IKEA Scope Rehearing Denied

Apparently there is some kind of festival of TV commercials starting in a few minutes. I understand it will be punctuated by grown men playing football for millions of dollars. Consequently, I will make this quick.

Consistent with my New Years Resolution to cover scope and other trade-related issues that closely impact customs compliance, here is a note on IKEA Supply AG v. United States. This is a request for a rehearing of a prior decision in which the Court of International Trade held that certain IKEA towel bars are within the scope of the antidumping and countervailing duty orders on aluminum extrusions from China. The bars are indisputably aluminum extrusions. In each box, there is mounting hardware that does not constitute aluminum extrusions, but which, according to Commerce, are fasteners. Finished goods are excluded from the scope of the orders. In a scope determination, Commerce held that because the finished towel bars are extrusions and that the only non-extrusion parts of the kits are fasteners, the bars fall within the order. In the first IKEA case, the Court of International Trade affirmed that decision.

This opinion involves an effort by IKEA to have the court reconsider its prior decision. Motions to reconsider are not easy to win. The moving party needs to show that there was an intervening change in the law, newly discovered evidence, clear error, or a need to prevent a manifest injustice.

The CIT did not see any of those reasons here. IKEA's first argument was that the Court failed to consider additional non-extruded components of the towel bar sets. The CIT basically said, "too late." These components were not discussed anywhere in the prior record or court proceedings. Thus, the Court would not consider them now. Moreover, there is no reason to believe that IKEA was not aware of these facts.

The second, and more interesting point, is that the CIT did not have the benefit of the CIT decision in Meridian Products LLC v. United States. In that case, another judge of the CIT held that Commerce needs to consider all of the non-extruded part of the kit, including those it considers to be fasteners. Under that test, there is a likelihood that IKEA might have won.

Sadly for IKEA, but legally correct, CIT judges are co-equal and the prior decision of any one CIT judge does not bind a subsequent judge. Technically, one judge does not even bind himself or herself in a later unrelated case. Thus, the intervening change in law raised by IKEA is really not a change in the law, until the Federal Circuit speaks on the issue. Then, it will be a change in the law.

Lock Washers: Scope and Suspension

Here, we continue our dive into the intersection of customs and trade law. The Court of International Trade decision in United Steels and Fasteners, Inc. v. United States, raises interesting issues about how scope decisions from the Department of Commerce impact customs entries awaiting liquidation. If you are a traditional customs compliance professional who does not often delve into trade questions, buckle up. This will be bumpy.

This case involves the antidumping duty order on Helical Spring Lock Washers from China. The scope of this particular order covers:

circular washers of carbon steel, of carbon alloy steel, or of stainless steel, heat-treated or non-heat-treated, plated or non-plated, with ends that are off-line. HSLWs are designed to: 1) function as a spring to compensate for developed looseness between the component parts of a fastened assembly; 2) distribute the load over a larger area for screw or bolts; and 3) provide a hardened bearing surface. The scope does not include internal or external tooth washers, nor does it include spring lock washers made of other metals, such as copper. The lock washers subject to this investigation are currently classifiable under subheading 7318.21.0000 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of this investigation is dispositive.

The order was first published in 1993.

In 2013, American Railway Engineering and Maintenance-of-Way Association ("AREMA") submitted a scope clarification request to Commerce concerning a specialized type of washer made to its own standards. These washers have modest helicality, a square or rectangular cross section, do not meet the ASME standards referenced in the ITC Report in this case, are specifically for railway use, and (among other things) are 50% to 130% thicker than typical helical spring lock washers. Shakeproof Assembly, the petitioner in the original dumping case and a defendant intervenor in the CIT, responded to the scope request arguing that the washers are within the scope of the order and, furthermore, requesting that Commerce instruct Customs to suspend liquidations and request cash deposits for all unliquidated entries back to the start of the administrative review.

Commerce ultimately held that the washers are within the scope of the order. Commerce also ordered Customs to retroactively suspend liquidations back to the date of the order.

This raises two obvious questions. First, is Commerce right about the scope? Second, should Customs have retroactively suspended liquidations?

The Scope Part

Petitioners and Commerce cannot always specify exactly what merchandise comes within the scope of an antidumping (or countervailing duty) order. Orders tend to specify some products and include general terms to catch similar products. When an interested party needs certainty about a product, it may apply to Commerce for a scope clarification under 19 CFR 351.225. In some cases, Commerce will decide the scope issue on the basis of the language of the order under 19 CFR 351.225(d) without commencing a formal inquiry. If that is not possible, Commerce can initiate a formal scope inquiry under 19 CFR 351.225(e).

If an interested party disagrees with the scope determination, it can challenge the decision in the Court of International Trade. The Court will uphold a scope determination that is supported by substantial evidence on the record. That is a highly deferential standard that means the Court may have to uphold a Commerce Department decision even if the judge disagrees with the result. Generally, these decisions can only be overturned where there is a lack of evidence in the administrative record to support them.

Commerce found that the AREMA washers are helical spring lock washers and that the distinguishing characteristics were not sufficient to remove them from the scope of the order. According to Commerce, the design and function of the AREMA washers minimalize helicality [Note: that is a phrase to consider] but did not strip them of their helical function. Commerce was helped in this regard by language in the petition noting that a "significant portion of the larger sizes [of helical spring lock washers] are used for installation of railroad tracks." That seems to be directly addressed at AREMA's product.

Plaintiff raised a number of arguments to show that Commerce's decision was not supported by substantial evidence. First, the fact that these washers are made to AREMA standards, rather than the more common ASME standard. This was not sufficient given that the administrative record shows no requirement that in-scope washers be made to any industry specification. Similarly, the fact that helical spring lock washers generally have a trapezoidal cross-section is not an exclusion of washers with other cross-sections. The Court also found that record evidence supports Commerce's finding that the unique thickness-to-diameter ratio of the AREMA washers did not remove them from the order. In the end, the Court rejected Plaintiff's arguments and found that Commerce's determination was based on substantial evidence in the record. So, the AREMA washers are in scope.

The Liquidation Part

To a degree, that is all background to the second question. To my mind, this is the more interesting part.

Having found the washers to be in scope, Commerce instructed Customs to suspend liquidation of unliquidated entries of AREMA washers as far back as 1993, when the order was first entered. As a practical matter, that means newish entries that have not liquidated and entries subject to an existing injunction. According to the Court, this means entries between October 1, 2011 and September 30, 2013. If this retroactive application of the scope determination is correct, this is the kind of unanticipated potential liability that keeps importers awake at night.

Under the Commerce regulations, specifically 19 CFR 351.225(l)(3), if products are found to be within the scope of the order, Commerce is to instruct Customs to suspend liquidation and to require a cash deposit of estimated duties, "for each unliquidated entry of the product entered, or withdrawn from warehouse, for consumption on or after the date of initiation of the scope of inquiry." In this instance, there was no formal scope inquiry initiated under § 351.225(3). Commerce decided the issue on its own under § 351.225(d). According to Commerce, that means the regulation does not address this exact fact pattern and Commerce can instruct Customs to suspend liquidation back to the date of the order.

The CIT disagreed. First, the history of the regulation makes it clear that suspension of liquidation is a serious step that can have significant consequences for importers and foreign exporters and producers. But, the domestic industry is entitled to the protection of the order for all in-scope merchandise. To balance these interests, Commerce set the date of potential suspension as the date of initiation of the scope inquiry. Thus, while not addressing this circumstance, it is clear that Commerce intended the potential period of subject entries to be limited. Looking to a prior CIT decision, the Court found that Commerce is limited in its authority to request the suspension of duties, regardless of the formality of the proceeding. The Court of Appeals similarly limited Commerce's authority in scope inquiries to after the date of initiation. Without these limits, Commerce would always be able to request suspension retroactive to the date of the order simply by choosing to forgo a formal scope inquiry under 351.225(e) in favor of an informal proceeding under 351.225(d).

Commerce made a good argument that its decision in this scope case was the equivalent of a finding that the AREMA lock washers were always within the scope of the order. By limiting the ability of Commerce to request suspension back to the date of the order, the Court is allowing in-scope merchandise to escape the lawful order. That is true. But, the Court noted, Customs had not identified these products as in-scope. The importer saw the question as uncertain and, therefore, took the correct step of seeking a scope clarification. Under these circumstances, the importer is entitled to rely on Customs' treatment and not have liquidations suspended and cash deposits collected until after the (admittedly informal) scope inquiry was commenced. The exact timing of which remains to be seen. The Court remanded to Commerce to issue new instructions consistent with this decision.

This is a good result for importers of merchandise that is found to be within the scope of an order after entry. The potential liability for antidumping and presumably countervailing duties is limited to unliquidated entries made on or after the date of the scope inquiry. But, do not read too much into that. This is not a Customs penalty case. In theory, Customs can still find that the importer's failure to deposit dumping duties was the result of negligence, gross negligence, or fraud and impose a penalty in addition to collecting duties. Given that customs penalty can be two times the amount of the duties owed for simple negligence, it is possible that a customs penalty will fair outstrip the unpaid duties to be owed as a result of a properly timed suspension of liquidation. On the other hand, if the importer exercised reasonable care (and can prove it), then liquidated entries are final and no penalty would be appropriate.

Ruling of the Week 2017.1: Geeks Will Eat Anything

It is a new year and a lot has changed in the world. People in my field are either excited about the possibilities of major changes in trade policy or are horrified by the possibilities of major changes in trade policy.

I have had several calls about whether the U.S. will withdraw from NAFTA, impose new duties on goods made in Mexico by U.S.-based companies, and raise tariffs on goods from China. My answer so far has been, "I wish I knew." The new President and the new Congress will have a lot of authority under domestic law. The bigger questions will relate to how our trading partners respond. The U.S. has agreed many times to hold or lower duties. Going back on those promises will mean violating WTO obligations and multiple free trade agreements. Some people may not care. The U.S. remains fully sovereign and can violate any international agreements it choses. As a former partner used to say, "The WTO has no army."

But, the WTO has the ability to authorize trade retaliation. That means our trading partners will likely raise tariffs on U.S. goods in retaliation for stiffer U.S. tariffs. That makes it harder for U.S. companies to export. Add to that the impact of U.S. tariffs making it harder to import. We could end up with a situation in which domestic producers face higher costs for imported raw materials and components and then can't export their finished goods. That is a bad scenario.

Despite those two paragraphs, I tend to be an optimistic person by nature. I don't really expect the professionals who will be running White House trade policy and Congress to brazenly flout trade agreements and obligations. I don't think anyone wants to start an old fashioned trade war. But, as I said, I can't see the future. It's possible.  We all need to be watching closely. No matter your business needs and policy desires, this is a good time to make sure you have your Senators and Representative on speed dial.

Happy New Year. 2017 will be interesting.

Which brings me to the ruling of the week, N126516 (Oct. 19, 2010), in which we learn that human beings will eat just about anything. In this case, we are talking about snacking on arthropods.

Item 1: Giant toasted leafcutter ants.

Via Wikipedia

Item 2: Oven-baked tarantula spiders.

Also Via Wikipedia

According to the importer, the ants are "grown specially for human consumption" and have a "nutty, bacon-like taste." The spiders, on the other hand are "crisp, crunchy, ready-to-eat snacks." The importer also requested a ruling on scorpions that have been farm raised, detoxified, and are uncooked. For whatever reason, CBP decided it was lacking the necessary information to rule on that tasty snack.

The actual classification of the ants and spiders did not seem to controversial. These are food items prepared and packaged for human consumption. There not being a more specific place these delicacies, CBP classified them as "other prepared or preserved meat, meat offal, or blood." When canned, the classification would be 1602.90.9080; un-canned it is 1602.90.9080.

The importer here is a company called Think Geek Inc. I believe this is its website. Let me just say that this is right in my wheelhouse. I would like one of these and this and this (XL) and even this. Take all my money. I might even trade tariff classifications for gift cards. What I don't want is to eat tarantulas. And, yes, I am fully aware that arthropods provide a valuable source of protein and calories. The fact of the matter is that I get too many calories as it is. Unlike Chicago-mix popcorn and frozen yogurt, I can pass up the spiders and ants.

The Three-Percent Solution

In real life, I represent importers and exporters who need to maintain compliance with U.S. laws and regulations concerning international trade. For the most part, that means customs law and export controls. As Bryan Garner once said at a seminar I attended, "hence the title" [of my blog].

One of the more complicated and potentially troublesome areas of compliance for importers involves antidumping and countervailing duty orders. The financial consequences of such an order can be dire for companies that entered into purchase contracts prior to the order or without knowing that an order applied to the goods. Often, the latter happens when suppliers assure the buyer that merchandise is either outside the scope of the order or from a source other than the subject country. Unfortunately, suppliers may be uninformed on the scope of the order, too happy to falsely state the origin of the product, or willing to misrepresent that it is otherwise outside the scope of an order. An unwary importer who ends up receiving a rate advance of 200%, for example, may be in for a world of financial and legal trouble.

Moreover, the scope of orders is becoming increasingly complex. The cases involving aluminum extrusions, tires, and solar products are good examples of complicated case scopes.

As a result, I am spending increasing time on scope and related questions for importer clients. My assumption is that readers of this blog are also seeing more of these issues arise. Consequently, I plan to address more of these cases here. I will not be getting into the weeds of determining subsidy and margin rates. But, to the extent the application of an antidumping or duty order impacts import compliance, I will make more of an effort to note it here.

That said, I give you Kyocera Solar, Inc. v. United States International Trade Commission. This case from the Court of Appeals for the Federal Circuit involves the antidumping and countervailing duty orders on Certain Crystalline Silicon Photovoltaic Products from The People's Republic of China and Taiwan. A common strategy for compliant importers facing the imposition of AD or CV duties is to re-source the product from a country not covered by the order. That can be a successful way to mitigate the impact of the order.

The problem for Kyocera in this case is that the Commerce Department defined the scope of the investigation as covering cells and modules produced in Taiwan and modules "completed or partially manufactured" in other countries from cells produced in Taiwan. Kyocera was importing solar modules from Mexico that incorporate solar cells from Taiwan.

Separate and apart from this case, Kyocera is challenging the scope of the order as it applies to its imports from Mexico. Leave that aside for now. In this case, Kyocera raises the more interesting question of whether the International Trade Commission was required to treat the source of these products as Mexico or as Taiwan for purposes of its investigation of possible injury to the domestic industry.


The root of this question is 19 USC 1671d(b) (for countervailing duties) and 1673d(b) (for antidumping duties), which require that the ITC terminate an investigation if it determines that "imports of the subject merchandise are negligible . . . ." Negligible is defined in 19 USC 1677(24) as follows (with exceptions and details omitted here):

imports from a country of merchandise corresponding to a domestic like product identified by the Commission are “negligible” if such imports account for less than 3 percent of the volume of all such merchandise imported into the United States . . . .

The issue here is the meaning of "a country." According to Kyocera, Mexico is "a country" and is, therefore, entitled to its own negligibility test. Presumably, its exports would be less than the 3% threshold and, therefore, excluded from the order.

The International Trade Commission and the Court of International Trade both rejected that argument. Now, the Court of Appeals for the Federal Circuit has upheld the CIT. According to the Court of Appeals, the negligibility test is applied to the subject merchandise. Here, the order defines the scope as including cells from Taiwan finished into modules in other countries. Accordingly, the Kyocera products that include cells from Taiwan are still products of Taiwan even though finished in Mexico. Consequently, products finished in Mexico are not entitled to a separate negligibility analysis.

What is the lesson for importers? First and foremost, understand that scope is more than just the title of the Federal Register Notice. The scope of the order may, as it did here, encompass downstream or upstream products including products finished in other countries. When that is the case, it is not enough to just move finishing operations to another country. That will not necessarily remove the product from scope and might end up causing additional issues if the effort is seen as either evasion or circumvention.

Finally, as long as I am thinking about these things, keep in mind that HTSUS classification is not a reliable test for whether or not a product is in scope. Every order states that classification is provided for convenience, and that the description of the merchandise controls. The fact that an item is not flagged in ACE or elsewhere as within the scope of an order does not mean it cannot actually be within the scope of the order.

More to follow on this and related issues.

Anyone Curious About Withdrawing from NAFTA?

For some reason, I have been asked what it would take for the U.S. to withdraw from NAFTA or another trade agreement. Funny how that comes up today, the day after the U.S. presidential election.

The answer is not 100% clear.

In Article 2205, the NAFTA says the US can withdraw with 6-months written notice. If that happens, the agreement stays in place between Mexico and Canada. How that happens is a question.

The US would certainly be out of the agreement going forward, but most of the implementation of NAFTA was through legislation. That legislation might still be in place until Congress removes it.

Arguably, the legislation might automatically repeal itself. 19 USC 3451 says that if a country withdraws, the amendments made to implement NAFTA “cease to have effect with respect to that country.” It is not clear whether “that country” can be the US or whether that implies that Canada or Mexico has left NAFTA. There would be much litigation. Other trade agreements likely work the same way, but I have not looked.

Also, should the US pull out of NAFTA, the pre-existing US-Canada Free-Trade Agreement comes back from the dead. We would need to brush up on those rules.

Also, if the President tries to impose new duties, he runs up against WTO tariff bindings. US law, specifically so-called Section 301, lets the US increase duties or take other actions to address violations of trade agreements or unfair practices by our trading partners. Countries that feel increased duties are not consistent with WTO obligations can seek relief through the WTO dispute settlement process and, of authorized, retaliate. The potential for serial grievances and retaliation is what we call a "trade war."

The Scope of a Scope Ruling

This being the Customs Law Blog, I don't often wade into the related area of antidumping and countervailing duty law. But, the two areas often bump into each other for my clients and for other importers. Sometimes the issues are generally applicable and require attention, which is the case with Guangzhou Jangho Curtain Wall v. United States.

The important issue for our purposes is the impact of a scope clarification issued by the Department of Commerce. People often refer to these as scope rulings, and importers who are used to dealing with Customs and Border Protection rulings might make some incorrect assumptions about how they apply to imported merchandise. This case shows that the Department of Justice also had some incorrect assumptions about scope clarifications.

The order in question covers aluminum extrusions from China. The full scope is here. The scope specifically excludes finished merchandise. According to the order:

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. 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 of the investigation merely by including fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product.

In this case, the merchandise was curtain walls. A curtain wall system is commonly used as the exterior of a modern building. The curtain wall is not load bearing and merely blocks weather, adds design, and keeps people inside. The building is supported by structural elements in the core of the building. Often, curtain walls are glass with extruded aluminum members supporting the glass. If you have seen a modern skyscraper, you have seen a curtain wall.

Prior to this case, there had been two Commerce Department scope rulings on curtain walls. The first ruling held that curtain wall components are not finished goods for purposes of the scope exclusion. That decision was affirmed by both the Court of International Trade and the Court of Appeals for the Federal Circuit. The second ruling initially held that complete curtain wall systems sold pursuant to a contract for the entire system as also within the scope of the order. The CIT twice remanded that ruling to Commerce, and at the time of this decision, the issue remains before the CIT.

When Commerce announced the opportunity for the second administrative review of this order, Jangho requested review. At that time, whether complete curtain wall systems were within the scope of the order was (and still is) unresolved. Jangho responded to the questionnaire noting that it was doing so to cooperate, but stating that the curtain wall systems are outside the scope of the order. Jangho then pulled out of the process and did not participate any further. When Commerce finished the preliminary review, it found that Jangho's products are subject to the PRC-wide rate and did not explicitly address the scope issue. In the final determination, Commerce noted the scope question but held Jangho's products to be within the scope of the order because Jangho had not followed procedures to request a scope clarification. A similar result occurred in the countervailing duty case. Jangho appealed to the CIT.

Since we don't often talk about antidumping and countervailing duty law, we should review how this litigation is different from a customs case. First, the role of the CIT is to review the administrative decision on the agency record, rather than on the evidence presented to it. That means in ADD/CVD cases, there is no discovery, no testimony from witnesses, and no findings of fact. The judge must uphold the Commerce Department determination unless it is not supported by substantial evidence on the record or otherwise not in accordance with law. That is true even if he or she would have reached a different conclusion.

The first question before the Court was whether Commerce acted according to law when it held the curtain wall units to be within the scope of the order because of the lack of a scope clarification request from Jangho. The regulation on this is clear that when there is information indicating that a scope clarification is warranted, Commerce "will initiate" an inquiry. 19 CFR 351.225(b). That language does not give Commerce a lot of room to subject merchandise to ADD and CVD when it knows that there is a question as to whether the merchandise is within the scope of the order. Commerce knew there was a scope question and it did not self-initiate a scope inquiry.

What Commerce did was argue that Jangho was obligated to request a scope ruling. According to the Court of International Trade, that is not correct. Rather, an interested party can alert Commerce to a scope issue in the course of an administrative review. If Commerce determines that there is a genuine question, it must investigate the scope issue. That is what Jangho did when it requested review, was made a mandatory respondent, and then provided data while indicating that its curtain wall systems are outside the scope of the order. Thus, according to the Court, the Jangho was not obligated to initiate a formal scope inquiry through a separate request.

So far, so good. Now we get to the part that I think is most relevant to the average importer trying to be compliant. Many importers know that a classification, value, or other ruling issued by Customs and Border Protection is binding on Customs and on the requesting party for the subject merchandise. A ruling is technically not binding on another importer, even if the merchandise is similar. That does not mean that subsequent importers should not follow published rulings; it should. But, it does mean that the ruling is technically limited in scope.

In this case, the Department of Justice argued that a prior scope ruling covering curtain wall units imported pursuant to a contract for a full curtain wall was not applicable to the similar merchandise at issue in this case. According to Justice, that prior scope ruling (as modified by subsequent litigation) is only applicable to the requesting party. Looking at the regulations, the Court of International Trade found that scope rulings are applicable to merchandise, not to the company that requested the ruling. This is consistent with Commerce's ability to self-initiate an inquiry when it sees a scope question with respect to a particular product. Furthermore, the regulation allows interested parties to make scope requests with respect to "a particular product." As a whole, the regulations make it clear that scope rulings address products, not parties. In that way, they are different from Customs rulings which address specific merchandise imported by specific a specific party.

Commerce was wrong to hold this merchandise to be within the scope of the order. Jangho raised the question during the administrative review. From there, Commerce should have self initiated an inquiry. In completing that inquiry, Commerce should have taken note of applicable rulings issued on similar products. Having failed to do that, Commerce's determination was not in accordance with law and, therefore, was remanded. The Court did affirm a part of the administrative decision concerning window wall units on the grounds that Jangho failed to properly raise the issue and, therefore, failed to exhaust the administrative process.

No Refund of Excessive CVD

I have previously pointed out the few cases that I see as ending in an injustice, even where the result is legally correct. These cases always lead me to ask whether anyone in a position of power in the United States Government asked whether the ultimately successful litigation position was actually the right thing to do. Sometimes, it is not. Capella Sales & Services Ltd. v. United States, is one of those cases.

The background you need to understand this case is that there has been a long-running dispute over the proper calculation of the countervailing duty deposit rate imposed on aluminum extrusions from China. In May of 2011, Commerce initially calculated the all-others rate applicable to companies in China that were not assigned their own or a separate rate as 374.15%. Following some litigation, Commerce reduced the deposit rate to 137.65%. Finally, after additional litigation, the deposit rate was reduced to 7.37% in October of 2015.

At the time of entry, importers of aluminum extrusions subject to the order are required to deposit estimated countervailing duties based on the prevailing rate stated in Commerce Department instructions to Customs and Border Protection. Importers who are unsatisfied with the applicable rate are permitted to request administrative review of the order and can have the liquidation of their entries suspended pending a final determination of the proper rate of the CVD.

Capella, the plaintiff in this case, did not do that. While all that trade litigation was happening, Capella made four entries of merchandise. At the time of entry, Capella was not aware that the merchandise it was imported was subject to the CVD order. As a result, it did not deposit any countervailing duties. It also did not participate in the case, despite being notified by Customs that its merchandise was subject to the order. As a result, Customs liquidated the entries with 374.15% CVD, which was the then-current rate in the Commerce Department instructions. After the rate was determined to be 137.65%, Capella filed a case in the Court of International Trade seeking to recover the CVD it deposited in excess of the amount ultimately found to be correct.

Let's recap. Capella made some mistakes. It failed to recognize that it was importing merchandise covered by a countervailing duty order. It also failed to participate in the investigation or take any steps to prevent the liquidation of its entries. But, the United States Government also made some mistakes. Whatever it did wrong, it collected roughly 367% of excess CVD from Capella and other companies.

The question in this case is whether Capella has a means of recovering the excess CVD it paid. Sadly, the answer is no.

The Court of International Trade first had to resolve the question of whether it had jurisdiction to review the case. Here, Capella was not challenging the substance of the deposit calculation. In fact, it was happy with the final calculation. Capella's complaint was that Commerce failed to modify its instructions to Customs to retroactively modify the deposit rate. A challenge to Commerce's instructions falls within the Court's grant of subject matter jurisdiction in 28 USC 1581(i). So, jurisdiction is not the problem.

However, the government also moved to dismiss the case under rule 12(b)(6) on the grounds that Capella failed to plead a cause of action. Capella's argument was that by keeping money to which it was not entitled, the government was acting in a manner that is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. This makes sense. The Court already determined that the higher rate was not in accordance with law. What right should the government have to keep that money?

Unfortunately, there are procedural steps that need to be followed to preserve the right to recovery. As mentioned above, Capella did not participate in the investigation. It did not seek review of the deposit rate applicable to its products. Most important, it did not have the liquidation of its entries suspended or judicially enjoined. According to the statute, unless liquidation is suspended or enjoined, the entries will be liquidated in accordance with the Commerce Department instructions. If liquidation is enjoined pending litigation, the entries will liquidate in accordance with the final court decision.

Because Capella did not prevent the liquidation of its entries, Commerce acted properly when it liquidated the entries at the higher rate.

That, is a tough break for Capella, even if the result is not wrong. There is a principle of administrative law that requires parties to exhaust the administrative process to gain access to the Court. This is useful in most cases because it allows the agency to fully and completely review the matter and it creates a complete record for judicial review. There is also the rule that a statute means what it says. Both of these rules of law work against Capella.

But, most importers in this same situation and even those who made deposits at the time of entry did not envision such a dramatic change in the deposit rate. Participating the case is expensive and time consuming. Not enough importers will do it. The lesson of this case may be that importers should always participate in the reviews and always seek to have liquidations suspended as the only way to preserve the right to a refund should someone succeed in securing a lower deposit rate. That hardly seems efficient.

As it is, many importers have paid far too much and the domestic industry has received market protections far in excess of what the correct analysis would have mandated. No, the right, just, and efficient thing is for Commerce to amend its instructions to refund excess deposits paid. Since that will never happen, Congress should pass a bill refunding the excess duties paid by importers. Unfortunately, there may not be anyone in Congress who will stand up for the importers of aluminum extrusions.

Suspension, Assessment, and Liquidation

Interesting court decisions are piling up.

The first is American Power Pull Corp. v. United States. This case involves two entries of hand trucks from China, which are subject to an antidumping duty order. At the time of entry, the importer deposited 26.49% of the value of the merchandise as a dumping duty deposit and Customs issued a notice of suspension of liquidation. A periodic review covering the entries followed and Customs continued the suspension of liquidation. After the review, and no doubt much to the disappointment of the plaintiff, the assessment rate was set at 383.60%. The producer filed suit to challenge that determination, no doubt making the plaintiff in this case happy. The Court granted an injunction against liquidation of the entry. Eventually, the rate was reduced to 145.90% and Commerce issued liquidation instructions to Customs and Border Protection. When CBP liquidated the entries with the additional assessment, American Power Pull protested, asserting that the entries had liquidated by operation of law at the rates asserted at the time of entry. Customs denied the protests and American Power Pull filed suit in the Court of International Trade.

The issue here is whether liquidation of the entries was properly suspended. If not, then the entries liquidated by operation of law at the 26.49% deposit rate. If they were properly suspended, then the dumping assessment can be properly applied.

The plaintiff argued that there is no statutory authority for the suspension of liquidation. This is premised on there having been no affirmative determination at the time of the suspension. Absent an affirmative determination, Commerce lacks authority to suspend the liquidation of entries. The United States moved to dismiss.

The Court of International Trade disagreed. The statutory authority for suspension begins with the affirmative preliminary determination by Commerce. 19 USC 1673b(d)(2). This suspension can stay in place for six months. After the final determination, Commerce publishes an order, which instructs Customs to assess the antidumping duties and to collect deposits of antidumping duties on current and future entries. The liquidation of the entries requires that Commerce tell Customs the assessment rate, which is determined in a periodic review under 19 USC 1675 (if review is requested). According to the Court of International Trade, this retrospective system of making deposits against future assessment rates has been interpreted as implying that the suspension of liquidation continues until the review (if requested) if finally resolved.The publication of the final results is the notice Customs needs to lift the suspension, at which time, Customs has six months to liquidate the entries. If litigation challenging the results follows, the Court of International Trade can issue an injunction to preserve the status quo and prevent liquidations prior to final determination of the correct assessment rates.

All of that means that the question to be decided was whether the entries were liquidated within six months of the lifting of a lawful suspension. This is where the dates become important.

• The dumping order was issued on November 17, 2004 with a deposit rate of 26.49%. Entries from that point on were automatically suspended.
• The entries were made on May 24 (my birthday for future reference) and June 14, 2006.
• The second periodic review commenced, continuing the suspension.
• On July 28, 2008, Commerce published the final results of the review, raising the assessment rate to 383.60%.
• The producer commenced a challenge in the CIT and the court enjoined liquidations (effectively continuing the suspension).
• The litigation ended and the injunction dissolved June 15, 2012 when Commerce published notice of the amended final results setting the assessment rate at 145.90%.
• The entries were liquidated on August 10, 2012 (about two months later).

Because liquidation was within the permitted six-month period, the Court of International Trade found the liquidations to be proper. Thus, the Court dismissed plaintiff's claims.

This case is a sterling example of the lunacy that is the retrospective system used in the U.S., and in no other country (as far as I know). Look what happened to the importer here and, more important, what might have happened. At the time of entry, the importer should have known that its total landed cost should include antidumping duties of 26.49%. Its purchase price and subsequent resale price should have been calibrated to reflect that cost. Keep in mind that the rule against reimbursement by the producer/exporter means this cost cannot be passed back to the producer.

Granted, the importer should have known that there is a risk, even a substantial risk, that the assessment rate will be higher than the deposit rate. But how high? When will it be assessed? There is almost no way to know that. A sophisticated producer might be able to run simulations of the dumping calculations and predict its assessment rates at various pricing levels, but that is not the usual circumstance and does not help for past entries.

Instead, importers in the U.S. are faced with an ill defined risk that can wipe out profits on these products and cost substantially more. In this case, these entries were in 2006. If we assume they were sold at a nice profit of 15%, that means that by virtue of a collection in 2015 (following this decision), the importer will be in the whole to the tune of 130% of the purchase price (more or less, I know I am simplifying the math). There was no way to predict this at the time of entry. This makes it nearly impossible for the importer to manage the risk of importing products subject to a dumping or countervailing duty case.

Imagine what might have happened had the rate stayed at 383%. In some cases, assessments like that are financially untenable and the importer is forced out of business. The absurdity of this is that it was entirely out of the importer's control. The only option seems to be to stop purchasing from the subject country from the date of the preliminary affirmative determination. It can be worse if there is a finding of "critical circumstances," which pushes the effective date back 90 days earlier.

There are more rational approached. In other countries (again, so I am told), a change in rate is applied prospectively rather than to past entries. This makes the administration of process much simpler. It also means that liability can be evaluated with a far greater degree of certainty.

Another, possibly more theoretical problem, is that a dumping order can have such negative consequences for the consuming industries, workers, and consumers that it is against the larger economic public interest. What would happen, for example, if a dumping order on sheet steel made it all but impossible for auto makers in the U.S. to have an adequate supply of steel? If the American industry could not ramp up to supply the auto makers, would there be layoffs? Would factories be idled and production moved out of the U.S? It is, at least theoretically, possible. The way to resolve that is to include a public policy analysis in dumping and countervailing duty cases. Something similar happens in Section 337 cases involving intellectual property violations. If enforcement of the order is not in the public interest, the Commission can refuse to grant relief to the petitioner. If the Commission does grant relief, the President has the authority to order it be withheld. Something like that makes sense in the trade context as well.

Don't walk away from this mini rant thinking I have no sympathy for domestic producers. I do. Dumping is an unfair trade practice for a reason. It hurts domestic industries and workers. I support their efforts to seek a fair free market. I also understand that the reason dumping works is usually that the producer is able to use high prices in the home market or a third market to subsidize lower prices in the U.S. That is unfair to the U.S. industry and to the consumers in the higher priced markets. Without completely frictionless exports to those countries, the U.S. industry cannot respond by selling into the higher priced markets, possibly undercutting the high local prices. I get all that.

But, the law should also recognize the rights and interests of the importers, who are almost always bystanders to the trade cases. A prospective system that takes into consideration the larger public interest would go a long way toward balancing the impact and value of trade cases.

Scope, Protests, and De Novo Review

The scope of antidumping and countervailing duty orders is one of those issues that sits right at the intersection of trade law and customs law. The Department of Commerce determines the scope of an order and can issue rulings clarifying whether particular products are within the scope of the order. Customs and Border Protection makes the day-to-day decisions whether to apply an order to imports as they arrive and the entries are liquidated. Traditionally, Customs' role in this process has been described as "ministerial," meaning it simply does what Commerce says to do. On the other hand, Commerce has not envisioned every possible product and product description. What Customs does is, in reality, more than ministerial. It requires the analysis of the scope of the order and the nature of the merchandise. Customs applies facts to law--that is not really ministerial.

That is what LDA Incorporado v. United States is about. LDA imports rigid electrical conduit from China. After it arrived, LDA became embroiled in a dispute with Customs about whether the merchandise was finished electrical conduit. If it is finished, the merchandise is outside the scope of the order covering "circular welded carbon quality steel pipe" from China. It is unfinished, it is included in the scope of the order. The dispute centered on whether the conduit was internally coated with a non-conductive liner, a requirement apparently not in the order.

As entries liquidated, Customs demanded the deposit of antidumping duties. The importer protested. Parallel to the protests, the importer also sought a ruling from Commerce clarifying whether the conduit was within the scope of the order. Commerce returned a decision saying the merchandise was excluded from the scope of the order. That should be a win for LDA, but CBP diod not see it that way.

The Court previously considered whether Customs and Border Protection's decision that merchandise is within the scope of the order is protestable. Here, the Court of International Trade first reiterates that "CBP made a protestable decision as to the application of the Orders to Plaintiff's entry."

This raises a new and interesting question: What is the Court reviewing in this case? The plaintiff is challenging the denied protest, not the scope of the order. It is certainly not challenging the Commerce Department ruling issued in its favor. The sole question is whether Customs properly applied the scope of the order. That is protestable because it relates to factual errors and other inadvertence by Customs that is adverse to the importer. Importantly, this is not a review of the scope of the order itself; just Customs' application of it to specific imported merchandise.

Thus, on the review of this protest (and similar future protests), the Court's role is to review de novo Customs' factual analysis of the merchandise and its decision to apply the orders to the merchandise.

On the facts presented, the Court found it undisputed that the merchandise is finished rigid electrical conduit. That means that Customs improperly applied the orders to this merchandise. This also means that importers are not required to go to Commerce for a ruling when they do not dispute the clear meaning of the order.

Prejudgment Interest: Statutory and Equitable

You may recall that in United States v. American Home Assurance Company, the U.S. Court of International Trade held that a surety could not be held liable for statutory prejudgment interest owed by the importer because the statute reaches only "ordinary" duties and not antidumping duties. However, in the same case, the CIT held that the government is entitled to prejudgment interest under equity. The Court of Appeals for the Federal Circuit has now reversed the CIT on the first point and vacated the decision with respect to the second point.

The facts you need to know are few. American Home was the surety for an importer of crawfish tail meat from China, which is subject to an antidumping duty order. At the time of entry, the deposit rate applicable to the specific exporter was zero, which is convenient. But, following a review, liquidation occurred with a 223.01% assessment rate, which was inconvenient. The importer defaulted and Customs and Border Protection sought payment from the surety. There are some interesting procedural issues involving the various liquidations, protests, and the lack of protests; but, know that there is $1,157,898.22 in unpaid duties at issue.

In the collection action, the United States sought prejudment interest under 19 U.S.C. § 580, which provides that "[u]pon all bonds, on which suits are brought for the recovery of duties, interest shall be allowed . . . from the time when said bonds became due." The CIT held that this did not apply to antidumping duties because, at the time the statute was originally enacted in 1799, it was not intended to apply to antidumping duties. The Federal Circuit disagreed.

On this point, the Federal Circuit said:

The language—“all bonds” on which the government sues for “the recovery of duties”—is clear and unqualified. As written, the term “duties” does not modify the type of “bonds” on which interest shall be allowed. Instead, the statute calls for interest on “all bonds.” The term “duties” reflects only the requisite res litigiosae—i.e., the general nature of the disputed property in the government’s legal action against the surety. Thus, by the statute’s plain terms, it covers, among other things, bonds securing the payment of antidumping duties when the government sues for payment under those bonds.

[Note: I feel that I have a good grasp of law Latin. Nevertheless, "res litigiosae" is new to me. Black's defines it as "In Roman law, things which are in litigation; property or rights which constitute the subject-matter of a pending action." It sounds more like a Harry Potter spell for turning someone into a convict.]

What about the fact that from 1799 to 1921 there was no such thing as antidumping duties? Not a problem. According to the Federal Circuit (and the Supreme Court), laws encompass those things and people that fall within the scope of the language, even if those things and people arise subsequently. That's why wire fraud statutes apply to the Internet (maybe, that is just a guess on my part). Furthermore, Congress knew about this law and did nothing to change it when it enacted and subsequently modified the antidumping laws. That indicates that Congress understood it to apply to "all bonds" securing duties.

Having permitted the U.S. to recover prejudgment interest under the statute, the remaining question was whether the U.S. was entitled to the same interest on an equity theory. Equity is all about doing the right thing given all of the facts and circumstances. Given the decision that the U.S. is entitled to statutory prejudgment interest, the facts and circumstances have changes. Consequently, rather than decide the equity issue, the Federal Circuit vacated the CIT decision on this point and remanded the case to the CIT for further review.

Ruling of the Week 2015.5: Inadvertent Identity Hijacking

Usually, I am happy and proud to work with my counterparts at Customs and Border Protection. The good people there tend to do their jobs in an intelligent and professional manner. But then there is HQ H157616 (Sept. 22, 2014). [Update: It appears there is an error in the numbering of this Ruling. My prior link went to a different ruling. Try this one instead.]

The facts here are simple. A customs broker filed an entry listing Lifestyle Enterprise Inc. as the importer of record. The subsequent Entry Summary also listed Lifestyle as the IOR and used Lifestyle's importer number. This was an error. Lifestyle was the domestic buyer and was supposed to be the consignee, not the importer. The seller, a company called Starcorp Furniture Inc. was supported to be the importer. The broker had no power of attorney authorizing it to act on behalf of Lifestyle. These facts seem to be undisputed.

Also undisputed is that the merchandise involved was wooden bedroom furniture from China. If you are a trade professional, you just said "Oh, crap" or something more colorful. Wooden bedroom furniture from China is subject to antidumping duties of 216%. That is a difficult cost variance for the domestic purchaser to absorb.

Five years after the entry (which was suspended due to the dumping case), Customs issued a Notice of Action stating that it would liquidate the entry and assess antidumping duties against Lifestyle. After liquidation, Lifestyle filed a timely protest saying, essentially, "Hey, we were not supposed to be the importer and the broker had no right to name us as such! Leave us alone."

The ruling is short and to the point. Lifestyle was the purchaser of the merchandise and, therefore, had the right to make entry. In other words, it could have been the importer. Implied by that is the premise that Customs had no way to know that Lifestyle was not properly named as the importer. Furthermore, Lifestyle had five years in which to correct the entry prior to liquidation. Instead, it took no action until it received the Notice of Action from Customs and Border Protection.

On those facts, Customs said it cannot resolve the dispute between the parties as to which of the two companies was supposed to be the importer of record. As far as CBP is concerned, either is an appropriate importer and Lifestyle was listed as such on the documents. Customs, therefore, liquidated the entry properly.

That is a tidy answer for Customs but creates a terrible mess for the parties based on what is without question an entry that was filed illegally. Without a power of attorney, the broker had no right to bind Lifestyle to be the importer of record. While Lifestyle clearly has a cause of action against the broker, it still needs to pay this assessment, even if just to get into the Court of International Trade.

Why is Starcorp off the hook here? We don't know a lot of the background, some of which might be very important to the outcome. But, it seems clear that Starcorp could have been the IOR. It has a POA with the broker and most likely a bond with a surety. We know that Customs could pursue an enforcement case against Starcorp to collect these unpaid antidumping duties because, while it did not make entry, it "introduced" the merchandise into the U.S. See, Everything ever written about Trek Leather. So CBP was not without recourse against Starcorp, the party that anticipated having the liability.

It is possible that Starcorp has abandoned the U.S. and has no assets. Also, it would appear that because Starcorp was not listed as the importer, there would be no claim against the surety.

What about the broker? It illegally filed an entry without a proper Power of Attorney. It might be subject to a penalty as well. The amount of that penalty is probably capped at $30,000, which is certainly much less than the amount of the dumping duties, but that is apparently what Congress wants.

This is not really a case where two companies were equally able to act as importer of record through the customs broker that filed the entry. Only Starcorp designated the broker. Since brokers are required to have written powers of attorney, there should be no basis on which to argue that apparent authority is enough to bind Lifestyle to be the importer. This is not a situation in which CBP cannot differentiate between two equally possible importers. Lifestyle could not have made this entry and it seems unduly harsh to hold it responsible for actions it never authorized. Rather than be a culpable party, Lifestyle is the victim of what is probably inadvertent or negligent identity hijacking.

What does this tell importers? It is a stark reminder of the importance of monitoring your entry activity. If your company has a customs importer of record number, periodically monitor the entry activity to identify entries incorrectly made on your behalf. Look for brokers you did not authorize, ports you don't typically use, manufacturer ID numbers that don't seem familiar, and other indicators of unauthorized activity. remember to cancel POA's with brokers you no longer need. If you find anything like amiss, act quickly. Lifestyle compounded its problem by sitting on its opportunity to correct the entry (or have the broker correct it).

Learn from that mistake.