AD/CVD Orders on Chinese Wheels Sometimes Cover Wheels With One Chinese Part, US Says

The language of AD/CVD orders on steel wheels from China doesn't prevent the Commerce Department from conducting a substantial transformation analysis on wheels that only have one Chinese-origin component out of two, the U.S. said in a March 8 brief opposing a plaintiff’s motion for judgment (Asia Wheel v. U.S., CIT # 23-00096).

Several similar cases make up ongoing litigation about whether the scope of AD/CVD orders on Chinese steel wheels covers only wheels whose components -- rims and discs -- are both made in China, or whether the orders also cover wheels with one Chinese-origin component. The government responded in one case March 8 saying that the history of the scope supports Commerce taking the latter position in a scope ruling.

Commerce’s 2020 scope ruling, sought by Asia Wheel, held that wheels with Chinese-origin rims or Chinese-origin discs are subject to the AD/CVD orders on steel wheels 12 to 16-1/2 inches in diameter.

The exporter opened its 2023 case against the ruling arguing that the department explicitly stated otherwise during the original AD/CVD investigations (see 2312010047). They alleged that when several importers approached Commerce near the end of investigations asking that clarification be included in the orders, Commerce deemed it unnecessary because “the existing language sufficiently conveys the concept that third-country processing of a steel wheel must be of rims and discs produced in China.”

However, the department actually chose not to include that clarifying language in the orders because it didn't want to “foreclose a further analysis of substantial transformation,” DOJ said in its March 8 brief.

“Commerce thus found ‘that the current scope language is clear that only if all constituent rim and disc parts to form a steel wheel are from China does the order apply notwithstanding any analysis of substantial transformation,’” it said.

The plaintiffs were “selectively quoting language from the investigation” to argue otherwise, it said.

It said that petitioner Dexstar made a similar, but opposite, attempt to amend the scope’s language near the end of investigations when it asked the department to clearly state that discs or rims from China would be covered. Commerce also refused that change and made the statement cited by plaintiffs, it said.

However, this didn't preclude Commerce from relying on a substantial transformation analysis, DOJ said.

When it did, it also conducted that substantial transformation analysis properly in its 2020 scope ruling on Asia Wheel’s merchandise, contrary to the exporter’s claim otherwise, DOJ said.

Asia Wheel argued that its Chinese-origin discs underwent substantial transformation to become Thai wheels before their export to the United States.

A good is “substantially transformed” when it “loses its identity and is transformed into a new product having a new name, character and use” in such a way that it “becomes a product of the country in which it was processed,” DOJ said.

The government also said that Commerce considers several other factors in its transformation analysis, including the class or kind of the merchandise; the sophistication and nature of the export country’s processing facilities; the value added to merchandise by processing; and the merchandise’s properties, essential components and end use.

Based on these factors, the Chinese discs imported by Asia Wheel weren't substantially transformed, the government said. The wheels are the same class or kind of product as the discs, it said. It said the processing that occurred in Thailand such as wheel assembly, welding and painting was “relatively minor” compared with Chinese manufacture of the discs, and that manufacture “constitutes a significant portion of value added.” And, finally, the discs do maintain their essential components, properties and end use, it said.