Antidumping and countervailing duty orders: Frequently Asked Questions

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The following was sent in a release on behalf  of the Coalition for American Hardwood Parity.

On Nov. 9, the U.S. International Trade Commission (ITC) issued a final affirmative determination in the antidumping (AD) and countervailing duty (CVD) investigations of Multilayered Wood Flooring (MLWF) from China. This determination confirmed that imports of engineered wood flooring from China are being illegally dumped into the U.S. and are causing harm to the domestic industry. To assist the marketplace in understanding what this may mean, below are some frequently asked questions and answers.

1. What is the immediate effect of the ITC’s final affirmative determination?

As a result of the ITC’s final affirmative determination, the U.S. Department of Commerce will formally issue an AD and a CVD order against imports of the products from China.  The orders are expected to be issued by the end of Nov. 2011.  That will be the very last step in this investigation process, which began in Oct. 2010.

2. What will these orders cover?

The AD/CVD orders will cover all imports of the engineered hardwood flooring products from China, except product that is produced and exported by one company (Zhejiang Yuhua Timber Co., Ltd.).  This means that approximately 90% of all multilayered (engineered) wood flooring from China will covered by these orders. There are no exclusions for particular types of MLWF products.  For example:

What about unfinished MLWF manufactured in China and finished in the United States, or in a third country like Canada ?  This is considered a product of China, and is covered by the orders.

What about unfinished and unprofiled MLWF manufactured in China and finished and profiled in the United States or a third country?  This too is considered a product of China, and is covered by the orders.

3. How long do these orders remain in effect?

AD/CVD orders remain in effect for at least 6 years.  The orders can be reauthorized for indefinite five-year periods.

4. Who is responsible for the payment of AD/CVD duties?

The U.S. importer of record is the responsible party for making cash deposits, payment of actual duties, and for assuring that all other information—for example, the country of origin of the imported product—is correct. In almost all instances, an importer needs to obtain a bond from a surety company in order to conduct business involving Customs (such as importing goods). Sureties have been increasingly wary of offering bonds to companies that import product subject to an AD or CVD order, and often times will require enhanced collateral for the bond. If the U.S. importer goes bankrupt, Customs will typically institute enforcement actions against the surety to collect unpaid duties.

5. So, if I am the U.S. importer of record, and I import MLWF from China that is subject to the AD/CVD orders, I just pay the duty rate that was announced by the Commerce Department in October?

No. The duty rates that were announced by the Commerce Department in October were the cash deposit rates for estimated AD/CVD duties.  That can be—and very often is—a very different matter from what the actual duty rates will be.  For example, in another AD investigation involving Wooden Bedroom Furniture from China, the initial cash deposit rate for most Chinese companies was 6.65% or less.  The first time that actual duty rates were calculated, they turned out to be 35.78% (and up to 216%) for most companies.

The actual AD/CVD duties owed on Chinese MLWF imported during the 12-month period beginning when the orders are officially published (approximately Nov. 30) will be based on a comparison of the price at which the product is sold to the U.S. importer and the “home market” price of the product during that same 12-month period.  This comparison, or calculation, is done through what is known as the retroactive administrative review process.  That process will not begin until Dec. 2012, and typically takes at least one-year to complete.

As a result, a U.S. importer will not know what its actual liability for AD/CVD duties on products imported during the next 12 months until about December 2013, two years from now.  If the actual duties owed are higher than the cash deposit rate, the U.S. importer will receive a bill from Customs for the difference, plus interest that accrued since the date of entry. If the actual duties owed are less than the cash deposit rate, the importer will receive a refund.

This retroactive process is repeated year after year as long as the orders are in effect.

Administrative reviews are done on a company-specific basis, and are triggered by a request from an “interested party.”  A Chinese producer can request a review of itself. A U.S. importer can request a review of its Chinese supplier(s).  And, the U.S. industry can request a review of any Chinese producer subject to the order.  The review process itself is very similar to the original investigation done by the Commerce Department; in other words, the Chinese producer will need to complete the detailed questionnaire issued by the Commerce Department.  The response is subject to on-site verification by Commerce Department officials.  If the Chinese producer fails to complete the questionnaire, or if it is incomplete, or refuses to cooperate with the on-site verification, that company will, in most instances, receive as the actual dumping margin a margin based on “adverse facts available.”  In this case, that would be 58.8%.

Here’s an example of how this retroactive assessment system works:

■ In Dec. 2011, a U.S. importer brings in MLWF from China with a declared value of $100,000.  The cash deposit rate for the supplying Chinese producer (Producer X) is 4.5% (combining the AD and CVD cash deposit rates).  Therefore, the importer presents Customs with a cash deposit in the amount of $4,500.  Customs “suspends” liquidation of the entry.  (This means that Customs keeps the books open on the entry, to await a final accounting of the actual duties owed)

■ In Dec. 2012, the U.S. MLWF industry requests an administrative review of Producer X.

■ In Dec. 2013, the Commerce Department releases the results of its administrative review of Producer X.  The actual duty rate for this company (AD and CVD) is 36%.  It is important to note that between Dec. 2011 and Dec. 2013, the U.S. importer will have little if any idea what the calculated duty rate will turn out to be.

■ In Jan. 2014, Customs sends the U.S. importer a bill for $31,500 (the difference between the 4.5% cash deposit rate and the 36% rate for actual duties owing) plus interest that accrued between Dec. 2011 and Jan. 2014.  Only then does Customs ‘liquidate” the entry.

6. Can the Chinese manufacturer/exporter simply reimburse the U.S. importer for the cash deposits and actual AD/CVD duties?

No.  The Commerce Department regulations require that with each Customs entry of a product subject to an AD/CVD order, the importer must provide Customs a “certificate of non-reimbursement.”  This is a legal certification by the importer that it has not and will not be reimbursed by the foreign manufacturer/exporter for the cash deposit and/or the actual AD/CVD duties.  If such reimbursement occurs, or if the U.S. importer fails to provide this certificate, the particular entry is subject to double the amount of AD/CVD duties that would otherwise be owed.

7. What actions can a U.S. importer take to guard against higher retroactive AD/CVD duty assessments as a result of the administrative review process?

It is extremely difficult for a U.S. importer to anticipate what the actual AD/CVD rate for its Chinese supplier will be.  The dumping margin represents the difference between the U.S. price and the “home market” price of the product. While the importer may have some control over the U.S. price, it has no control over the “home market” price.  So, one-half of the dumping margin equation is a complete unknown.  This is particularly true in cases involving China, since the “home market” price is actually constructed from the value of all of the inputs necessary for manufacturing the product in another country (such as the Philippines).  Since an importer bringing product in during Dec. 2011, for example, cannot really even guess what the value of these inputs in the Philippines will be over the period Dec. 2011 to Nov. 2012, anticipating what will be owed in terms of that Dec. 2011 entry is little more than guesswork.

8. Are there any potential penalties that may come into play in this process aside from the payment of AD/CVD duties?

Yes.  There are both civil and criminal penalties under the U.S. Code for certain illicit actions, such as: the failure to properly declare that an entry is subject to an AD or CVD order; a false declaration of the country-of-origin of the imported product; a false valuation for the imported product in entry documents; a false Customs classification of an imported product; and the circumvention or attempted circumvention of an AD/CVD order.

9. As an importer, what are the next steps I should take?

First, you should weigh your role as an importer and consider the risk to your business with the possibility of retroactive liability should the AD/CVD rates be raised after the first annual review.

Second, you should contact your Customs agent to set up the process for deposits on all imports from China.

Third, you should contact your supplier and ensure they do not attempt any type of circumvention measure, such as shipping through Canada or labeling “Made in Country [xx]”.  As the importer of record, you can be held liable for these actions.

Finally, should you have further questions, we advise you contact an attorney familiar with AD/CVD cases against China.

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