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Department of Commerce Proposes Changes to AD/CVD Regulations with a Heightened Focus on Enforcement

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The Department of Commerce (the Department) has proposed to modify its regulations under Part 351 of Title 19 to improve administration and enforcement of the antidumping duty (AD) and countervailing duty (CVD) laws.[1] The proposed modifications have been undertaken with a view to address circumvention and evasion of duties and will make significant changes to existing procedures for new shipper reviews, scope inquiries, circumvention proceedings among others. The Department has sought comments to the proposed changes by September 14, 2020.

Highlighted below are some of the more important changes being proposed.

Proposed changes to Scope Rulings under 19 CFR 351.225
An AD/CVD order always includes a “scope,” i.e., a description of the kind of merchandise subject to the order and thus subject to duties. Often questions arise as to whether a particular product is covered by the order. The term “scope rulings” refers to the process by which the Department makes determinations sought by an interested party on whether a product is within the scope of an order.

The proposed rule seeks to clarify and improve procedures and standards related to scope rulings. Some of the major changes in the proposed rule are reviewed below.

Eliminating distinction between informal and formal scope inquiries
The proposed rule would eliminate the current distinction between “informal” and “formal” scope inquiry procedures. Under the proposal, parties will be required to fill out a standardized application for scope requests, the filing of which will trigger a 30-day deadline for the Department to either accept or reject the request. A failure by the Department to reject a request within this timeline will result in a deemed initiation of a review.

Codification of the substantial transformation test
The proposed regulations would codify the “substantial transformation” test, which the Department generally uses in determining country of origin (particularly when a product’s country of origin has changed due to processing in third countries). In cases in which the test is not appropriate, the Department will retain the ability to use another reasonable method to determine country of origin.

Codification and clarification of “mixed products” analysis
The regulation would codify the analysis applied by the Department to “mixed products” (i.e., subject merchandise assembled or packaged with non-subject merchandise). To determine if the product is subject to the scope of an order, under the new rules it will consider the following factors; (i) practicality of separating the in-scope component for repacking or resale (ii) measurable value of the in-scope component as compared to value of the merchandise as a whole; and (iii) ultimate use of the in-scope component relative to ultimate use of the merchandise as a whole. If the component product is covered, but the other larger components of the merchandise are not, the value of the in-scope component will be reported to Customs and Border Protection (CBP) for application of the AD/CVD duties.

Revisions to suspension of liquidation procedures
Under proposed Section 351.225(l), a scope ruling would be applied to all unliquidated entries of subject merchandise—even those that were not identified at the time of importation as subject to an AD/CVD order. Deposits for already suspended entries will remain in effect pending a final scope ruling.

Under the proposal, an affirmative ruling will require CBP to apply cash deposits and suspend liquidation of all unliquidated entries dating back to the preliminary determination in the original investigation, as opposed to the date of initiation of the scope inquiry as under the current procedures. According to the Department, this change will encourage importers to apply for scope rulings as soon as possible after the issuance of an order and prevent attempts to avoid paying duties.

New Section on Circumvention
“Circumvention” refers to actions taken to evade AD/CVD duties by making changes to the product or production process or undertaking assembly in third countries so that the product is no longer within the scope of the order. Currently both scope and circumvention inquiries are conducted pursuant to the same regulatory provision. Because in practice the Department conducts the two types of proceedings differently, it has decided to establish a separate regulation to address circumvention proceedings under 19 CFR 351.226.

New section 351.226 would authorize the Department to self-initiate a circumvention inquiry. The proposed rules also establish a deadline of 150 days (counted from the date of initiation of the inquiry) for a preliminary finding and 300 days for a final determination, which can be extended by 65 days for an extraordinarily complicated inquiry.

Finally, the proposed rules would allow the Department to apply a circumvention decision to a country as a whole (countrywide basis) as opposed to limiting it to the exporter/producer found to be circumventing the order. The Department will consider factors such as the possibility of subsequent circumvention by other producers, exporters, or importers if a circumvention order is limited to a company.

Proposed changes to New Shipper Reviews under 19 CFR 351.214
New Shipper Reviews (NSRs) enable foreign exporters or producers who did not export the product during the original AD/CVD investigation to obtain their own individual dumping margin or CVD rate on an accelerated basis, based on sales they made to U.S. customers prior to the request. Proposed changes to the NSR procedures aim to curtail alleged abuses while allowing the Department to expend its limited resources only on NSRs for which there is a genuine need.

Demonstration of bona fide sales for initiation
Under the proposal, a request for an NSR would be required to have significantly more documentation than current requirements to demonstrate that the sales were “bona fide” and therefore eligible for review.

The Department would retain the ability to rescind an NSR for lack of necessary information on bona fide sales or for failure to demonstrate that sales were made to an unaffiliated customer.

Customer certification
The current regulations require statements from the applicant exporter/producer certifying that it made no exports during the period of investigation (POI) and that it is not affiliated with any entity that may have exported the product during the POI. The proposed rules would also require a certification from the unaffiliated U.S. customer that (i) it did not purchase the product from the producer/exporter during the POI, and (ii) it will provide necessary information requested by the Department regarding its purchase of such product.

Other Changes

  • New section 351.227 would provide procedures for undertaking reviews of “covered merchandise referrals” from the CBP. This refers to a process where CBP attempts to investigate duty evasion of AD/CVD orders but is unable to determine if the merchandise is covered by the order. CBP can then make a covered merchandise referral to the Department for resolution of the issue.
  • New section 351.228 would require certifications from importers as to whether imported merchandise is subject to an AD/CVD order. Failure to provide a certification on request or providing a certification containing materially false statements would result in collection of cash deposits from the importer at the applicable AD/CVD rates.
  • Under the current procedures, parties can file comments on whether a petition for AD/CVD duties has industry support up until the date of initiation of the investigation, which leaves the Department with little time to fully consider such comments. The proposed rule will set deadlines within which interested parties can submit comments and rebuttal comments before the decision on initiation.

The changes proposed by the Department are far reaching and will likely lead to increased documentary and other requirements on importers. Affected parties are advised to respond with their views to the proposed regulations during the comment period that ends on September 14, 2020. Additionally, parties will have an opportunity to provide rebuttals to comments provided on the proposed rules. Rebuttal comments are due September 28, 2020.

[1] Regulations to Improve Administration and Enforcement of Antidumping and Countervailing Duty Laws, 85 FR 49472