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The following story is from the April 23 issue of International Trade Reporter
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Dumping

Domestic Producers Target Insurers in Suit
For Issuing AD Bonds on Imports From China

In a groundbreaking class action lawsuit filed April 7 in the U.S. Court of International Trade, domestic producers of fresh garlic, crawfish tail meat, canned mushrooms, and honey are seeking $1 billion in damages against major insurance companies for the alleged negligent issuance of customs surety bonds on imports from China subject to antidumping duties and the subsequent refusal to pay under those bonds (Sioux Honey Association v. Hartford Insurance Co., Ct. Int'l Trade, No. 09-00141, filed 4/7/09).

The lawsuit also charged that the Bureau of Customs and Border Protection (CBP) and Commerce Department, which are also named as defendants, failed to enforce the four antidumping orders—on fresh garlic, crawfish tail meat, canned mushrooms, and honey—issued years ago to protect the domestic producers from dumped Chinese imports.

All or virtually all of the bonds were issued for imports from China subject to antidumping duty orders, the complaint stated. According to the complaint, the insurers negligently issued hundreds of customs surety bonds that guaranteed the payment of any dumping duties the government might determine were owed by U.S. importers for the Chinese goods at issue.

The Hartford Companies, Lincoln General, Washington International, American Home Assurance, Great American Insurance Companies, and International Fidelity are among the surety defendants.

New Shipper Bonds

The so-called new shipper bonds were issued between Jan. 1, 1995, and Aug. 18, 2006, on behalf of U.S. importers that used those bonds to enter dumped imports from China, the complaint stated.

The new shipper bonding option, which has now been suspended, dates back to Jan. 1, 1995, when the dumping and countervailing duty laws were amended. The amendment allowed an exporter that did not have its own deposit rate under an AD or CVD order—and that did not ship to the United States during the period covered by the original investigation—to obtain its own rate by undergoing a “new shipper” administrative review. From Jan. 1, 1995, to Aug. 18, 2006, importers could satisfy the duty deposit requirement on imports shipped by an exporter undergoing a new shipper review by posting a customs bond. The new shipper bonding option was suspended by Congress in August 2006. The suspension is slated to end on June 30, 2009.

The new shipper bonds were intended to secure the payment of unfair trade duties owed on imports. Pursuant to each bond, the issuing surety defendant agreed that if the importer on whose behalf the bond was issued failed to pay the final AD duties the surety would do so up to the face amount of the bond.

CBP Failed to Prosecute

According to the plaintiffs, the importers have all defaulted on paying the hundreds of millions of dollars in antidumping duties that the government has billed for the imports at issue.

Also, the insurers have refused to pay the duties as required by the bonds, and the Bureau of Customs and Border Protection has failed to prosecute any collections lawsuits against the insurers, the plaintiffs charged.

The complaint said each importer that was issued a new shipper bond was a “thinly capitalized company with little or no credit history” that would have been unable to raise the substantial amount of estimated AD duties it would have been required to deposit in cash in lieu of a new shipper bond.

93 Percent of AD Duties Not Collected

According to the complaint, the CBP website indicates that the agency failed to collect 93 percent—$723 million of the $771 million—of the final AD duties it assessed under the four orders over the past six years.

Among other claims, CBP is also charged with the failure to distribute the AD duties that it did not collect to domestic producers as required under the now-repealed Byrd Amendment. CBP has also failed to prosecute any collections lawsuits against the insurers, the plaintiffs said.

Under the Byrd Amendment, the government was legally obligated to distribute to the competing domestic producers any dumping duties ultimately paid by the importers or the insurers. The government's failure to collect these duties from either the importers or the insurers has resulted in huge losses for the domestic producers, the complaint alleged.

The negligence of the surety company defendants and the sureties' refusal to make good on the surety bonds that guaranteed the payment of any dumping duties on the imports they secured allowed large amounts of products from China to be sold in the U.S. market at “steeply dumped prices,” the complaint charged.

‘Grievous Injury.'

“These imports inflicted grievous injury on Plaintiffs and Class members by greatly depressing the market price for their competing domestically-made products, thereby forcing Plaintiffs and Class members to lose domestic sales to these imports and to sell their goods in this country at prices and quantities substantially below those that would have prevailed in the absence of those imports,” the complaint charged.

“Plaintiffs seek … to recover antidumping duties (“AD”) that are or will be owed by Surety Defendants under hundreds of certain single-transaction customs bonds … with an estimated combined face value of several hundred million dollars, and damages suffered by Plaintiffs and Class members due to the Surety Defendants' negligent issuance of those bonds,” the complaint stated.

The plaintiffs are represented by the law firm of Kelley Drye & Warren LLP. The Washington, D.C., law firm of Adduci, Mastriani & Schaumberg, LLP is co-counsel with Kelley Drye for many domestic producers of crawfish tail meat.

“Because these importers were new, thinly capitalized, and had little or no credit history or experience in importing, the insurers knew or should have known that the importers posed an extremely high risk of defaulting on assessed dumping duties. The insurers, nevertheless for years, continuously issued the bonds on behalf of the importers, and made millions of dollars in premiums,” John Heintz, chair of Kelley Drye's insurance recovery and D.C. litigation practice groups, said in an April 7 press statement.

By Rossella Brevetti

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