ROYAL BRUSH DECISION RESTORES SOME BALANCE TO TRADE SCENE

The Federal Circuit’s July 27, 2023 decision in Royal Brush Manufacturing Inc. v. United States No. 2022-1226, represents an important step in returning equity and fairness to the rough-and-tumble world of unfair trade remedies.

In Royal Brush, the Federal Circuit ruled that an importer targeted by a complaint filed under the False Claims Act Enforce and Protect Act (EAPA) has the right to see all of the evidence being used to justify the determination to impose special duties on its imports.

The case arises under EAPA, a statute designed to combat evasion of antidumping and countervailing duty orders. The law allows an interested party to submit to Customs an allegation that one or more persons has engaged in evasion of AD or CVD measures. Customs’ Trade Remedy Law Enforcement Division (TRLED) investigates the allegation and may impose provisional dumping or countervailing duties on the targeted importer’s entries. Often, the first time a targeted importer learns that an EAPA complaint has been filed against it is when CBP begins assessing provisional duties on its imports. And that is where the “fun” starts. Importers accused of EAPA violations have the burden of proving, administratively before TRLED, that “evasion” is not occurring. And CBP, under the guise of protecting “confidential” information, often declines to show the importer the evidence on which its determination is based.

As the Court of International Trade recently held that EAPA is a “strict liability” statute, under which the culpability of the importer is irrelevant [see Ikadan System USA v. United States, Slip Op. 23-88 (June 13, 2023)], an importer’s access to the information used to charge it becomes particularly important.

In Royal Brush, the importer was charged with evasion of the antidumping order against Cased Pencils from the People’s Republic of China. Customs contended that the pencils which Royal Brush imported from the Philippines were in fact Chinese, contending that a visit by Customs attachés to the Philippine factory indicated that the plant did not have sufficient capacity to produce the quantity of pencils that Royal Brush was importing. However, this information, together with production capacity calculations, was withheld from Royal Brush during administrative proceedings. The Court of International Trade ordered Customs to produce “redacted” copies of the reports, but the numbers essential to Royal Brush’s defense were removed from the report summaries. The Federal Circuit held that the practice of withholding evidence violated the importer’s due process rights, in violation of the Fifth Amendment to the Constitution.

After concluding that it had jurisdiction over the appeal—Royal Brush’s entries had been liquidated with assessment of dumping duties—the Federal Circuit examined CBP’s findings. These included findings that the Philippine manufacturer “must have been shipping large volumes of pencils to the United States from sources other than its own production facilities” based on calculations made by the agency. The findings also were grounded in the CBP attaché report which supposedly “unequivocally demonstrate[d] repackaging of Chinese pencils into boxes labeled as made in the Philippines and destined for the United States”. But Customs had declined to release this information to Royal Brush, claiming that neither EAPA nor its implementing regulations contain procedures for the release of confidential information under a protective order.

The Court of Appeals was not impressed. Constitutional due process, it held, required that a party subject to a sanction such as that imposed under EAPA had a constitutional right to see the evidence upon which the Agency’s determination was based. That EAPA and its regulations did not contain a procedure for release of confidential data under protective order was meaningless:

Customs, the CAFC held, has inherent authority to fashion such a mechanism. The Court set aside CPB’s evasion finding (but did not refund Royal Brush’s duties, because that was not the focus of the complaint before it).

In a world where trade remedy laws and regulations are becoming increasingly stacked against importers, the Royal Brush decision is a welcome relief, indicating that importers are entitled to the same constitutional protections as taxpayers in other areas.