Armco Steel Corporation v. Stans
| Citation | 431 F.2d 779 |
| Decision Date | 17 August 1970 |
| Docket Number | No. 671,Docket 34043.,671 |
| Parties | ARMCO STEEL CORPORATION, Plaintiff-Appellant, v. Maurice H. STANS, Secretary of Commerce, as Chairman and Executive Officer of the Foreign-Trade Zones Board, David M. Kennedy, Secretary of the Treasury, and Stanley R. Resor, Secretary of the Army, as members of the Foreign-Trade Zones Board and otherwise, and Richard H. Lake, as Executive Secretary, Foreign-Trade Zones Board, Defendants-Appellees, Equitable Equipment Company, Inc., and Central Gulf Steamship Company, Intervenors-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
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Edward J. Ross, Miriam C. Feigelson, Breed, Abbott & Morgan, New York City, for plaintiff-appellant.
Yale L. Rosenberg, David Paget, Asst. U. S. Attys., Whitney North Seymour, Jr., U. S. Attorney, New York City, for defendants-appellees.
Edward L. Merrigan, Smathers, Merrigan & O'Keefe, Washington, D. C., Bigham, Englar, Jones & Houston, New York City, for intervenors-appellees.
Before WATERMAN and ANDERSON, Circuit Judges, and WEINFELD, District Judge.*
Plaintiff-appellant, Armco Steel Corporation (Armco), a domestic producer of steel, challenges the legality of action taken by the Foreign-Trade Zones Board (Zones Board) in granting authorization to the Board of Commissioners of the Port of New Orleans (New Orleans Board) to establish in their port a foreign trade subzone. The initial purpose of this subzone grant was to permit intervenor-appellee Equitable Equipment Company, Inc. (Equitable), a shipbuilder, to construct with duty-free steel from Japan steel barge vessels at a shipyard located within the subzone.
Foreign trade zones are areas located in, adjacent to, or nearby, ports of entry, into which foreign merchandise may be brought duty free and "stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured. * * *" Section 3 of the Foreign Trade Zones Act, 19 U.S.C. § 81c. Such merchandise, whether in altered form or not, may then "be exported, destroyed, or sent into the customs territory of the United States. * * *" Id. If "sent into the customs territory of the United States" the merchandise "shall be subject to the laws and regulations of the United States affecting imported merchandise. * * *" Id.
The creation of a foreign or free trade zone for the purpose of permitting products manufactured in the zone to be subsequently imported into the United States allows an enterprise operating within the zone to take advantage of favorable differentials in the tariff schedules between the rates of duty for foreign materials used in the manufacturing process and the duty rates for the finished articles. For instance, in trade zones located in Toledo and Seattle, Volkswagen panel trucks are converted, using domestic labor and materials, into campers and are then imported. The transformation of the vehicles enables them to qualify as passenger vehicles subject to a 6.5% duty, rather than as trucks subject to a 25% duty. 19 U.S.C.A. § 1202, Items 692.10 and 945.69.1
In the instant case, the savings differential is so favorable that the duty rate otherwise payable on imported steel is reduced to zero. The parties represent that the tariff on foreign steel of the type used in this case is 7½%, while "vessels which are not `yachts or pleasure boats' * * * are not articles subject to the tariff schedule provisions." Id. Headnote 5. Thus, steel may be brought into a trade zone from Japan duty free and utilized along with domestic materials to construct barges. When imported from the zone the barges are nondutiable vessels. The steel used in the construction of the vessels escapes recognition for duty purposes for it is only the end product exported from the zone, the vessels, that triggers the rate of import duty chargeable.
The events which precipitated the Zones Board's subzone grant in New Orleans and led to this lawsuit began in January 1968 when intervenor-appellee Central Gulf Steamship Corporation (Central Gulf)2 entered into a contract with Equitable for the construction of 233 barges for use on a LASH ship being built in Japan for Central Gulf.
LASH (an acronym for "lighter-aboard-ship") vessels are designed to modernize the foreign shipping trade. The barges serve dual purposes: one traditional, in that cargo may be loaded on a barge at any point and the barge towed to another point; the other modern, in that each barge is a container designed to be carried aboard its "mother" ship (the LASH vessel) piggy-back style. Having a full complement of 233 barges (the number contracted for by Central Gulf to be provided by Equitable) each LASH or "mother" ship can load and carry at one time 73 container-barges. Approximately one half of the remaining 160 barges are scheduled to load or unload cargo at various domestic ports while the others load or unload cargo at foreign destinations. The principal advantages of the LASH concept are threefold. The barges are capable of travel over inland waterways and enable the loading and unloading of cargo at the "doors" of various customers. Inasmuch as three sets of barges operate independently, the "mother" ship need not delay at a port to await the return of the barges engaged in their multiple-destination journeys. Finally, because each barge is its own container, it can be expeditiously loaded onto and unloaded from the "mother" ship by means of a crane without disturbing the barge's cargo, enabling the "mother" ship to avoid longer in-port delays and thereby relieving port congestion. The estimated loading or unloading time when a LASH ship is operating at full capacity is 24 hours compared to the normal time of 10 days for a conventional ship. It is also anticipated that cargo damages would be reduced.
Central Gulf had also sought bids from foreign shipbuilders to construct the LASH barges in question, but decided to accept Equitable's bid even though it was somewhat higher than those submitted by foreign shipyards. Equitable's bid was competitive with foreign ones because Equitable planned to construct the barges with Japanese manufactured steel imported from Japan. Even when so imported the cost of the dutiable steel would be appreciably lower than the cost of domestic steel. And an added inducement to Central Gulf to accept Equitable's bid was the possibility that the New Orleans Board might successfully apply for a free trade subzone3 at the site of Equitable's shipyard where the barges were to be constructed, thereby avoiding, as previously discussed, the 7½% customs duty that would otherwise be levied on the imported steel.4 Equitable was to use its "best efforts" toward this end and, as it turned out, Equitable's "best efforts" paid off. The New Orleans Board applied for the establishment of a subzone5 on March 18, 1968. Hearings were held before the Examiners Committee of the Zones Board on May 22 and 23, 1968.6 The committee filed its Report on June 5 which contained its findings and conclusions and a recommendation to the Zones Board that the Board act favorably upon the application. After considering the Report the Zones Board7 issued its order granting the establishment of the subzone.
Against this background Armco attacks the validity of the Zones Board's order with a variety of contentions. It contends that the Foreign Trade Zone Act, 19 U.S.C. § 81a et seq., does not authorize the action taken by the Zones Board in this case because Congress did not intend the creation of a foreign trade zone: (1) to be used to avoid customs duties when as a result interested domestic industries are placed at a competitive disadvantage, (2) that cannot be operated by a public or quasi-public corporation with equal treatment under like conditions for all business concerns, (3) the purpose of which is to produce vessels because vessels are not "articles" within the meaning of the tariff laws and products not defined as "articles" cannot be manufactured in a trade zone, (4) wherein "heavy" manufacturing, like ship or barge construction, is intended to be conducted for the Act contemplates that only "light" manufacturing may take place in a foreign trade zone, and alternatively, as to this last contention, that, in any event, barge construction is not "manufacturing" within the meaning of Section 3 of the Act.
This multi-charged assault on the New Orleans Foreign Trade Subzone involves arguments of policy which are better designed for consideration by the Congress than by a federal court. The district judge below, Judge Bonsal, concluded as much in a well-reasoned opinion reported at 303 F.Supp. 262, 272 (SDNY 1969), when Armco's complaint was dismissed upon the grant of defendant-appellees' motion for summary judgment. We agree with the lower court and affirm the judgment entered below.
Before discussing the arguments advanced by appellant Armco we dispose of a contention raised below by the defendants and intervenors, appellees here, that Armco does not have standing to challenge the legality of the Board's order because its business is not sufficiently "aggrieved in fact" to meet the standing-to-sue requirements laid down by the Supreme Court. The district court rejected the lack-of-standing arguments and reached the merits. The defendants-appellees have abandoned this claim on appeal, but intervenors-appellees still press the point. We agree with Judge Bonsal's opinion below, 303 F. Supp. at 265-268, and agree that plaintiff has standing to sue. A recent Supreme Court case, Association of Data Processing Serv. Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L. Ed.2d 184 (1970), lends substantial support to the conclusion that Armco is a proper party to maintain this suit. Armco is not only complaining of economic injury to itself from...
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