In a recent decision, the Federal Circuit reversed a holding by the US Court of International Trade (“ITC”) and held that the US Department of Commerce (“Commerce”) should perform a substantial transformation analysis to determine the country of origin before applying circumvention analysis.
The case centered on 2010 Antidumping (“AD”) and Countervailing Duties (“CVD”) Orders (the “Order”) regarding the importation of oil country tubular goods (“OCTG”) from China. Generally, OCTG are steel tubes used in the drilling and extracting oil. The Orders expressly referenced both unfinished, “green” tubes and those that had been finished through heat treating, threading, or other processes.
In subsequent evaluations, United States Customs and Border Protection (“Customs”) determined that OCTG that had left China as green tubes but had been subject to heat treatments in third countries had been “substantial transformed” so as to assume the country of origin of the finishing country and not be subject to the AD and CVD. Nevertheless, in a 2014 Scope Ruling Commerce determined that heat treating did not substantially transform the OCTG and, therefore green tubes finished other countries were subject to the Orders.
Bell Supply, a U.S. steel importer which arranges for the heat treatment and finishing of OCTG in Indonesia of green tubes from China challenged the 2014 Scope Ruling before the ITC. Bell Supply argued that Commerce was improperly expanding the scope of the Orders which contained no reference to tubes finished in third countries such as Indonesia. Bell Supply asserted that Commerce should be conduct an inquiry as to whether the Indonesian tubes were an effort to circumvent the AD or CVD under 19 U.S.C. 1677j, but not otherwise evaluate the country of origin. The ITC agreed that Commerce’s reading expanded the scope of the Orders beyond their express text. Moreover, the ITC held that Commerce should not have applied a substantial transformation test on the tubes from Indonesia and should only have performed a circumvention inquiry if it believed the foreign producers were indeed attempting to evade AD or CVD.
On remand, Commerce again determined that the OCTG fell within the purview of the Orders. This time, Commerce focused on the specific language of the Orders which assess AD and CVD on both finished and unfinished OCTG. The ITC again rejected Commerce’s determination, finding that the Orders were silent with respect to the circumstances at issue — a green tube finished in third country.
In the Final Results of Second Redetermination Pursuant to Remand (the “Second Redetermination”), Commerce concluded that OCTG finished in third countries, despite their initial production in China, were not subject to the Orders. Commerce also performed a circumvention inquiry and found no evidence of circumvention.
A group of U.S. domestic steel producers appealed Commerce’s subsequent scope ruling sustaining the Second Redetermination. Consistent with its prior determinations, the ITC found that Commerce’s revised approach correctly determined that the the OCTG from third countries are not covered by the Orders. On appeal the domestic steel producers argued that: (1) the OCTG were covered by the Orders from the time they were produced in China through their importation into the United States; and (2) that the OTCG should be considered “finished” OTCG “from China”.
The Federal Circuit quickly dispensed with the first argument, finding that OTCG were imported as finished products and, therefore, could not still be considered unfinished products as they left China.
With regard to the second argument, the Federal Circuit found that Commerce’s determination should begin with a determination – under the substantial transformation analysis – as to the origin of the finished products. The Federal Circuit rejected the argument that this constitutes an expansion of the scope of the Orders. Instead, the Court held that the determination of origin is the first step because if a product is not substantially transformed in a third country, the origin may remain in a country subject to AD and CVD. If the product is determined not to originate from a country subject to an AD or CVD Order, however, Commerce should then perform a circumvention analysis pursuant to section 1677j.
The Federal Circuit’s holding appears to have established a two part evaluation for products which originate from countries subject to AD and CVD. One potential limitation on the broad application of this new test may be the specific reference in the Orders to both finished and unfinished OTCG which set up a central dispute regarding the intended scope of the Orders. Nevertheless, any company involved in the importation of goods which are modified in third countries needs to be aware of this holding and evaluate its products under the analysis announced.