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CFC Smuggling (CFCTRADE Case)

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CASE NUMBER: 313
CASE MNEMONIC: CFCTRADE
CASE NAME: CFC Smuggling

A. Identification

1. The Issue

The United States banned the production of
dichloro-difluoromethane (CFC-12) in 1996. In advance of this a
heavy excise tax of $5.35 was placed on CFC-12 to encourage the
transition to other alternative refrigerants. Producers of CFCs
were also required to reduce production amounts leading up to the
1996 deadline. While the production of CFCs has been restricted
and is now banned, the use of CFCs is not banned. This is to
accommodate a transition period to substitutes. This has lead to
a large black market for illegally imported CFCs. Contraband
CFC-12 can be sold for around $2 per pound while legally obtained
CFC-12 will sell for $20 or more. Behind the regulations is an
international treaty called the Montreal Protocol on Substances
that Deplete the Ozone Layer signed by more than 130 countries.
2. Description

For the first time in Miami, Florida, a court is considering
the case of a large scale cloroflourocarbon (CFC) refrigerant
smuggling case (1). Homi Patel plead guilty in a federal court to
smuggling dichloro-difluoromethane (CFC-12 or Freon). Two cargo
containers of CFC-12 were falsely reported to have been shipped on
to Mexico but were instead left in Miami were Mr. Patel was
planing to resell the CFC-12 without paying the federally imposed
excise tax (2). The excise tax would have totaled nearly $1.1
million (3).

Miami and other port cities have increasingly drawn the
attention of the Environmental Protection Agency (EPA) and federal
enforcement agencies. In Miami, especially the hot new controlled
substance is CFC-12. Drugs are still much bigger but an estimated
10,000 tons of CFC-12 was smuggled into the United States in 1995
(4). The immediate cause of the profitability of smuggling CFC-12
is the $5.35 per pound excise tax (5). To put that in perspective,
in 1989 a pound of CFC-12 cost about a dollar (6). Black
marketers are making large profits by illegally importing the
chemical and selling it for as little as $2 a pound (7). At the
end of 1995 a ban went into effect in the United States on the
production of CFCs. The ban only affected production and not use
of CFCs in order for a transitional period where the air
conditioners and other devices that use the CFCs will be able to
convert to other chemicals. Smuggling will continue to be a
problem, though, because other countries have not agreed to
discontinue production until the year 2005 (8).

The supply of black market CFC-12 is believed to come from
Russia, China, India, eastern Europe and other countries that do
not yet have a ban. The CFC is smuggled into the United States
using a number of different methods. Sometimes the containers are
falsely labeled as another chemical which is similar to CFC-12, or
it is claimed as recycled CFC, or it is hidden among a larger
shipment of legal chemicals (9)

While the case of reducing the use of substances that deplete
the ozone in one of agreement by nature of the Montreal Protocol
treaty, the issue of smuggling CFCs is a legal proceeding where
the people illegally importing CFCs are breaking an existing law
and thus subject to prosecution by the Federal Government.

The status of the case is in progress until their is no longer
a demand for lower priced CFCs. This could come about relatively
soon depending on how long it takes to completely replace any
devices that use CFCs. Most important to this process will be the
development of an alternative to CFCs which is widely accepted and
performs at least as well as CFCs.
The push to eliminate the use of CFCs came out of the Montreal
Protocol on Substances that Deplete the Ozone Layer. In 1987 more
than 130 countries signed this treaty to stop the production of
CFCs (10). In July 1992, the EPA issued a rule to enact the Clean
Air Act Amendments of 1990. The rule set limits on the production
and consumption of chemicals known to deplete the ozone layer. It
required that producers of CFCs, halons, carbon tetrachloride, and
methyl chloroform to gradually reduce their production in order to
completely stop producing them by January 1, 2000. Imports of
these products was also to be reduced. On February 11, 1992 the
EPA announced that it would move up its date to phase out
production of these substances by December 31, 1995 (11).

3. Related Cases

Montreal Protocol Case
SST and Air Polution Case

4. Draft Author: Eric Witte (May, 1996)

B. Legal Cluster

5. Discourse and Status: DISagree and INPROGress

6. Forum and Scope: Multinational and National

As in the discourse, the law governing the import of CFCs is
a national law enacting a multinational treaty.

7. Decision Breadth: 1 (USA)

The legal impact of excise tax and subsequent ban on CFCs
falls only on one country, the United States. The United States
has not sought to punish other countries supplying the CFCs such
as Russia and China as it has in enforcing the ban on cocaine and
other illegal drugs.

8. Legal Standing: Law

C. Geographic Filters

9. Geography

a. Continental Domain: North America

b. Geographic Site: All

c. Geographic Impact: USA

10. Sub-National Factors: NO

11. Type of Habitat: Temperate

The environmental concern of the depletion of the ozone is
that it will let in harmful ultra-violet radiation which will
affect all areas of the world.

D. Trade Filters

12. Type of Measure: IMBAN

13. Direct vs. Indirect Impacts: DIR

14. Relation of Measure to Impact

a. Directly Related to Product: YES, CFC
b. Indirectly Related to Product: NO
c. Not related to Product: NO
d. Related to Process: YES, POLA

15. Trade Product Identification: CFC

16. Economic Data

The illegal import of CFCs may total as much as 20 million
pounds per year, costing the government $100 million a year in
lost excise taxes (12).
The U.S. Environmental Protection Agency has estimated the
cost of cleansing the United States of CFCs through 2075 at $45
billion. But the EPA claims that expense will be offset many
times by the $32 trillion in savings in the form of reduced rates
of skin cancer, crop damage and other problems (13).

EPA estimates of the cost of converting a CFC-12 car
air-conditioner to an approved refrigerant is between $100 and
$800 (14).

The market for recharching older air-conditioners is estimated
at $280 (15).

17. Degree of Competitive Impact: MEDIUM

18. Industry Sector CHEMical

19. Exporter and Importer: MANY and USA

E. Environment Clusters

20. Environmental Problem Type: OZONE

21. Species Information

22. Impact and Effect: LOW and STRCTure

23. Urgency and Lifetime: HIGH and 1-2 years

24. Substitutes: SYNTHETIC

There are may possible substitutes to CFC-12. In the United
States, the substitute of choice is HFC-134a. This is a
hydrofluorocarbon which while it does not deplete the ozone, it is
a contributor to global warming. Another substitute is HCFC-141b,
a hydrochlorofluorocarbon, which still depletes the ozone but at
a rate much lower than CFCs.

Other organizations, like Greenpeace, advocate a less
environmentally damaging substitute, hydrocarbons. The problem
with hydrocarbons has been its high flammability and questions
about its performance (16).

F. Other Factors

25. Culture: NO

26. Human Rights: NO

27. Trans-Boundary Issues: YES

28. Relevant Literature

(See below.)

References

(1) Noah, Timothy. Miami Jury Charges 2 Men in Smuggling Of CFC
Refrigerant. The Wall Street Journal, 19 January 1995.
(2) http://www.citation.com/n_ep61.html
(3) Noah, Timothy. Miami Jury Charges 2 Men in Smuggling Of CFC
Refrigerant. The Wall Street Journal, 19 January 1995.
(4) Decker, Jonathan P. Miami Ice: Freon Smuggling Rivals
Contraband in Drugs. The Christian Science Monitor, 23 October
1995.
(5) Sawyers, Arlena. U.S. cracks down on Freon smugglers.
Automotive News, 1 May 1995.
(6) Edelson Halpert, Julie. Freon Smugglers Find Big Market. The
New York Times National, 30 April 1995.
(7) Ibid.
(8) http://www.enn.com/enb/11enb94/cover.htm
(9) Ibid.
(10) Cheevers, Jack. Deep-Sixing CFCs. Los Angeles Times, 8
November 1994. (11) http://www.route66.com/new.html
(12) Decker, Jonathan P. Miami Ice: Freon Smuggling Rivals
Contraband in Drugs. The Christian Science Monitor, 23 October
1995.
(13) Cheevers, Jack. Deep-Sixing CFCs. Los Angeles Times, 8
November 1994. (14) http://www.route66.com/new.html
(15) Edelson Halpert, Julie. Refrigerants for a Long Hot Summer.
The New York Times, 13 June 1995.
(16) http://www.greenpeace.org/ozone/greenfreeze/index.html
Other Sources:

Also see:

http://www.ari.org/issues/icarma_hcfc95.html

Melloan, George. "Waterworld, Bootleg Freon and a Berlin Plot."
The Wall Street Journal, 3 April 1995.

"New England Retailers Are Facing EPA Fines For Illegal Freon
Sales." The Wall Street Journal, 28 January 1993.