Cpc Intern., Inc. v. U.S., Slip Op. 97-1.

• Decision Date: 06 January 1997
• Docket Number: Slip Op. 97-1.,Court No. 95-02-00144.
• Citation: 956 F.Supp. 1014
• Parties: CPC INTERNATIONAL, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

956 F.Supp. 1014

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

Slip Op. 97-1.

Court No. 95-02-00144.

United States Court of International Trade.

January 6, 1997.

Neville, Peterson, & Williams, New York City (John M. Peterson, George W. Thompson, Arthur K. Purcell & James A. Marino), for plaintiff.

Pillsbury Madison & Sutro, Menlo Park, CA (Lynn L. Miller), for The Pillsbury Company, amicus curiae in support of plaintiff.

Hogan & Hartson, L.L.P., Washington, D.C. (Timothy C. Stanceu and Scott M. Deutchman), for Grocery Manufacturers of America, Inc., amicus curiae in support of plaintiff.

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

Opinion and Order on Defendant's Motion for Rehearing

NEWMAN, Senior Judge:

INTRODUCTION

In this review of Headquarters Ruling Letter 557994 of October 25, 1994 ("HRL"), a preimportation ruling by the United States Customs Service ("Customs") reviewable by this court under 28 U.S.C. § 1581(h), defendant moves for rehearing of the court's order of remand of July 8, 1996, and reconsideration of the court's opinion, CPC International, Inc. v. United States, 933 F.Supp. 1093 (CIT 1996), pursuant to CIT Rule 59(a).

In January 1992, CPC sought a preimportation ruling from Customs that CPC would be the "ultimate purchaser" of Canadian-origin peanut slurry within the purview of the country of origin marking statute, 19 U.S.C. § 1304(a), as amended (§ 1304(a)), so that CPC's finished peanut butter sold under the tradename "Skippy," to be made in the United States in part from the Canadian slurry, would not require country of origin marking. After review of the HRL, the court's order of July 8, 1996 struck down as contrary to law Customs' Interim Regulation 19 C.F.R. § 134.35(a), effective January 1, 1994, implementing the North American Free Trade Agreement Implementation Act of 1993, Pub.L. No. 103-182, 107 Stat.2057-2225 (December 8, 1993), codified at 19 U.S.C. § 3311, et. seq. ("Implementation Act"). As implied by its name, the Implementation Act placed into force the North American Free Trade Agreement ("NAFTA") among the United States, Canada and Mexico. The genesis of 19 C.F.R. § 134.35(a) is briefly reviewed infra. This case was remanded to Customs for initial consideration of whether plaintiff's proposed manufacturing processes in the United States to make finished peanut butter would result in "substantial transformation" of the slurry under that test, as articulated in United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267, 1940 WL 4085 (1940) (Gibson-Thomsen), thus making CPC the "ultimate purchaser" of the Canadian slurry under the marking statute, 19 U.S.C. § 1304(a).

In accordance with defendant's motion under CIT Rule 62(b), the court has stayed the remand proceedings pending decision of the current motion for rehearing. Familiarity with the initial opinion and remand order is assumed herein.

While the court's initial opinion thoroughly addressed the issues raised up to that point, those issues have many aspects, the parties have made changes in their respective positions through the course of initial briefing, and defendant asserts that it did not previously have an opportunity to respond to new positions taken by plaintiff. Under all the facts and circumstances, including the complexity of the issues, the court believes that further analysis of the opposing arguments and amplification of the court's prior decision is warranted.

In addition to opposition papers submitted by CPC, memoranda in support of CPC's position and in opposition to defendant's motion were received from amici curiae The Pillsbury Company and Grocery Manufacturers of America, Inc.¹ in accordance with leave of court under CIT Rule 76. After extensive further consideration of the issues and in the light of the additional briefing, the court is persuaded that its initial conclusions are sound: notwithstanding the application of the NAFTA Marking Rules to except from marking a good of a NAFTA country processed in the United States so as to become a good of the United States, the pre-NAFTA Gibson-Thomsen or substantial transformation test of an ultimate purchaser under § 1304(a) remains an additional basis for exemption from marking of NAFTA goods. Accordingly, Interim Regulation § 134.35(a), which bars application of the statutory ultimate purchaser provision as construed in Gibson-Thomsen to NAFTA goods, is contrary to law. Consequently, the court denies defendant's motion for rehearing.

DISCUSSION

I.

Notwithstanding the undisputed validity of the exception from marking of NAFTA goods processed in the United States, based on the Marking Rules, the pre-NAFTA ultimate purchaser marking exception under 19 U.S.C. § 1304(a) as construed in Gibson-Thomsen also applies to NAFTA goods. Thus, in the HRL Customs erred in failing to consider whether CPC would be the "ultimate purchaser" of Canadian-origin peanut slurry under the Gibson-Thomsen test.

Shortly following the enactment of the NAFTA Implementation Act, and as authorized by the Act under 19 U.S.C. § 3314, for purposes of determining country of origin, and for other purposes, "Interim Regulations" were promulgated by Customs pursuant to T.D. 94-1 and 94-4 to implement the Act, and thereby, NAFTA.² The contested Interim Regulation 19 C.F.R. § 134.35(a) was promulgated under T.D. 94-1, 58 Fed. Reg. 69460 (December 30, 1993), and became effective January 1, 1994. That regulation restricts to non-NAFTA goods the application of the substantial transformation test as articulated in Gibson-Thomsen for determination of the "ultimate purchaser" within the purview of 19 U.S.C. § 1304(a).³

In Gibson-Thomsen, the Court of Customs and Patent Appeals invoked the well settled principle of "substantial transformation" for determining whether an importer of goods to be further processed in the United States is the "ultimate purchaser" of such goods within the purview of 19 U.S.C. § 1304(a), thus dispensing with the statute's marking requirements for the finished goods produced in the United States. The Gibson-Thomsen substantial transformation test, also now commonly referred to as the "traditional" test or "ultimate purchaser marking exception," had prior to NAFTA been followed in a long line of judicial authority and administratively codified in 19 C.F.R. § 134.35, which so far as pertinent, reads:

An article used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D.98) . Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. § 1304(a)), and the article will be excepted from marking * * *

In T.D. 94-1, Customs amended, inter alia, Part 134 of the Customs Regulations to implement the provisions of NAFTA Article 311 and Annex 311, as placed into force by § 207 of the NAFTA Implementation Act. NAFTA Annex 311:(1) provides for the promulgation of Marking Rules used for determining whether a good is a good of a Party (NAFTA country) for the purposes specified in paragraph 1 of Annex 311 of NAFTA; and (2) sets forth general marking principles pertaining to the methods and procedures relating to country of origin marking of such goods. Part 134 sets forth regulations, including a definition of "ultimate purchaser" implementing the country of origin marking requirements and exceptions of § 1304(a) as well as the NAFTA implementing provisions promulgated under T.D. 94-1. See 19 C.F.R. § 134.0 (Scope). For purposes of Part 134 of the regulations, the definition of the term "ultimate purchaser" references the substantial transformation test, or for a good of a NAFTA country, a process which results in one of the changes prescribed in the NAFTA Marking as effecting a change in the article's country of origin. See 19 C.F.R. § 134.1(d)(1).

Treas.Dec. 94-4, 59 Fed.Reg. 113, January 3, 1994, promulgated interim regulations, the most pertinent here being the so-called "Marking Rules" provided for under NAFTA Annex 311. Pursuant to T.D. 94-1, the specific Marking Rules for determining the country of origin of imported goods, i.e., when a good is a good of a Party for the purposes specified in paragraph 1 of Annex 311 of NAFTA, were promulgated under Part 102 of the Customs Regulations. Section 102.11 in Subpart B of Part 102, covers general rules, and § 102.20 covers the specific change in tariff classification, or "tariff shift," rules based on the Harmonized Tariff Schedule of the United States.

Turning specifically to the challenged Interim Regulation § 134.35(a), T.D. 94-1 amended pre-NAFTA 19 C.F.R. § 134.35 by: (1) restricting that regulation, as stated in the italicized preface, to "[a]rticles other than goods of a NAFTA country" and redesignating former § 134.35 as § 134.35(a); and (2) by adding a new paragraph (b), "to indicate that the NAFTA Marking Rules will be used to determine when a good of a NAFTA country which is to be further processed in the United States is excepted from country of origin marking requirements." T.D. 94-1, Customs Bulletin, Vol. 28, p. 6. Thus, except for the italicized preface of § 134.35(a) restricting the paragraph to non-NAFTA goods, the text of pre-NAFTA § 134.35 remained essentially unchanged in the amended interim regulation. As aptly pointed out by defendant, the challenged regulation, 19 C.F.R. § 134.35(a),...