Entries of Chinese Commodities Subject to FDA and ADD
15 Oct 2003


Backround
Washington International Insurance Company (“WIIC”) has recently discovered fraudulent entries of garlic, honey, mushrooms and crawfish from China. These commodities are subject to anti-dumping duties (“ADD”) and are regulated by the Food and Drug Administration (“FDA”). The fraud is used to avoid payment of ADD and have threatened to completely shut down the U.S. market for Chinese agricultural products at multimillion losses to U.S. sureties.

We have been informed of two fraudulent schemes:

1. It was revealed that certain parties either in China or the U.S. who trade with producers having high ADD rates are setting up “new shippers”. Based on ADD law, a new shipper may obtain a new shipper review from the International Trade Administration (“ITA”) in order to avoid depositing ADD at the high “All China” rate. The “All China” rate is generally significantly higher than the rates of those importers who have obtained an administrative review by the ITA and were granted a lower deposit rate than the “All China” rate. Experience has shown that most new shipper reviews eventually result in the ITA imposing the highest “All China” rate against the shipper. We have concluded that use of the new shipper review is a temporary means of obtaining the privilege to bond the ADD at the “All China” rate in order to avoid the deposit of cash.

2. We have also discovered that legitimate shippers who have obtained low deposit rates are having their invoices counterfeited by persons in both China and the U.S. in order to achieve a low deposit rate for purposes of estimated ADD. These transactions are caught by the ITA and Customs and Border Protection (“CBP”) because the legitimate shipper has documented the quantity shipped and the consignees to ITA during the annual administrative review. At the time of liquidation the counterfeits are easily identified (as not being one of the consignees reported by the shipper) and the entry is liquidated at the highest “All China” rate. Unfortunately, for the surety, these entries have been secured by an FDA bond calculated at three times the value and the surety will be subject to the full amount of the ADD.

ADD Rates by Commodity

Below is a list of the commodities, the ADD case number and the “All China” rate. These Chinese commodities are currently subject to ADD. It is WIIC’s belief that there will be more Chinese commodities subject to ADD in the future.
 

Surety Issue
If a Customs House Broker (“CHB”) issues a bond for an entry of these commodities, it is issuing it for three times the value for the FDA requirements and for the ADD amount. Once the ITA determines that the rate for a particular entry should be higher than the rate at entry, it will issue a notice to CBP to liquidate the entry at the higher rate. Since the bond was for three times the value plus the ADD amount, the surety will be fully exposed for the higher ADD rate. WIIC knows that a CHB has knowledge of ADD when an entry is made, therefore should never be issuing a bond for ADD based on the surety underwriting requirements.

WIIC Bond Underwriting

Ø      WIIC bond agents and CHB’s have NO authority to write single transaction or continuous bonds for importers of Chinese commodities subject to FDA and ADD. 

Ø      Any request for a bond subject to ADD and FDA must be submitted to your WIIC underwriter.

Ø      Full collateral is required – no exceptions will be considered, even with financial statement support.

Ø      WIIC agents should notify all CHB accounts immediately of the above requirements.