Commerce Can Use Substantial Transformation Test on Country of Origin in Scope Rulings, CAFC Says
The Commerce Department may use a substantial transformation analysis to determine the country of origin of a given product in scope rulings, the U.S. Court of Appeals for the Federal Circuit said in an April 25 decision. Vacating a holding of the Court of International Trade, the Federal Circuit found Commerce did not err when it looked into whether Chinese intermediate goods were transformed into Indonesian finished goods when determining whether to apply antidumping duties on oil country tubular goods from China.
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Domestic industry had requested the scope ruling on whether “green tubes” made in China then processed into finished OCTG in a third country are subject to the China OCTG order. That order applies to OCTG from China “whether finished … or unfinished (including green tubes).” Commerce in its 2014 scope ruling found heat treatments performed in Indonesia did not substantially transform the Chinese green tube, so the country of origin of the merchandise remained China and the goods were still subject to AD duties (see 14021124). A U.S. importer, Bell Supply Company, filed a challenge at the Court of International Trade.
In a series of decisions culminating in December 2016 (see 1612010038), CIT rejected Commerce’s use of the substantial transformation analysis in the context of a scope ruling. Instead, questions about whether a product produced in a third country should be subject to duties are best resolved by an anti-circumvention inquiry, CIT said. The court sustained a Commerce re-determination finding the products at issue could not be covered by OCTG duties because they were not from China, and that the goods were not circumventing AD duties because the finishing process in Indonesia is not “minor or insignificant.”
Though it didn’t yet alter Commerce’s ultimate conclusion, the Federal Circuit found CIT was mistaken when it held Commerce could not employ the substantial transformation analysis. “We conclude that Commerce is entitled to use the substantial transformation analysis to determine country of origin before resorting to the circumvention inquiry,” the Federal Circuit said. “Where an imported article is “from” can be an inherently ambiguous question. Because a single article can be assembled from various components and undergo multiple finishing steps, Commerce must have some way to determine the country of origin during scope inquiries,” it said.
Consideration of whether an article was substantially transformed is separate from the anti-circumvention process, the Federal Circuit said. “Commerce is entitled to use the substantial transformation analysis to determine whether an imported article is covered by AD or CVD orders in the first instance. “If the article originates from a country identified in the order, then Commerce need not go any further,” it said. “However, even if a product assumes a new identity, the process of 'assembly or completion' may still be minor or insignificant, and undertaken for the purpose of evading an AD or CVD order.”
(Bell Supply Company, LLC v. U.S., CAFC # 17-1492, dated 04/25/18, Judges Lourie, Chen and Hughes)