Uniden America Corp. v. U.S., Slip Op. 00-139.

• Decision Date: 30 October 2000
• Docket Number: Slip Op. 00-139.,Court No. 98-05-01311.
• Citation: 120 F.Supp.2d 1091
• Parties: UNIDEN AMERICA CORPORATION and Uniden Financial, Inc., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

120 F.Supp.2d 1091

UNIDEN AMERICA CORPORATION and Uniden Financial, Inc., Plaintiffs, v. UNITED STATES, Defendant.

Slip Op. 00-139.

Court No. 98-05-01311.

United States Court of International Trade.

October 30, 2000.

Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, DC (Warren E. Connelly, D. Michael Kaye, Lars-Erik A. Hjelm); Neville, Peterson & Williams, Washington, DC (John M. Peterson, Michael K. Tomenga), for Plaintiffs, of counsel.

David W. Ogden, Assistant Attorney General, Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Barbara S. Williams, Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice; Chi S. Choy, Attorney, Office of Assistant Chief Counsel, International Trade Litigation, U.S. Customs Service, Washington, DC, for Defendant, of counsel.

OPINION

POGUE, Judge.

This matter is before the court on cross-motions for summary judgment. Plaintiffs, Uniden America Corporation and Uniden Financial, Inc. (collectively "Uniden"), challenge the determination by the United States Customs Service ("Customs") that cordless telephones imported by Uniden do not qualify for duty-free treatment under the Generalized System of Preferences ("GSP"). See 19 U.S.C. §§ 2461-2466 (1994).¹ The court has jurisdiction over this matter under 28 U.S.C. § 1581(a) (1994).

Background

The article in question is a cordless handset telephone, Model CT301, manufactured by Uniden Philippines Laguna, Inc. ("UPLI"). The cordless telephone consists of three detachable components: a handset, a base unit, and an A/C adapter. Each cordless telephone incorporates over 275 separate parts purchased by UPLI both in the Philippines and in third countries. See Pl.'s St. of Facts, at ¶ 3; Def.'s Resp. to Pl.'s St. Facts, at ¶ 3. The A/C adapters UPLI installs in the telephones are purchased from a Chinese supplier for $1.14 each. See Pl.'s St. of Facts, at ¶ 7; Def.'s Resp. to Pl.'s St. of Facts, at ¶ 7.

In June and July 1995, Uniden imported 7,922 units of Model CT301, and entered them as GSP eligible and thus duty-free under subheading 8525.20.50 of the Harmonized Tariff Schedule of the United States ("HTSUS"). See Pl.'s St. of Facts, at ¶¶ 12-15; Def.'s Resp. to Pl.'s St. Facts, at ¶¶ 12-15. The entered unit value of each Model CT301 varied between $24.65 and $26.18. See Pl.'s St. of Facts, at ¶¶ 12, 13; Def.'s Resp. to Pl.'s St. Facts, at ¶¶ 12, 13. Customs classified the units under HTSUS subheading 8525.20.50,² see Pl.'s St. of Facts, at ¶ 16; Def.'s Resp. to Pl.'s St. of Facts, at ¶ 16, but rejected Uniden's request for GSP duty-free treatment of the telephones, see Stipulation and Order, at 1 (Nov. 29, 1999). Customs objected to the Chinese origin of the detachable A/C adapter. See HQ 560050 (Oct. 29, 1997).

The statutory provision governing GSP status in this matter provides as follows:

§ 2463(b) Eligible articles qualifying for duty-free treatment

(1) The duty-free treatment provided under section 2461 of this title shall apply to any eligible article which is the growth, product, or manufacture of a[BDC] if —

(A) that article is imported directly from a[BDC] into the customs territory of the United States; and

(B) the sum of (i) the cost or value of the materials produced in the [BDC] ..., plus (ii) the direct costs of processing operations performed in such [BDC] ... is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States.

(2) The Secretary of the Treasury, after consulting with the United States Trade Representative, shall prescribe such regulations as may be necessary to carry out this subsection, including, but not limited to, regulations providing that, in order to be eligible for duty-free treatment under this subchapter, an article must be wholly the growth, product, or manufacture of a[BDC], or must be a new or different article of commerce which has been grown, produced, or manufactured in the [BDC]; but no article or material of a[BDC] shall be eligible for such treatment by virtue of having merely undergone —

(A) simple combining or packaging operations

...

19 U.S.C. § 2463(b) (1995).

Thus, in order to qualify for the GSP, an article must satisfy three principal conditions. First, the eligible article must be "the growth, product, or manufacture of a[BDC]." 19 U.S.C. § 2463(b)(1) (hereinafter "product of" test). To meet this "product of" test, the "article must [either] be wholly the growth, product, or manufacture of a[BDC], or must be a new or different article of commerce which has been grown, produced, or manufactured in the [BDC]." 19 U.S.C. § 2463(b)(2). Second, an eligible article must be "imported directly from a[BDC] into the customs territory of the United States." 19 U.S.C. § 2463(b)(1)(A). Third, the sum of the cost or value of the materials produced in the BDC plus the direct costs of the BDC processing operations must not be less than thirty-five percent of the appraised value of such article at the time of entry. See 19 U.S.C. § 2463(b)(1)(B) (hereinafter the "thirty-five percent cost/value" requirement).

Both parties agree that the articles in question were directly imported from a BDC and that the articles met the "thirty-five percent cost/value" requirement. See Stipulation and Order, at 2. The parties additionally agree that the article is not wholly the growth, product, or manufacture of a BDC. See Pl.'s Mem. Supp. Mot. Summ. J., at 8; Def.'s Mem. Supp. Cross-Mot. Summ. J., at 8. Customs also concedes that the plaintiffs' assembly operation in the Philippines is more than a simple "combining or packaging" operation. See Pl.'s Mem. Supp. Mot. Summ. J., at 18; Def.'s Mem. Supp. Cross-Mot. Summ. J., at 23. Thus, what remains at issue is whether the "product of" requirement has been satisfied. And more specifically at issue is whether the cordless telephone is a new or different article of commerce which has been grown, produced, or manufactured in the BDC. See Stipulation and Order, at 2.

The legislative history of the GSP provision indicates:

Section 2008 amends section 503(b) of the Trade Act of 1974 to insert the requirement in the rules of origin for determining duty-free treatment under the GSP program that an eligible article must be the growth, product, or manufacture of a[BDC]. Regulations issued by the Secretary of the Treasury, after consultation with the USTR, must provide that, in order to be eligible for GSP duty-free treatment, an article must be wholly the growth product, or manufacture of a[BDC] or must be a new or different article of commerce grown, produced, or manufactured (i.e., substantially transformed) in the [BDC].

S.Rep. No. 101-252, at 44 (1990); reprinted in 1990 U.S.C.C.A.N. 928, 971. As this court in SDI Techs. v. United States, 21 CIT 895, 977 F.Supp. 1235 1239 (1997), aff'd 155 F.3d 568, 1998 WL 382852 (Fed. Cir.1998), explained: "[t]o be considered the growth, product, or manufacture of a BDC for GSP purposes, goods imported into the BDC from a third, non-BDC country must undergo a `substantial transformation' in the BDC before they are imported to [sic] the United States." See SDI Techs., 21 CIT at 897, 977 F.Supp. at 1239 (citing F.F. Zuniga v. United States, 996 F.2d 1203, 1206 (Fed.Cir.1993) (footnote omitted)); see also Torrington, 764 F.2d at 1568.

Customs and Uniden offer differing interpretations of the proper manner in which to apply the substantial transformation test. Customs argues that the cordless telephones imported by Uniden were not substantially transformed in the BDC and thus do not qualify for GSP treatment. See Def.'s Mem. Supp. Cross-Mot. Summ. J., at 5. According to Customs, each detachable component of an eligible article must be substantially transformed in the BDC before an article qualifies for GSP. See id., at 13-14. Since the detachable A/C adapter for each cordless telephone was imported already assembled into the BDC from a non-BDC, Customs concludes that the entire cordless telephone is not eligible for GSP treatment. See id., at 15. Uniden counters that both the plain meaning of the GSP statute and its legislative history do not support a component-by-component application of the "product of" substantial transformation test. See Pl.'s Mem. Supp. Mot. Summ. J., at 13-14.

Uniden filed a timely protest on November 22, 1995, and requested, on January 25, 1996, that the Port of Dallas-Fort Worth seek internal advice from Customs Headquarters, which it did on August 30, 1996. See id., at 6. In December of 1997, after Customs had issued HQ 560050 (Oct. 29, 1997), the Port of Dallas-Fort Worth denied Uniden's protest. See id., at 7. Uniden filed a summons on April 28, 1998, and a complaint on June 28, 1998, in this court challenging Customs' denial of its protest. See id.

Standard of Review

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." USCIT R. 56(c). On a motion for summary judgment, this court must determine whether any genuine issues of material fact remain. The issue in this case is whether the statutory conditions as set out in 19 U.S.C. § 2463(b) have been satisfied. No issues of material fact exist, as the actual method of production of Uniden's cordless handset telephones is not in dispute. All that remains to be decided is an issue of law; that is, the proper method of interpreting the "substantial transformation" test as it pertains to this case. Summary judgment is therefore appropriate.

Discussion

I. The Substantial Transformation Test

The parties agree that in order to qualify as the growth, product or manufacture of a BDC, a "substantial transformation" of the article must occur in the BDC. See Sassy, Inc. v. United States, 24...