Belcrest Linens v. United States, Court No. 79-6-00953.

Citation573 F. Supp. 1149
Decision Date25 October 1983
Docket NumberCourt No. 79-6-00953.
PartiesBELCREST LINENS, Plaintiff, v. The UNITED STATES, Defendant.
CourtU.S. Court of International Trade

Mandell & Grunfeld, New York City (Steven P. Florsheim, New York City, at the trial and on brief), for plaintiff.

J. Paul McGrath, Asst. Atty. Gen., Washington, D.C. (Joseph I. Liebman, Commercial Litigation Branch and Saul Davis, New York City, at the trial and on brief), for defendant.

BOE, Judge:

The subject merchandise in the above-entitled action consisting of embroidered cotton (percale) pillowcases, was classified during the years 1976-1977 under item 363.01 of the Tariff Schedules of the United States (TSUS). In so doing, the customs officials found that the said merchandise was a product of the People's Republic of China (China) and pursuant to General Headnote 3(e), TSUS, assessed duty thereon at the column 2 rate of 90% ad valorem.1

The plaintiff does not contest the classification of the subject merchandise under item 363.01, TSUS, but contends that the merchandise was a product of Hong Kong. Accordingly, plaintiff claims that the proper assessed duty to be at the column 1 rate of 34% ad valorem.

At the trial of the instant action stipulations entered into between counsel for the respective parties were offered in evidence and received by the court. The provisions thereof provide:

STIPULATION

1. The imported merchandise consists of pillowcases shipped from Hong Kong to the United States.
2. The imported pillowcases resulted from the following processes performed in the People's Republic of China ("China"):
(a) Percale, a cotton fabric, was manufactured by, inter alia, a weaving process, in widths of approximately 40";
(b) The piece goods (bolts of fabric) were laid out on a long table. A stencil was placed on top of the fabric and inked, at pre-determined intervals, of approximately 33", for:
(1) an embroidery pattern of flowers or birds;
(2) cutting marks to indicate the precise point at which the fabric is to be cut at a later time; and
(3) scalloping — which is a design of a continuous series of circle segments forming the border along one edge of the fabric.
(c) The piece goods were then embroidered on the stencilled pattern of flowers or birds;
(d) The piece goods were then folded and shipped to Hong Kong.
3. A "reconstructed," illustrative sample of the piece goods, as shipped from China to Hong Kong is submitted with and made a part of this stipulation as Joint Exhibit 1. Joint Exhibit 1 was reconstructed from pillow cases sic cut apart and sewn into a continuous length, and marked with ink to show the cutting marks and scallop marks. Exhibit 1 differs from the merchandise described in paragraph 2 as to length, width, and possibly, fabric and embroidery pattern.
4. The imported pillowcases resulted from the following processes performed in Hong Kong:
(a) The piece goods were laid out on a long table, and cut to size at the predetermined ink cut-marks;
(b) One edge was scalloped on the prestencilled scallop marks with colored thread;
(c) The merchandise was folded in half and sewn along 2 edges;
(d) These articles were then turned inside out, placed in a container, and moistened with water and a whitener;
(e) The merchandise was pressed, folded, wrapped, and packaged.
5. A sample of a pillow case sic that is the same in all material respects to the subject merchandise is submitted with and made a part of this stipulation as Joint Exhibit 2.
6. Plaintiff has no knowledge of the time, cost, or labor comparisons for the processes performed in Hong Kong and China.

SUPPLEMENTAL STIPULATION

7. The merchandise exported from China was purchased by plaintiff.
8. With respect to the merchandise exported from China, plaintiff is unaware of any actual use of such merchandise other than to be made into pillowcases.

The issue to be determined in the instant action is whether the subject merchandise is a product of China and, pursuant to General Headnote 3(e), TSUS, subject to the column 2 rate of duty of 90% ad valorem, or the product of Hong Kong and, accordingly, subject to the column 1 rate of duty.

It is a general proposition of Customs law that "merchandise imported from one country, being the growth, production, or manufacture in another country, must be appraised at its value in the principal markets of the country from which immediately imported ..." United States v. G. W. Sheldon & Co., T.D. 42, 541, 53 Treas.Dec. 34, 36 (1928). When, however, merchandise is transported from Country A (the country of origin) to Country B (an intermediate country), Country A is looked upon as the country of exportation only if from all of the facts under determination it appears that:

(1) No part of the merchandise was intended for diversion into the commerce of the intermediate country;
(2) None of the goods were, in fact, diverted into the commerce of the intermediate country;
(3) A contingency of diversion did not exist; and
(4) None of the merchandise was in any way treated, processed, altered, manipulated or changed in character in the intermediate country.

Cardinal Glove Inc. v. United States, 4 CIT ___, Slip Op. 82-59 (July 22, 1982); Hospitaline, Inc. v. United States, 48 Cust.Ct. 563 (1962), aff'd 50 Cust.Ct. 556 (1963); United States v. F. W. Hagemann, 39 C.C.P.A. 182 (1952); Customs Service Decision 79-186, 13 Cust.B. & Dec. 1253 (1978); Tower & Sons v. United States, T.D. 3535, 67 Treas.Dec. 1358 (1935).2

The provisions of General Headnote 3(e), however, impose a stricter test in defining products originating from communist countries. In order to preclude the possibility that products of communist or communist-dominated countries might be transshipped through a non-communist intermediate country in order to avoid a higher column 2 rate of duty, the provisions of General Headnote 3(e) applied to products, whether imported directly or indirectly from communist countries.

In the case of Chemo Puro Mfg. Co. v. United States, 34 Cust.Ct. 8, 146 F.Supp. 178 (1954), this court first considered the provisions of General Headnote 3(e) with respect to the importation of tannic acid produced in the United Kingdom out of nutgalls imported from China. Determining that the imported tannic acid was a product of the United Kingdom and not of China, the court pointed out that the tannic acid had been given a new identity definite and distinct from nutgalls, bearing a new name, use and tariff status.

Similarly, this court in F.W. Myers & Co. v. United States, 36 Cust.Ct. 5 (1955) held that an advanced drug compound manufactured in Canada from a crude drug originally shipped from China to England and thence to Canada was a product of Canada. The raw materials, although originating in China, were deemed by the court to have been processed into an entirely new product in Canada.

Without reference to the foregoing decisions our appellate court first considered the application of General Headnote 3(e) in relation to a determination of the country of exportation in United States v. Hercules Antiques, The Danwill Co., 44 C.C.P.A. 209 (1957). In pointing out the difficulty in adopting uniform or exact standards for applying General Headnote 3(e), the court stated:3

It would be difficult, if not impossible, to define exact standards for determining the duration of stay of merchandise in an intermediate country, the nature of the transactions to which it is subjected there, and other circumstances necessary to divest it of its status as an import, direct or indirect, from the Communist-dominated country in which it originated. At 212.

In holding that evidence was insufficient to establish that merchandise originating from Czechoslavakia, sold in Holland and thence imported into the United States was not imported "directly or indirectly" from Czechoslavakia, the appellate court stated:

However, we are of the opinion it must be established by appropriate evidence that the merchandise has actually become a bona fide part of the commerce of the intermediate country. (Italics in original; emphasis added.) Id. at 212-13.

The standard enunciated by our appellate court in Hercules was followed by this court in Couture Fabrics, Ltd. v. United States, 41 Cust.Ct. 369 (1958). This court found that certain silk goods imported into the United States from China, withdrawn without the payment of duty, exported to Switzerland, and subsequently returned to the United States had become a bona fide part of the commerce of Switzerland because Swiss customs duties were paid on the merchandise.

In Moresco Corp. v. United States, 63 Cust.Ct. 295 (1969), this court determined that the addition in West Germany of "stabilizing" chemicals to a chemical compound produced in East Germany was not sufficient to cause the product to become one of West Germany. The court, recognizing the decisions in Chemo Puro, F.W. Myers and Hercules concluded:

Similarly, in the case at bar, there is no showing that the imported trichloroethylene was ever sold or offered for sale in West Germany. It further appears that since it arrived in West Germany in a stabilized state, it was transported to the United States without any change in character in West Germany. The addition of more stabilizers in West Germany cannot be considered a process of manufacture so as to constitute the trichloroethylene a product of West Germany. In our opinion, the record herein warrants a finding that the merchandise here in question had not actually become a bona fide part of the commerce of West Germany so as to entitle it to the reduced rate of duty claimed by the plaintiff. (Italics in original; emphasis added.) At 302.

In the instant action, the stipulated facts indicate that the subject merchandise underwent a process which changed its character from an embroidered bolt of percale fabric to a pillowcase in the intermediate...

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