It is widely known that Commerce has conducted a record number of investigations since 2015 that have resulted in nearly 190 new antidumping and countervailing duty orders on a broad range of products from a number of countries. What is less known is that Commerce has committed significant resources in recent years to address products that are not clearly within the scope of existing orders. Commerce has increasingly taken an enforcement posture in answering whether certain products fall within the scope of such orders. That is especially true when Commerce answers whether potentially subject goods entered into the United States as part of a set or kit should be subject to an order.
Over the past month, the U.S. Court of International Trade (CIT) has issued two opinions that remind us of the limits to Commerce’s scope enforcement activities. First, in MacLean Power, L.L.C. v. United States, Judge Jane A. Restani faulted Commerce for unreasonably relying on its mixed media analysis to address a fully assembled, distinct product. In Star Pipe Products v. United States, Chief Judge Stanceu concluded that Commerce failed to complete all of the steps that the relevant regulation requires. These opinions highlight a few of the boundaries within which Commerce must operate when it conducts a scope inquiry.
Background
As of March 6, 2019, there are 482 antidumping and countervailing duty orders in effect. Each order contains a “scope,” which consists of two parts. The first part describes the “class or kind” of merchandise covered by the order. The second component identifies the merchandise’s “country of origin.”
After Commerce issues an order, questions understandably arise as to whether certain products fall within an order’s scope. Commerce’s regulations authorize the agency to conduct a scope inquiry to answer such questions. See 19 C.F.R. § 351.225.
A scope inquiry involves three steps. See Meridian Prods., LLC v. United States, 851 F.3d 1375, 1381-82 (Fed. Cir. 2017). First, Commerce must examine “the order’s scope to determine whether it contains an ambiguity and, thus, is susceptible to interpretation.” Id. at 1381. “If the scope is unambiguous, it governs.” Id. Second, “Commerce ‘will’ consult ‘the descriptions of the merchandise contained in the petition, the initial investigation, and prior determinations of Commerce (including prior scope determinations) and the {U.S. International Trade Commission (ITC)}.” Id. at 1382 (quoting 19 C.F.R. § 351.225(k)(1)). “Although a party’s description of merchandise in these sources may aid Commerce in making its determination, that description cannot substitute for language in the order itself because it is the responsibility of Commerce, not those who participated in the proceedings, to determine the scope of the final orders.” Id. Third, if the descriptions in the 19 C.F.R. § 351.225(k)(1) sources “are not dispositive,” Commerce “will consider the following factors: ‘(i) the physical characteristics of the product; (ii) the expectations of the ultimate purchasers; (iii) the ultimate use of the product; (iv) the channels of trade in which the product is sold; and (v) the manner in which the product is advertised and displayed.’” Id. (quoting 19 C.F.R. § 351.225(k)(2)).
What happens when subject merchandise enters the United States in a set or kit with non-subject goods? Since at least the early 2000s, Commerce has employed a “mixed media analysis” to determine whether such imports fall within the “class or kind” of merchandize covered by an order. Commerce has used this mixed media analysis to address, for example, subject pencils in art kits, subject tissue paper in gift bag sets and subject nails in toolboxes.
Commerce’s mixed media analysis undoubtedly raises problems for CBP and importers alike. If Commerce uses its mixed media analysis to find a product within the scope of an order, CBP must administer that decision at the border. CBP may ask importers to separate out the value of each component of the mixed media set, including the item subject to the order, so that it may apply the applicable ad valorem duty to the relevant value for purposes of calculating the total duties owed. Often, importers will not have access to such information because they did not manufacture the product prior to its importation or the manufacturer is unwilling to provide it. That scenario not only frustrates CBP’s enforcement efforts, but also imposes an unreasonable burden of production on importers.
The CIT’s Recent Opinions
The CIT has issued two important opinions in the last month that cabin Commerce’s scope enforcement activities. The first places limits on Commerce’s use of its mixed media analysis. The second emphasizes that Commerce may not take shortcuts in its analysis and must follow the terms of its regulation.
MacLean Power, L.L.C. v. United States
In late January, Judge Restani held that Commerce erred in using its mixed media analysis to answer scope questions related to unique, fully assembled products that contains subject merchandise as a component part. Commerce had relied upon its mixed media analysis to find that various pole line hardware products, which contain helical spring lock washers as component parts, fall within the scope of the antidumping duty order on certain helical spring lock washers from the People’s Republic of China.
Judge Restani faulted Commerce for not determining “whether the pole line hardware, as assembled, falls under the class or kind of merchandise contemplated in the language of the Order.” Slip Op. at 6. She noted that the scope “makes no mention of the importation of {helical spring lock washers} as assembled as a component of a larger product.” Id. at 7. As a result, she held that the scope unambiguously does not cover subject washers included as component parts in unique assembled products.
In two respects, Judge Restani also distinguished the instant scope inquiry from other proceedings in which Commerce properly relied upon its mixed media analysis. First, unlike with mixed media items (e.g., pencils, tissue paper, nails) that Commerce previously examined, the subject washers “are not sold for use independent of the other component pieces.” Id. at 9. Second, unlike with mixed media items separated from their respective sets or kits, the pole line hardware products would not retain their “essential character” or “perform their intended functions” without the subject washers. Id. at 9-10.
Two other aspects of Judge Restani’s opinion warrant discussion. First, Judge Restani based her analysis in part upon the customs law principle that the “classification of articles imported must be ascertained by an examination of the imported article itself{} in the condition in which it is imported.” Id. at 6. She cited no authority to support her position that the principle “applies” with equal force “to additional unfair trade duties.” Id. Second, Judge Restani looked to the Harmonized Tariff Schedule of the United States subheadings referenced in the scope and noted that they involve eo nomine headings. Id. at 7. Under settled customs principles, eo nomine subheadings describe merchandise by a specific name, rather than use. Here too Judge Restani cited no authority to support use of that customs principle in a scope inquiry.
Star Pipe Products v. United States
In mid-February, Chief Judge Stanceu held that Commerce made two missteps in a separate scope inquiry, which concerned whether certain ductile iron flanges fall within the scope of the antidumping duty order on non-malleable cast iron pipe fittings from the People’s Republic of China. First, Chief Judge Stanceu held that Commerce “failed to consider” the petition filed in the underlying investigation, “despite the requirement in § 351.225(k)(1) that it do so.” Slip Op. at 9. That holding comports with the well-settled principle of administrative law that an agency, like Commerce, commits arbitrary and capricious decision-making when it “entirely fail{s} to consider an important aspect of the problem.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Second, Chief Judge Stanceu concluded that Commerce failed to address several relevant passages from the ITC’s final report in the underlying investigation, id. at 10-16, contrary to the fundamental administrative law principle that Commerce must account for “whatever in the record fairly detracts from” its proffered finding, Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951).
Bottom Line
These opinions will not prevent Commerce from aggressively addressing scope issues in future inquiries. Indeed, Commerce may have legitimate reasons for the enforcement posture that it has taken in recent years, given the emphasis placed on enforcement activities by both Congress and several recent Administrations. Nevertheless, although current policy may tilt heavily in one direction (i.e., enforcement), that zeitgeist does not license Commerce to act arbitrarily, still less does it permit a Commerce decision that conflicts with basic administrative law principles.