Anhydrides & Chemicals, Inc. v. U.S.

• Decision Date: 03 December 1997
• Docket Number: No. 96-1344,96-1344
• Citation: 130 F.3d 1481
• Parties: ANHYDRIDES & CHEMICALS, INC., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1481

130 F.3d 1481

19 ITRD 1865

ANHYDRIDES & CHEMICALS, INC., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 96-1344.

United States Court of Appeals, Federal Circuit.

Dec. 3, 1997.

Peter J. Fitch, Fitch, King and Caffentzis, of New York City, argued for plaintiff-appellant. With him on the brief was Richard C. King.

Bruce N. Stratvert, Civil Division, International Trade Field Office, Department of Justice, of New York City. With him on the brief were Frank W. Hunger, Assistant Attorney General, and David M. Cohen, Director, of Washington, D.C., and Joseph I. Liebman, Attorney in Charge, International Trade Field Office. Of counsel on the brief was Chi S. Choy, Office of Assistant Chief Counsel, International Trade Litigation, United States Customs Service, of New York City.

Before NEWMAN, LOURIE and BRYSON, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Anhydrides & Chemicals, Inc. appeals the judgment of the United States Court of International Trade, ¹ sustaining the Customs Service tariff classification of certain succinic anhydride imported from Italy. We conclude that the imported goods are classified under subheading 2917.19.50 of the Harmonized Tariff Schedule of the United States (HTSUS). The judgment of the Court of International Trade is reversed.

BACKGROUND

The imported product is succinic anhydride made from maleic anhydride which in turn is made from butane from natural gas. The Customs Service classified this succinic anhydride under subheading 2917.19.27 of the HTSUS. It is not disputed that if 2917.19.27 does not apply, the applicable classification is subheading 2917.19.50. Relevant portions of Heading 2917 follow:

2917 Polycarboxylic acids, their anhydrides, halides, peroxides, and

peroxyacids; their halogenated, sulfonated, nitrated, or nitrosated

derivatives (con.):

Acyclic polycarboxylic acids, their anhydrides, halides, peroxides,

peroxyacids, and their derivatives (con.):

* * *

2917.19 Other:

* * *

Maleic acid;

Succinic acid derived in whole or in part from maleic

anhydride or from cyclohexane;

Glutaric acid derived in whole or in part from

cyclopentanone; and

anhydrides, halides, peroxides, peroxyacids and other

derivatives derived in whole or in part from aromatic

hydrocarbons, of maleic acid, of succinic acid derived in

whole or in part from maleic anhydride or from cyclohexane

or of glutaric acid derived in whole or in part from

cyclopentanone, not elsewhere specified or included:

* * *

Other:

2917.19.23 Maleic acid

2917.19.27 Other

* * *

Other:

2917.19.40 Derived in whole or in part from aromatic hydrocarbons.

2917.19.50 Other

Subheading 2917.19.27 carries a tariff of 3.7cents per kilogram plus 16.8% ad valorem. The rate for subheading 2917.19.50 is 4% ad valorem.

The issue of interpretation is whether the subheading clause "anhydrides, halides, peroxides, peroxyacids and other derivatives ... of succinic acid derived in whole or in part from maleic anhydride or from cyclohexane" includes succinic anhydride that is not derived from succinic acid derived from maleic anhydride or cyclohexane. The imported succinic anhydride is made directly from maleic anhydride, with no succinic acid whatsoever formed during the reaction. The Court of International Trade held that "[t]he HTSUS does not impose any requirement that the succinic acid anhydride must have been succinic acid at any time during the production process," and affirmed the classification under subheading 2917.19.27. This appeal followed.

I

Classification rulings based on interpretation of the HTSUS receive plenary review, in accordance with precedent governing the construction of tariff provisions. National Advanced Systems v. United States, 26 F.3d 1107, 1109 (Fed.Cir.1994); Simod America Corp. v. United States, 872 F.2d 1572, 1576 (Fed.Cir.1989). The application of the correctly interpreted tariff classification to a particular article is a question of fact; such determinations of the Court of International Trade are reviewed for clear error. Id.

Appellant explains that the tariff classification of succinic anhydride, under the HTSUS as under the prior TSUS, depends on how the succinic anhydride is made. For example, succinic anhydride may be made by dehydration of succinic acid, which in turn may be made from cyclohexane, from maleic or fumaric acid, from maleic anhydride, or from sugar. Succinic anhydride may also be made by direct hydrogenation of maleic anhydride, which in turn may be made from benzenoid chemicals or from non-aromatic sources. The succinic anhydride here imported was made from maleic anhydride made from butane produced from natural gas.

Succinic acid is not formed during the chemical processes here used, even as a transient intermediate product. Appellant states that this is dispositive of the tariff classification, arguing that subheading 2917.19.27 requires derivation from succinic acid which has in turn been derived from either maleic anhydride or cyclohexane. Appellant points out that under the prior TSUS succinic anhydride not derived from aromatic hydrocarbons was classified in an "other" category dutiable at 4.2%, and that neither maleic anhydride nor cyclohexane is an aromatic hydrocarbon. Appellant stresses that the rewriting of the TSUS in 1988 was not intended to make any significant change in tariff rates, and that the HTSUS must be interpreted accordingly.

Technical experts at trial presented opposite views as to whether "anhydrides, halides, peroxides, peroxyacids and other derivatives ... of succinic acid derived in whole or in part from maleic anhydride or from cyclohexane" included succinic anhydride that is made directly from maleic anhydride without formation of succinic acid. Both sides' expert's readings of the HTSUS were reasonable as presented. However, Appellant's interpretation is favored by both the organizational and grammatical structure of the tariff subheading and the legislative purpose of the HTSUS.

The heading for class 2917 includes acyclic polycarboxylic acids and their anhydrides, halides, and certain other chemicals, while the subheading for 2917.19.27 is specific as to the sources of certain of these acids. Applying the rules of grammar, in this subheading the phrase "derived in whole or in part from maleic anhydride or from cyclohexane" modifies "succinic acid," not "anhydrides, halides, peroxides, peroxyacids and other derivatives." The rules of grammar apply in statutory construction:

Referential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent, which consists of "the last word, phrase, or clause that can be made an antecedent without impairing the meaning of the sentence."

C. Dallas Sands, 2A SUTHERLAND STATUTORY CONSTRUCTION, 4th ed., § 47.33 (footnotes omitted). Cf. In re Porter, 961 F.2d 1066, 1075 n. 16 (3d Cir.1992) ("We also read the statute to use 'secured by an interest in the same property' to modify the phrase immediately preceding, 'an existing extension of credit by the same creditor,' rather than to modify 'refinancing,' which appears far earlier in the sentence."). Since "succinic acid" is the last antecedent to "derived in whole or in part from maleic anhydride or cyclohexane," whereas "anhydride" appears earlier in the sentence, the clause is properly read as modifying "succinic acid."

Although not a model of clarity, the overall structure of the HTSUS classification suggests that succinic acid of defined chemical source, and derivatives of this succinic acid, are the focus of the 2917.19.27 classification, and that succinic anhydride that is not derived from this succinic acid is not included in this category. Support for this reading arises in the legislative history, which stresses that the purpose of the rewritten tariff schedules was not to make significant rate changes, but simply to convert to "harmonized" nomenclature. As President Reagan stated in initiating this conversion:

In converting the tariff schedules the Commission should avoid, to the extent practicable and consonant with sound nomenclature principles, changes in rates of duty on individual products.

Institution of Investigation for the Conversion of the Tariff Schedules of the United States into the Nomenclature Structure of the Harmonized System, 46 Fed.Reg. 47,897 (ITC 1981).

The HTSUS implementation documents of record do not suggest the fourfold increase in tariff that necessarily follows from Customs' interpretation of 2917.19.27. It is not disputed that under the TSUS succinic anhydride not derived from benzenoid, quinoid, or modified benzenoid hydrocarbons was classified under Item 426.04, at the rate of 4.2% ad valorem. Upon enactment of the HTSUS, the Conference Report reiterated the purpose of the new nomenclature:

The conferees believe that the HTS fairly reflects existing tariff and quota treatment and that the conversion is essentially revenue-neutral. Enactment of the tariff and quota treatment provided in this subtitle is intended to supersede and replace existing treatment as a matter of domestic law. The conferees find that any changes in the rates of duty are consequential to the process of converting to the new nomenclature, and are necessary to reflect an overall balance of tariff concession commitments between the United States and its trading partners in the GATT.

H.R.Rep. No. 100-576 at 548 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1581. See Marubeni America Corp. v. United States, 35 F.3d 530 (Fed.Cir.1994) (legislative history shows that any changes in tariff under the HTSUS are consequential to the process of converting to new nomenclature). Customs' interpretation of the HTSUS classification in a way that would markedly increase the duty, although there was no prior indication that the rate was intended to undergo a major increase, is viewed with caution. Hemscheidt Corp. v. United States, 72 F.3d 868, 872 (Fed.Cir.1995) ...