Duty Evasion
Transcript of Duty Evasion
Trade facilitation and
trade enforcement go
hand in hand –
our competitiveness
depends on it.
The consequences of duty evasion are
significant. Each year, illegal evasion of
duty orders deprives the US government
of an estimated $1 billion in uncollected
duties, results in the loss of thousands of
well-paying US jobs, and costs US industry
significant revenue.
Duty Evasion
Duty Evasion How “Trade Cheats” Steal Our Treasure
Does it matter if we make things in America?
Manufacturing remains the backbone of America’s way of life, and its strength or weakness has huge implications on our economy, our national security and our well-being.
America’s future prosperity depends on competing successfully on a level global playing field where
everyone plays by a set of rules that are enforced.
American industries faced with dumped or subsidized goods produced in
and exported from other countries can petition the International Trade
Commission and the Department of Commerce to impose duty orders on
imported merchandise. However, more and more unscrupulous foreign
manufactures and complicit importers are flouting AD/CVD orders using
fraudulent evasion schemes.
Federal agencies are not effectively enforcing
US law against trade cheats.
These industries have played by the rules, endured the lengthy
proceedings, and prevailed at every twist and turn. However, trade
remedies that give these domestic industries relief continue to be
blatantly ignored by foreign manufacturers who are successfully cheating
US laws to avoid paying US imposed duties.
The Face of American Manufacturing Manufacturing Jobs by Percentage of Total State Employment
US law provides a remedy if
unfair trade injures US industry
A US industry may file a Petition with the International Trade Commission and the Department of Commerce requesting an antidumping (AD) and/or countervailing duty (CVD) investigation. These cases are very complicated proceedings and typically last over a 12-18 month period. Commerce determines whether imported goods are sold in the US at less than fair value (“dumped”) and/or are subsidized by a foreign government. The ITC determines whether US industry has been materially injured or is threatened with material injury by the dumped and/or subsidized imported goods. Material injury is a high standard; the ITC examines: Volume of imports. There must be large increases in absolute volume and/or market share. ITC looks at both volume and value. Price effects of imports. The US industry must show underselling by imports, price decreases and/or inability to raise prices. Impact on US producers. The US industry must have significant decreases in market share, production capacity, production, shipments, operating income, employment, capital expenditures and capacity utilization as well as demonstrating increases in importer market share and imports. AD and CVD Orders are issued by Commerce if they find that the products were being dumped and/or subsidized and the ITC has found that the US industry has suffered material injury (or is threatened with material injury) by reason of the dumped or subsidized imports.
This is not about
trade philosophy –
it is about effective
enforcement of
US law.
Duty evasion schemes have a very real impact, depriving
the US government of an estimated $1 billion in revenue
every year, costing hundreds of good-paying American
jobs, and hindering the ability of US industry to recover
from the injury they have suffered.
The ripple effects of duty evasion – up and down supply
chains, on workers’ salaries, and on communities – should
not be ignored.
We must find a solution to this problem. Our laws must be
promptly enforced, for the integrity of US laws, for the
credibility of our agencies, and for the industries and their
employees that continue to be injured by unfair imports.
The alternative is unacceptable.
What is Duty Evasion?
“Duty evasion” is any means used by manufacturers, exporters, and importers of goods subject to antidumping and countervailing duty orders (“Orders”) to illegally or fraudulently evade the duties that have been imposed by the US government. For example:
Transshipment. Fully finished goods covered by an Order are shipped to a third country before import to the U.S., with falsified U.S. customs documentation claiming the product to be origin of that third country. This activity involves false country of origin declarations and/or fraudulent paperwork that fails to identify the merchandise as being subject to an Order.
Use of Fraudulent Paperwork. Fully finished goods that are covered by an Order are shipped directly to the United States from the country covered by the Order (i.e., China), with false/fraudulent paperwork claiming that they were produced in a country that is not covered by the Order. Like transshipment, this activity involves false country of origin declarations and paperwork that fails to identify the merchandise as being subject to an Order.
Misclassification. Fully finished goods that are covered by an Order are imported into the US under incorrect import classification codes or inaccurate descriptions that falsely identify the imports as goods that are not subject to an Order. By misclassifying the goods, even with a correct country of origin (i.e., China), U.S. Customs and Border Protection (“CBP”) will not identify the imports as subject to an Order.
Other duty evasion tactics include deliberately undervaluing imports to artificially reduce an importer's duty liability (duties are generally calculated as a percentage of the entered value of the goods) and falsely claiming that the imports were produced by an exporter either not covered by the Order or who has a much lower duty rate than the actual producer of the goods. Another common practice is to ship all goods subject to an Order through the producer that obtained the lowest duty rate of that product. These types of duty evasion are used separately or in combination with all of the above tactics.
Milton M. Magnus, III, recently fired up a half-million dollar paint-coating oven for his Alabama-based wire garment hanger manufacturing business, M&B Hangers. His products are sold through distributors to drycleaners, industrial clothing rental companies and formal wear companies across America, and used daily by millions of Americans. But unless demand for that product returns to where it was a year ago, the new oven may have been a waste of his time, money and line of credit.
Ironically, the recession isn’t the problem. The problem is illegally dumped hangers, manufactured in China and shipped to the U.S. in boxes marked “Made in Korea” or “Made in Vietnam.” These hangers are being falsely labeled and dumped at prices below the cost of production, undercutting US manufacturers’ prices and putting a hammerlock on the industry. M&B is a third-generation, family-run business that was founded 70 years ago by Milton M. Magnus, III’s grandfather, Milton M. Magnus Sr., and a partner, Roy Brekle. These men worked for Pepsi Cola in Birmingham at the time and left the company to re-form old bottle caps—steel for bottle caps was hard to obtain, due to World War II shortages. A local dry cleaner told them that hangers were also hard to get, so they built a machine, bought a coil of wire at a hardware store and the business grew from there. Magnus’ father, Milton Jr., ran the company after Milton Sr. died in 1965. Milton’s son, Milton, IV, now works for the company in sales. M&B now has hanger machines sitting idle and his employment is down 15% over the last 14 months, not through layoffs, but by not replacing workers who have retired or quit. The factory runs three shifts and currently employs 100, but he estimates that he could add another 50 workers and double production if business was where it should be. In an area (Leeds is a suburb of Birmingham) that is currently at approximately 10% unemployment, 50 new manufacturing jobs would be very welcome news. Magnus notes that the effects of China’s original dumping practices resulted in M & B Hangers shutting down an 80-person factory in Virginia in 2005. When the antidumping case was filed, Magnus took a longtime factory employee with him to Washington, DC, to testify before the International Trade Commission and explain what her job and the jobs of her associates meant to her, the region and the overall economy. He wanted to illustrate that the issue was beyond business owners like himself—that it affected the lives of everyday Americans. “We saw business pick up substantially after we won our trade case in 2008. But it was not long before we started hearing from our distributors that their customers were buying hangers in boxes with labels that said ‘Made in Korea’ or ‘Made in Vietnam.’ If you pulled the label off, the printing on the box read ‘Made in China’. They were shipping through companies in these countries that were supposed to be the manufacturer, but in fact, were not. Then they got more sophisticated, simply printing new boxes that read ‘Made in Korea’ or ‘Made in Vietnam’, and doing away with the re-labeling. Hundreds of millions of hangers are coming in at very low pricing.” “Our distributors want to play by the rules, but they have customers who demand the lowest price. I’ve seen my distributors having to buy foreign hangers that they think might be illegal, just to stay in business,” he continues.
Another hanger manufacturer started production in Delaware just after the 2008 ruling, because he saw an opportunity under the new protection. That company has already shut down because it just couldn’t compete with the illegal imports. Just a few years ago there were six large U.S.-based hanger manufacturers. Today, M&B Hanger is the only survivor. Magnus often wonders about his future—and the future of his employees.
“My father faced the same challenges most business owners faced, but nothing like the unfair trade that surfaced in the last decade.” -Milton M. Magnus, III
U.S. Wire Hanger Industry
The domestic industries that have availed themselves of trade relief and been found to
have suffered material injury at the hands of unscrupulous importers deserve the relief
the U.S. government promised them. To get that relief these industries are advocating
any legislation or policy changes capturing three core themes:
Prompt Action Evasion needs to be addressed quickly. With current investigations taking 6-12 years and resulting in very infrequent enforcement, many importers choose to roll the dice at getting caught. Commercial and criminal enforcement aren’t mutually exclusive, and prompt commercial enforcement would likely be more effective than those infrequent criminal prosecutions.
Full Use of All Existing Tools Agencies should be required to use all available tools and resources. In addition to risk-based targeting, which has limitations, they should exhaust their other options with regards to requests for information, audits and focused assessments, information already collected, and available industry knowledge.
Publicized Results Regularly, timely reports with meaningful details, and providing information to the industries reporting the evasion would promote deterrence of bad actors, transparency of the process – eliminating the black hole, accountability and oversight, and credibility of the agency’s ability, will and capabilities to address the problem.
A clear message that agencies will not tolerate
blatant disregard of our laws is needed now. It is time to require U.S. enforcement agencies to step up and
perform with structured programs that include appropriate levels of responsiveness, transparency and
accountability.
Seaman Paper Company of Massachusetts, Inc. is the largest
producer of decorative and gift tissue paper products in the
United States. Now entering its third generation of family
ownership, Seaman Paper employs nearly 600 manufacturing
workers in multiple facilities across Massachusetts, and sells to
markets around the world. Its two production lines produce
white and colored lightweight tissue paper that often is printed
with intricate designs by an affiliated printing company. Its
products are everywhere, and are used by many major retailers
and manufacturers of specialty products, as well as by dry
cleaners and consumers across the country who purchase
private label products in drug and greeting card stores.
In 2005, Seaman Paper and other members of the U.S. tissue
paper products industry joined to challenge a growing flood of
low-priced Chinese imports that surged into the U.S. market.
The case succeeded, and duties over 100 percent were imposed
on all imports from China. Even while the case was still under
way, Chinese products began being transshipped through
Vietnam and Indonesia. Seaman Paper provided significant
evidence to Customs and Border Protection – samples,
photographs showing Chinese production, and written evidence
– but saw no evidence of any enforcement action. The volumes
of product, and the lost duties, are very significant, and delayed
and reduced the industry’s ability to recover from the impact of
the Chinese imports.
Seaman Paper’s efforts to fight evasion and
circumvention have required the commitment of
significant and ongoing company resources, both
financial and personnel. “We have been shocked by
the aggressive attempts to circumvent our order,”
said George D. Jones III, President of Seaman Paper.
“Our industry and others harmed by unfairly traded
imports deserve and need our government to be
equally aggressive in rooting out and stopping
foreign exporters and U.S. importers who try to
cheat. Enforcing our trade laws is a matter of life
and death for companies like ours.”
U.S. Tissue Paper Industry
“Our industry and others
harmed by unfairly traded
imports deserve and need our
government to be equally
aggressive in rooting out and
stopping foreign exporters
and U.S. importers who try to
cheat. Enforcing our trade
laws is a matter of life and
death for companies like
ours.”
-George D. Jones III
Leggett & Platt, Incorporated, a diversified global manufacturer of a wide range of engineered components and parts, was formed in 1883 with the first patent on the helical steel wire coil used in innerspring mattresses.
Chinese innersprings first entered the U.S. in the early 2000s, at prices lower than domestic cost of production. Leggett also manufactures innersprings in China for the Asian market, and has firsthand knowledge that it is not cost-effective to produce and ship innersprings from China to the U.S. Nevertheless, increasing volumes of Chinese innersprings continued to be imported at very low prices.
In late 2007, after significant injury to U.S. innerspring operations from the low priced springs, Leggett filed successful trade cases against China, South Africa, and Vietnam. Since February 2009, Chinese innersprings have been subject to antidumping duties from 164% to 234%.
Even before the final antidumping order was issued, Chinese innersprings were being transshipped to the U.S. through third countries to evade duties. For example, imports from Hong Kong skyrocketed, at the same dumped Chinese prices. Prior to July 2008 there were no innersprings shipped from Hong Kong, yet by September 2008, over 35 containers per month – easily worth $1.5 million a month in commercial sales, and much more than that in duties – were being shipped to the U.S.
Leggett hired a private investigator who was unable to find any evidence of legitimate production in Hong Kong. Leggett also traced 13 shipments of innersprings from China to Hong Kong and then from Hong Kong to the U.S., in two months alone.
An estimated 1 million innerspring units illegally evade the antidumping order every year. Conservatively, this represents over $50 million dollars in uncollected duties owed to the U.S. Treasury.
U.S. Bedspring Industry
Example of a Transshipment Scheme:
In-country investigations uncovered how one Vietnamese company receives components –
metal hangers and cardboard pants liners – from its parent Chinese company,
which it then “assembles” into finished hangers,
and which are then exported to the U.S. as a product of Vietnam.
GEO Specialty Chemicals is the largest producer of
glycine in the United States. Glycine is an organic
chemical that is commercially manufactured for use as a
flavor enhancer, nutrient, buffer and intermediate in
certain production processes. It is commonly used in
pet food, nutraceuticals, pharmaceutical products and
anti-perspirants. GEO's glycine production facility is
located in Deer Park, Texas.
U.S. glycine imports from China are currently subject to
an antidumping duty order. China's glycine production
capacity can currently satisfy U.S. demand more than
25 times over. The antidumping duty order ensures
that excess Chinese glycine directly imported into the
United States is fairly priced in the U.S. marketplace.
Widespread and rampant circumvention of this order is
occurring, however, through transshipping and
insignificant processing of Chinese glycine in India.
Almost all glycine shipped from India to the United
States is Chinese in origin. An ongoing
anticircumvention inquiry at the Department of
Commerce has already concluded that a number of
Indian companies are either transshipping or further
processing Chinese glycine for sale to the United States
and mislabeling it as Indian in origin; Commerce,
however, is afraid to implement a countrywide remedy
to stop this circumvention despite its statutory
authority to do so. If Commerce fails to implement such
a remedy, the circumvention will effectively gut the
order and allow dumped Chinese glycine to enter the
United States through India. "Our ability to compete on
a level playing field depends on an antidumping order
that is effectively enforced," William P. Eckman, GEO's
CFO said. "If the U.S. government does not stop this
rampant and widespread circumvention of the order,
we face a very bleak future."
"Our ability to compete on a
level playing field depends on
an antidumping order that is
effectively enforced. If the U.S.
government does not stop this
rampant and widespread
circumvention of the order, we
face a very bleak future."
-William P. Eckman
U.S. Glycine Industry
The Coalition to Enforce Antidumping and Countervailing Duty Orders represents
14 American industries in the manufacturing, agricultural, and aquacultural
fields. Each industry makes a product in the United States that has been found to
have been materially injured by dumped of subsidized foreign imports. These
foreign imports are now subject to government-mandated antidumping or
countervailing duty orders; however, these orders are routinely evaded without
effective enforcement by Customs & Border Protection.
More information on this topic is available
on our website: www.adcvd-enforce.com.
American Spring Wire Corporation, Bedford Hgts, OH
Prestressed concrete wire strand
M&B Metal Products, Leeds, AL
Steel wire garment hangers
GEO Specialty Chemicals, Lafayette, IN
Glycine
Seaman Paper Company of Massachusetts, Otter River, MA
Tissue paper products and crepe paper products
Insteel Industries, Mt. Airy, NC
Prestressed concrete wire strand
Southern Shrimp Alliance
Frozen or canned warmwater shrimp
JMC Steel Group, Beachwood, OH
Circular welded carbon-quality steel pipe
SSW Holdings Company, Elizabethtown, KY
Kitchen appliance shelving racks
Leggett & Platt, Incorporated, Carthage, MO
Uncovered innerspring units
Vulcan Threaded Products, Pelham, AL
Carbon steel threaded rod
Mid Continent Nail Corporation, Poplar Bluff, MO
Steel nails
Nucor Corporation, Charlotte, NC
Steel and steel products (various)
Diamond Sawblade Manufacturers Coalition
Certain diamond sawblades and parts thereof