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Non-Resident Importers and Inadequate Bonding Leave Duties Unpaid, Harming the Public Fisc

January 26, 2021, by Zachary Walker/Pickard Kentz & Rowe LLP


The antidumping (AD) order on fresh garlic from China was issued in 1994. Since that order issued, hundreds of millions of dollars of resulting AD duties owed to the federal government have gone unpaid. Indeed, as of fiscal year 2017 – the last year for which detailed information was made public – uncollected AD duties on fresh garlic from China reached $853.7 million, or about 27 percent of all uncollected AD duties owed. The current amount of uncollected AD duties on Chinese fresh garlic is likely to be in excess of $1 billion dollars, as CBP reported that an annual average of $113.9 million in assessed AD duties under the AD order went uncollected between fiscal years 2015 and 2017 and the amount of total open AD/CVD debt on all products grew by 28 percent between FY 2017 and FY 2019 alone.


The sheer value of uncollected AD duties on Chinese fresh garlic is not explained by any single event or variable. However, as acknowledged by the U.S. Government Accountability Office, new shipper reviews and inadequate bonding have played a role. As evidenced by a recent case filed before the U.S. Court of International Trade (CIT), non resident importers also frustrate the enforcement (and effectiveness) of the trade remedy laws designed to level the playing field for U.S. industries facing unfair competition.


The unpaid AD duties on Chinese fresh garlic has resulted in the federal government seeking recovery on related bonds from surety companies. One such recovery effort filed at the CIT in October of this year, dealing with ten entries made in early 2004, highlights the significant threat posed by non-resident importers and insufficient bonding requirements to the public fisc.


United States of America v. Aegis Security Insurance Co., CIT No. 20 03628 was brought pursuant to 28 U.S.C. § 1582(2), which grants the CIT exclusive jurisdiction over any action “to recover upon a bond relating to the importation of merchandise.” Specifically, in this case, the government seeks to collect $50,000, along with interest, from Aegis for debt owed under a continuous bond that surety issued to a non-resident importer of fresh garlic.


The litigation centers around the activities of Linyi Sanshan Import & Export Co. (Linyi Sanshan). In July 2003 (68 Fed. Reg. 40,242), the U.S. Department of Commerce (Commerce) initiated a new shipper review of the AD order on Chinese fresh garlic based on a request from Linyi Sanshan after the company sold fresh garlic to the United States at some point during the review period of November 1, 2002 to April 30, 2003. Nine months later, in May 2004, Commerce issued its preliminary results of the new shipper review, assigning a dumping margin of 376.67% to Linyi Sanshan’s shipments (69 Fed. Reg. 24,123). Commerce confirmed that preliminary finding in the final results of the new shipper review issued one month later (69 Fed. Reg. 36,059).


While the new shipper review was pending, Linyi Sanshan took advantage of the ability to ship fresh garlic to the United States without making cash deposits, but instead posting single transaction bonds. The complaint alleges that in January and February of 2004 Linyi Sanshan, acting as a non-resident importer of record with an address in China’s Shandong province, made ten entries of fresh whole garlic bulbs (seven of these ten entries were made on the same date) of goods the company itself exported. When these entries liquidated, Linyi Sanshan, as the importer of record, became liable for the AD duties. However, Linyi Sanshan did not respond to CBP’s bills seeking payment of over $2 million in AD duties (bills issued to Linyi Sanshan). These bills then became delinquent.


The CBP entry summaries filed with the CIT identify two companies as the ultimate consignees of the entries made by Linyi Sanshan (entry summaries). These two companies, American Fruit and Produce Corp. and Garlic King Corp., had received approximately 20,000 cartons of fresh garlic from Linyi Sanshan that were released without the appropriate AD cash deposits having been made. However, because American Fruit and Produce Corp. and Garlic King Corp. did not act as the formal importer of record on these entries, CBP was forced to attempt to collect the unpaid AD duties from a non resident importer based in China.


When CBP was unable to collect from Linyi Sanshan, CBP first attempted to collect the outstanding amount under single transaction bonds that Linyi Sanshan, as a new shipper, had posted in lieu of cash deposits. Per the complaint filed on behalf of the United States, CBP appears to have been able to collect all but $91,063.69 of the $2.1 million owed by Linyi Sanshan from the surety issuer of the single-entry bonds associated with those entries. As described below, however, the reliance on single-entry bonds in lieu of cash deposits is no longer allowed. In this instance, with amounts still outstanding, CBP demanded payment up to the $50,000 limit of liability of the surety bond from Aegis, the surety that had issued a continuous bond to Linyi Sanshan. After Aegis failed to pay under the terms of the continuous bond, the U.S. Department of Justice filed a summons and complaint with the CIT seeking payment from Aegis in the amount of the contractual limit of the bond plus interest.


Although the vast majority of the AD duties owed by the non-resident importer of record were ultimately collected because of the existence of single-entry bonds, the Trade Facilitation and Trade Enforcement Act of 2015 eliminated the ability of importers to post single transaction bonds in lieu of cash deposits. While this has made it more difficult for foreign exporters (and non-resident importers) to abuse the new shipper review process, if an exporter is able to secure a low AD cash deposit rate through a new shipper review of a single shipment or small number of shipments, this fact pattern is instructive as to the immense risk to revenue posed when CBP fails to require sufficient security on import entries subject to an AD order. Unless supported by robust risk-based bonding, import entries made by non-resident importers that have obtained low cash deposit rates are, beyond the cash deposits, secured only by a continuous bond which, in most cases, limits the liability of a surety to $50,000. These circumstances continue to encourage the abuse of the new shipper review process.


Based on CBP’s identification of the risk posed by non-resident importers to the public fisc, Congress has sought to address the peril that non resident importers present on the administration and enforcement of U.S. trade remedy laws. While Congress made risk-based bonding a priority in the Trade Facilitation and Trade Enforcement Act of 2015’s, CBP’s subsequent inability to enhance its risk based bonding program, particularly where non-resident importers are involved, continues to undermine the agency’s ability to protect the revenue.



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