Commerce Circumvention Finding Under 781(a) Could Impact US Steel Product Manufacturing, Exporter Says
Steel wire importer Deacero filed a motion for judgment May 19 saying the Commerce Department’s circumvention finding regarding its prestressed concrete steel wire (PC) strand, made under Section 781(a), represents a dangerous precedent that would let Commerce impose duties on all intermediate steel products and “endanger investment” in U.S. manufacturing (Deacero v. United States, CIT # 24-00212).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Section 781(a) of the 1930 Tariff Act, or 19 U.S.C. 1677j, lets Commerce conduct circumvention inquiries on merchandise completed and assembled in the United States; these inquiries are “relatively less common,” noted Deacero, which exports its steel wire to production facilities it itself owns in the United States for completion. The provision outlines the usual five factors for the department to consider when determining country of origin, albeit with an eye toward U.S. involvement -- the level of investment in the U.S., the level of research and development level in the U.S., the nature of the U.S. production process, the extent of U.S. production facilities and the value of U.S. processing.
Commerce based its affirmative circumvention finding for Deacero in part on a determination that Deacero’s U.S. production process was “minor or insignificant.”
That determination was “deeply flawed” because it compared Deacero’s actual PC strand production process to a hypothetical “‘complete production process’ extending all the way back to primary iron and steel inputs (i.e., steel billet and scrap),” the exporter argued. For any particular downstream steel product, the U.S. scale of investment won’t be comparable to the costs of a process that includes either an input-producing steel mill or mining operation, it said.
If Commerce can find that all U.S. production processes that start with intermediate steel product imports are “minor,” it could use Section 781(a) to levy duties on all of those intermediate imports based on AD/CVD orders on downstream products, Deacero said.
“This sweeping result is contrary to the clear meaning of the statute and congressional intent and would have dire consequences for investment in the United States,” it said.
Acknowledging that the issue hasn’t been addressed before, Deacero said, Commerce claimed it could “adopt a definition of the ‘entire manufacturing process’ that includes primary iron and steel inputs” under Section 781(a) because it already does so under Section 781(b), which deals with third-country processing. But this Section 781(b) practice discourages investment in “certain types” of U.S. steel product manufacturing when applied to 781(a), Deacero said.
The exporter argued that the phrase “complete production process” doesn’t appear in either Section 781(a) or the legislative history of the Tariff Act. And the act was more concerned about so-called “screwdriver assembly operations” in the United States, as described by the Statement of Administrative Action in the Uruguay Round Agreements. In fact, the SAA particularly notes that circumvention inquiries shouldn’t “deter legitimate investment, characterized by the addition of substantial value,” Deacero said.
Deacero also said that Commerce’s past 781(b) practice logically resulted in error in its case.
The International Trade Commission’s own description of the PC strand production process starts it at the steel wire rod drawing stage, skipping past the manufacturing of steel inputs and pure iron, the exporter said. In ignoring this description, Commerce actually contradicted its usual practice in 781(a) inquiries, it said.
The ITC selected this starting point based on petitioners’ own information, such as a diagram from defendant-intervenor Sumiden calling “wire rod” a raw material for PC strand and describing the drawing of it as the first production step for PC strand, the exporter said.
And Deacero’s U.S. processing of PC strand is much more significant and complex than a mere screwdriver operation, the exporter said. Of the four steps ITC defined as the PC strand production process -- drawing, stranding, stabilizing and packaging -- Deacero said it only conducts one, drawing, in Mexico.
Under Commerce’s reasoning, “[t]he only way to avoid being swept into the Order on PC strand is to make it from primary iron and steel inputs in the United States,” it said.
Deacero also took aim at Commerce’s analysis of the R&D country-of-origin factor in its inquiry. It said the department evaluated R&D on an “absolute basis,” but compared each of the other four factors to the hypothetical “‘complete production process’ in Mexico.” The department even acknowledged while doing so that “neither Deacero’s U.S. nor Mexico operations are R&D intensive,” the exporter said.
Commerce’s determination regarding the extent of Deacero’s U.S. processing facilities, meanwhile, failed to consider that Deacero’s Mexican facilities are “relatively less complex” and manufacture multiple products, not just PC strand, the exporter said.
And its determination regarding the value of Deacero’s U.S. processing possibly relied on an inaccurate value estimate, it said.