United Steel and Fasteners v. United States

• Court: Court of Appeals for the Federal Circuit
• Decided: January 13, 2020
• Docket: 17-2168
• Status: Published

Opinion

United States Court of Appeals for the Federal Circuit ______________________

UNITED STEEL AND FASTENERS, INC., Plaintiff-Cross-Appellant

v.

UNITED STATES, Defendant-Appellant

SHAKEPROOF ASSEMBLY COMPONENTS DIVISION OF ILLINOIS TOOL WORKS, INC., Defendant ______________________

2017-2168, 2017-2188 ______________________

Appeals from the United States Court of International Trade in No. 1:13-cv-00270-JCG, Judge Jennifer Choe- Groves. ______________________

Decided: January 13, 2020 ______________________

NED H. MARSHAK, Grunfeld, Desiderio, Lebowitz, Sil- verman & Klestadt LLP, New York, NY, argued for plain- tiff-cross-appellant. Also represented by EDWARD B. ACKERMAN; KAVITA MOHAN, ANDREW THOMAS SCHUTZ, Washington, DC.

MICHAEL D. SNYDER, Commercial Litigation Branch, 2 UNITED STEEL AND FASTENERS v. UNITED STATES

Civil Division, United States Department of Justice, Wash- ington, DC, argued for defendant-appellant. Also repre- sented by ROBERT EDWARD KIRSCHMAN, JR., PATRICIA M. MCCARTHY, JOSEPH H. HUNT; JESSICA DIPIETRO, NANDA SRIKANTAIAH, Office of Chief Counsel for Trade Enforce- ment and Compliance, United States Department of Com- merce, Washington, DC. ______________________

Before MOORE, REYNA, and STOLL, Circuit Judges. REYNA, Circuit Judge. The United States Department of Commerce appeals the United States Court of International Trade’s determi- nation that Commerce lacks authority to retroactively sus- pend liquidation of helical spring lock washers entered on or after the issuance date of an antidumping duty order. United Steel and Fasteners, Inc., an importer of the helical spring lock washers under investigation, cross-appeals the Court of International Trade’s affirmance of Commerce’s determination that its washers are within the scope of the antidumping duty order. Because we conclude that Com- merce’s retroactivity determination was improper and sub- stantial evidence supports Commerce’s scope ruling, we affirm. BACKGROUND I. The ADD Order Shakeproof Assembly Components Division of Illinois Tool Works Inc. (“Shakeproof”) is a U.S. domestic producer of lock washers. In 1992, Shakeproof filed a petition (the “Petition”) for the imposition of antidumping duties on im- ports of certain helical spring lock washers from China. Af- ter examining the Petition, Commerce initiated an antidumping investigation. Commerce determined that imports of certain helical spring lock washers from China were being sold at less than fair value, and on October 19, UNITED STEEL AND FASTENERS v. UNITED STATES 3

1993, it issued the antidumping duty order at issue in this appeal. See Certain Helical Spring Lock Washers From the People’s Republic of China, 58 Fed. Reg. 53,914 (Dep’t of Commerce Oct. 19, 1993), as amended, 58 Fed. Reg. 61,859 (Dep’t of Commerce Nov. 23, 1993) (“ADD Order”). Com- merce’s ADD Order describes the subject merchandise as follows: [C]ertain helical spring lock washers (HSLWs) are circular washers of carbon steel, of carbon alloy steel, or of stainless steel, heat-treated or non heat- treated, plated or non-plated, with ends that are off-line. HSLWs are designed to: (1) Function as a spring to compensate for developed looseness be- tween the component parts of a fastened assembly; (2) distribute the load over a larger area for screws or bolts; and (3) provide a hardened bearing sur- face. The scope does not include internal or exter- nal tooth washers, nor does it include spring lock washers made of other metals, such as copper. The lock washers subject to this investigation are cur- rently classifiable under subheading 7318.21.0000 of the Harmonized Tariff Schedule of the United States (HTSUS). ADD Order, 58 Fed. Reg. at 53,914–15. II. Scope Ruling United Steel and Fasteners, Inc., (“US&F”) is a U.S. importer of lock washers that meet the specifications of the American Railway Engineering and Maintenance-of-Way 4 UNITED STEEL AND FASTENERS v. UNITED STATES

Association (“AREMA”). 1 US&F imports the washers un- der HTSUS subheading 7318.21.0090, without declaring them subject to the ADD Order. On April 9, 2013, US&F requested an official scope rul- ing from the United States Department of Commerce (“Commerce”) pursuant to 19 C.F.R. § 351.225(c). In its re- quest, US&F alleged that its washers were not covered by the ADD Order. US&F explained that United States Cus- toms and Border Protection (“CBP”) was “aware of the HTSUS clarification being utilized by US&F,” and that “[a]fter reviewing US&F’s response to a CBP Notice of Pro- posed Action, CBP is allowing USF to continue making en- try under heading 7318.21.0090[] with the understanding that this scope determination was being readied and shortly filed.” 2 J.A. 70. On July 8, 2013, without initiating a scope inquiry, Commerce issued a final scope ruling that US&F’s washers are within the scope of the ADD Order based on the factors listed in 19 C.F.R. § 351.225(k)(1). Commerce also in- structed CBP to suspend liquidation of “all unliquidated entries of merchandise made on or after the first day mer- chandise subject to the [ADD] Order was suspended for an- tidumping purposes and collect cash deposits on all such entries.” J.A. 396. Liquidation was suspended to October 19, 1993, the date the ADD Order was issued and the first day CBP originally suspended liquidation of merchandise subject to this order. US&F appealed Commerce’s scope

1 AREMA is a professional engineering association responsible for setting engineering standards for certain railway washers. 2 Neither US&F’s scope request, nor the record on appeal, provide any more information about CBP’s Notice of Proposed Action and its decision to allow US&F’s impor- tation of washers under heading 7318.21.0090 and without deposit of estimated antidumping duties. UNITED STEEL AND FASTENERS v. UNITED STATES 5

ruling and its instructions to retroactively suspend liquida- tion to the United States Court of International Trade (“CIT”). United Steel & Fasteners, Inc. v. United States, 203 F. Supp. 3d 1235, 1241 (Ct. Int’l Trade 2017). The CIT affirmed Commerce’s scope ruling and re- versed and remanded Commerce’s retroactivity determina- tion. Id. at 1247–48. The CIT determined that Commerce exceeded its regulatory authority by ordering retroactive suspension of liquidation back to 1993 and ordered that Commerce draft new suspension of liquidation instruc- tions. Id. at 1248, 1255. On remand, Commerce issued new instructions to suspend liquidation on or after July 8, 2013, the date when Commerce issued the final scope rul- ing regarding US&F’s washers. The CIT determined that Commerce’s new suspension instructions complied with its remand order and entered judgment. Commerce now appeals the CIT’s judgment on retroac- tivity and US&F cross-appeals the CIT’s affirmance of Commerce’s scope ruling. We have jurisdiction under 28 U.S.C. § 1295(a)(5). DISCUSSION We review decisions of the CIT de novo, applying the same substantial evidence standard the CIT uses in re- viewing Commerce’s antidumping duty determinations. AMS Assocs., Inc. v. United States, 737 F.3d 1338, 1342 (2013). We have consistently emphasized that Commerce is entitled to substantial deference when interpreting its own antidumping duty orders because the meaning and scope of such orders is within Commerce’s particular exper- tise and special competence. King Supply Co., LLC v. United States, 674 F.3d 1343, 1348 (Fed. Cir. 2012) (citing Tak Fat Trading Co. v. United States, 396 F.3d 1378, 1382 (Fed. Cir. 2005); and Sandvik Steel Co. v. United States, 164 F.3d 596, 600 (Fed. Cir. 1998)). As a result, parties challenging Commerce’s scope determinations un- der substantial evidence review confront a high barrier to 6 UNITED STEEL AND FASTENERS v. UNITED STATES

reversal. Id. (quoting Nippon Steel Corp. v. United States, 458 F.3d 1345, 1352 (Fed. Cir. 2006)). That the ev- idence in the record could result in two inconsistent conclu- sions does not, alone, prevent Commerce’s conclusion from being supported by substantial evidence. Id. (quoting Am. Silicon Techs. v. United States, 261 F.3d 1371, 1376 (Fed. Cir. 2001)). Because the retroactivity issue depends upon whether US&F’s washers are covered by the ADD Order, we address the scope ruling issue first. I. Scope Ruling When issues arise as to whether a product is within the scope of an antidumping duty order, Commerce “issues ‘scope rulings’ that clarify the scope of an order . . . with respect to particular products.” 19 C.F.R. § 351.225(a). An interested party may submit an application with Com- merce for a scope ruling. Id. at § 351.225(c)(1). Relevant to this case, Commerce may render a scope ruling with or without a “scope inquiry,” a broader inquiry as to whether a product is included within the scope of an antidumping duty order. Commerce’s decision to initiate a scope inquiry turns on whether it can render a scope ruling based solely upon a party’s application for a scope ruling and the de- scriptions of the subject merchandise referred to in § 351.225(k)(1). Id. at § 351.225(e). Paragraph (k)(1) pro- vides that Commerce will consider the “descriptions of the merchandise contained in the petition [for imposition of an antidumping duty order], the initial investigation, and the determinations of the Secretary (including prior scope de- terminations) and the [International Trade] Commission.” Id. at § 351.225(k)(1). If Commerce can render a ruling on that basis, it will issue a scope ruling. If not, it will initiate a scope inquiry and will further consider: (i) The physical characteristics of the product; (ii) The expectations of the ultimate purchas- ers; (iii) The ultimate use of the product; UNITED STEEL AND FASTENERS v. UNITED STATES 7

(iv) The channels of trade in which the prod- uct is sold; and (v) The manner in which the product is adver- tised and displayed. Id. at § 351.225(k)(2). Commerce’s analysis of the (k)(1) sources against the product in question produces “factual findings reviewed for substantial evidence.” Meridian Prods., LLC v. United States, 851 F.3d 1375, 1382 (Fed. Cir. 2017) (citing Fedmet Res. Corp. v. United States, 755 F.3d 912, 919–22 (Fed. Cir. 2014) (reviewing Commerce’s analysis under § 351.225(k)(1) for substantial evidence)). Here, Commerce determined that US&F’s washers were within the scope of the ADD Order based solely on the (k)(1) sources and, thus, did not initiate a scope inquiry. J.A. 393. US&F argues that its washers have a distinct design and function from helical spring lock washers subject to the scope of the ADD Order. Commerce responds that US&F’s washers are “spring” washers, “helical” in nature, and function as lock washers, and, thus, within the scope of the ADD Order. As previously noted, the ADD Order covers “certain helical spring lock washers (HSLWs).” ADD Order at 58 Fed. 53,914 (emphasis added). The parties do not dispute that US&F’s washers are spring lock washers. In- stead, they dispute whether US&F’s AREMA washers are “helical,” and, if so, whether they are the helical type cov- ered by the ADD Order. In determining that US&F’s washers are “helical,” Commerce looked to the Petition, a (k)(1) source, and con- cluded that “helical” means “both a description of appear- ance, i.e., in the form of a helix, and a spring-like attribute or locking function to prevent loosening which is present when the helix is compressed.” J.A. 391 (citing Petition at 5–6). Commerce then noted that the “pictures provided by US&F clearly show the helical aspect of AREMA washers.” J.A. 392 (citing US&F’s Scope Request). Commerce also noted that “[a] significant portion” of helical spring lock 8 UNITED STEEL AND FASTENERS v. UNITED STATES

washers of “larger sizes are used for installation of railroad tracks.” J.A. 392 (quoting Petition at 3). Commerce noted that this is precisely the type of application for which the US&F’s washers are designed. Taken together, this is sub- stantial evidence that supports Commerce’s conclusion that US&F’s washers are “helical” spring lock washers that fall within the scope of the ADD Order. US&F argues that Commerce failed to consider that US&F’s washers are used only in the rail industry, unlike the helical spring lock washers subject to the ADD Order, which are used for mechanical applications, such as in ma- chinery and vehicles. We reject this argument. Commerce acknowledged that US&F’s washers are used for railways but that this trade usage did not exclude them from the scope of the ADD Order. Commerce explained that, given the language of the ADD Order and the Petition, the sub- ject helical spring lock washer is not defined by a specific trade or industry but by its physical and functional “heli- cal” characteristic. Moreover, as noted above, the Petition even mentions that a “significant” portion of larger sized helical spring lock washers are used for railway purposes, evincing that subject helical spring lock washers are used in the railway industry in addition to mechanical applica- tions. US&F next argues that Commerce improperly disre- garded a “critical” physical difference between the cross- sections of the subject helical spring lock washers and US&F’s washers, with the former being trapezoidal and the latter, rectangular. We disagree. Commerce explicitly acknowledged that “helical spring lock washers are gener- ally designed with a trapezoidal cross section,” but that “this attribute does not change the basic function of the washer; it simply adds to the spring or locking function the helix provides.” J.A. 392. Commerce also noted that there was no evidence that helical spring lock washers were al- ways trapezoidal. UNITED STEEL AND FASTENERS v. UNITED STATES 9

US&F finally argues that Commerce failed to properly consider that its washers, certified pursuant to AREMA standards, were neither described in the Petition nor sub- ject to the initial antidumping duty investigation in 1992. In particular, US&F argues that because the Petition and the investigation record reference the American Society of Mechanical Engineers (“ASME”) certification standards in- stead of the AREMA certification standards, this is evi- dence that its washers do not fall within the scope of the ADD Order. This argument is not persuasive. As Com- merce explained, the language of the ADD Order, the Peti- tion, and the record of the initial investigation did not specify that subject helical spring lock washers must be de- signed to meet ASME or any other specific industry speci- fication or that lock washers designed to meet AREMA standards were excluded. Thus, the fact that AREMA cer- tification standards were not described in the Petition or in the investigation record does not mean that US&F’s AREMA washers are excluded from the scope of the ADD Order. In sum, because we find that Commerce’s scope deter- mination is supported by substantial evidence, we affirm. II. Retroactivity The second issue on appeal concerns whether Com- merce’s retroactive suspension of liquidation was lawful. The parties do not dispute that, after Commerce issues a final affirmative scope ruling, Commerce may retroactively suspend liquidation for all unliquidated entries entered on or after the initiation date of the scope inquiry. 19 C.F.R. § 351.225(l)(3). Section 351.225(l)(3), however, is silent as to how far back suspension of liquidation can go when there has been no scope inquiry. An agency’s interpretation of its own ambiguous regu- lation is controlling unless it is “plainly erroneous or incon- sistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997). The Supreme Court recently clarified in Kisor 10 UNITED STEEL AND FASTENERS v. UNITED STATES

v. Wilkie that a court should not afford Auer deference un- less “the regulation is genuinely ambiguous.” 139 S. Ct. 2400, 2415 (2019). “[I]f there is only one reasonable con- struction of a regulation . . . then a court has no business to deferring to any other reading.” Id. If a genuine ambi- guity remains, then the agency’s reading must still be rea- sonable in order to receive Auer deference. Id. Commerce’s regulatory authority concerning suspen- sion of liquidation following a final affirmative scope ruling is contained at 19 C.F.R. § 351.225(l)(3). Section 351.225(l)(3) provides: (3) If the Secretary issues a final scope ruling, un- der either paragraph (d) or (f)(4) of this section, to the effect that the product in question is included within the scope of the order, any suspension of liq- uidation under paragraph (l)(1) or (l)(2) of this sec- tion will continue. Where there has been no suspension of liquidation, the Secretary will instruct the Customs Service to suspend liqui- dation and to require a cash deposit of estimated duties, at the applicable rate, for each unliquidated entry of the product entered, or withdrawn from warehouse, for consumption on or after the date of initiation of the scope inquiry. If the Secre- tary’s final scope ruling is to the effect that the product in question is not included within the scope of the order, the Secretary will order any suspen- sion of liquidation on the subject product ended and will instruct the Customs Service to refund any cash deposits or release any bonds relating to this product. 19 C.F.R. § 351.225(l)(3) (emphases added). This regulation is clear. When Commerce issues a final scope ruling, and liquidation has not previously been suspended, Commerce may suspend liquidation beginning “on or after the date of initiation of the scope inquiry.” Id. The regulation does not UNITED STEEL AND FASTENERS v. UNITED STATES 11

allow suspension of liquidation before a scope inquiry. Af- fording Commerce deference here would permit Commerce “under the guise of interpreting a regulation, to create de facto a new regulation.” Kisor, 139 S. Ct. at 2415 (internal quotations omitted). Supporting our interpretation is AMS, in which we de- termined that identical language in another subsection of § 351.225 was unambiguous. AMS, 737 F.3d at 1343. In AMS, Commerce did not conduct a scope inquiry yet retro- actively suspended liquidation to January 31, 2008, the be- ginning of the relevant administrative review period with respect to an antidumping duty order. Id. At issue was whether Commerce could do so pursuant to § 351.225(l)(2). Id. The only relevant difference between that subsection and 351.225(l)(3) at issue here is that the former applies to preliminary scope rulings while the latter applies to formal scope rulings. Notably, both sections provide that if liqui- dation has not yet been suspended, then suspension of liq- uidation occurs “on or after the date of initiation of the scope inquiry.” 19 C.F.R. § 351.225(l)(2), (3). Focusing on this language, the court noted that “the suspension of liq- uidation and imposition of antidumping cash deposits may not be retroactive but can only take effect ‘on or after the date of the initiation of the scope inquiry.’” AMS, 737 F.3d at 1344. The court explained that “[t]he unambiguous lan- guage of the regulation only authorizes Commerce to act on a prospective basis, and such express prospective authori- zation reasonably is interpreted to preclude retroactive au- thorization.” Id. (first emphasis added). The court concluded that Commerce’s suspension instructions to CBP were “clearly inconsistent with the limited prospective au- thority provided by § 351.225(l)(2)” and, thus, Commerce exceeded its regulatory authority. Id. Here, like in AMS, Commerce did not initiate a scope inquiry and yet issued instructions to CBP to retroactively suspend liquidation to October 19, 1993, the issuance date of the ADD Order. Thus, Commerce’s instructions are 12 UNITED STEEL AND FASTENERS v. UNITED STATES

“clearly inconsistent with the limited prospective authority provided” by § 351.225(l)(3) and must be vacated. Even if § 351.225(l)(3) could arguably be viewed as am- biguous, Commerce’s interpretation is not “within the bounds of reasonable interpretation.” Kisor, 139 S. Ct. at 2416 (internal quotations omitted). This court will not de- fer to an agency’s interpretation of a regulation when the evidence shows that “the proffered interpretation runs con- trary to the intent of the agency at the time of enactment of the regulation.” Gose v. U.S. Postal Serv., 451 F.3d 831, 837 (Fed. Cir. 2006) (citing Gardebring v. Jenkins, 485 U.S. 415, 430 (1988)). Here, the regulatory history of § 351.225(l)(3) indicates that Commerce intended to limit the reach of retroactive suspension of liquidation. Prior to promulgating this reg- ulation, Commerce received comments from the public that, after an affirmative scope ruling, Commerce should suspend liquidation for all unliquidated entries, even those that were entered prior to the initiation of a scope inquiry. Antidumping Duties; Countervailing Duties, 62 Fed. Reg. 27,296, 27,327–28 (Dep’t Commerce May 19, 1997). The public argued that “the Department must view any mer- chandise that it determines to be within the scope of an or- der as always having been within the scope” since “scope rulings only clarify, and do not expand, the scope of an or- der.” Id. Commerce, however, did not do this. Instead, Commerce tailored § 351.225(l)(3), noting that if liquida- tion has not yet been suspended, then suspension of liqui- dation would occur on entries “made on or after the date of initiation of the scope inquiry and that remain unliquidated as of the date of publication of the affirmative ruling.” Id. at 27,328 (emphasis added). In so doing, Commerce ex- plained that “[s]uspension of liquidation is an action with a potentially significant impact on the business of U.S. im- porters and foreign exporters and producers.” Id. Com- merce also explained that “when liquidation has not been suspended, Customs, at least, and perhaps the Department UNITED STEEL AND FASTENERS v. UNITED STATES 13

as well, have viewed the merchandise as not being within the scope of an order, importers are justified in relying upon that view, at least until the Department rules other- wise.” Id. (emphasis added). Thus, Commerce’s current position, that suspension of liquidation can extend back to the issuance date of the ADD Order, after US&F relied on the government’s liquidation of its product for almost twenty years, runs counter to Commerce’s prior position evidenced in the regulatory history. Commerce cannot now change course and broadly apply § 351.225(l)(3). Commerce argues that its interpretation of § 351.225(l)(3) was reasonable and should be afforded def- erence. Commerce notes that it did not conduct a scope in- quiry and instead entered a scope ruling based on the (k)(1) factors. Thus, Commerce argues, US&F’s washers were “clearly” subject to the ADD Order and it was “reasonable for Commerce to conclude that liquidation should have been suspended from the date of the initial suspension for merchandise subject to the order.” We disagree. As the CIT noted, there was a genuine issue as to whether US&F’s washers were in scope. J.A. 29. Before US&F requested a scope ruling at the behest of CBP, CBP had not been collecting deposits of antidumping duties on US&F entries for almost twenty years, suggesting that CBP initially did not view US&F entries as within the scope of the ADD Order. Id. In light of this uncertainty, Commerce granted US&F’s request for a scope ruling. Id. Although Commerce characterizes its scope ruling as not materially clarifying the scope of the ADD Order but merely confirming that US&F’s washers were in scope, Commerce misapprehends the nature of a scope ruling. As the CIT noted, “[a] scope ruling by definition is a determi- nation by Commerce that clarifies the scope of a standing antidumping or countervailing duty order.” Id. (citing 19 C.F.R. § 351.225(a) (noting that when “issues arise as to whether a particular product is included within the scope 14 UNITED STEEL AND FASTENERS v. UNITED STATES

of an antidumping or countervailing duty order,” Com- merce issues scope rulings that “clarify the scope of an or- der” with respect to particular products)). Thus, a scope ruling does not merely “confirm” the scope of an antidump- ing duty order but instead clarifies the unclear scope of the order and whether the particular product at issue falls within that scope. As this court has long noted, only Com- merce can interpret and clarify the scope of an antidump- ing duty order. See, e.g., Mid Continent Nail Corp. v. United States, 725 F.3d 1295, 1300 (Fed. Cir. 2013) (“In is- suing scope rulings, Commerce . . . enjoys substantial free- dom to interpret and clarify its antidumping orders.” (internal quotations omitted)). Commerce also argues that its interpretation of § 351.225(l)(3) is appropriate because it prevents games- manship and delay. According to Commerce, importers could be encouraged “to delay their request for a scope rul- ing from Commerce, because if entries are only suspended prospectively, importers could import potentially in-scope product without paying duties.” Appellant’s Br. at 22. While we do not disagree with Commerce’s argument, to be clear, we do not find that such gamesmanship occurred in this case. First, we note that Commerce always retains the authority to self-initiate a scope inquiry and, thus, is not bound by the timing of the importer’s scope ruling re- quest to determine whether a product is in scope. 19 C.F.R. § 351.225(b) (“If the Secretary determines from available information that an inquiry is warranted to determine whether a product is included within the scope of an anti- dumping or countervailing duty order . . . the Secretary will initiate an inquiry . . . .”). Second, in this case, there was no undue delay in requesting a scope ruling. Once US&F received CBP’s Notice of Proposed Action and became aware that its products were potentially in scope, US&F timely filed its scope ruling with Commerce. UNITED STEEL AND FASTENERS v. UNITED STATES 15

CONCLUSION We hold that Commerce exceeded its regulatory au- thority under 19 C.F.R. § 351.225(l)(3) by retroactively sus- pending liquidation to the issuance date of the ADD Order. We also find that substantial evidence supports Com- merce’s final scope ruling that US&F’s washers are within the scope of the ADD Order. For these reasons, we affirm. AFFIRMED COSTS No costs.