Under the Enforce and Protect Act of 2015 (“EAPA”), U.S. Customs and Border Protection (“CBP”) is authorized to determine whether covered merchandise has entered the United States through evasion, resulting in the reduction or elimination of otherwise applicable antidumping (“AD”) or countervailing duties (“CVD”) on the merchandise.  19 U.S.C. § 1517.  Under the statute, if CBP “is unable to determine whether the merchandise at issue is covered merchandise,” i.e., subject to an AD or CVD order, CBP may “refer the matter to the {U.S. Department of Commerce (“Commerce”)} to determine whether the merchandise is covered merchandise” pursuant to Commerce’s authority to make AD/CVD scope determinations.  In Commerce’s new regulations, the agency establishes procedures that will govern its handling of these covered merchandise referrals from CBP.  19 C.F.R. § 351.227.  In doing so, Commerce formalizes what has been an ad hoc approach to these covered merchandise referrals under its existing regulations and establishes covered merchandise inquiries as a distinct proceeding segment alongside scope and anti-circumvention inquiries, which seek to answer similar questions regarding coverage of AD/CVD orders.

As relevant background, CBP’s EAPA investigations focus on the specific question of whether certain imports by particular companies are unlawfully evading applicable ADs and/or CVDs.  These investigations follow allegations of evasion (e.g., fraudulent country of origin markings, misclassification, transshipment, etc.) by interested parties (e.g., other U.S. importers of the covered merchandise, a U.S. producer of the domestic like product, or a trade association) and can result in the imposition of various remedies by CBP.  For example, if CBP determines that there is reasonable suspicion that covered merchandise entered the United States through evasion, it may impose “interim measures” including the suspension of liquidation of unliquidated entries, extension of the period for liquidating unliquidated entries, and an array of other measures (e.g., requiring a single transaction bond or the posting of cash deposits).  Continuation of these remedies is available to CBP following a final determination as to evasion, and CBP may also pursue other recourse (e.g., penalty actions) against the companies subject to investigation.

If during an EAPA investigation, CBP is unable to determine whether certain merchandise is subject to the AD/CVD order in question, it may refer this question to Commerce.  This is an important threshold question since, if the merchandise is not subject to an AD/CVD order, there would be no basis for determining that the merchandise entered the United States through evasion.  These referrals are relatively rare.  As of October 1, 2020, CBP has initiated over 130 EAPA investigations, but has made only eight referrals to Commerce.  Moving forward, where CBP makes a covered merchandise referral, Commerce’s new regulations will govern its handling of the associated inquiries.

The regulations specify that, within 20 days after receiving a referral from CBP, Commerce will either determine to initiate a covered merchandise inquiry or address the issue in an ongoing segment pertaining to the merchandise at issue (e.g., a scope inquiry or an anti-circumvention inquiry) and publish its determination in the Federal Register.  Where a covered merchandise inquiry is initiated, Commerce will normally have 120 days from the date of publication of the initiation notice to reach a final determination, but may extend such deadline by 150 days for good cause.

Prior to Commerce’s final determination, interested parties (which may include parties that did not participate in the EAPA investigation before CBP) may participate in covered merchandise inquiries by filing comments and rebuttal comments concerning the initiation.  Commerce may also issue questionnaires seeking certain information to “a reasonable number of respondents,” with parties afforded the opportunity to comment on questionnaire responses and rebut such comments.  And, where Commerce exercises its discretion to issue a preliminary determination as to whether there is a “reasonable basis to believe or suspect” that the merchandise at issue is subject to an AD or CVD order, Commerce will establish a schedule for comments and rebuttal comments on the preliminary determination.  Of note, where Commerce elects to publish a preliminary determination concurrently with the notice of initiation of the covered merchandise inquiry, the parties may proceed directly to comments and rebuttal comments on the preliminary determination.

Commerce’s final determinations in covered merchandise inquiries will include an “explanation of the factual and legal conclusions on which the final determination is based,” be published in the Federal Register, and be transmitted to CBP.  In reaching its final determination, the regulations specify that Commerce may rely on the analyses described in the agency’s scope (19 C.F.R. § 351.225(j) and (k)) and anti-circumvention (19 C.F.R. § 351.226(h), (i), (j), and (k)) procedures.  Additionally, Commerce is enabled to determine, “based on the available record evidence,” whether its final determination be should applied to a specific company or companies (e.g., producers, exporters, or importers of the merchandise at issue) or to “all products from the same country with the same relevant physical characteristics.”

Finally, Commerce’s regulations include procedures for the suspension of liquidation of merchandise subject to covered merchandise inquiries.  When Commerce publishes a notice of initiation of a covered merchandise inquiry, it will instruct CBP to continue to suspend liquidation of the merchandise at issue where the merchandise is already subject to suspension and apply a cash deposit requirement to the merchandise at the rate applicable if the merchandise were determined to be within the scope of the AD/CVD order.  If Commerce issues an affirmative preliminary determination, it will instruct CBP to continue the suspension of liquidation and apply the applicable cash deposit rate to the merchandise for entries that have already been suspended and begin suspension of liquidation and impose a cash deposit requirement to unliquidated entries – made both prior and subsequent to the date of publication of the initiation notice – that have not yet been suspended.  If Commerce issues an affirmative final determination, it will instruct CBP to continue this suspension of liquidation and application of cash deposit requirements until appropriate liquidation instructions are issued concerning the merchandise.  If Commerce issues a negative final determination, suspension will be terminated and cash deposits refunded.

Commerce’s covered merchandise inquiries are primarily of concern to companies that are subject to investigation by CBP under EAPA, and can represent a significant escalation and expansion of such investigations.  In particular, a CBP covered merchandise referral to Commerce not only doubles the number of government agencies involved in the matter, but can result in multiplying the number of substantive legal issues present, from evasion to broader questions about scope and even circumvention of AD/CVD orders.  In addition, because CBP and Commerce are both empowered to take remedial actions (e.g., to suspend liquidation, impose cash deposit requirements, etc.) in their respective proceedings, this can add to the complexity and uncertainty that companies subject EAPA investigations face regarding the U.S. import requirements applicable to their merchandise.  Finally, even for those companies not subject to EAPA investigations before CBP, covered merchandise inquiries can be consequential since Commerce has the authority to apply its final determination on a country-wide basis, even if the original EAPA investigation pertained only to specific companies and their imports.  Parties importing merchandise they believe to be outside the scope of an AD/CVD order should therefore monitor these covered merchandise referrals to determine whether their products are brought under the scope of the order.