In an opinion issued on July 27, 2023, the Court of Appeals for the Federal Circuit (“Federal Circuit”) held that U.S. Customs and Border Protection (“CBP”) violated an importer’s due process rights by denying access to business confidential information relied on in making its final evasion determination under the Enforce and Protect Act of 2015 (“EAPA”). This decision marks a major victory for importers and foreign producers accused of transshipments and other forms of evasion, and it has significant implications for enforcement actions brought by CBP under EAPA and other statutory regimes, such as the Uyghur Forced Labor Protection Act (“UFLPA”).
The case arose from a 2018 investigation initiated by CBP following allegations that importer Royal Brush Manufacturing Inc. (“Royal Brush”) was transshipping pencils from China through the Philippines to avoid antidumping duties. As part of its investigation, CBP prepared an Attaché Report containing photographs of Royal Brush’s Malaysian production facility, and it prepared a Verification Report concluding that Royal Brush did not have the production capacity to produce the total number of imported pencils. CBP did not provide Royal Brush with the photographs or the numbers underlying the calculations in its Verification Report, both of which it relied on in determining that Royal Brush was evading duties by transshipping. CBP also denied Royal Brush the opportunity to submit rebuttal evidence in response to the Verification Report, on the basis that the report did not contain any new factual information.
Royal Brush challenged CBP’s determination in the U.S. Court of International Trade (“CIT”). The CIT remanded to CBP on the basis that it had not provided public summaries of the redacted information, as required by its regulations. On remand, CBP provided descriptions of the photographs, such as “photo of sign,” “photo of a different sign,” and “photo of labeled box with finished merchandise,” but not the photographs themselves. As for the calculations in the Verification Report, CBP summarized confidential numbers on remand as “number,” and it explained that in its view, neither EAPA nor its regulations, authorize the disclosure of business confidential information under a mechanism such as an administrative protective order (“APO”). The CIT upheld CBP’s remand results.
The Federal Circuit reversed on appeal, explaining that in adjudicative administrative proceedings, due process “includes the right to know what evidence is being used against one.” Because EAPA proceedings, like “relatively analogous antidumping proceedings,” adjudicate a party’s rights, CBP’s reliance on factual information that was not provided to Royal Brush was a clear violation of due process. The fact that EAPA does not explicitly provide for APOs does not change the application of the Constitution’s due process requirements. Thus, the court held, CBP has inherent authority to use APOs in appropriate circumstances, even in the absence of an explicit statutory authorization. The court also rejected the notion that an importer must demonstrate harm when its procedural due process rights have been violated, especially where, as here, the denial of access to information on which the agency relied was prejudicial on its face. The Federal Circuit remanded to the CIT with instructions for CBP to provide Royal Brush access to the redacted information, and to allow an opportunity to submit a rebuttal to the Verification Report, since the unredacted business confidential information necessarily constitutes new factual information.
Prior to the Federal Circuit’s Royal Brush decision, the CIT held in multiple cases that due process in EAPA proceedings only requires CBP to provide adequate public summaries of confidential information, see, e.g., Slip Op. 21-152, and that nothing obligates CBP to establish “an extra-statutory requirement akin to the APO procedure used in Commerce proceedings.” See, e.g., Slip Op. 23-8. The Royal Brush decision is therefore a major win for importers and foreign producers, who have long challenged the fairness of defending against enforcement actions without access to all of the adverse evidence compiled by CBP.
While the Royal Brush decision requires CBP to issue APOs in “appropriate circumstances,” it is unclear whether its APOs will apply to all business proprietary information submitted to or obtained by CBP in EAPA proceedings, like the APOs issued by Commerce in antidumping and countervailing duty proceedings. Indeed, key to the Royal Brush decision was CBP’s reliance on the redacted information that it failed to disclose, but the Federal Circuit rejected Royal Brush’s argument that it was improperly denied access to other redacted information on which CBP did not rely. At a minimum, the Royal Brush decision requires CBP to provide importers access to any adverse information on which it intends to rely in its final evasion determinations. In addition, this decision may impact enforcement actions initiated under other statutes that do not explicitly provide for the disclosure of confidential information under APOs, including the UFLPA and the Countering America’s Adversaries Through Sanctions Act.
Husch Blackwell continues to monitor developments relating to the Federal Circuit’s Royal Brush decision and its effect on CBP’s enforcement actions. In the meantime, for guidance or questions relating to U.S. customs laws, companies can contact Husch Blackwell’s International Trade and Supply Chain team.