On July 18 2013 the Court of Appeals for the Federal Circuit issued an important decision regarding the Department of Commerce's method of interpreting the scope of anti-dumping orders. The decision, which criticised the agency's practice of relying on case-by-case analysis, could lead the department to propose amended regulations establishing criteria for drafting and interpreting the scope of anti-dumping orders; it also could encourage petitioners in trade remedy proceedings to describe the scope of their products in more expansive terms from the outset.

In Mid Continent Nail Corp v United States(1) the specific issue was whether the anti-dumping order on imported nails from China excluded nails that were packaged in 'mixed media' (ie, tool kits containing a variety of items used for home repair). Target Corporation, the importer, initiated a scope inquiry to clarify the scope of the anti-dumping order and argued that the anti-dumping order should be interpreted to exclude nails contained in such kits because they comprised a tiny proportion of the value of the kits. The department agreed that the nails contained in the kits were excluded from the scope of the anti-dumping order and the US petitioner, Mid Continent, appealed. The Court of International Trade rejected the department's analysis and held that because the anti-dumping order included no express language discussing mixed media, the department "had no authority" even to "conduct a mixed media inquiry and exclude otherwise-subject merchandise".(2)

The appeal court vacated and remanded. It noted the basic due process principle that "antidumping orders [must] only be applied to merchandise that they may reasonably be interpreted to include", in order to ensure that parties will have "adequate notice of what conduct is regulated by the order".(3) It then applied this principle to the specific situation at hand, reasoning that, just as anti-dumping orders cannot be extended to include merchandise that is not within their scope "as reasonably interpreted", so, conversely, "merchandise facially covered by an order may not be excluded from the scope of the order unless the order can reasonably be interpreted" to permit such exclusion.(4)

The appeal court then concluded that "because orders are subject to interpretation," the Court of International Trade had erred in finding that the absence of express language in the Nails order regarding mixed media meant that the Department of Commerce had no authority to conduct a mixed media inquiry or to exclude the nails that were imported as part of a kit. Rather, the court stated that "[t]he mere fact that the order in this case makes no explicit reference to mixed media items does not conclusively establish that Commerce lacked authority to consider the order's applicability to nails contained within such items".(5) However, the appeal court agreed with the Court of International Trade that the department had failed to articulate a reasonable interpretation of the anti-dumping order that would justify the exclusion of nails included in mixed media kits. Therefore, the appeal court remanded to the Court of International Trade, with instructions to remand to the Department of Commerce, to provide it "one last opportunity" to interpret the anti-dumping order.(6)

The opinion did not end there, however. The appeal court then did something quite unusual: it offered several pages of detailed advice on how the department should go about determining the scope of anti-dumping orders – particularly in cases involving mixed media, but also presenting general principles that can apply to other scope inquiries. The court noted that the first step in such an analysis is to determine whether the merchandise that is contained in the mixed media kit falls within the literal terms of the anti-dumping order (ie, whether it would be subject to the anti-dumping order if imported separately). However, even if the answer to that question is yes, the analysis is not finished; the department must then determine whether that merchandise should nonetheless be excluded from the scope of the anti-dumping order when it is contained in a mixed media kit.

In the Nails case the parties agreed that the text was unambiguous and that the nails at issue fell within the literal terms of the anti-dumping order. The court nonetheless offered guidance on how to deal with the situation in which the text of the order is not so clear. In this situation, the department should interpret the text of the order by reference to certain other materials, which are identified in its regulations(7) – namely, the descriptions of the merchandise in the petition and in prior determinations of the International Trade Commission and the Department of Commerce, including prior scope determinations. If those materials are not dispositive, the department should consider various commercial criteria identified in subsection (k)(2) of its regulations – such as the physical characteristics of the product, consumer expectations, the ultimate use of the product and channels of trade in which it is sold. Borrowing the "substantial transformation" language from other areas of customs law, the appeal court explained that:

"[i]f the manner in which the otherwise-subject merchandise is incorporated into the mixed media item alters these properties so comprehensively as to effect a 'substantial transformation'... such that it 'can no longer be considered' the same merchandise, then the included merchandise is not subject to the order."(8)

The next step deals with the situation in which the anti-dumping order is unambiguous that the merchandise at issue would fall within its scope if "considered in its own right", but is silent as to the treatment of such merchandise if incorporated in mixed media (a common occurrence). Here again the court instructed the department to consider the subsection (k)(1) materials. Where those materials do not indicate that the merchandise at issue should be excluded from the scope of the order when included in mixed media, the court stated, "a presumption arises" that the merchandise at issue is subject to the anti-dumping order.(9)

At this point the analysis gets interesting. The court noted that the presumption may be overcome if the department can "identify published guidance issued prior to the date of the original antidumping order... that provides a basis for interpreting the order contrary to its literal language".(10) Such guidance, the court said, could include prior scope determinations – provided that they were publicly available at the time that the anti-dumping order was issued. If read strictly, this would be a logical impossibility, because the department has no reason to engage in scope inquiries on an anti-dumping order that does not yet exist. But the appeal court appears to be referring to prior scope rulings on the same general issue – in this case, the existence of an implied mixed media exception in the absence of an express exclusion in the text of an anti-dumping order – even if those prior scope rulings were interpreting other anti-dumping orders.

At several points, the court's opinion complained about the limited amount of information that the department publishes about its scope rulings, as well as their "lack of clarity".(11) The opinion wrapped up by noting that "Commerce's problems are largely self-inflicted" because the agency prefers to issue determinations on a case-by-case basis to maintain maximum flexibility. This preference gives "low priority to an approach that should receive the highest priority from any administrative agency – providing coherent and consistent guidance to regulated parties".(12) The court noted that the department can avoid these problems in the future by providing prospective guidance on mixed media "and other" cases. The 'other' is critical here: although this particular case concerned a mixed media scope inquiry, the same problem regarding the application of what appears to be clear scope language in anti-dumping orders to unanticipated situations can arise in many situations. Thus, a consequence of the appeal court's decision may be to encourage greater efforts by parties in anti-dumping investigations to front-load their scope battles. It is also possible that the Department of Commerce will heed the court's call and propose amendments to its regulations to offer more "interpretive criteria"(13) for scope language in anti-dumping orders.

For further information on this topic please contact Neil Ellis or Brenda Jacobs at Sidley Austin LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email (nellis@sidley.com or bjacobs@sidley.com).

Endnotes

(1) CAFC 2012-1682, 1683.

(2) CAFC slip op at 7.

(3) CAFC slip op at 8, quoting Fuji Photo Film Co v Int'l Trade Comm'n, 474 F 3d 1281, 1292 (CAFC 2007).

(4) CAFC slip op at 10 (emphasis in original).

(5) CAFC slip op at 10.

(6) CAFC slip op at 11.

(7) 19 CFR § 351.225(k)(1).

(8) CAFC slip op at 12, quoting Crawfish Processors Alliance v United States, 483 F 3d 1358, 1362-63 (CAFC 2007).

(9) CAFC slip op at 14.

(10) CAFC slip op at 15 (emphasis added).

(11) CAFC slip op at 15-17, 18.

(12) CAFC slip op at 18.

(13) CAFC slip op at 15-16 n4.

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