YEARS OF DUTY EVASION UNDER THE ANTIDUMPING ORDER
ON HONEY IMPORTS FROM
By Michael J. Coursey
The petition seeking
the imposition of antidumping ("AD”) duties
on honey imports from China was filed 13 years ago, in September 2000, by the
American Honey Producers Association ("AHPA”) and Sioux Honey Association
("Sioux Honey”), on behalf of their members.
Fifteen months later, upon the successful completion of the government’s
ensuing AD investigation, the AD order on Chinese honey was issued ("Honey
Order”), and remains in place today.
In the AD investigation, the U.S. Commerce
Department ("Commerce”) found that Chinese honey was being dumped in the U.S.
market at prices far below the cost of production in China; and the U.S.
International Trade Commission ("ITC”) found that these duped imports were
materially injuring domestic honey producers in the U.S. market.
Since then, Commerce has subjected the Honey
completed annual administrative reviews (each of which covers imports that
arrived during the year before the review’s initiation); and
"new shipper” administrative reviews (each of which covers the first imports
from an exporter that did not ship to the U.S. market during the period covered
by the original AD investigation).
proceedings, Commerce has investigated a total of 77 Chinese honey exporters,
and found that each had dumped Chinese honey into our market at substantial
rates. As of today, three of these
exporters are operating under an AD "duty deposit rate” of between $0.45/lb.
and $0.75/lb. The other 74 exporters–
and all of the many exporters that have not
been reviewed by the agency– are operating under a duty deposit rate
of $1.19/lb., which is the current "China-wide” rate.
This means that any
U.S. importer that wants to enter a container holding 40,000 pounds of Chinese
honey must deposit between $18,000 and $47,000 in cash with U.S. Customs and Border Patrol ("Customs”) upon
honey’s arrival. Further, for the
importer to recover that "cash deposit,” the Chinese exporter that shipped it
would have to (1) fully participate in Commerce’s administrative review of the Honey Order for
period during which that honey arrived; and (2) convince Commerce during that
review that it did not sell the honey at a dumped price. That review would not be completed until two
years or more after the honey arrived in the U.S. market.
Because Commerce has
never in 12 years found that a Chinese exporter did not dump its honey
shipments to the U.S. market at a steep rate, there is a very slim chance that
a U.S. importer would ever recover the substantial cash deposit it would need
to make to import honey from China.
It thus is not
surprising that official U.S. import statistics show that very little Chinese
honey has entered the U.S. market since 2008. (See the nearby chart.) What
is surprising– shocking, really – is that, according to the same
statistics, a whopping 310 million
pounds of Chinese honey arrived in the U.S. market during the first seven years
the China Honey AD Order was in place (2002-2008) – for an average of more than
44 million pounds per year. This tsunami of dumped Chinese honey arrived
here despite the fact that all
Chinese exporters were operating under very high duty deposit rates during this
period, which should have prevented any
Chinese honey from entering the U.S. market.
How could this have
happened? From the time the Honey Order
was issued through last year, dishonest Chinese exporters and U.S. importers perpetrated
four illegal duty-evasion schemes that allowed huge volumes of Chinese honey to
be shipped into the U.S. market as if that order did not exist. Two of these schemes – the "undervaluation”
and "new shipper bond” schemes– were applied to Chinese honey that was
presented to Customs as being pure honey from China that was covered by the
Honey Order, and whose volumes were duly recorded as such in the official U.S.
import statistics. These two schemes
were used to import virtually all of the 310 million pounds of Chinese honey
imported as such through 2008.
Under the other two
evasion schemes – the "false country-of-origin” and the "honey/rice syrup”
schemes – dishonest U.S. importers fraudulently reported that product to
Customs as being either pure honey that was produced in a foreign country other
than China; or a blend of honey and
rice syrup which– while having been made in China– contained more
rice syrup than honey, which put the blend beyond the coverage, or "scope,” of
the China Honey AD Order.
This is the first in
a series of four articles that describe how one of these four evasion schemes worked, and how that
scheme was ultimately foiled by Commerce and Customs, as advised by your
international trade counsel at Kelley Drye & Warren LLP. This article addresses the "undervaluation”
duty evasion scheme.
We can be thankful
that – except for the false country-of-origin scheme– these schemes have
been defeated, and that imports arriving through the remaining scheme have been
substantially reduced, though not eliminated.
But two grim facts remain.
First: those four
evasion schemes collectively deprived the domestic beekeepers of most of the
remedial relief from dumped Chinese honey that Congress intended through the AD
law for the first eleven years of the AD order’s life.
Chinese exporters and their U.S. importers and other partners are devising at
this moment new illegal means to bring dumped Chinese honey into the U.S.
market without paying duties under the Honey Order.
Part 1: The
"Undervaluation” Duty Evasion Scheme
The first AD
investigation of honey imports from China, which was initiated by the
government in the fall of 1994, was settled a year later through the signing by
Commerce and the Government of China of a so-called "suspension agreement.” Under that agreement, the price of Chinese
honey for the next five years was set at just below the average price for honey
imports from countries other than China, which were dominated by Argentina
honey. In addition, the agreement
allowed the volume of Chinese imports to increase over the term from a
relatively low initial volume.
While these terms
protected domestic honey prices relatively well for the first three years, a
rapid drop in price of imports from Argentina in the agreement’s fourth year allowed
Chinese prices to similarly fall, and remain at low levels in the fifth year
(2000), during which the very low-priced Chinese honey imports spiked to 60
million pounds. (See the nearby chart.) As a
result, AHPA and Sioux Honey decided not to seek the renewal of the agreement’s
five-year term in August 2000, and instead filed a new AD petition against
China in late September 2000, shortly
after the agreement was terminated.
Commerce imposed provisional dumping duties on Chinese honey
imports in May 2001, which caused those imports to fall to 40 million pounds
that year. As a result of Commerce’s
issuance of the Honey Order in December 2001, Chinese imports fell further in
2002 to just 18 million pounds – a 70 percent drop in just two years.
officially-reported imports of Chinese honey tripled over the next four years, to an astonishing 70 million
pounds in 2006. (See the nearby chart.) Virtually
all of this honey was entered through two illegal duty evasion schemes: the
"undervaluation” scheme, and the "new shipper bond” scheme, the first of which
is the subject of this article.
The Crucial Role of
AD Duty Deposit Rates
To convey the essence
of the undervaluation scheme, I first must describe how Commerce and Customs
determine and bill a U.S. importer for the specific amount of duty that is owed
on an import that is subject to an AD order.
That amount is not determined and
billed at the time the import arrives (or is "entered” into the U.S. market). Rather, it is determined through a lengthy "duty-assessment”
process that typically is not completed for two or more years after the
import’s entry. Nevertheless, the U.S.
importer of a product covered by an AD order must deposit with Customs at the
time the product is entered a specific
amount – typically in cash – as collateral against the importer’s potential
failure to pay the amount of AD duty Customs eventually bills for the
That amount – which
is referred to as an "estimated AD duty deposit,” or more simply as a "cash
deposit”– is typically determined by multiplying the "duty deposit rate”
of the exporter that shipped the goods by the goods’ "entered value,” which
typically is the price the importer paid for the exporter for the goods, minus
international shipping costs.
Duty deposit rates
typically are expressed on an ad valorem
basis, as a percentage. An exporter’s deposit
rate will be the most recent rate of dumping that Commerce calculated for the
exporter, either in the original AD investigation, or a completed
administrative review of the relevant AD order.
For AD orders on Chinese products, the duty deposit rate for an exporter
that has not been issued its own
deposit rate will be the so-called "China-wide” rate, which typically will be
at least as high as the highest deposit rate that has been calculated for all
Here’s an example of this process using the
Honey Order. Honey is typically traded internationally
in lots of about 40,000 pounds, which is the amount typically shipped in a
standard ocean-going container. So, one 40,000
pound container of Chinese honey sold by the exporter to the importer on a
China port-of-export basis at $1.00/lb. would have a total entered value of
the Chinese exporter that shipped the honey was operating under a 50 percent ad valorem deposit rate, the U.S.
importer would have to post with Customs a cash duty deposit of $20,000, or
$0.50 for each pound of the imports.
posting the cash deposit, the importer would have a total of $60,000 (or $1.50/lb.)
invested in the honey: $40,000 as the price it paid the exporter for the honey,
and the $20,000 cash deposit.
Commerce ultimately determined that the entry had not been dumped, Customs
would return to the importer the entire cash deposit, plus accrued
interest. (But because Commerce has never found that Chinese honey imports from
any exporter were not dumped at a steep rate, the importer had zero chance of
ever getting it cash deposit back.)
Commerce determined that the entry had been dumped at 50 percent, Customs would
take the entire cash deposit (plus accrued interest) as payment of the duties
Commerce determined that the entry had been dumped at 100 percent, Customs
would take the entire cash deposit (plus interest) as payment of half the duties owed, and it would bill
the importer an additional $20,000 (plus interest) for the remainder of the
With this background,
you now have a good basis for understanding how dishonest Chinese exporters and
U.S. importers used the duty evasion schemes to enter huge volumes of Chinese
honey into the U.S. market as if the AD order didn’t exist.
Scheme Rises from Ad Valorem Deposit
As noted above, all Chinese exporters have been
operating under high cash duty deposit rates since May 2001, when Commerce
issued its affirmative preliminary determination of dumping in the original AD
investigation. This means that
substantial cash duty deposits have been required on all imports of Chinese
honey since then, which should have discouraged U.S. importers from importing
any of that product. Nevertheless, dishonest
Chinese exporters and U.S. importers soon discovered that they could reduce
these cash deposits to almost nothing by fraudulently reporting to Customs an
entered value for the imports that was a fraction of the actual value. This became known as the "undervaluation” duty
To demonstrate this:
the U.S. importer in the above example reported to Customs a false entered
value of $5,000 (i.e., $0.125/lb.) for its 40,000 pound entry of Chinese honey,
in place of the true value of $40,000.
the exporter’s 50 percent duty deposit rate, the cash deposit would fall from
$20,000 (or $0.50/lb.) to just $2,500 (or $0.0625/lb.) – or one-eighth of the $20,000 that it should
posting the cash deposit, the importer would have a total of $42,500 (or $1.0625/lb.)
invested in the honey: $40,000 as the price paid the exporter for the honey,
and the $2,500 cash deposit.
Thus, by fraudulently
"undervaluing” the entered value of its new entries of Chinese honey, this
dishonest U.S. importer would be able to enter substantial volumes of Chinese
honey, while shipments from other Chinese exporters would continue to be
blocked by their high duty deposit rates.
duty evasion scheme was particularly advantageous for the dozen or so exporters
that received their own duty deposit rates during the original AD investigation
and the first two annual and "new shipper” administrative reviews. While each of these exporter-specific rates
was substantial – ranging from 25 percent to over 100 percent – they were low enough
to enable those exporters to exploit the undervaluation scheme, while the much
higher China-wide deposit rate of 183 percent that applied to all other
exporters kept them from exploiting the scheme – at least for the first few
Why did it take
Commerce until early 2009 to stop the undervaluation scheme? First, it was relatively difficult for us as
your trade counsel to detect the scheme was being used, and to bring the
problem to Commerce’s and Customs’ attention, until some of the exporters had
been using it for a year or more.
Since the Honey Order
was issued, we essentially have had two imperfect tools for monitoring ongoing
entries of Chinese honey: (1) official U.S. import statistics, which provide
the monthly total volume, and average per-pound entered value, of all Chinese
honey imports (but not for individual Chinese exporters); and (2) the so-called
PIERS reports, which provide the monthly volume of U.S. arrivals of Chinese
honey by exporter (but which omits shipments by exporters whose U.S. importers
were smart enough to request that Customs suppress all evidence of their
shipments). These tools suggested that the
substantial entries of Chinese honey that had resumed in mid-2002 were being
shipped by the first exporters that had requested "new shipper” administrative
reviews. (The new shipper bond duty evasion scheme will be the subject of Part
2 of this four-part series of articles.)
In 2003, however, the
PIERS reports started identifying substantial arrivals of Chinese honey from one
exporter that should have been prevented from shipping by its significant exporter-specific
duty deposit rate. At the same time, the
monthly average unit values reported in the official U.S. import statistics
started dropping beyond the relatively low values of the imports that had been
arriving from the "new shipper” exporters.
We eventually surmised that this drop was being caused by the arrival of
increasing volumes of significantly undervalued Chinese honey from the
exporters that had their own substantial duty deposit rates, but which were now
exploiting the undervaluation scheme.
This meant that substantial volumes of Chinese honey were now arriving
through the undervaluation scheme, along
with the huge volumes that were arriving through the new shipper bond scheme.
Switch to Per-Unit Duty Deposit Rates
As 2004 unfolded, we
learned from the PIERS reports that an increasing number of exporters with
their own deposit rates had started exploiting the undervaluation scheme. We then presented our collected evidence of
fraud to Commerce, and requested the agency to implement the only "fix” capable
of stopping that scheme: changing the duty deposit rates under the China Honey
AD Order from an ad valorem to a per-unit
As noted above, under
an ad valorem deposit rate, the cash
deposit for a new entry of goods is determined by multiplying (1) the
exporter’s duty deposit rate expressed as the percent by which Commerce determined the relevant exporter dumped
during the most recently completed phase under the Honey Order (2) by the
entered value of the relevant imports. In contrast, under a per-unit deposit rate,
the cash deposit is determined by multiplying (1) the exporter’s duty deposit
rate expressed as the average, per-unit
value by which Commerce determined the relevant exporter dumped during the most
recently completed phase under the order (2) by the number of units (typically kilograms) of the goods
We believed that the switch
from ad valorem to per-unit deposit
rates would kill the undervaluation evasion scheme because that switch would entirely
remove the imported honey’s entered value from the cash deposit calculation.
During our consultations with Customs in seeking a solution to the
undervaluation scheme, that agency had insisted that it is very difficult for
it to detect at the time of entry whether an importer is lying about the true
value of the contents of an entire container of goods such as honey. It is this fact that allowed the
undervaluation scheme to flourish.
In contrast, for an
importer to evade substantially all of the cash deposit determined on a
per-unit basis for an entry of Chinese honey, the importer would have to falsely
claim that a container designed to hold about 40,000 of just about anything,
and that actually holds 40,000 pound of honey, contains only a few thousand
pounds. According to Customs – and plain
old common sense– it is far easier to detect volume-based fraud than
Commerce agreed in 2005
that it would begin switching all of the exporter-specific duty deposit rates under
the Honey Order from an ad valorem to
a per-unit basis as quickly as possible.
Unfortunately, it took the agency four
years to complete this task. This is
because Commerce determined that it could not immediately switch each
exporter’s ad valorem rate to a
per-unit rate, because each of the ad
valorem rates had been calculated in either the original AD investigation,
or one of the two annual administrative reviews and several new shipper reviews
the agency had completed by then. According to Commerce, it simply did not have
the authority to reopen those closed reviews to determine the equivalent
per-unit deposit rates, and have those rates immediately applied on a
that it was limited to issuing new duty deposit rates on a per-unit, instead of
an ad valorem, basis for each
exporter covered by the final results of 3rd administrative review
under the China Honey AD Order that was then being conducted, and all such
reviews initiated in the future. This
was extremely disappointing news, for only a few of the many exporters that
then had their own duty deposit rates were involved in ongoing 3rd
administrative review, which would be completed in mid-2006. This meant that to have the duty deposit
rates for the bulk of these exporters switched from an ad valorem to a per-unit basis, we would have to ask Commerce to
include them in the 4th administrative review, which would not be
completed until mid-2007. We knew that
those exporters that were actively exploiting the undervaluation scheme would simply
refuse to participate in the 4th administrative review, which would
leave them free to use the scheme until Commerce issued its final results for
that review, and assigned those exporters the China-wide per unit rate.
To complicate things
further, not all of exporters with their own duty deposit rates were included
in the 4th administrative review, because several of these exporters,
according to Customs’ records, had not shipped any Chinese honey to the U.S.
market during the one-year period covered by the review ("4th POR”),
which required Commerce to exclude them from that review. This indicated that there were still some
exporters with their own ad valorem duty
deposit rates that had not begun exploiting undervaluation scheme as of 4th
POR, but which could start doing so at any time, and as a result could not be
stopped until Commerce issued the final results of the future administrative
review for the review period during which they finally started exploiting that
The Death of the
Undervaluation Duty Evasion Scheme
Most of the
exporter-specific duty deposit rates were switched from an ad valorem to a per-unit basis with the issuance of the final
results of the 3rd, 4th and 5th administrative
reviews in mid-2006, -2007 and -2008, respectively. In the accelerated final results of the 6th
administrative review, which were issued in December 2008, Commerce assigned the
China-wide deposit rate (which was now being applied on a per-unit basis, at
over $1/lb.) to the last two exporters that still had ad valorem deposit rates, and which had continued to ship
substantial volumes under the undervaluation scheme.
For each exporter
that was assigned a per-unit deposit rate in each of these four administrative
reviews, that switch had immediately stopped all of its shipments. Indeed, officially-reported imports of Chinese
honey for 2009 fell to zero, from 39 million pounds in 2007, and 24 million
pounds in 2008. (See the nearby chart.)
It is impossible to determine exactly how much
of the 310 million pounds in officially-reported Chinese honey imports that
entered between 2002 and 2008 arrived through each of undervaluation and new
shipper bond duty evasion schemes. (See the nearby chart.) Because the new the new shipper bond scheme
ended in August 2006, when Congress suspended the so-called new shipper bonding
option, the 63 million pounds of Chinese honey that was imported in 2007 and
2008 must have arrived entirely through the undervaluation scheme. If half of the 247 million pounds of imports
that arrived between 2002 and 2006 was shipped through the undervaluation
scheme, 188 million pounds of imports would have entered through that scheme
There is no doubt
that all of that honey was sold here at steeply dumped prices, which
economically injured the domestic honey producers by significantly depressing
the overall price of honey in the U.S. market – precisely the type of injury
the AD law was intended to prevent.
undervaluation scheme also deprived the AHPA and Sioux Honey members of tens of
millions of dollars they would have collected under the so-called Byrd
Amendment to the AD law, which applies to all imports that were made through
that scheme through 2007. Commerce eventually
determined that all of these imports had been dumped at the China-wide rate of
$1.19/lb. Had those imports been secured
by the full cash deposits the U.S. importers were required by the AD law to
post with Customs at the time of entry, all of those deposits would have been
entirely forfeited to Customs in partial payment of the AD duties that agency
ultimately assessed on the imports. Of
course, Customs would have been required to distribute all of those funds under
the Byrd Amendment to the domestic honey producers. As it turned out, the duty collections on
those imports consisted of just the fractional cash deposits the importers
posted actually with Customs.
* * *
Next time: Mr. Coursey will review in Part 2 of this
series the "new shipper bond” duty evasion scheme.
Coursey is a partner in the International Trade and Customs Law Practice Group
of Kelley Drye & Warren, LLP. With
his colleagues at Kelley Drye, Mr. Coursey has had the honor of advising and
representing the AHPA on international trade issues for 20 years.
addition, the China Honey AD Order has been twice retained for additional
five-year periods beyond the normal five-year life of AD orders through two "sunset” administrative reviews, in 2007
and 2012. In those reviews, Commerce and
the ITC ruled that if the order were terminated, substantial volumes of dumped
Chinese honey would again flow into the U.S. market, and would again materially
injury the domestic beekeepers.
associations also filed an AD petition, and a countervailing duty (or
"anti-subsidy”) petition, against the
huge volume of similarly low-priced honey imports from Argentina. Commerce issued AD and CVD orders against
honey from Argentina at the same time it issued the AD order against Chinese
honey. Virtually no duty evasion schemes
were perpetrated under the orders on honey from Argentina, which successfully
protected the domestic honey industry from through 2012, when they were
terminated as a result of AHPA’s and Sioux Honey’s decision not to ask Commerce
and the ITC to extend the orders for another five years.