CAFC Gives CBP Suspension Authority for Ambiguous Orders
When an imported product is potentially subject to antidumping or countervailing duties, there has long been a tension between the roles of U.S. Customs and Border Protection and the Commerce Department in making the final decision of whether CBP should collect duty deposits. On the one hand, CBP is right there at the port and is the agency responsible for revenue collection. On the other hand, Commerce has the technical expertise in the dumping laws and drafted the scope description for the investigation and the order (with input from interested parties).
Sunpreme, an importer of solar modules, has been engaged in a long-running dispute over the whether its imports are within the scope of an order on U.S. imports of certain solar cells from the People’s Republic of
China. I'm not going to focus on the scope question here. For customs lawyers, the more interesting question is which agency gets to make the scope decision and how that impacts the process of importation. In Sunpreme Inc. v. United States, a nearly full Federal Circuit now appears to have given the final word on the issue of which agency, but leaves much of the administrative process to be resolved.
Sunpreme's imported solar modules are based on a hybrid thin film technology that, at the time of entry, was not clearly within the scope of the relevant order. CBP, aware of the order but unclear on whether it applied to the merchandise, sought advice from its laboratory, not from the Commerce Department. The lab reported its opinion that the merchandise was within the scope of the order. At that point, CBP notified Sunpreme that it was suspending liquidation of the entries, which is the correct course of action for merchandise that is subject to antidumping and countervailing duties. Sunpreme paid the additional deposits to secure the release of the merchandise.
Two months later, in June of 2015, Customs asked Commerce for guidance on whether the goods were within the scope of the order. Commerce responded to Customs Commerce can make a scope ruling, "which can be requested by the importer or exporter."
The fact that Customs suspended liquidations on its own, prior to getting guidance from Commerce is the nub of the issue.
To lift the suspension and presumably to stop paying the ADD and CVD deposits, Sunpreme filed a case in the Court of International Trade effectively challenging Customs' independent scope determination. Given the ambiguity in the scope of the order as applied to this merchandise, the CIT held that Customs lacked the authority to interpret the order, which means CBP lacked the authority to suspend liquidation. The Federal Circuit reversed that finding on jurisdictional grounds, stating that Sunpreme should first have requested a scope ruling from Commerce.
In response to a request from Sunpreme, Commerce initiated a scope inquiry on December 30, 2015. On July 26, 2016, it issued a final scope determination finding that the Sunpreme solar cells are within the scope of the orders. Commerce then issued (apparently for the first time) instructions to Customs to continue to suspension of liquidations of pre-scope inquiry imports and to begin suspending liquidations and collecting deposits for entries after December 30, 2015.
Just to get it out of the way, the Federal Circuit agreed with the CIT that substantial evidence supports the Commerce Department's final scope ruling that Sunpreme's solar modules fall within the scope of the order.
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| An ambiguous rabbit or possibly a duck. |
Two months later, in June of 2015, Customs asked Commerce for guidance on whether the goods were within the scope of the order. Commerce responded to Customs Commerce can make a scope ruling, "which can be requested by the importer or exporter."
The fact that Customs suspended liquidations on its own, prior to getting guidance from Commerce is the nub of the issue.
To lift the suspension and presumably to stop paying the ADD and CVD deposits, Sunpreme filed a case in the Court of International Trade effectively challenging Customs' independent scope determination. Given the ambiguity in the scope of the order as applied to this merchandise, the CIT held that Customs lacked the authority to interpret the order, which means CBP lacked the authority to suspend liquidation. The Federal Circuit reversed that finding on jurisdictional grounds, stating that Sunpreme should first have requested a scope ruling from Commerce.
In response to a request from Sunpreme, Commerce initiated a scope inquiry on December 30, 2015. On July 26, 2016, it issued a final scope determination finding that the Sunpreme solar cells are within the scope of the orders. Commerce then issued (apparently for the first time) instructions to Customs to continue to suspension of liquidations of pre-scope inquiry imports and to begin suspending liquidations and collecting deposits for entries after December 30, 2015.
Just to get it out of the way, the Federal Circuit agreed with the CIT that substantial evidence supports the Commerce Department's final scope ruling that Sunpreme's solar modules fall within the scope of the order.
OK, but starting when? Was the CBP-initiated suspension prior to December 30, 2015 appropriate? If not, Sunpreme would not owe ADD/CVD prior to that date. The CIT and the Federal Circuit panel held that when the scope is ambiguous, CBP does not have authority to suspend liquidation prior to Commerce initiating a scope inquiry.
The reasoning for this decision is simply that Commerce is the agency with the responsibility to interpret its orders. When there is no ambiguity about whether a product is covered by an order, Customs makes a decision without interpreting the order; it just applies the order. Where there is ambiguity, there is no way for Customs to make a decision without also making an interpretation. That distinction comes from a couple prior decisions of the Federal Circuit including AMS Associates, Inc. v. United States and Xerox Corp. v. United States.
The government requested a rehearing of the panel decision. Because prior three-judge panels of the Federal Circuit have addressed the question of the allocation of power between Customs and Commerce, those decisions are binding on subsequent panels. The only way to revisit that is via the full 12-judge Court sitting en banc, which is what happened here (minus Judge Wallach). That allowed the Federal Circuit to take a fresh look at the issue.
The Court noted that 19 CFR § 351.225(l)(1) makes it clear that when Commerce conducts a scope inquiry, any existing suspension of liquidation will continue. That means that someone, presumably Customs, could have initiated the suspension. When Commerce issues a final scope determination finding merchandise to be within the scope of the order, the suspension "will continue." If, at the time of scope inquiry, the entries had not been suspended, Commerce is required to instruct CBP to suspend unliquidated entries made after the date of the initiation of the scope inquiry. 19 CFR § 355.225(l)(3). Finally, if the scope inquiry results in a finding that the merchandise is not subject to the order, then any suspension is ended and the entries can liquidate.
Despite the regulations, prior panel in this case followed the earlier Federal Circuit decisions stating that Customs cannot interpret the scope of an ambiguous order. It follows that if CBP can't interpret an ambiguous order, it also can't suspend the entry because doing so implies making a decision on whether the merchandise is potentially within the scope of the order, which is interpreting the order.
The full (minus one) Federal Circuit reversed course on this point. The Court started with the inarguable premise that CBP is charged determining and collecting the duties owed on imported goods. That means it must determine "in the first instance" whether goods are subject to an ADD or CVD order. In exercising its role, Customs cannot expand or change the scope of an order through its own independent interpretation. However, when there is ambiguity, CBP is also not prohibited from delaying liquidation to ensure Commerce provides guidance on the scope question. Putting that restriction on Customs, according to the Court of Appeals, would prevent Customs from fulling its legal obligation. Customs, the Court held, "may not simply ignore ambiguous orders."
It is possible that this decision in not widely applicable. The starting point is that there is ambiguity in the scope of an order and that the imported goods fit within the ambiguity. This is already a narrow Venn diagram.
But, for those case where it does apply, importers are at greater risk unexpectedly of being assessed AD and CV duties. Assume the case of an importer who believes in good faith that its imports are close but nevertheless outside the scope of an order. Prior to this decision, before CBP could suspend the liquidation of the entries, someone would have to ask Commerce to commence a scope inquiry. Presumably, this would give the importer notice of the risk and the ability to both participate in the inquiry and, if needed, make changes to its supply chain. If no scope review is initiated because Commerce declines to act or for any other reason, the entries would liquidate in the ordinary course.
That pre-Sunpreme result is entirely consistent with the finality of liquidation and the remedial nature of trade law. On finality, liquidations are final as between both the importer and the government. In the absence of a violation or other exception, once Customs liquidates the entry, it cannot go back and collect additional duties. That is an ancient principle of customs law. It allows commercial importers as well as individuals repose by knowing they are not continually accruing unquantified (and potentially unquantifiable) liability. It also ensures that Customs does its important job within the time allotted for liquidation.
The point about trade remedies being remedial is that the process is set up to protect domestic producers from unfair competition. It is not intended to punish importers. Purchasing cheap merchandise, even dumped merchandise, is not criminal and is not fraud. An importer of near scope merchandise with a reasonable belief that the merchandise is outside the scope of the order (ambiguous or not) is entitled to enter that merchandise without depositing duties. It is a fair allocation of risks between the domestic industry and the importer (which is also usually a domestic business interest with its own employees and capital investments) to not allow CBP to assess ADD and CVD until Commerce clears up the ambiguity.
Keep in mind that the petitioners, who represent the domestic industry, made the initial request for the order and suggested the scope. The burden should be on the domestic industry and the Commerce Department to arrive at language properly describing the scope of the order. Ambiguity in the order should not be a trap for importers. At a minimum, it makes sense as a policy matter to allow entries to liquidate in the ordinary course until Commerce clarifies the scope.
I am not saying the Federal Circuit's reading of the regulations is wrong. I am saying that this change will likely cause importers some grief.
The reasoning for this decision is simply that Commerce is the agency with the responsibility to interpret its orders. When there is no ambiguity about whether a product is covered by an order, Customs makes a decision without interpreting the order; it just applies the order. Where there is ambiguity, there is no way for Customs to make a decision without also making an interpretation. That distinction comes from a couple prior decisions of the Federal Circuit including AMS Associates, Inc. v. United States and Xerox Corp. v. United States.
The government requested a rehearing of the panel decision. Because prior three-judge panels of the Federal Circuit have addressed the question of the allocation of power between Customs and Commerce, those decisions are binding on subsequent panels. The only way to revisit that is via the full 12-judge Court sitting en banc, which is what happened here (minus Judge Wallach). That allowed the Federal Circuit to take a fresh look at the issue.
The Court noted that 19 CFR § 351.225(l)(1) makes it clear that when Commerce conducts a scope inquiry, any existing suspension of liquidation will continue. That means that someone, presumably Customs, could have initiated the suspension. When Commerce issues a final scope determination finding merchandise to be within the scope of the order, the suspension "will continue." If, at the time of scope inquiry, the entries had not been suspended, Commerce is required to instruct CBP to suspend unliquidated entries made after the date of the initiation of the scope inquiry. 19 CFR § 355.225(l)(3). Finally, if the scope inquiry results in a finding that the merchandise is not subject to the order, then any suspension is ended and the entries can liquidate.
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| An ambiguous profile. |
Despite the regulations, prior panel in this case followed the earlier Federal Circuit decisions stating that Customs cannot interpret the scope of an ambiguous order. It follows that if CBP can't interpret an ambiguous order, it also can't suspend the entry because doing so implies making a decision on whether the merchandise is potentially within the scope of the order, which is interpreting the order.
The full (minus one) Federal Circuit reversed course on this point. The Court started with the inarguable premise that CBP is charged determining and collecting the duties owed on imported goods. That means it must determine "in the first instance" whether goods are subject to an ADD or CVD order. In exercising its role, Customs cannot expand or change the scope of an order through its own independent interpretation. However, when there is ambiguity, CBP is also not prohibited from delaying liquidation to ensure Commerce provides guidance on the scope question. Putting that restriction on Customs, according to the Court of Appeals, would prevent Customs from fulling its legal obligation. Customs, the Court held, "may not simply ignore ambiguous orders."
It is possible that this decision in not widely applicable. The starting point is that there is ambiguity in the scope of an order and that the imported goods fit within the ambiguity. This is already a narrow Venn diagram.
But, for those case where it does apply, importers are at greater risk unexpectedly of being assessed AD and CV duties. Assume the case of an importer who believes in good faith that its imports are close but nevertheless outside the scope of an order. Prior to this decision, before CBP could suspend the liquidation of the entries, someone would have to ask Commerce to commence a scope inquiry. Presumably, this would give the importer notice of the risk and the ability to both participate in the inquiry and, if needed, make changes to its supply chain. If no scope review is initiated because Commerce declines to act or for any other reason, the entries would liquidate in the ordinary course.
That pre-Sunpreme result is entirely consistent with the finality of liquidation and the remedial nature of trade law. On finality, liquidations are final as between both the importer and the government. In the absence of a violation or other exception, once Customs liquidates the entry, it cannot go back and collect additional duties. That is an ancient principle of customs law. It allows commercial importers as well as individuals repose by knowing they are not continually accruing unquantified (and potentially unquantifiable) liability. It also ensures that Customs does its important job within the time allotted for liquidation.
The point about trade remedies being remedial is that the process is set up to protect domestic producers from unfair competition. It is not intended to punish importers. Purchasing cheap merchandise, even dumped merchandise, is not criminal and is not fraud. An importer of near scope merchandise with a reasonable belief that the merchandise is outside the scope of the order (ambiguous or not) is entitled to enter that merchandise without depositing duties. It is a fair allocation of risks between the domestic industry and the importer (which is also usually a domestic business interest with its own employees and capital investments) to not allow CBP to assess ADD and CVD until Commerce clears up the ambiguity.
Keep in mind that the petitioners, who represent the domestic industry, made the initial request for the order and suggested the scope. The burden should be on the domestic industry and the Commerce Department to arrive at language properly describing the scope of the order. Ambiguity in the order should not be a trap for importers. At a minimum, it makes sense as a policy matter to allow entries to liquidate in the ordinary course until Commerce clarifies the scope.
I am not saying the Federal Circuit's reading of the regulations is wrong. I am saying that this change will likely cause importers some grief.
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