The Department of Commerce (“Commerce”) has maintained antidumping duties (“AD”) and countervailing duties (“CVD”) on aluminum extrusions from China since the fall of 2010. Although the combined AD/CVD rates have varied over time, at one point they were over 400%. Moreover, the scope of the products covered by the AD/CVD orders has perplexed many importers. In fact, Commerce, the petitioners (the domestic companies that filed the case), and the courts have often disagreed whether a product is covered by the scope. A recent ruling by Commerce, however, adds even more uncertainty to companies importing aluminum extrusions.
I. Scope of the Orders
From the outset of the case, the scope included aluminum extrusions that were shapes and forms, produced by an extrusion process, and made from aluminum alloys having metallic elements corresponding to the alloy series designations published by The Aluminum Association commencing with the numbers 1, 3, and 6 (or proprietary equivalents or other certifying body equivalents). Last year, however, the petitioners argued that certain companies were importing aluminum extrusions made from the 5050 series aluminum alloy and that those products are merely series 6 alloy products whose chemical composition and mechanical properties have been manipulated in a bid to evade the duties.
II. Scope Rulings on Aluminum Extrusions Produced from 5050 Aluminum Alloy
In recent preliminary scope rulings involving those companies, Commerce determined that the aluminum series 5050 alloy products were not covered by the scope of the proceeding. Commerce preliminarily determined that the scope of AD/CVD Orders on aluminum extrusions specifically excluded aluminum extrusions made from aluminum alloy with an Aluminum Association series designation commencing with the number 5 and containing in excess of 1.0 percent magnesium by weight. In these cases, Commerce found that the products in question met these exclusionary criteria.
III. New Certification Requirement to Protect Against AD/CVD Duty Evasion
Nevertheless, Commerce sympathized with the petitioners, stating that “the closeness of the chemical composition of 5050 grade aluminum alloy products and certain series 6 aluminum alloy products, as well as the fact that chemical differences between the 5050 grade and series 6 aluminum alloys are visually indistinguishable,” raises concerns over potential evasion of AD/CVD duties. In order to alleviate the evasion concerns, Commerce instituted a certification procedure for all importers of aluminum extrusions made from the 5050 alloy. In imposing the certification requirement, Commerce stated the following:
Given the closeness of the chemical composition of 5050 grade aluminum alloy products and certain series 6 aluminum alloy products, as well as the fact that chemical differences between the 5050 grade and series 6 aluminum alloys are visually indistinguishable, the Department agrees with Petitioner that the indistinguishability raises serious concerns about the potential for evasion of antidumping and countervailing duties. . . . Therefore, the Department is proposing that importers of entries of aluminum extrusions made from aluminum alloys with an Aluminum Association grade designation of 5050 maintain a certification certifying that its aluminum extrusions are made from an aluminum alloy with an Aluminum Association series designation commencing with the number 5 and containing in excess of 1.0 percent magnesium by weight.
Commerce then added the following:
Asking importers to certify that their products satisfy the exclusion language for 5050 grade aluminum alloy is a reasonable and appropriate approach to these evasion concerns. We disagree with the argument that a proposed certification would be unduly burdensome to the trade. We note that the proposed certification requires importers to maintain the certification and to be prepared to substantiate their claim in their certification that their merchandise satisfies the exclusion if requested by either the Department or Customs and Border Protection. An importer claiming that its merchandise satisfies this exclusion language must have a basis to make this claim and, accordingly, this information should already be available to them.
Commerce proposes that the certification requirement go into effect on the date of the final scope ruling.
As such, Commerce is placing the burden on the importer to confirm before importation that any aluminum extrusion that allegedly is produced using a 5 series grade aluminum alloy actually meets the scope exclusion. In other words, the importer should obtain a mill certification from the producer proving that the aluminum extrusion is a 5050 grade aluminum alloy that has magnesium content by weight in excess of 1 percent. In fact, an importer should do this for any aluminum extrusion that is produced from a “5 series” grade aluminum alloy.
IV. Although Excluded, Your Aluminum Extrusions Could Still Be Circumventing the Aluminum Extrusion Orders
At the same time, Commerce stated that, even if the product qualifies for the exclusion because it is produced from a 5 series grade aluminum alloy and has a magnesium content by weight in excess of 1 percent, the product could still be subject to the aluminum extrusion order if Commerce believes that the producer is evading the AD/CVD order by minimally changing the chemical or mechanical composition of the product from a 6 series grade aluminum extrusion to a 5 series grade aluminum extrusion. In fact, on the same day that Commerce issued its preliminary scope rulings, Commerce also initiated an anticircumvention proceeding involving a 5050 series grade aluminum extrusion. In that case, the petitioners submitted evidence showing that the importer failed to claim that its goods were subject to the scope of the AD/CVD orders, while at the same time increasing its imports significantly.
All of this action by Commerce indicates that Commerce is taking very seriously the claims that Chinese producers are potentially evading the AD/CVD order on aluminum extrusions by minimally changing the chemical and/or mechanical composition o in order to evade the payment of AD/CVD duties. By imposing a certification requirement, Commerce is placing the compliance burden on the importer. We predict that there are likely to be additional anticircumvention claims made by the petitioners in the near future.
V. CBP’s Enhanced Role in Preventing Circumvention
Finally, we note that the anticircumvention investigation in this case is occurring at a time when Congress has given additional enforcement powers to U.S. Customs and Border Protection (“CBP”) to protect against AD/CVD duty evasion. On February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015 (“the Act”) into law. The Act establishes significant new enforcement action surrounding the collection of AD/CVD duties. AD/CVD enforcement continues to be a high priority for CBP. Domestic producers who were successful in bringing AD/CVD cases have long sought to enhance enforcement of importers evading payment of AD/CVD duties. The Act establishes new procedures for CBP to investigate evasion claims.
- Investigations of evasion can now be initiated by: (1) the filing of an allegation with CBP by an interested person that a person has entered covered merchandise into the customs territory of the United States through evasion; or (2) referral by any other Federal Agency, with information that reasonably suggests that a person has entered covered merchandise into the customs territory of the United States through evasion.
- Where CBP makes an affirmative determination of evasion, it shall suspend liquidation of unliquidated entries of such merchandise and require cash deposits, effective with entries entered on or after the date of initiation. Further, CBP will extend the period for liquidating unliquidated entries of such merchandise that are entered before the date of initiation to allow for the calculation and collection of appropriate AD/CVD duties.
- The Act also instructs CBP to take additional enforcement measures, as appropriate, including fraud, gross negligence, and/or negligence penalties under Section 592 of the Tariff Act (19 U.S.C. § 1592), seizures under Section 596 of the Tariff Act (19 U.S.C. § 1596), or civil or criminal investigation by U.S. Immigration and Customs Enforcement.
- The Act requires CBP to initiate an investigation within 15 business days after receiving an allegation or a referral, and also requires CBP to make a determination within 300 calendar days after initiating the investigation.
With two agencies being tasked to investigate possible AD/CVD duty evasion, importers need to take extra precautions when importing goods that are potentially subject to the scope of AD/CVD orders in general, and that are potentially subject to AD/CVD duties involving aluminum extrusions in particular. AD/CVD duty evasion is a high trade priority. We have seen increasing activity by CBP in this area, especially single issue AD/CVD audits. As such, importers need to have air-tight compliance programs in place.