Judge Lisa W. Wang of the US Court of International Trade has reversed a decision by the Customs Office that found “no evidence” that wooden cabinets, vanities and components made in Mainland Chine were shipped through Malayai to evase the US duties on those products. Judge Wang outright rejected Customs “baseless conclusion” that no evidence existed that the Malaysian company was transshipping Chinese cabinets to the US to evade antidumping and countervailing duties. Judge Wang’s ruling followed the US Department of Commerce decision that upheld a ruling confirming that products coming from Malaysia and Vietnam entering the US must be covered by an antidumping and countervailing duty (or AD/CVD), with the department now looking to introduce a new certification regime to ensure compliance with rulings.
By way of background, on January 31, 2023, Customs reached a final affirmative EAPA determination against the U.S. importer Valleywood. Customs found that Valleywood evaded the antidumping duty and countervailing duty orders on wooden cabinets and vanities and components thereof (“WCV”) from China. In particular, Customs found that Valleywood evaded the orders by transshipping Chinese WCV through its affiliate in Malaysia, Alno Industry SDN BHD (“Alno”). Customs’ initial affirmative determination was based on substantial evidence on the record as well as the application of adverse facts available due to Alno’s failure to cooperate with Customs during the verification process in Malaysia. One of the most dramatic pieces of evidence was the discovery of an “additional warehouse” that Alno had failed to disclose to Customs officials. Customs made this discovery after Alno’s General Manager had confirmed that Alno had no other warehouses in Malaysia other than the locations it had already reported. The Customs verification team visited the undisclosed warehouse facility and found that there “were boxes and boxes piled up as far as you could see.” These boxes contained finished cabinets from both China and Malaysia that were packaged identically and ready for shipment.
Officials in Washington, D.C. are increasingly looking at the transshipment of goods through third countries as a form of tariff evasion. Officials are now closely scrutinizing goods entering the U.S. from countries not known as major producers of those imports or from countries seeing a spike themselves in imports from China or other countries. Products not substantially transformed in a third-party country will typically retain their original country of origin designation, and in the case of China, the tariff rate. Importers are often mistaken to think once a product is shipped to a different source it takes on the new host country’s origin.
To qualify as the new country’s product, it must undergo substantial transformation. The U.S. Department of Commerce requires products to undergo. Commerce states “Substantial transformation means that the good underwent a fundamental change (normally as a result of processing or manufacturing in the country claiming origin) in form, appearance, nature, or character, which adds to its value an amount or percentage that is significant in comparison to the value which the good when exported from the country in which it was first made.”
Jeff Newman JD MBA, represents whistleblowers nationwide relating to customs and tariff fraud concerning imported Chinese goods as well as corporate whistleblowers in major claims under the False Claims Act (Qui Tam), and SEC, CFTC and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217
