In times like these, when economic relationships established over decades are being called into question and supply bottlenecks already exist in many areas, good international sourcing is essential for companies to ensure their own continued business. To ensure that the supposedly new source of supply does not turn out to be an economic or regulatory fiasco, customs and foreign trade regulations must be taken into account. For example, sourcing goods from embargoed countries, such as Russia, is often prohibited and punishable by law. In addition, however, the new source must not turn into a cost sinkhole, which quickly happens when assumed benefits cease to apply or even punitive or anti-dumping duties are incurred. The latter is usually dependent on the trade origin of the goods.
What had happened?
The applicant purchased screws from a subsidiary of a Chinese screw manufacturer in Indonesia in 2010 and 2011. This subsidiary was founded at the end of 2008 and equipped with production equipment worth several million US dollars. The production company always purchased the (raw) material from China.
In the course of official investigations, it was discovered that the subsidiary had exported more screws to the EU than would have been possible with the local machinery. As a result, the German customs administration levied anti-dumping duties on various importers because it was assumed that there was no verifiable production activity in Indonesia, but rather a transshipment of Chinese screws via Indonesia.
Within the framework of fiscal court proceedings, it was possible to prove that there were indeed capacities in Indonesia and that production was taking place. In the above-mentioned proceedings before the Fiscal Court of Düsseldorf, the court assumed that Indonesian origin could only be established if, on the one hand, production could be proven to have taken place there and, on the other hand, the production activities were economically justified. The last point is said not to be given if the production only served to circumvent the anti-dumping duties, i.e. there was circumvention of the regulations. The Fiscal Court of Düsseldorf assumes this to be the case, since the production activity took place in direct temporal connection with the effective date of the anti-dumping duty at that time (Regulation EC No. 91/2009) and, in addition, the company was a subsidiary of a larger Chinese screw manufacturer. In this respect, despite documented production activities in Indonesia, anti-dumping duties were payable.
What does this mean for your practice?
If you are sourcing products from new international suppliers, check thoroughly whether any bans or trade policy measures are affected. As far as goods are concerned which are subject to additional duties from certain countries, the true origin in particular should be checked carefully. We would be pleased to send you a short check list for this purpose.