National Corn Growers Ass'n v. Von Raab, 86-4-00487.
| Decision Date | 10 December 1986 |
| Docket Number | No. 86-4-00487.,86-4-00487. |
| Citation | 650 F. Supp. 1007,10 CIT 762 |
| Parties | 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. |
| Court | U.S. Court of International Trade |
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.
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
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 treatment2 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.
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 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). "The 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:
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.
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 relevant to entries of ethanol fuel after December 31, 1986. Moreover, given the prospective nature of § 1516 relief, see ASG Indus. v. United States, 82 Cust.Ct. 101, 154, C.D. 4794, 467 F.Supp. 1200, 1242-43 (1979), this Court would be unable to order reliquidation of prior entries. Cf. 19 U.S.C. § 1514 (1982). Therefore, under Tropicana's view, there is no controversy for this Court to adjudicate since the bill has been enacted.
Predictably, plaintiffs take a different view of the statute. Their position is that "the duty status of § 423(b) ethanol is unchanged by the bill and would be determined by the law as it now stands without reference to Section 423." Plaintiffs' Opposition to the Motion for a Stay at 9-10. "The only plausible interpretation of the drafter's intent is that if duty-free treatment is denied to the grandfathered ethanol as a result of this litigation, such treatment would also be denied to all other entries of ethanol merely dehydrated in the Caribbean, regardless of whether the ethanol is considered an `indigenous product' under Section 423(c)(2)(B)." Id. at 13 n. 3.
In short, plaintiffs contest Tropicana's interpretation of § 423 on two grounds. First, even assuming all the other requirements of CBERA as currently enacted are met, plaintiffs assert that this Court must still rule that azeotropic distillation of ethanol is a substantial transformation in order for Tropicana to import the ethanol governed by § 423(b) without duty. Secondly, plaintiffs interpret § 423(a) as merely imposing a requirement in addition to those already present in existing law, to wit, that fuel ethanol, with the exception of § 423(b) ethanol, be an "indigenous product" as defined in § 423(c). Plaintiffs' seize upon the language of § 423(b) which they claim merely exempts 20,000,000 gallons in both 1987 and 1988 only from the rule announced in § 423(a) but not from the remainder of CBERA as currently enacted. Similarly, plaintiffs look to the language of § 423(a) to establish their interpretation: "no ethyl alcohol or mixture thereof may be considered ... eligible for duty-free treatment ... unless the ethyl alcohol or mixture thereof is an indigenous product of that insular possession or beneficiary country." Section 423(a). The negative language, it is asserted, means that the rule of § 423(a) is merely additional to the other requirements of 19 U.S.C. § 2703 and the rest of CBERA as it now stands.
Plaintiffs further contend that this Court is capable of awarding relief, regardless of the construction of § 423 adopted. Until the effective date of § 423, December 31, 1986, see § 423(g), the current version of CBERA is controlling. A declaration prior to that date that the Customs rulings are invalid would prevent duty-free treatment for the 1.5-2.0 million gallons of ethanol per month, see Party-in-Interest's Motion to Stay at 8, n. 1, entering into the United States market under CBERA. But see infra at 12 n. 8.
Additionally, plaintiffs oppose the motion to dismiss on the grounds that a declaratory judgment by this Court overturning Customs rulings would affect the administration of both existing and future trade laws that contain provisions similar to those of CBERA. Finally, plaintiffs contend that the equities favor denial of the motion. Plaintiffs allege that the domestic ethanol industry will be injured by continuing duty-free imports while Tropicana's only burden will be the cost of having to reply to plaintiffs' discovery demands which it voluntarily assumed by intervening in this action.
Congress has prescribed a unified scheme for tariff treatment of ethyl alcohol fuel. It has amended CBERA at 19 U.S.C. § 2703(a)(1) to be "subject to section 423 of the Tax Reform Act of 1986." Section 423(f)(2). All fuel ethanol from a beneficiary country qualifying for duty-free treatment must meet the criterion of § 423(...
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...example, National Corn Growers Association v. Baker, 840 F.2d 1547, 1554 (Fed.Cir.1988), and National Corn Growers Association v. Von Raab, 10 CIT 762, 764, 768, 650 F.Supp. 1007, 1009, 1012 (1986), aff'd, 814 F.2d 651 (Fed.Cir.1987), and since that moment has not yet arrived herein, while ......
- National Corn Growers Ass'n v. Von Raab