United States: Federal Circuit Confirms Limits To The Suspension Of Liquidation In Scope Disputes

Antidumping and countervailing duty orders address unfairly priced and subsidized imports that enter the United States. Each order contains a "scope" that identifies in part the "class or kind" or merchandise covered by order.

The U.S. Department of Commerce and U.S. Customs & Border Protection (CBP) possess complimentary, yet distinct responsibilities in enforcing the scope of an order. Upon request or its own initiative, Commerce may issue a ruling that interprets a scope to determine an order's coverage. Meridian Prods., Inc. v. United States, 851 F.3d 1375, 1381–82 (Fed. Cir. 2017). In so doing, Commerce must always follow the unambiguous terms of a scope. See id. However, if Commerce finds the scope terms ambiguous, it must consult the regulatory factors in 19 C.F.R. § 351.225(k)(1) and, under certain circumstances, 19 C.F.R. § 351.225(k)(2). If Commerce determines that an import falls within the scope of an order, it then instructs CBP to execute a ministerial function: suspend the liquidation of the import at issue and require cash deposits as security for such imports. See 19 C.F.R. § 351.225(l)(1)–(4). "Liquidation means the final computation or ascertainment of duties on entries for consumption or drawback entries." 19 C.F.R. § 159.1.

Scope issues, however, do not always get resolved in such a linear fashion. On some occasions, CBP will treat certain entries as within the scope of an antidumping or countervailing duty order without the benefit of a Commerce scope ruling on the merchandise in question. In this scenario, questions arise as to how soon suspension of the entries' liquidation may occur, given that Commerce has not yet spoken on the matter. In Sunpreme Inc. v. United States, the U.S. Court of Appeals for the Federal Circuit  recently confirmed certain limits on the suspension of liquidation in the scenario described above.

The dispute has a complicated backstory. CBP had initially made its own independent determination that Sunpreme's imported solar modules fall within the scope of antidumping and countervailing duty orders on certain solar products from China. The trade bar commonly refers to these orders as the Solar I Orders. Sunpreme challenged CBP's action by filing suit at the U.S. Court of International Trade (CIT) under 28 U.S.C. § 1581(i), arguing that CBP exceeded its authority by determining whether an import fell within the scope of an order. After years of litigation, the Federal Circuit dismissed the suit, holding that Sunpreme could have an adequate remedy—i.e., a lawsuit challenging an adverse scope ruling issued by Commerce—under 28 U.S.C. § 1581(c), such that the CIT lacked subject matter jurisdiction under 28 U.S.C. § 1581(i).

As it turns out, Sunpreme had pursued parallel relief from Commerce in a scope inquiry at the same time that it filed its initial suit at the CIT. Commerce ruled against Sunpreme and instructed CBP to continue its suspension of the entries' liquidation, including for imports that entered prior to the initiation of Commerce's scope ruling. Sunpreme sought review before the CIT. Judge Kelly upheld Commerce's scope ruling on the merits, but she also ruled that Commerce unlawfully instructed CBP to suspend the liquidation of imports that entered prior to the initiation of the scope inquiry. Sunpreme and the government separately appealed both aspects of Judge Kelly's opinion to the Federal Circuit, which brings us to the recent Sunpreme opinion.

Writing on behalf of the majority, Judge Clevenger first held that Commerce properly found Sunpreme's solar modules within the scope of the Solar I Orders. Slip Op. at 12–23. Nothing meaningful to report here from this fact-specific exercise based on analysis of Commerce's findings against the scope terms and the regulatory factors in 19 C.F.R. § 351.225(k)(1). Id.

The majority also agreed with the CIT that Commerce could not instruct CBP to suspend the liquidation of Sunpreme's imports prior to the initiation of the scope inquiry, regardless of whether CBP on its own initiative had started to suspend the entries and require collection of cash deposits prior to the initiation of the scope inquiry. Id. at 23–30. Here, the majority turned to Commerce's regulations on the suspension of liquidation in scope proceedings. See 19 C.F.R. § 351.225(l)(1)–(4). In simple terms, if Commerce conducts a scope inquiry of an import that already is subject to suspension of liquidation, that suspension remains in place during the scope proceeding. Id. § 351.225(l)(1). If Commerce issues a final scope ruling that the product is not within the scope of the order and the import already is subject to suspension, then Commerce must end any existing suspension of liquidation and instruct CBP to refund cash deposits. Id. § 351.225(l)(3). If Commerce issues a final scope ruling that the product is within the scope of an order and no suspension of liquidation is in place, then Commerce must instruct CBP to suspend liquidation and collect the requisite cash deposits "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." Id.

The question here is whether CBP's decision to suspend Sunpreme's imports on its own initiative prior to the initiation of the scope inquiry, based on its own interpretation of the scope at issue, was legally sufficient for the imports to be already suspended for purposes of 19 C.F.R. § 351.225(l)(1). The majority reasoned that if "the suspensions of liquidation . . . were ultra vires acts by [CBP], and therefore of no legal effect, then it is clear that no suspensions of liquidation existed to be 'continued' during the scope inquiry in this case under" 19 C.F.R. § 351.225(l)(1). Slip Op. at 24. Because CBP exceeded its authority by interpreting the ambiguous terms of the scope at issue, the majority concluded that Sunpreme's imports were not previously suspended for purposes of 19 C.F.R. § 351.225(l)(1). As a result, the majority held that Commerce could only instruct CBP to suspend the liquidation of Sunpreme's imports as of the date that Commerce initiated the scope inquiry, consistent with 19 C.F.R. § 351.225(l)(3). The majority nicely summarized its conclusion in the following passage:

[b]ased on our existing case law, we can see no reason why [CBP], which we have recognized plays a ministerial role in the liquidation process and lacks the authority in the first instance to interpret the scope of unclear or ambiguous duty orders, should have more power than its charging agency—Commerce—to order suspension of liquidation.

[CBP] cannot clarify or interpret duty orders in the first instance. [CBP] can determine if merchandise is covered by a clear or unambiguous duty order and suspend liquidation before a scope inquiry because such actions do not require clarification or interpretation of the duty order. Commerce can continue that suspension of liquidation following its own assessment. But Commerce cannot order suspension of liquidation pre-scope inquiry for merchandise possibly subject to an unclear or ambiguous duty order. We now hold that neither can [CBP] because allowing it to do so would permit [CBP] in the first instance to clarify or interpret the ambiguity in the duty order so as to place merchandise within its scope.
...
Ambiguity is the line that separates lawful ministerial acts from unlawful ultra vires acts by [CBP].

Id. at 27. Notably, in reaching this conclusion, the majority rebuffs the oft-repeated concerns over "evasion" and "circumvention" advanced by the United States and Solar World. Id. at 28–30.

In dissent, Chief Judge Prost agreed with the majority's conclusion that Sunpreme's imports fall within the scope of the Solar I Orders, but disagreed with the majority on the liquidation instructions issue. Dissent at 1–9.

Bottom Line: The Federal Circuit's decision in Sunpreme establishes concrete guideposts for Commerce, CBP and importers in disputes over the suspension of liquidation. If the scope of an order is unambiguous, CBP may suspend the liquidation of entries that fall within that scope at any time. If the scope of an order is ambiguous, however, neither Commerce nor CBP may suspend the liquidation of those entries until Commerce determines that the imports fall within the terms of that scope. Even in that scenario, Commerce may only instruct CBP to suspend the liquidation of those entries as of the date that Commerce initiated the scope inquiry.

These new rules undoubtedly will necessitate a dramatic change in current CBP practice. Before Sunpreme, CBP would and could suspend the liquidation of entries and tell importers to seek a scope ruling from Commerce, even if the scope included ambiguous terms. That scenario often required importers to pick one among many costly alternatives. Sunpreme has put that practice to rest.

Notwithstanding the rules outlined in Sunpreme, certain questions remain unanswered. For example, what happens when CBP determines that the scope of an order is unambiguous, such that it suspends the liquidation of certain entries, but Commerce in a subsequent scope ruling finds that the scope is ambiguous? In that scenario, it would seem that Commerce could only instruct CBP to suspend the liquidation of the entries as of the date that Commerce initiated the scope inquiry, based on Sunpreme and Commerce's regulations. Presumably, that would mean CBP acted unlawfully in suspending liquidation prior to that date. In a post-Sunpreme era, this scenario undoubtedly will arise, and it ultimately may require the CIT and Federal Circuit to issue opinions on the matter. Stay tuned.

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