The U.S. Court of International Trade (CIT) issued an opinion in Meridian Products, LLC v. United States that could have a significant effect on the interpretation of the “finished merchandise” and/or “finished goods kit” exclusions to the antidumping and countervailing duty orders (the “Orders”) on aluminum extrusions from China. The CIT’s decision deals a blow to attempts by the U.S. Department of Commerce (DOC) to narrow the scope exemption for “finished goods kits” so as to require both aluminum extrusions and non-extruded aluminum parts, other than fasteners, in order for the kit to qualify. Although this opinion does not directly affect the interpretation of the finished merchandise exclusion, the reasoning in the opinion could also indirectly undermine the DOC’s attempts in other cases to imply into this exclusion the “fastener” requirement from the finished goods kit exclusion. However, because the DOC does not consider a CIT opinion to be “binding precedent” that would require it to change its position on other pending or new scope cases, we expect that the DOC likely will continue with its current interpretation, unless and until its interpretation is struck down by the Court of Appeals for the Federal Circuit (CAFC). Nevertheless, it does provide importers with some hope that the courts will force the DOC to interpret more broadly the finished merchandise and finished goods kits exclusions in the aluminum extrusion antidumping and countervailing duty case. To the extent that an importer believes that it will lose a scope ruling at the agency (DOC) level, the Meridian decision demonstrates that the DOC’s interpretations are vulnerable on appeal to being overturned.
In November 2012, Meridian Products filed a scope request with the DOC, arguing that certain refrigerator/ freezer trim kits (“trim kits”) are outside the scope of the Orders. Each trim kit consisted of “extruded aluminum forms,” along with a customer installation kit, which includes a hexagonal wrench and fasteners, as well as an instruction booklet. Meridian Products argued that the trim kits are excluded under the language in the Orders that states “[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, 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 December 2012, the DOC ruled that the trim kits are included within the scope of the Orders. In reaching that result, the DOC relied heavily on a prior ruling that it made involving “geodesic domes,” in which the DOC held that kits that consist solely of extruded aluminum and fasteners cannot qualify for the finished goods kit exclusion. The DOC held that because Meridian Products’ trim kits consisted only of aluminum extrusions, fasteners, and “extraneous” materials (i.e., the hexagonal wrench and instruction booklet), it could not qualify as an excluded finished goods kit.
Meridian Products appealed the DOC’s scope determination to the CIT. After several remands, the CIT issued the current decision.
The CIT’s Latest Opinion
In the Meridian decision, the court rejected the DOC’s position. According to the court, the finished goods kits exclusion contains the following requirements:
- The kit must be an unassembled combination of parts;
- That includes at the time of importation all of the necessary parts to fully assemble a final finished good, with no further finishing or fabrication (such as cutting or punching); and
- Be capable of assembly “as is” into a finished product.
However, the court held that there is nothing in the language of the orders that states a kit cannot qualify if all of the “parts” (aside from fasteners) are aluminum extrusions. In other words, if a kit contains multiple aluminum extrusions as parts, it qualifies for the exclusion as long as it meets all of the remaining requirements. This nullifies the DOC’s requirement that a kit has to contain at least one part other than an aluminum extrusion to qualify for the exclusion.
The court also rejected an argument by the DOC that the language of a separate exclusion for “finished merchandise” supports its reading of the “finished goods kit” exclusion to require both aluminum extrusions and non-aluminum-extrusion parts. The DOC argued that the “finished merchandise” exclusion gives examples of qualifying “finished merchandise,” such as “windows with glass, doors with glass or vinyl, picture frames with glass pane and backing material.” However, the court rejected this argument, on the grounds that the DOC cannot read the limitations of the “finished merchandise” exclusion into the “finished goods kit” exclusion.
Accordingly, the court remanded the case to the DOC again to provide an interpretation of the “finished goods kit” exclusion that is consistent with the language of the scope itself.
Significance of CIT Opinion
This CIT opinion is significant for two reasons. First, it overturns the DOC’s previous position that a “kit” containing multiple aluminum extrusion “parts” is included in the scope of the Orders.
Second, it also could indirectly undermine the DOC’s position in several pending scope appeals at the CIT regarding the separate exemption for “finished merchandise.” In those pending cases, the DOC concluded that the “fasteners” limitation in the finished goods kit exclusion also applies to the finished merchandise exclusion. The DOC had taken the position that the fasteners limitation is implied in the finished merchandise exclusion as well, in order to harmonize the meaning of the two exclusions, such that the limitations are the same, except that the finished merchandise exclusion covers product that is fully assembled at the time of importation, whereas the finished goods kit exclusion covers product that is unassembled but contains all the necessary parts to assemble a final finished good. To the extent that the court in Meridian Products reasoned that the language of the finished merchandise exclusion cannot be grafted onto the finished goods kit exclusion, by the same logic, the language of the finished goods kit exclusion cannot be grafted onto the finished merchandise exclusion.
After the Meridian Decision, What Is Included and What is Excluded?
Based on the logic contained in the CIT’s determination, here is a summary of what the CIT could consider to be included and excluded:
Click here to view the table.
As discussed earlier, the court did not specifically address the finished merchandise exclusion. Therefore, it is unknown exactly what the court would say in specific situations, especially a situation involving fasteners, or in a situation in which the subassembly consists of multiple parts, all of which are aluminum extrusions.
Will This Result in the DOC Changing Its Position in Exiting or New Scope Rulings?
The Meridian decision is unlikely to change the DOC’s mind concerning both exclusions. The DOC takes the position that the CIT’s rulings only apply to the specific case before it and it is not required to change its position until directed by the CAFC. Thus, it is likely that DOC will not change its requirements for the exclusions for existing or new scope rulings until directed to do so by the CAFC.
Also note that the appeal is not final because the CIT again remanded the Meridian Products case back to the DOC. If the DOC issues a new remand determination complying with the CIT’s opinion, but under protest, the DOC (or the U.S. producers) could appeal the CIT’s final judgment to the CAFC. In addition, as noted above, there are other cases pending at the CIT that address the interplay between the finished merchandise and finished goods kit exclusions. This opinion in Meridian Products could be cited as persuasive authority to the other CIT judges hearing these companion cases, but the Meridian Products opinion is not binding on other CIT judges.
How Does This Decision Potentially Impact Importers?
Although the Meridian decision is not final, and the DOC is unlikely to change its requirements for meeting the finished goods kit and finished merchandise exclusions, this decision does benefit importers. It gives hope to importers that, although they may lose the scope ruling at the agency (DOC) level, they may ultimately prevail on appeal. Although no company likes to be embroiled in an appeal, if enough AD/ CVD duties are at stake, this decision may provide an avenue for a potentially successful appeal. If anything, it signifies that the courts are not going to rubber stamp the DOC scope determinations concerning the finished merchandise and finished goods kit exclusions. And who knows, it may even convince the DOC to change its position going forward.