Orphaned freight shipments, and how Anti-Dumping Duty and Countervailing Duty are responsible

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Recently, shipments of truck and bus tires manufactured in China have arrived at US ports, only to be “orphaned” – abandoned by the original importers and consignees.  Some have been offered, by the shippers, to other potential buyers – who also are reluctant to buy these tires at apparent bargain prices.  Why?

The answer is the sudden US imposition of Anti-Dumping Duty (ADD) and Countervailing Duty (CVD) on truck and bus tires from China, and the very unusual, retroactive nature of these types of customs duties.  For details on how and when this happened read our blog post from February.

With most types of customs duties, as administered by the national customs services of most countries around the world, the amount of customs duty (and any customs user fees or taxes collected as part of the customs entry process) are fixed either at the time of the original customs entry, or very soon after the time of entry.

This is the way that both general duty rates, and the recent "additional duty" rates on specified products of China, are administered by US Customs.  Unless there is a challenge to either the customs classification of the goods, the value of the goods, or the legal admissibility of the goods, the amount paid to US Customs as part of the entry process will not normally change.

However, the US versions of ADD and CVD are different.  In most countries that have ADD and CVD, these types of customs duty are “prospective” – the rates are set, and applied to subsequent customs entries.  These rates continue until there is a rate change, and the new rates then apply to subsequent entries.  In the US, these types of duty – as applied to a specific combination of product classification, country of origin, and sometimes individual manufacturer – are “retroactive”, and can change after the entry is filed and the shipment is released.  The amount of these duties that the importer pays at the time of entry is based on the "deposit rate" of each of these types of duty that is in effect at that time. 

After the current ADD or CVD accounting period (usually a twelve month period) ends, the US Commerce Department reviews the import records for shipments subject to ADD or CVD (or both), and issues a preliminary report which proposes that either:

  (a) the "deposit rate" was correct, and the entries should be "liquidated" (finalized) at that rate; or

  (b) the "deposit rate" was higher than necessary, and the entries should be "liquidated" at a lower rate, with the difference (plus interest) paid to the importer; or

  (c) the "deposit rate" was not high enough, and the entries should be "liquidated" at a higher rate, with the difference (plus interest) being billed to the importer by US Customs.

At this point, there is a public comment period during which "interested parties" can submit their comments.  If there are no comments, and no requests for a change from the "deposit rate" for entries filed during the period, then Commerce publishes a final report, and the entries are normally "liquidated" with the "deposit rate" also becoming the final rate.  This process normally takes at least six months, and more commonly a year or longer, after the end of the yearly accounting period.

However, if there are any requests for a change from the "deposit rate" to a lower (or higher) final rate, the public comment process can go on for an extended period.  If any of the parties in interest take legal action to force Commerce to either increase or decrease the final rate, from the original "deposit rate", the legal proceedings may go on for several years.  

So, for any imported goods subject to ADD, CVD, or both, it will usually be at least two years after the original entry date until the importer knows whether he will be getting an ADD or CVD duty refund, a bill from US Customs for payment of additional ADD or CVD amounts, or a "no change" liquidation at the original "deposit rate".  If the legal case goes to court, the issue can stay open for years – or even decades.  When this happens, the importer may receive a bill from US Customs for a very large amount of money, plus years (or even decades) of interest on this amount.  This bill will also demand that the importer make immediate payment of the full additional amount to US Customs.  

For this reason, many importers are very reluctant to act as "importer of record" on any types of goods which are subject to Anti-Dumping Duty, Countervailing Duty, or both, at the time of import into the US.  The risk of receiving a huge additional duty bill years later from US Customs is simply too great.  And, if the importer is reimbursed by the seller (or anyone else) for this additional expense, US Customs will then require the importer to pay double the amount of the final ADD / CVD rate for the shipment.  This adds a huge additional layer of risk, which most reasonable importers want to avoid.

So, relatively few importers are likely to be interested in buying shipments of tires that have arrived in the US, have been abandoned by their original consignees, and will be subject to ADD and CVD if entered for consumption in the US.  Prospective replacement buyers who have sufficiently “deep pockets” financially, and would like to receive a professional evaluation of both the risks and potential rewards of this type of opportunity, are invited to contact Transmark Customs Brokers today for a complimentary review of their options.