Alert Regarding Proposed New Commerce Antidumping/Countervailing Duty Regulations

Scope Procedures – 19 CFR § 351.225:
Commerce is authorized to address issues of product coverage of AD/CVD orders (scope issues) in various segments of the proceeding, including investigations and administrative reviews. The proposed regulations create three separate stand-alone procedures for addressing product coverage issues by splitting off the so-called circumvention procedures from the existing scope procedures and adding a new “covered merchandise referral” procedure.

In addition, the proposed regulations would make three significant substantive changes and six significant procedural changes to the existing scope provision:

Substantive Changes

• Modification of the criteria that Commerce is now required to consider in making its scope determinations. The current regulations require Commerce to take into account the descriptions of the merchandise contained in the petition, the initial investigation and the determinations of the US Secretary of Commerce (including prior scope determinations) and the International Trade Commission (ITC). The proposed regulations provide only that these descriptions of the merchandise “may also be considered.” This could alter the outcome of particular cases.
• The addition of a new “country of origin” provision that codifies Commerce’s ad hoc “substantial transformation” test. This would be separate from the existing statutory provision that addresses when Commerce is to include merchandise completed or assembled in other foreign countries within the scope of an existing order (19 USC § 1677j(b)), and would provide for significant discretion on the part of Commerce in that it: 1) does not set forth a definitive list of factors to be considered; 2) makes clear that Commerce would not be bound by the country of origin determinations of other agencies, such as US Customs and Border Protection (CBP); and 3) retains for Commerce the ability to “to apply another reasonable test to determine the country of origin of a specific product” “if for some reason the substantial transformation test is not appropriate for purposes of determining the country of origin of a particular product.” (85 Fed. Reg. at 49,480.) The promulgated standards thus provide little guidance to importers seeking to ensure that they will not subsequently be found to be importing merchandise deemed to be subject to an AD/CVD order.
• The addition of a new “mixed-media” analysis (which involves analyzing subject merchandise assembled or packaged with non-subject merchandise to determine the appropriate treatment of the product) to codify its existing practice. Again, by not limiting Commerce to consideration of the enumerated criteria, the regulations would provide Commerce considerable discretion to determine whether a particular component product should be addressed in the context of an existing AD/CVD order, and correspondingly little guidance to importers trying to avoid importing products that might be subject to an AD or CVD order.

Procedural Changes
Commerce also proposes various procedural changes in the conduct of scope procedures, some of which apply to the circumvention and covered merchandise referral provisions. The most important of these changes are:

• Altering the effective date for when any scope, circumvention or covered merchandise referral determinations will be applied. Where merchandise has not previously been subject to suspension of liquidation, the regulations would make affirmative rulings applicable to any unliquidated entries at the time of the determination, which would typically be roughly a year of prior entries, or possibly more. (Under the current regulations, the effective date is the date of initiation of the scope inquiry.) Commerce’s rationale for this change is that “a scope ruling that a product is within the scope of the order is a determination that the product has always been within the scope of the order, and Commerce’s scope ruling regulations must reflect that determination.” (85 Fed. Reg. at 49,481.) The imposition of AD/CVD duties on a year or more of past entries could be a significant hardship for importers who had no reason to think that the product they import might be subject to an AD/CVD order.
• Altering the service requirements by providing that parties that wish to be served with new scope/circumvention ruling applications, or be notified of Commerce’s self-initiation of a scope/circumvention inquiry, must take the affirmative step of filing during the anniversary month of the AD or CVD order at issue a request for inclusion on the “annual inquiry service list,” and the list would be updated annually. The establishment of this annual inquiry service list would likely reduce the number of parties that receive initial notice of the inquiry, potentially resulting in some parties affected by a scope ruling not receiving timely notice of the scope inquiry and negatively impacting their opportunity to meaningfully participate in the proceeding or to ultimately sue on an unfavorable determination.
• Providing that, where there are companion AD/CVD proceedings, all scope/circumvention/covered merchandise referral submissions would be filed only in the AD proceeding, not the CVD proceeding, where only a final scope ruling will be filed. Since foreign governments are not typically involved in AD proceedings, this change could reduce the likelihood that foreign governments are made aware of the proceedings.
• Allowing for issuance of a preliminary scope ruling at the same time as Commerce initiates the applicable inquiry in all three of these procedures. Where Commerce combines the initiation notice with the preliminary scope ruling, there is no explicit requirement that any interested party will be able to provide factual information to rebut, clarify, or correct factual information contained in the scope application. (351.225(f)(2) and 351.225(f)(5).)
• Increasing the information requirements needed to prepare an adequate scope inquiry petition, but then diminishing that requirement by allowing Commerce to deem that a scope inquiry application is initiated if Commerce has not rejected it within 31 days. (There is no comparable provision in the circumvention or covered merchandise referral provisions.)
• Removing an abbreviated “ruling based upon the application” procedure which authorized Commerce to address a scope issue without initiating a formal scope inquiry (e., without briefing) where the resolution could be readily discerned from the investigation documents and Commerce’s prior scope determinations.

Circumvention Inquiries – 19 CFR § 315.226:
As noted, the proposed regulation would move the circumvention provisions which are currently under “scope” into a separate regulation. The statutory basis for the circumvention provisions are provided in 19 USC § 1677j. These include provisions relating to: 1) merchandise completed or assembled in the United States (§ 1677j(a)); 2) merchandise completed or assembled in other foreign countries (§ 1677j(b)); 3) minor alterations of merchandise (§ 1677j(c)); and 4) later-developed merchandise (§ 1677j(d)). In circumvention inquiries, Commerce examines a number of statutory factors that vary based on the particular type of circumvention that is alleged.

For section 1677j(a) and 1677j(b) determinations, the proposed regulations change the basis on which the “value” of parts or components “may” be based and also removes the proviso that no single factor is dispositive in a circumvention inquiry. The removal of this proviso could make it easier for Commerce to reach an affirmative circumvention determination in cases where the application of a number of statutory factors weigh against, including a product within the scope of an existing order. The proposed regulations also elaborate on the criteria to be applied in the minor alterations (§ 1677j(c)) and later-developed merchandise provisions (§ 1677j(d)).

In addition, while largely tracking the proposed procedures for scope inquiries, the new circumvention regulation “clarifies” Commerce’s authority to self-initiate circumvention inquiries, and indicates that circumvention determinations can be applied on either a company-specific or a country-wide basis. No standards as to the basis for making this determination are provided.

Covered Merchandise Referrals – 19 CFR § 351.227:
The covered merchandise referral provision is a new provision designed to implement section 517 of the Enforce and Protect Act of 2015 (EAPA). That provision establishes a formal process for CBP to conduct civil administrative investigations of potential duty evasion of AD and CVD orders, on the basis of an allegation by an interested party or upon referral by another federal agency. If CBP is unable to determine whether the merchandise at issue is “covered merchandise,” it is directed to refer the matter to Commerce to make such a determination. The proposed regulation is designed to establish the procedure Commerce should apply in making these determinations.

The proposed regulation requires Commerce to base its determination on either the scope criteria (paragraphs (j) and (k) of 351.225) or the circumvention criteria (paragraphs (h), (i), (j) or (k) of § 351.226). (Proposed 19 CFR § 315.227(f).) Thus, there should be no substantive distinctions between the provisions, and the procedural provisions are also generally the same.

Deadline for Industry Support – 19 CFR § 351.203:
Once an AD or CVD petition is filed, Commerce must determine whether the requirements for initiating an investigation have been met, including determining whether the petition has been filed on behalf of the industry. Currently, interested parties can submit challenges to industry support up to and including Commerce’s deadline for initiation (i.e., 20 days after the petition was filed). The proposed regulations would shorten the time for parties to challenge industry support to 15 days after the petition is filed and also explicitly provide that any rebuttal comments must be filed within two days.

Given the fact that Commerce cannot revisit a determination of industry support once made (§1673a(c)(4)(E)), the additional time to conduct a more thorough review of comments and information concerning industry support would seem to be a laudable goal. However, the shortened deadline may make it more difficult for respondents to collect information and submit comments in the short time after the petition is filed. From a petitioner’s standpoint, the regulations are a positive development in that they explicitly provide time for rebuttal comments that did not previously exist.

New Shipper Reviews – 19 CFR § 351.214:
Under the current regulations, a new shipper (defined as an exporter or producer that did not export, and is not affiliated with an exporter or producer that did export, to the United States during the period of investigation) can obtain its own individual AD margin or CVD rate on an expedited basis. New shippers must request this review within a year of their subject merchandise’s first entry into the United States.

Commerce has proposed extensive changes to the new shipper regulations (19 CFR § 351.214), most of which update the regulations to reflect changes to the underlying statute, made as part of the EAPA. Specifically, the EAPA modified the Tariff Act of 1930 as follows:

• The EAPA removed an importer’s ability to post AD/CVD-specific bonds or security in lieu of AD/CVD cash deposits.
• The EAPA added a provision that required the AD margin or CVD rate determined for a new shipper to be based on bona fide sales in the United States and codified the factors that Commerce has historically used to determine whether sales are bona fide.
• The EAPA added section 751(a)(2)(B)(iv) to the Tariff Act, which provided that Commerce must consider pricing, commercial quantities, timing, expenses, resale at profit and whether the sales were made on an arm’s-length basis when determining whether the sales of a new shipper made in the United States are bona fide.

The proposed regulations impose extensive documentation requirements which must be satisfied prior to initiation concerning documentation of bona fide sales, including new certifications from the unaffiliated US purchaser. If these requirements are not satisfied, the proposed regulations provide Commerce with the authority to either decline to initiate a new shipper review or rescind a new shipper review.

Certification of Entries – 19 CFR § 351.228:
In furtherance of Commerce’s practice of requesting certifications from interested parties to establish whether merchandise is subject to an AD/CVD order, especially with respect to circumvention inquiries, Commerce proposes to provide a remedy where any importer/interested party fails to provide the requested certification or any certification contains materially false, fictitious or otherwise fraudulent statements. Specifically, the regulations provide Commerce with the authority to instruct CBP to collect cash deposits from the importer at the applicable rate. The preamble makes clear that this provision is not intended to supplant CBP’s authority to address fraud in import documentation. Rather, such a determination would be made by Commerce pursuant to its own authority and without the need to make a formal finding.

Importer Reimbursement Certifications – 19 CFR § 351.402(f)(2):
The proposed regulations would modify Commerce’s importer reimbursement certificate regulation to permit electronic filing of certifications of non-reimbursement, consistent with the International Trade Data System that has been implemented by CBP. These certifications are necessary to prevent Commerce from presuming that the exporter or producer paid or reimbursed the AD or CVD duties.