The Final Rule published by the U.S. Department of Commerce (“DOC”) on September 20, 2021, makes substantial modifications to the DOC’s regulations on scope proceedings to be conducted under antidumping and countervailing duty (“AD/CVD”) orders. These new rules amend the scope inquiry process in a number of places, including, among others: giving the DOC discretion to self-initiate a scope inquiry; requiring more detailed information for a scope inquiry application; eliminating the informal scope inquiry procedure; establishing new time limits for the scope inquiry; and giving interested parties additional time to submit comments. Perhaps most importantly, these new regulations accelerate the timeline for imposing provisional relief against imports believed to fall within the scope of an AD/CVD order, and permit the imposition of an AD/CVD cash deposit requirement on entries made prior to the initiation of a scope inquiry.
New Distinction Between Scope Inquiries and Anticircumvention Inquiries. The Final Rule clarifies that Section 351.225 applies only to scope inquiries, which are proceedings to determine whether a particular product is subject to an existing AD/CVD order. The procedures for conducting anticircumvention inquires, which are proceedings to determine whether the scope of an AD/CVD order should be modified to cover imports (e.g., that are assembled in third countries) under Section 781 of the Act are now contained in Section 351.226 of the DOC’s regulations.
DOC’s Self-Initiation and Required Detailed Information for Application. The Final Rule gives the DOC discretion to self-initiate a scope inquiry “if it believes such initiation is warranted” under §351.225(b). Under the previous rules, a scope inquiry may only be initiated based on applications by interested parties.
For companies filing their own scope requests, Section 351.225(c) now requires those scope inquiry applications to contain greater information and documentation. Under the previous rules, a scope inquiry application generally required a description of the import in question (including its technical characteristics and uses, and its current U.S. tariff classification number) and a statement of the applicant’s position as to whether the product is within the scope of an order supported by reasons, citations of statutory authority, and additional factual information. The Final Rule has added a requirement for more detailed information in the application, such as
- clear and legible photographs, schematic drawings, specifications, standards, marketing materials, and any other exemplars providing a visual depiction of the product;
- customs rulings relevant to a given tariff classification;
- a description of parts, materials, and the production process employed in the production of the product;
- the volume of annual production of the product for the most recently completed fiscal year; and
- a statement as to whether the product undergoes any additional processing in the United States after importation, or in a third country before importation, and a statement as to the relevance of this processing to the scope of the order.
The amendment to Section 351.225(c) addresses the DOC’s concerns about not having sufficient information in the application for its initiation and/or completion of a scope inquiry. In the DOC’s view, requiring a more fulsome scope application is intended to speed up the DOC’s scope ruling procedures. Recognizing that the new rules place a greater burden on the applicant to collect and prepare information in its scope inquiry application and that not all information might be obtainable, the Final Rule has added the caveat that it requires information “reasonably available to the applicant.” Whether or not a scope application contains all information “reasonably available” to an applicant will be determined on a case-by-case basis.
Elimination of Expedited Scope Ruling Procedures. Under the previous rules, there was a 45-day deadline for the DOC to either issue a scope ruling based upon the scope ruling application and descriptions of the merchandise listed, or initiate a formal inquiry. The 45-day window was intended to let the DOC make an expedited ruling on certain simple scope issues, though the DOC rarely finished a scope inquiry within the 45-day deadline in practice.
The DOC concluded that the distinction between the 45-day expedited rulings and formal rulings sometimes caused confusion, and added unnecessary delay to its proceedings. As a result, the Final Rule has eliminated this 45-day expedited scope inquiry procedure. If the DOC does not reject the scope inquiry application within 31 days after the application is filed, the application will be deemed accepted and the initiation will be deemed initiated. Additionally, under Section 351.225(e), the Final Rule provides that the DOC shall issue a final scope ruling within 120 days after the date on which the scope inquiry was initiated, which may be extended up to an additional 180 days for good cause. Notwithstanding these longer timelines, the DOC notes that this amendment should not be interpreted to mean it will always take 120 days to issue scope rulings, especially when a scope ruling is fairly simple, straightforward, and/or uncontested, or that every extension will automatically be for the full 180 days.
The Final Rule also allows the DOC to align the deadlines under the scope inquiry with the deadlines of another segment of the proceeding such as an administrative review, a circumvention inquiry, or a covered merchandise inquiry if the DOC determines it is appropriate to do so.
Extended Time for Comments by Interested Parties. Consistent with the DOC’s overall desire for a more robust factual record, the Final Rule extends the deadlines for parties to submit comments in the proceeding. Specifically, the DOC has extended the deadlines for parties to submit information and rebuttal information after the DOC self-initiates a case, after a case is formally initiated, after information is submitted in response to a questionnaire response, and after a preliminary scope determination. Taken together the requirement for more detailed information for scope inquiry application, these amendments indicate the DOC welcomes more detailed scope related information to be submitted during the scope inquiries.
Codification of “Mixed-Media Analysis”. The Final Rule codifies the DOC’s analysis of component parts of larger products, referred to as “mixed-media analysis” (i.e., subject merchandise, as a component, assembled or packaged with non-subject merchandise as a whole) under Section 351.225(k)(3). In this provision, the DOC will first analyze the scope language and other specified criteria to determine “if the component product, standing alone, would be covered by an order.” If so, the DOC will further consider and determine “whether the component product’s inclusion in the merchandise as a whole results in its exclusion from the scope of the order.” If these analyses do not resolve the issue, the DOC will consider additional relevant factors, such as the relative difficulty and expense of separating components, measurable value of the in-scope component as compared to the merchandise as a whole, and the ultimate use or function of the in-scope component relative to merchandise as a whole.
Retroactivity of Scope Rulings. One significant change to the DOC’s scope inquiry process effected by the Final Rule relates to the suspension of liquidation or entries set forth under Section 351.225 (l). From a commercial perspective, this change has the greatest potential to increase potential liability for U.S. importers of merchandise subject to such scope proceedings.
The Final Rule has revised Section 351.225 (l) to “ensure that AD/CVDs are applied to all unliquidated entries of products found within the scope of the order, including entries that may pre-date the date of initiation of the scope inquiry.” Under the previous rule, if the DOC issued a preliminary ruling that the product in question is within the scope of the order, it would instruct U.S. Customs and Border Protection (“CBP”) to suspend liquidation and to require a cash deposit for unliquidated entries made on or after the date of initiation of the scope inquiry. Now, as a result of the Final Rule, the DOC will “normally” apply any affirmative preliminary and final scope rulings to all entries, even those made prior to the DOC’s determination, even if they were made prior to the date of initiation of the scope inquiry. In the DOC’s view, “a scope ruling 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 that order.”
Because the CBP generally liquidates entries declared as non-subject to AD/CVD orders within 10 months of entry, elimination of the “cut-off” of the initiation date of the scope inquiry will have a practical effect on importers’ liabilities. Assuming that the DOC issues the final results of its scope inquiry 120 days (i.e., 4 month) after initiation, this means that entries made up to 6 months prior the initiation of the case would likely still be unliquidated at the time of these final results, and thus could be subject to duties. And if the DOC issues a preliminary determination on an even earlier date, then entries made even more than six months prior to the initiation of the scope inquiry could be subject to a suspension of liquidation and a cash deposit requirement. This could come as an unpleasant surprise to importers who have entered merchandise believing at the time of entry that the merchandise was not subject to any AD/CVD order. But in the DOC’s view, “producers, exporters, and importers are already notified that their products may be covered by the scope of an order through the publication in the Federal Register of Commerce’s determinations,” and these parties “generally cannot claim ignorance or reliance on another agency’s determinations or actions to avoid the application of Commerce’s scope ruling to their merchandise.”
The Final Rule does provide an exception under which the DOC may direct CBP to begin suspension as of an alternative date. Under this exception, the DOC may consider whether retroactive suspension should not be applied to certain entries which pre-date the date of initiation. The DOC clarifies that it will employ a heightened standard and will only consider an alternative date “based on a specific argument by the interested party supported by evidence establishing the appropriateness of that alternative date. General arguments about unfairness would not be considered sufficient for an alternative date.” Further, to mitigate the impact on the importers from the Final Rule, the earliest that this retroactive suspension could apply is to unliquidated entries not yet suspended, entered, or withdrawn from warehouse, for consumption, on or after November 4, 2021 (i.e. the effective date of the Final Rule).
The Final Rule has also changed the treatment of cash deposits from suspended entries in the event of a negative preliminary scope ruling. The previous rules required the DOC, after a negative preliminary scope ruling, to have CBP terminate any suspensions of liquidation already in place before the scope inquiry began and to return any cash deposits from already-suspended entries. The Final Rule does not contain such requirement. As a result, any suspended entries will remain suspended pending the DOC’s final scope ruling.