Cpc Intern., Inc. v. U.S., Slip Op. 97-97.

• Citation: 971 F.Supp. 574
• Decision Date: 14 July 1997
• Docket Number: Slip Op. 97-97.,Court No. 95-02-00144.
• Parties: CPC INTERNATIONAL, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

971 F.Supp. 574

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

Slip Op. 97-97.

Court No. 95-02-00144.

United States Court of International Trade.

July 14, 1997.

Neville, Peterson & Williams (John M. Peterson, New York City, George W. Thompson, and Arthur K. Purcell, Miami, FL), for plaintiff.

Frank W. Hunger, Assistant Attorney General; David M. Cohen, Director, Commercial Litigation Branch; Jeffrey M. Telep, Civil Division, U.S. Department of Justice; Sandra Gethers and David Cohen, Washington, DC, Office of Regulations and Rulings, United States Customs Service, for defendant.

OPINION AND ORDER AFFIRMING REMAND RULING

NEWMAN, Senior Judge.

I. Introduction

This case involves a challenge by plaintiff, pursuant to the court's jurisdiction under 19 U.S.C. § 1581(h), to a United States Customs Service ("Customs") preimportation ruling. Customs Headquarters Ruling Letter 557994, dated October 24, 1994 ("HRL"), ruled adversely to CPC's claimed exemption from country of origin marking of CPC's "Skippy" brand peanut butter, which product would contain a blend of Canadian-origin, as well as domestic, peanut slurry among other ingredients.

In its HRL denying exemption from marking, Customs invoked solely the Marking Rules (19 C.F.R. Part 102) and other 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 (Dec. 27, 1993) ("the NAFTA Implementation Act"). The NAFTA Implementation Act approved and entered into force the North American Free Trade Agreement ("NAFTA"), effective January 1, 1994. Specifically, Customs ruled that under the interim regulations, CPC's retail containers of "Skippy" peanut butter 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 disclose the Canadian-origin peanut slurry content of the product.

Customs' ruling, however, failed to also address the long-standing exception to country of origin marking claimed by plaintiff under the "ultimate purchaser" provision of 19 U.S.C. § 1304(a) and 19 C.F.R. § 134.35(a)(1985). Specifically, the issue raised by plaintiff was whether it could be deemed to be the "ultimate purchaser" of the Canadian-origin peanut slurry by applying the traditional change of name, character, or use test of substantial transformation as articulated in the oft-cited United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267, C.A.D. 98, 1940 WL 4085 (1940) ("Gibson-Thomsen"), which issue was not addressed in the HRL.

In an opinion and order of July 8, 1996, this court agreed with plaintiff that Customs' HRL was contrary to law in that, in addition to the exemptions under the hierarchical analysis and Marking Rules prescribed for NAFTA goods under Customs' Interim Regulations, Customs was, notwithstanding NAFTA Interim Regulation 19 C.F.R. § 134.35(a),¹ required to determine whether CPC's finished peanut butter would be exempted from country of origin marking under the Gibson-Thomsen substantial transformation test of an ultimate purchaser under 19 U.S.C. § 1304(a). Consequently, the ruling was remanded to Customs. CPC International, Inc. v. United States, 933 F.Supp. 1093 (CIT July 8, 1996), rehearing denied, 956 F.Supp. 1014 (CIT Jan. 6, 1997).² Customs was instructed to determine on remand "whether plaintiff would be the ultimate purchaser of Canadian-origin slurry under 19 U.S.C. § 1304(a) in accordance with the Gibson-Thomsen substantial transformation factors." Id., 933 F.Supp. at 1106.

In compliance with this court's remand order, Customs has, based upon the facts of record, considered the issues raised under the ultimate purchaser provision in § 1304(a) and issued its Remand Ruling, Customs Headquarters Ruling 559965, dated January 24, 1997 ("Remand Ruling"). The parties have submitted briefs in response to the new ruling.³

Citing the Gibson-Thomsen factors and following the substantial transformation analysis of National Juice Products Association v. United States, 10 CIT 48, 628 F.Supp. 978 (1986), Customs determined in its Remand Ruling that, contrary to plaintiff's contention, plaintiff would not be the ultimate purchaser of the Canadian-origin peanut slurry because the slurry would not become "a new and different article having a new name, character or use" when mixed with U.S. origin peanut slurry and other ingredients to produce "Skippy" brand peanut butter. Thus, the Remand Ruling states:

Peanut slurry imported from Canada and processed into peanut butter in the U.S. in the manner described * * * will not result in the substantial transformation of the imported peanut slurry. Accordingly, the retail consumer is deemed to be the ultimate purchaser of the imported article pursuant to 19 U.S.C. 1304, and the retail container of the peanut butter must be marked to indicate its Canadian content. The Customs Service has no objection to the marking also identifying the U.S. content, but that is a matter within the jurisdiction of the [Federal Trade Commission].

Remand Ruling at 9.

Plaintiff maintains that the Remand Ruling is arbitrary, capricious, an abuse of discretion, and not otherwise in accordance with law. Briefly, the thrust of plaintiff's position is that "[u]nrefuted evidence on the administrative record before Customs indicates not only that the imported slurry loses its separate identity by being blended after importation with a far greater quantity of domestic slurry, but also that the combined mass undergoes chemical reactions which work significant and irreversible changes in its physical and chemical structure." Thus, insists plaintiff, "[t]he finished peanut butter has a different name, character and use than the imported slurry used as a minor ingredient in its manufacture." Pltf's Br. at 2-3.

II. Facts of Record

Customs, as it must, based its Remand Ruling regarding the substantial transformation issue substantially on the facts presented by plaintiff to Customs as part of the administrative record of a preimportation ruling:

CPC will import shelled peanuts from an unspecified country into Canada where they will be roasted, blanched, split, and ground up in a primary mill into a "gritty paste" also known as a slurry. The slurry will be imported into the United States in tank wagons. You state that the imported slurry will not be commercially suitable for sale as "peanut butter" since it lacks the smooth and creamy character and flavor which consumers typically associate with peanut butter. You also note that the imported slurry has a very short shelf life. Subsequent to importation, the slurry is removed from the tank truck, placed into a holding kettle, and heated to a temperature of approximately 120-150 degrees Fahrenheit. The slurry is then mixed to achieve uniform dispersion of the oils. This is done because the solid materials may separate during transit. At this stage, you describe the slurry as coarse, gritty, oily, and bland.

Next, the slurry is mixed with a ground slurry prepared from shelled United States-origin peanuts which have been roasted, blanched, split, and subjected to a primary grind in the United States. The slurries are then pumped together into a surge kettle and mixed together. According to your estimates, the ratio of Canadian-origin slurry will generally account for between 10 and 40 percent of the entire mixture. The mixed slurry is then sent to an ingredient station.

At this station, additives are injected into the slurry mixture in a trough and the materials are then pumped into a mixing kettle where the slurry is heated to between 150 and 165 degrees Fahrenheit and mixed thoroughly. You state that the added ingredients are extremely important in determining the final taste and character of the peanut butter. These ingredients include salt, sweeteners (dextrose and sucrose), peanut oil, and stabilizers (a blend of rapseed, cottonseed, and soybean oils) which are designed to react with the slurries to produce chemical changes in the finished product. In certain instances, specialty flavorings may also be added.

The product is then pumped through heat exchanqers to cool the mixture down in preparation for milling. The liquid is then pumped through two successive size reduction mills which further break up the peanut particles. Following these grinding operations, the product is no longer gritty, but is of a smooth consistency. The smooth peanut butter mixture is pumped to a vacuum kettle removing the remaining air in the product. Once this degassing is accomplished, the product is cooled to a temperature of 92 degrees Fahrenheit. This cooling triggers the formation of fat crystal structures which gives the product the smooth consistency typical of commercially available peanut butter products. You state that the formation of these fat crystals is the essential characteristic of a peanut butter as compared to a peanut slurry. While the peanut butter is still soft, the peanut butter is pumped into retail jars, sealed, and stored in a warehouse for at least 24 hours to permit further cooling and to allow the product's texture to solidify. After this processing, the product will have a long shelf life (in excess of 12 months).

In addition to the foregoing facts submitted by plaintiff, apparently relying on facts within the realm of common knowledge, Customs observed in its remand ruling that prepackaged peanuts that are roasted, blanched, split and ground into a paste (viz., peanut slurry) are commercially marketed at retail as "old fashioned peanut butter" or "natural peanut butter."

III. Standard of Review

As was the standard of review for the...