I’ve always been fascinated with how words describe things, so much so that I toyed with pursuing a degree in philology back in my formative years. While that was a road not taken, parsing Commerce Department scope descriptions provides a different way to satisfy my language jones.
Commerce antidumping and countervailing duty orders include a description of the merchandise they cover. What eventually becomes the scope language initially is set forth in a domestic industry’s petition seeking AD/CVD relief, getting refined during an investigation through suggestions from Commerce and U.S. Customs and Border Protection as well as the respondent parties.
The trick for the petitioners is to strike a balance between over-inclusiveness and ensuring that the imports that concern them are ensnared by an order. Commerce and CBP, for their part, want AD/CVD orders that are administratively manageable. Respondents, of course, wish to narrow the coverage as much as possible.
Even so, ambiguities and possible gaps in coverage may arise. Commerce has a procedure to resolve whether a particular product is within an order’s scope description. Parties dissatisfied with the answer the agency provides in a given case can appeal the outcome to the Court of International Trade and the Court of Appeals for the Federal Circuit. The process is great fun for all involved – well, not so much for importers who may be on the hook to pay the duties – and requires an attention to verbiage that’s almost as much fun as diagramming sentences in sixth grade.
Three recent Federal Circuit decisions provide further guidance on scope interpretation. Two of them deal with our perennial favorite AD/CVD orders on Aluminum Extrusions from China. Those orders set forth affirmative coverage, exceptions to that coverage and exceptions to the exceptions, all of which figure into the Federal Circuit’s analysis.
Fastener (noun): A device. . . that attaches something firmly to something else.
The first, Meridian Products, LLC v. United States, involves “extruded aluminum door handles for kitchen appliances that are packaged for importation with two plastic end caps and two screws.” A Commerce scope determination found these items are covered, but the CIT disagreed, citing the “finished goods kits” exception:
The scope also 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 . . . merely by including fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product.
The CIT opined that the plastic end caps are parts, not fasteners, rejecting Commerce’s contrary view in the challenged scope determination. Given little choice by the CIT’s directive, the agency in a remand determination then concluded, under protest, that the product was excluded.
The Federal Circuit, in turn, considered the plastic caps to be fasteners, as they are used to attach the handles to a refrigerator door. “The scope language does not limit fasteners to non-plastic components, but rather provides examples of common fasteners. We see no requirement that fasteners are limited to metal screws or bolts.” Because the finished goods kit exception requires additional parts other than fasteners, the article in question failed to meet its terms. At a minimum, the CIT erred in failing to give deference to Commerce’s reasonable interpretation of the term “fastener”.
The “Fastener” Limitation Does Not Apply to the “Finished Merchandise” Exception
In Whirlpool Corp. v. United States, the appellate court rejected the CIT’s view (discussed here) that extruded aluminum handles assembled with non-aluminum components were outside the orders’ coverage in the first place, obviating the need to discuss an exception. Instead, the Federal Circuit asserted, “The general scope language unambiguously includes aluminum extrusions that are part of an assembly.”
The CIT found more traction with its alternative analysis, that the product may be eligible for the finished merchandise exception. Both courts noted a significant difference between the “finished merchandise” and “finished goods kits” exceptions. The former states that “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.” It has no caveat regarding fasteners, unlike the latter.
Disagreeing with Commerce’s interpretation, the Federal Circuit concluded “that the exception for
fasteners unambiguously applies only to the finished goods kit exclusion and not to the finished merchandise exclusion.” Because neither the agency nor the lower court had considered whether the door handles qualified for that exception, “the case is remanded to the CIT for further proceedings . . . to determine whether Whirlpool’s assembled handles meet the requirements for the finished merchandise exclusion.”
Unfinished (adjective): not finished or concluded; incomplete.
A number of AD/CVD orders encompass the subject merchandise “finished or unfinished,” raising the question of how unfinished products that undergo processing in a third country should be treated. One approach that Commerce has taken is evaluating whether an unfinished item undergoes a “substantial transformation” into a different article in the third country, thus taking it outside the order’s coverage. Applying that analysis, the agency concluded Chinese-origin “green (i.e., unfinished) tubes” were not substantially transformed through a finishing process in Indonesia, leaving them subject to the AD/CVD orders on Oil Country Tubular Goods (OCTG) from China.
According to the CIT, Commerce erred in applying the substantial transformation analysis without first evaluating whether OCTG finished in Indonesia was described by the orders’ language. In a remand determination, Commerce ruled that unfinished Chinese OCTG could never escape coverage, regardless of what processes it underwent in third countries. The CIT rejected that position as well.
The Federal Circuit both agreed and disagreed with the CIT.
First, it opined that an article’s status as “unfinished” is determined at the time of its importation into the United States, not when it is shipped from China to a third country: “The merchandise at issue is unquestionably finished OCTG, and the language from the Orders directed to unfinished OCTG from China cannot be read to include a different product altogether.” Because the OCTG was in finished condition when imported, the orders’ reference to “unfinished” OCTG was inapplicable. We can glean a rule of general applicability from the Federal Circuit’s admonition: an order referencing merchandise in unfinished condition does not automatically extend coverage to downstream products made with the unfinished form of the article.
Second, the appeals court overruled the CIT on whether Commerce could apply the substantial transformation standard in determining whether goods that underwent third-country processing nevertheless fall under the orders’ coverage. The CIT said that authority was lacking, as the anticircumvention process was the only statutorily-authorized means to address the question. In the Federal Circuit’s view, however, Commerce was authorized to undertake a substantial transformation analysis to determine “whether the merchandise can be considered finished OCTG from China.” To address this question, “Commerce must have some way to determine the country of origin during scope inquiries.”
The court properly distinguished this situation from those involving possible circumvention, which “can only occur if the articles are from a country not covered by the relevant AD or CVD orders.” Accordingly, it remanded the matter to the CIT to review the correctness of Commerce’s finding that the Indonesian finishing process does not constitute a substantial transformation.
My only quibble with the Federal Circuit’s decision is the method it used to find that Commerce has authority to apply the substantial transformation test. In my view, this case posed a classic “Chevron” situation, under which an agency is authorized to fill a statutory gap.
In any event, these cases clarify the scope interpretation process, and illustrate the point that words chosen at the outset of an investigation will be the subject of controversy for many years afterward.