Using Third-Country Components? Buyer Beware – New AD/CVD Orders Target Third Country Production

Using Third-Country Components? Buyer Beware – New AD/CVD Orders Target Third Country Production

The US Department of Commerce has begun to include “third country processing” language in the scope of Antidumping/Countervailing Duty (AD/CVD) orders to prevent circumvention of the orders in the first instance.

Circumvention Investigation Trends

• Companies that change their supply chain such that the merchandise is completed or assembled in a third country or the US may still have to pay US anti-dumping or countervailing duties even if the country of origin is different from the country named in the AD/CVD order.
• Products that are subject to AD/CVD orders from certain countries can be investigated by the Department of Commerce (DOC) for circumvention where those products were made from parts from a subject country and completed or assembled in a third country or the United States.  
• The DOC has the authority to instruct CBP to collect AD/CVD duties on such products, which can include import entries prior to the initiation of the circumvention investigation.

What to Know

• The DOC may initiate an anti-circumvention inquiry when it receives an initiation request (or through self-initiation by the DOC) if it determines, based on available information, that an inquiry is warranted to determine whether imports are circumventing an AD/CVD order.
• This means that companies involved in such an investigation need to respond fully and timely to all requests for information. 
• We believe that circumvention investigations can be an effective tool to prevent circumventing of AD/CVD duties to protect US producers that have petitioned for the AD/CVD duties and importers that are paying the duties from other importers that should also be paying the duties.
• We caution companies who have changed their suppliers due to AD/CVD duties (or also become aware of changes in suppliers of their competitors) to carefully and continuously monitor suppliers because any circumvention by a supplier is attributed to the importer regardless of the importer’s knowledge of circumvention.
• Companies establishing downstream manufacturing operations in third countries should be watchful regarding the origin and AD/CVD status of critical inputs that may be caught in circumvention actions.

How We Can Help

If your company has changed suppliers due to AD/CVD duties, the Arent Fox team can help discuss steps to prevent a successful circumvention allegation. If your company suspects that a competitor is circumventing AD/CVD orders, a member of the Arent Fox team can help you with your initiation request. If your company becomes subject to a circumvention investigation, Arent Fox can represent you in the investigation.

China’s RCEP Victory: New Import and Export Challenges

On November 15, 2020, a China-led, 15-country trading bloc signed the Regional Comprehensive Economic Partnership Agreement (RCEP), establishing common regional country of origin rules, incentivizing supply chain changes and reorientation of trading partners away from the United States.

Changing Terrain

• The fact that there is now a China-led regional trade agreement with nations such as Australia, Japan, Vietnam and Indonesia suggests that the United States will need to reconsider its regional and global strategies in 2021.
• In addition to challenging the American geopolitical stature among allies and partners, the expansion of regional trade that results under the RCEP raises numerous import compliance challenges.

What to Know

• For US exports to RCEP countries, the US will need to either join TPP-11 or negotiate an alternative agreement to ensure the competitiveness of US-origin exports in the region.
• For imports from RCEP countries, the increased viability of regional supply chains may lead to increased transshipment investigations by the US Commerce Department as well as requests for information and duty evasion investigations by the US Customs and Border Protection.
• We believe the Biden Administration, although more open to a multilateral approach to trade, will likely seek to expand enforcement of import laws to ensure that companies exporting goods from RCEP members’ companies cannot avoid duty liability or circumvent bans on particular products.

How We Can Help

The Arent Fox team is well versed to provide strategic advice on either export- or import-related questions in relation to the RCEP. Not only will “country of origin” determinations be important in this analysis, but so will the understanding of US enforcement of imports from these countries.

“Self-Initiated” Trade Investigations by the US Department of Commerce on the Rise

As widely anticipated, the US Department of Commerce (DOC) is increasingly relying and acting on its authority to self-initiate investigations. The aim is to “level the playing field” for the domestic industry.

What to Know

• The DOC has the authority to self-initiate antidumping and countervailing duty investigations, circumvention inquiries.
• Typically, these investigations are initiated in response to a petition or inquiry from the domestic industry, but the DOC may initiate on its own if available information shows that an investigation is warranted.
• There was certainly an uptick in self-initiated investigations during the Trump Administration (overall, there was a 200+ percent increase in antidumping and countervailing duty cases).
• We expect this trend to continue under the Biden Administration, considering its promises to protect and improve U.S. industry.

How We Can Help

Arent Fox can help “walk” executives through updates regarding the DOC’s investigations and whether a product or product line may be impacted by additional antidumping and/or countervailing duty rates.

Risk or Opportunity? US Customs Becoming Increasingly Aggressive in Enforcing US AD/CVD Orders

Risk: Companies that receive US Customs and Border Protection (CBP) information requests (CF-28) should be aware they could be under investigation pursuant to an allegation made by a competitor under the Enforce and Protect Act (EAPA).

Opportunity: US producers who compete with foreign exporters subject to an antidumping (AD) or countervailing duty (CVD) order can further protect themselves against such competitors by making allegations under the EAPA if they believe AD/CVD orders are being evaded.

EAPA Investigation Trends

• CBP has increasingly used its authority to investigate whether a company or other entity has evaded AD/CVD duties through an EAPA investigation.
• US manufacturers may confidentially provide allegations to CBP to support the initiation of such an investigation.  In response, CBP typically issues a CF-28 to the importer with questions regarding the country of origin and supply chain of the named product(s). 
• CBP has the authority to impose interim measures without warning on the US importer. This requires the immediate deposit of the AD/CVD duties on future entries, and depending on the outcome of the case, may reach back one year to collect duties on prior entries.

What to Know

• An EAPA investigation is fast-paced, with any interim measures being imposed within 90 days of initiation, and the final determination is made within one year of initiation. 
• This means that companies involved in such an investigation need to respond fully and timely to all requests for information. 
• Importantly EAPA cases can be an effective tool to prevent evasion of AD/CVD duties to protect US producers that have petitioned for the AD/CVD duties and US importers that are paying the duties from other US importers not paying the duties.
• We caution US importers who have changed their suppliers due to AD/CVD duties to carefully and continuously monitor their suppliers because any evasion by the supplier is attributed to the US importer regardless of the importer’s knowledge of evasion.

How We Can Help

If your company is a US importer that has changed a supplier due to AD/CVD duties, the Arent Fox team can discuss steps to prevent a successful EAPA allegation. If you suspect that your competitor is evading AD/CVD duties, a member of the Arent Fox team can help assess legal strategies against your competitor. If your company becomes subject to interim measures, Arent Fox can represent you in any EAPA investigation.

Country of Origin Determinations: Differing Standards for Customs and Border Protection and the US Department of Commerce

Although the tests to determine country of origin by the US Department of Commerce (DOC) and the US Customs and Border Protection (CBP) are similar, the agencies occasionally reach different conclusions. This uncertainty is likely to continue in the months ahead.

Commerce’s Test(s)

• The DOC has historically applied its own “substantial transformation test” to determine the country of origin for AD/CVD purposes.
• The Court of Appeals for the Federal Circuit (Federal Circuit) recently confirmed the continued validity of Commerce’s substantial transformation test. Bell Supply involved a scope ruling by the DOC finding that oil country tubular goods (OCTG) finished in third countries from Chinese green tubes are still subject to AD/CVD orders on China. However, CBP earlier had determined that OCTG finished in Korea or Japan from unfinished Chinese material had a country of origin of Korea or Japan

•  In Canadian Solar, the Federal Circuit upheld the DOC’s decision to depart from the substantial transformation test and determine the country of origin of solar panels based on the country of assembly, although it earlier found that the solar cells are the origin-conferring component.

What to Know

• Adding more complexity to the debate is the fact that the DOC may change its substantial transformation test to better serve the purpose of the AD/CVD laws.
• The courts look to the DOC’s explanations of shifts in supply chains, possible evasion of duties and a concern that the established origin rule would exclude the very imports found to injure the domestic industry.

How We Can Help 

This is an ever-evolving area of law where importers need to be aware of the potential for overlapping and conflicting origin rules on their merchandise. The International Trade Group at Arent Fox has the experience to assist importers to evaluate and mitigate these risks.

Arent Fox’s Advance Look at Hot Button Trade Issues For 2021

Our Trade Team Analyzes What Happens Next in Six Critical Areas

Looking towards 2021 and a new Administration, Arent Fox’s International Trade & Investment group has prepared a series of primers on six key areas that can impact your business: The Biden Transition, Special Tariffs, Customs, Trade Litigation, Export Controls, and Trade Policy. Each section contains short overviews of the critical trends in those areas. Click the links below to access each section.

To download a PDF copy of our complete analysis, click here