A BRIEF PRIMER ON ANTIDUMPING
Antidumping bonds are extremely risky. The unknown and unpredictable magnitude of this risk would normally make this type of risk a non-insurable or non-bondable event. The Customs House Broker (CHB) must make the importer aware of the enormous amount of risk that they undertake, as outlined in this brief primer, when they request an antidumping bond. The CHB should also obtain E&O coverage to safeguard against the risks inherent in issuing antidumping bonds. The CHB can apply for E&O coverage by filling out the attached application. In order to understand the enormous degree of risk that an importer undertakes when they obtain an antidumping bond, it is important to understand the antidumping process itself. Antidumping duty investigations are usually initiated as a result of a petition filed by a domestic industry or other interested party such as a trade union or industry association. The petitioner is usually a domestic industry, which alleges that it is being financially harmed by a foreign company that is selling a similar product in the U.S. at a price lower than such foreign company charges in its own home market. The petitioner must submit, on the same day, their petition with the International Trade Commission (ITC)
and the Department Of Commerce (DOC)
. Once this petition is submitted, an antidumping duty investigation begins. There are, basically, three
phases of an antidumping duty investigation culminating in the issuance of a final duty order. These three phases are the Preliminary Determination, the Final Determination and the Administrative Review.
The preliminary determination is conducted in two phases. In the first phase, the ITC makes a preliminary determination concerning the likelihood of injury to the domestic industry. If this ITC determination is positive, the DOC then reviews the petition to determine whether the merchandise is being sold at less than fair value. If the DOC determination is positive, then a Preliminary Duty Order (PDO) is issued. Once this PDO is issued, Commerce will direct Customs to suspend liquidation
of entries for merchandise subject to investigation and
to require cash deposits or
bonds equal to the amount of the estimated
dumping margin (the difference between the fair market value and the U.S. price).
After the preliminary determination phase of the antidumping duty investigation is complete, the final determination stage begins. If the DOC final determination whether the merchandise is being sold at less than fair value is positive, the ITC then proceeds with its final determination. If the ITC final determination concerning the likelihood of injury to the domestic industry is positive, then a Final Duty Order (FDO) is issued. When the FDO is issued, the DOC instructs Customs CBP
to require cash deposits, except for New Shippers, of estimated antidumping duties. Bonding is no longer permitted after the issuance of the FDO. The estimated antidumping duty rates can and do vary greatly between the time of issuance of the PDO and the time of issuance of the FDO.
Keep in mind that the cash deposits made following the PDO and FDO are based on estimated
antidumping duty rates only.
Each year after the issuance of the FDO, in the anniversary month of the FDO, any interested party has the right to request a review of the FDO. This review is called an Administrative Review (AR). AR notices are published in the Federal Register. The first AR of an FDO includes any term prior to the 12 month term for which the suspension of liquidation was ordered. The final actual
antidumping duty rates are determined by the DOC during the AR process. The final actual
antidumping duty rates are retroactively
applied to all entries of merchandise made during the term covered by the AR. The entries made during this term are known as Period Of Review (POR) entries. If the final actual antidumping duty rate is much greater than the estimated antidumping duty rate, then CBP will issue increased duty bills for this differential amount. The amount of these increased duty bills could be staggering and could possibly bankrupt an otherwise financially viable importer.
A real case in point will illustrate the financially devastating effects that could result as a result of a large increase from the estimated
antidumping duty rate to the final actual
antidumping duty rate. In the case of wooden bedroom furniture from China subject to antidumping duties, one exporter received a PDO dumping margin of approximately 9%; however, this same exporter received an FDO dumping margin of approximately 198%. If this FDO dumping margin is upheld during the AR process, this 198% would become the final actual dumping margin and would be retroactively applied to all the POR entries and the importer of record would be responsible for all increased duty bills issued by CBP. If an importer of this exporters product cleared merchandise in the amount of $2,000,000 subject to the 9% PDO dumping margin, the antidumping duty owed by the importer would initially
be $180,000. If the final actual antidumping duty rate remains at 198%, then the additional
antidumping duties owed by the importer on this $2,000,000 of merchandise would be $3,780,000 ( (198%-9%))x $2,000,000. So, an importer who thought he would only have to pay $180,000 in antidumping duties now has to pay an additional $3,780,000 in antidumping duties over one year later when these POR entries are liquidated.
REALLY, REALLY SCARY SCENARIO
To make matters worse, the $3,960,000 total
antidumping duties owed by the importer could be doubled and could cost you $7,920,000 if you do not provide an appropriate reimbursement statement
to CBP. Your $2,000,000 product has now cost you close to $8,000,000! It is also very important to keep in mind that the same $2,000,000 in merchandise that is subject to an antidumping duty rate increase could also be assessed with a value advance that would serve to magnify the antidumping duty rate exposure. So, the same $2,000,000 product may cost you even more than $8,000,000!!
YOUR WORST NIGHTMARE
Imagine, for a brief moment, that you are the CEO and sole owner of your own, long standing, importing business. You have worked hard for many years and you are contemplating your well deserved retirement. You are going to use the money from the sale of your business to enjoy this long awaited retirement. You can actually feel the warm summer breeze of the Cayman Islands on your face. Still flush with this cozy feeling, you walk out of your office and into the boardroom. While you are in the boardroom negotiating the sales price of your business with a buyer, your secretary bursts in with a piece of mail and with a frantic, worried look on her face tells you that you better read this mail. Annoyed by your secretarys interruption, you start reading this mail. Your face turns as white as a ghost. You have just received an increased duty bill for over $8,000,000 in antidumping duties for an entry of merchandise you made over 11 years ago. Yes, it can happen to you. Any importer, unfortunately, could find themselves haunted by these antidumping duty rate increases and value advances as many as 11 years or more
in the future. As an illustration and further explanation, entries must normally be liquidated within 1 year unless liquidation is extended or suspended by CBP. An entry can be suspended by CBP for up to 4 years. When a suspension is removed, CBP has 90 days to liquidate that entry. CBP then has up to 6 years plus 15 days from that liquidation date to bring a collection action against an importer for the payment of antidumping duties. So, adding up all of these time frames, an importer may find themselves in litigation today concerning an antidumping entry made over 11 years ago. To compound matters even more, if anyone contests the AR determination of the final actual antidumping duty rate in the court system, the entry will remain suspended indefinitely until the court renders a final decision and theres simply no telling when you will get an increased antidumping duty bill. The increased antidumping duty bill is literally, “in the mail” and you have no idea of the amount of the bill or when it will arrive. An importer should take all of the aforementioned risk factors into account when importing any merchandise subject to antidumping duties.
FURTHER REFERENCE MATERIAL
• The Cato Institute
• The International Trade Administration
• Antidumping and Countervailing Duty Federal Register Notices
• Antidumping Manual
• Understanding Antidumping and Countervailing Duty Investigations