Observing increased imports of corrosion resistant steel (CORE) from the United Arab Emirates (UAE) that was produced using Chinese-origin substrate, the Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the U.S. Department of Commerce’s determination that such third-country processed steel was circumventing the antidumping duty and countervailing duty orders CORE from China. The Court also found lawful Commerce’s methodology for evaluating third-country circumvention, paving the way for domestic manufacturers to secure strong enforcement of trade remedies.
Circumvention, Generally
In 1988, Congress enacted the circumvention statute to close a “loophole” in domestic law. Specifically, Congress found that upstream inputs of a product otherwise subject to antidumping and countervailing duties were being shipped to third countries for further processing to avoid the application of the U.S. trade remedy laws. In enacting the statute, Congress expected Commerce to take aggressive action to address such circumventing activity.
By law, Commerce must consider the following in any third country circumvention inquiry: (1) third country level of investment, (2) third country research and development, (3) the third country production process, (4) the extent of production facilities in the third country, and (5) whether the value of the processing in the third country represents a small proportion of the value of the merchandise imported into the United States. Commerce will also consider, inter alia, whether the pattern of trade, including sourcing patterns, and affiliation with upstream producers support an affirmative finding of circumvention. The relative importance of any particular factor can vary from case to case.
CORE from China
In 2016, Commerce found that Chinese CORE producers were selling CORE in the United States at less than fair value (i.e., dumping) and that they benefited from subsidies provided by the Government of China. The U.S. International Trade Commission found that these unfair trade practices materially injured domestic CORE producers. Consequently, antidumping and countervailing duties were imposed to level the playing field.
Subsequently in 2019, domestic CORE producers requested that Commerce initiate an anti-circumvention inquiry after observing a significant increase in CORE imports from the UAE and a significant increase in Chinese exports of hot-rolled and cold-rolled steel (i.e., the primary inputs used in the CORE production process) to the UAE. After conducting an investigation, Commerce found (1) CORE processors in the UAE were relying on Chinese-origin substrate in their production processes, (2) the processing operations in the UAE were “minor or insignificant” when compared to the operations in China to produce the hot-rolled or cold-rolled steel substrate, and (3) a substantial shift in the pattern of trade in which UAE producers increased their imports of Chinese-origin substrate and increased their exports of CORE to the United States. These factors supported an affirmative finding of circumvention.
The Al Ghurair Appeal
Al Ghurair appealed Commerce’s factual findings and its use of a comparative framework to analyze record evidence. In particular, Al Ghurair claimed that Commerce erred by comparing the entire CORE production process in China, from blast furnace to finished CORE, to its minor operations of re-rolling the substrate in the UAE. Al Ghurair also claimed that Commerce’s factual findings considering the operations, investment levels, production process, and patterns of trade warranted a negative finding.
The Federal Circuit rejected these arguments and found that Commerce acted reasonably by finding circumvention.
Most significantly, in evaluating whether Al Ghurair’s operations in the UAE were “minor or insignificant” within the meaning of the statute, the Federal Circuit affirmed Commerce’s longstanding practice of comparing third country processing operations to the fully integrated operations in the country subject to the relevant order. Here, Commerce analyzed whether the processing of Chinese-origin hot-rolled and cold-rolled steel into CORE in the UAE was “minor or insignificant” compared to manufacturing CORE in China from a blast furnace. Beyond affirming Commerce’s methodology, the Court found record evidence supported Commerce’s factual conclusions:
- With respect to the level of investment, Commerce found that the average expenditure for construction of an integrated steel mill in China was $3.6 billion, roughly 15 times greater than that required to build facilities present in the UAE.
- With respect to the value added by the processing operations in the UAE, the Court found that Al Ghurair failed to appeal Commerce’s value-added determination of 10% to 31% in the UAE.
- With respect to the pattern of trade, the Court found that Al Ghurair’s purchases of Chinese substrate “skyrocketed” and, consequently, Al Ghurair exported “significantly more CORE” to the United States.
Upshot for Domestic Manufacturers Harmed by Unfair Trade Practices
This case represents a significant victory for domestic manufacturers, but also for law-abiding importers and exporters.
This case represents the first time that the Federal Circuit evaluated Commerce’s use of a comparative methodology to examine the significance of third-country processing operations. Commerce has used this comparative methodology in nearly all third-country circumvention cases conducted since 1988. In affirming Commerce’s practice of using a comparative methodology, the Court has ensured that Commerce has the requisite tools to tackle the increasingly complex nature of third country circumvention.
Moreover, in affirming Commerce’s comparative methodology the Court has provided clarity to all interested parties (domestic manufacturers, importers, and foreign producers and exporters) as to what constitutes circumvention. Consequently, interested parties are now aware of the kinds of questions and analyses Commerce will conduct in the event of a circumvention inquiry and can ensure their future business decisions and investments abide by U.S. law.
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Cassidy Levy Kent has represented clients in a significant number of circumvention inquiries before the Department of Commerce, as well as appeals of those determinations at the Court of International Trade and the Court of Appeals for the Federal Circuit, including in Al Ghurair. These circumvention inquiries have concerned a broad range of merchandise, including CORE and other steel products, hydrofluorocarbon gases, and solar cells and solar panels. If you have any questions about this case, or other circumvention inquiries, please contact us.