Scope and circumvention cases: The new battlefield in trade
As of mid-March, the last antidumping (AD) and countervailing duty (CVD) petition involving steel products had been filed more than 14 months prior—on December 31, 2009. It involved drill pipe from China and resulted in AD and CVD orders which were issued at the beginning of March 2011. By the end of March, new AD and CVD petitions were filed against steel wheels from China, but during the previous hiatus of new cases, American producers turned to other parts of the trade laws to prevent the entry of merchandise which they believe is covered—or should be covered—by existing AD and CVD orders. Ironically, foreign suppliers and their US importers have applied for relief from the rigors of AD and CVD orders by invoking the same trade law provisions used by the domestic industry.
First, we offer the following crash course on these provisions, which are scope requests and circumvention inquiries. Each AD and CVD order contains a description of the merchandise which is subject to the order. This description is known as the “scope” of the order, and it is intended to inform foreign exporters and US importers as well as Customs officials of the products liable for the assessment of additional duties. Sometimes the scope language is lengthy and extremely detailed. For example, the scope of the AD order on seamless pipe from Japan is 14 paragraphs in length, identifies four categories of seamless pipe that are specifically excluded from the order, and lists 25 separate Harmonized Tariff subheadings under which covered products may be classified. At the other end of the spectrum, the scope of the AD order on butt-weld pipe fittings from Japan consists of one very short paragraph with only a single tariff subheading.
Interested parties—which include US manufacturers, foreign producers and exporters, and US importers—may ask the US Department of Commerce (DOC) for a ruling whether a particular product is within the scope of an AD or CVD order. The US International Trade Commission (ITC) usually plays no role in these proceedings.
In scope proceedings, the DOC first will decide whether the product in question is covered by the description in the scope of the order. To assist its analysis, the DOC will consider the plain language in the scope as well as the product description in the original antidumping petition, the DOC and ITC determinations in the original AD or CVD investigation, and any prior scope rulings. If the DOC cannot make a decision on the basis of these considerations, it will apply a six-prong test, which includes analysis of the following factors: the physical characteristics of the product; the expectations of the ultimate purchasers or users of the product; the ultimate uses of the product; the channels of trade; the manner in which the product is advertised and displayed; and other considerations, such as the cost of modifying the product.
The DOC follows this general procedure in circumvention inquiries as well, where it will also consider, if applicable, whether the imported product was completed or assembled in another foreign country or whether the product was subjected to only minor alterations in an attempt to cause it to fall outside the actual language of the scope. The DOC will often consider the timing of the development and shipment of such products; that is, was the product first exported to the United States before or after AD or CVD duties were imposed?
Various domestic industries have submitted circumvention petitions to clarify—some might say expand—coverage of AD and CVD orders. A group of US plate mills submitted circumvention petitions in late 2008 and again in mid-2010 regarding the AD order on cut-to-length carbon steel plate from China. In both cases, the domestic mills argued that, although the plate in question contained levels of boron that met the alloy classification of the Harmonized Tariff Schedule, the products nevertheless should be subject to the AD order. In the first case, the foreign producer claimed that the presence of boron allowed for more stable mechanical properties than the carbon steel product. Nevertheless, the DOC found that the boron product circumvented the AD order because there were no significant differences between it and merchandise subject to the order with regard to the expectations of ultimate users, the uses of the product, the channels of marketing, and the cost of production. In the second case, the DOC made a similar preliminary determination despite evidence that the addition of boron enhanced the wear resistance of the steel for its application in the production of tire molds.
In another example, the US garment hanger industry submitted a circumvention petition in May 2010 against imported hangers from two Vietnamese companies. The US industry presented evidence showing that the companies in question exported hangers made from components manufactured and supplied by their Chinese partners, who are subject to an AD order. These components consisted of pre-formed and painted hangers, and paper tubes and capes, which Vietnamese companies assembled into finished hangers, usually by hand. The assembly processes in Vietnam were minor and insignificant. One of the Vietnamese companies refused to cooperate in the DOC’s investigation, and a decision with regard to the other company is due near the end of 2011.
On February 11, 2011, three domestic steel producers—ArcelorMittal USA, Gerdau Ameristeel US, and Rocky Mountain Steel—filed a combination scope/anticircumvention petition against small diameter wire rod from Mexico. Subsequently, Nucor joined the case. Specifically, the petition claims that two Mexican producers/exporters shipped wire rod with a diameter of 4.75 mm to the United States, circumventing the AD order which covers wire rod 5.00 mm or more in diameter. In the first instance, the petition argues that the 4.75 mm product is within the scope of the AD order because it falls within the tolerance parameters of 5.00 mm rod. In the alternative, the petition asks the DOC to initiate an anticircumvention inquiry, alleging that the Mexican companies are avoiding dumping duties by making a “minor alteration” to the merchandise. One of the Mexican producers has already responded to the allegations in the petition.
Over the past three years, US producers, foreign exporters, and US importers have requested a significant number of scope rulings on steel products. Requests have been submitted with respect to the orders on nails, garment hangers, threaded rod, standard pipe, light-walled rectangular tubing, oil country tubular goods, and butt-weld pipe fittings from China and stainless steel flat products from several countries. Some of these requests have been vigorously contested and even resulted in lengthy appeals to the courts. However, in some cases, the domestic producers themselves have asked the DOC to confirm that certain proprietary products— with unique chemistries and physical characteristics—are outside the scope of existing orders. In this way, the domestic industry can limit the exclusion to a very narrow and precise definition of the product in question.
While these scope and circumvention inquiries do not generate the same level of attention as original investigations or even annual administrative reviews, the outcomes of these proceedings can have a significant impact on the effectiveness of existing AD and CVD orders, which explains the increasing use of these provisions in the trade laws.