By Michael Petro, originally published in Buffalo Business First on 5/9/16.

Government steps up enforcement of trade law

The federal government seems to be in hot pursuit of imported goods that could be subject to anti-dumping and countervailing duties.

U.S. authorities have made it a priority to enforce trade laws and in these cases by opening evasion investigations, sometimes on the criminal level, to pursue whether there was negligence in the classification or declaration of imported goods subject to anti-dumping duties.

Even in cases where there may not be enough evidence to prove criminal intent, the government pursued civil penalties, according to Phillips Lytle attorney Jon Yormick. He said he has even seen cases where the government has gone after civil penalties in instances of unknowing or unintentional misclassification or misdeclaration of the imported goods.

Yormick, an international law attorney, has followed these investigations and taken a role in defending clients against the ensuing penalties. He’s warned clients to be in compliance and be aware of duties, as well as take notice of government contractual terms that can reach down to suppliers, or else they may “face the wrath of the government.”

Earlier this year, Amherst defense contractor ESM Group Inc. found that out the hard way: It had to pay $2 million to settle allegations that it violated the federal False Claims Act. The company, a supplier of magnesium, was accused by the U.S. Department of Justice of evading customs duties owed to the government while importing products used in the making of flares for the U.S. military.

It’s the latest in a long string of False Claims Act cases the government has pursued for import and export violations, according to Yormick. He works on the compliance side and said he is learning from other’s mishaps.

In addition to the charge of evading anti-dumping duties, ESM Group was accused of mischaracterizing the imported goods from China because they were not in compliance with government contract terms that called for the magnesium powder to be of U.S. or Canadian origin.

“They had two very serious violations here which ended up with criminal charges, as well,” Yormick said.

A few months ago, President Barack Obama signed the Trade Facilitation and Trade Enforcement Act, which has been described as bipartisan passed legislation intended to protect American businesses in a global economy. The anti-dumping duties are a key component of a bill aimed at fair trade competition.

The legislation is aimed at strengthening trade enforcement at U.S. borders and stopping evasion of trade laws through improved transparency, accountability and coordination in enforcement efforts. Among the initiatives, it provides U.S. Customs and Border Protection with new authority to investigate allegations of anti-dumping evasion.

It’s part of a continuing effort to protect American businesses and level the playing field for domestic products. Anti-dumping duties were originally instituted to protect against foreign companies “dumping” products on the U.S. market at prices below cost.

“There’s always a very active and vocal push from U.S. producers to level the playing field and a constant refrain from members of Congress,” Yormick said. “It’s viewed that the trade laws are not being enforced as effectively as they need to be and I think U.S. Customs has responded with more aggressive actions. That’s what I’ve seen in my practice.

“I think it really illustrates the point that the law is something that resonates with members of the Congress, to the point that they did take bipartisan action on this and the president was happy to sign it to make sure there is enforcement of trade laws.”

In similar cases, Thomas Gaffney, a partner and litigator at Lippes Mathias Wexler Friedman, found himself analyzing this question: “There’s this concept of free trade benefiting everybody but then there’s the concept of fair trade versus free trade. And are restrictions really good or should it just be an open marketplace?”

He represents U.S.-based entities with manufacturing plants around the world that seek to purchase raw materials from a foreign entity for their product components. They often ask Gaffney and the firm if there is an existing order from the Department of Commerce imposing an international tariff that will likely offset the benefit of the lower prices from that foreign country.

Laws imposing tariffs are in place to make sure that foreign companies don’t come in and undercut U.S. businesses, he said. However, they could have a negative effect if there is a U.S. manufacturer that has a lock on a product and is able to inflate the price, which would hurt the companies that need the product, he said.

If there wasn’t enough of a certain product in the U.S. or with the tariff it becomes too costly or expensive, he said the client may eventually have to be shut down. That would result in the loss of U.S. businesses and jobs.

The increase in global commerce has led to more petitions being filed with the Department of Commerce by U.S. businesses against foreign product suppliers.

“You have to weigh it against the benefits of free trade and having companies here have access to foreign goods that they may need,” Gaffney said. “Even though the company could order the product from Japan, for example, for a quarter of the price, the tariff prevents the company from doing that. And the company can’t get it unless it pays the higher price, but it’s not economical and then the company closes down.”

Increased attention to trade laws is something that has affected both U.S-based import companies and foreign companies that are permitted to import to the U.S., according to Yormick. He has pending cases that are being investigated or in the penalty phase involving companies buying products such as aluminum extrusions, steel plates and coated paper from foreign entities. On top of duties that have to be paid, there are civil penalties, as well.

Yormick makes sure that clients are aware of investigations once initiated so that they can begin taking actions for sourcing elsewhere, if that’s what they choose to do. Once orders are issued, he advises them to consider taking steps such as requesting an administrative review, which can reduce the rate of duties, or helping them to identify which producers and exporters to source or purchase from that may have lower anti-dumping and countervailing rates. He also suggests the option of reviewing the products that clients import to find out if they are truly subject to duties — because exclusions do exist and sometimes the products fall outside the scope of those orders.

In fact, Yormick said, he saved a Detroit importer hundreds of thousands of dollars in anti-dumping duties that it faced when Customs had flagged some of the company’s shipments as being subject to anti-dumping and countervailing duties. An Ohio client of Yormick’s, meanwhile, saved more than $300,000 by obtaining a lower rate than what Customs first assessed the duties to be during the review process.

“It’s been a strategy of let’s play defense when we need to with the government but let’s also take a look at this from a standpoint of making some wise business decisions,” he said.