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JULY 23, 2013 INTERNATIONAL TRADE UPDATE Court of Appeals Announces General Principles for Determining Scope of Antidumping Duty Orders On July 18, 2013, the Court of Appeals for the Federal Circuit (CAFC) issued an important decision regarding the U.S. Department of Commerce’s method of interpreting the scope of antidumping (“AD”) orders. The decision, which criticized the agency’s practice of relying on case-by-case analysis, could lead Commerce to propose amended regulations establishing criteria for drafting and interpreting the scope of AD orders; it also could encourage petitioners in trade remedy proceedings to describe the scope of their products in more expansive terms from the outset. In Mid Continent Nail Corp. v. United States (CAFC No. 2012-1682, -1683), the specific issue was whether the AD order on imported nails from China excluded nails that were packaged in “mixed media” – i.e., tool kits containing a variety of items used for home repair. Target Corporation, the importer, initiated a scope inquiry to clarify the scope of the AD order, and argued that the AD order should be interpreted to exclude nails contained in such kits because they comprised a tiny proportion of the value of the kits. Commerce agreed that the nails contained in the kits were excluded from the scope of the AD order, and the U.S. petitioner, Mid Continent, appealed. The Court of International Trade (“CIT”) rejected Commerce’s analysis and held that, because the AD order included no express language discussing mixed media, “Commerce had no authority” even to “conduct a mixed media inquiry and exclude otherwise-subject merchandise.” CAFC Slip Op. at 7. The Court of Appeals vacated and remanded. It noted the basic due process principle that “antidumping orders [must] only be applied to merchandise that they may reasonably be interpreted to include,” in order to ensure that parties will have “‘adequate notice of what conduct is regulated by the order’.” CAFC Slip Op. at 8 (quoting Fuji Photo Film Co. v. Int’l Trade Comm’n, 474 F. 3d 1281, 1292 (CAFC 2007)). It then applied this principle to the specific situation at hand, reasoning that, just as AD orders cannot be extended to include merchandise that is not within their scope “as reasonably interpreted,” so, conversely, “merchandise facially covered by an order may not be excluded from the scope of the order unless the order can reasonably be interpreted” to permit such exclusion. CAFC Slip Op. at 10 (emphasis in original). The CAFC then concluded that “because orders are subject to interpretation,” the CIT erred in finding that the absence of express language in the Nails order regarding mixed media meant that Commerce had no authority to conduct a mixed media inquiry or to exclude the nails that were imported as part of a kit. Rather, the CAFC explained that “[t]he mere fact that the order in this case makes no explicit reference to mixed media items does not conclusively establish that Commerce lacked authority to consider the order’s applicability to nails contained within such items.” CAFC Slip Op. at 10. The CAFC, however, agreed with the CIT that Commerce had failed to articulate a reasonable interpretation of the AD order that would justify the exclusion of nails included in mixed media kits. Therefore, the CAFC remanded to the CIT, with instructions to remand to Commerce, to provide it “one last opportunity” to interpret the AD order. CAFC Slip Op. at 11. Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000. INTERNATIONAL TRADE UPDATE Page 2 The opinion did not end there, however. The CAFC then did something quite unusual and offered several pages of detailed advice on how Commerce should go about determining the scope of AD orders – particularly in cases involving mixed media, but also presenting general principles that can apply to other scope inquiries as well. The CAFC noted that the first step in such an analysis is to determine whether the merchandise that is contained in the mixed media kit falls within the literal terms of the AD order – i.e., whether it would be subject to the AD order if imported separately. However, even if the answer to that question is yes, the analysis is not finished; rather, Commerce must then determine whether that merchandise nonetheless should be excluded from the scope of the AD order when it is contained in a mixed media kit. In the Nails case, the parties agreed that the text was unambiguous, and that the nails at issue fell within the literal terms of the AD order. The CAFC nonetheless offered guidance on how to deal with the situation in which the text of the order is not so clear. In this situation, Commerce is to interpret the text of the order by reference to certain other materials, which are identified in Commerce’s regulations, 19 C.F.R. § 351.225(k)(1) – namely, the descriptions of the merchandise in the petition and in prior determinations of the International Trade Commission and Commerce, including prior scope determinations. If those materials are not dispositive, then Commerce is to consider various commercial criteria identified in subsection (k)(2) of its regulations – such as the physical characteristics of the product, consumer expectations, the ultimate use of the product, and channels of trade in which it is sold. Borrowing the “substantial transformation” language from other areas of customs law, the Court of Appeals explained that “[i]f the manner in which the otherwise-subject merchandise is incorporated into the mixed media item alters these properties so comprehensively as to effect a ‘substantial transformation’ . . . such that it ‘can no longer be considered’ the same merchandise, then the included merchandise is not subject to the order.” CAFC Slip Op. at 12 (quoting Crawfish Processors Alliance v. United States, 483 F.3d 1358, 1362-63 (CAFC 2007)). The next step deals with the situation in which the AD order is unambiguous that the merchandise at issue would fall within its scope if “considered in its own right” but is silent as to the treatment of such merchandise if incorporated in mixed media (a common occurrence). Here again the Court instructed Commerce to consider the (k)(1) materials. Where those materials do not indicate that the merchandise at issue should be excluded from the scope of the order when included in mixed media, the Court stated, “a presumption arises” that the merchandise at issue is subject to the AD order. CAFC Slip Op. at 14. At this point the analysis gets interesting. The Court noted that the presumption may be overcome if Commerce can “identify published guidance issued prior to the date of the original antidumping order . . . that provides a basis for interpreting the order contrary to its literal language.” CAFC Slip. Op. at 15 (emphasis added). Such guidance, the Court said, could include prior scope determinations – provided that they were publicly available at the time that the AD order was issued. If read strictly, this would be a logical impossibility, because Commerce has no reason to be engaging in scope inquiries on an AD order that does not yet exist. But the Court of Appeals appears to be referring to prior scope rulings on the same general issue – in this case, the existence of an implied mixed media exception in the absence of an express exclusion in the text of an AD order – even if those prior scope rulings were interpreting other AD orders. At several points, the CAFC’s opinion complained about the limited amount of information that Commerce publishes about its scope rulings, as well as their “lack of clarity.” CAFC Slip Op. at 15-17, 18. The opinion wrapped up by noting that “Commerce’s problems are largely self-inflicted,” because the agency prefers to issue determinations on a case-by-case basis to maintain maximum flexibility. This preference gives “low priority to an approach that should receive the highest priority from any administrative agency – providing coherent and consistent guidance to regulated parties.” CAFC Slip Op. at 18. The Court noted that Commerce can avoid these problems in the future by providing prospective guidance on mixed media “and other” cases. The “other” is critical here: Although this particular case concerned a mixed media scope inquiry, the same problem regarding the application of what appears to be clear scope language in AD orders to unanticipated situations can arise in many situations. Thus, a consequence of the CAFC’s INTERNATIONAL TRADE UPDATE Page 3 decision may be to encourage greater efforts by parties in antidumping investigations to front-load their scope battles. It is also possible that Commerce will heed the Court’s call and propose amendments to its regulations to offer more “interpretive criteria” (CAFC Slip Op. at 15-16 n.4) for scope language in AD orders. Stay tuned. If you have any questions regarding this update, please contact Neil R. Ellis (+1.202.736.8075, firstname.lastname@example.org) or Brenda A. Jacobs (+1.202.736.8149, email@example.com). 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"International Trade Update 07.23.13 - Sidley Austin LLP"