By George W. Thompson
When I was a wee lad, my father would read a couple of pages from Alice in Wonderland or Through the Looking Glass in the evenings before my bedtime. I remember being both delighted and puzzled by the March Hare, Red Queen, Mock Turtle and Mad Hatter, and all the other zany characters, along with their nonsensical sayings.
Why would I mention my childhood literary memories on a trade law blog? Well, the absurdity that Lewis Carroll provided in his books was excellent training to deal with U.S. international trade laws and regulations. Those rules often don’t match up to reality as most of us know it. This is particularly true for antidumping and countervailing duty proceedings.
Today’s “down the rabbit hole” topic is Commerce Department scope determinations, and in particular, those issued for the Aluminum Extrusions from China case. In AD/CVD orders, the scope defines the particular products subject to the additional duties. Scope language typically provides an affirmative description of the items covered, and often also identifies those excluded from coverage. The recurring problems are descriptive verbiage that is ambiguous or incomplete, and imported products whose attributes may or may not be captured by the language.
When questions about coverage arise, Commerce is authorized to issue binding scope determinations that definitively state whether an article is covered or not. “Interested parties” — exporters, importers, or the domestic producers that petitioned for the AD/CVD orders – can appeal those determinations to the Court of International Trade.
“Of shoes and ships – and sealing wax – of cabbages and kings”
The orders on Aluminum Extrusions (see here) broadly cover “aluminum extrusions which are shapes and forms, produced by an extrusion process, made from aluminum alloy . . . produced and imported in a wide variety of shapes and forms, including, but not limited to, hollow profiles, other solid profiles, pipes, tubes, bars, and rods.”
They exclude, however, “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” and “finished goods containing aluminum extrusions that are entered unassembled in a ‘finished goods kit.’” Also, “aluminum extrusion components that are attached (e.g., by welding or fasteners) to form subassemblies, i.e., partially assembled merchandise unless imported as part of the finished goods kit’” identified above.
Commerce has issued numerous scope determinations (see here), many of which address the “finished goods” and “finished goods kits” exclusions. The CIT has rejected Commerce’s methodology in a couple of recent cases. These court decisions provide guidance to importers and exporters as to whether their products that include aluminum extrusions are at risk of coverage, and possible ways to “engineer” such products to minimize that risk.
“’When I use a word, it means just what I choose it to mean—neither more nor less.’”
The scope decision challenged in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States found that certain “curtain wall units” used as components of an architectural curtain wall are subject to the orders. Commerce found the wall units failed to qualify as finished goods, because they were imported individually, not together in the quantity needed to form a finished curtain wall. Commerce rejected coverage by the kits exclusion as they were not subassemblies.
The court found these interpretations unreasonable. First, there was no requirement that all the components of a finished article be imported together for the exclusion to apply; indeed, Commerce itself had taken this position in other scope rulings, so its interpretations were inconsistent with each other.
Second, the agency’s approach disregarded the way in which the orders defined the word “subassembly”, as “partially assembled merchandise.” The fact that the wall units had no identity other than as part of a curtain wall, the rationale applied by Commerce, was misplaced, as such items fell into the orders’ definition of “subassembly”.
“Nonsense!” said Alice, very loudly and decidedly
Commerce’s approach likewise was rejected in Whirlpool Corp. v. United States. In the challenged scope determination, Commerce concluded that door handles for kitchen appliances, comprising an extruded aluminum piece, plastic end caps and non-aluminum attachment screws, were covered. The reasoning was that the handles fell within the orders’ admonition that “aluminum extrusions . . . described at the time of importation as parts for final finished products [and] that otherwise meet the definition of aluminum extrusions are included in the scope.”
The court disagreed. The assembled handles included non-extruded components, and thus did not meet the orders’ definition of covered goods as “aluminum extrusions.” Since only one component of the handles was extruded, it was inaccurate to describe the entire assembled product as such. In the court’s words: “It is not reasonable to interpret the scope language to place within the Orders, as a general matter, any assembled good containing an aluminum extrusion, as defined therein. . . . the term ‘extrusion’ is not defined in the general scope language so as to include a good simply because an extruded aluminum component is present within a good consisting of an assembly.”
Moreover, even if the handles did meet the scope description, they should be excluded as finished merchandise. Commerce had rejected that position administratively based on language in the orders that the finished goods kit did not apply to items imported with “fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product” but no other items. As the CIT pointed out, there was no similar language applicable to the finished goods exclusion, so Commerce erred in applying it to the door handles that otherwise qualified as finished goods.
“Why is a raven like a writing desk?”
In a third decision, Aluminum Extrusions Fair Trade Committee v. United States, the court affirmed a Commerce decision that “screen printing frames” were excluded against a challenge by the domestic producers that had filed the cases. The merchandise was extruded aluminum frames with non-aluminum mesh screens attached to them, used in screen printing machines. Commerce’s scope determination found these products met the terms of the finished merchandise exclusion. The domestic producers appealed, seeking to have these articles included in the orders’ coverage.
The court dismissed the action, finding that the frames constituted assembled goods that were outside the scope. The scope does state that products that have undergone any of three post-extrusion processes, drawing, fabricating, and finishing, are covered as well. Assembly, however, is not among the listed processes. Thus, an assembled article consisting of aluminum and non-aluminum components was not described in the orders in the first place.
Even if it were, it would be excluded as a finished good. That exclusion covers finished articles having “aluminum extrusions as parts that are fully and permanently assembled and completed at the time of entry.” In the court’s view, the screen printing frames fit into these criteria.
“Why, sometimes I’ve believed as many as six impossible things before breakfast.”
These CIT decisions provide greater clarity to the Aluminum Extrusions orders’ ambit, and significantly limit the attributes of covered products. In the first two, the erroneous scope determinations were returned to Commerce for application of the correct standard, while the third upheld Commerce’s exclusion, albeit on other grounds. It is too soon for them to have been appealed at this point, so they should not necessarily be considered the final word on the orders’ coverage. Nevertheless, their recitation of the inconsistencies in the way Commerce has applied the exclusionary standards from one case to another, and the weaknesses in the agency’s threshold determinations of what constitutes a covered good, would seem to provide good grounds for affirmance in any appeal.
In sum, the CIT decisions provide an opening for importers and exporters of products that consist of aluminum extrusions and other components to configure their goods for exclusion. In that respect, they move us out of the Wonderland-like world of scope interpretation, at least a little bit.