On July 27, 2023, the U.S. Court of Appeals for the Federal Circuit overturned the decision of the U.S. Court of International Trade decision in Royal Brush Mfg. v. United States, 545 F. Supp. 3d 1357 (Ct. Int’l Trade 2021), potentially altering the landscape for Enforce and Protect Act (EAPA) investigations by U.S. Customs and Border Protection (CBP).
Background
Under EAPA, CBP conducts investigations of U.S. importers to determine whether they are “evading” applicable antidumping or countervailing duties by importing goods subject to such duties while falsely declaring them as not subject, either by misrepresenting the nature of the product or the country of origin. EAPA conducts these investigations in secret, normally based on an allegation made by a competitor that is submitted in secrecy. Importers typically do not learn they are under investigation until after CBP has reached a preliminary determination that they are guilty, and interim measures (which consist of re-classifying their goods as subject to duties) have been imposed. In addition, CBP typically refuses to disclose to the accused importer or its counsel much of the factual information that formed the basis of its evasion determination.
The Royal Brush Decision
Royal Brush involved an importer of pencils accused of having transshipped Chinese pencils through the Philippines to evade antidumping duties on pencils of Chinese origin. CBP based its decision in part on evidence that it refused to provide to Royal Brush or its counsel on the ground that it was confidential business information. Royal Brush appealed, arguing that CBP’s practice violates due process, as well as its own regulations.
The lower court had sustained CBP’s position that providing Royal Brush with brief public summaries of the information that formed the basis of its findings, rather than the actual information, was sufficient and consistent with CBP’s regulations. In a watershed decision, the Appeals Court reversed the holding of the lower court. The Court held that importers in EAPA investigations have a constitutional right to due process, which entitles an accused importer access to information used against it so that the importer has an opportunity to prove that the information is untrue. The Court concluded that “CBP rel{ying} on factual information that was not provided to Royal Brush to determine that Royal Brush had evaded duties . . . is a clear violation of due process.” Royal Brush Mfg. v. United States, Court. No. 2022-1226, Slip Op. at 15 (Fed. Cir. July 27, 2023).
In response to CBP’s claim that it could not disclose confidential information in the EAPA proceeding because the statute and regulations do not expressly authorize the use of protective orders to protect confidential information, the Appeals Court reasoned that this does not excuse CBP from establishing procedures necessary to comply with due process requirements: “The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.” Royal Brush, Slip Op. at 17. The Court analyzed the EAPA statute and regulations and determined that they do not preclude the establishment of a protective order by CBP. The CAFC therefore determined that “CBP has the inherent authority to provide protective orders in EAPA proceedings before the agency.” Royal Brush, Slip Op. at 20.
Implications for Current and Future EAPA Investigations
EAPA proceedings are a relatively recent development, and the right of the accused to have access to the information considered by CBP in reaching its determination is one of the first major legal issues arising from EAPA decisions. Prior to the Royal Brush decision, CBP’s practice was to provide only short public summaries to accused importers in lieu of the actual information it would rely upon to make an evasion determination. The Appeals Court decision strikes down this practice, and requires CBP to develop procedures for disclosing the information it relies on in its decisions while still protecting confidential information. Other agencies that engage in unfair trade investigations that involve confidential business information, such as the U.S. International Trade Commission and the International Trade Administration of the Department of Commerce, use administrative protective orders to protect confidential data. It is expected that CBP will have to do the same. Until appropriate procedures are established, existing EAPA investigations may have to be put on hold. Additionally, the Royal Brush decision may lead to remands or even reversals of other EAPA appeals now pending in the courts. The Royal Brush decision is a major step forward by allowing importers accused of wrongdoing by CBP to defend themselves against charges of evading duties.
Please contact MMM's International Trade Group if you have any questions or would like to receive further information regarding EAPA investigations or the Royal Brush decision.
