Conoco, Inc. v. US Foreign-Trade Zones Bd., Slip Op. 95-62. Court No. 90-06-00289.

• Decision Date: 13 April 1995
• Docket Number: Slip Op. 95-62. Court No. 90-06-00289.
• Citation: 885 F. Supp. 257
• Parties: CONOCO, INC., et al., Plaintiffs, v. UNITED STATES FOREIGN-TRADE ZONES BOARD, et al., Defendants.
• Court: U.S. Court of International Trade

885 F. Supp. 257

CONOCO, INC., et al., Plaintiffs, v. UNITED STATES FOREIGN-TRADE ZONES BOARD, et al., Defendants.

Slip Op. 95-62. Court No. 90-06-00289.

United States Court of International Trade.

April 13, 1995.

Holland & Hart, Washington, DC (William F. Demarest, Jr., and Adelia S. Borrasca) and Lisa L. Bagley, Houston, TX, for plaintiff Conoco, Inc.

Charles M. Floren, Tulsa, OK, for plaintiff Citgo Petroleum Corp.

Frank W. Hunger, Asst. Atty. Gen. of the U.S.; Joseph I. Liebman, Attorney-in-Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civil Div., U.S. Dept. of Justice (Carla Garcia-Benitez); Robert J. Heilferty, Attorney-Advisor, Office of the Chief Counsel for Import Admin., U.S. Dept. of Commerce, Washington, DC, of counsel, for defendant.

OPINION

CARMAN, Judge:

Plaintiffs move for judgment upon the agency record pursuant to U.S.CIT R. 56.1 to challenge certain conditions imposed by the United States Foreign-Trade Zones Board (FTZB or Board) upon the grants of foreign-trade subzones to plaintiffs Conoco, Inc. (Conoco) and Citgo Petroleum Corporation (Citgo). Defendants cross-move for judgment upon the agency record. This Court has jurisdiction under 28 U.S.C. § 1581(i)(1), (4) (1988) and, for the reasons which follow, enters judgment for defendants.

I. BACKGROUND

This case is presently before the Court after remand to the FTZB. See Conoco, Inc. v. United States Foreign-Trade Zones Bd., 18 CIT ___, 855 F.Supp. 1306 (1994) (Conoco III) (remanding the action to the Board). The dispute underlying this action arises from the Board's decision to impose two conditions upon approving foreign-trade subzone applications for plaintiffs Conoco's and Citgo's crude oil refineries at the Port of Lake Charles, Calcasieu Parish, Louisiana. See id. at ___, 855 F.Supp. at 1308-09. The two conditions require Conoco and Citgo

(1) to pay duties ... on foreign crude oil used as fuel (or refined into products used as fuel) in the refineries; and

(2) ... to elect "privileged foreign status" for foreign crude oil brought into their respective subzones, i.e., elect to pay duties on the value of that crude oil as opposed to the value of refined products produced therefrom.

Conoco, Inc. v. United States Foreign-Trade Zones Bd., 12 Fed.Cir. (T) ___, ___, 18 F.3d 1581, 1583 (1994) (Conoco II) (footnote omitted). Plaintiffs Conoco and Citgo initiated this action to challenge the imposition of the foregoing conditions on their subzone grants.

This Court previously remanded the action to the Board because "the Board failed to articulate the basis upon which it decided to impose the challenged conditions on Conoco's and Citgo's subzone grants." Conoco III, 18 CIT at ___, 855 F.Supp. at 1312. The purpose of the remand was to allow the Board an opportunity to explain fully "the rationale underlying its decision to condition Conoco's and Citgo's subzone grants" and, in particular, "whether and in what manner the conditions it has imposed on ... the grants serve the public interest." Id. at ___, 855 F.Supp. at 1312-13.

The Board issued its Remand Determination on July 29, 1994. In its Remand Determination, the Board set forth its rationale for imposing the two conditions at issue. In brief, with respect to the condition that plaintiffs pay duties on fuel consumed in their subzones, the Board reasoned the Foreign-Trade Zones Act (FTZA or Act) does not shield products consumed in subzones from duties. Remand Determination at 1; see also id. at 22. The Board added that, even if the Act afforded such protection, allowing plaintiffs to consume fuel in their subzones duty-free would not be in the public interest "because it would give them an unwarranted economic advantage over other domestic refiners." Id. at 2; see also id. at 22-23.

As to the second condition requiring plaintiffs to elect privileged foreign status for foreign crude oil brought into their subzones, the Board noted it imposed the condition after considering several factors. Specifically, the Board indicated it considered the following factors: (1) the amount of import displacement that would arise from granting plaintiffs inverted tariff benefits, that is, the extent to which granting inverted tariff benefits to plaintiffs would cause value-added production activity that would otherwise be conducted abroad to occur in the United States; (2) domestic opposition to plaintiffs' subzone applications; (3) an analysis of oil refinery subzones undertaken by the United States Department of Commerce's Office of Energy (Office of Energy); and (4) the inverted tariff savings that would inure to plaintiffs if plaintiffs were to elect non-privileged foreign status for foreign crude entered into their subzones. Id. at 16-21; see also id. at 2. According to the Board, a review of these factors indicated "there was no public benefit" in allowing plaintiffs "to choose the tariff rate on finished products." Id. at 21.

II. CONTENTIONS OF THE PARTIES

A. Plaintiffs

Plaintiffs challenge the FTZB's Remand Determination on several grounds. With respect to the Board's treatment of the first condition, plaintiffs advance three separate arguments. First, plaintiffs contend the Board misconstrued the precedents established by the Court of Appeals for the Federal Circuit (CAFC) and the Customs Court pertaining to the Board's authority to make merchandise consumed within subzones dutiable. (Pls.' Comments at 2-5 (citing Nissan Motor Mfg. Corp., U.S.A. v. United States, 12 CIT 737, 693 F.Supp. 1183 (1988), aff'd, 7 Fed.Cir. (T) 143, 884 F.2d 1375 (1989); Hawaiian Indep. Refinery, Inc. v. United States, 81 Cust.Ct. 117, 460 F.Supp. 1249 (1978), appeal dismissed, 66 C.C.P.A. 135 (1979) (HIRI)).) According to plaintiffs, HIRI indicates the FTZA precludes the Board from making refinery fuel consumed in trade zones dutiable so long as the zone operator (1) enters the crude oil into its zone "for a purpose authorized by the ... Act and (2) the refined products consumed as refinery fuel never enter ... the Customs Territory of the United States." (Id. at 3 (citing HIRI, 81 Cust.Ct. at 125, 460 F.Supp. at 1256).) Plaintiffs further argue the decisions of the Court of International Trade (CIT) and the CAFC in Nissan "did not overrule or even question the underlying validity of HIRI" because, consistent with HIRI, the decisions relied on the purpose for which the zone operator entered the merchandise in question to determine whether the merchandise was entitled to duty-free treatment. (Id. (citing Nissan, 7 Fed.Cir. (T) at 147, 884 F.2d at 1378; Nissan, 12 CIT at 740-42, 693 F.Supp. at 1186-87).) Consequently, to the extent the Board asserts Nissan overruled HIRI to support its position that the FTZA does not authorize a "fuel-consumed" benefit, plaintiffs maintain the Board's position must fail.

Similarly, plaintiffs suggest the Board's interpretation of Nissan marks a departure from the Board's past practice of recognizing a fuel-consumed benefit under the Act. As evidence of the Board's change in practice, plaintiffs point to the fact that the Board has not taken steps to have duties imposed on fuel consumed in any of the refinery subzones which the Board approved prior to 1988. Moreover, plaintiffs contend, contrary to the defendants' assertions "the timing of the imposition of the fuel-consumed condition and the Nissan decision cast further doubt on the Board's claim that the imposition of the fuel-consumed condition was supported by the Board's long-standing interpretation of the FTZ Act based upon Nissan." (Id. at 4.) Plaintiffs maintain the Board first imposed a fuel-consumed condition in a subzone grant dated March 31, 1988. (Id. (citing Application of the South Louisiana Port Commission for a Subzone at the Trans-American Natural Gas Corporation, 53 Fed. Reg. 11,539 (Foreign-Trade Zones Board 1988) (resolution and order approving application)).) The Nissan decision, however, was issued over four months later.

The third principal contention plaintiffs raise on the issue of the fuel-consumed condition is that this Court must reject the Board's Remand Determination as an "impermissible post hoc rationalization." (Id. at 5 (footnote omitted).) Plaintiffs maintain the Board did not base its Remand Determination on the Examiner's Report and the Decision Memorandum which underlie the Board's original determination. Under the Board's internal procedures, plaintiffs claim, "the Examiner's Report and the Decision Memorandum are necessarily the basis for the Board's actions." (Id.) Furthermore, plaintiffs argue, counsel for defendants previously asserted "that these documents were in fact the basis for the Board's initial determination." (Id.) To further support their claim that the Board's Remand Determination constitutes a post-hoc rationalization, plaintiffs underscore the fact that the members of Board who issued the Remand Determination "played no part in the original decision." (Id. at 6.)

With respect to the Board's treatment of the second condition requiring plaintiffs to elect privileged foreign status for crude oil entered into their subzones, plaintiffs advance two separate arguments. First, plaintiffs contend the Board changed its past practice of freely allowing subzone grantees to elect non-privileged foreign status by requiring plaintiffs to demonstrate why the Board should allow plaintiffs to elect non-privileged foreign status. Plaintiffs charge the Board disregarded that the burden placed on plaintiffs in this case marks a departure from the Board's past practice.

The second argument raised by plaintiffs is that the Board improperly assumed subzone grantees are "entitled only to those zone benefits specifically authorized by the Board." (Id. at 7.) According to plaintiffs, subzone grants by themselves confer a "full panoply of statutorily authorized zone benefits," including the right to elect non-privileged foreign status. (Id. at 8.) Additionally, similar...