Trade Updates for Week of May 29, 2019

United States Court of International Trade

Court Remands Commerce’s Final Results

Before the Court in Guizhou Tyre Co. et. al. v. United States, Slip Op. 19-65, Court No. 17-00100 (May 24, 2019) was a consolidated action in which eight plaintiffs challenged Commerce’s determinations in a periodic review of an antidumping duty order on off-the-road (“OTR”) tires from China. Two of the plaintiffs, GTC and Aeolus, claimed Commerce erred in determining the companies failed to rebut the presumption of de facto control by the government of China.   Xugong claimed Commerce erred in making deductions from the prices used to determine export price (“EP”) and constructed export price (“CEP”) of Xugong’s subject merchandise to account for China’s value-added tax (“VAT”). Four other plaintiffs, Full World, Qingdao Qihang, Trelleborg, and Zhongwei, each claimed entitlement to a revised antidumping duty rate. For the following reasons the Court remanded to Commerce to reconsider its determinations.

 “To establish the absence of de facto control, Commerce requires an exporter to demonstrate that it (i) sets its prices independently of the government and other exporters, (ii) negotiates its own contracts, (iii) keeps the proceeds of its sales (apart from taxation), and (iv) selects its management autonomously.” Id. at 9. The Court remanded the determination involving Aeolus because Commerce failed to address in the final determination, a report placed on the record concerning the ownership of the company. In regards to GTC, Commerce requested a remand to reconsider the issue, which the Court granted. The next issue the court considered was the VAT. The governing statute “reduces the starting price for determining EP or CEP by the amount, if included in such price, of any export tax, duty, or other charge imposed by the exporting country on the exportation of the subject merchandise to the United States, other than an export tax, duty, or other charge.” Id. at 17. At issue was a domestic production tax in China, rebated to plaintiff after exportation. After reviewing case law, and legislative history the Court said “A tax applied to materials used in the domestic production of a good subsequently exported, whether or not rebated or avoided, is by definition not a tax on the exportation of the finished merchandise.” As such, Commerce’s determinations to lower EP and CEP based on the rebate were not in accordance with law. Finally, the Court granted remaining plaintiffs’ request to revise duty rates applicable to Xugong or to an individually-determined rate for GTC.

United States District Court for District of New Mexico

Violating Customs Regulations Constitutes Criminal “Smuggling”, District Court Holds.

Violation of a Customs regulation regarding marking of country of origin – or violation of any government regulation affecting imports – constitutes a criminal violation of 18 U.S.C. § 545, and can be prosecuted as such, according to a disturbing new decision from United States District Court for New Mexico.

In United States v. Sterling Islands, Inc., No. CR18-4176 JB (May 20, 2019), the defendants were charged with violating 18 U.S.C. § 545 (“smuggling goods into the United States”) on the ground that they had imported or brought into the United States merchandise in a manner which was “contrary to law”, exposing them to as much as twenty years in prison. The defendants were charged with importing native American style jewelry without proper country of origin marking, in violation of Section 134.43 of the Customs Regulations. The question for the Court was whether importing goods in violation of the regulation caused the importation to have been “contrary to law” for purposes of Section 545. The District Court held that it did, and held broadly that the violation of any published law or regulation can constitute an act contrary to “law” for purposes of the statute. The Court concluded that “the statute’s text and legislative history unambiguously indicate that ‘contrary to law’ encompasses all laws and regulations.” Thus, the defendants could be made to face criminal charges for mismarking the jewelry.

Adding to the defendant’s woes is the provision in 18 U.S.C. § 545 that “proof of defendant’s possession of such goods [imported ‘contrary to law’], unless explained to the satisfaction of the jury, shall be deemed evidence sufficient to authorize conviction for violation of this Section.”

The New Mexico court thus came down on the far end of a “circuit split” on whether violating a regulation carrying civil penalties should also be considered conduct “contrary to law” for purposes of Section 545. In United States v. Izurieta, a case involving importers of misbranded food, the Eleventh Circuit that 18 U.S.C. Section 545 contained grievous ambiguities which “creates a strong perception that a violation of the regulation will give rise to civil remedies only.” Using the “principle of lenity” the Eleventh Circuit held that violation of the regulation did not charge crime. On the other end of the spectrum, the Fourth Circuit, in United States v. Mitchell, had concluded that the “contrary to law” provision of Section 545 encompasses substantive or legislative regulations that have the force and effect of law. Thus, Section 545 was not limited to statutory violations.

The Ninth Circuit in United States v. Alghazouli, concluded that the term “law” as used in Section 545, “does not have a plain meeting that necessarily included a regulation.”

The Sterling Islands decision will likely be appealed to the Tenth Circuit Court of Appeals, which will add its voice to the split among circuits. There is a possibility that the United States Supreme Court may take up the issue at some time in the future in an attempt to resolve the circuit split and clarify the conduct that may give rise to criminal charges under Section 545.