Cummins Inc. v. U.S.

• Citation: 377 F.Supp.2d 1365
• Decision Date: 17 May 2005
• Docket Number: No. SLIP OP. 05-59.,No. 01-00073.,SLIP OP. 05-59.,01-00073.
• Parties: CUMMINS INCORPORATED,<SMALL><SUP>*</SUP></SMALL> Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

377 F.Supp.2d 1365

CUMMINS INCORPORATED,^* Plaintiff, v. UNITED STATES, Defendant.

No. SLIP OP. 05-59.

No. 01-00073.

United States Court of International Trade.

May 17, 2005.

Barnes, Richardson & Colburn, (Lawrence M. Friedman, David G. Forgue), Chicago, IL, for Plaintiff.

Peter D. Keisler, Assistant Attorney General, Barbara S. Williams, Attorney in Charge, International Trade Field Office; Beth C. Brotman, Attorney, Office of Assistant Chief Counsel, International Trade Litigation, U.S. Bureau of Customs and Border Protection, for Defendant, of counsel.

OPINION

POGUE, Judge.

This case presents the question of when, in the production of a diesel engine crankshaft ("crankshaft" or "import"), alloy steel becomes a crankshaft for tariff purposes. Plaintiff, Cummins Incorporated ("Cummins" or "Plaintiff"), challenges a decision of the United States Bureau of Customs and Border Protection ("Customs" or "Defendant"). Cummins asserts that its crankshafts were "semifinished products of other alloy steel" upon importation into Mexico, were transformed into crankshafts in Mexico, and therefore "originated" in Mexico thereby rendering them eligible for duty free treatment under the North American Free Trade Agreement ("NAFTA"). Customs avers that the crankshafts did not "originate" in Mexico and therefore are dutiable at 2.5 percent ad valorem.

Before the Court are cross-motions for summary judgment pursuant to USCIT Rule 56. Jurisdiction is predicated on 19 U.S.C. § 1515 (2000) and 28 U.S.C. § 1581(a). The Court concludes that Plaintiff's crankshafts did not originate in Mexico and accordingly grants Defendant's motion for summary judgment.

I. Background

A.

Cummins is a manufacturer and importer of crankshafts. The crankshafts in question started their journey in Brazil where they were forged from alloy steel into the general shape of a crankshaft by Krupp Metalurgica Campo Limpo ("Krupp").¹ Pl.'s Mem. Supp. Summ. J. at 7 ("Pl.'s Mem."). Thereafter, Cummins de Mexico, S.A. ("CUMMSA"), Plaintiff's wholly owned subsidiary, imported the products into Mexico where the they were subjected to additional operations.² Id. Upon importation into Mexico, Mexican authorities classified the crankshafts under heading 8483, Harmonized Tariff Schedule ("HTS"), as crankshafts. Pl.'s Resp. Ct.'s Questions of April 5, 2005 ("Pl.'s Resp. Ct.'s Quest.") at 9. From Mexico, Cummins imported the goods into the United States. Agreed Stmt. Facts at para. 44; see also id. at paras. 35, 43. At the time of entry into the United States, as both parties agree, the products were classifiable under subheading 8483.10.30 of the Harmonized Tariff Schedule of the United States ("HTSUS") which covers "[t]ransmission shafts (including camshafts and crankshafts) and cranks...."³ Id.

Pursuant to the United States' tariff laws, products imported from Mexico and Canada are eligible for preferential duty treatment if the goods "originate in the territory of a NAFTA party[.]" General Note 12(a)(ii), HTSUS; see also 19 U.S.C. § 3332 (2000). One way a product may originate in the territory of a NAFTA party is if it is "transformed in the territory" of a NAFTA party.⁴ General Note 12(b)(ii), HTSUS. As is relevant in this case, one way the HTSUS defines "transformed in the territory" of a NAFTA party is a "change in tariff classification," General Note 12(b)(ii)(A), HTSUS, "to subheading 8483.10 from any other heading," General Note 12(t)/84.243(A), HTSUS; see also Pl.'s Mem. at 11 n. 7. Therefore, as agreed to by both parties, in order for Plaintiff's crankshafts to have originated in Mexico, the crankshafts must not have been classifiable under subheading 8483.10, HTSUS, when they entered Mexico.

Cummins asserts that its crankshafts did undergo this tariff shift in Mexico because its crankshafts were classifiable under heading 7224, HTSUS, upon entry into Mexico. More specifically, Cummins contends that its products, upon entry into Mexico, were "semifinished products of other alloy steel" under heading 7224, HTSUS, because the forgings had not been "further worked" but were only "roughly shaped by forging."

B.

The tariff laws of the United States are generally codified in the HTSUS. The HTSUS is predicated on the HTS which was the culmination of an international effort to create a single commodity coding system (tariff classification system) across nations. See Faus Group v. United Sates, 28 CIT ___, ___, 358 F.Supp.2d 1244, 1247 n. 5 (2004). Two of the harmonized system's essential purposes are to (1) facilitate the computation of trade statistics and (2) establish a standard product descriptor to provide a basis for trade concessions and predictability for international commerce. See GATT, Analytical Index: Guide to GATT Law and Practice 101 (6th ed.1994). Under the Harmonized Tariff Schedule, products are defined to a certain level of specificity (the six-digit level) at the international level. See U.S. Customs & Border Prot., What Every Member of the Trade Community Should Know About: Tariff Classification 10 (2004). Nonetheless, each nation, including the United States, reserves the right to establish further subdivisions (beyond the six-digit level). Id. at 11.⁵ In this case, the competing provisions are both set at the international level.

To resolve interpretative disputes that arise when many nations employ the same tariff schedule and to adapt the Schedule to the ever evolving array of products, the member states to the HTS created the World Customs Organization ("WCO")⁶ to issue classification opinions, draft and update explanatory notes, and recommend amendments to the HTS itself. Id. at 9, 26-29. The United States has acceded to all these terms. Under 19 U.S.C. § 3005(a), Congress empowered the International Trade Commission to:

[K]eep the Harmonized Tariff Schedule under continuous review and periodically, at such time as amendments to the Convention are recommended by the Customs Cooperation Council for adoption, and as other circumstances warrant, shall recommend to the President such modifications in the Harmonized Tariff Schedule as the Commission considers necessary or appropriate —

(1) to conform the Harmonized Tariff Schedule with amendments made to the Convention;

(2) to promote the uniform application of the Convention and particularly the Annex thereto;

(3) to ensure that the Harmonized Tariff Schedule is kept up-to-date in light of changes in technology or in patterns of international trade;

(4) to alleviate unnecessary administrative burdens; and

(5) to make technical rectifications.

Upon these recommendations, Congress granted the President authority to:

[P]roclaim modifications ... to the Harmonized Tariff Schedule if the President determines that the modifications —

(1) are in conformity with United States obligations under the convention; and

(2) do not run counter to the national economic interest of the United States.

19 U.S.C. § 3006. Lastly, Congress authorized the Treasury Department, Commerce Department, and the International Trade Commission to establish procedures to ensure "that the dispute settlement provisions and other relevant procedures available under the Convention are utilized to promote the United States export interests" and to submit "classification questions to the Harmonized System Committee of the Customs Cooperation Council." 19 U.S.C. § 3010(b)(2)(C). From this brief survey of the statutory landscape it is clear that Congress intended, in large measure, to harmonize United States tariff classifications with the recommendations of the WCO.

C.

This is not the first time the Court has been called upon to address whether Cummins' crankshafts underwent a tariff shift in Mexico: In Cummins Engine Co. v. United States, 23 CIT 1019, 83 F.Supp.2d 1366 (1999) ("Cummins I"), the Court denied Plaintiff's contention that its crankshafts underwent the requisite tariff shift. Following that opinion, Cummins filed for an amended advanced ruling letter with one variation in the facts stated in Cummins I.⁷ Relying, in part, on the Court's decision in Cummins I, Customs maintained that, despite the changes to its manufacturing process, Cummins' crankshafts still did not "originate" in Mexico.

In formulating this analysis, Customs submitted the question to the WCO. See Classification of Certain Forgings for Crank Shafts, Doc. NC0317E1 (Oct. 10, 2000) ("Certain Forgings"). After a formal review, the WCO issued a classification opinion which was approved by the member states 31 to 1. Id., see also Decisions of the Harmonized System Committee, Annex H/9 to Report to the Customs Co-operation Council of the Twenty-Sixth Session of the Harmonized System Committee, Doc. NC0340E2 (Nov. 24, 2000) ("WCO Decision"); Amendments to the Compendium of Classification Opinions Arising from the Classification of Certain Forgings for Crank Shafts in Subheading 8483.10, Doc. NC0379E1 at para. 2 (March 8, 2001). The classification opinion determined that the crankshafts were properly classifiable under heading, 8483, HTS and not heading 7224, HTS. Amendments to the Compendium of Classification Opinions Arising from the Classification of Certain Forgings for Crank Shafts in Subheading 8483.10, Doc. NC0379E1 at para. 2 (March 8, 2001). The WCO also found the text sufficiently clear on this issue and recommended no amendment to text of the HTS.⁸ See WCO Decision. Therefore, as this case stands, Mexico's Customs authority (Aduana México),⁹ Customs, and the WCO maintain that the crankshafts in question were not classifiable under heading 7224, HTS, as argued by Cummins, when they entered Mexico.

Following the publication of Customs' advanced ruling letter, Cummins began to import its crankshafts into the United States. Customs assessed the crankshafts a duty rate applicable to products that did not originate in a NAFTA party. Cummins now seeks review of that assessment.¹⁰

II. Standard of Review

Both parties have moved...