After receiving comments concerning its August 13, 2020, Proposed Rule, yesterday the U.S. Department of Commerce (“Commerce”) published in the Federal Register a Final Rule modifying various aspects of its antidumping (“AD”) and countervailing duty (“CVD”) regulations. Most significant are changes related to scope and circumvention inquiries. Commerce explained that the purpose of these regulatory changes “is to strengthen the administration and enforcement of AD/CVD laws, make such administration and enforcement more efficient, and to create new enforcement tools for Commerce to address circumvention and evasion of trade remedies.” We highlight below the major substantive and procedural changes made in the Final Rule, of which domestic producers and the importing community should be aware.
Modifications to Scope Inquiries and Scope Rulings (19 C.F.R. § 351.225)
The description of merchandise covered by an AD or CVD order is often written in general terms. As a result, questions often arise as to whether a particular product is included within the scope of an existing AD or CVD order. When such questions arise, Commerce will initiate and conduct a scope inquiry and issue a scope ruling at the request of an interested party or through its own initiative. Commerce’s Final Rule implements several significant changes related to scope rulings and scope inquiries that will go into effect on November 4, 2021. These include:
- Specifying that Scope Rulings Apply to the Entire Duration of the Order
Commerce’s existing regulations state that Commerce’s scope rulings are intended to “clarify the scope of the order…with respect to particular products.” Commerce’s Final Rule removes the word “clarify” and instead makes clear that a “scope ruling that a product is covered by the scope of the order is a determination that the product has always been covered by the scope of that order.” Practically this means that if a scope ruling determines that a product is covered by an order, all outstanding unliquidated entries made while the order is in effect may be suspended and applicable cash deposits collected. This is a major issue for importers and presents an opportunity to the injured domestic industry to obtain the full relief offered by the orders.
- Implementing Retroactive Suspension of Liquidation for In-Scope Products
Under Commerce’s pre-existing regulations, at the time of an affirmative preliminary (if applicable) or final scope ruling determination, Commerce directs U.S. Customs and Border Protection (“CBP”) to begin suspension of liquidation and collect applicable cash deposits for any unliquidated entries of the product that were not yet suspended and were entered on or after the initiation date of the scope inquiry. In a significant change, the Final Rule states that Commerce will now normally extend this period back retroactively and suspend liquidation and collect applicable cash deposits for any unliquidated entries made prior to initiation and back to the first date of suspension under the order (which is usually the date of the preliminary determination in the underlying investigation), unless Commerce determines that evidence establishes an alternative date is more appropriate. However, the Final Rule makes clear that Commerce will not apply this new provision in a way that would direct CBP to begin the suspension of liquidation of unliquidated entries not yet suspended prior to the effective date of the new regulation, or November 4, 2021.
- Eliminating “Informal” Scope Inquiries and Changing Procedures for Initiation
Under the pre-existing rules, within 45 days of the receipt of a scope ruling application, Commerce must either: (a) issue a final ruling based upon the application or (b) initiate a formal scope inquiry. Commerce’s Final Rule eliminates informal scope rulings (i.e. those based only on the application) and instead mandates a 30 day deadline in which Commerce may either: (a) reject the application for incompleteness or (b) determine that it will address the scope issue in another ongoing segment of the proceeding, such as a circumvention or covered merchandise inquiry, rather than a scope inquiry. If Commerce does not take either of these actions within 31 days, the application will automatically be deemed accepted and the scope inquiry deemed initiated. Each month Commerce will publish a notice in the Federal Register listing all scope applications filed. Additionally, Commerce will publish a notice in the Federal Register of any scope inquiry that it self-initiates.
- Establishing New Procedures and Deadlines
Commerce’s pre-existing regulations state that Commerce will normally issue a final scope ruling within 120 days of initiation. The Final Rule maintains this 120-day deadline but allows Commerce to extend this deadline by up to 180 additional days for good cause. The Final Rule also establishes set deadlines for interested parties to submit comments and rebuttal comments on the initiated scope inquiry as well as any additional questionnaire responses received during the course of the scope inquiry. Consistent with existing regulations, Commerce may issue a preliminary scope ruling but is not required to do so. Parties should thus be aware of Commerce’s deadlines to file comments and rebuttal comments on scope or risk missing that opportunity.
- Modifying the Factors Considered in Scope Determinations
Commerce’s pre-existing regulations state that in making a scope determination Commerce will first consider the descriptions of the merchandise contained in the petition and prior determinations of Commerce and the International Trade Commission (“ITC”) and, only if this is not dispositive, rely on other enumerated factors. The Final Rule amends this hierarchy to clarify that Commerce will first consider the scope language of the AD or CVD order at issue and may make a determination on this basis alone (the so-called k(0) factor). If the language is not dispositive, the Final Rule specifies a modified set of primary and secondary factors that Commerce may rely on in making its determination. Similar to existing regulations, the primary factors include descriptions of the merchandise contained in the petition, the initial investigation and any subsequent Commerce determinations (including prior scope rulings), and determinations of the ITC. In evaluating these primary sources, the Final Rule also notes that the Secretary may consider other secondary interpretive sources (e.g., other determinations by Commerce or the Commission, customs rulings, industry usage, dictionaries, and relevant record evidence), though the Final Rule makes clear that in the event of any conflict the language in the primary factor sources will normally govern. If these primary factors are not dispositive, Commerce will then consider various secondary factors in reaching its determination including the physical characteristics of the product, uses of the product and ultimate user expectations, relevant channels of trade, and the manner in which the product is advertised or displayed. However, the physical characteristics of the product (including chemical, dimensional, and technical characteristics) will normally be allocated the greatest weight in Commerce’s analysis.
The Final Rule also codifies the procedures Commerce will follow in making scope-related country of origin determinations and in evaluating “mixed-media” products (i.e., products that include subject merchandise assembled or packaged with non-subject merchandise).
- Adding Additional Details Required in a Scope Ruling Application
Commerce’s Final Rule establishes a new “standardized scope ruling application,” which requires significant detail and supporting documentation to be included at the time of the scope ruling request for it to be deemed properly filed. This may place added burdens on interested parties to ensure that they include all relevant information in filing a scope ruling request, thereby streamlining Commerce’s practice.
Establishment of New Regulations for Circumvention Inquiries (19 C.F.R. § 351.226)
The AD/CVD statute provides that Commerce may determine that a particular product should be considered subject to an order even if that product would not otherwise be covered by the scope of the order if it is found to be circumventing the order. Such circumvention includes: (1) merchandise completed or assembled in the United States, (2) merchandise completed or assembled in other foreign countries, (3) merchandise with minor alterations, and (4) later developed merchandise. The Final Rule establishes new regulatory provisions for circumvention inquiries, which heretofore were combined with scope inquiries in existing Commerce regulations. The new circumvention provisions, which will go into effect on November 4, 2021, largely mirror the new final regulation on scope inquiries, with the most significant change in providing for possible retroactive suspension of liquidation up to the date of the initial AD/CVD order. The new regulations also contain several unique provisions to clarify aspects of existing Commerce practice. These include:
- Implementing Retroactive Suspension of Liquidation
The Final Rule clarifies that in the case of an affirmative preliminary determination (which are required for circumvention inquiries), Commerce will continue to direct CBP to begin the suspension of liquidation of any unliquidated entries not yet suspended that entered on or after the date of initiation of the circumvention inquiry. The Final Rule also provides Commerce with the discretion, through its own initiative or at the request of an interested party, to retroactively suspend liquidation of additional unliquidated entries that entered prior to the date of initiation. This alternative date may be set to “include any unliquidated entries back to the first date of suspension under the order that remain unliquidated,” which is usually the preliminary determination in the underlying investigation. However, Commerce clarifies that it “will only consider an alternative date based on a specific argument supported by evidence establishing the appropriateness of that alternative date” and will not apply retroactive suspension in a way that would direct CBP to begin the suspension of liquidation of unliquidated entries not yet suspended prior to the effective date of the new regulation, or November 4, 2021.
- Establishing Procedures for Initiation of Circumvention Inquiries
As with scope inquiries, the Final Rule provides for initiation of a circumvention inquiry based on either the request of an interested party or self-initiation by Commerce. In the case of circumvention inquiry requests, within 30 days of the date of filing of the request (or up to 45 days if circumstances warrant) Commerce will make a determination to: (a) reject the request for incompleteness; (b) find that a scope inquiry is warranted prior to any circumvention analysis; (c) find that the circumvention issue is better addressed under an ongoing segment of the proceeding, such as a covered merchandise inquiry; or (d) accept the request and initiate a circumvention inquiry. By regulation, Commerce will publish a notice of initiation of all circumvention inquiries, whether by request or self-initiation, in the Federal Register.
- Establishing New Procedures and Deadlines for Preliminary and Final Determinations
The Final Rule provides that Commerce will issue a preliminary circumvention determination no later than 150 days from the date of publication of the notice of initiation in the Federal Register and a final circumvention determination within 300 days of the date of publication of the initiation notice. For extraordinarily complicated inquiries, this latter deadline can be extended by no more than 65 days. The Final Rule also establishes set deadlines for interested parties to submit comments and rebuttal comments on the initiated circumvention inquiry, the preliminary determination, as well as any additional questionnaire responses received during the course of the circumvention inquiry. These deadlines are new insofar as the statute only requires that Commerce, “to the maximum extent practicable,” issue a determination within 300 days from the date of initiation.
- Establishing Threshold Information Required in Circumvention Inquiry Request
The Final Rule enumerates specific information that must be included with any circumvention inquiry request. This list largely mirrors the information required in a scope inquiry application, but the requestor is additionally required to articulate its position as to whether the circumvention inquiry, if initiated, should be conducted on a company-specific or country-wide basis. Commerce reserves its discretion to make this determination on a case-by-case basis.
- Clarifying Remedies Commerce May Use to Address Circumvention
The Final Rule clarifies that Commerce may utilize a variety of remedies to address circumvention and prevent evasion of the AD/CVD order. Specifically, Commerce explains that it may apply: (a) a final determination on a producer-specific, exporter-specific, importer-specific basis, or some combination thereof; (b) a final determination on a country-wide basis to all products from the same country as the product at issue with the same relevant physical characteristics, regardless of producer, exporter, or importer of those products; (c) a certification requirement to police adherence to its circumvention determination.
Establishment of New Regulations for CBP “Covered Merchandise Referrals” (19 C.F.R. § 351.227)
The AD/CVD statute includes a formal process under which CBP can conduct civil administrative investigations of potential duty evasion of AD/CVD orders. If, during the course of its investigation, CBP is unable to determine whether the merchandise at issue is covered by the scope of the relevant AD or CVD order, CBP must refer the matter to Commerce to make a covered merchandise determination. The Final Rule contains new provisions outlining Commerce’s response when such “covered merchandise referrals” are made by CBP. These provisions, which will go into effect on November 4, 2021, largely mirror the new final regulations on scope and circumvention inquiries, though they establish a shorter,20-day period within which Commerce must take initial action.
Modification of Timelines for Submission of Comments on Industry Support (19 C.F.R. § 351.203(g))
Commerce is statutorily required to determine whether to initiate an AD or CVD investigation within 20 days (40 days in “exceptional circumstances”) of the filing of the petition. As part of this initiation determination, Commerce must decide whether the petition has the support of the requisite proportion of the domestic industry. Under pre-existing rules there was no deadline to submit comments on industry support, meaning interested parties could submit comments and rebuttal comments until close of business on the scheduled date of the decision. Commerce’s Final Rule implements 19 C.F.R. § 351.203(g), which establishes a deadline for comments on industry support no later than five business days before the scheduled date of initiation, and rebuttal comments no later than two calendar days thereafter. Commerce explained that the changes were necessary to “provide{} sufficient time for parties to submit comments and rebuttal comments, while balancing the need for Commerce to have sufficient time to consider an analyze the comments and information within the normal timeframe established by Congress.” This change will go into effect on October 20, 2021.
Modifications to New Shipper Reviews (19 C.F.R. § 351.214)
The AD/CVD laws require Commerce to conduct a review at the request of any “new shipper,” to determine an individual dumping margin or countervailable subsidy rate for that entity, which must be determined based solely on its bona fide sales to the United States. In general, a new shipper is statutorily defined as an exporter or producer that did not export, and is not affiliated with an entity that exported, to the United States during the original period of investigation. Commerce’s Final Rule implements various changes to 19 C.F.R. § 351.214 related to such new shipper reviews, which will go into effect on October 20, 2021. These include:
- Enumerating Additional Factors for Commerce’s Bona Fide Sales Analysis
The statute enumerates a number of factors that Commerce is required to consider in determining whether sales are bona fide. The statute also permits Commerce to consider “any other factor {Commerce} determines to be relevant as to whether such sales are, or are not, likely to be typical of those the exporter or producer will make after completion of the review.” Commerce’s Final Rule specifically enumerates the factors it will consider under this clause, which include: (1) whether the producer, exporter, or customer was established for purposes of the sales after imposition of the relevant AD/CVD order; (2) whether the producer, exporter, or customer has business lines unrelated to the subject merchandise; (3) the quantity of sales; and (4) any other factor Commerce deems relevant to the selling behavior of the producer or exporter, including the commercial viability of the sales.
- New Requirements for Requesting a New Shipper Review
To obtain a new shipper review, the requesting producer or exporter must provide the documentation listed in 19 C.F.R. § 351.214(b)(2). Commerce’s Final Rule adds additional requirements to this list, including: (1) a certification from the exporter or producer that it will provide, to the fullest extent possible, necessary information related to its unaffiliated customers in the United States; (2) if requested by Commerce, a certification from unaffiliated customers in the United States of their willingness to participate in the new shipper review or an explanation from the producer/exporter of why such certification cannot be provided; and (3) information necessary to establish the bona fide nature of the sales, including documentation establishing (a) the circumstances of the sales, including their price, arms-length basis, and associated expenses and profits and (b) the business activities of the producer or exporter, including its prior offers to sell merchandise in the United States, circumstances surrounding its sales in the United States as well as in the home market or third country, and its relationship its unaffiliated U.S. customer and, in the case of a non-producing exporter, its producer or supplier.
Establishment of New Regulations for Product Certifications (19 C.F.R. § 351.228)
The Final Rule establishes new provisions that allow Commerce to adopt record-keeping requirements heretofore established in CBP’s regulations to require an importer or other interested party in an AD or CVD proceeding to: (1) maintain a certification for entries of merchandise into the customs territory of the United States, (2) provide an electronic certification at the time of entry or entry summary, or (3) otherwise demonstrate compliance with the certification requirement. If the party fails to provide the certification, or provides a certification that contains fraudulent statements, Commerce may instruct CBP to: (1) suspend liquidation of that party’s entries and require the importer to post cash deposits at the applicable AD/CVD rate and/or (2) instruct CBP to assess applicable AD or CVD duties. This provision will go into effect on October 20, 2021.