United States Court of International Trade

Commerce Decision Regarding Surrogate Country Remanded in Certain Activated Carbon Case

Before the Court in Jacobi Carbons AB et. al. v. United States et. al. Slip Op. 19-27, Court No. 15-00286 (March 4, 2019) and Jacobi Carbons AB et. al. v. United States et. al. Slip Op. 19-28, Court No. 16-00185 (March 5, 2019) were challenges to Commerce’s remand determinations in the seventh and eight administrative reviews of the antidumping duty order on certain activated carbon from China. “Plaintiffs challenged Commerce’s selection of Thailand as the primary surrogate country  … and Commerce’s adjustment to Jacobi’s constructed export price (“CEP”) to account for irrecoverable value-added tax (“VAT”).” Id. at 3. For the following reasons, the Court in both cases remanded with respect to the agency’s surrogate country selection and sustained with respect to the agency’s value-added tax adjustment.

When an antidumping investigation involves a nonmarket economy, “Commerce determines normal value by valuing the factors of production in a surrogate country.” Id. at 7-8. “Commerce must use the best available information that is, to the extent possible, from a market economy country or countries that are economically comparable to the nonmarket economy” are significant producers of comparable merchandise. Id. at 8. In both cases, the Court said Commerce failed support its determination that Thailand was a significant producer with substantial evidence. As such, the determination that Thailand was an appropriate surrogate was remanded. In regards to the CEP, “when calculating export price and constructed export price, Commerce may deduct the amount … of any export tax, duty, or other charge imposed by the exporting country on the exportation of the subject merchandise.”  Id. at 17. Commerce concluded that it previously erred in adjusting Jacobi’s CEP. The Court said “Commerce did not impermissibly base its adjustment on the contemporaneous Chinese law while ignoring evidence of Jacobi’s net VAT payment.” Id. at 35. As such, Commerce’s determination to deduct output VAT from the CEP was based on substantial evidence and was accordance with law.        

Commerce Scope Decision Regarding End Use and Further Processing of Certain Light-Walled Rectangular Pipe Remanded for Further Consideration

Before the Court in Stein Indus. Inc. v. United States, Slip Op. 19-29, Court No. 18-00150 (March 5, 2019) was a challenge to scope determination based on the antidumping and countervailing duty orders on light-walled rectangular (“LWR”) pipe and tube from China. Plaintiff challenged Commerce’s determination that its merchandising bar and adjustable welded mounted bar kit were within the scope of the Orders. Plaintiff argued the imported products were not LWR pipes or tubes but instead were finished downstream components made from LWR pipes or tubes. Commerce argued that all four parts in their original form were described by the scope language. For the following reasons, the scope determination was remanded to Commerce for reconsideration.

When dealing with a scope determination “Commerce’s inquiry must begin with the relevant scope language.” Id. at 4. If the language is ambiguous, Commerce “considers the description of the merchandise in the petition and initial investigation, and prior determinations by Commerce and the International Trade Commission” and factors specified in regulations. The Court said that although the agency was correct saying the products met the description of subject merchandise in the scope, Commerce failed “to consider whether the scope contained exclusionary language based on further processing or end use.” Id. at 13-14.  Specifically, the Court questioned whether Commerce considered the extent to which products must exhibit a rectangular or square cross-section to be covered by the scope of the order.  “Without more, the court cannot ensure that Commerce has not interpreted the scope of the Orders in a manner contrary to its terms.” Id. at 14. As such, the determination was remanded for further consideration.

Composite Pharmacy Machine Held Classifiable as “Packaging Machinery”

A composite machine used to store, measure and package pharmaceuticals for use by patients in hospitals and pharmacies derived its “essential character” from its packaging machinery component and is classified under Harmonized Tariff Schedule (HTS) Heading 8422, free of duty.

In McKesson Canada Corp. v. United States, Slip Op. 19-26 (February 28, 2019), the product was a “Pacmed” machine, used to dispense medications in pharmacies and hospitals. The upper part of the machine contained a number of bar-coded hoppers into which various medications were packaged. The lower part of the machine contained a printing mechanism which dispensed plastic material which was sealed around collections of medications, in bags which were then imprinted with patient identification and other information.

Customs had classified the Pacmed device under HTS Heading 8479, as other machines having single function not identified in Chapter 84. The government argued that the principal and controlling function of the machine was “dispensing” drugs to customers. The Court rejected this argument, noting that “dispensing” was a process which involved delivery to the patient or ultimate consumer – something the Pacmed did not do. [Packaged drugs were carried from the machine to patients by nurses, pharmacists or other health care personnel].

The Court also rejected a government suggestion that the principal function of the machine was “compliance” with hospital practices and standards designed to ensure that each patient received his or her correct medication, noting that “compliance” was more an aspiration than a function which could be used as a basis for classification. Noting that the device’s holding, measuring and other functions were in service of the packaging function, the court held the Pacmed device to be classifiable as packaging machinery of Heading 8422.

United States District Court

Customs Seizure Decisions Not Reviewable Prior to Forfeiture Proceedings, District Court Rules

A Federal District Court will not review petitions filed with Customs regarding seizure of merchandise, according to a recent decision from the United States District Court for the District of Delaware.

In LKQ Corporation et al. v. Department of Homeland Security et al., No. 18-225-MN (D. Del)(February 22, 2019), which an importer of “repair grilles” for cars challenged determinations by Customs and Border Protection to seize imported grilles as either bearing counterfeit or “confusingly similar” versions of registered trademarks which have been recorded with Customs for import protection. The importer had previously sought to challenge exclusions of its merchandise in the Court of International Trade. The dispute subsequently spilled over into Federal District Courts, where forfeiture cases against certain grilles are pending in California and Georgia.

The importer filed suit in the Federal District Court in Delaware in an attempt to get comprehensive review of all of CBP’s various seizure actions (some 165 in total), which are the subject of some 81 petitions for mitigation of seizures. It also sought to consolidate the California and Georgia seizure cases with its Delaware challenge.

Not surprisingly, the Court in Delaware has now dismissed the plaintiffs’ case in its entirety, for a variety of reasons. First, it held that the courts have no jurisdiction to review Customs’ “discretionary” review of petitions for mitigation, which it characterized as requests for “executive pardons of the property based on the petitioner’s innocence”. It declined to interfere with Customs’ seizures of various entries of goods, noting that the exclusive remedy was to have the government file a case to forfeit the property, in which case the importer could assert a claim to the goods. If the government delayed too long in bringing forfeiture cases, the importers could bring an equitable action seeking to have forfeitures commenced or the property released.

The court also noted that there was no due process right to pre-forfeiture hearings with respect to goods seized at the border.