Saturday, September 24, 2016

The Scope of a Scope Ruling

This being the Customs Law Blog, I don't often wade into the related area of antidumping and countervailing duty law. But, the two areas often bump into each other for my clients and for other importers. Sometimes the issues are generally applicable and require attention, which is the case with Guangzhou Jangho Curtain Wall v. United States.

The important issue for our purposes is the impact of a scope clarification issued by the Department of Commerce. People often refer to these as scope rulings, and importers who are used to dealing with Customs and Border Protection rulings might make some incorrect assumptions about how they apply to imported merchandise. This case shows that the Department of Justice also had some incorrect assumptions about scope clarifications.

The order in question covers aluminum extrusions from China. The full scope is here. The scope specifically excludes finished merchandise. According to the order:

The scope also excludes finished merchandise containing aluminum extrusions as parts that are fully and permanently assembled and completed at the time of entry, such as finished windows with glass, doors with glass or vinyl, picture frames with glass pane and backing material, and solar panels. The scope also excludes finished goods containing aluminum extrusions that are entered unassembled in a "finished goods kit." A finished goods kit is understood to mean a packaged combination of parts that contains, at the time of importation, all of the necessary parts to fully assemble a final finished good and requires no further finishing or fabrication, such as cutting or punching, and is assembled "as is" into a finished product. An imported product will not be considered a "finished goods kit" and therefore excluded from the scope of the investigation merely by including fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product.

In this case, the merchandise was curtain walls. A curtain wall system is commonly used as the exterior of a modern building. The curtain wall is not load bearing and merely blocks weather, adds design, and keeps people inside. The building is supported by structural elements in the core of the building. Often, curtain walls are glass with extruded aluminum members supporting the glass. If you have seen a modern skyscraper, you have seen a curtain wall.

Prior to this case, there had been two Commerce Department scope rulings on curtain walls. The first ruling held that curtain wall components are not finished goods for purposes of the scope exclusion. That decision was affirmed by both the Court of International Trade and the Court of Appeals for the Federal Circuit. The second ruling initially held that complete curtain wall systems sold pursuant to a contract for the entire system as also within the scope of the order. The CIT twice remanded that ruling to Commerce, and at the time of this decision, the issue remains before the CIT.

When Commerce announced the opportunity for the second administrative review of this order, Jangho requested review. At that time, whether complete curtain wall systems were within the scope of the order was (and still is) unresolved. Jangho responded to the questionnaire noting that it was doing so to cooperate, but stating that the curtain wall systems are outside the scope of the order. Jangho then pulled out of the process and did not participate any further. When Commerce finished the preliminary review, it found that Jangho's products are subject to the PRC-wide rate and did not explicitly address the scope issue. In the final determination, Commerce noted the scope question but held Jangho's products to be within the scope of the order because Jangho had not followed procedures to request a scope clarification. A similar result occurred in the countervailing duty case. Jangho appealed to the CIT.

Since we don't often talk about antidumping and countervailing duty law, we should review how this litigation is different from a customs case. First, the role of the CIT is to review the administrative decision on the agency record, rather than on the evidence presented to it. That means in ADD/CVD cases, there is no discovery, no testimony from witnesses, and no findings of fact. The judge must uphold the Commerce Department determination unless it is not supported by substantial evidence on the record or otherwise not in accordance with law. That is true even if he or she would have reached a different conclusion.

The first question before the Court was whether Commerce acted according to law when it held the curtain wall units to be within the scope of the order because of the lack of a scope clarification request from Jangho. The regulation on this is clear that when there is information indicating that a scope clarification is warranted, Commerce "will initiate" an inquiry. 19 CFR 351.225(b). That language does not give Commerce a lot of room to subject merchandise to ADD and CVD when it knows that there is a question as to whether the merchandise is within the scope of the order. Commerce knew there was a scope question and it did not self-initiate a scope inquiry.

What Commerce did was argue that Jangho was obligated to request a scope ruling. According to the Court of International Trade, that is not correct. Rather, an interested party can alert Commerce to a scope issue in the course of an administrative review. If Commerce determines that there is a genuine question, it must investigate the scope issue. That is what Jangho did when it requested review, was made a mandatory respondent, and then provided data while indicating that its curtain wall systems are outside the scope of the order. Thus, according to the Court, the Jangho was not obligated to initiate a formal scope inquiry through a separate request.

So far, so good. Now we get to the part that I think is most relevant to the average importer trying to be compliant. Many importers know that a classification, value, or other ruling issued by Customs and Border Protection is binding on Customs and on the requesting party for the subject merchandise. A ruling is technically not binding on another importer, even if the merchandise is similar. That does not mean that subsequent importers should not follow published rulings; it should. But, it does mean that the ruling is technically limited in scope.

In this case, the Department of Justice argued that a prior scope ruling covering curtain wall units imported pursuant to a contract for a full curtain wall was not applicable to the similar merchandise at issue in this case. According to Justice, that prior scope ruling (as modified by subsequent litigation) is only applicable to the requesting party. Looking at the regulations, the Court of International Trade found that scope rulings are applicable to merchandise, not to the company that requested the ruling. This is consistent with Commerce's ability to self-initiate an inquiry when it sees a scope question with respect to a particular product. Furthermore, the regulation allows interested parties to make scope requests with respect to "a particular product." As a whole, the regulations make it clear that scope rulings address products, not parties. In that way, they are different from Customs rulings which address specific merchandise imported by specific a specific party.

Commerce was wrong to hold this merchandise to be within the scope of the order. Jangho raised the question during the administrative review. From there, Commerce should have self initiated an inquiry. In completing that inquiry, Commerce should have taken note of applicable rulings issued on similar products. Having failed to do that, Commerce's determination was not in accordance with law and, therefore, was remanded. The Court did affirm a part of the administrative decision concerning window wall units on the grounds that Jangho failed to properly raise the issue and, therefore, failed to exhaust the administrative process.






No comments: