83 F.Supp.2d 1366 (CIT. 1999), 96-04-01274, Cummins Engine Co. v. United States
|Docket Nº:||Court No. 96-04-01274|
|Citation:||83 F.Supp.2d 1366|
|Party Name:||CUMMINS ENGINE COMPANY, Plaintiff, v. UNITED STATES, Defendant. Slip Op. 98-138.;|
|Case Date:||December 21, 1999|
|Court:||Court of International Trade|
Barnes, Richardson & Colburn, Chicago, IL (Robert E. Burke, Lawrence M. Friedman, and David G. Forgue), for Plaintiff.
David W. Ogden, Acting Assistant Attorney General, Joseph I. Liebman, Attorney-in-Charge, International Trade Field Office, Barbara S. Williams, Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice; Beth C. Brotman, Office of Assistant Chief Counsel, International Trade Litigation, U.S. Customs Service, for Defendant, of counsel.
Defendant, the United States, moves for summary judgment pursuant to USCIT Rule 56. Plaintiff, Cummins Engine Company ("Cummins"), opposes Defendant's motion, asserting that summary judgment is not appropriate because genuine issues of material fact exist. Jurisdiction is predicated on 28 U.S.C. § 1581(a)(1994).
On December 5th and 28th of 1995, Plaintiff filed protests challenging the decision of the U.S. Customs Service ("Customs") to deny duty-free treatment under the North American Free Trade Agreement ("NAFTA") to certain diesel engine crankshafts that Plaintiff imported from Mexico. Under General Note 12(a)(ii), Harmonized Tariff Schedule of the United States ("HTSUS"), 19 U.S.C. § 1202 (1995), an imported good is eligible for NAFTA preferential duty treatment if it "originate[s] in the territory of a NAFTA party[.]" See also 19 U.S.C. § 3332 (1994). Where a good is not "wholly obtained or produced entirely" in the territory of a NAFTA country, the good must undergo "a change in tariff classification" within the NAFTA country in order to qualify as originating from that NAFTA country. See General Note 12(b)(ii), HTSUS.
Here, the production of the imported crankshafts began in Brazil under the operation of Krupp Metalrgica Campo Limpo, which manufactured crankshaft forgings from alloy steel. Next, Cummins de Mexico, S.A. ("CUMMSA"), a wholly owned subsidiary of Plaintiff, imported the articles into Mexico and further processed them into the finished crankshafts that Plaintiff ultimately imported into the United States.
Upon importation into the United States in June and July of 1995, Customs classified the crankshafts under subheading 8483.10.30, HTSUS (1995), covering other transmission shafts (including camshafts and crankshafts) and cranks, with a duty rate of 3.5% ad valorem. Plaintiff argues, however, that Customs should have classified the crankshafts under subheading (MX)8483.10.30, HTSUS,1 as goods originating from a NAFTA country within the meaning of General Note 12(b)(ii), HTSUS.
According to Plaintiff, the articles were classifiable upon entry into Mexico under heading 7224, HTSUS (1995), as "semifinished products of other alloy steel[.]" Thus, because the articles were further processed within Mexico into finished crankshafts classifiable under subheading 8483.10.30, HTSUS, they underwent the tariff shift required to be deemed goods originating from a NAFTA country under General Note 12(b)(ii), HTSUS. Defendant denies that the goods underwent the required tariff shift, contending that they were already classifiable under subheading 8483.10.30, HTSUS, upon entering Mexico. Thus, the paramount issue before the Court is whether Customs' determination--that the articles were classifiable under subheading 8483.10.30, HTSUS, upon entering Mexico--can be decided as a matter of law.
Plaintiff alleged the following three counts in its complaint: (1) because the crankshafts originate in a NAFTA country for purposes of duty preferences under
General Note 12(a)(ii), HTSUS, Plaintiff's imports should be reliquidated as duty-free under NAFTA, see Pl.'s Second Am. Compl. pp 25, 28; (2) because Customs "improperly denied Plaintiff's claims for NAFTA preferential duty treatment prior to its commencement of a NAFTA origin verification as required under 19 C.F.R. § 181.71[,]" Plaintiff's imports should be reliquidated as duty-free under NAFTA, id. pp 31, 33; and (3) because the crankshafts underwent a substantial transformation in Mexico, they should be reliquidated duty-free under NAFTA as products of Mexico within the meaning of 19 U.S.C. § 1304, see id. pp 36, 37. Defendant moves for summary judgment in its favor on all three counts.2
This matter involves imports into the United States of diesel engine crankshafts in June and July of 1995. See Def.'s Statement of Undisputed Facts ¶ 1.3 The imported merchandise was exported from Mexico by CUMMSA, a wholly-owned subsidiary of Plaintiff, the importer. See id. ¶ 2.
The manufacture of the imported crankshafts began in Brazil with a closed-die forging process, which involves forging between matrices. See id. ¶ 3. After cooling, the articles were removed from the dies, and their ends were milled (a machining process) to allow them to be securely clamped into the machines used in the machining operations performed in Mexico. See id. ¶ 4; Pl.'s Counterstatement to Def.'s Statement of Undisputed Facts ("Pl.'s Counterstatement") ¶ 1; Def.'s Mem. in Reply to Pl.'s Opp'n to Def.'s Mot. for SJ ("Def.'s Reply") at 4-5. In addition, the articles' mass centers (i.e., centers of balance) were established by machining locator center points on each end. See Def.'s Statement of Undisputed Facts ¶ 4. The mass centers were redone in Mexico. See Pl.'s Counterstatement ¶ 1; Def.'s Reply at 4-5. Also in Brazil, grease pockets, 50 mm in diameter and 13 mm deep, were machined into the flange ends with a lathe. See Def.'s Statement of Undisputed Facts ¶ 5. The design of the finished crankshaft requires a grease pocket. See id. Finally, the articles were subjected to shot blasting in Brazil. See id. ¶ 6.
As imported into Mexico, the articles possessed the general shapes of crankshafts and were intended for use only as crankshafts. See id. ¶ 16. In Mexico, the articles underwent at least fourteen different machining operations, touching 95% of each article's surface. See Pl.'s Counterstatement ¶ 2; Def.'s Reply at 4-5. The machining processes performed in Mexico removed up to one-third of the material from certain areas of the articles and between one-third and two-fifths of an inch of steel from other areas. See Pl.'s Counterstatement ¶ 2; Def.'s Reply at 4-5.
In response to a letter from Plaintiff dated June 23, 1995, Customs issued an advance ruling, N.Y. 811617 (July 27, 1995), pursuant to 19 C.F.R. § 181.92 (1995), which notified Plaintiff that the imported crankshafts were not entitled to NAFTA duty preference. See Def.'s Statement of Undisputed Facts ¶ 17. After Plaintiff's initiation of this action in this Court, Customs conducted an origin verification pursuant to 19 C.F.R. § 181.72 (1995), which confirmed Customs' earlier findings set forth in N.Y. 811617. See id.
Standard of Review
Pursuant to USCIT Rule 56, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." USCIT Rule 56(d); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
In considering whether material facts are in dispute, the Court must consider the evidence in a light most favorable to the non-moving party, drawing all reasonable inferences in its favor, as well as all doubts over factual issues. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Nevertheless, "[w]hen a motion for summary judgment is made and supported ..., an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." USCIT Rule 56(f).
Count I of Plaintiff's complaint requires the Court to apply the NAFTA origination rules. In doing so, the Court must review Customs' classification of the articles upon their entry into Mexico as crankshafts under subheading 8483.10.30, HTSUS. The Court analyzes a classification issue in two steps: "first, [it] construe[s] the relevant classification headings; and second, [it] determine[s] under which of the properly construed tariff terms the merchandise at issue falls." Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1365 (Fed.Cir. 1998) (citing Universal Elecs., Inc. v. United States, 112 F.3d 488, 491 (Fed.Cir. 1997)). Whether the merchandise is properly classified is ultimately a question of law.4 See id.
Summary judgment is therefore appropriate "when there is no genuine dispute as to the underlying factual issue of exactly what the merchandise is." Id.
I. The NAFTA Origination Rules
The HTSUS consists of (A) the General Notes; (B) the General Rules of Interpretation; (C) the Additional U.S. Rules of Interpretation; (D) sections I to XXII, inclusive (encompassing chapters 1 to 99, and including all section and chapter notes, article provisions, and tariff and other treatment accorded thereto); and (E) the Chemical Appendix.
The proper classification of merchandise is governed by the General Rules of Interpretation ("GRI") to the HTSUS. See Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed.Cir. 1998). GRI 1 provides that, "for legal purposes, classification shall be determined according to the terms of the headings...
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