Superior Wire, A Div. of Superior Products Co. v. US

• Decision Date: 21 August 1987
• Docket Number: Court No. 87-06-00750.
• Citation: 669 F. Supp. 472
• Parties: SUPERIOR WIRE, a Division of SUPERIOR PRODUCTS COMPANY, a Michigan Corporation, Plaintiff, v. The UNITED STATES, et al., Defendants.
• Court: U.S. Court of International Trade

669 F. Supp. 472

SUPERIOR WIRE, a Division of SUPERIOR PRODUCTS COMPANY, a Michigan Corporation, Plaintiff, v. The UNITED STATES, et al., Defendants.

Court No. 87-06-00750.

United States Court of International Trade.

August 21, 1987.

Richard A. Kulics, Birmingham, Mich., for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Inter. Trade Field Office, Civil Div., U.S. Dept. of Justice, John J. Mahon, New York City, for defendants.

OPINION

RESTANI, Judge:

Plaintiff, an importer of steel wire from Canada, challenges the denial of its protest against the exclusion of a shipment of wire made from wire rod produced in Spain.¹ The United States Customs Service (Customs) excluded the wire because it was not accompanied by certificates that would allow its entry under a voluntary restraint agreement (VRA) with Spain covering wire and wire rod.²

In connection with this action plaintiff sought a temporary restraining order and a preliminary injunction to allow it to continue importing. A temporary restraining order was granted. The order was extended to the date of the preliminary injunction hearing conditioned upon the posting of bond. Following hearing on the preliminary injunction and the merits on July 27, 1987, defendant declined to consent to the continuation of any temporary relief. The court, finding that further posting of bond was not in the interest of either party, and finding no immediate irreparable harm, declined to continue the temporary restraining order. Further trial on the merits and on the motion for preliminary injunctive relief was held on August 11, 1987. The court denied preliminary relief.

FACTS

Plaintiff has been importing wire made from Spanish hot-rolled wire rod since late 1984. It obtains the finished cold-drawn wire from its related company, Big Point Steel Company, in Ontario, Canada. It is the operations of Big Point which are the main focus here.

The evidence discloses that plaintiff orders the wire rod from Spain for delivery to Canada. The rod arrives in coils of about 2,700 pounds each. The rod is uncoiled, and cleaned during passage through a mechanical descaling machine, which removes a hard oxide crust by reverse bending. The scale is formed during the rod-making process and must be removed to prevent damage to the wire-drawing equipment. The rod is then coated with a spray-on lubricant/rust preventative. The coils are joined by butt-welding, to facilitate feeding the dies, and because the end product is a 2,000 pound coil. Generally, the butt-welding process may also involve annealing across the joint so that the composition of the wire will be the same throughout. There was no testimony as to whether annealing took place at Big Point.

The operation crucial to resolution of this matter is the process which turns the wire rod into wire. In order to feed the machine which contains the dies that cold draw the rod into wire, the rod must be pointed and inserted into the machine. The rod is drawn through one, two and possibly, in a few cases, three dies. The testimony was contradictory as to whether one or two die passes were most commonly needed for the sizes of wire drawn by plaintiff, but plaintiff's witnesses seemed to have more familiarity with the process and the court accepts their testimony that two die passes are normally involved. Testimony also indicated that this process increases the tensile strength by thirty to forty percent as the rod is reduced in cross-sectional area by about thirty percent and is elongated. Other evidence indicated this degree of strength increase may be slightly high, but it is not greatly overstated. The final result is a substantially stronger product, which is also cleaner, smoother, "less springy," less ductile, and cross-sectionally more uniform.

Seventy percent of the wire imported by plaintiff is intended for use in making wire mesh for concrete sewer pipe reinforcement, which requires the strength of the finished wire. Twenty percent of the wire imported by plaintiff is sold as wire. The wire has about one dozen applications, such as shelving or decking and baskets used in the automotive industry. Wire rod has few uses except for making wire. Only a very small percentage of rod is used directly in concrete reinforcement.

The wire rod is of low carbon content. It is referred to as industrial quality or mesh quality rod. The rod is purchased by plaintiff for its affiliate from the Spanish producer in six sizes which range from 7/32 of an inch to 7/16 of an inch. The sizes of rod imported produce a range of sizes of wire, but the physical properties of the rod limit the range of sizes of wire which may be effectively or economically produced from a particular size of rod. It is also the chemical content of the rod and the cooling processes used in its manufacture which determine the properties that the wire will have after drawing.

Production of finished cold drawn wire from raw materials, such as scrap metal, involves several processes. The first step is to produce a steel billet. The particular process described at trial was that utilized by a domestic wire rod producer.³ There was no testimony indicating that the process used to produce the wire rod at issue was significantly different. The billet is a piece of steel about fifty feet long and five and one-eighth inches on each side, if measured cross-sectionally. Depending on the desired composition of the rod to be produced, a selection of different types of scrap are chosen. The scrap is melted in an electric furnace at 2700° Fahrenheit. The molten metal is refined by adding lime, oxygen, and possibly other additives to remove impurities. After the impurities are removed the steel is poured into a ladle and then into a tundish (a brick lined, steel container with holes). The steel then flows into a caster and the billets are formed. The testimony indicated that the scrap costs about one hundred dollars per ton, and at an efficient plant the making of a billet costs about the same.

The next step is the production of wire rod from billets. The billet is reheated to 2100° F. The rod mill described involves twenty-five separate rolling stages (stands) and two lines of billets can be processed at once. The first seven stands are called the roughing stage. The hot billets are passed through horizontal stands which gradually remove the corners of the billets to achieve a more cylindrical shape. The next four stands are also horizontal and are called the intermediate stage. The third stage also involves four stands but they are alternately horizontal and vertical. Finally, ten carbide rolls size down the rod into its final form. The process is computerized and moves at high speed so that water cooling is required to keep friction from raising the temperature above 2100°. The rod coils produced are then laid out with certain spacing depending on the rate of cooling needed. Air blowers can increase the cooling, and the use of hoods can decrease it.

The testimony indicated that the rolling mill cost between sixty and one hundred million dollars and a new mill would cost perhaps four times that amount. The testimony also indicated that much smaller operations are not economically feasible. The domestic producer's rolling operation involves one hundred and twenty-five employees and another sixty employees for quality control. The cost of producing one ton of rod from billet was placed at between forty and eighty dollars, depending on efficiency.

Testimony at trial indicates that a cold-drawing facility can be established for less than two hundred fifty thousand dollars. Plaintiff's operation seems within that range. A used drawing machine may be purchased for as little as thirty-five thousand dollars. Testimony indicated that three employees are needed to run a cold-drawing machine. Plaintiff operates its Canadian plant around the clock five days per week. Plaintiff's accountant stated that recent figures indicated that the cost of cold-drawing the wire from wire rod was about thirty-six dollars per ton. This figure has not been challenged seriously by defendant, and there was some evidence indicating that the figure is slightly understated if viewed in relation to a more general assessment of cost. In early 1987, the price of wire from Big Point to its affiliate was about two hundred eighty dollars per ton. Plaintiff paid two hundred thirty-five dollars per ton for the Spanish rod during the same period.

There seems to be agreement between the parties that the value added in terms of cost of the drawing process is about fifteen percent. During the relevant period domestic wire rod could be purchased for about three hundred dollars per ton. Also during this period, plaintiff sold wire at a substantially higher price to independent customers than it did internally.

Wire rod cannot be hot-rolled to a sufficiently round state to meet specifications of wire. To those in the steel and wire industries, wire rod and wire are different products. They are also classified differently for tariff purposes.

ARGUMENTS

Plaintiff raises two arguments. It asserts that the wire rod was substantially transformed in Canada into wire so that the product it seeks to import is a product of Canada, not Spain, and therefore is not covered by a VRA. Plaintiff also asserts that Customs' action regarding the shipment at issue represented a change in position resulting in a restriction, which change may not take place without notice and opportunity for comment, pursuant to 19 C.F.R. § 177.10(c)(2) (1986).

Defendant argues that the operations performed in Canada were minor and that the court should consider the purpose of the VRA and find that the wire is a product of Spain not Canada. Defendant also argues that Customs did not take a "position" within the meaning of § 177.10(c)(2), and thus no opportunity for comment is required.

EXISTENCE OF A "P...