Circumvention of European Union trade remedy duties is illegal under EU law. “It’s that simple,” advised Phil Matten, editor emeritus of Fastener+Fixing Magazine.

“Chinese exporters, however, do not face any legal consequences, in fact they have every incentive to maintain sales of their product to EU buyers,” Matten warned readers.

“The European Commission expects circumvention to occur, especially where duties are as high as is anticipated from the AD676 investigation” and has monitoring mechanism and investigative authority.

Importers bringing in circumvented product “will almost certainly be caught and pay the consequences in the end,” Matten predicted.

“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.”

Circumvention usually involves transhipment of fasteners of Chinese origin via another country. “Last time, these routes were primarily in Asia,” Matten recalled. Malaysia was identified as a major circumvention route and consequently faced an EU circumvention investigation, resulting in imports becoming subject to AD duties. Circumvention also occurred via Taiwan, Thailand and the Philippines.

The most “blatant” circumvention was 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. 

“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,” Matten said. One factory had appropriate machinery but “was not connected to the electricity supply.”

Even more challenging to detect, is a factory legitimately manufacturing the product in the third country, but also importing fasteners from China and “re-exports them as its own – sometimes supplementing its own output many times over.”

The Covid-19 pandemic may constrain travel, “making physical visits and audits will be even more difficult,” Matten noted.

“Some 100 Chinese exporters, which cooperated with the investigation, are likely to be accorded a significantly lower duty rate of 39.6%,” Matten said. “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.”

Matten also noted that since the United Kingdom is no longer part of the EU, it “becomes a potential circumvention route in Europe’s backyard.” British & Irish Association of Fastener Distributors members “are already very aware of that risk and alert to Chinese exporters trying to encourage circumvention.

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 ‘backdoor’ route for circumvented product.” EU customs scrutinize traffic from the UK carefully.

“The consequences of circumvention for an EU importer are stark,” Matten wrote. Importers 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 must be paid on demand, which can have a devastating impact on company cash flow. If 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.

Matten finds most importers “are committed to careful due diligence of their supply chains.” Even with physically auditing factories, “there is no way of ensuring that fasteners imported from outside the EU are not tainted by circumvention.”

There are ways to mitigate the risk. One solution is to buy fasteners from EU producers.

“However, what was clear last time antidumping duties were applied is that most of the volume previously sourced from China shifted to other sources outside the EU,” Matten recalled.

Don’t be tempted to agree to participate in circumvention, Matten advised. Temptation could lead to getting caught: “At which point your company’s viability and your personal liberty are in severe jeopardy.”

Be aware that Chinese exporters do not face legal consequences from circumvention and may falsely assure EU buyers there is no problem. Exporters in other countries may be “conniving with Chinese exporters,” Matten said.

Ignorance is not a defense against liability for back duties, though “documented due diligence may help demonstrate there was no intent to defraud.”

Matten reiterated the basic rule: “If the deal on offer is significantly better than you reasonably expect from the factory/country involved you should be suspicious.”

BIAFD, the European Fastener Distributor Association and Fastener+Fixing provide information. “If you are not already linked into one of them, now is unquestionably the time to consider being so,” Matten concluded.