United States anti-circumvention provisions are designed to counteract alleged circumvention of the anti-dumping duties imposed. These actions by and large consist of expanding existing anti-dumping measures to different products or to products from different countries. It is important to remember that the WTO Anti-Dumping Agreement does not address the issue of circumvention; indeed it is very much silent on the issue. This means that it is somewhat unclear whether any anti-circumvention anti-dumping law is valid. Whether valid or not, the United States applies this law.

 

The United States anti-circumvention law has gone through significant changes over a short period. Anti-circumvention provisions were first added to United States law in 1988. Interestingly, notwithstanding this specific new authority for the Commerce Department to target alleged circumvention, the domestic producers were rather disappointed in the effectiveness of the new law, as they lost several early cases brought under it. Accordingly, as they often do, domestic producers convinced Congress to strengthen the new law. Somewhat ironically, even though the Uruguay Round Anti-Dumping Agreement does not address circumvention issues, it was through the Uruguay Round Agreements Act that Congress completely rewrote the United States anti-circumvention law.

 

Like its 1988 predecessor, the current anti-circumvention law provides specific statutory authority for the Commerce Department expand anti-dumping duty orders to address four situations, four types of alleged circumvention. Each one is discussed below.

 

Minor alterations

 

The first situation involves minor alterations. The minor alteration provision can be traced to Congress's reaction to just one anti-dumping case. In 1980 the Commerce Department issued an anti-dumping duty order on portable electric typewriters from Japan. After a few years of being subject to this order, however, some manufacturers discovered that if they attached a simple four-function calculator to the typewriter (at a cost of less than $5), the machine would be reclassified as a business machine and, initially at least, would not be subject to the anti-dumping duty order. Although the Commerce Department ultimately determined (in response to the Court's decision) that the modified typewriters were, in fact, subject to the scope of the anti-dumping duty order on portable electric typewriters, domestic manufacturers became concerned that foreign manufacturers could, by repeatedly altering merchandise in an almost infinite number of ways, avoid the effect of the original anti-dumping duty order indefinitely.

 

In response to these concerns Congress created a provision that would permit anti-dumping and countervailing duty orders to apply to merchandise that is 'altered in form or appearance in minor respects' from the merchandise subject to the original order. The statutory provision concerning minor alterations does not define the term 'minor respects', and the Commerce Department has only had a couple of occasions to interpret the term. It does make clear, however, that even if the minor alteration results in a change in the tariff classification of the product, it may still be subject to the order if the alterations are minor.

 

Later-developed merchandise

 

The second situation concerns later-developed products. The later-developed product provision also can trace its roots directly to the typewriter case. Shortly after the anti-dumping order against Japanese portable electric typewriters was issued, the electronic revolution overtook the electric typewriter industry, with the result that simple typewriters were largely replaced in home and office use by word processors and personal computers. Of particular concern to United States typewriter producers was a small and relatively simply machine which was lighter and smaller than original typewriters, but contained a small amount of memory, plus a single line text display.

 

The United States producer of portable electric typewriters, Smith Corona, claimed that this machine was fundamentally a portable electric typewriter subject to the anti-dumping duty order. The manufacturer countered that it was a completely different product - a personal word processor - which by virtue of its memory and display functions could perform tasks not within the capacity of an ordinary portable electric typewriter.

 

The Commerce Department initially agreed with the Japanese manufacturers. In a 1987 determination, the Commerce Department ruled that portable typewriters with memory were not within the scope of the anti-dumping duty order because they had not been identified in the petition, and because they fell into a tariff classification not covered by the anti-dumping duty order. The United States producer, however, ultimately won. The Court of International Trade overturned the Commerce Department's initial decision and ruled that the personal word processor was within the scope of the original anti-dumping duty order on portable electric typewriters. Domestic producers were sufficiently concerned about the cost and effort of proving the case, however, that they got Congress to include a modification in the statute specifically providing for the inclusion of 'later-developed' merchandise within the scope of the original anti-dumping or countervailing duty order. Indeed, in its report on the 1988 legislation, the Senate specifically chastised the Commerce Department for its position in the typewriter case.

 

Inclusion of later-developed merchandise within a prior order is, however, a delicate matter. Since, by definition, the merchandise did not exist at the time of the original anti-dumping or countervailing duty order, it was not (and could not have been) subject to the original injury determination by the International Trade Commission. It is at least possible - as indeed was argued in the case of personal word processors - that the market that contains the newly developed merchandise is a fundamentally different market from that originally considered by the Commission. It thus can never be demonstrated to a certainty that the Commission would have reached the same conclusion on the question of injury had the later-developed merchandise been under investigation.

 

Congress sought to respond to these concerns by including a series of factors that must be considered in order to assure that the later-developed merchandise brought under the scope of an earlier order is fundamentally the same as that included in the original order. These factors are:

 

- Whether the later-developed merchandise 'has the same general physical characteristics' as the original merchandise;

- Whether the 'expectations of the ultimate purchasers of the later-developed merchandise are the same as for the earlier product';

- Whether the 'ultimate use' of the later and the earlier products are the same; Whether the 'channels of trade' of the later-developed product are the same as those for the earlier product; and

-  Whether the later-developed merchandise 'is advertised and displayed in a manner similar to the earlier product'.

 

These statutory factors are virtually the same as those developed by the Commerce Department administratively in determining whether any new merchandise is within the scope of the original anti-dumping or countervailing duty order. Their codification in the statute means that the Commerce Department may not now depart from these criteria in future decisions.

 

The third and fourth types of situations which the United States circumvention law seeks to address concern parallel but distinct situations. One addresses manufacturing operations in the United States, and the other addresses manufacturing operations in countries not subject to the anti-dumping duty order.

 

Assembly in the United States

 

This section of the United States anti-circumvention law addresses the situation in which a foreign manufacturer attempts to circumvent an anti-dumping or countervailing duty order on a finished product by importing parts into the United States and assembling them there. If the order itself applies only to the finished product, parts imported into the United States would not normally be subject to the order. Hence, a foreign manufacturer could import sub-assemblies or relatively finished parts into the United States free of dumping or countervailing duties and assemble them into the finished product at minimal additional cost.

 

However, Congress did not want this provision to be used to interfere with real manufacturing operations in the United States. So it required that, for the anti-circumvention provision to apply, three conditions must be met: (1) the merchandise sold in the United States must be made from parts or components produced in the country subject to the anti-dumping or countervailing duty order; (2) the value of the parts or components imported from the country subject to the order must be 'a significant portion of the total value of the [completed] merchandise'; and (3) the process of assembly or completion in the United States must be 'minor or insignificant'.

 

If all of these conditions are satisfied, the Commerce Department has the authority to apply the original anti-dumping duty order to the importation of the component parts.

 

Note that the key phrases of the second and third conditions, namely, 'significant portion of total value' and 'minor' assembly, are not defined by the United States law. Such determinations are left for the Commerce Department to decide on a case-by-case basis.

 

However, with respect to the issue of the magnitude of the assembly or completion, the United States law sets forth five factors that the Commerce Department must consider in reaching its determination. These factors are:

 

(1) The level of investment in the United States;

(2) The level of research and development in the United States;

(3) The nature of the production process in the United States;

(4) The extent of production facilities in the United States; and

(5) Whether the value of the processing performed in the United States represents a small proportion of the value of the merchandise sold in the United States.

 

Assembly in third countries

 

The fourth situation addressed by the United States anti-circumvention law concerns assembly operations in third countries. Assembly operations in third countries present different problems from those presented by assembly operations in the United States. In this case, the merchandise being imported into the United States is not parts or components but rather the finished product itself. However, since an anti-dumping or countervailing duty order applies only to countries named in the order, if the merchandise is assembled in a country not subject to the order it may avoid anti-dumping or countervailing duties.

 

Despite the differences between assembly operations in the United States and those in third countries, the statute treats them in the same manner. The value of parts or components from the country subject to the order must be a 'significant' portion of the value of the merchandise exported to the United States, and the process of assembly in the third country must be 'minor or insignificant'.

 

The factors in determining whether the operations in the third country are 'minor or insignificant', and in determining whether to apply the order to the merchandise from the third country, are the same as those that apply to assembly operations in the United States.

 

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures