CBP Failed to Show Importer Made False Statement in Diamond Sawblades EAPA Case

CBP improperly found that importer Diamond Tools Technology made a "material and false" statement in the agency's Enforce and Protect Act evasion finding, the Court of International Trade ruled in a Dec. 16 opinion. Sending the case back to CBP again, Judge Timothy Reif ruled that the agency's use of the EAPA statute is inconsistent with the law's language and structure, and even if its use was legal, its interpretation of the statute is not entitled to deference. Diamond Tools properly classified its merchandise as not covered merchandise given the guidance it had at the time, the judge said.

"Customs’ construction in both its Final Determination and Remand Results of the material and false statement or material omission provision of the statute would render that provision a nullity, thereby violating a core principle of statutory construction," Reif said. "The court reaches this conclusion because neither Customs’ Final Determination nor its Remand Results provided an adequate explanation of Customs’ determination. Rather, Customs rests solely on its conclusion that [Diamond Tools] entered 'covered merchandise' and represented it in entry documentation as merchandise that was not subject to an AD Order."

The EAPA inquiry kicked off when the Diamond Sawblades Manufacturers' Coalition alleged that Diamond Tools was transshipping diamond sawblades from China through Thailand in avoidance of the antidumping and countervailing duties on Chinese sawblades. To establish evasion, CBP has to find that the respondent entered covered merchandise through "a material and false statement or a material omission," as described in 19 U.S.C. Section 1517(a)(5)(A). During the investigation, the Commerce Department issued a scope ruling that said that Diamond Tools' sawblades made using Chinese cores and segments -- and assembled in Thailand -- were subject to the order but that the sawblades using Thai cores and segments were not.

At CIT, CBP pointed out that Diamond Tools didn't distinguish between Chinese-origin sawblade cores and segments joined in Thailand and Thai-origin cores and segments joined in Thailand, and that it's the responsibility of the importer and producer to ensure that its imports are complying with the law. CBP said Diamond Tools should've requested a scope ruling. Initially remanding the case, Reif ruled that the court was "not convinced" that the importer's failure to distinguish the origin of the cores and segments joined in Thailand amounted to a material and false statement and that the importer did not need to request a scope ruling given a 2006 issues and decision memorandum (IDM) clarifying the scope (see 2111050040). On remand, CBP stuck with its decision, arguing that it doesn't need to establish intent to prove that an importer evaded AD/CVD (see 2201280037).

The second time around, Reif again held that CBP failed to prove that Diamond Tools made a material and false statement or omission. The judge gave three reasons for this ruling: CBP wrongly applied the statute; even if it did correctly apply it, its interpretation is not due any deference; and the statute does not encompass the particular circumstances of the case. On the first point, the judge ruled that Diamond Tools' action does not amount to a false statement since the 2006 scope document that clarified that the importer's sawblades were not subject to the orders was in effect and had not yet been replaced by a later circumvention finding subjecting them to the orders.

CBP further argued that since the customs penalty statute delineates three degrees of culpability, the absence of terms designating culpability in the EAPA statute shows that the EAPA statute is a "strict liability statute." In reply, Reif said that this claim is not backed by the EAPA statute's "language or legislative history." The judge said that he can look to other statutes for context, "but § 1592 as a direct comparison for § 1517 is inapposite."

"It is not the role of the court to prognosticate what the term may mean in the abstract," the judge said. "It is the mandate and responsibility of the court to conclude, based on the record presented to the court -- in which Commerce not only was crystal clear but in fact doubled down on its clear conclusion and formulation -- that filling out the forms in a way that tracked explicitly Commerce’s IDM, does not constitute a material and false statement or omission. In fact, not only did the importer expressly and verbatim follow the terms of the Order, there was, in fact, no other possible interpretation of the scope of this Order."

As for whether CBP's interpretation is entitled to any deference, the judge said that it is not. CBP is not due Chevron deference since Congress unambiguously set up a three-part requirement to find evasion, nor is the agency due Skidmore deference since it did not give an explanation of how Diamond Tools' sawblades entry constituted a false statement when "Commerce itself instructed importers 'that the country of origin should be determined by the location of where the segments are joined to the core.'"

(Diamond Tools Technology v. United States, Slip Op. 22-145, CIT #20-00060, dated 12/16/22, Judge Timothy Reif. Attorneys: Jay Campbell of White & Case for plaintiff Diamond Tools Technology; Antonia Soares for defendant U.S. government; Daniel Pickard of Buchanan Ingersoll for defendant-intervenor Diamond Sawblades Manufacturers’ Coalition)