Anti-dumping and Countervailing Duties – What the Heck Are They?

I remember hearing in the news earlier this year that China wanted to retaliate against the U.S. for an anti-dumping duty imposed on tire imports from China. I also remember seeing a Customs entry with the duty amount included on the Entry Summary for an importation of certain tires, and the conference call wherein the client was, well, freaked out as the hefty amount of the anti-dumping duty was more than double the invoice price of the tires themselves.

In case what I've written above doesn't make any sense, in everyday language, this means that once this antidumping duty was added onto the cost of the merchandise plus freight, etc., the tires would have (presumably) been cheaper to have just bought them from a manufacturer here in the U.S.

“Combating” this type of commercial behavior on the part of foreign markets is precisely what these anti-dumping duties (ADD) and countervailing duties (CVD) are intended to prevent. They're essentially a tax that makes an imported product more expensive.

Let me provide some definitions. Anti-dumping occurs when a foreign company sells a product in the U.S. at less than fair value. Hence, ADD are intended to offset the lower prices.

Countervailing duties address the receipt of government subsidies that benefit those parties involved in the production of, manufacture, or exportation of goods.

When a domestic producer believes that its market here in the U.S. is being harmed by a flood of lower priced imports of the same product from other countries, it can petition the Dept. of Commerce (DOC) to impose an ADD, a CVD, or both.

DOC makes an ADD or CVD determination after a lengthy investigatory process that includes collecting data, by way of questionnaires, from domestic and foreign manufacturers, and foreign exporters of the product. Foreign manufacturers or foreign exporters may request a “separate rate,” in order to receive a lower ADD or CVD rate. For those who do not make this request, imports by these foreign manufacturers or foreign exporters are subject to the “All Others” rate.

I had an interesting conversation with Sam Zengotitabengoa (love his last name) from the DOC's International Trade Administration office recently regarding the preliminary determinations made for an ADD and CVD on ribbon. Specifically, it was on “Narrow Woven Ribbons with Woven Selvedge from the People's Republic of China and Taiwan” affecting HTSUS subheadings 5806.32.1020, 5806.32.1030, 5806.32.1050, and 5806.32.1060, with other “catch all” language to bring in other types of ribbon.

Preliminary Determination:
ADD “All Others” Cash Deposit Rate: 231.40%
CVD “All Others” Cash Deposit Rate: 59.49%

When a preliminary determination is made, DOC notifies US Customs with instructions on what “cash deposit” to collect. It can either be made in the form of a cash deposit or a bond in the amount of the ADD or CVD owed. (As an aside, from what I've heard, it sounds like surety companies are not really on board with issuing a bond for ADD or CVD cash deposits, which has been demonstrated in part by all the hoops that need to be jumped through in order to obtain one for ADD/CVD purposes.)

Since no notice with respect to the ADD case was made regarding the cash deposit despite publication in the Federal Register that it would be instructing US Customs about it (at least none had been at the time I started writing this post), I had no choice but to put a call in to the DOC (Sam). After all, how can I advise clients as to cash deposits if there are no public instructions explaining what to do? And, how does the importing community know how to be compliant – and US Customs for that matter – if the DOC never instructed us on what to do?

US Customs has a web page that is supposed to inform the importing community what DOC instructions are. Sam and I looked together to confirm that no public notice had been published by Customs on its website even though DOC had issued the “message” (message no. 0070303) on March 11, 2010. He therefore, emailed me the message which I thought was quite kind of him.

Some important upcoming time frames are:

24-Jun-10
To file entry of appearance with the Secretary of the Commission [USITC Rules § 201.11(b)(3)]
7-Jul-10
To file pre-hearing brief (mandatory ) [USITC Rules § 207.23]
8-Jul-10
Requests to appear at hearing in connection with the Final Phase
9-Jul-10
9:30 a.m. Prehearing conference for those desiring to appear at hearing and make oral presentation
11-Jul-10
To file written testimony in connection with your presentation at the hearing [ USITC Rules § 207.24]
15-Jul-10
Hearing in connection with the Final Phase
22-Jul-10
To file post-hearing briefs [USITC Rules § 207.25]
22-Jul-10
For a non-party to file a written statement in support or opposition to the petition
6-Aug-10
USITC to provide parties all info. on which no opportunity to comment had been given
10-Aug-10
Final comments due - must not contain new factual info.

FYI - Message no. 0070303 is on the Customs ADD/CVD website.

Questions/comments? Email me at clark.deanna@gmail.com or post below.

What is a Foreign Trade Zone?

The question of placing certain imports or exports into a foreign trade zone (FTZ) occasionally arises in my international trade practice. While conceptually I understand its purpose, I decided to explore the “ins and outs” of it to better understand why they exist.

An FTZ is a customs supervised zone that is considered outside the Customs territory. Therefore, requirements that would normally be applied to imports are suspended as long as the goods remain in the zone. In an FTZ duty payment is deferred on imports which are later entered and sold in the U.S. market, and for those that are re-exported, duty-free treatment is allowed.

It is also a zone for which an export may be placed in while certain legal requirements are met. An example of this would be where military jeeps are delivered to the port for exportation to the army of a foreign government, but is still in need of a verification by Customs of the requisite export licenses.

Other advantages of using an FTZ include what is known as “inverted tariff relief,” which occurs when imported parts with a higher duty rate are incorporated into a final product which has a lower duty rate than the parts themselves and is ultimately imported. Likewise, merchandise imported and held in an FTZ for repacking, assembly, storage, exhibition, sorting, grading, mixing, manufacturing, cleaning or processing can be held in a zone for exportation, either in its original state or after undergoing one of these processes and is exempt from State and local ad valorem taxes.

There are 2 types of FTZs: (1) A “General Purpose” zone whose facilities are available for use by the general public and are typically located in a port complex, raw land or an industrial park, and (2) a “Subzone,” which is a single purpose site that allows for operations that cannot be feasibly moved to, or accommodated in, a general purpose zone, such as automobile manufacturing or oil refineries.

Interestingly, despite the ability to undergo the above activities on goods placed in the zone, certain other operations may not be done in an FTZ. These include, the manufacture of watch and clock movements, as well as the manufacture of products subject to internal revenue tax including sugar, tobacco, alcoholic beverages and perfumes containing alcohol, to name a handful of them.

In order for products to be admitted into a zone, Customs Form 214, or its electronic equivalent, must be completed and a permit granting admission is issued by the Port Director. Only a person with a right to make entry of the goods is allowed to make an application for zone admission, however, with a proper power of attorney on file, a Customs broker or zone operator may prepare and/or file the application on that party's behalf.

Along with Form 214, a filer must submit evidence of a right to made entry, the commercial invoice(s), a Release Order (executed by the carrier which brought the goods to the port), an application to unlade (Customs form 317), and any other documentation required by the Port Director.

Customs approves most low-risk shipments without an examination of the cargo, however it may conduct an exam to ensure full compliance with all applicable rules and regulations or to reduce the need for further examination at the time when the goods are entered into the US Customs territory for consumption or into a warehouse.

In certain cases direct delivery of the goods into an FTZ without a prior application (Form 214) may be done provided a written application is made with the appropriate port director at least 30 days before it is to be effective, and provided a description of the merchandise and the type(s) of processing that will be undertaken in the zone are explained.

Merchandise cannot be subject to Customs examination or documentation review prior to its arrival at the zone nor be of the type that is restricted. The FTZ operator must be the owner of purchaser of the goods, and the operations to be conducted must not only be known in advance, but also should be stable and predictable over the long term.

When the merchandise is ready to leave the zone for U.S. consumption, normal entry, classification and appraisement procedures covering foreign merchandise are used. For answers to specific questions, you should contact the local Port Director where the zone is located. US Customs has more than 300 ports of entry in the US, Puerto Rico and the US Virgin Islands.

Authority for establishing an FTZ is found in the Foreign Trade Zone Act of 1934, as amended (19 USC 81a-81u). The regulations governing the Foreign Trade Zones Board are published in 15 CFR Part 400, and US Customs regulations governing zone operations may be found in 19 CFR Part 146.

Questions/comments for me? Post below or email me at clark.deanna@gmail.com

Dept. of Commerce Makes Preliminary Countervailing Duty Finding on Plastic Grocery Bags Out of Vietnam

When a U.S. industry believes that its market share in the U.S. is being injured due to a cheaper version of the same article - as a result of a subsidy provided to foreign manufacturers from its own government - a petition may be filed on behalf of the U.S. industry’s interests for a determination of the existence of foreign subsidies, and hence, the imposition of a countervailing duty.

A countervailing duty is basically an additional tax, derived from the Dept. of Commerce and imposed by U.S. Customs, on a particular product. The effect is intended to cause the foreign import to be more expensive and therefore, more competitive with U.S. manufactured goods.

In this case, polyethylene retail carrier bags (“PRCBs”), commonly known as plastic grocery bags, among other kinds, from Vietnam, Indonesia, and Taiwan are at issue (though this blog post focuses only on Vietnam). For more information on the nature and progress of the investigation covering all of the countries, click here.

The U.S. agencies that work together towards a determination as to the existence of the foreign subsidization of a particular product are the U.S. International Trade Commission and the Dept. of Commerce. Each conducts certain fact finding investigations, which includes activities such as the completion of questionnaires by affected parties as well as receiving live testimony at hearings.

On March 31, 2009, petitions were filed by two U.S. makers of PRCBs, namely, Hilex Poly Co., LLC, of Hartsville, SC, and Superbag Corporation of Houston, TX, in order to have an investigation commenced into the subsidization of PRCBs by the Vietnamese and other governments with the goal being the imposition of countervailing duties in the event of an affirmative finding.

With the Dept. of Commerce’s preliminary report (signed on Monday 8/31/09) stating that a finding of countervailing subsidies was made, the International Trade Administration of the Dept. of Commerce’s publicly announced in its "Fact Sheet" a finding of subsidization by the Vietnamese government ranging from 0.20% de minimus to 4.24% in counteravailable subsidies.

In everyday language, this means that the range of subsidies provided to this industry by the Vietnamese government ranged from 0.20%, which is perceived as being insignificant or “de minimus,” because it is so small of an amount as to essentially not be worth the effort to address, to 4.24%.

Having made a preliminary finding, by this Friday (9/4/09), or shortly thereafter, there will be a publication in the Federal Register of the Dept. of Commerce’s preliminary report (Report). Part of this publication will include information about the additional duties that are to be collected by Customs as of the date of publication of the Report, from both specific Vietnamese manufacturers of PRCBs, as well as all others. The countervailing duty rates will be as follows:

Manufacturer Name Duty Rate (i.e., extra duty amount to be paid)

Advanced Polybag (none b/c de minimus)

Chin Sheng Company, Ltd. 1.69%

Fotai Vietnam Enterprise Corp. 4.24%

All other producers/exporters from Vietnam 2.97%

Of course these are just the preliminary determination figures. Once the final determination is published, those new countervailing duty rates established by the Dept. of Commerce will then be collected by Customs, effective from that date of publication. Stay tuned to the International Trade Commissions' website for additional publications affecting this countervailing duty investigation.

Questions or comments? Email me at clark.deanna@gmail.com