Commerce Proposes Major Changes to Maximize AD/CVD Enforcement

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Aug. 31, 2020
By: David G. Forgue

On August 13, 2020 Commerce published a Federal Register notice optimistically entitled Regulations to Improve Administration and Enforcement of Antidumping and Countervailing Duty Laws. While the notice stretches to 33 pages and addresses a host of perceived issues in the antidumping and countervailing duty (AD/CVD) regulations, this article focuses only on the proposed changes to Scope Rulings (351.225). Other proposed changes are covered in separate articles.

AD/CVD scope rulings are used to establish whether Commerce believes a certain product is within the scope and therefore covered by an AD/CVD order. Requests are made by interested parties (although they may be self-initiated by Commerce). Under the current regulations they could take a few different administrative paths, with potentially different consequences for past imports of the product. The proposed regulations would likely streamline the administrative paths, but also dramatically increase the potential liability for some requesting parties.

Significantly for importers, Commerce has proposed to change the consequence of a finding that a product is within the scope of an AD/CVD case. Under the current regulations many scope rulings apply only to entries made after the ruling. The proposed rule states that an article that is found to be in scope has “always been within the scope of the order.” This means that Commerce would instruct Customs to assess AD/CVD to any unliquidated entries containing the requested product. It is also possible (and likely) that Customs would attempt to treat liquidated entries as having been made without reasonable care and seek duties on the full five years of back duties. Considering the very high AD/CVD rates on many cases, such a claim could be for millions of dollars. This significantly raises the risk of a scope ruling for many importers.

With respect to the administrative process, Commerce proposes to have requesting parties complete a form to ensure that the basic information necessary to make a scope determination is present. Some of the proposed data points are not obviously related to whether an article in scope, including the annual volume of production of the good and a narrative history of the production of the product. The proposed application would also allow a requesting party to submit factual and legal arguments regarding the scope of the order. Based on the proposed application, the informational requirements for a scope ruling will be higher than they are under the current rules. It is also reasonable to wonder what impact the volume of production will have on scope evaluations.

Third, the proposed rules also do away with the distinction between informal and formal scope inquiries. Instead, under the proposed regulations, all scope inquiries will either be rejected within 30 days of filing or deemed initiated. Most scope rulings are expected within 120 days of initiation, although the timeline can be extended in some cases. In all initiated requests interested parties will have a limited time to file comments and the requester may rebut those comments. In complicated cases there may also be questionnaires issued to interested parties and a preliminary decision. It is not clear that the proposed procedures will lead to more timely scope rulings, but the proposed administrative process is clearer than the current process.

Fourth, Commerce has modified the regulatory bases on which it makes scope determinations. First, Commerce has added language to exclude an article if the language of the scope expressly excluded the article from coverage. Also added is language that allows “at the Secretary’s discretion” the language of the petition, the initial investigation, prior scope rulings, and findings by the ITC to be reviewed. The “Secretaries discretion” is different from the current rule, which indicates that the Secretary “will take into account” the same materials. As written, the proposed rule would allow Commerce to find articles within the scope of an order if they were arguably described in the scope, even if there were indications in the petition, or investigation that the article was not intended to be covered. This is an important change in the regulatory language.

A fifth modification to the AD/CVD scope regulations concerns the establishment of the country of origin of goods. Even if a good is described in the scope of an order, it must still be from a covered country. Therefore, origin becomes an important question. The proposed rule makes explicit that Commerce may use “any reasonable method” to determine the country of origin and is not bound by the origin findings of any other agency. The proposed rule also sets for a “substantial transformation” rule with a list of potential factors to be analyzed. This rule is distinct from the name, character, and use test established in Customs cases, although both are called “substantial transformation.” As a practical matter the proposed regulation comports with some recent court decisions but gives the trade no meaningful guidance to undertake country of origin analyses for AD/CVD purposes, since Commerce may end up using some other “reasonable method” to determine origin.

Taken together these proposed rules represent an aggressive expansion of the power of the Department of Commerce to make scope determinations, and to enforce them against more entries than in the past. The assertion that goods “were always subject” to AD/CVD is a significant increase in potential liability for most importers. Coupled with the proposed language that the Secretary may, at the Secretary’s discretion, review scope in light of the petition and investigatory materials makes it likely that there will be more findings that goods will be in scope, and that more money will be owed.

Please contact any Barnes, Richardson & Colburn, LLP attorney if you have questions about AD/CVD scope.