On July 27, 2023, the U.S. Court of Appeals for the Federal Circuit issued a significant decision in a case involving the alleged evasion of antidumping duties assessed on pencils of Chinese origin by Royal Brush Manufacturing, Inc. (Royal Brush) under the Enforce and Protect Act of 2015 (EAPA). The EAPA is a statutory scheme for determining whether “covered merchandise was entered into the customs territory of the United States through evasion,” and in the underlying matter involving Royal Brush, Customs and Border Protection (CBP) found that the pencils had been transshipped from China through another country to the United States. This finding was based in part on evidence that was not supplied to Royal Brush because it was confidential business information provided by a competing U.S. importer of pencils. Royal Brush was also denied the opportunity to rebut this evidence. The Federal Circuit found that the failure to provide access to the redacted information was a violation of due process and that, under the applicable CBP regulation, Royal Brush must be given an opportunity to rebut this information with its own evidence.

The original 2018 EAPA case involved allegations of transshipped pencils from China through the Philippines to the United States, falsely claiming the pencils to be of Philippine origin and thus not subject to the antidumping duties assessed on certain pencils from China. CBP conducted an investigation, including onsite visits to the Philippine facility that resulted in the preparation of a Verification Report. However, Royal Brush was provided with only a redacted version of that report due to certain confidential business information. CBP ultimately issued an affirmative determination finding evasion.

In 2019, Royal Brush appealed the determination to the U.S. Court of International Trade (CIT) that led to a remand decision requiring CBP to issue a summary of the redacted information. Royal Brush again appealed the remand determination by CBP arguing that such summaries were insufficient and that the failure to provide the unredacted information violated the company of due process. The CIT continued to find that CBP had complied with the relevant regulation by providing the summaries.

In issuing its July 27, 2023 ruling, the Federal Circuit made clear that one “‘relatively immutable’ principle of due process is that ‘where governmental action seriously injures an individual, and the reasonableness of the action depends on fact findings, the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.’” The three-judge Federal Circuit panel ruled that such a principle applies to administrative proceedings, stating that “the law is clear that, in adjudicative administrative proceedings, due process ‘includes the right to know what evidence is being used against one.’” The facts of the case indicate that CBP relied on information not provided to Royal Brush to determine that it had evaded duties, and that “[t]his in and of itself, is a clear violation of due process.” The judges found that all off CBP’s concerns over confidentiality could be addressed by issuing a protective order.

CBP argued before the Federal Circuit that confidential business information cannot not be disclosed absent a statute or regulation authorizing a protective order, and that the EAPA does not provide for such a protective order. CBP relied on both the general language of the Trade Secrets Act and case law supporting the proposition that agencies generally must be able to regulate the conduct of their own proceedings. The Federal Circuit judges, however, responded by stating, “We have no doubt that a release of information is ‘authorized by law’ within the meaning of the Trade Secrets Act if that release is required as a matter of constitutional due process, as is the case here.” The judges strongly emphasized the importance of due process:

… the government asserts, unless a protective order is authorized by law, disclosure is not authorized by law. In other words, the government can avoid compliance with due process requirements by the simple expedient of failing to provide for a protective order in a statute or regulation. We are aware of no case supporting any such extraordinary theory, and it is untenable on its face. The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.

According to the ruling, CBP has the “inherent authority to utilize protective orders in appropriate circumstances” and that the EAPA and associated regulations do not bar protective orders. The judges noted that CBP offered no reason why the use of protective orders would impair the function of the EAPA process. 

The Federal Circuit remanded the case to the CIT with instructions for the CIT to order CBP to provide Royal Brush with the confidential information contained in the Verification Report and to allow it an opportunity for rebuttal.