Commerce Regulations Update Scope/Circumvention Procedures, Clarify CVD Practice

April 04, 2024

The U.S. Department of Commerce (“Commerce”) promulgated new and amended regulations that will go into effect April 24, 2024. A recent CLK Insight focused on Commerce’s changed provisions concerning transnational subsidies, weak regulatory environments, and distorted production costs. This post discusses a selection of the remaining changes provided for in Commerce’s final rule.

The first group of regulations discussed below are primarily procedural in nature but nevertheless have the potential to materially affect the course of proceedings before the agency. The second group of regulations concern the substance of Commerce’s countervailing duty (“CVD”) analysis and were presented by Commerce as codification of its existing practice.

Commerce Adjusts and Clarifies Scope and Circumvention Inquiry Procedures

For many years, a single regulatory provision (19 C.F.R. § 351.225) covered both scope inquiries (which determine whether a given product falls within an antidumping and/or countervailing duty (“AD/CVD”) order) and circumvention inquiries (which determine whether an imported product is circumventing an antidumping and/or countervailing duty order). Commerce’s 2021 2021 amendments created separate regulations setting forth procedures applicable to scope inquiries (19 C.F.R. § 351.225), circumvention inquiries (19 C.F.R. § 351.226), and covered merchandise inquiries referred by U.S. Customs and Border Protection (19 C.F.R. § 351.227).

Having had several opportunities to apply these provisions in recent years, Commerce’s most recent rule contains additional amendments meant to adjust and clarify the agency’s procedures.

First, Commerce has clarified what products may be eligible for procedures intended to determine AD/CVD coverage before importation, and how to make use of these procedures (§ 351.225(c)(1)-(2)). Scope rulings have long been available for products which are or have been “in actual production” by the time of the filing of the inquiry application. Commerce’s amendment defines “actual production” as requiring the product be “commercially manufactured and sold, i.e., produced for sale in a market and then subsequently purchased.” Thus, “samples, prototypes, or mere models” are ineligible. Commerce furthermore clarifies that parties wishing to make use of pre-importation scope procedures must provide evidence of “actual production” as defined in the regulation.

Second, Commerce has extended pre-initiation procedures for scope and circumvention inquiries (§§ 351.225(c)(3), (d)(1)(ii), §§ 351.226(c)(3), (d)(1)(ii)). Within ten days of a scope or circumvention inquiry petition, interested parties will newly be provided an opportunity to submit comments concerning the adequacy of the petition. In addition, for circumvention inquiries in particular, interested parties may include rebuttal factual information with their adequacy comments, whereupon the petitioner will have five days to submit surrebuttal comments and factual information.

Commerce has also expanded the pre-initiation procedures available to the agency. Previously, Commerce could only accept or reject a scope or circumvention inquiry petition as submitted. With the new rule, however, Commerce may alternatively seek “clarification on one or more aspects” of a scope or circumvention inquiry petition. After receiving a response, Commerce will have 30 extra days to determine whether to initiate the inquiry, but interested parties will not be given a further opportunity to rebut the response to Commerce’s request for clarification.

Third, Commerce has established more flexible timelines for circumvention inquiries likely to delay the imposition of provisional remedies (existing §§ 351.226(d)(1), (e)(1)).

Previously, Commerce’s regulations provided a 45-day window in which Commerce must decide whether to initiate a circumvention inquiry. To accommodate the new procedures described above, Commerce has amended its initiation deadlines to provide:

  1. 30 days if initiated based on the circumvention petition as originally submitted;
  2. 45 days if the 30-day period is impracticable and no party submitted rebuttal information;
  3. 60 days if the 30-day period is impracticable and rebuttal factual information was submitted.

Moreover, in the event Commerce requests clarification from the petitioner, the foregoing “deadlines…will be triggered off the submission of the timely submitted response to Commerce’s questions.” These provisions permit Commerce to substantially extend the period between receipt of a petition and initiation of an inquiry, which has a domino effect of delaying the imposition of provisional remedies in response to an affirmative preliminary determination.

Commerce’s new regulations also expressly permit it to extend the preliminary determination deadline by up to 90 days (i.e., up to 240 days in total). Commerce asserted that the 90-day allowance “does not mean that Commerce will always extend up to the full 90 days,” and declined to eliminate or reduce the available extension period in response to interested party comments. The regulatory deadline for final results remains fixed at 365 days, but because neither the preliminary nor final deadline is fixed by statute (19 U.S.C. § 1677j(f)), Commerce has extended them when deemed necessary in past proceedings.

Fourth, Commerce has established four specific situations in which it may apply a “scope clarification” (§ 351.225(q)(1)). Scope clarifications are essentially a means of addressing “other scope-related items” short of issues that may necessitate a full inquiry. However, insofar as these are not published in the Federal Register, interested parties should be vigilant if a scope clarification might apply to a product of interest.

Commerce Codifies CVD Standards and Practices

Another articulated purpose of Commerce’s new rule is to codify aspects of its CVD practice that have been established through agency decision-making over the past several decades.

First, Commerce codified its practice of countervailing the non-collection of fees, fines, and penalties (§ 351.529). Commerce explained that foregone revenue is countervailable, regardless of whether the government has attempted to collect the fees, fines, or penalties in question, and that even exceptions to fee, fine, or penalty payments enshrined in foreign law could be countervailable, depending on the facts presented.

Commerce clarified that the new § 351.529 was “never intended to address all subsidies conferred by government inaction,” and that Commerce may continue to address “either the inactions or measures of a government under the other forms of financial contributions defined within the statute.”

Second, Commerce spelled out certain analytical frameworks that are commonly applied in CVD proceedings, with the intent of saving parties the trouble of sifting through past determinations in order to understand Commerce’s approach. These are summarized below:

  • Commerce codified its hierarchy for sources of adverse facts available (“AFA”) subsidy rates in CVD proceedings (§ 351.308(j)). Commerce also reserved subsections (g)-(i) of § 351.308 and hinted at its intention to codify “other provisions found in 19 U.S.C. § 1677e(d), and parts of Commerce’s AFA practice in general” in the future;
  • Commerce codified the treatment of government loans as grants after three years of non‑payment on the loan (§ 351.505(d));
  • Commerce codified its practice of assessing equity infusions from an outside private investor’s perspective and adopted a 12-year minimum period for allocating equity benefits (§ 351.507);
  • Commerce adopted a 12-year minimum period for allocating debt forgiveness (§ 351.508);
  • Commerce codified that benefits from income tax-related subsidies are normally not tied to particular products or markets (§ 351.509(d));
  • Commerce codified its practice of evaluating whether insurance premiums covered the costs of export insurers over a five-year period (§ 351.520); and
  • Commerce introduced discretionary language permitting it to attribute domestic and export subsidies to multinational production in “narrow” circumstances (§ 351.525).

Most of the CVD-related updates summarized above should be familiar to practitioners; nevertheless, their application to a given case is generally fact-specific. Opportunities thus exist for both domestic and foreign interested parties to impact Commerce’s subsidy calculations through the application of the agency’s new regulations.

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