Trade Court Must Toss Nearly $100 Million Negligence Penalty Case, Importer Argues

The Court of International Trade must dismiss a case accusing the importer and U.S. subsidiary of a Chinese manufacturing company, Wanxiang America Corp., of negligence by making false statements and omissions on its entries of wheel hub assemblies, radial ball and tapered roller bearings, and universal joints and their parts, WXA argued in an Oct. 12 motion.

WXA said that the U.S. cannot retroactively apply a scope ruling to argue that an importer negligently avoided antidumping duties on imports that were not subject to the AD order at the time of entry. The U.S. doesn't allege that the importer made any false statements, acts or omissions, meaning WXA cannot be found to be held liable for unpaid antidumping duties, the brief said. The government's claims require WXA "to have been clairvoyant in order to avoid liability," WXA argued (United States v. Wanxiang America Corporation, CIT #22-00205).

WXA imported the merchandise in question between 2007 and 2012. During this period, the importer brought in universal joints and parts thereof, wheel hub assemblies, radial ball bearings, tapered roller bearings, and other automobile parts and accessories. The U.S. alleged that these goods were subject to the antidumping duty order on tapered roller bearings from China. From 2007 to 2012, WXA should have paid the cash deposit rate of 92.84% for the goods, since the relevant exporter, Wanxiang Qianchao Co., was subject to the all-others rate, the U.S. said.

When importing the wheel hub assemblies, WXA failed to deposit antidumping duties, falsely identified the wheel hub assemblies as "type 01" consumption entries as opposed to "type 03" antidumping entries and misclassified the products under the wrong Harmonized Tariff Schedule subheadings, the U.S. said (see 2207140032). As a result, the U.S. lost out on nearly $27 million in revenue. In the complaint, DOJ is seeking more than $53.8 million for the importer's alleged negligence -- an amount that totals double the lost antidumping duties for the wheel hub assemblies.

In its reply, WXA said that negligence cannot be proved on behalf of its entries since, at the time they were imported, they were not subject to the AD order. The question of whether the imports were within the scope of the order was not settled until at least Dec. 6, 2011, after the goods in question were imported, the brief said. "Therefore, the Government cannot prove its claim of negligence based upon the facts alleged in its complaint as a matter of law, and the claim with respect to the alleged negligent failure to declare and deposit antidumping duties under 19 USC §1592(a) must be dismissed," WXA said.

The importer was not a party to the scope proceedings, nor was it given notice of their existence "despite a legal requirement for Commerce to include WXA on the scope proceeding service list," the brief said. "... Commerce is required to provide adequate notice to any reasonably informed importer that their product is subject to duty before any retroactive assessment of duties, let alone penalties. The incontrovertible facts here demonstrate that the notice in this case was not provided until after the date of entry for each of the entries in question."

WXA also said that since the complaint doesn't allege that the company made any misstatements given that it was not alerted to the fact it was subject to a scope ruling, the court can't collect the duties under 19 U.S.C. Section 1592. Under this law, no individual may enter or attempt to enter any merchandise by fraud, gross negligence or negligence. The U.S. must prove that WXA entered goods via a false statement, act or omission that is material and culpable.

"The facts cannot establish a violation of 19 USC Section 1592(a); Nothing in the Government’s complaint demonstrates that WXA entered the subject merchandise by means of any false statement, act or omission -- either with respect to the declaration and deposit of antidumping duties or the tariff classification of the articles in question," the brief said. "Moreover, the declarations made by WXA at the time of entry with regard to this merchandise could not be considered negligent (or, with respect to the tariff classification, grossly negligent) as a matter of law."