Illegal Chinese garlic imports pounding U.S. industry

Gilroy calls itself "the garlic capital of the world." These days, not so much.

In little more than a year, a single Chinese company has flooded the U.S. market with 60 million pounds of garlic, almost half of it through the Port of Oakland, in a scheme to avoid penalties that protect domestic growers.

The dumping of Chinese garlic has severely hurt the U.S. industry. Half of California's biggest garlic packers have disappeared in the past decade, says industry leader Bill Christopher of Gilroy.

The Chinese operation unraveled in December, thanks to detective work by customs agents. It was a rare success for U.S. Bureau of Customs and Border Protection, which is struggling to contain fraud in the flood of all sorts of Chinese goods arriving at U.S. ports.

Foreign companies and their partners on U.S. soil have routinely flouted U.S. trade law, evading penalties designed to protect domestic industries, a Hearst Newspapers investigation has found.

Court records, shipping documents and interviews with investigators combine to tell a story of widespread importing fraud and U.S. customs failures that damage a wide variety of U.S. industries and deprive the Treasury of billions of dollars.

In the garlic case, Jinxiang Hejia Co. skirted duties of more than $2 a pound by initially securing favorable terms granted to companies that do not appear to threaten U.S. industries.

The Chinese company's first shipment totaled a mere 7,000 pounds. After receiving the favorable terms, Hejia dropped more than 60 million pounds of cheap garlic on the U.S. market from November 2012 to early this year, shipping records show.

That amount is roughly the annual output from Christopher's operation. His Christopher Ranch is the country's largest garlic packer.

In October, customs agents closely examined shipments arriving in Oakland and New York. They discovered that Hejia was not producing all that garlic, and that packing codes identified a source as another producer - a company responsible for 255 unpaid duty bills amounting to $12 million.

Grower pessimistic

Hejia's exports have stopped, but Christopher, who is producing a third less garlic than he used to, fully expects the flow to resume from other Chinese companies outmaneuvering U.S. authorities.

His pessimism springs from experience.

"They'll send it from China under one name, and then it will change names on the ship," Christopher said. "Our government is trying to help us, but there are just not enough people to stop the dumping."

In a report to Congress last year, Customs and Border Protection estimated that Chinese outfits account for roughly 90 percent of the $1.79 billion in unpaid U.S. duties. The total includes $541 million for garlic imports.

The report said many importers have "disappeared or dissolved" before paying duty bills and lamented the "increasing complexity" of strategies to defraud the government.

The true amount of money lost to taxpayers probably reaches into the billions, but it is unknowable because of the clandestine nature of fraud and poor record-keeping by the customs bureau.

Customs is guarded about its operations. The agency, part of the Department of Homeland Security, declined to make officials available to talk about collections and duty evasion.

Even Congress has difficulty getting answers. In January, the agency got around to replying to Sen. Ron Wyden's requests dating back to 2012 for documents related to specific duty collections.

Responding to the Oregon Democrat, the customs bureau blamed "systems limitations" for its inability to provide details of collections, contending that finding documents "would be time-consuming and cause diversion of essential resources."

Bad honey

In skirting antidumping duties, importers evade other rules intended to protect against contaminated products, investigators say.

For example, the customs agency seized 100 tons of adulterated honey from a smuggler who began serving a three-year prison term in January after pleading guilty to brokering hundreds of loads of Chinese honey falsely labeled Malaysian or Indian.

The smuggler, Jun Yang of Houston, also had $200,000 worth of Chinese shrimp adulterated with chloramphenicol, a potent antibiotic unapproved for use in food products in the United States.

The honey investigation also snared a Southern California business owner, Hung Yi "Katy" Lin, who reported to prison in November after pleading guilty to cheating the government out of $39 million in import duties on Chinese honey falsely labeled as syrups and sweeteners.

After it was imported and stored in warehouses in Los Angeles and Houston, Lin arranged for new labels that described the contents of drums as honey of various origins - but not Chinese, according to court records and investigators.

Critical reports

Despite such successes, the customs agency's performance has been subject to withering assessments.

The Government Accountability Office reported in 2012 that customs officials couldn't provide a list of confirmed duty evasion cases and had failed to track administrative changes designed to improve matters.

An online system enabling U.S. industries to tip customs officials of suspicious imports is supposed to help remedy the fraud. But the customs bureau reported that it had confirmed just 15 of 149 allegations in 2012 while discounting another 11, leaving more than 80 percent of the tips unresolved.

'Laughing at us'

U.S. manufacturers are running out of patience.

"They (the Chinese) are laughing at us," said Joseph Shauf, plant manager at GEO Specialty Chemicals.

The Indiana company is one of just two U.S. manufacturers of glycine, an amino acid used in many products. Shauf said his company is spending more than $750,000 annually on legal fees, research and investigators to enforce a dumping order "just to stay in business."

"It's the Whac-A-Mole principle," Shauf said. "We go after the people who are doing this, but they just disappear and a new company pops up. We've seen no progress, and it's frustrating."

The mushroom scam

A Chinese mushroom producer with partners stretching across the country used methods that have become standard in circumventing dumping penalties.

More than a decade ago, the U.S. International Trade Commission imposed antidumping duties after concluding that canned mushrooms from China harmed the American mushroom industry so severely that 20 percent of U.S. workers had lost their jobs.

Blue Field Sichuan Food Industrial Co., in southwestern China, learned to avoid the punitive duties by exploiting a loophole called a "new shipper review."

Blue Field started with modest exports of mushrooms at a reasonable price, shipments that didn't appear to threaten U.S. manufacturers - the same strategy later used by the Chinese garlic exporter.

Soon, Blue Field became one of America's main suppliers of the type of mushrooms favored in restaurants and institutions, sending hundreds of shipments in amounts ranging from 35,000 to 150,000 pounds at a time, records show.

Nearly 50 of Blue Field's shipments arrived at the Port of Oakland in 2008 and 2009, according to shipping records.

Companies vanish

During a series of Commerce Department reviews, the duty rate for Blue Field grew higher and higher until, in September 2012, it soared to 308 percent. In other words, for a shipment of mushrooms valued at $1 million, an importer would owe the government more than $3 million.

Blue Field's shipments stopped.

Nine companies that supplied the same phone number on shipping documents received more than 300 million pounds of Blue Field's mushrooms during a period in which the sky-high duty rates came into effect, records show. That's likely to mean duty bills of at least $100 million.

But collecting will be difficult if not impossible: At least five of the companies have dissolved or can't be located.

Adam Gordon, a lawyer in Washington whose clients include American mushroom producers, said the Blue Field case fits the pattern of duty evasion.

"This is, unfortunately, typical of the kinds of schemes that we have seen," he said, "and it leaves you wondering how many haven't yet been found."

Bill Lambrecht is a reporter in the Hearst Newspapers Washington bureau.

http://www.chron.com/news/article/Illegal-Chinese-garlic-imports-pounding-U-S-5396865.php#photo-6154245