Bestfoods v. U.S., Slip Op. 00-73.

• Decision Date: 28 June 2000
• Docket Number: Slip Op. 00-73.,Court No. 95-02-00144.
• Parties: BESTFOODS (formerly known as CPC International, Inc.), Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

Page 965

110 F.Supp.2d 965

BESTFOODS (formerly known as CPC International, Inc.), Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 00-73.

Court No. 95-02-00144.

United States Court of International Trade.

June 28, 2000.

Neville, Peterson & Williams (John M. Peterson, George W. Thompson, and Curtis W. Knauss), Washington, DC, for plaintiff.

David W. Ogden, Acting Assistant Attorney General; David M. Cohen, Director, and Jeanne E. Davidson, Deputy Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice (Armando O. Bonilla, Attorney); David R. Hamill, Attorney, Department of the Treasury, Office of General Counsel; Sandra L. Bell, Supervisory Attorney Advisor and Monika R. Brenner, Attorney Advisor, United States Customs Service, Office of

Regulations and Rulings, Washington, DC, for defendant, of counsel.

OPINION

WATSON, Senior Judge.

INTRODUCTION

This action is before the court on remand from the United States Court of Appeals for the Federal Circuit in Bestfoods (formerly known as CPC International. Inc.) v. United States, 165 F.3d 1371 (Fed.Cir.1999), cert. denied, ___ U.S. ___, 120 S.Ct. 42, 145 L.Ed.2d 38 (1999). Familiarity with the prior proceedings in this case is presumed.

Briefly, in Bestfoods, the appellate court ruled, inter alia, that the North American Free Trade Agreement ("NAFTA") "tariff shift" rules, 19 C.F.R. § 102.20, and Customs Regulation 19 C.F.R. § 134.35(a) and (b), are valid, and remanded the case to this court "to permit Bestfoods to pursue any other arguments it may have as to why it should not be required to mark its product [`Skippy' brand peanut butter] under the applicable regulations." 165 F.3d at 1376.

There is no dispute in the current proceedings that Canadian peanut slurry does not undergo a change in tariff classification ("tariff shift") under the specific Marking Rule under Part 102 of the Customs Regulations (see section 102.20) applicable to peanut butter. Bestfoods, however, contends that to the extent it will be able to demonstrate that Canadian peanut slurry used in making peanut butter at its U.S. facilities is present in de minimis amounts, as defined under 19 C.F.R. § 102.13(a), it should not be required to mark its finished product as a product of Canada (or other equivalent country of origin marking designation) pursuant to the NATA Marking Rules and the Marking Statute, 19 U.S.C. § 1304(a).

Specifically, Bestfoods contests the validity of 19 C.F.R. § 102.13(b), which excludes most agricultural products, including peanut slurry, from the de minimis exception to the tariff shift rules, as arbitrary, capricious, an abuse of discretion, and otherwise contrary to law. As discussed infra, Customs seeks to justify the reasonableness of the exclusion of most agricultural products from de minimis treatment under section 102.13(b) on the basis of health and food safety concerns.

The Customs regulation in issue, Section 102.13 (19 C.F.R. § 102.13), so far as relevant, provides as follows:

(a) Except as otherwise provided in paragraphs (b) and (c) of this section, foreign materials that do not undergo the applicable change in tariff classification set out in Sec. 102.20 or satisfy the other applicable requirements of that section when incorporated into a good shall be disregarded in determining country of origin of the good if the value of those materials is no more than 7 percent of the value of the good or 10 percent of the value of the good of Chapter 22, Harmonized System.

(b) Paragraph (a) of this section does not apply to a foreign material incorporated in a good provided for in Chapter 1, 2, 3, 4, 7, 8, 11, 12, 15, 17, or 20 of the Harmonized System.

PARTIES' CONTENTIONS

Bestfoods has no quarrel with the application of the de minimis exception to the tariff shift rules under section 102.13(a), and argues that to the extent that it can demonstrate that its finished peanut butter qualifies for such de minimis treatment, plaintiff should not be required to mark its finished peanut butter as a product of Canada.¹ Plaintiff further contends that Customs' exclusion from de minimis treatment of certain Chapters of the Harmonized Tariff Schedule covering mostly agricultural products, pursuant to section 102.13(b), should be declared by the court to be null and void as arbitrary, capricious, an abuse of discretion, and not otherwise in accordance with law within the purview of the Administrative Procedure Act, 5 U.S.C. §§ 553, 706(2).

Defendant contends, first, that the Federal Circuit remanded this case for the limited purpose of affording Bestfoods an opportunity to challenge only the application of the Marking Rules, but not to challenge the validity of any Rule. Hence, defendant argues, plaintiff's challenge to the validity of section 102.13(b) is outside the scope of the Federal Circuit's remand order. Second, defendant contends that in any case, the NAFTA Marking Rules were correctly applied by Customs in its Headquarters Ruling and that section 102.13(b) is within Customs' discretionary authority.

ISSUES PRESENTED

Whether Bestfoods' challenge to the validity of section 102.13(b) of the Customs Regulations is within the scope of the Federal Circuit's remand order; and if so, whether the exclusion of peanut butter and most other agricultural products from the de minimis exception to the tariff shift rules under 19 C.F.R. § 102.13(b) was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, as claimed by Bestfoods.

After careful review of the post-remand submissions of the parties, and for the reasons set forth hereinafter, the court sustains Bestfoods' arguments.

DISCUSSION

1. Defendant's Contention that Plaintiff's Arguments Exceed the Scope of the Remand

In Bestfoods, the Federal Circuit rejected plaintiff's challenges to the validity of the NAFTA Marking Rules' tariff-shift methodology, reversed in part, vacated in part, and remanded the case broadly permitting Bestfoods to pursue "any other arguments it may have as to why it should not be required to mark its product under the applicable regulations." 165 F.3d at 1376. Plaintiff now seeks to challenge the validity of the exclusion of most agricultural products from the de minimis exception to the tariff shift rules pursuant to section 102.13(b) on the grounds that the reasons advanced by Customs (set forth infra) are arbitrary, capricious, an abuse of discretion, and otherwise contrary to law. Defendant, however, contends that Bestfoods' new challenge to the validity of a regulation is outside the scope of the permissible issues plaintiff may raise on remand.

Contrary to defendant's narrow reading of the remand order of the Federal Circuit, the court broadly permitted Bestfoods to pursue any other arguments in may have as to why it should not be required to mark its product under the applicable regulations, which remand order plainly does not preclude further arguments challenging the validity of a particular NAFTA Marking Rule. The specific issue now raised by plaintiff as to the validity of the exclusion of agricultural products under section 102.13(b) was not before the appellate court prior to remand.

2.

The Challenged Exclusions Under Section 102.13(b)

Section 102.13 of the Customs Regulations is a so-called "de minimis" rule. The principle of de minimis non curat lex, often shortened to de minimis, is long established in law generally, including customs and international trade law, and is a bedrock principle of statutory construction. See Alcan Aluminum, Corp. v. United States, 165 F.3d 898 (Fed.Cir.1999) ("Alcan") and cases cited. See also Varsity Watch Co. v. United States, 34 C.C.P.A. 155, C.A.D. 359, 1947 WL 5096 (1947); Overton & Co. v. United States, 5 U.S. Cust.App. 183 (1914); John S. Connor, Inc. v. United States, 54 Cust. Ct. 213, C.D. 2536, 1965 WL 8790 (1965); Canada Dry Ginger Ale, Inc. v. United States, 43 Cust. Ct. 1, C.D.2094, 1959 WL 8882 (1959); and R.W. Gresham v. United States, 3 Cust. Ct. 308, C.D. 263, 1939 WL 6153 (1939). The principle simply means that the law does not concern itself with trifles, see also Black's Law Dictionary, Seventh Ed.1999, page 443, and has been applied in a variety of statutory contexts. There is no dispute that the de minimis principle may also be applied under the Marking Statute and NAFTA tariff shift rules, and the issue before the court arises only from Customs' withholding of the de minimis principle from the tariff shift rules with respect to most agricultural products.

In response to commenters that expressed concern that the de minimis rule set forth in section 102.13 was made inapplicable to certain agricultural products, Customs explained, inter alia, that due to the nature of the products and because of health and food safety concerns, Customs exercised its discretion not to allow a de minimis standard to apply to country of origin determinations of most agricultural products. Continuing, Customs posited that the exclusion of most agricultural products from de minimis treatment for purposes of country of origin determinations was consistent with Customs' "past practice with regard to country of origin determinations of agricultural products." See 61 Fed.Reg. at 28,937.

Customs' articulated rationale is somewhat scanty, and the agency did not state that prior to section 102.13(b) there had been a past practice of withholding de minimis treatment from tariff shift rules, or explain how the exclusion of the de minimis exception from the tariff shift rules with respect to agricultural products furthers the purpose of the Marking Statute or NAFTA Marking Rules, or indeed, even explain how the requirement of a stringent application of the tariff shift rules for NAFTA agricultural products addresses Customs' health and food safety concerns.

Defendant's post-remand submissions do not satisfactorily respond to the critical issues raised by Bestfoods going the...