It is very likely, although not confirmed at the time of writing, that the EU will shortly apply anti-dumping duties of up to 86.5% on many fasteners originating in China. There is a similarly high probability that some Chinese exporters will attempt to circumvent the duties, and that importers, knowingly or unknowingly receiving circumvented product will, sooner or later, be caught and pay heavy back-duties. Phil Matten reported throughout the last anti-dumping case and has continued to take a close interest in the latest developments. He has a blunt warning for importers.
Circumvention of European Union trade remedy duties is illegal under EU law. It’s that simple. Chinese exporters, however, do not face any legal consequences, in fact they have every incentive to maintain sales of their product to EU buyers. So, some will unquestionably encourage and participate in circumvention.
The European Commission expects circumvention to occur, especially where duties are as high as is anticipated from the AD676 investigation. It is alert to the potential, as are national customs authorities, has sophisticated monitoring mechanisms and, in OLAF, a powerful investigative authority dedicated to protecting EU income.
So, bluntly: Importers that bring in circumvented product will almost certainly be caught and pay the consequences in the end. It, therefore, behoves all importers to be hyper-alert to the risks.
Many in the fastener market are all too aware of circumvention from the previous EU anti-dumping regime on fasteners, between 2009 and 2016, during which tens of millions of euros in back duties were recovered by customs authorities. That was despite many responsible importers exercising stringent due diligence, including supplier visits and factory audits, to try to ensure their supply routes were legitimate.
Most commonly, circumvention involves the transhipment of fasteners of Chinese origin, subject to anti-dumping duties, via another country. Last time, these routes were primarily in Asia. Malaysia was identified as a major circumvention route and consequently faced an EU circumvention investigation, resulting in imports from most of its exporters becoming subject to AD duties. Circumvention also occurred via many other countries including Taiwan, Thailand and the Philippines.
The actual form of circumvention varied. At its most blatant, Chinese product was shipped to another country, often into a Free Trade Zone, where the export documentation was rewritten to change the origin before re-export to the EU. Sometimes product was transferred to a new container, maybe at the port, maybe at a warehouse – again with fraudulent export paperwork claiming origin from the third country. There are many stories of wary buyers visiting addresses at which goods were allegedly being produced to find they were warehouses, offices or even just service addresses. In one instance, a factory was visited only to discover that, while appropriate machinery was present, it was not connected to the electricity supply.
Even more challenging to detect, is where a factory legitimately manufacturing the product in the third country imports the fasteners from China and re-exports them as its own – sometimes supplementing its own output many times over. Even on-site audits can fail to detect this activity, which only becomes apparent when comparing the factory’s capacity with its export volume.
With the Covid-19 pandemic likely to continue to be a major constraint on travel during 2022, physical visits and audits will be even more difficult. If that wasn’t enough, there are, this time, two additional concerns.
Some 100 Chinese exporters, which cooperated with the investigation, are likely to be accorded a significantly lower duty rate of 39.6%. The differential between this and the 86.5% duty for almost all other exporters creates a very real risk of circumvention within China. Factories facing the higher duty rate may look to route their product through those able to export at the lower rate. In normal conditions that would be difficult to detect – under coronavirus pandemic conditions it will be a massive challenge.
Secondly, the United Kingdom is no longer part of the EU, so becomes a potential circumvention route in Europe’s backyard. UK importers belonging to BIAFD, as many do, are already very aware of that risk and alert to Chinese exporters trying to encourage circumvention. Others may be less aware and more tempted. They should not be. Under the EU-UK Trade and Cooperation Agreement accurate declaration of Country of Origin is obligatory, so consigning Chinese product as from any other origin is fraudulent – attracting HMRC investigation and sanctions. One of EU leaders’ major concerns about BREXIT was that the UK could become a ‘back-door’ route for circumvented product. Consequently, it is already very clear that EU customs authorities scrutinise traffic from the UK very carefully.
As a quick note, there are further complications for companies supplying goods into Northern Ireland that, under the Northern Ireland Protocol, are subject to EU duties. BIAFD is currently working with UK customs authorities to clarify the implications of this for its members.
The consequences of circumvention for an EU importer are stark. Where the illegal practice is detected, the importer will be required to pay the duties it has avoided. Detection may take time, but the probability of detection is very, very high. The accumulated duty bill must be paid on demand, which can have a devastating impact on company cash flow. If the authorities have reason to believe an importer has knowingly connived in circumvention, it may be investigated for fraud – with consequent criminal penalties, including fines and even custodial sentences.
So, what can importers do about it all? Most importers are committed to careful due diligence of their supply chains. Even in this pandemic environment some continue to manage to physically audit factories. However, there is no way of ensuring that fasteners imported from outside the EU are not tainted by circumvention. There are, however, some important ways to try to mitigate the risk.
It should be said, one solution and that advocated by EIFI is simply to buy the fasteners from EU producers. This is not the place to debate the claims and counterclaims for the level of capacity EU fastener manufacturers might be able to dedicate to production of standard fasteners, nor at what cost. However, what was clear last time anti-dumping duties were applied is that most of the volume previously sourced from China shifted to other sources outside the EU.
Assuming that will be the case this time also, what should importers be thinking about? Firstly, never be tempted to agree to participate in circumvention. There might seem to be an attraction in taking advantage of a lower cost than from alternative sources or duty-paid from China, whether to enhance profits or outflank competitors in the market. That is – until you are caught. At which point your company’s viability and your personal liberty are in severe jeopardy.
Hopefully you are committed to honest and legal trading – then think carefully about the following:
The basic rule is: “If it looks too good to be true, it almost certainly is too good to be true. If the deal on offer is significantly better than you reasonably expect from the factory/country involved you should be suspicious.
There’s reference above to the role BIAFD is playing in the UK in keeping its members well informed. There are similarly active national fastener distribution associations in Germany, France, Italy and Spain, all of which belong to the European Fastener Distributor Association, which also has individual company members across Europe. This magazine is excellent in informing the fastener industry. However, these associations have been actively involved in the minutiae of the AD676 case since its outset and are a deep reservoir of knowledge. If you are not already linked into one of them, now is unquestionably the time to consider being so.
Having held senior management roles in leading automotive and fastener businesses, Phil joined Fastener + Fixing Magazine as editor in 2002. Convinced there is no substitute for ‘being there’, over 17 years of visits and interviews around the world means he has accumulated an extraordinary knowledge and perspective of the global fastener industry, reflected in his incisive and thought provoking reporting.
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