CPC Intern., Inc. v. US, Slip Op. 96-106. Court No. 95-02-00144.

• Decision Date: 08 July 1996
• Docket Number: Slip Op. 96-106. Court No. 95-02-00144.
• Citation: 933 F. Supp. 1093
• Parties: CPC INTERNATIONAL, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

933 F. Supp. 1093

CPC INTERNATIONAL, INC., Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 96-106. Court No. 95-02-00144.

United States Court of International Trade.

July 8, 1996.

Neville, Peterson & Williams (John M. Peterson, George W. Thompson, and Arthur K. Purcell), for plaintiff.

Pillsbury Madison & Sutro (Lynn L. Miller and James M. Chadwick), for The Pillsbury Company, amicus curiae.

Frank W. Hunger, Assistant Attorney General; David M. Cohen, Director, Commercial Litigation Branch; Jeanne E. Davidson, Assistant Director (Rhonda K. Schnare, Trial Attorney), Civil Division, U.S. Department of Justice, for defendant.

OPINION AND ORDER OF REMAND

NEWMAN, Senior Judge:

Introduction

This action raises a significant issue of first impression concerning the country of origin marking of goods.

CPC International, Inc. ("CPC" or "plaintiff"), a major multi-national food producer, proposes to import Canadian-origin peanut slurry¹ to be processed, together with other ingredients, in the manufacture of CPC's "Skippy" brand peanut butter. CPC requested the United States Customs Service ("Customs") to issue a preimportation ruling as to whether its finished peanut butter, containing a small amount of Canadian-origin peanut slurry, must be marked to show Canada as the country of origin pursuant to 19 U.S.C. § 1304(a).

In Headquarters Ruling Letter 557994 of October 25, 1994 ("HRL"), Customs decided the country of origin marking issue adversely to CPC's position that such marking should not be required, which ruling precipitated this action seeking preimportation judicial review.

The Pillsbury Company, another major United States food manufacturer that also imports certain food ingredients, appears in this action as amicus curiae in support of CPC.

Briefly, Customs applied its interim amendments to the Customs Regulations implementing the North American Free Trade Agreement Implementation Act of 1993, Pub.L. 103-182, 107 Stat. 2057-2225 (December 8, 1993), codified at 19 U.S.C. § 3311 et seq. See Executive Order No. 12889, 58 Fed.Reg. 69681 (December 27, 1993) ("NAFTA Implementation Act" or the "Act"). The Act approved and entered into force the North American Free Trade Agreement ("NAFTA"), effective January 1, 1994. Customs ruled that under the interim regulations, CPC's retail containers of finished peanut butter, containing but a small quantity of Canadian-origin peanut slurry, do not qualify for the exception from marking under 19 C.F.R. § 134.35(b) and the referenced NAFTA Marking Rules, 19 C.F.R. § 102.20. Applying the hierarchical analysis required by 19 C.F.R. § 102.11, Customs determined in its HRL that CPC's finished product sold at retail must be marked to show it is a "product of Canada."

Plaintiff claims that Customs acted arbitrarily and contrary to law in failing to also address whether the post-importation manufacture of peanut butter from, among other ingredients, a small portion of Canadian slurry results in "substantial transformation" of the slurry under the oft-cited United States v. Gibson-Thomsen, Co., Inc., 27 CCPA 267. C.A.D. 98, 1940 WL 4085 (1940) ("Gibson-Thomsen"), and accordingly, whether CPC would be the "ultimate purchaser" of the imported good under 19 U.S.C. § 1304(a), thereby exempting the finished peanut butter from country of origin marking. Hence, the court must determine whether the Gibson-Thomsen substantial transformation test of an ultimate purchaser under 19 U.S.C. § 1304(a) must, in addition to application of the NAFTA exemptions, be considered by Customs in the country of origin marking of finished goods manufactured in the United States from NAFTA goods.

This action invokes this court's jurisdiction to grant preimportation declaratory relief concerning Customs' rulings pursuant to 28 U.S.C. § 1581(h).² Plaintiff moves for judgment on the agency record under CIT Rule 56.1 that the HRL and NAFTA interim regulation 19 C.F.R. § 134.35(a), which limits Gibson-Thomsen to articles other than goods of NAFTA countries, are arbitrary and contrary to law, and requests a remand of the ruling to Customs.

BACKGROUND

On January 14, 1992, CPC requested a preimportation ruling as to whether CPC's retail containers of "Skippy" brand peanut butter, to be manufactured at its factory in Little Rock, Arkansas in small part from Canadian-origin peanut slurry, must be marked showing Canada as the country of origin pursuant to 19 U.S.C. § 1304(a), as amended. In support of its request, CPC furnished Customs with its proposed manufacturing process,³ and relying on the holding of the appellate court in Gibson-Thomsen, contended that such process results in a "substantial transformation" of the slurry, and accordingly, exemption from marking of the finished peanut butter as CPC would be the "ultimate purchaser" of the slurry under 19 U.S.C. § 1304(a).

In Gibson-Thomsen, the importer challenged Customs' requirement of country of origin marking for certain hairbrushes and toothbrushes made from imported wood brush blocks and toothbrush handles that were to be combined with bristles after importation into the United States to produce finished brushes. The Appellate Court found that the finished brushes were new articles of commerce, distinct from the imported wood handles, the manufacturer of the brushes was the ultimate purchaser of the imported wood brush blocks and toothbrush handles, and therefore, the finished brushes were not subject to country of origin marking under section 1304(a):

We find nothing in the statute nor in its legislative history to warrant a holding that the Congress intended to require that an imported article, which is to be used in the United States as a material in the manufacture of a new article having a new name, character and use, and which, when so used, becomes an integral part of the new article, be so marked as to indicate to the retail purchaser of the new article that such imported article or material was produced in a foreign country. On the contrary, we are of the opinion that the Congress intended, by the provisions of Section 304(a)(2), supra, to cover only such imported articles as do not lose their identity as such when combined with other articles.

* * * * * *

* * * We are of the opinion, therefore, that, at the time of their importation, the involved articles the brush blocks and toothbrush handles were marked "in such manner as to indicate to" the "ultimate purchaser in the United States" — the manufacturer of the toothbrushes and hairbrushes — the country of origin — Japan.

27 CCPA at 273, 1940 WL 4085 (emphasis in part in original).

The courts have consistently followed the new "name, character and use" substantial transformation test of Gibson-Thomsen in determining whether imported goods must be marked in accordance with 19 U.S.C. § 1304(a). See e.g.: Uniroyal, Inc. v. United States, 702 F.2d 1022 (Fed.Cir.1983), aff'g 3 CIT 220, 542 F.Supp. 1026 (1982); National Hand Tool Corp. v. United States, 16 CIT 308, 1992 WL 101006 (1992); Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988); Superior Wire v. United States, 11 CIT 608, 669 F.Supp. 472 (1987); Ferrostaal Metals Corp. v. United States, 11 CIT 470, 664 F.Supp. 535 (1987); National Juice Products Assoc. v. United States, 10 CIT 48, 628 F.Supp. 978 (1986); Carlson Furniture Indus. v. United States, 65 Cust. Ct. 474, C.D. 4126 (1970); Midwood Indus., Inc. v. United States, 64 Cust.Ct. 499, C.D. 2046, 313 F.Supp. 951 (1970), appeal dismissed, 57 CCPA 141, (1970); and Grafton Spools, Ltd. v. United States, 45 Cust.Ct. 16, C.D. 2190 (1960). As observed in Tropicana Products, Inc. v. United States, 16 CIT 155, 159, 789 F.Supp. 1154, 1157 (1992), "substantial transformation is a concept of major importance in administering the customs and trade laws." Plaintiff insists that the seminal Gibson-Thomsen principle, which Customs refused to consider in its HRL, remains alive and well for NAFTA as well as non-NAFTA imports.

Under the Act, 19 U.S.C. § 3311, et seq., Congress approved and entered NAFTA into force under United States law effective January 1, 1994 and the statement of administrative action proposed to implement the Agreement that was submitted to Congress on November 4, 1993.⁴ Neither the Act nor the statement of administrative action suggests that there was any intent to amend 19 U.S.C. § 1304(a), except as discussed infra in connection with § 1304(a)(3)(H). The Implementation Act, 19 U.S.C. § 3314(a)(2), delegates to the appropriate officers of the United States (i.e., Customs) authority to issue regulations necessary to implement the Act. Customs promulgated implementing interim amendments to its regulations, Treasury Decisions 94-1 and 94-4, discussed infra, effective January 1, 1994, concerning, inter alia, marking requirements and country of origin determinations — the NAFTA "Marking Rules."

On April 29, 1994, CPC's initial ruling request of January 14, 1992 was administratively closed at CPC's request. However, on June 21, 1994 — following the NAFTA Implementation Act and promulgation of new interim amendments to the Customs Regulations — CPC by letter reiterated its request for a ruling as to whether the manufacture of peanut butter in the United States would result in a "substantial transformation" of the Canadian peanut slurry, and whether on that basis CPC would be the "ultimate purchaser" of the slurry thereby exempting the finished peanut butter from marking pursuant to 19 U.S.C. § 1304(a).

Applying the NAFTA Rules of Origin, 19 C.F.R. Part 102, Subpart B, Customs employed the "hierarchical analysis" required by 19 C.F.R. § 102.11, and the interim marking regulations, 19 C.F.R.Part 134, including § 134.35(b), which regulation excepts from country of origin marking a finished good where the processing of the imported good in the United States "would result in the finished good becoming a good of the United States under the NAFTA Marking...