Federal Circuit Affirms CIT Judgment Rejecting Chinese Garlic Producer’s Challenge Of Commerce’s Non-Bona Fide Sale Finding
February 25, 2014

On February 10, 2014, the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) issued a one-line per curium order affirming the U.S. Court of International Trade’s (“CIT”) decision that a Chinese exporter’s single sale of garlic under the new shipper review was not a “bona fide” commercial transaction, and therefore could not be the basis for calculating an antidumping duty margin for that exporter.  This was the first time an exporter has challenged the U.S. Department of Commerce’s analysis of the bona fides issue to the Federal Circuit and spotlights the continued abuse of new shipper reviews by Chinese companies in an attempt to evade antidumping duties. 

A new shipper review is a discrete part of the U.S. trade remedy law that is only available to foreign exporters that did not previously participate in the underlying antidumping investigation or in any prior administrative review by the Commerce Department.  The purpose of a new shipper review is to obtain an individual duty deposit rate that is substantially lower than the “all other” or country-wide cash deposit rates that would otherwise be required of old shippers.  

The new shipper review proceeding is often abused by Chinese exporters of agricultural products when sales are deliberately contrived to achieve a non-dumping finding or a low duty deposit rate.  If successful, importers are able to import merchandise from the “new shipper” with minimal or no security against future duties that may be owed.  Too often, however, many of the importers are “shell” companies that have no physical assets in the United States and the importers disappear before final duties are calculated and assessed. As a result, significant antidumping duties are often left uncollected.

To prevent abuse of the new shipper review procedure, the Commerce Department undergoes a careful examination of the “single sale” that is often the basis of a new shipper review request to ensure that it is a “bona fide” commercial transaction.  The factors the Commerce Department generally examines in determining whether a sale is “bona fide” are:  (1) the timing of the sale, (2) the price and quantity, (3) the expenses arising from the transaction, (4) whether the goods were resold at a profit, and (5) whether the transaction was at an arm’s length basis.  If a sale is determined to be non bona fide, the new shipper review is terminated. 

In the garlic appeal at issue, the CIT upheld the Commerce Department’s finding that the single sale by a Chinese garlic exporter, Jinxiang Chengda Import & Export Co., Ltd. (“Chengda”), was a non-bona fide commercial transaction, in that the unusually high prices and relatively low volume of the sale did not reflect market realities (i.e, the huge contemporaneous volume of low-pried, high volume sales). The CIT rejected Chengda’s argument that the Commerce Department’s use of the average unit values in the U.S. Customs and Border Protection data as the benchmark price was flawed. 

The Federal Circuit’s affirmance of the CIT decision is a significant development as it essentially provides the Federal Circuit’s seal of approval to Commerce’s ability to make bona fides determinations, and to decline to use non-bona fides U.S. sales as a basis for calculating a cash deposit rate for a new shipper exporter.  

This was a significant victory for the U.S. garlic industry, which has been battling the abuse of new shipper reviews by Chinese exporters since the antidumping duty order in imports of fresh garlic from China was issued in 1994.  

Michael Coursey and John Herrmann of Kelley Drye and Warren participated in the Federal Circuit appeal as Defendants-Appellees on behalf of the Fresh Garlic Producers Association, Christopher Ranch LLC, The Garlic Company, Valley Garlic, and Vessey and Company, Inc., in support of Commerce’s rescission of the new shipper review.