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Are Chinese Sacks Subject to Duty Tax?

A Chinese plastic manufacturer that did not cooperate with U.S. Commerce investigations was saddled with a “country-wide” duty on all of its woven plastic sacks being imported to the U.S., and the Federal Circuit Court upheld Commerce’s decision.

Are political squabbles with China affecting companies who export goods from China to the U.S.?

Laminated Woven Sacks

This case involves a company called Aifudi, a plastic manufacturer who produces "laminated woven sacks" similar to the bags you might use at IKEA but used primarily to hold things like birdseed and pet foods.

The U.S. Department of Commerce ("Commerce") had a little bit of a beef with Aifudi after they found evidence linking the company's laminated woven sacks to unfair dumping practices. According to Commerce, the sacks were being sold in the U.S. at approximately 64-108% less than fair market value which undermines healthy competition amongst American businesses.

Nothing Funny About Duty

After the dumping finding, Commerce imposed a duty tax on the Aifudi sacks originally based on their status as a company, but after their refusal to cooperate with Commerce's investigation, it was based on the People's Republic of China (PRC) country-wide rate.

Commerce has tried semi-successfully to impose duties on Chinese companies before, citing their "non-market" economy as a need for additional financial burdens to prevent Chinese-subsidized products from overtaking the American market.

Here, unlike in prior cases, the Federal Circuit Court ruled that under 19 USC § 1677e(b) Commerce was allowed to use the fact that Aifudi withdrew from participating in its investigation as an invitation to decide the facts in a way most unfavorable to Aifudi.

We're Not China, We Promise!

Because the facts could be determined adverse to Aifudi, the Court found it failed in establishing that it was entitled to a separate rate than the normal PRC country-wide rate.

In fact, Aifudi had the burden of proof to show they were not essentially an arm of the Chinese government, and they could have presented evidence of the following:

  • Legislation that shows sufficient company freedom
  • Exporter setting prices independent of government
  • Independent negotiation of contracts
  • Exporter keeping profits

By refusing to cooperate, Aifudi had annihilated their chances rebut their presumed connection to PRC, and Commerce appropriately applied the PRC country-wide rate.

Bottom Line

When Commerce comes a callin', cooperate, or you might end up on the business end of a hefty duty.

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