Arbor Foods Inc. v. US, Slip Op. 95-69. Court No. 93-08-00446.

• Decision Date: 20 April 1995
• Docket Number: Slip Op. 95-69. Court No. 93-08-00446.
• Parties: ARBOR FOODS INCORPORATED, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

885 F. Supp. 281

ARBOR FOODS INCORPORATED, Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 95-69. Court No. 93-08-00446.

United States Court of International Trade.

April 20, 1995.

Grunfeld, Desiderio, Lebowitz & Silverman, New York City (Robert B. Silverman, David M. Murphy), for plaintiff.

Frank W. Hunger, Asst. Atty. Gen.; Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice (Carla Garcia Benitez), of counsel; Robert J. Heilferty, Office of Chief Counsel for Intern. Trade, U.S. Dept. of Commerce, Karen P. Binder, Office of Asst. Chief Counsel, Intern. Trade Litigation, U.S. Customs Service, Washington, DC, for defendant.

OPINION

MUSGRAVE, Judge.

Plaintiff initiated this action to challenge defendant's refusal to admit sealed containers of sugar syrup into a Foreign Trade Zone. Plaintiff moves for summary judgment pursuant to Rule 56 of the Rules of the United States Court of International Trade. Defendant filed a cross-motion for summary judgment. The Court has jurisdiction under 28 U.S.C. § 1581(a) and, for the reasons which follow, enters judgment for defendant.

Background

1. United States Sugar Program

By Executive Proclamation 4941, the President imposed an absolute quota on the importation of raw and refined sugar. 47 Fed. Reg. 19,661 (May 7, 1982). To protect against circumvention of this quota, additional quotas were imposed on various imported products containing sugar under Executive Proclamations 5071 and 5294. 48 Fed.Reg. 30,089 (June 30, 1983); 50 Fed.Reg. 4187 (Jan. 30, 1985).

Sugar-blending operations were originally approved for Foreign Trade Zones ("FTZs") in 1983 after the United States Department of Agriculture ("USDA") advised the Foreign Trade Zones Board ("FTZB") that it would not oppose such operations. See U.S. General Accounting Office, Sugar Program: Issues Related to Imports of Sugar-Containing Products, Report No. GAO/RCED-88-146 (1988) at 6, Defendant's Memorandum In Opposition To Plaintiff's Motion For Summary Judgment And In Support Of Defendant's Cross-motion For Summary Judgment ("Defendant's Motion"), Exhibit 1. In August 1984, however, the USDA advised the FTZB that it believed that approval should be withdrawn for FTZ operations which blended sugar for U.S. importation because such operations interfered with the domestic price support program. Id. The FTZB concluded, in consultation with the USDA, that existing activity in these zones did not constitute a significant volume, and thus, they were allowed to continue. The term "grandfathered" was used to describe this situation.¹ At that time, the FTZB set an annual limit for these companies on imports of sugar for domestic consumption. Id. Five "grandfathered" companies carried out sugar-blending operations during 1986, and only three are operating at this time. Id.

2. Arbor Foods Incorporated (Foreign Trade Zone Operation)

Arbor Foods Incorporated ("Arbor") is one of the sugar-blending operations that was allowed to use FTZ procedures in 1984. Arbor received authorization from the FTZB, with concurrence of the USDA, to conduct certain processing activity to blend ex-quota, foreign sugar under zone procedures.

In 1984, the USDA indicated to the FTZB that it's policy had changed and that it would not give its concurrence for any new proposals. Arbor was notified that it would be temporarily allowed to continue using FTZ procedures for the same activity, provided that Arbor's production did not exceed 1985 levels. This approval obviously contemplated production of the type previously engaged in by Arbor — up to 1985 levels. The FTZB communicated to Arbor that it might review ongoing FTZ activity at any time and, if there was a negative public interest finding, rescind the authority. Arbor had been made aware that any new activity or changes in activity would require further FTZB review. Affidavit of Clark D. Bien, Arbor's General Counsel, para. 5, attached to Memorandum In Support Of Plaintiff's Motion For Summary Judgment ("Plaintiff's Motion"). Furthermore, Arbor acknowledged its awareness of the special restrictions which applied to the use of foreign source sugar in FTZs in its letter of October 14, 1986 to the FTZB. Defendant's Motion, Exhibit 3.

In response to the USDA's concerns, the FTZB expressed to the United States Customs Service ("Customs") its policy with respect to zone activity involving sugar in a letter dated December 30, 1985:

New sugar processing operations in zones require clearance from this office, and our practice since late 1984, after receiving objections from the Agriculture Department, has been to invite public comments in the Federal Register on any proposals. Based on the position of Agriculture and the domestic industry, it would appear that approval of any new operation is not likely under present circumstances.

December 30, 1985 letter from FTZB to Customs, Plaintiff's Motion, Exhibit A (emphasis added). The FTZB went on to specifically address Arbor's zone activity:

Arbor Foods is one of a few companies who had begun sugar blending operations under zone procedures prior to the adoption of this policy. Its established level is 38 million pounds per year, and while it is being allowed to continue operations on a "grandfather" basis, each type of activity must be cleared with this office.

Id. (emphasis added).

On May 30, 1986, Customs informed Arbor that each time a Customs Form "CF-216" was to be filed for a new product, the concurrence of the FTZB staff was necessary. May 30, 1986 letter from Port Director, Customs to Arbor, Defendant's Motion, Exhibit 2.

On October 14, 1986, Arbor did formally request authority to manufacture flavored syrups at its plant in FTZ # 8.² In support of its request, Arbor stated that:

Arbor Foods' Canadian subsidiary, Arbor Dominion Limited, currently manufactures such products for the U.S. market in Windsor, Ontario. The effect of granting this authorization will not be to increase the flow of such goods into the U.S., but only to allow Arbor Foods to realize logistical economies and to employ U.S. rather than Canadian workers.

October 14, 1986 letter from Arbor to FTZB, Defendant's Motion, Exhibit 3. Arbor's request to process syrups for the domestic market was not approved by the FTZB.

The USDA continued to express concerns regarding the effect of "grandfathered" zone operations on the sugar program. In a March 31, 1988 letter to the FTZB, the USDA stated:

since the "grandfathered" zone operations do not have to produce items which are subject to import quotas, this gives an appearance of arbitrariness on the part of U.S. Government treatment of companies in Foreign Trade Zones and Sub-Zones which are allowed to produce sugar-containing products for import purposes.

* * * * * *

We believe it is clearly not in the public interest to allow a continuation of the current situation surrounding our treatment of companies in Foreign Trade Zones and Sub-Zones which are allowed to produce sugar-containing products for import.

March 31, 1988 letter from the USDA to the FTZB, Defendant's Motion, Exhibit 5.

On June 24, 1992, Arbor requested a binding tariff classification ruling from Customs for certain blended sugar syrups of Canadian origin which were subject to quota under the United States Sugar Program. Arbor intended to claim exemption from the quota because the blended sugar syrups would be stored in a FTZ. Arbor described the operation as follows:

The goods would be entered into the zone with non-privileged foreign status, and stored in either approx. 4000 gallon tank trailers or in approx. 55 gallon drums. The goods, without modification, would subsequently be entered for consumption into the U.S. from Arbor Foods' Toledo, Ohio FTZ facility.

* * * * * *

As such goods will be entered by Arbor Foods into U.S. Customs territory from zone operation, Arbor Foods believes the goods should be classified under item no. 1702.90.5040 and, pursuant to Headnote 2(e) of Subchapter IV to Chapter 99 of the Harmonized Tariff Schedule of the United States ("HTSUS"), excluding from the import restrictions of heading no. 9904.50.20 to the extent of the authorized annual quantity.

June 24, 1992 letter from Arbor to the Regional Commissioner of Customs, New York Region, pp 1-2, Attachment to Plaintiff's Motion, Exhibit E (emphasis added).

Headnote 2(e) of Subchapter IV to Chapter 99 of the HTSUS creates an exemption to the absolute quota established for blended sugar syrups classifiable under heading 1702.90.50, HTSUS. This apparently unique provision exempts from the quota any blended sugar syrups entered from a FTZ by a FTZ user, whose facilities were in operation prior to June 1, 1990. Consequently, by seeking admission of the blended sugar syrups into FTZ # 8, Arbor essentially sought to avoid the established quota pursuant to the United States Sugar Program.

After conferring with the FTZB regarding Arbor's request, Customs responded that:

under 19 U.S.C. 81o(c), the Foreign Trade Zones Board has authority to exclude an operation in a zone if it determines that the operation is not in the public interest. It is our understanding that the Foreign Trade Zones Board has concerns regarding the above proposed transaction. Consequently, you should contact the Board to determine whether or not the operation will be permitted.

H.Q. 952385 (December 9, 1992), Plaintiff's Motion, Exhibit F.

In addition, on February 16, 1993, the Executive Secretary of the FTZB provided Arbor with the following response:

I hereby reiterate the advice of my office and U.S. Customs that the 1990 legislation authorizing limited use of foreign-sourced sugar in FTZs does not limit the Board's authority to determine whether activity is in the public interest. Formal FTZ Board approval would be needed before the zone use you propose could be conducted because it differs from the kind of activity conducted

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