Tuesday, February 21, 2017

Sunflower Seeds

I am falling behind on Rulings of the Week, but not for want of effort. I am keeping up with CIT decisions (more or less). The latest of which is Well Luck Co., Inc. v. United States. The case has to do with the classification of sunflower seeds that have been processed for human consumption. Some have been flavored with spices or other flavorings and dried. All are roasted and salted. The question is the tariff classification, which turns out to be trickier than you think.

The options are HTSUS item 1206.00.00, which covers "Sunflower seeds, whether or not broken." The applicable rate of duty is free and this is what the plaintiff claimed is correct. Customs and Border Protection liquidated the sunflower seeds in HTSUS item 2008.19.90 as "Fruits, nuts and other edible parts of plants, otherwise prepared or preserved . . . not elsewhere specified or included: Nuts, peanuts (ground-nuts) and other seeds . . . ." The applicable rate of duty is 17.9%, which is a significant deviation.

Think about everything you know about classification. In your heart, you already know the answer, don't you? Sunflower seeds are sunflower seeds. They are called out eo nomine in 1206.00.00 and that tariff item covers all forms of the sunflower seed. Easy. On top of that, as between the two, Heading 1206 is more specific in that is covers sunflower seeds. Heading 2008, on the other hand, covers other edible parts of plants not elsewhere specified or included, which is far less specific. Finally, since sunflower seeds are specified in 1206, they cannot be included in 2008.

All of that makes sense.

And yet, your conclusion (and mine) is wrong. Let's try to sort it out.

First off, do not jump to Relative Specificity under General Rule of Interpretation 3(a) until we fully explore the text as required by GRI 1.

Let's agree that if the processed sunflower seeds are classifiable in 1206, they are excluded from 2008. So that is the first question the Court of International Trade had to decide: are processed sunflower seeds "sunflower seeds" for purposes of Heading 1206? Getting the botany out of the way, there was no dispute that the imported product is the edible seed of Helianthus annuus, the common sunflower.

The problem for the plaintiff in this case is that the Explanatory Notes further define sunflower seeds of Heading 1206 as "minimally processed" and having general uses including for the extraction of oil and for sowing. These are not those seeds. They have been processed to add flavoring (even if just salt) and have been heated to an extent that they are no longer suitable for sowing. These are sunflower seeds with the specific use of being a food item. As a result, they are excluded from Heading 1206 and reamin classifiable in Heading 2008.

This conclusion is consistent with the Explanatory Notes. It is also consistent with the overall structure of the HTSUS, which moves from less processed to more highly processed materials. There is no doubt that the imported seeds are more highly processed than similar seeds for oil extraction or sowing. Thus, I don't have much of a problem with this result.

But, I think there is an analytical open question. A few Court of Appeals cases have held that the Explanatory Notes should not be used to impose a restriction on the language of the HTSUS that is not present in the text. See, e.g., Archer Daniels Midland v. U.S. Is that what happened here? Is there an answer to this issue that does not violate that principle?

There are no legal notes to Chapter 12 that exclude processed sunflower seeds. There are also no relevant Section Notes. Suddenly, this is a hard case.

The Court resolved this concern by noting that the meaning of the term "sunflower seed" is actually ambiguous. The lexicographical materials submitted to the Court indicate two distinct meanings. First, there are the raw and minimally processed seeds that remain suitable for oil extraction and for sowing. Those seeds may also be used for human consumption. Although not addressed by the Court, it is worth noting that Heading 1206 includes two statistical suffixes for sunflower seeds for "human use." The suffixes are not relevant to classification, but are indicative that some of the seeds of Heading 1206 are edible by humans.

The second meaning of sunflower seeds is in reference to the prepared snack food, which is no longer capable of general use. Having found two distinct meanings, the term is ambiguous and it makes sense and is legally correct to look to the Explanatory Notes to resolve the ambiguity.

That resulted in a substantial duty increase, which is why I suspect the Federal Circuit will let us know whether it agrees with this analysis. Given Archer Daniels Midland and the related cases, it is a close call on which reasonable judges might differ.

Wednesday, February 15, 2017

Who Moved My CAFTA-DR Cheese?

La Nica Products is an odd case. It involves a claim for preferential duty treatment under the US-Central America-Dominican Republic Free Trade Agreement, or CAFTA-DR. The merchandise is cheese from Nicaragua. On its face, one would think that an agricultural product like cheese would satisfy most rules of origin. But, that is not the issue in this case.

The problem here is the identity of the party making the claim. La Nica was listed as the importer of record and made the claim for duty-free treatment. After entry, La Nica, who had been listed as the importer of record, filed a Post-Entry Amendment ("PEA") attempting to change the importer of record to another party. Apparently, the other party purchased the cheese while it was en route. Customs and Border Protection asked La Nica for proof of the sale to the new alleged IOR and for a certificate of origin to support the CAFTA-DR claim. Plaintiff did not respond.

Customs denied the the PEA request and liquidated the entries as dutiable, thereby denying the CAFTA-DR claims as well. Plaintiff protested, and CBP denied the protests.

Under 19 CFR § 10.583(a), an importer may make a claim for preferential treatment under CAFTA-DR. The same regulation notes that a claim may be based on a certificate of origin from the importer, exporter, or producer. CAFTA-DR claims are, of course, subject to verification and can be denied if the Port Director determines that the importer has provided insufficient evidence to verify the origin of the merchandise.

What went wrong here? While the La Nica made the CAFTA-DR claim, it also told CBP that it was not the importer. Having sold the goods in transit, it appears that La Nica was no longer the owner of the goods at the time of entry and, therefore, was not the proper importer of record. Because the CAFTA-DR regulations require the the claim be made by the importer, La Nica is out of luck.

A couple things to remember about this. First, La Nica apparently never asserted that even though it sold the merchandise, it retained the right to make entry. If it retained a verifiable financial interest in the goods, it might have satisfied CBP's liberal interpretation of "owner" for purposes of making entry. That is not addressed in the decision.

The confounding issue here is that someone needs to be the IOR. Customs denied the PEA on the grounds that La Nica failed to prove the in-transit sale. That would seem to indicate a finding by CBP that La Nica still owned the merchandise and, therefore, was a proper importer. Alas, the CIT did not agree. Plaintiff has the burden of proof. In Court, La Nica continued to assert that it had made a successful sale of the cheese. Thus, the evidence before the Court indicated that La Nica was not the owner, which resulted in it being the wrong party to make the CAFTA-DR claim.

That is an example of free-trade whiplash.

Monday, February 13, 2017

Snuggies Are Blankets


Remember Snuggies? A few years back, they were part of the zeitgeist. Here is a reminder of exactly what is a Snuggie.

According to the commercial, Snuggies are wearable blankets with sleeves-like tubes. That raises an interesting classification question. Is it a blanket of HTSUS item 6301.40.00 (8.5%) or is it a garment classifiable in 6114.30.30 (14.9%)? Or, if it is neither, is it an "other made up article?" The Court of International Trade had to decide that question in Allstar Marketing Group v. U.S.

These are important questions in my world. I get that there is a lot going on in the larger world. Lately, I have been inspired and a little shamed watching lawyers who practice in areas affecting the actual lives and liberty of people, particularly refugees and others trying to entry the country. It made me proud to be a lawyer to see my colleagues set up shop at airports to provide assistance. Yesterday, I was at a meeting sponsored by HIAS Chicago at which an immigration lawyer offered pro bono assistance to arriving refugees. Occasionally, we get to undertake projects for individuals and worthwhile organizations, but that is uncommon in my practice. Here is an example of which I am still proud. Happily, I am currently working on a project that I think will serve the larger public, but it is still in the early stages and will not have the direct, personal impact that we have seen from the good work of immigration lawyers.

Now, back to the wearable blanket.

The evidence presented to the Court of International Trade shows that the importer referred to Snuggies as blankets in communications with the producer-supplier. The marketing materials show people using Snuggies in a variety of settings both in the home and outside, including on an airplane and at a sports stadium. Snuggies have sleeve-like tubes attached to allow users (or are they wearers?) to use their arms freely while still in the comparative warmth of the Snuggie.

The Court found that it had all the information necessary to resolve the matter and that there were no material questions of fact in dispute. That means, the only question is whether Snuggies fit within the common and commercial meaning of the tariff terms "garments" or "blankets." Under Note 2(a) to Chapter 63, if Snuggies are classifiable as garments, they cannot be classified as blankets or other textile items.

Tariff item 6114.30.30 covers "Other garments, knitted or crocheted: Of man-made fibers: other . . . ." There is no dispute that Snuggies are knitted of man-made fibers. The question is, are they "garments?" Looking at the structure of Section XI, the Court found that the items specified in Headings 6101 through 6114 are "garments," which is interchangeable with "apparel." Prior court decisions indicate that apparel is articles that "are ordinarily worn--dress in general." These are "clothes and covering for the human body warn for decency or comfort" as well as adornment. The government argued that because Snuggies are worn for comfort, they are apparel. The Plaintiff argued that because they are not worn for decency and adornment, they are not apparel.

The Court focused on the fact that apparel is "ordinarily worn." Specialized items covered by the apparel provisions include aprons, smocks, clerical vestments, scholastic (and presumably judicial) robes, and certain sports apparel. According to the Court, all of these are more akin to apparel than are Snuggies.

The Court then considered the use of the product. For why, see here. Physically, Snuggies are one-size-fits-all items and are open in the back. These characteristics do not resemble the kind of apparel that is "ordinarily worn." Furthermore, Snuggies were "inspired" by prior existing products called "Slankets" and "Freedom Blankets," both of which were marketed as blankets. Finally, the sales and marketing literature refers to the Snuggie as a blanket. According to the Plaintiff, that makes Snuggies improved blankets.

Blanket is defined as a warm covering used especially on a bed or a similar article used as a body covering for warmth. The Snuggie was designed and marketed as a covering for warmth. Since "blanket" is an eo nomine tariff description, it includes all forms of the article, including improved forms. From that, the Court was able to find Snuggies to be blankets (with sleeves). The addition of sleeves, according to the Court, did not so modify the nature of the article to make it something other than a blanket. The sleeves are incidental to the warming cover that is a Snuggie.

Thus, the plaintiff wins (this round) and Snuggies are classifiable as blankets of 6301.40.00.

Sunday, February 05, 2017

Ruling of the Week 2017.5: Copper Scrap

There are a number of Chapter 98 tariff items that permit partial duty exemptions for items of the United States that are sent abroad and returned to the United States. Given the current trade rhetoric, it might be worth explaining why that is the case. After all, why give a benefit to companies that send goods abroad for further processing? The short answer is that the duty exemption encourages the use of U.S. origin materials in manufacturing abroad. After all, if there is going to be manufacturing abroad, the U.S. should encourage that it take advantage of U.S.-origin components and materials. The alternative is to manufacture abroad entirely from foreign components.

The HTSUS item at issue in HQ H281950 (Jan. 26, 2017) 9802.00.60, which provides a partial duty exemption for:
Any article of metal (as defined in U.S. note 3(e) of this subchapter) manufactured in the United States or subjected to a process of manufacture in the United States, if exported for further processing, and if the exported article as processed outside the United States, or the article which results from the processing outside the United States, is returned to the United States for further processing . . . .
To qualify, the metal article must be manufactured in the United States. The question presented in this ruling is whether scrap metal collected from industrial production in the U.S. is "manufactured in the United States." The scrap metal at issue here is copper. The question is potentially complicated by the fact that some of the original copper was domestic in origin while some was originally foreign. Some of the scrap will be derived from production processes. Some will just be collected in the form of obsolete U.S-origin wire.

From exportindia.com

 The tariff does not define "manufactured" in this context. In prior rulings, CBP has held that metal is manufactured when it is subject to operations such as "splitting, annealing, milling, rolling, brushing, and leveling." Here, the industrial scap results from the application of those manufacturing processes to copper. As a result, Customs held that the scrap was also manufactured in the U.S.

Customs has also held that the process of making metal into U.S.-origin products is sufficient manufacturing to allow used, obsolete products to be considered manufactured in the U.S. [Note: I realize that seems self-evident, but that's the fact of the matter.]

Consequently, in this case, all of the goods, when re-entering the U.S. after further processing abroad, qualify for the partial duty exemption. There are, of course, documentation requirements. If you are going to try this, look at 19 C.F.R. 10.9.

IKEA Scope Rehearing Denied

Apparently there is some kind of festival of TV commercials starting in a few minutes. I understand it will be punctuated by grown men playing football for millions of dollars. Consequently, I will make this quick.

Consistent with my New Years Resolution to cover scope and other trade-related issues that closely impact customs compliance, here is a note on IKEA Supply AG v. United States. This is a request for a rehearing of a prior decision in which the Court of International Trade held that certain IKEA towel bars are within the scope of the antidumping and countervailing duty orders on aluminum extrusions from China. The bars are indisputably aluminum extrusions. In each box, there is mounting hardware that does not constitute aluminum extrusions, but which, according to Commerce, are fasteners. Finished goods are excluded from the scope of the orders. In a scope determination, Commerce held that because the finished towel bars are extrusions and that the only non-extrusion parts of the kits are fasteners, the bars fall within the order. In the first IKEA case, the Court of International Trade affirmed that decision.

This opinion involves an effort by IKEA to have the court reconsider its prior decision. Motions to reconsider are not easy to win. The moving party needs to show that there was an intervening change in the law, newly discovered evidence, clear error, or a need to prevent a manifest injustice.

The CIT did not see any of those reasons here. IKEA's first argument was that the Court failed to consider additional non-extruded components of the towel bar sets. The CIT basically said, "too late." These components were not discussed anywhere in the prior record or court proceedings. Thus, the Court would not consider them now. Moreover, there is no reason to believe that IKEA was not aware of these facts.

The second, and more interesting point, is that the CIT did not have the benefit of the CIT decision in Meridian Products LLC v. United States. In that case, another judge of the CIT held that Commerce needs to consider all of the non-extruded part of the kit, including those it considers to be fasteners. Under that test, there is a likelihood that IKEA might have won.

Sadly for IKEA, but legally correct, CIT judges are co-equal and the prior decision of any one CIT judge does not bind a subsequent judge. Technically, one judge does not even bind himself or herself in a later unrelated case. Thus, the intervening change in law raised by IKEA is really not a change in the law, until the Federal Circuit speaks on the issue. Then, it will be a change in the law.

Sunday, January 29, 2017

Ruling of the Week 2017.4: Midwakh from UAE

This is a good week to be talking about trade with the Middle East. I am talking about trade in goods, which is what I do. I don't talk about immigration issues. That's too bad because yesterday was a doozy of day in the history of immigration law in America. Congratulations to the ACLU and everyone who helped secure a stay of the President's order barring entry for people from seven majority-Muslim countries (including those already holding green cards and visas). That was a tremendous effort at ensuring the rule of law, not to mention humane treatment for people who had the bad luck of being on a plane at the moment he signed the order. There were many examples of lawyers showing up at airports around the country to help stranded travelers. Some of them were affiliated with the International Refugee Assistance Project. Both the ACLU and IRAP deserve your support.

That said, I will focus on something entirely superficial: the customs treatment of mewakh pipes.

From Medwakh.com
These are small wooden pipes that, in N257162 (Oct. 3, 2014), Customs and Border Protection described as being "of Arabian origin." That puts me in mind to watch Lawrence of Arabia and makes me wonder why they were not described as originating in the United Arab Emirates, which is what the facts state.

These are pipes traditionally used in the region to smoke dokha, which is a blend of tobacco, other leaves, bark and herbs. Dokha can also be flavored with fruit.

According to Customs and Border Protection, the pipes are classifiable in 9614.00.2500, not surprisingly, as "smoking pipes . . . of wood . . . ."

In the ruling, CBP made a couple useful observations. First, dokha of Iranian origin is probably subject to sanctions and not admissible into the United States. That seems to have been a complete aside as there is no indication that dokha was the subject of the ruling. But, I am not being sarcastic, that extra bit of information may have been useful to the ruling requester.

Second, CBP noted that the importer might want to look into whether the medwakh constitute drug paraphernalia, which would also not be admissible. Under 21 U.S.C. § 863, it is unlawful to sell or transport drug paraphernalia. But, under subsection 21 U.S.C. § 863(f)(2), the prohibition does not apply to “any item that, in the normal lawful course of business, is imported, exported, transported, or sold through the mail or by any other means, and traditionally intended for use with tobacco products, including any pipe, paper, or accessory.” That standard has come to mean that Customs looks to whether the imported item is primarily intended for use with illegal drugs, including a review of the labeling, instructions, marketing, display, etc. Under that standard, a mirror might be treated as drug paraphernalia if it is etched to depict razor blades, tiny spoons, and rolled dollar bills. [Note to my parents: The only reason I thought of those particular items is because I have seen Scar Face one too many times. Really.] For more on this, see HQ H150766 (Mar. 8, 2011)(holding that hookas area not drug paraphernalia).

Sunday, January 22, 2017

Ruling of the Week 2017.3: Indirect Materials

I do a lot of NAFTA-related work. At least I do this week. It remains to be seen whether that changes soon. Secretary of Commerce designee Wilbur Ross told the Senate committee considering his nomination that his top priority would be renegotiating NAFTA. So, this may all change. As we sometimes have to tell clients, the situation is fluid.

In the meantime, the NAFTA rules of origin continue in place. Often, for a product to qualify as originating, it must have a Regional Value Content of 50% when calculated with the net cost methodology or 60% when calculated with the transaction value methodology. There are exceptions, especially for automotive products. You need to check the rule applicable to your product in HTSUS General Note 12.

Sometimes, producers are close but cannot hit the required RVC. There are a few means provided in the regulation for adding to the RVC. One of the best is the designation of a self produced material as an intermediate material. HQ H273100 (Jan. 6, 2016) is a good example of how that works.

The producer was making starter motors for lawn tractors in Mexico. As part of that process, it also made the DC motor at the heart of the starter motor assembly. The starter motor is classified in 8511.40.00 and is subject to an RVC requirement because not all of the non-originating materials make a required tariff shift under the applicable rule.

The DC motor is classified in 8501.32. If the producer thinks just about the finished motor assembly, all of the non-originating materials in it make a qualifying change in tariff classification. That means the motor would, if certified separately, qualify as originating.

The useful thing to know here is that Part III, Section 6(4) of the NAFTA Rules of Origin Regulations provides (in relevant part):

Except as otherwise provided in section 9 and section 10(1)(d), for purposes of calculating the regional value content of a good under subsection (2) or (3), the value of non-originating materials used by a producer in the production of the good shall not include

the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material.

As a result, and as Customs and Border Protection confirmed in this ruling, the value of non-originating materials used in the production of the motor are not counted toward the value of non-originating materials when doing the RVC calculation for the starter motor. It does go in the net cost. That means, the total value of the motor is treated as originating, despite containing non-originating materials.

This rule makes perfect sense. The motor sub-assembly could have been purchased from a third party. If that third party used exactly the same supply chain and production process, it would have been able to certify the motor as originating. The purchaser of the DC motor would not have been penalized for any non-originating material in the motor. The intermediate material rule recognizes that a vertically integrated manufacturer should not be at a disadvantage.

The wrinkle here is for automotive goods. The references in the regulation to section 9 and section 10(1)(d) cover that. For light-duty automotive goods, the net cost methodology is modified to require a higher RVC and "tracing." Tracing means that the value of non-originating materials includes the value of certain designated materials, even if they are in a sub-assembly. That non-originating value must be captured and brought forward for the RVC calculation. A similar limitation applies to heavy-duty automotive components, component-assemblies, and sub-components.

If you are having trouble getting to the required RVC, look for self-produced sub-assemblies in your bill of materials. There may be enough value there to get your product over the hump.

Sunday, January 15, 2017

Lock Washers: Scope and Suspension

Here, we continue our dive into the intersection of customs and trade law. The Court of International Trade decision in United Steels and Fasteners, Inc. v. United States, raises interesting issues about how scope decisions from the Department of Commerce impact customs entries awaiting liquidation. If you are a traditional customs compliance professional who does not often delve into trade questions, buckle up. This will be bumpy.

This case involves the antidumping duty order on Helical Spring Lock Washers from China. The scope of this particular order covers:

circular washers of carbon steel, of carbon alloy steel, or of stainless steel, heat-treated or non-heat-treated, plated or non-plated, with ends that are off-line. HSLWs are designed to: 1) function as a spring to compensate for developed looseness between the component parts of a fastened assembly; 2) distribute the load over a larger area for screw or bolts; and 3) provide a hardened bearing surface. The scope does not include internal or external tooth washers, nor does it include spring lock washers made of other metals, such as copper. The lock washers subject to this investigation are currently classifiable under subheading 7318.21.0000 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of this investigation is dispositive.
The order was first published in 1993.

In 2013, American Railway Engineering and Maintenance-of-Way Association ("AREMA") submitted a scope clarification request to Commerce concerning a specialized type of washer made to its own standards. These washers have modest helicality, a square or rectangular cross section, do not meet the ASME standards referenced in the ITC Report in this case, are specifically for railway use, and (among other things) are 50% to 130% thicker than typical helical spring lock washers. Shakeproof Assembly, the petitioner in the original dumping case and a defendant intervenor in the CIT, responded to the scope request arguing that the washers are within the scope of the order and, furthermore, requesting that Commerce instruct Customs to suspend liquidations and request cash deposits for all unliquidated entries back to the start of the administrative review.

Commerce ultimately held that the washers are within the scope of the order. Commerce also ordered Customs to retroactively suspend liquidations back to the date of the order.

This raises two obvious questions. First, is Commerce right about the scope? Second, should Customs have retroactively suspended liquidations?

The Scope Part

Petitioners and Commerce cannot always specify exactly what merchandise comes within the scope of an antidumping (or countervailing duty) order. Orders tend to specify some products and include general terms to catch similar products. When an interested party needs certainty about a product, it may apply to Commerce for a scope clarification under 19 CFR 351.225. In some cases, Commerce will decide the scope issue on the basis of the language of the order under 19 CFR 351.225(d) without commencing a formal inquiry. If that is not possible, Commerce can initiate a formal scope inquiry under 19 CFR 351.225(e).

If an interested party disagrees with the scope determination, it can challenge the decision in the Court of International Trade. The Court will uphold a scope determination that is supported by substantial evidence on the record. That is a highly deferential standard that means the Court may have to uphold a Commerce Department decision even if the judge disagrees with the result. Generally, these decisions can only be overturned where there is a lack of evidence in the administrative record to support them.

Commerce found that the AREMA washers are helical spring lock washers and that the distinguishing characteristics were not sufficient to remove them from the scope of the order. According to Commerce, the design and function of the AREMA washers minimalize helicality [Note: that is a phrase to consider] but did not strip them of their helical function. Commerce was helped in this regard by language in the petition noting that a "significant portion of the larger sizes [of helical spring lock washers] are used for installation of railroad tracks." That seems to be directly addressed at AREMA's product.

Plaintiff raised a number of arguments to show that Commerce's decision was not supported by substantial evidence. First, the fact that these washers are made to AREMA standards, rather than the more common ASME standard. This was not sufficient given that the administrative record shows no requirement that in-scope washers be made to any industry specification. Similarly, the fact that helical spring lock washers generally have a trapezoidal cross-section is not an exclusion of washers with other cross-sections. The Court also found that record evidence supports Commerce's finding that the unique thickness-to-diameter ratio of the AREMA washers did not remove them from the order. In the end, the Court rejected Plaintiff's arguments and found that Commerce's determination was based on substantial evidence in the record. So, the AREMA washers are in scope.

The Liquidation Part

To a degree, that is all background to the second question. To my mind, this is the more interesting part.

Having found the washers to be in scope, Commerce instructed Customs to suspend liquidation of unliquidated entries of AREMA washers as far back as 1993, when the order was first entered. As a practical matter, that means newish entries that have not liquidated and entries subject to an existing injunction. According to the Court, this means entries between October 1, 2011 and September 30, 2013. If this retroactive application of the scope determination is correct, this is the kind of unanticipated potential liability that keeps importers awake at night.

Under the Commerce regulations, specifically 19 CFR 351.225(l)(3), if products are found to be within the scope of the order, Commerce is to instruct Customs to suspend liquidation and to require a cash deposit of estimated duties, "for each unliquidated entry of the product entered, or withdrawn from warehouse, for consumption on or after the date of initiation of the scope of inquiry." In this instance, there was no formal scope inquiry initiated under § 351.225(3). Commerce decided the issue on its own under § 351.225(d). According to Commerce, that means the regulation does not address this exact fact pattern and Commerce can instruct Customs to suspend liquidation back to the date of the order.

The CIT disagreed. First, the history of the regulation makes it clear that suspension of liquidation is a serious step that can have significant consequences for importers and foreign exporters and producers. But, the domestic industry is entitled to the protection of the order for all in-scope merchandise. To balance these interests, Commerce set the date of potential suspension as the date of initiation of the scope inquiry. Thus, while not addressing this circumstance, it is clear that Commerce intended the potential period of subject entries to be limited. Looking to a prior CIT decision, the Court found that Commerce is limited in its authority to request the suspension of duties, regardless of the formality of the proceeding. The Court of Appeals similarly limited Commerce's authority in scope inquiries to after the date of initiation. Without these limits, Commerce would always be able to request suspension retroactive to the date of the order simply by choosing to forgo a formal scope inquiry under 351.225(e) in favor of an informal proceeding under 351.225(d).

Commerce made a good argument that its decision in this scope case was the equivalent of a finding that the AREMA lock washers were always within the scope of the order. By limiting the ability of Commerce to request suspension back to the date of the order, the Court is allowing in-scope merchandise to escape the lawful order. That is true. But, the Court noted, Customs had not identified these products as in-scope. The importer saw the question as uncertain and, therefore, took the correct step of seeking a scope clarification. Under these circumstances, the importer is entitled to rely on Customs' treatment and not have liquidations suspended and cash deposits collected until after the (admittedly informal) scope inquiry was commenced. The exact timing of which remains to be seen. The Court remanded to Commerce to issue new instructions consistent with this decision.

This is a good result for importers of merchandise that is found to be within the scope of an order after entry. The potential liability for antidumping and presumably countervailing duties is limited to unliquidated entries made on or after the date of the scope inquiry. But, do not read too much into that. This is not a Customs penalty case. In theory, Customs can still find that the importer's failure to deposit dumping duties was the result of negligence, gross negligence, or fraud and impose a penalty in addition to collecting duties. Given that customs penalty can be two times the amount of the duties owed for simple negligence, it is possible that a customs penalty will fair outstrip the unpaid duties to be owed as a result of a properly timed suspension of liquidation. On the other hand, if the importer exercised reasonable care (and can prove it), then liquidated entries are final and no penalty would be appropriate.