One of the trade priorities of the Trump administration is to ensure that all the antidumping and countervailing (anti-subsidy) duties owed on U.S. imports are collected. Many think that antidumping and countervailing duties are collected at the border — at the time of importation. Actually, the collection of antidumping and countervailing duties is quite complicated: indeed, not understanding the U.S. antidumping/countervailing duty process has caused serious problems for numerous U.S. importers — and has even caused some to go out of business. This issue has impacted U.S. importers of all types of steel products covered by antidumping and/or countervailing duty orders, including carbon steel butt-weld pipe fittings, OCTG, circular welded carbon steel pipes and tubes, drill pipe, welded large diameter line pipe, and heavy walled rectangular welded carbon steel pipes and tubes, to name a few.
The reason for all this confusion is that the U.S. antidumping/countervailing duty process is considered a “retroactive system” (relatively unique in the world). What this means is that when the U.S. government (specifically, the U.S. Department of Commerce) issues a final decision on dumping/subsidization levels, that pronouncement is not a statement of what amount of additional duties will actually finally be owed by U.S. importers. This is because what the U.S. Department of Commerce is actually announcing are dumping/subsidy rates for a prior period of time, which will then get applied to imports that entered the United States in that prior period of time.
At the same time, those dumping/subsidy rates do have some prospective effect: they are deemed the “cash deposit rates” going forward for a certain period of time (generally 12 months). U.S. importers get into trouble when they assume the cash deposit rates are the actual/final dumping/subsidy rates that they will owe to the U.S. government for their shipments. They almost certainly are not. Indeed, the ultimate duties owed on the imports that enter the U.S. in the year after the Department’s announcement of rates could be higher (or lower) than the (estimated) duties they posted upon entry. If the duties actually assessed on the shipments are significantly higher — which is something that happens on very regular basis — the U.S. importer can find themselves with an exceedingly high bill from the U.S. government. Since Uncle Sam does what he can to get his money, the difference between eventual duties and the estimated ones paid upon entry has driven numerous U.S. importers into bankruptcy.
This concept of “retroactivity” can be difficult to understand in the abstract. So, let’s try to put it into context, using the current U.S. antidumping/countervailing duty investigation against carbon steel flanges as an example.
Back in June of 2016, U.S. antidumping claims were made against imports of finished carbon steel flanges from India, Italy, and Spain. At the same time, a countervailing duty (subsidy) claim was made against imports of finished carbon steel flanges from India. The U.S. government has been investigating these claims, and has issued preliminary antidumping findings from 8.58 percent to 12.56 percent against Indian flanges, 18.81 percent to 24.43 percent against Spanish flanges, and more than 200 percent against Italian flanges. The Indian subsidy rates were in the 2.76 percent to 3.66 percent range. While the final Spanish antidumping rates have been confirmed at 18.81 percent to 24.43 percent, the final dumping and subsidy rates against India and Italy are not expected until the end of June.
What U.S. importers of flanges should remember is that those are not necessarily the duty rates that will be assessed against their imports. Indeed, while the U.S. government will demand additional cash deposits at the rates set by the U.S. Department of Commerce, the actual additional duties owed could be much more — but what the “much more” is will not be known until some time in 2019. Specifically, what happens is that the U.S. importers will begin posting the final antidumping/subsidy (as applicable) cash deposits at the rates set by the U.S. Department of Commerce on imports that enter the U.S. Then, in August of 2018, the U.S. government (again through the Department of Commerce), will commence a “review” of all the carbon steel flange shipments made to the U.S. from India, Italy, and Spain under established cash deposit rates. After a 12 to 14 month review, the U.S. Department of Commerce will announce new rates (so, sometime in the summer/early fall of 2019) against finished carbon steel flanges from India, Italy, and Spain. Those newly-announced rates will be applied to shipments that used the previously established ones, and will then be used as the new cash deposit rates going forward. If the newly-announced rates are higher than the rates established in June of 2017, the U.S. importer will get an invoice from U.S. Customs for the difference between the amount the importer paid at the time of importation, and the final rate.
By way of example:
Assume that in July of 2017, a U.S. importer enters $1,000,000 worth of carbon steel flanges from India, and posts and antidumping/countervailing duty cash deposit of 11.34 percent (approximately $133,400). In August of 2018, the U.S. Department of Commerce will review those shipments, to determine if the level of Indian dumping/subsidization changed. In about September or October of 2019, the government will announce its final decision on that review. Let’s say that the government’s final decision is that the dumping/subsidization from India increased by 20 percent. In that situation, the U.S. importer of Indian product will get an invoice from U.S. Customs for an additional $86,660 (20 percent minus the 11.34 percent already posted at the time of entry). Interest will be added to that amount as well. So, in October of 2019, a U.S. importer that imported $1,000,000 of carbon steel flanges from India in July of 2017, would get an invoice from U.S. Customs for an additional $86,660 plus interest, even though the importer had already set its prices for those imported flanges, sold them to customers, closed its 2017 and 2018 books, and paid its income taxes for those years.
The financial uncertainty of this retroactive process has caught numerous U.S. importers and their customers in its trap. What the retroactive nature of the U.S. antidumping/countervailing duty process means is that, at the time of entry of a product covered by a U.S. antidumping/countervailing duty order, U.S. importers do not know what their ultimate duty liability will be — and will not know for up to two and a half to three years later!
The bottom line is: if you are importing product subject to antidumping/countervailing duty orders, your exposure is not limited to the rate originally announced by the U.S. Department of Commerce. You will not know exactly how much you owe Uncle Sam until years later. Depending on your shipment quantities, even a small increase in the actual calculated duties could be catastrophic to your company. As such, we go back to the headline of this article — importers beware!
By Steve Smith and Danielle Galian