Federal Court Decision Creates Potential "Loophole" in U.S. Antidumping Law

International Alert

On March 3, 2005, the U.S. Court of Appeals for the Federal Circuit issued a decision that arguably narrows the types of transactions to which the U.S. antidumping law applies. In this decision, an antidumping case involving imports of low enriched uranium, the Federal Circuit held that the contracts at issue were for the provision of services and that services are not covered by the antidumping statute. See Eurodif S.A. v. United States, No. 04-1209, 04-1210 (Fed. Cir., Mar. 3, 2005).

It has long been understood that U.S. antidumping law applies only to goods, not services. But, this Federal Circuit holding is significant in that it creates a potential “loophole” in the law by expanding the types of transactions that might be considered contracts for services.

Contracts for Services

In the contracts at issue in the case, U.S. utilities transferred unenriched uranium (including uranium purchased from third party suppliers) to a foreign “enricher” in the subject countries, and purchased “separative work units” from the enricher. The enricher enriched the uranium and transferred the low enriched uranium back to the utility.

In holding that these contracts were for the provision of services, the Federal Circuit emphasized that, although the enricher might not necessarily process a particular utility’s low enriched uranium (due to commingling), the utility retained title throughout the enrichment process to a quantity equal to the quantity of uranium that it had originally supplied.

Is There a “Loophole”?

The Federal Circuit’s analysis would arguably allow many types of transactions to be exempt from the antidumping statute. For example, there is currently a U.S. antidumping order against wood bedroom furniture from the People’s Republic of China. Wood from the United States is often sent to China to make furniture that is shipped to the United States. It would seem that, under the wording of this decision, the furniture would be exempt from the order as long as the U.S. exporter of wood maintains title to the wood at all times. For many products, especially steel, chemicals, and textiles, such toll processing is common, and certainly can be done, such that many antidumping orders ostensibly could be avoided.

More generally, suppose an antidumping case is brought against a finished product from country “A.” Toll processing can involve shipping an input from anywhere for processing in country “A” into the completed product. Under this Federal Circuit decision, as worded, a claim could be made that Country “A” only provided a service, not a good, and thus the antidumping law does not apply.

Potentially, therefore, this Federal Circuit decision creates an enormous “loophole” in the U.S. antidumping statute. It would also largely eviscerate a line of Commerce and court precedent governing the treatment of toll-produced merchandise in a dumping case.

Given the size of the potential loophole created, we urge importers to exercise caution when using this case as the basis for making operational decisions. The U.S. Department of Commerce, the courts and/or the Congress will undoubtedly take steps to narrow or eliminate the loophole.

For instance, Commerce or the courts could seek to limit the Federal Circuit decision on the grounds that in the uranium case, the utility that had the uranium enriched used the uranium in its own generating facility. The U.S. utility did not sell the enriched uranium, though a price was paid (for the enrichment services) and a good was imported. Although the legal basis for such a distinction is not entirely clear and, as worded, the Federal Circuit decision does not itself suggest a different result if the utility were to sell the enriched uranium (e.g., as surplus to its needs), as stated above, there will likely be efforts to limit this Federal Circuit decision.

Thus, even if the wording of this Federal Circuit decision may suggest much wider applicability, as some are saying, the decision will likely be limited to the very specific facts comparable to sending U.S.-owned uranium abroad for enrichment and return to the United States. Companies might wish to consider this risk before relying on a very broad interpretation of the decision and seek Commerce’s view as to how it will apply this Federal Circuit decision.

We will continue to monitor the issue and will report on developments as they unfold.

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