Duest

The merchandise covered by the Orders is certain steel nails having a nominal shaft length not exceeding 12 inches.  Certain steel nails include, but are not limited to, nails made from round wire and nails that are cut from flat-rolled steel.  Certain steel nails may consist of a one piece construction or be constructed of two or more pieces.  Certain steel nails may be produced from any type of steel, and may have any type of surface finish, head type, shank, point type and shaft diameter.  Finishes include, but are not limited to, coating in vinyl, zinc (galvanized, including but not limited to electroplating or hot dipping one or more times), phosphate, cement, and paint.

OMG imported zinc anchors into the United States. The Court described the zinc anchors as follows:

Each Zinc Anchor consists of two components: (1) a zinc alloy body, which comprises approximately 62% of the total weight of the complete Zinc Anchor; and (2) a zinc plated steel pin, which comprises approximately 38% of the Zinc Anchor’s total weight.  The zinc body and zinc plated pin are produced in Vietnam, and then assembled together in Vietnam, resulting in a one-piece article of commerce: a Zinc Anchor. While it may be physically possible to separate the zinc body from the steel pin after the Zinc Anchor has been created, disassembly is not commercially realistic, in light of the Zinc Anchor’s cost and use, as well as the likelihood that the components will be damaged and rendered useless by the disassembly process.

The controversy here surrounds the zinc-plated steel pin. The pin is arguably a nail, though it seems unlikely that the pin will be separated from the remainder of the anchor. The value of the pin is about 17% of the value of the anchor.  Based on the OMG website, I am pretty certain this is what we are talking about:

Understanding the scope of antidumping and countervailing duty orders is critically important for customs compliance professionals. It does a company no good whatsoever to find a low-cost producer of some product somewhere outside the U.S. only to later discover after importation that the merchandise is subject to an antidumping or countervailing duty. Given that antidumping and countervailing duties are often in excess of 30% and have been as high as 300%, this is a potentially serious concern. If Customs and Border Protection discovers the error and the error resulted from negligence, it can collect the unpaid duties plus penalties covering a five-year period. In some cases, that can be enough to bankrupt a small importer.

Before we get into this case, let me dispel a common misunderstanding. CBP "flags" HTSUS classifications that are potentially subject to an ADD or CVD order. As a result, many brokers and importers manage AD and CVD compliance through tariff classification. If the classification is not flagged, then the assumption is that the product is outside the scope of the order. If it is flagged, ADD and CVD (or both) must be deposited. The worst decision is to assign a different tariff classification to the merchandise in an effort to avoid an ADD or CVD order. That might constitute fraud and probably won't work anyway.

The real question is whether the imported item falls within the description of the merchandise subject to the order in the order itself. Tariff classification numbers are provided as a courtesy, for reference. They do not control scope determination.

That brings us to Meridian Products, LLC v. United States, a recent decision of the U.S. Court of Appeals for the Federal Circuit. The case involves the order covering aluminum extrusions from China. This is a broad order that covers any product of the specified kinds of aluminum provided that the product is made by an extrusion process. It generally covers parts and semi-finished articles. The order specifically excludes some finished goods and finished good kits that contain aluminum extrusions. Relevant to this case, the exclusion for finished good kits states that the order:

excludes finished goods containing aluminum extrusions that are entered unassembled in a “finished goods kit.”  A finished goods kit is understood to mean a packaged combination of parts that contains, at the time of importation, all of the necessary parts to fully assemble a final finished good and requires no further finishing or fabrication, such as cutting or punching, and is assembled “as is” into a finished product.  An imported product will not be considered a “finished goods kit” and therefore excluded from the scope of the [Orders] merely by including fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product.

Meridian imported "trim kits" consisting of a decorative frame that surrounds, but does not attach to, large appliances like refrigerators and freezers. The imported kit includes the trim pieces, which are aluminum extrusions, a hexagonal wrench, fasteners, and assembly instructions. I think the trim around the oven in this picture is what we are contemplating:

From MeridianProduct.com

Whether this combination of goods is subject to the orders went to the Court of International Trade not once but four times. The CIT ordered three remands to the  Commerce Department for reconsideration. The CIT interpreted the finished goods kit exclusion as meaning that finished goods are excluded even if those finished goods consist only of aluminum extrusions and fasteners. According to the Court, the overall context of the order indicates that the inclusion of fasteners in the packaging of an unassembled finished good does not void the exclusion. Commerce disagreed, but felt constrained to follow the Court, which is why the issue went to the Court of Appeals.

On appeal, the Federal Circuit disagreed with the Court of International Trade. The primary reason being that the order explicitly limits the finished goods kit exemption. The petitioner and Commerce included that language about fasteners to accomplish something, so the Court needed to apply it. In this case, the application of that language indicates that the finished item to be assembled with the fasteners is not excluded because it is nothing more than the aluminum extrusions and fasteners.

The Federal Circuit also said that ignoring the fastener language renders the order meaningless. Similarly, the Court said that the CIT created inconsistency by reading the order to apply to aluminum parts imported individually but not to the same parts when imported as a kit with fasteners.

Personally, I think the source of the disagreement between the CIT and Federal Circuit is how the order treats finished goods. Before talking about kits, the order says:

The scope also excludes finished merchandise containing aluminum extrusions as parts that are fully and permanently assembled and completed at the time of entry, such as finished windows with glass, doors with glass or vinyl, picture frames with glass pane and backing material, and solar panels. 

This means that aluminum extrusions will not be subject to the orders when entered fully assembled as part of something else, like a picture frame. I think, and this is based on nothing other than trying to reconcile the two opinions, that the CIT viewed this as an indication that finished goods are outside the order whether imported assembled or disassembled. Given the language above, would a disassembled picture frame fall within the scope of the order? Yes, because it is not "fully and permanently assembled." The CIT saw the finished goods kit exclusion as taking care of that issue by permitting the disassembled picture frame to enter as non-scope merchandise, just like the assembled picture frame. I don't think the Federal Circuit would disagree with that result.

The problem is how to treat products that are finished goods consisting of nothing but aluminum extrusions and fasteners. Note that the examples above are all more than just aluminum extrusions. They are windows with glass, doors with glass or vinyl, and picture frames with glass and backing. Based on that, it appears Commerce would find Meridian's trim pieces to be within the scope of the order even if imported assembled. Reading the finished goods kit to exclude the disassembled article that would be in the scope of the orders if imported assembled, creates an anomaly that the Federal Circuit has avoided.

This is an important decision for two reasons. First, if you have scope issues, this decision provides an excellent primer on the scope process and how to analyze orders. Second, if you have been importing finished goods kits, you should reconsider your position. To fall within the exception, there should be more than aluminum extrusions and fasteners necessary to complete the product and everything should be in the box. Note that because the tool and instructions and not part of the finished product, they don't count toward the analysis of the exception.

Apparently there is some kind of festival of TV commercials starting in a few minutes. I understand it will be punctuated by grown men playing football for millions of dollars. Consequently, I will make this quick.

Consistent with my New Years Resolution to cover scope and other trade-related issues that closely impact customs compliance, here is a note on IKEA Supply AG v. United States. This is a request for a rehearing of a prior decision in which the Court of International Trade held that certain IKEA towel bars are within the scope of the antidumping and countervailing duty orders on aluminum extrusions from China. The bars are indisputably aluminum extrusions. In each box, there is mounting hardware that does not constitute aluminum extrusions, but which, according to Commerce, are fasteners. Finished goods are excluded from the scope of the orders. In a scope determination, Commerce held that because the finished towel bars are extrusions and that the only non-extrusion parts of the kits are fasteners, the bars fall within the order. In the first IKEA case, the Court of International Trade affirmed that decision.

This opinion involves an effort by IKEA to have the court reconsider its prior decision. Motions to reconsider are not easy to win. The moving party needs to show that there was an intervening change in the law, newly discovered evidence, clear error, or a need to prevent a manifest injustice.

The CIT did not see any of those reasons here. IKEA's first argument was that the Court failed to consider additional non-extruded components of the towel bar sets. The CIT basically said, "too late." These components were not discussed anywhere in the prior record or court proceedings. Thus, the Court would not consider them now. Moreover, there is no reason to believe that IKEA was not aware of these facts.

The second, and more interesting point, is that the CIT did not have the benefit of the CIT decision in Meridian Products LLC v. United States. In that case, another judge of the CIT held that Commerce needs to consider all of the non-extruded part of the kit, including those it considers to be fasteners. Under that test, there is a likelihood that IKEA might have won.

Sadly for IKEA, but legally correct, CIT judges are co-equal and the prior decision of any one CIT judge does not bind a subsequent judge. Technically, one judge does not even bind himself or herself in a later unrelated case. Thus, the intervening change in law raised by IKEA is really not a change in the law, until the Federal Circuit speaks on the issue. Then, it will be a change in the law.

Here, we continue our dive into the intersection of customs and trade law. The Court of International Trade decision in United Steels and Fasteners, Inc. v. United States, raises interesting issues about how scope decisions from the Department of Commerce impact customs entries awaiting liquidation. If you are a traditional customs compliance professional who does not often delve into trade questions, buckle up. This will be bumpy.

This case involves the antidumping duty order on Helical Spring Lock Washers from China. The scope of this particular order covers:

circular washers of carbon steel, of carbon alloy steel, or of stainless steel, heat-treated or non-heat-treated, plated or non-plated, with ends that are off-line. HSLWs are designed to: 1) function as a spring to compensate for developed looseness between the component parts of a fastened assembly; 2) distribute the load over a larger area for screw or bolts; and 3) provide a hardened bearing surface. The scope does not include internal or external tooth washers, nor does it include spring lock washers made of other metals, such as copper. The lock washers subject to this investigation are currently classifiable under subheading 7318.21.0000 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of this investigation is dispositive.

The order was first published in 1993.

In 2013, American Railway Engineering and Maintenance-of-Way Association ("AREMA") submitted a scope clarification request to Commerce concerning a specialized type of washer made to its own standards. These washers have modest helicality, a square or rectangular cross section, do not meet the ASME standards referenced in the ITC Report in this case, are specifically for railway use, and (among other things) are 50% to 130% thicker than typical helical spring lock washers. Shakeproof Assembly, the petitioner in the original dumping case and a defendant intervenor in the CIT, responded to the scope request arguing that the washers are within the scope of the order and, furthermore, requesting that Commerce instruct Customs to suspend liquidations and request cash deposits for all unliquidated entries back to the start of the administrative review.

Commerce ultimately held that the washers are within the scope of the order. Commerce also ordered Customs to retroactively suspend liquidations back to the date of the order.

This raises two obvious questions. First, is Commerce right about the scope? Second, should Customs have retroactively suspended liquidations?

The Scope Part

Petitioners and Commerce cannot always specify exactly what merchandise comes within the scope of an antidumping (or countervailing duty) order. Orders tend to specify some products and include general terms to catch similar products. When an interested party needs certainty about a product, it may apply to Commerce for a scope clarification under 19 CFR 351.225. In some cases, Commerce will decide the scope issue on the basis of the language of the order under 19 CFR 351.225(d) without commencing a formal inquiry. If that is not possible, Commerce can initiate a formal scope inquiry under 19 CFR 351.225(e).

If an interested party disagrees with the scope determination, it can challenge the decision in the Court of International Trade. The Court will uphold a scope determination that is supported by substantial evidence on the record. That is a highly deferential standard that means the Court may have to uphold a Commerce Department decision even if the judge disagrees with the result. Generally, these decisions can only be overturned where there is a lack of evidence in the administrative record to support them.

Commerce found that the AREMA washers are helical spring lock washers and that the distinguishing characteristics were not sufficient to remove them from the scope of the order. According to Commerce, the design and function of the AREMA washers minimalize helicality [Note: that is a phrase to consider] but did not strip them of their helical function. Commerce was helped in this regard by language in the petition noting that a "significant portion of the larger sizes [of helical spring lock washers] are used for installation of railroad tracks." That seems to be directly addressed at AREMA's product.

Plaintiff raised a number of arguments to show that Commerce's decision was not supported by substantial evidence. First, the fact that these washers are made to AREMA standards, rather than the more common ASME standard. This was not sufficient given that the administrative record shows no requirement that in-scope washers be made to any industry specification. Similarly, the fact that helical spring lock washers generally have a trapezoidal cross-section is not an exclusion of washers with other cross-sections. The Court also found that record evidence supports Commerce's finding that the unique thickness-to-diameter ratio of the AREMA washers did not remove them from the order. In the end, the Court rejected Plaintiff's arguments and found that Commerce's determination was based on substantial evidence in the record. So, the AREMA washers are in scope.

The Liquidation Part

To a degree, that is all background to the second question. To my mind, this is the more interesting part.

Having found the washers to be in scope, Commerce instructed Customs to suspend liquidation of unliquidated entries of AREMA washers as far back as 1993, when the order was first entered. As a practical matter, that means newish entries that have not liquidated and entries subject to an existing injunction. According to the Court, this means entries between October 1, 2011 and September 30, 2013. If this retroactive application of the scope determination is correct, this is the kind of unanticipated potential liability that keeps importers awake at night.

Under the Commerce regulations, specifically 19 CFR 351.225(l)(3), if products are found to be within the scope of the order, Commerce is to instruct Customs to suspend liquidation and to require a cash deposit of estimated duties, "for each unliquidated entry of the product entered, or withdrawn from warehouse, for consumption on or after the date of initiation of the scope of inquiry." In this instance, there was no formal scope inquiry initiated under § 351.225(3). Commerce decided the issue on its own under § 351.225(d). According to Commerce, that means the regulation does not address this exact fact pattern and Commerce can instruct Customs to suspend liquidation back to the date of the order.

The CIT disagreed. First, the history of the regulation makes it clear that suspension of liquidation is a serious step that can have significant consequences for importers and foreign exporters and producers. But, the domestic industry is entitled to the protection of the order for all in-scope merchandise. To balance these interests, Commerce set the date of potential suspension as the date of initiation of the scope inquiry. Thus, while not addressing this circumstance, it is clear that Commerce intended the potential period of subject entries to be limited. Looking to a prior CIT decision, the Court found that Commerce is limited in its authority to request the suspension of duties, regardless of the formality of the proceeding. The Court of Appeals similarly limited Commerce's authority in scope inquiries to after the date of initiation. Without these limits, Commerce would always be able to request suspension retroactive to the date of the order simply by choosing to forgo a formal scope inquiry under 351.225(e) in favor of an informal proceeding under 351.225(d).

Commerce made a good argument that its decision in this scope case was the equivalent of a finding that the AREMA lock washers were always within the scope of the order. By limiting the ability of Commerce to request suspension back to the date of the order, the Court is allowing in-scope merchandise to escape the lawful order. That is true. But, the Court noted, Customs had not identified these products as in-scope. The importer saw the question as uncertain and, therefore, took the correct step of seeking a scope clarification. Under these circumstances, the importer is entitled to rely on Customs' treatment and not have liquidations suspended and cash deposits collected until after the (admittedly informal) scope inquiry was commenced. The exact timing of which remains to be seen. The Court remanded to Commerce to issue new instructions consistent with this decision.

This is a good result for importers of merchandise that is found to be within the scope of an order after entry. The potential liability for antidumping and presumably countervailing duties is limited to unliquidated entries made on or after the date of the scope inquiry. But, do not read too much into that. This is not a Customs penalty case. In theory, Customs can still find that the importer's failure to deposit dumping duties was the result of negligence, gross negligence, or fraud and impose a penalty in addition to collecting duties. Given that customs penalty can be two times the amount of the duties owed for simple negligence, it is possible that a customs penalty will fair outstrip the unpaid duties to be owed as a result of a properly timed suspension of liquidation. On the other hand, if the importer exercised reasonable care (and can prove it), then liquidated entries are final and no penalty would be appropriate.