Slip Op. 11-55
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Nicholas Tsoucalas, Senior Judge
________________________________________
MID CONTINENT NAIL CORPORATION, :
:
Plaintiff, :
:
v. :
:
UNITED STATES, :
: Court No.: 10-00247
Defendant, :
:
and :
:
TARGET CORPORATION, :
:
Defendant-Intervenor. :
:
OPINION
Held: Plaintiff’s Motion for Judgment on the Agency Record is granted
because the Final Scope Ruling issued by the Department of Commerce
was not supported by substantial evidence and is not in accord with
the law.
Dated: May 17, 2011
Wiley Rein, LLP, (Adam H. Gordon, Lori E. Scheetz, Robert E.
DeFrancesco, III) for Mid Continent Nail Corporation, Plaintiff.
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice, Patricia M. McCarthy, Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice, (David D’Alessandris); Brian Soiset, Office
of Chief Counsel for Import Administration, United States Department
of Commerce, Of Counsel, for the United States, Defendant.
Jochum, Shore, & Trossevin, PC, (Marguerite E. Trossevin and
James J. Jochum) for Target Corporation, Defendant-Intervenor
TSOUCALAS, Senior Judge: This matter comes before the Court
upon the Motion for Judgment on the Agency Record filed by Plaintiff,
Court No. 10-00247 Page 2
Mid Continent Nail Corporation (“Mid Continent Nail”) on November 23,
2010 pursuant to Rule 56.2 of the Rules of the United States Court
of International Trade. Mid Continent Nail challenges a
determination by the United States Department of Commerce
(“Commerce”) that steel nails imported as components of household
tool kits fall outside the scope of an antidumping duty order on
certain steel nails from the People’s Republic of China (“PRC”). See
Final Scope Ruling - Certain Steel Nails from the People’s Republic
of China (“PRC”), Request by Target Corporation (Aug. 10, 2010),
Public Rec. 27, (“Final Scope Ruling”).1 Mid Continent Nail argues
that the Final Scope Ruling is not supported by substantial evidence
and is otherwise not in accord with law primarily because its
analysis focused on the household tool kits rather than the steel
nails contained therein. Additionally, Mid Continent Nail asserts
that Commerce failed to properly conduct the analysis required in
scope inquiries under 19 C.F.R. § 351.225, and seeks a remand of this
matter for further proceedings. Defendant, United States
(“Government”), and Defendant-Intervenor, Target Corporation
(“Target”), oppose remand of this matter arguing that Commerce
conducted a sufficient scope analysis, and that its determination was
supported by substantial evidence and otherwise in accord with the
law.
1
Hereinafter all documents in the public record will be
designated “PR” and all documents in the confidential record
designated “CR.”
Court No. 10-00247 Page 3
For the reasons set forth below, the Court finds that Commerce’s
determination was unsupported by substantial evidence and not in
accord with the law and remands this matter for proceedings
consistent with this opinion.
BACKGROUND
On August 1, 2008, Commerce issued an order imposing an
antidumping duty on steel nails from the PRC. See Notice of
Antidumping Duty Order: Certain Steel Nails from the People’s
Republic of China, 73 Fed. Reg. 44,961 (Aug. 1, 2008)(“Final Order”).
The scope of the merchandise covered by the Final Order is as
follows:
The merchandise covered by this proceeding includes
certain steel nails having a shaft length up to 12
inches. Certain steel nails include, but are not limited
to, nails made of round wire and nails that are cut.
Certain steel nails may be of one piece construction or
constructed of two or more pieces. Certain steel nails
may be produced from any type of steel, and have a
variety of finishes, heads, shanks, point types, shaft
lengths and shaft diameters. Finishes include, but are
not limited to, coating in vinyl, zinc (galvanized,
whether by electroplating or hot-dipping one or more
times), phosphate cement, and paint. Head styles
include, but are not limited to, flat, projection,
cupped, oval, brad, headless, double, countersunk, and
sinker. Shank styles include, but are not limited to,
smooth, barbed, screw threaded, ring shank and fluted
shank styles. Screw-threaded nails subject to this
proceeding are driven using direct force and not by
turning the fastener using a tool that engages with the
head. Point styles include, but are not limited to,
diamond, blunt, needle, chisel, and no point. Finished
nails may be sold in bulk, or they may be collated into
strips or coils using materials such as plastic, paper,
or wire. Certain steel nails subject to this proceeding
are currently classified under the Harmonized Tariff
Schedule of the United States (“HSTUS”) subheadings
7317.00.55, 7317.00.65 and 7317.00.75.
Court No. 10-00247 Page 4
Excluded from the scope of this proceeding are roofing
nails of all lengths and diameter, whether collated or in
bulk, and whether or not galvanized. Steel roofing nails
are specifically enumerated and identified in ASTM
Standard F 1667 (2005 revision) as Type I, Style 20
nails. Also excluded from the scope of this proceeding
are corrugated nails. A corrugated nail is made of a
small strip of corrugated steel with sharp points on one
side. Also excluded from the scope of this proceeding
are fasteners suitable for use in powder-actuated hand
tools, not threaded and threaded, which are currently
classified under HTSUS 7317.00.20 and 7317.00.30. Also
excluded from the scope of this proceedings are thumb
tacks, which are currently classified HTSUS
7317.00.10.00. Also excluded from the scope of this
proceeding are certain brads and finish nails that are
equal to or less than 0.0720 inches in shank diameter,
round or rectangular in cross section, between 0.375
inches and 2.5 inches in length, and that are collated
with adhesive or polyester film tape backed with a heat
seal adhesive. Also excluded from the scope of this
proceeding are fasteners having a case hardness greater
than or equal to 50 HRC, a carbon content greater than or
equal to 0.5 percent, a round head, a secondary reduced-
diameter raised head section, a centered shank, and a
smooth symmetrical point, suitable for use in gas-
actuated hand tools.
While the HTSUS subheadings are provided for convenience
and customs purposes, the written description of the
scope of this investigation is dispositive.
Final Order, 73 Fed. Reg. at 44,961 - 44,962.2
Target imports household tool kits from the PRC. The tool
kits contain tools such as hammers, measuring tapes, screwdrivers,
and wrenches. See Letter from Jochum, Shore & Trossevin to the
Secretary of Commerce, Re: Certain Steel Nails from the People’s
Republic of China: Scope Ruling Request Regarding Household Tool
2
This scope language is substantially similar to the scope
language that was proposed in the antidumping petition. Final
Scope Ruling at 5.
Court No. 10-00247 Page 5
Kits (Dec. 11, 2009) (“Scope Ruling Request” or “Request”), PR 1 at
2-3, CR 1 at 2-3. Of relevance to this matter, the tool kits also
include a plastic container holding approximately fifty one-inch
brass coated steel nails. Id. at 2-3, 6. On December 11, 2009,
Target requested a ruling from Commerce that these tool kits are
outside the scope of the Final Order.
In making its Request, Target conceded that if the nails
contained in the tool kits were considered on their own they would
be subject to the Final Order. Scope Ruling Request at 5. It
argued, however, that Commerce should focus its scope analysis not
on the nails alone, but on the entire tool kit. Target based this
argument, first, on the Final Order’s silence regarding coverage of
nails packaged with non-subject items. Second, Target relied on
prior scope rulings that considered items containing both subject
and non-subject goods, otherwise known as “mixed-media” items or
sets. See Government’s Mem. in Opp’n to Pl.’s Mot. for J. upon
the Agency R. (“Gov.’s Opp’n”) at 10. In these earlier rulings,
Commerce focused its scope inquiry on the mixed-media item rather
than the subject good contained within it because the subject good
was a minor component of the mixed-media item, consumable, and
easily replaced with non-subject merchandise. Scope Ruling Request
at 5.
Target stated that when using the approach enunciated in these
prior scope rulings, Commerce subjected the mixed-media item to
Court No. 10-00247 Page 6
analysis under the factors set forth in 19 C.F.R. § 351.225(k)(2)3
(“(k)(2) factors”). Addressing each of the (k)(2) factors in turn,
Target argued that the physical characteristics, advertising and
display methods, purchaser expectations, ultimate use, and
different channels of trade in which subject nails and the tool
kits are sold show that the tool kits are distinct enough from
subject nails to be outside the scope of the Final Order.
Mid Continent Nail, a domestic manufacturer of nails and
original petitioner in the antidumping proceedings, see Final
Order, 73 Fed. Reg. at 44,962 n. 3, opposed Target’s Scope Ruling
3
In relevant part, 19 C.F.R. § 351.225(k) provides as
follows:
(k) . . . [I]n considering whether a particular product is
included within the scope of an order . . ., the Secretary
will take into account the following:
(1) The descriptions of the merchandise contained in the
petition, the initial investigation, and the
determinations of the Secretary (including prior scope
determinations) and the Commission.
(2) When the above criteria are not dispositive, the
Secretary will further consider:
(i) The physical characteristics of the product;
(ii) The expectations of the ultimate purchasers;
(iii) The ultimate use of the product;
(iv) The channels of trade in which the product is
sold; and
(v) The manner in which the product is advertised
and displayed.
19 C.F.R. § 351.225(k)(1)-(2) (2010). The (k)(2) factors are
also known as the Diversified Products factors because prior to
codification, they were recognized by this court in Diversified
Products Corp. v. United States, 6 CIT 155, 162, 572 F. Supp.
883, 889 (1983).
Court No. 10-00247 Page 7
Request. See Letter from Wiley Rein to the Secretary of Commerce,
Re: Certain Steel Nails from the People’s Republic of China:
Opposition to Target Corporation’s Request to Exclude Steel Nails
Packaged With Non-Subject Merchandise From the Scope of This Order
(Dec. 22, 2009), PR 2. Mid Continent Nail argued that it is
impermissible to bypass the factors set forth in 19 C.F.R. §
351.225(k)(1) (“(k)(1) factors”) and begin with the (k)(2) factors,
as advocated by Target. Proper adherence to case precedent and
weighing of the sources identified by the (k)(1) factors, Mid
Continent Nail continued, would show that steel nails imported in
mixed-media sets remain subject to the Final Order despite being
packaged with non-subject items.
Mid Continent Nail first pointed to the scope language of the
Final Order itself. It argued that the Final Order’s silence
regarding nails packaged in tool kits was irrelevant to the nails’
inclusion because the Final Order clearly includes all steel nails
matching a broad physical description unless those nails fit within
an articulated exclusion. PR 2 at 5-8. As seen above, there are
six exclusions from the Final Order’s scope: roofing nails,
corrugated nails, thumb tacks, small finishing nails, and certain
nails used in either powder- or gas-actuated tools. See Final
Order, 73 Fed. Reg. at 44,961 - 44,962. The scope language excludes
no nails based on their packaging or inclusion in a mixed-media
set. Mid Continent Nail also argued that prior scope ruling
precedent supported including subject nails within the scope even
Court No. 10-00247 Page 8
though they were packaged in a set with non-subject goods. PR 2 at
10-14.
Finally, Mid Continent Nail noted that during the antidumping
proceedings, Stanley Fastening Systems, LP (“Stanley”), an importer
of nail gun sets comprised of a nail gun, nails, and a carrying
case, sought a determination that the nails in its sets were
outside the scope langauge. See PR 2 at 8-9, PR 6, Att. 1. The
domestic manufacturers who filed the antidumping petition
(“Petitioners”) responded in opposition stating
[T]hey intend and have always intended these proceedings
to cover all certain steel nails exhibiting the physical
characteristics described in the written scope
description, whether imported alone or as part of a set
of goods including non-scope merchandise. To the extent
the Department [of Commerce] wishes to add clarifying
language to the written description of the scope
concerning this matter, Petitioners have no objection.
See Letter from Kelley Drye Collier Shannon to the Secretary of
Commerce, Re: Certain Steel Nails from the People’s Republic of
China (Aug. 9, 2007), PR 2, Ex. 3 at 6 (“Petitioners’ Scope
Letter”). No objections were filed to the Petitioners’ Scope
Letter; however, Commerce did not add the suggested clarifying
language to the Final Order.4
4
In Certain Steel Nails from the People’s Republic of China:
Preliminary Determination of Sales at Less Than Fair Value and
Partial Affirmative Determination of Critical Circumstances and
Postponement of Final Determination, 73 Fed. Reg. 3928, 3929 n. 6
(Jan. 23, 2008), Commerce discussed Stanley’s request, but noted
only that it decided not to modify the Final Order’s scope to
exclude certain trademarked items. Commerce never addressed its
decision not to amend the scope to clarify whether nails meeting
the scope language’s physical description remain subject even
(continued...)
Court No. 10-00247 Page 9
Commerce issued the Final Scope Ruling on August 10, 2010
excluding the steel nails contained in the tool kits. First,
Commerce stated that it had examined the (k)(1) factors and
concluded that they were not dispositive as to whether the Final
Order’s scope applied to “brass coated steel nails in household
tool kits.” Final Scope Ruling at 5. Commerce proceeded to an
analysis of the merchandise under the (k)(2) factors. Id. It
commenced this analysis by stating that it had “examined each of
the household tool kits as a set containing both brass coated nails
and other items.” Id. (emphasis added). As a basis for its
decision to focus its examination in this manner, Commerce stated:
While we acknowledge that Target’s brass coated steel
nails would meet the physical requirements of steel nails
that fall within the scope of the Order if they were
imported without any of the other tool kit components, we
also take into consideration that they were imported in
household tool kits containing non-subject merchandise.
Thus, the proper focus of the analysis is on the nails as
contained in the household tool kits.
Id.5
Based on its analysis of the (k)(2) factors, Commerce
concluded that the six tool kits containing steel nails fall
4
(...continued)
when packaged with non-subject merchandise.
5
Commerce’s characterization of the particular products it
examined varied throughout the Final Scope Ruling, e.g., “tool
kits,” id. at 7, “tool kits as a set containing both brass coated
nails and other items,” id. at 5, “nails as contained in the
household tool kits.” Id. However, it is clear from Commerce’s
analysis, and the fact that the nails on their own are subject to
the Final Order, that upon deciding not to conduct an inquiry on
the nails as advocated by Mid Continent Nail, Commerce conducted
its inquiry on the tool kits as advocated by Target.
Court No. 10-00247 Page 10
outside the scope of the Final Order. Mid Continent Nail initiated
this action seeking review of Commerce’s determination on August
25, 2010.
JURISDICTION
The Court has jurisdiction over this matter pursuant to
Section 516(a)(2)(B)(vi) of the Tariff Act of 1930, as amended, 19
U.S.C. § 1516a(a)(2)(B)(vi) (2006),6 and 28 U.S.C. § 1581(c)
(2006).
STANDARD OF REVIEW and LEGAL STANDARD
The Court will uphold a scope determination by Commerce unless
it is “unsupported by substantial evidence on the record, or
otherwise not in accord with law.” 19 U.S.C. § 1516a(b)(1)(B)(i).
Substantial evidence is “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.” Huaiyin
Foreign Trade Corp. (30) v. United States, 322 F.3d 1369, 1374
(Fed. Cir. 2003) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197,
229 (1938)). “The court gives significant deference to Commerce’s
interpretation of its own orders, but a scope determination is not
in accordance with the law if it changes the scope of an order or
interprets an order in a manner contrary to the order’s terms.”
Allegheny Bradford Corp. v. United States, 28 CIT 830, 842, 342 F.
Supp. 2d 1172, 1183 (2004). In other words, while Commerce “enjoys
6
All further citations to the Tariff Act of 1930 are to the
relevant provisions of Title 19 of the United States Code, 2006
edition.
Court No. 10-00247 Page 11
substantial freedom to interpret and clarify its antidumping duty
orders . . . it may not change them.” Ericsson GE Mobile Commc’ns,
Inc. v. United States, 60 F.3d 778, 782 (Fed. Cir. 1995); see also
Tak Fat Trading Co. v. United States, 396 F.3d 1378, 1382 (Fed.
Cir. 2005) (“The language of the order determines the scope of an
antidumping duty order.”).
Notwithstanding this primacy, antidumping orders sometimes
employ general language when defining the scope of the merchandise
covered. See 19 C.F.R. § 351.225(a); see also Duferco Steel, Inc.
v. United States, 296 F.3d 1087, 1096 (Fed. Cir. 2002). This
general language can render the order’s scope ambiguous, and
interpretive aids become necessary. In these instances, Commerce
interprets the order pursuant to 19 C.F.R. § 351.225, the
regulation governing the initiation and prosecution of scope
inquiries. Section 351.225(d) directs Commerce to first utilize
the (k)(1) factors to determine whether a particular product falls
within the scope of the order at issue. When the (k)(1) factors
“are not dispositive” regarding an order’s scope, Commerce is then
directed to consider the (k)(2) factors. 19 C.F.R. §
351.225(k)(2).
ANALYSIS
As noted above, in the Final Scope Ruling Commerce analyzed
the tool kits containing steel nails under the (k)(2) factors after
determining that the (k)(1) sources were not dispositive. Final
Scope Ruling at 5. Commerce’s entire (k)(1) analysis reads as
Court No. 10-00247 Page 12
follows:
Pursuant to 19 CFR 351.225(k)(1) and as stated above, the
Department [of Commerce] first examined the descriptions
of the merchandise contained in the petition, the
determinations of the Secretary and the ITC, and the
initial investigation in examining Target’s scope
request. On March 18, 2010, we initiated a formal scope
inquiry of Target’s brass coated steel nails in household
tool kits, finding that the descriptions of the
merchandise contained in the petition, the determinations
of the Secretary and ITC, and the initial investigation
were not dispositive in this case. Therefore, we have
examined Target’s brass coated steel nails in household
tool kits pursuant to the criteria set forth in section
351.225(k)(2) of the Department’s regulations to
determine if they are covered by the scope of the Order.
Final Scope Ruling at 5.
This perfunctory recitation by Commerce failed to address
several significant items that should have been considered before
turning to the (k)(2) factors. For example, Commerce failed to
address the Petitioners’ Scope Letter which made clear the
Petitioners’ intention that their proposed scope language would
include subject goods packaged with non-subject items. This
failure alone renders the Final Scope Ruling unsupported by
substantial evidence. See Allegheny Ludlum Corp. v. United States,
24 CIT 452, 479, 112 F. Supp. 2d 1141, 1165 (2000) (“It is . . .
well-established that Commerce’s total failure to consider or
discuss record evidence which, on its face, provides significant
support for an alternative conclusion renders the Department’s
determination unsupported by substantial evidence.”).
More significantly, it is clear that Commerce commenced its
analysis with its focus already on the tool kits, and not the steel
Court No. 10-00247 Page 13
nails. Commerce never addressed in any substantive way, however,
its decision to examine the tool kits rather than the steel nails.7
It simply stated that the tool kits would be examined because the
nails were packaged therein with non-subject merchandise. See
Final Scope Ruling at 5. A more thorough explanation was
necessary. See NMB Singapore Ltd. v. United States, 557 F.3d 1316,
1319 (Fed. Cir. 2009) (“Commerce must explain the basis for its
decisions; while its explanations do not have to be perfect, the
path of Commerce's decision must be reasonably discernable to a
reviewing court.”).
Properly addressing this issue is especially important in
mixed-media cases like this one because the scope inquiry steps set
forth above presuppose a “product” to which they are being applied.
If there is a dispute regarding what that product is, therefore,
resolving that dispute is one of the most important steps Commerce
makes during the inquiry. Here, the decision to examine the tool
kits proved outcome determinative because there was universal
agreement that the nails considered on their own were subject to
the Final Order. In deciding that its inquiry would focus on the
tool kits, Commerce addressed none of the parties’ arguments on
this issue and did not expressly rely on the Final Order, prior
7
It is worth noting that Commerce was not required to focus
its inquiry on the tool kits simply because Target framed its
Request in that manner. See Walgreen Co. of Deerfield v. United
States, 620 F.3d 1350, 1355 (Fed. Cir. 2010) (noting that such a
rule would allow importers to frame their scope ruling requests
in order to eliminate dispositive use of the (k)(1) factors).
Court No. 10-00247 Page 14
scope rulings, or other basis. A ruling from Commerce with such
infirmities will normally not be affirmed. See USX Corp. v. United
States, 11 CIT 82, 88, 655 F. Supp. 487, 492 (1987) (“The court
cannot defer to a decision which is based on inadequate analysis or
reasoning.”). However, because the Final Order and its prior scope
rulings provide possible paths for Commerce’s decision to examine
the tool kits, the Court takes up each in turn.
1. The Final Order
Target and Mid Continent Nail are correct that the Final Order
is silent regarding coverage of nails packaged with non-subject
items. However, this silence does not amount to an ambiguity. The
Final Order gives a specific description of the broad range of
nails falling within its scope. It continues by setting forth six
types of nails excluded from that scope. None of these exclusions
turn on whether the nails are packaged with non-subject items, or
whether they are a minor part of the overall item in which they are
packaged. The only conclusion warranted by the Final Order’s
language, then, is that packaging does nothing to change the
scope’s broad coverage of steel nails.
Target argues that this case “is not a packaging case,”
because it concerns unique products - tool kits. See Target’s
Resp. in Opp’n to Pl.’s R. 56.2 Mot. for J. upon the Agency R.
(“Target’s Opp’n) at 19. It further states that Commerce alone can
determine whether the product presented for examination is a
separate item, unique from the subject good. Id. (citing Walgreen,
Court No. 10-00247 Page 15
620 F.3d at 1355). First, Target overstates the unique nature of
the tool kits. The tool kits are a collection of tools that will
be used by the consumer as tools, and nails that will be used by
the consumer as nails. Second, while it is true that Commerce
defines the product under review when necessary, Walgreen is clear
that this determination must “take into account the unique language
of the Final Order” at issue in the case. Walgreen, 620 F.3d at
1355. Here, deciding that the nails’ inclusion in tool kits
created a new product and ultimately excluding the nails from the
Final Order’s scope was an unreasonable interpretation of the Final
Order. By focusing its inquiry on the tool kits and excluding the
otherwise subject nails packaged therein, Commerce effectively
created a seventh exclusion to the Final Order, namely an exclusion
of steel nails packaged with non-subject items in tool kits.
In so doing, Commerce ran afoul of the well-established
prohibition against altering scope language ex post facto. See
Ericsson, 60 F.3d at 782. If Commerce intended to exclude nails
imported as components of mixed-media sets from the scope of the
Final Order, the time to establish that exclusion was during the
antidumping investigation. “It is the responsibility of the
agency, not those who initiated the proceedings, to determine the
scope of the final orders.” Duferco, 296 F.3d at 1097. Commerce
undertook this responsibility here, as it always does, with
informed input from those most knowledgeable and with the greatest
interest in the proceedings, namely industry members who
Court No. 10-00247 Page 16
manufacture and import the nails in question. Stanley’s request
regarding its nail gun sets, and the Petitioners’ Scope Letter in
response, put Commerce on notice that subject nails were likely to
be imported with non-subject items, and that the Petitioners
believed this fact irrelevant to whether those nails remained
within the scope of the Final Order. Resolution of this issue
could easily have been provided for one way or the other in the
Final Order. Instead, Commerce issued a Final Order that
encompasses a broad range of steel nails regardless of whether they
are imported in mixed-media sets. This unambiguous scope may not
be changed now by means of the Final Scope Ruling.
The Government and Target argue that the tool kits at issue
should not be automatically encompassed within the Final Order’s
scope simply because the Final Order did not expressly exclude
them. See Gov.’s Opp’n at 13 (citing Duferco, 296 F.3d at 1096);
Target’s Opp’n at 18 n.11 (citing Toys “R” Us v. United States, 32
CIT __, __, Slip Op. 08-79 (July 16, 2008)(not published in the
Federal Supplement)). This argument, however, states the matter
backwards. The tool kits are important not because of what they
are, but because of what they contain - subject steel nails.
Importation of those nails provides the basis for this case; in
fact, it was the reason Target sought a scope ruling to begin with.
It is not surprising that household tool kits are outside the scope
of an order related to steel nails. The nails themselves, however,
are subject to the Final Order, and it is left only to determine
Court No. 10-00247 Page 17
whether the Final Order, or some other lawful source, provide a
basis for excluding them because they are packaged in tool kits.
As already stated, the Final Order provides no such basis.
While the Final Order’s unambiguous inclusion of the nails would
normally be the end of the Court’s analysis, the role Commerce’s
prior scope rulings may have played in its decision should be
reviewed. This scrutiny is warranted because it is unclear how the
procedures described in those rulings operate in conjunction with
the language of the final orders, and an issue exists regarding
whether Commerce is authorized to use such procedures at all.
2. Prior Scope Rulings
As relied on by the parties during the scope inquiry, Commerce
has previously considered scope ruling requests involving mixed-
media items. The relevant rulings all involved similar
circumstances: an item or set being imported included a subject
good, but the antidumping order at issue was silent regarding
coverage of the item or set. In response to these circumstances,
Commerce has adopted two different tests utilizing two different
sets of factors allowing it to determine the product under
examination. The test used is normally outcome determinative as to
whether Commerce ultimately finds coverage of the subject good.
In the scope rulings relied on by Target, Commerce focused its
inquiry on the entire mixed-media item or set rather than the
subject good alone and found no scope coverage. See Certain Lined
Paper Products from the People’s Republic of China - Davis Group of
Court No. 10-00247 Page 18
Companies Corp. Scope Ruling Request, (Feb. 21, 2008) (concluding
that padfolios containing subject lined paper pads were outside the
scope of the order) (“Davis Scope Ruling”); Final Scope Ruling -
Antidumping Duty Order on Certain Lined Paper Products from the
People’s Republic of China, Request by Avenues in Leather, Inc.,
(May 8, 2007) (same); Final Scope Ruling - Antidumping Duty Order
on Certain Cased Pencils from the People’s Republic of China (PRC)
- Request by Fiskars Brands, Inc., (June 3, 2005) (concluding that
compasses containing subject pencils were outside the scope of the
order) (“Fiskars Scope Ruling”); Final Scope Ruling - Antidumping
Duty Order on Certain Cased Pencils from the People’s Republic of
China (PRC) - Request by Target Corporation, (Mar. 4, 2005)
(concluding that art sets containing subject pencils and other non-
subject art supplies were outside the scope of the order) (“Clip N’
Color Scope Ruling”).
In these scope rulings, Commerce considered the item or set as
a whole after concluding that the subject good contained therein
was “not a substantial component of the set,” Clip N’ Color Scope
Ruling at 5, was “consumed” during use, Fiskars Scope Ruling at 6,
or could be “replaced” with another, presumably non-subject, good.
Davis Scope Ruling at 6. Notably, Commerce identified none of
these factors (i.e., minor component, consumable, replaceable) in
the language of the antidumping order at issue.
In the scope rulings relied on by Mid Continent Nail, Commerce
Court No. 10-00247 Page 19
decided to examine the subject good regardless of the other items
with which it was packaged, and concluded that the subject good
remained subject to the antidumping order. See Final Scope Ruling:
Antidumping Duty Order on Certain Tissue Paper from the People’s
Republic of China, (Sept. 19, 2008) (concluding that tissue paper
contained in a gift bag set was subject to the order) (“Walgreen
Scope Ruling”); Final Scope Ruling on the Request by Texsport for
Clarification of the Scope of the Antidumping Duty Order on
Porcelain-on-Steel Cooking Ware from the People’s Republic of
China, (Aug. 8, 1990) (concluding that porcelain-on-steel cookware
imported as part of a camping set was subject to the order)
(“Texsport Scope Ruling”).
In the Walgreen Scope Ruling, Commerce analyzed subject tissue
paper contained in gift bags and concluded that the tissue paper
was “not a component of a unique set but merely subject merchandise
packaged with non-subject merchandise.” Walgreen Scope Ruling at
11. Relying on the Texsport Scope Ruling, Commerce stated that it
evaluated the subject tissue paper apart from the other items with
which it was packaged because the items “could be used
independently of one another and at different times.” Id.
Commerce also stated that “[b]ecause the tissue paper at issue
included in these sets can be used independently, the question of
whether or not the tissue paper is ‘significant’ with regard to the
other products in the gift bag sets . . . is irrelevant to the
Department’s analysis in this case.” Id. at 11-12.
Court No. 10-00247 Page 20
In this case, Commerce appears to have followed the rulings
cited by Target. However, if Commerce had instead applied the
Walgreen Scope Ruling approach, it is likely that the subject nails
would have been examined and found within the Final Order’s scope
because they can be “used independently” of the other items in the
tool kits and “at different times.” In fact, the nails appear to
better satisfy these conditions than did the tissue paper at issue
in Walgreen.
Such inconsistency in agency procedure is not permitted. It
is true that Commerce has not given a general definition or test
for what constitutes a mixed-media set, and that Commerce must
issue each scope ruling based upon the facts and circumstances of
the specific case before it. See Walgreens, 620 F.3d at 1355.
However, to the extent that Commerce develops a procedure for
defining the particular product to be examined in scope
proceedings, such procedure must remain consistent and any
deviations must be explained. See SFK USA, Inc. v. United States,
630 F.3d 1365, 1373 (Fed. Cir. 2011) (“When an agency changes its
practice, it is obligated to provide an adequate explanation for
the change.”).
An additional problem exists when Commerce uses criteria other
than the antidumping order to determine the particular product
under examination in scope proceedings. Specifically, Commerce has
cited no authority allowing it to consider factors other than the
Final Order or the provisions of 19 C.F.R. § 351.225 when defining
Court No. 10-00247 Page 21
the particular product to be examined in scope inquiries. However,
statutory authority is necessary when an agency takes action to
administer a statutory schemes over which it has oversight. See
Timken Co. v. United States, 354 F.3d 1334, 1341 (Fed. Cir. 2004)
(citing Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S.
837, 842-43 (1984)).
This much is clear: a party seeks a scope ruling in a mixed-
media case because it is importing an item containing goods subject
to an antidumping order. As stated above, it is Commerce, and not
the party seeking the scope ruling, that decides where the scope
inquiry should be focused. See Walgreen Co. of Deerfield, 620 F.3d
at 1355. The factors to be utilized in making this decision are
not expressly provided for in 19 C.F.R. § 351.225, but the question
itself remains governed by the principle that in scope proceedings,
Commerce may interpret its orders but is not at liberty to change
them. See Ericsson GE Mobile Commc’ns, 60 F.3d at 782. Therefore,
regardless of the test employed, examining mixed-media items or
sets instead of the subject goods they contain when such an
approach is not warranted by the antidumping order may not be in
accord with the law. However, since the Final Scope Ruling
provided no statutory, regulatory, or other legal basis for this
practice, the Court concludes that remand on this issue is
appropriate so that Commerce can identify not only a test it will
employ consistently, but the legal justification for employing such
a test at all.
Court No. 10-00247 Page 22
CONCLUSION
The Court concludes that the Final Scope Ruling is unsupported
by substantial evidence and otherwise not in accord with the law.
Commerce failed to articulate the reasons it examined the tool kits
instead of the nails contained therein. Commerce also gave
inadequate consideration to the language of the Final Order and
undertook an analysis under 19 C.F.R. §351.225(k)(2) prematurely.
Furthermore, to the extent Commerce relied on procedures set forth
in its prior scope rulings in deciding to examine the tool kits
rather than the nails contained therein, it failed to articulate
the factors of the test it followed or the legal authorization for
employing such a test.
In accordance with the above, this case is remanded to
Commerce for further proceedings consistent with this opinion.
/s/ NICHOLAS TSOUCALAS
Nicholas Tsoucalas
Senior Judge
Dated: May 17, 2011
New York, New York