Substantial-transformation test vs. country-of-assembly test, determining country of origin
Substantial-transformation vs. country-of-assembly
The U.S. Court of Appeals for the Federal Circuit today issued a decision affirming the trade court’s findings that the U.S. Commerce Department had provided a reasoned explanation for not using the “substantial-transformation test” to determine the country of origin of solar panels and cells imported from China (products that were subject to countervailing and antidumping duty orders). Commerce had applied a “country-of-assembly test” in this matter.
The case is: Canadian Solar, Inc. v. United States, 2017-2577 (Fed. Cir. March 12, 2019). Read the Federal Circuit’s decision [PDF 153 KB]
Summary
The Commerce Department imposed countervailing and antidumping duties on the importation of a class of merchandise (solar cells and panels) imported or sold for importation to the United States from China.
- Commerce had used a new “country-of-assembly test”—rather than the typically used substantial-transformation test—to determine the country of origin of the merchandise.
- Commerce had observed that some solar cells manufactured in China could be assembled into panels elsewhere and some solar cells manufactured elsewhere could be assembled into panels in China.
- Commerce then determined that the solar cell was the origin-conferring component because the process of assembling the solar cells into panels did not constitute a substantial transformation.
- Commerce also explained that a departure from the substantial-transformation test was necessary because the Chinese solar industry, anticipating “a rote application” of the substantial-transformation test had shifted its supply chains so that their solar imports to the United States would no longer fall within the class of merchandise.
The parties agree on the type of merchandise within the scope of Commerce’s order; however, they disputed whether Commerce erred in its country-of-origin analysis. It was claimed that Commerce had failed to provide a reasoned explanation for departing from its previous practice of applying the substantial-transformation test.
The trade court held that Commerce had provided a reasoned explanation for not following the substantial-transformation test.
The Federal Circuit today affirmed.
As explained by the Federal Circuit, Commerce typically determines the country of origin based on the country where the merchandise is processed or manufactured. However, when the merchandise undergoes partial processing or manufacturing in multiple countries, Commerce relies on the substantial-transformation test. Under the substantial-transformation test, a solar cell manufactured in one country (A) but assembled into a panel elsewhere would cease to be from country A if, as a result of the assembly process, the solar panel “loses its identity and is transformed into a new product having a new name, character and use.”
The Federal Circuit thus concluded that it was reasonable for Commerce to use the country-of-assembly test to determine country of origin because it was reasonable to use the country where the merchandise was assembled to define the class or kind of merchandise within the scope of the orders—in particular, as in this case, when the very imports found to cause injury due to unfair pricing and/or subsidies were panels assembled in China containing cells produced in other countries.
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