third countries, the nature of the production process, and the extent of the production facilities used to produce the subject merchandise.

Typically, anti-circumvention inquiries are initiated in response to allegations filed by the U.S. industry. However, more recently the Department, as part of a larger trend of ramping up its trade enforcement efforts, self-initiated an anti-circumvention inquiry to determine whether imports of corrosion-resistant steel products (“CORE”) completed in Costa Rica, Guatemala, Malaysia, South Africa, and the United Arab Emirates using Chinese-origin substrate, and additionally whether imports of CORE completed in Malaysia using Taiwanese-origin substrate, were circumventing the AD and CV duty orders on CORE from China and Taiwan. This is the first time that the Department has self-initiated circumvention inquiries based on its own monitoring of trade patterns, and the first self-initiation of a multi-country circumvention inquiry. The Department’s announcement also notes that the decision to self-initiate is consistent with the Trump Administration’s focus on “strict enforcement of U.S. trade law,” and demonstrates the agency’s “vigilance to stop circumvention of U.S. trade laws, wherever it occurs.” Under the current administration, the Department has initiated 21 new circumvention inquiries – this represents an 133 percent increase from the number of circumvention investigations initiated during the comparable period under the previous administration.

After the initiation of an anti-circumvention inquiry, the Department will solicit information from producers and exporters of the subject merchandise. If the Department preliminarily determines that circumvention is occurring, it will instruct U.S. Customs and Border Protection to begin collecting AD/CV cash deposits on imports of the implicated subject merchandise. These duties would be imposed on future imports, and on any unliquidated entries made from the date Department initiated its circumvention inquiry. The Department is required to make a final determination within 300 days after initiation of its circumvention inquiry.  

What Strategies Can Businesses Take?

The practice of circumvention, however, is nothing new. As an example, in 2008, the Chinese producers of uncovered innerspring units received AD duties of 165 to 235%. Soon after, Chinese producers began shipping innersprings to Malaysia that were then re-exported to the U.S. to avoid the AD duties. This is not an uncommon practice, and businesses should consider adopting appropriate strategies to avoid being retroactively subject to AD and CV duties. Foreign manufacturers should consider using materials imported from countries other than those under investigation or otherwise subject to an AD or CV duty order, when producing merchandise for export to the United States. Similarly, U.S. importers should remain vigilant when purchasing products in or near the countries under investigations. U.S. importers may wish to look into the production activities of their foreign sources to ensure that the materials used do not originate from a country under investigation or otherwise subject to an AD or CV duty b order. Regardless, U.S. importers should diversity their sourcing markets to avoid the risk of any disruption of business activities should any unforeseen developments arise in a specific market. A sudden growth in imports or exports from a particular country should raise red flags and could portend the eventual initiation of an investigation by the Department.

Today’s global economy is characterized by the adaptability and internationalization of distribution and supply networks. These days, businesses can shift gears relatively rapidly to adopt their trade and production activities to conform not only to commercial realities, but also trade law and policy development. Even so, with this sudden spike of anti-circumvention inquiries and the current administration’s appetite for “strict enforcement of U.S. trade law,” businesses must be especially mindful in protecting their interests to avoid potential AD and CV duties. With our decades of experience advising clients on the trade laws, Barnes, Richardson & Colburn attorneys are able to assist your company navigate this important area of law. Contact one of our attorneys here.