On Sept. 20, the U.S. Department of Commerce published a new set of anti-dumping and countervailing duty regulations governing a multitude of administrative proceedings including:
• Changes to new shipper reviews;
• Scope ruling requests;
• Anti-circumvention inquiries;
• Covered merchandise referrals from U.S. Customs and Border Protection under the Enforce and Protect Act; and
• Modifications to certification requirements.
This is the most comprehensive overhaul of Commerce regulations since 1997, when new regulations were issued to institute changes arising from the World Trade Organization agreements and accompanying revisions to the statute in 1994.
The current modifications will have the most substantive impact on importers as they relate to new shipper reviews, scope rulings, anti-circumvention proceedings, covered merchandise referrals and certifications. This article highlights and explains these impacts and how importers can navigate the changes.
New Shipper Reviews
Commerce’s modifications to the new shipper review proceedings at Title 19 of the Code of Federal Regulations, Section 351.214, go into effect Oct. 20, for all new shipper reviews starting after this date. The final rule at Sections 351.214(b)(2)(v)(D) and (E) sets forth specific requirements for the documentation to be provided by an exporter or producer requesting a new shipper review. These include a description of the circumstances of the sale such as:
• Expenses arising from the sales;
• Whether the subject merchandise was resold at a profit;
• Whether such sales were made on an arm’s length basis; and
• Additional documentation regarding the producer or exporter’s business activities such as:
o The producer’s or exporter’s offer to sell the merchandise to the United States;
o The identification of the complete circumstances of sales to the U.S., any home market or third-country;
o The identification of the producer or exporter’s relationship to the first unrelated U.S. producer; and
o For nonproducing exporters, an explanation of the nonproducing exporter’s relationship with the supplier.
While these requirements may seem new, in effect they are not. The regulations merely codify Commerce’s long-standing practice in new shipper reviews examining whether the transactions constitute bona fide sales under the anti-dumping and countervailing duty laws.
Finally, the regulations also establish that Commerce may rescind the new shipper review if any of the above information pertaining to the bona fide sale factors is not placed on the record of the review, or if the exporter or producer fails to demonstrate the existence of a bona fide sale to an unaffiliated customer.
By codifying the bona fide sale factors, Commerce is establishing its authority, and its ability to be more exacting in its requirements for new shipper reviews. Producers and exporters must be mindful of the level of detail required, and plan in advance of the initial sale that establishes their status as a new shipper to document each of the factors in the sale.
Commerce also modified its final rule from the proposed rule with respect to the certification requirements, such that the requesting producer or exporter will have to provide specific certifications related to whether its unaffiliated customers purchased the subject merchandise during the original period of investigation.
In addition, the new shipper regulations now require the requesting company to provide to the “fullest extent possible, necessary information related to the unaffiliated customer in the United States.” This will require requestors to ensure that their unaffiliated customers are willing to cooperate in the new shipper request and potentially provide information which was not previously required.
Scope Ruling Requests
The modifications to the procedures for scope rulings go into effect on Nov. 4, for all scope rulings filed on or after that date. The scope rulings regulations at Title 19 of the Code of Federal Regulations, Section 351.225, have undergone a significant and substantive overhaul that has potentially the most exacting impact on the importing community.
The first modification is that Commerce will now require that scope rulings be submitted following a detailed and standardized scope ruling application.
Second, Commerce will have the authority to self-initiate scope inquiries and will announce these initiations in the Federal Register as public notifications.
Third, Commerce specifically clarified that a scope ruling determining that a product is covered by the scope of an order is a determination that the product has always been covered by the scope of the order.
Fourth, Commerce will have 30 days after filing to reject a scope ruling application. An application that is not rejected after 30 days is deemed accepted. Fifth, the regulations now establish specific deadlines for Commerce, which must complete the scope ruling within 120 days or, if extended, within 300 days.
Finally, the new regulations provide Commerce the flexibility to opine on and address scope matters in other segments of the proceeding — including circumvention inquiries, covered merchandise inquiries and ongoing administrative reviews. More importantly, Commerce now has the authority to align scope deadlines with other segments.
These changes taken together provide Commerce with an extraordinary amount of flexibility on how to address scope rulings. In practical terms, this means the development of new aspects of the department’s practice, along with increased appellate challenges to scope rulings under the new regulations, which will have a long-term impact on Commerce’s determinations.
In its new regulations, Commerce lists the requirements for evaluating and determining the key factors for scope rulings conducted under Sections 351.225(k)(1) and (k)(2), which will require companies to ensure they document and support any requests for scope rulings consistent with Commerce’s prior practice for that specific proceeding.
The best way to do this going forward is to review the original petition, the administrative record of the proceeding at Commerce, and the U.S. International Trade Commission’s injury investigation and product discussion. The new regulations make clear that reliance on generally available product descriptions and definitions will not be given the same merit as case-specific product descriptions and history.
The two most impactful changes include: (1) the requirement of a standardized application that will enable requestors to submit more precise and detailed requests, and (2) the retroactive collection of duties.
The new regulations codify Commerce’s existing practice and ability to retroactively collect duties if and when it determines that imports are in fact within the scope of an existing anti-
dumping or countervailing duty order. The retroactive collection of duties is a clear articulation of Commerce’s practice when it finds that merchandise is within the scope of an order.
Commerce has codified its ability to order the suspension of liquidation of entries on or after the date of initiation of a scope inquiry. When a preliminary scope ruling is issued, Commerce will instruct Customs to continue suspension of entries that were already suspended and to suspend entries not already suspended. Commerce now will begin the suspension of entries of unliquidated entries, if not yet suspended, that entered before the date of the scope inquiry was initiated. Also, Commerce may consider an alternate date for suspension of liquidation at the request of an interested party.
What do all these changes effectively mean for a party that is requesting or could be affected by a scope ruling?
In the normal course of business, Customs generally liquidates entries approximately 300 days after the date of entry. For example, if Commerce initiates a scope proceeding on Jan. 1, and issues a preliminary affirmative scope ruling on May 1, entries that came in approximately after June 1 of the previous year would generally remain unliquidated.
Therefore, under the new scope regulations Commerce can hypothetically go back approximately 11 months prior to the preliminary finding and require suspension of those entries until a final scope ruling is issued. This differs from the old regulations in that Commerce previously had the authority to go back and retroactively capture entries, but only from the date of the final scope ruling.
One other modification in the scope regulations relates to country of origin determinations under Section 351.225(j). The new regulations articulate exactly what information Commerce examines to make its determinations.
Country of origin and substantial transformation decisions by Commerce focus on “what point in the production and processing of the product the country of origin of the class or kind of merchandise is established.” Therefore, Commerce has now listed the physical characteristics and separated that from the intended end-use of the downstream product.
Commerce has also indicated that the substantial transformation analysis is to be invoked at the discretion of Commerce, providing it with the flexibility to choose other analysis if it determines that the substantial transformation test is not appropriate for purposes of determining country of origin.
All in all, the revisions to the procedural and substantive requirements for scope proceedings are quite dense. Only time will tell how Commerce intends to implement this in a manner that actually makes it feasible to request and obtain a scope ruling.
The revisions however provide a significant amount of discretion to Commerce, not only in how it renders its findings but also in how it captures and corrals merchandise into the tentacles of existing anti-dumping and countervailing duty orders on a post-facto basis.
The modifications to the procedures for anti-circumvention proceedings at Title 19 of the Code of Federal Regulations, Section 351.226, go into effect Nov. 4, for all circumvention proceedings commenced on or after that date.
The new regulations have an entirely new section related to anti-circumvention proceedings. Previously the circumvention regulations were part of the scope ruling regulations, which led to a lot of confusion. Now these are stand-alone regulations.
Commerce, as explained in the preamble to the new regulations, will be able to self-initiate anti-circumvention proceedings while it is reviewing information during a scope inquiry, even if the product is not covered by the scope of the order.
The new rules set forth the requirements for (1) an interested party to request an anti-circumvention inquiry; (2) the initiation process; (3) deadlines for circumvention inquiries; and (4) the procedures for conducting the proceeding. The new regulations also provide specific deadlines for the conduct of circumvention inquiries and their timely completion. Commerce must now decide within 30 days, or 45 days, if extended, to accept and initiate the circumvention inquiry. Then it must issue a final determination within 300 days of the initiation, or within 365 days, if extended.
The regulations codify Commerce’s existing procedural process for the conduct of anti-circumvention inquiries. The regulations also codify Commerce’s ability to apply circumvention determinations on a countrywide basis to products that are similar to or the same as those subject to the inquiry, and to also require a certification requirement.
The most important procedural modification in these new regulations is the clear articulation of Commerce’s ability to order the suspension of liquidation of any unliquidated entries, regardless of whether they are already suspended or not yet suspended, if it makes an affirmative preliminary determination.
In addition, Commerce has provided itself the ability to institute a more Draconian approach and suspend entries on a case-specific basis if it determines that it is appropriate to examine entries that predate the initiation of the circumvention inquiry. While the vast majority of the changes merely codify existing practice, it remains to be seen how Commerce will address suspension of entries on a case-by-case basis.
Collectively, the changes relating to when Commerce can suspend entries and require cash deposits create significant uncertainty for the importing community should an imported product suddenly be caught up in a circumvention inquiry. If importers learn of the initiation of a circumvention inquiry on a product that they are handling, the immediate action should be to take stock of a year’s worth of entries to determine the risk of duty exposure, and not delay that analysis. Otherwise, the importer risks having to pay duties on prior entries. It seems highly likely that Commerce will consistently attempt to suspend liquidation prior to the date of initiation. This is an issue that will likely be adjudicated in several cases. We also suspect there will be a significant increase in the number of circumvention inquiries once the regulations go into effect, given the modifications authorizing Commerce to self-initiate these proceedings.
Covered Merchandise Referrals
A new provision, Title 19 of the Code of Federal Regulations, Section 351.227, has been added to address the receipt of covered merchandise referrals from Customs under the Enforce and Protect Act. This provision goes into effect on Nov. 4.
Going forward, within 20 days of receiving a covered merchandise referral from Customs, Commerce will either initiate a covered merchandise inquiry and publish a notice of initiation in the Federal Register, or publish notice of intent to address the referral in the context of an ongoing proceeding, such as a scope or circumvention inquiry.
The regulations also establish specific deadlines for completion, requiring Commerce to reach a final determination within 120 days, or 150 days, if extended. Essentially, the covered merchandise referral is to be conducted in a manner similar to a self-initiated circumvention inquiry, but on a truncated schedule.
Given that this is a new provision, importers will have to monitor developments closely to determine how Commerce conducts these proceedings and ascertain their strategic impact.
Title 19 of the Code of Federal Regulations, Section 351.228, is a new provision that codifies Commerce’s existing practice related to certifications required in certain proceedings, and spells out certification requirements and imposes consequences for failure to maintain accurate certifications. The certification requirements go into effect for all entries Oct. 20.
Under the new rules, Commerce may require importers and other interested parties:
• To maintain completed certifications documenting entry into the U.S.;
• Provide electronic copies of such certifications upon entry or upon request, as proof of compliance; and
• Provide copies to Customs upon request.
The consequences for the failure to provide or maintain accurate certifications are a bit Draconian in nature, and provide Commerce with sizable teeth in terms of its enforcement power.
Examples of consequences include requiring Customs to suspend liquidation and require a cash deposit of estimated duties if an importer or interested party has not provided a certification, or if the importer or other interested party provides a certification that is materially false, fictitious, fraudulent or contains material misrepresentations.
What All This Means
The modifications to the regulations will have the most substantive impact on importers as they relate to new shipper reviews, scope rulings, anti-circumvention proceedings, covered merchandise referrals and certifications.
Careful planning and strategic advising related to the structure of sales transactions, supporting documentation and comprehensive record-keeping at each step of the transaction will be required to mitigate risks to importers.
We anticipate a higher level of scrutiny and stricter enforcement of existing anti-dumping and countervailing duty orders, as well as a significant increase in the number of scope and circumvention inquiries once the regulations go into effect, given the modifications authorizing Commerce to self-initiate these proceedings.
Clients should plan, document and strategize with their suppliers and customers. They should institute stricter vetting procedures for their suppliers and products purchased, to mitigate the risk of getting caught in a circumvention or covered-merchandise referral. If a product integral to the client’s supply chain is subject to anti-dumping or countervailing duties, it should institute compliance procedures. Collectively, these steps can help mitigate risks of getting hit with unexpected duties when the new provisions go into effect.
Commerce’s new regulations impact the conduct of new shipper reviews, scope ruling requests and anti-circumvention proceedings, and increase the burden on importers to maintain and provide certain certifications.
The biggest concern for exporters and importers is the increase in enforcement tools incorporated into the regulations, and how this will impact the level of detail required as documentary support where a client is part of a proceeding.
Without proper strategic planning, the new regulations will increase the risk of doing business with a company that is subject to, or could potentially be subject to anti-dumping or countervailing duties, particularly from China.