650 F.Supp. 1007 (CIT. 1986), 86-4-00487, National Corn Growers Ass'n v. Von Raab

Docket Nº:86-4-00487.
Citation:650 F.Supp. 1007
Party Name:NATIONAL CORN GROWERS ASSOCIATION, New Energy Company of Indiana, Archer Daniels Midland Company, Ohio Farm Bureau Federation, Inc., and South Point Ethanol, Plaintiffs, v. William VON RAAB, Commissioner, United States Customs Service, United States of America, Defendants, and Tropicana Energy Company, Inc., Party-In-Interest. No. 86-127.
Case Date:December 10, 1986
Court:Court of International Trade

Page 1007

650 F.Supp. 1007 (CIT. 1986)

NATIONAL CORN GROWERS ASSOCIATION, New Energy Company of Indiana, Archer Daniels Midland Company, Ohio Farm Bureau Federation, Inc., and South Point Ethanol, Plaintiffs,

v.

William VON RAAB, Commissioner, United States Customs Service, United States of America, Defendants,

and

Tropicana Energy Company, Inc., Party-In-Interest.

No. 86-127.

No. 86-4-00487.

United States Court of International Trade.

Dec. 10, 1986

Page 1008

Williams & Connolly (Aubrey M. Daniel, III, Stephen L. Urbanczyk, Manley W. Roberts and Robert W. Hamilton), Washington, D.C., for plaintiffs.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, International Trade Field Office, Civil Div., Dept. of Justice (Saul Davis and Paula N. Rubin), New York City, for defendants.

McDermott, Will & Emery (R. Sarah Compton, Kurt J. Olson and Lizbeth R. Levinson) Washington, D.C., for party-in-interest.

OPINION

TSOUCALAS, Judge:

This action is before the Court on the motion by party-in-interest, Tropicana Energy Co., Inc. (Tropicana), to dismiss plaintiffs' action as moot due to the enactment of the Tax Reform Act of 1986, Pub.L. 99-514, H.R. 3838, 99th Cong., 2d Sess. (1986). 1

Background

Plaintiffs, domestic manufacturers of ethanol, commenced an action, pursuant to 19 U.S.C. § 1516 (1982), to contest the duty-free entry of ethanol from the Caribbean into the United States. Party-in-interest, Tropicana, is engaged in the importation of ethanol (ethyl alcohol) to be used as fuel. It operates at least one purification facility in Kingston, Jamaica which utilizes hydrous ethyl alcohol feedstock imported from Brazil, Spain, and other nations. This feedstock is subjected to a process of azeotropic distillation which essentially removes the water and allows the now anhydrous alcohol to serve as motor vehicle fuel. By processing the ethanol in Jamaica, Tropicana has been able to take advantage of the provisions of the Caribbean Basin Economic Recovery Act (CBERA), Pub.L. 98-67, Title II, 97 Stat. 384 (1983), codified as amended at 19 U.S.C. §§ 2701-2706 (Supp. II 1984). Under CBERA, articles imported directly into the customs territory of the United States may qualify for duty-free treatment 2 if (a) they are wholly the product or manufacture of a designated beneficiary country or (b) they are substantially transformed into a new or different article within a beneficiary country and if they meet certain local content restrictions. See 19 U.S.C.§ 2703(a). Customs has ruled that the azeotropic distillation process is a substantial transformation and therefore has accorded duty-free treatment to Tropicana's imported ethanol. The validity of these rulings forms the underlying substantive dispute in this action. At this juncture, however, the Court only considers Tropicana's motion to dismiss due to enactment of the Tax Reform Act of 1986, which it asserts will moot plaintiffs' claim for relief.

Tax Reform Act

The Tax Reform Act of 1986 represents the culmination of efforts to rewrite the federal tax code. It also contains a number of provisions which impact upon the nation's trade laws. Of interest in this action is § 423 which specifies tariff treatment for ethyl alcohol fuel. In effect, § 423 represents a decision to legislatively overrule Customs' decisions holding that azeotropic distillation is a substantial transformation that warrants duty-free treatment

Page 1009

under CBERA. Congress has determined that the distillation facilities do not provide the type of economic development opportunities that justify preferential tariff treatment. In the language of the legislative history, they are "pass-through" operations. H.R.Cong.Rep. No. 841, 99th Cong., 2d Sess. II-132 (1986). "[T]he conferees seek to encourage meaningful economic investment in CBI countries and insular possessions." Id. Accordingly, Congress has tightened the requirements for duty-free treatment of ethanol under CBERA. The new requirement is that, subject to one exception, "no ethyl alcohol or a mixture thereof may be considered [to qualify for duty-free treatment as a product of a beneficiary country] unless the ethyl alcohol or mixture thereof is an indigenous product of that insular possession or beneficiary country." § 423(a). Section 423(c)(2) defines "indigenous product" as follows:

(2) Ethyl alcohol or a mixture thereof may be treated as being an indigenous product of an insular possession or beneficiary country only if the ethyl alcohol or a mixture thereof--

(A) has been both dehydrated and produced by a process of full-scale fermentation within that insular possession or beneficiary country; or

(B) has been dehydrated within that insular possession or beneficiary country from hydrous ethyl alcohol that includes hydrous ethyl alcohol which is wholly the product or manufacture of any insular possession or beneficiary country and which has a value not less than-- 3

Section 423(b) provides that up to 20,000,000 gallons of ethanol may be imported into the United States, not subject to § 423(a), in each of the calendar years 1987 and 1988 provided that it was dehydrated in an azeotropic distillation facility established before, and in operation on, January 1, 1986. Section 423(b)(1)(A). 4 It is the interpretation of the requirements of § 423(a) and § 423(b) relative to the terms of CBERA as presently enacted that is principally at issue for the purposes of this motion.

The Parties' Claims

Tropicana contends that the new statute renders this case moot. Under its interpretation, 20,000,000 gallons of ethanol may be imported into the United States duty-free in 1987 and 1988, as long as it is distilled in a qualifying facility. Any importations beyond that amount are governed by the § 423(c)(2) and § 423(a) requirements. These provisions would allow for duty-free treatment of azeotropically produced ethanol distillate so long as it was mixed with the proper amounts of locally produced ethanol. See § 423(c)(2)(B). The substantial transformation question presented by CBERA as currently enacted is not...

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