Cummins Inc. v. U.S.

• Decision Date: 17 July 2006
• Docket Number: No. 05-1482.,05-1482.
• Citation: 454 F.3d 1361
• Parties: CUMMINS INCORPORATED (formerly known as Cummins Engine Company), Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1361

454 F.3d 1361

CUMMINS INCORPORATED (formerly known as Cummins Engine Company), Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 05-1482.

United States Court of Appeals, Federal Circuit.

July 17, 2006.

Lawrence M. Friedman, Barnes, Richardson & Colburn, of Chicago, Illinois, argued for plaintiff-appellant. With him on the brief were David G. Forgue and Ilya A. Bakke.

Barbara S. Williams, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice, of New York, New York, argued for defendant-appellee. With her on the brief were Peter D. Keisler, Assistant Attorney General, and David M. Cohen, Director, of Washington, DC. Of counsel on the brief was Beth C. Brotman, Office of Assistant Chief Counsel, International Trade Litigation, United States Customs and Border Protection, of New York, New York.

Before NEWMAN, MAYER, and RADER, Circuit Judges.

MAYER, Circuit Judge.

Cummins Inc. appeals the United States Court of International Trade's grant of summary judgment, which held that the crankshafts imported by Cummins into the United States did not originate in Mexico and were not entitled to preferential treatment under the North American Free Trade Agreement ("NAFTA"). Cummins Inc. v. United States, 377 F.Supp.2d 1365 (Ct. Int'l Trade 2005). We affirm.

Background

Under the United States' tariff laws, products that "originate in the territory of a NAFTA party" are entitled to preferential duty treatment. General Note 12(a)(ii), Harmonized Tariff Schedule of the United States ("HTSUS"); see also 19 U.S.C. § 3332 (2000). One way a product may so originate is if it is "transformed in the territory" of a NAFTA party. General Notes 12(b)(i)-(iv), HTSUS. One manner in which a good can be transformed, as is relevant to this case, is by undergoing a "change in tariff classification" "to subheading 8483.10 from any other heading." General Notes 12(b)(ii)(A), 12(t)/84.243(A), HTSUS. Here, Cummins contends that the crankshafts it imports into the United States undergo such a tariff shift in Mexico from heading 7224 to subheading 8483.10.30, and are thereby entitled to preferential duty treatment.

The facts surrounding the production of the crankshafts are undisputed. Production begins in Brazil, where Krupp Metalurgica Campo Limpo creates a forging having the general shape of a crankshaft. This forging is created from a closed-die forging process, which involves forging alloy steel between matrices. After forging, the excess material that was squeezed out of the matrices, called "flash," is removed by a process called trimming. The trimming is done on a separate machine within approximately ten seconds of the forging press operation. Because the process of trimming can distort the forging, the forging is then coined. Coining involves applying pressure to the forging, which is still hot and malleable, in a closed die. After coining, the forging is subjected to shot blasting. Shot blasting uses abrasive particles to strike the surface of the forging to remove dirt and oxide from its surface. The forging is then cooled, and its ends are milled so that it can be securely clamped into machines in Mexico for final machining operations. The last manufacturing process performed in Brazil is mass centering, in which the forging's center of balance is determined and locator center points are machined into each end.

After these processes are performed in Brazil, the forging is imported into Mexico by Cummins de Mexico, S.A. ("CUMMSA"), a wholly owned subsidiary of Cummins. As imported, the forging has the general shape of, but cannot yet function as, a crankshaft. After importation into Mexico, CUMMSA performs at least fourteen different steps on the forging that cover over 95% of its surface area resulting in a useable crankshaft, which Cummins imports into the United States. It is undisputed that the crankshaft imported into the United States is classifiable under subheading 8483.10.30 of the HTSUS, which covers "[t]ransmission shafts (including camshafts and crankshafts) and cranks . . . ."

The Court of International Trade addressed nearly identical facts in an earlier case involving the same crankshafts. Cummins Engine Co. v. United States, 83 F.Supp.2d 1366 (Ct. Int'l Trade 1999) ("Cummins I"). The crankshaft manufacturing process there was nearly identical to the one here, except that a grease pocket was milled into the forging in Brazil. The court held that machining the grease pocket in Brazil precluded classification under heading 7224 upon importation in Mexico, because it was further working the product beyond roughly shaping it by forging.

After Cummins I, Cummins filed for an amended advance ruling letter from the United States Customs and Border Protection ("Customs"), based on the grease pocket being machined in Mexico instead of Brazil. Despite the change in the manufacturing process, Customs determined that the crankshafts did not originate in Mexico. Crankshafts Processed in Mexico from Forgings of Brazilian Origin; Originating Goods Under NAFTA, Ruling 964019 (Dec. 13, 2000). Prior to issuing its decision, Customs submitted the question to the World Customs Organization ("WCO"), which issued a classification opinion, approved by the member states 31 to 1, determining that the proper classification of the forgings imported into Mexico was under heading 8483, not heading 7224. Classification of Certain Forgings for Crank Shafts, Doc. No. NC0317E1 (Oct. 10, 2000), available at Amendments to the Compendium of Classification Opinions Arising from the Classification of Certain Forgings for Crank Shafts in Subheading 8483.10, Doc. No. NC0379E1 at 3 (March 8, 2001). However, Customs did not expressly rely upon the WCO decision in denying Cummins preferential treatment.

In response to Customs' advance letter ruling, Cummins filed an action in the Court of International Trade under 28 U.S.C. § 1581(h).¹ While that action was pending, Cummins imported into the United States a test shipment of three finished crankshafts marked as originating in Mexico, which Customs classified under subheading 8483.10.30, HTSUS. Cummins protested this classification, arguing that the proper classification was (MX)8483.10.30.² After protesting Customs' classification of the test shipment, Cummins filed an action under 28 U.S.C. § 1581(a). The trial court consolidated the two actions, but later found the section 1581(h) action moot in light of the one under section 1581(a).

The court determined on summary judgment that the articles imported into Mexico were properly classified under subheading 8483.10.30, not heading 7224, and accordingly did not undergo a tariff shift and were not entitled to preferential treatment under NAFTA. Cummins appeals the trial court's grant of summary judgment, and we have jurisdiction under 28 U.S.C. § 1295(a)(5).

Discussion

We review the trial court's grant of summary judgment on tariff classifications de novo. Gen. Elec. Co. — Med. Sys. Group v. United States, 273 F.3d 1070, 1071 (Fed. Cir.2001) (citation omitted). A classification decision involves two underlying steps: determining the proper meaning of the tariff provisions, which is a question of law; and then determining which heading the disputed goods fall within, which is a question of fact. Universal Elecs. v. United States, 112 F.3d 488, 491 (Fed.Cir.1997) (citing Intel Sing., Ltd. v. United States, 83 F.3d 1416, 1417-18 (Fed.Cir.1996)). However, when the nature of the merchandise is undisputed, as it is here, the classification issue collapses entirely into a question of law. Gen. Elec. Co., 273 F.3d at 1071 (citing Bausch & Lomb. Inc. v. United States, 148 F.3d 1363, 1366 (Fed.Cir. 1998)). Although our review is de novo, we accord deference to a Customs' classification ruling in proportion to its "power to persuade" under the principles of Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). United States v. Mead Corp., 533 U.S. 218, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001); Mead Corp. v. United States, 283 F.3d 1342, 1345-46 (Fed.Cir.2002) (citations omitted). In addition, "Customs' relative expertise in administering the tariff statute often lends further persuasiveness to a classification ruling, entitling the ruling to a greater measure of deference." Mead Corp., 283 F.3d at 1346.

It is undisputed that the crankshafts imported into the United States are properly classified under subheading 8483.10.30. The disputed issue is whether the crankshafts undergo a tariff shift in Mexico. That is, do the crankshafts enter Mexico under a different tariff heading than they leave Mexico? The trial court concluded that the crankshafts do not undergo a tariff shift as they are classified under subheading 8483.10.30 upon import into and export out of Mexico. Cummins contends that this classification was error, and the proper classification of the product upon import into Mexico is under heading 7224, which covers "[o]ther alloy steel in ingots or other primary forms; semifinished products of other alloy steel."

"The General Rules of Interpretation (GRI) govern the classification of goods within the HTSUS." Hewlett-Packard Co. v. United States, 189 F.3d 1346, 1348 (Fed.Cir.1999). Under GRI 1, the classification "shall be determined according to the terms of the headings and any relevant section or chapter notes." As noted above, Cummins contends that the goods imported into Mexico are properly classified as "semifinished products of other alloy steel" under heading 7224. Chapter 72's notes expressly define "semifinished," in pertinent part, as "products of solid section, which have not been further worked than . . . roughly shaped by forging, including blanks for angles, shapes or sections." Chapter 72, Note 1(ij), HTSUS. Thus, if the product imported into Mexico has been further worked beyond being roughly shaped by forging, it...