By Paul Fudacz, Partner, Braumiller Law Group
Since the last update on the AD / CVD aluminum extrusions investigation (dubbed Extrusions II) in what appears to be a response to strong opposition from trade industry groups, legislators, governments, and other interested parties, as well as dubious signals from the Department of Commerce, (Commerce) the Petitioners in the ongoing Aluminum Extrusions investigation have proposed modifications to the scope of the investigation. The modifications address the “parts and subassemblies” scope language which represents the defining difference between the scope of the original AD / CVD order on aluminum extrusions from China (“Extrusions I”), and Extrusions II.
In Extrusions I (aka China I), which only covered China, (Extrusions II covers 14 countries) the scope provided for a “finished merchandise” exclusion which provided for the exclusion of “finished merchandise containing aluminum extrusions as parts that are fully and permanently assembled and completed at the time of entry, such as finished windows with glass, doors with glass or vinyl, picture frames with glass pane and backing material, and solar panels.” A second exclusion covered “finished goods kit(s)” which covered unassembled finished merchandise where all the parts are included in the kit.
After the Order in Extrusions I, and numerous scope rulings later, the finished merchandise exclusion was held to cover all types of finished merchandise that met the definition, including merchandise that would constitute a “part” or “subassembly” of a larger article of merchandise. Commerce articulated it rationale in one particular scope ruling as follows:
Upon further reflection of the language in the scope of the Orders, [Commerce] was revising the manner in which it determines whether a given product is a “finished good” or “finished goods kit.” The Department explained that it identified a concern with its prior analysis, namely that it may lead to unreasonable results. The Department explained that an interpretation of “finished goods kit” which requires all parts to assemble the ultimate downstream product may lead to absurd results, particularly where the ultimate downstream product is, for example, a fire truck. The Department explained that such an interpretation may expand the scope of the Orders, which are intended to cover aluminum extrusions. . .
the scope, taken as a whole, indicates that “subassemblies” (i.e., “partially assembled merchandise”) may be excluded from the scope provided that they enter the United States as “finished goods” or “finished goods kits” and that the “subassemblies” require no further “finishing” or “fabrication.”
Despite the risk, in Commerce’s words, of “unreasonable results”, Extrusions II sought to close off the exclusion for all parts and subassemblies of ultimate downstream products and require that the extrusion content of parts and components of downstream products be accounted for and declared as subject to AD / CVD. This approach does away with concepts such as substantial transformation and would essentially require every commercial invoice for products that constitute a part or subassembly containing aluminum extrusions to break out the aluminum extrusion value in the products sold for AD / CVD declaration. Further, it is not always easy to draw a line between what constitutes a part or subassembly vs. a product deemed not to be a part or subassembly of something else.
In response to Commerce’s concerns and the numerous comments from both the public and interested parties, in late February the Petitioners proposed a modification to the scope that would appear to lessen the impact of the parts and subassemblies scope language, however only in part. The Petitioners proposed modifications that further define parts and subassemblies and provide possible relief for products containing multiple parts and subassemblies as follows:
“The scope also excludes merchandise containing multiple subassemblies of a
larger whole with non-extruded aluminum components beyond fasteners. A
covered subassembly, including any product expressly identified as subject
merchandise in this scope, can only be excluded if it is fully and permanently
assembled with at least one other different subassembly, and where (1) at least
one of the subassemblies, if entered individually, would not itself be subject to the
scope; (2) the non-extruded aluminum portion (excluding any fasteners)
collectively accounts for more than 50 percent of the actual weight of the
combined multiple subassemblies; and (3) the non-extruded aluminum portion
(excluding any fasteners) collectively accounts for more than 50 percent of the
number of pieces of the combined multiple subassemblies.”
While the proposed language would serve to open avenues for exclusion for certain parts and subassemblies, it clearly would further complicate and burden suppliers with even more input material tracking and accounting requirements.
In response to the scope revision proposal, Commerce issued a scope questionnaire to Petitioners on March 8 and Petitioners responded on March 18. Commerce was seeking clarification of several points related to apparent disparate treatment of certain products and why some products (such as doors and windows) were described as expressly out of scope, while other products (window walls / curtain walls) were expressly in-scope.
Commerce also inquired numerous times how CBP was going to manage the requirements of assessing AD / CVD on extrusions making up only a part of an assembly and how these were going to be broken out for the assessment of AD / CVD. From the general tone of DOC’s questions, it appears that the DOC was acknowledging some degree of overreach by Petitioners.
Despite the above-described issues, on March 5 Commerce issued an affirmative preliminary determination in the CVD segment, which was published in the Federal Register on March 11. In the preliminary determination Commerce indicated it would address the February 20 scope revisions proposed by Petitioners and accepted comments on Petitioners March 18 scope questionnaire answers during a narrow comment period in late March.
Commerce announced its determination regarding the scope will be included in the May 1, Preliminary Determination. In the meantime, practitioners, trade professionals and importers can gain further insight by reviewing Petitioner’s March 18 questionnaire response which includes a listing of products deemed to be outside the scope, as well as additional clarification of the treatment of extrusion-containing products pending the May 1 AD Preliminary Determination.
As the investigation progresses, stakeholders are encouraged to review the latest developments to better understand the potential implications for their business operations.
