Earlier this week the United States Department of Commerce (DOC) made a preliminary ruling on hydroflurocarbon refrigerant components coming in from China. The components are brought into the United States and then mixed or blended domestically in an effort to get around the 2016 antidumping tariffs. The 2016 ruling installed tariffs on the blended HFC refrigerants themselves such as R404A, R407A, R407C, R410A, and R507A. Because this ruling did NOT pertain to the actual components of these blended refrigerants the United States saw an over four-hundred percent increase in imports of R-32, R-125, and R-143a in the years after the initial 2016 ruling. To top it off, there was also nearly an eighty percent decrease of finished HFC blends being imported into the United States. It was obvious to anyone watching that the tariffs from 2016 had no impact.
It was in early April of last year that a new antidumping circumvention case was launched with the Department of Commerce. This case focused instead on the actual components to create these refrigerant blends. After some months of debate the DOC announced an official inquiry investigation would began in June of 2019. Since then it had been relatively quiet up until this week where the DOC preliminarily found that the imports of these refrigerant components are indeed circumventing the previous antidumping order. As a result of this the DOC ordered that Customs and Borders Protection suspend liquidation on these imports and also require large cash deposits on imports of the impacted refrigerant components.
Now I’ll be the first to tell you that I am not an import/export expert. At the time of writing this article I wasn’t fully aware what liquidation was when it came to customs enforcement. But, like anything, it can be learned. From my understanding and research the act of liquidation with imports is an agreement between Customs and Border Protection and the importer on duties, fees, and tariffs of the shipment. The CBP normally has a 314 day period from the time of import to the date of automatic liquidation. During this time the importer and CBP may go back and forth determining the proper fees that are owed. After the liquidation has occurred though the importer can no longer be responsible for tariffs or other new fees that occurred after… unless:
The one-year statutory liquidation requirement may also be suspended by statute or due to court action. Actions that might suspend liquidation include countervailing or anti-dumping duty investigations. Because the entry remains open, the importer is liable for any duty orders resulting from resolution of these investigations.” – Source ShippingSolutions.com
This is exactly what the DOC ruled this week on these HFC component refrigerants. The DOC ordered CBP to suspend liquidations on R-32, R-125, and R-143a as of June 18th, 2019. (The initial date of the investigation.) What this means is that all of the products that were imported at or after June 18th, 2019 COULD be subject to tariffs if the Department of Commerce rules in favor of the antidumping duties. The DOC is also requiring cash deposits to be submitted in estimation of what the proposed tariffs will be (Ranging from 101.82 to 285.73%). Lastly, the DOC announced that their final decision on this has been pushed back to July 2nd, 2020.
As you can imagine there is still quite a bit that is unclear at this time. I cannot imagine the position business owners or importers are in if this gets passed. Having to pay duties on product that you brought in nearly a year ago… that has most likely already been sold. It is going to hurt. This holds especially true the way the economy is right now. This latest news this week has also caused the prices on HFC refrigerants to rise and rise. A major refrigerant manufacturer announced that they were suspending all of their published pricing until further notice. This just shows you how much of an impact this ruling had on the marketplace. Now normally when we see this huge price increase it starts to settle back down… and we may see that as the final ruling is still three months away.
Lastly, there is a glimmer of hope for some companies out there. The DOC has said that they may entertain exclusions to a positive antidumping ruling. These exclusions could apply to companies who import these components but claim that they are NOT blending the refrigerant and are using it for other means. There was also talk of exclusion if the company doing the importing is an HFC refrigerant manufacturer as well. This can get a little gray though as what constitutes a manufacturer? If I am blending in house does that make me a manufacturer? Personally, I feel like these exclusions could get us down a rabbit hole and eventually lead us to more loop holes for companies to get around tariffs.
But Wait Folks… There’s More!
Another angle of this story folks is that it is not just about China anymore. Yes, it really has always been about China but there has been yet another loophole found since the 2016 ruling on HFC blended refrigerants. This time we had companies importing the Chinese blended refrigerants into India and then American companies buying these products from India. Along with our previous topic there was a second preliminary ruling decided this week by the DOC:
Further, in response to a request from the American HFC Coalition (the petitioners), we initiated an anti-circumvention inquiry, pursuant to section 781(b) of the Tariff Act of 1930, as amended (the Act), and 19 CFR 351.225(h), to determine whether HFC blends, containing HFC components from India and China, that are blended in India prior to importation into the United States, are subject to the Order. Based on the information submitted by interested parties and the analysis below, we recommend that, pursuant to section 781(b) of the Act, Commerce preliminary find that imports of HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC components of Chinese origin, that are blended in India prior to importation into the United States, are circumventing the Order.”
The full scope of this antidumping investigation covers HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC components of Chinese origin. This investigation started on the same day of the previous one, June 18th, 2019. In some cases the companies were importing fully blended product from China to India and then to the United States.
In other cases though R-32 would be imported from China to India and then an India company would blend it with domestic R-125. They would then import the finished R-410A product from India into the United States. You see the first way of importing the fully blended product from China and into India didn’t work as well as they still had to state the country of origin on their commercial invoice… but by doing some of the blending process in India they could claim that the country of origin was India.
For the reasons discussed above, and in accordance with 19 CFR 351.225(d) and (k)(1), we recommend finding that R-410A from India is not within the plain scope language of the Order because the Order covers HFC blends from China. However, U.S. imports of HFC blends from India consist of components imported from China, which are further blended in India into subject HFC blends, prior to being exported to the United States. Therefore, we recommend that, pursuant to section 781(b) of the Act and 19 CFR 351.225(h), Commerce issue a preliminary affirmative circumvention determination that imports of HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC component of Chinese origin, are circumventing the Order.”
At this time it is not known exactly what percentages will be installed on these imports from India but in the document was a referenced amount of 216.37 percent. If this does go into effect then the India manufacturer will have to prove to the CBP that they have not bought or imported any Chinese refrigerant components in the last twelve months. So, the proposed tariff isn’t necessarily on India… but China.
Conclusion
All of this folks just seems to be a game of whack-a-mole. It seems that when the Department of Commerce makes a ruling it only takes a few months for some businesses and companies to find a loophole to get around it. Everyone is looking for that competitive edge… even if it isn’t the most ethical way to do it. After this summer passes and these two anti-dumping cases have either been passed or rejected there will always be more. That I can assure you. Heck, just a few months ago there was another new antidumping filed on R-32. Who knows what the next one will be…
So, the only real question I have here is if retroactive duties are imposed can the companies who have been importing survive the hit? Can they survive those tariffs coming all at once? Or, will we begin to see a consolidation the marketplace by having some companies fold?