CIT Sends Back Negative Evasion Finding of AD/CVD on Chinese Cabinets, Vanities

However, Wang sustained CBP's treatment of documentation from Alno and Scioto as reliable and said the agency acted within its discretion in denying to use an adverse inference against Scioto.

The American Kitchen Cabinet Alliance alleged under the Enforce and Protect Act that Scioto evaded the AD/CVD orders by transshipping its goods through Malaysia. The allegations relied in part on information it received from Cabinets to Go, an unaffiliated buyer of Alno's products. Alno told Cabinets to Go its products were made in Malaysia, though an investigation by the buyer showed the goods were actually made in China. Cabinets to Go filed suit in Tennessee, alleging a breach of contract, through which it discovered evidence of the Haiyan Group's ownership of Alno.

CBP's Trade Remedy Law Enforcement Directorate (TRLED) initially found that the importer evaded the orders, though this decision was reversed by the agency's Office of Regulations & Rulings (R&R).

Appealing this reversal, the petitioner focused on CBP's alleged failure to examine the extent of Haiyan Group's operational control of Scioto and Alno, citing TRLED's findings on this point and information gleaned from the Cabinets to Go suit. Wang agreed, holding that R&R "failed to consider the level of control that the Haiyan Group exerted over both Scioto and Alno."

The judge highlighted certain information discovered by TRLED, which showed that Haiyan Group has 100% ownership control of Scioto and has final say over what products can be made in Malaysia by Alno and in what order purchase orders are made and shipped from Scioto to Alno. The evidence also revealed that Haiyan Group can make the final determinations on what goods are shipped to Scioto from the importer's Chinese subsidiary, Haiyan Drouot, or Alno, and how and when these shipments are made to Scioto. Additionally, Haiyan Group is involved in setting prices for Scioto and creating the terms of sale for purchases between Alno and Scioto, the court noted.

In dismissing this evidence, R&R only focused on the Haiyan Group's ownership share of these entities and said deriving an evasion finding would require multiple inferences. Wang said these "admissions" from Scioto and evidence from TRLED that Haiyan Group exercised "ultimate" control over Alno and Scioto makes R&R's sole focus on Haiyan Group's ownership share unreasonable.

CBP failed to include an explanation of the Haiyan Group's decision-making authority regarding shipments from Alno from its Malaysian facilities but also from Haiyan Group's Chinese facilities that may have been transshipped through Malaysia, the court said. Wang said that as a "starting point," CBP could look to the Cabinets to Go lawsuit to identify Alno as a known transshipper. In disregarding evidence of Alno's past AD/CVD evasion, R&R said it would limit its review to transactions involving Alno and Scioto and not those between Alno and Cabinets to Go, since no allegaion was made regarding Cabinets to Go.

Wang said R&R "neglected to consider AKCA’s argument that the issue is not with 'CTG’s conduct,' but Alno’s conduct with respect to the previous transshipment transactions." Alno's past conduct is relevant since Scioto owned Alno during the time Alno admitted to evading the AD/CVD orders, the court said. While there may not have been a relationship between Scioto and Cabinets to Go, "it takes two to tango," and there's evidence of a relationship between Scioto and Alno, the decision said.

"To impute operational independence" between Scioto, Alno and the Haiyan Group as CBP did "runs counter to evidence that the U.S. importer Scioto owned Alno for much of the investigation period, which includes the period when Alno was engaged in a transshipment scheme," the court said.

The court also remanded R&R's consideration of an additional warehouse that initially went undisclosed by Alno. The exporter later presented the warehouse in Malaysia to the agency for inspection. In it, CBP found cabinets and vanities from China and Malaysia and also a third type of product without origin markings. Wang said R&R failed to examine the contents of the warehouse, illegally relying on "speculation" in finding that Alno has the capability to and likely did make the cabinets and vanities in Malaysia.

R&R failed to explain evidence showing that the additional warehouse had several boxes of goods without any origin markings, the court held. Even if documentation submitted by Alno is reliable, CBP "has offered no explanation as to why" the goods without origin markings are considered to be of Malaysia origin "when those goods are commingled with similarly unmarked Chinese-origin goods" or why this omission isn't material to an evasion finding, the decision said.

The petitioner also argued that CBP erred in treating documentation from Alno and Scioto as reasonable. On this point, Wang said the petitioner's claims are nothing more than disagreement with the agency's reasoned findings. CBP "evaluated Alno’s production tracking inspection reports and production schedules," and said that Scioto and Alno "linked certain production batches in production documentation from Alno’s factory and warehouse to specific entries" from Scioto, providing evidence the goods were made in Malaysia. The petitioner "would prefer Customs to find otherwise," but just because two different conclusions can be drawn doesn't mean CBP's position isn't reasonable, the court said.

Wang also said R&R's decision not to use AFA was similarly reasonable. The petitioner alleged that R&R erred in failing to consider Alno's failure to disclose the additional warehouse, the agency improperly excused Alno from its failure to provide all the packing checklists required by TRLED, and R&R erred in accepting Alno's explanation for missing documents and emails.

The court said R&R properly considered all three points. Regarding the warehouse, CBP said Alno initially misunderstood CBP's question and immediately corrected its submission once it realized its error. On the packing checklists, CBP said that while the exporter delayed in submitting the checklists, they were ultimately all sent. And with regard to the missing documents and emails, CBP said that while it was difficult to verify Alno's claims of "server issues," it was ultimately "difficult to draw any conclusions" on the petitioner's claim.

(American Kitchen Cabinet Alliance v. United States, Slip Op. 24-122, CIT # 23-00140, dated 10/31/24; Judge: Lisa Wang; Attorneys: Luke Meisner of Schagrin Associates for plaintiff American Kitchen Cabinet Alliance; Ashley Akers for defendant U.S. government; Stephen Brophy of Husch Blackwell for defendant-intervenor Scioto Valley Woodworking)