Goodman Mfg., L.P. v. U.S.

• Citation: 69 F.3d 505
• Decision Date: 24 October 1995
• Docket Number: No. 94-1477,94-1477
• Parties: GOODMAN MANUFACTURING, L.P., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 505

69 F.3d 505

17 ITRD 1933

GOODMAN MANUFACTURING, L.P., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 94-1477.

United States Court of Appeals Federal Circuit.

Oct. 24, 1995.

William M. Methenitis, Strasburger & Price, L.L.P., Dallas, Texas, argued for plaintiff-appellant. With him on the brief was Andrew G. Halpern, Dallas, Texas.

Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Department of Justice, New York City, argued for defendant-appellee. With him on the brief were Frank W. Hunger, Assistant Attorney General, Washington, DC, David M. Cohen, Director, Washington, DC, and Carla Garcia-Benitez, New York City. Also on the brief was Karen P. Binder, Office of the Assistant, Chief Counsel, International Trade Litigation, U.S. Customs Service, New York City, of counsel.

Marshall V. Miller and Melissa Farley Sebree, Miller & Company, P.C., Kansas City, Missouri, were on the brief for Amicus Curiae, National Association of Foreign-Trade Zones.

Lauren R. Howard and Mary T. Staley, Collier, Shannon, Rill & Scott, Washington, DC, were on the brief for Amicus Curiae, American Iron and Steel Institute.

Before ARCHER, Chief Judge, MAYER and RADER, Circuit Judges.

MAYER, Circuit Judge.

Goodman Manufacturing, L.P., appeals a June 30, 1994, judgment of the Court of International Trade, 855 F.Supp. 1301 (Ct.Int'l Trade 1994), denying its motion for summary judgment and granting the government's cross-motion for summary judgment. We reverse.

Background

In 1934, Congress authorized the creation of a Foreign Trade Zone Board "to grant to public and private corporations the privilege of establishing, operating, and maintaining foreign-trade zones for the purpose of expediting and encouraging foreign commerce." S.Rep. No. 1107, 81st Cong., 2d Sess. 1-2 (1949), reprinted in 1950 United States Code Cong.Serv. 2533, 2533-34; see also 19 U.S.C. Sec. 81b(a) (1994). A foreign-trade zone is "an isolated, fenced off, and policed area within or adjacent to a port of entry." S.Rep. No. 1107 at 2, 1950 United States Code Cong.Serv. at 2533. A foreign-trade zone allows foreign merchandise to be manipulated "with a minimum of customs control and without customs bond" until it is brought into United States customs territory, at which point it is "subject to all customs laws and regulations." Id.

The relevant facts were stipulated before the Court of International Trade. In April 1990, Goodman requested a letter ruling from the United States Customs Service on the allowance for recoverable and irrecoverable waste found in section 3 of the Foreign Trade Zones Act, 19 U.S.C. Sec. 81c (1994). This allowance is calculated when determining the appropriate dutiable value of "privileged foreign merchandise" ¹ entering United States customs territory as part of a finished product manufactured in a foreign-trade zone ("zone"). In July 1991, Customs ruled that the allowance is calculated by reducing the dutiable value of the foreign merchandise used in the manufacture of the goods entering United States customs territory by an amount equal to the transaction value of any recoverable waste produced. See Priv.Ltr.Rul. HQ 544602 (July 15, 1991). It ruled that this deduction of the transaction value of the recoverable waste is "[t]he only adjustment that Customs can make" to the dutiable value of the privileged foreign merchandise.

On May 12, 1992, Goodman admitted three cores of Korean cold rolled steel sheets into a foreign-trade subzone ² in Houston, Texas, as privileged foreign merchandise, at a total cost of $4,848.24 (28,109 pounds of steel at $.17248/pound), exclusive of shipping and insurance costs. It used all of this steel to make 874 furnaces, which were entered into United States customs territory on May 15, 1992. The manufacturing process produced 2,652 pounds of recoverable scrap steel, which Goodman sold for $81.68. ³

In accordance with its July 1991 letter ruling, Customs subtracted the transaction value of the scrap steel ($81.68) from the transaction value of the privileged foreign steel ($4,848.24) to arrive at the dutiable value of the privileged foreign steel ($4,767.00). That is to say, Customs subtracted the actual sales price received for the recoverable steel waste from the full price paid for all privileged foreign steel admitted to the zone.

Goodman filed a protest of this valuation, which was denied. It initiated this action in the Court of International Trade to contest the denial. Goodman argued that subtracting the quantity of steel scrap at the value per pound of the privileged foreign steel (2,652 lbs. X $0.17248/lb = $457.42) from the transaction value of the privileged foreign steel ($4,848.24) would result in the correct dutiable value of the privileged foreign steel ($4,390.82). In other words, Goodman claimed that it need only pay duty on the physical quantity of steel that actually entered United States customs territory in the manufactured items. See 855 F.Supp. at 1302.

In approving Customs's calculation of the allowance, the Court of International Trade characterized the allowance as a "deduction" for the recoverable waste "generated as a result of the processing in the zone," and noted that Customs classifies and appraises the recovered waste based on its character and condition at the time of entry into customs territory. Id. at 1305. The court rejected Goodman's interpretation of section 81c, explaining that it would create problems where the quantity of merchandise changes as a result of physical or chemical changes caused by the manufacturing process in the zone. See id. at 1306. The court further held that Customs's interpretation was entitled to a presumption of correctness and that Goodman had not overcome the presumption. Thus, the Court of International Trade granted summary judgment to the government.

Discussion

I.

The issue is whether the Court of International Trade correctly held that the allowance for recoverable waste provided for in section 81c equals the value of the waste. We review statutory interpretation by the Court of International Trade de novo. Guess? Inc. v. United States, 944 F.2d 855, 857 (Fed.Cir.1991). A decision granting summary judgment is also reviewed de novo. See id.

The Court of International Trade made the general statement that Customs's "decisions enjoy a presumption of correctness" and, more specifically, stated that Goodman "failed to overcome the presumption of correctness that attaches to the valuation methodology adopted by Customs." 855 F.Supp. at 1303, 1306. These statements reflect a commingling of two concepts: (1) deference to an agency's reasonable interpretation of the statute it administers; and (2) the statutory presumption, found in 28 U.S.C. Sec. 2639, that Customs's decisions have a proper factual basis unless the opposing party proves otherwise. See 28 U.S.C. Sec. 2639(a)(1) (1988) ("[I]n any civil action commenced in the Court of International Trade under section 515, 516, or 516A of the Tariff Act of 1930, the decision of the Secretary of the Treasury, the administering authority, or the International Trade Commission is presumed to be correct. The burden of proving otherwise shall rest upon the party challenging such decision."). Because there was no factual dispute between the parties, the presumption of correctness is not relevant. Instead, we must determine whether Customs's decision is based on a permissible construction of the trade statutes. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984).

Both parties filed cross-motions for summary judgment, and both agreed that only an issue of law separated them. Thus, summary judgment was appropriate, and the only question is whether the Court of International Trade erred in accepting Customs's interpretation of the statutory allowance for waste.

II.

Our interpretation of the statute begins with the language employed by Congress. Mallard v. United States Dist. Ct. for the S. Dist. of Iowa, 490 U.S. 296, 300-01, 109 S.Ct. 1814, 1817-18, 104 L.Ed.2d 318 (1989); Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). The treatment and appraisal of foreign merchandise entered into United States customs territory from a foreign-trade zone is provided for in 19 U.S.C. Sec. 81c, the provision at issue, which reads as follows:

Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States, ... be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured ..., and be exported, destroyed, or sent into customs territory of the United States therefrom ...; but when foreign merchandise is so sent from a zone into customs territory of the United States it shall be subject to the laws and regulations of the United States affecting the imported merchandise: Provided, That whenever the privilege shall be requested ..., the appropriate customs officer shall take under supervision any lot or part of a lot of foreign merchandise in a zone, cause it to be appraised and taxes determined and duties liquidated thereon. Merchandise so taken under supervision ... may be sent into customs territory upon the payment of such liquidated duties and determined taxes thereon. If merchandise so taken under supervision has been manipulated or manufactured, such duties and taxes shall be payable on the quantity of such foreign merchandise used in the manipulation or manufacture of the entered article. Allowance shall be made for recoverable and irrecoverable waste; and if recoverable waste is sent into customs territory, it shall be dutiable and taxable in its condition and quantity and...