Boltex Mfg. Co., L.P. v. U.S.

• Citation: 140 F.Supp.2d 1339
• Decision Date: 08 September 2000
• Docket Number: No. 00-07-00314.,SLIP OP. 00-118.,00-07-00314.
• Parties: BOLTEX MANUFACTURING CO., L.P., et. al., Plaintiffs, v. UNITED STATES of America, Defendant, and United States Flanges And Fittings Marking Coalition, Defendant-Intervenor.
• Court: U.S. Court of International Trade

140 F.Supp.2d 1339

BOLTEX MANUFACTURING CO., L.P., et. al., Plaintiffs, v. UNITED STATES of America, Defendant, and United States Flanges And Fittings Marking Coalition, Defendant-Intervenor.

SLIP OP. 00-118.

No. 00-07-00314.

United States Court of International Trade.

September 8, 2000.

Mayer, Brown & Platt, Washington, DC (Simeon M. Kriesberg), Kathryn Schaefer, Andrew A. Nicely, for Plaintiffs.

David W. Ogden, Assistant Attorney General; Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, Department of Justice (Barbara M. Epstein); Paula Smith, Office of the Assistant Chief Counsel, International Trade Litigation, United States Customs Service, of counsel, for Defendant.

McKenna & Cuneo, LLP, Washington, DC (Peter Buck Feller), Daniel G. Jarcho, Vincent M. Routhier, Myron Paul Barlow, for Defendant-Intervenor.

OPINION

BARZILAY, Judge.

I. INTRODUCTION

This case is before the court pursuant to USCIT R. 56.1(c) providing for judgment on an agency record. Plaintiffs (hereinafter "Plaintiffs" or "Boltex") are importers of carbon and stainless steel forgings.¹ After importation, Boltex subjects the forgings to certain processes in the United States and sells them as pipe fittings and flanges.²

Boltex challenges the determination of the United States Customs Service ("Customs") announced in Treasury Decision ("T.D.") 00-15, Final Interpretation: Application of Producers' Good Versus Consumers' Good Test in Determining Country of Origin Marking, 65 Fed.Reg. 13827 (March 14, 2000) ("Final Interpretation"). The Final Interpretation announces that Customs will no longer be bound by a particular test in determining country of origin and, as a result, pipe fittings and flanges made in the United States with imported forgings must be marked with the country of origin of the forgings. See id. at 13831. Boltex claims that this final determination unlawfully changes 30 years of industry practice to its detriment. It asks this court to vacate Customs' decision and, in the alternative, to enjoin Customs from enforcing the decision pending judicial review on the merits if the court is unable to render a decision before September 11, 2000, the effective date of the Final Interpretation. The court exercises jurisdiction pursuant to 28 U.S.C. § 1581(h)(1994).³

II. BACKGROUND

Federal law requires that every article of foreign origin that is imported into the United States be marked with its country of origin in such a manner that its ultimate purchaser will be aware of its country of origin. See 19 U.S.C. § 1304(a)(1994). An ultimate purchaser is defined in Customs regulations as generally "the last person in the United States who will receive the article in the form in which it was imported. ..." 19 C.F.R. § 134.1(d) (1999). When a foreign article is subjected to manufacturing in the United States before reaching the consumer, the regulations provide some guidance as to when the manufacturer will be regarded as the ultimate purchaser. A manufacturer will be considered the ultimate purchaser "if he subjects the imported article to a process which results in a substantial transformation of the article, even though the process may not result in a new or different article. ..." 19 C.F.R. § 134.1(d)(1).⁴ On the other hand, if the manufacturing process is "merely a minor one which leaves the identity of the imported article intact," the consumer is regarded as the ultimate purchaser. 19 C.F.R. § 134.1(d)(2). In the former case the product is not subject to the country of origin marking statutes; in the latter the country of origin must appear on the product.

Our court and its predecessors have struggled valiantly to determine what processing will result in a substantial transformation. Many tests have been articulated and applied, depending on the product and processes at issue.⁵ In 1970 the Customs Court decided Midwood Industries v. United States, 64 Cust.Ct. 499, 313 F.Supp. 951 (1970), appeal dismissed, 57 C.C.P.A. 141 (1970). In Midwood, an importer of steel forgings protested Customs' decision to exclude its merchandise because it was not properly marked. See id., 64 Cust.Ct. at 500, 313 F.Supp. at 952. Customs claimed that the existing markings were obliterated by the finishing process and the forgings had to be marked so that the marking would appear after the processing was complete. See id., 64 Cust. Ct. at 502, 313 F.Supp. at 953. The importer claimed that the ultimate purchaser of the forgings was the processor in the United States that converted them to pipe fittings and flanges. See id., 64 Cust.Ct. at 500-501, 313 F.Supp. at 952. The court agreed, holding that the forgings were substantially transformed after importation into pipe fittings and flanges and, therefore, the importer's marking was proper. See id., 64 Cust.Ct. at 507-508, 313 F.Supp. at 957.

Following the Midwood decision, Customs issued several ruling letters to importers of forgings confirming that the United States manufacturers of the end products, the pipe fittings and flanges, were indeed the ultimate purchasers for purposes of the marking statute.⁶ These rulings were important as the processes performed in the United States usually obliterate the die-stamped marking which appears on the forging in its imported condition.⁷

In 1993 Congress passed the North American Free Trade Agreement ("NAFTA") Implementation Act, Pub.L. No. 103-182, § 207, 107 Stat.2057 (1992), (codified as amended at 19 U.S.C. § 3304 (1996)), which included special rules for determining whether an article would be considered a product of one of the signatory countries and thus eligible for whatever preferential treatment the agreement afforded that product. The NAFTA country of origin rules are voluminous and complex. See 19 U.S.C. § 3332 (1996). Briefly, as relevant here, they generally provide that evidence of substantial transformation will be determined by a change in the Harmonized Tariff classification, a "tariff shift." That is, the process performed on the product must result in a change in the Harmonized Tariff Schedule of the United States ("HTS" or "HTSUS") classification for that product to be considered substantially transformed. These tariff shift rules are product specific and were negotiated by the parties and codified by statute. See 19 U.S.C. § 3332(a)(1)(B)(I).

The NAFTA marking rules were promulgated by T.D. 95-69, 60 Fed.Reg. 46188 (1995), as amended by T.D. 96-56, 61 Fed. Reg. 37817 (1996), and appear in 19 C.F.R. § 102.20 (1996). Under the rules, forgings, pipe fittings and flanges are all classified under HTS heading 7307, covering "[t]ube or pipe fittings ... of iron or steel." Therefore, for marking purposes, a substantial transformation does not occur in the finishing process, and the pipe fittings and flanges must be marked with the country of origin of the forgings themselves. This development created an anomaly for the steel pipe fitting industry. Pipe fittings and flanges made from Mexican or Canadian forgings had to be marked, while pipe fittings and flanges made from forgings imported from any other country did not.

In April 1996, Maass Flange Corporation ("Maass") wrote to Customs complaining that the "country of origin marking regulations are not uniform as to imported goods from NAFTA and non-NAFTA countries." Administrative Record ("AR") at 0164. While recognizing that the NAFTA marking rules "do not technically apply to non-NAFTA origin goods," Maass requested that they be so applied. See AR at 0167, 0170. On May 14, 1996 Customs responded, suggesting that Maass file a petition pursuant to 19 U.S.C. § 1516(a)(1984), as Customs could not grant the relief requested.⁸

On February 18, 1997, Customs issued HRL 559871 in response to a ruling request from an importer of steel forgings from Mexico, Germany and Italy. See AR at 0174. In the ruling letter, Customs explained that the NAFTA marking rules applied to the forgings from Mexico, but not to those imported from Germany and Italy. It stated:

[A]fter notice and comment in the Federal Register, the NAFTA Marking Rules set forth at 19 CFR Part 102 were not adopted for all trade, and the Midwood decision, while questioned in subsequent court decisions, has not been overruled. Accordingly, to the extent that forgings are not imported from a NAFTA Party, the NAFTA Marking Rules will not apply. In the absence of other information that the flanges being imported from non-NAFTA countries are undergoing operations that are different from the processes performed in Midwood, the Midwood case still will be applicable for determining the country of origin marking requirements. Therefore, steel flanges processed from forgings of Italian or German origin, as described above, will not require any country of origin marking for Customs purposes.

AR at 0178.

In May 1997, Customs met with Maass representatives and assured them that Customs "will be publishing a notice that will have the effect of reconciling [Midwood], as applied by Customs, and the NAFTA marking rules of origin." AR at 0122. Shortly after the Maass meeting several officials of the Department of the Treasury and Customs met to discuss "whether it is necessary to follow Midwood outside the context of the NAFTA Marking Rules...." AR at 0180. It was agreed that "the Midwood decision would not need to be applied if proper notice and comment procedures were again followed." Id. Recognizing that such a procedure would evoke controversy one official "questioned whether the notice in the Federal Register could be named something other than a notice of `change in practice' or `change in position.'" Id.

Accordingly, on March 26, 1998, Customs published a Notice of Proposed Interpretation; Solicitation of Comments: Application of Producers' Good Versus Consumers' Good Test in Determining Country of Marking, 63 Fed.Reg. 14751 (1998)("Proposed Interpretation"), advising the...