EM Chemicals v. US
| Decision Date | 30 October 1989 |
| Docket Number | Court No. 85-11-01610. |
| Citation | 728 F. Supp. 723 |
| Parties | E.M. CHEMICALS, Plaintiff, v. UNITED STATES, Defendant. |
| Court | U.S. Court of International Trade |
Freeman, Wasserman & Schneider, Philip Yale Simons and Jerry P. Wiskin, New York City, for plaintiff.
Stuart E. Schiffer, Acting Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civ. Div. U.S. Dept. of Justice; and Karen P. Binder, New York City, U.S. Customs Service, of counsel, for defendant.
The Customs Service classified imported liquid crystals used in liquid crystal displays as "chemical mixtures" under item 407.16 TSUS. Plaintiff protested this classification, claiming the liquid crystals are finished commercial parts used exclusively in the manufacture of liquid crystal displays, thus qualifying as parts of "indicator panels or other visual signalling apparatus" under item 685.70 TSUS. Held: Plaintiff has overcome the presumption of correctness of the government's classification; liquid crystals are properly classified under item 685.70 TSUS.
Plaintiff E.M. Chemicals (now EM Industries; hereinafter "EM") challenges the tariff classification of liquid crystals imported from England and West Germany during the years 1982 and 1983. All of the merchandise in issue was classified by the U.S. Customs Service as chemical mixtures. EM contests that classification, claiming the liquid crystals are properly classified as "parts of indicator panels or other visual signalling apparatus." Defendant United States has asserted an alternative classification with respect to three of the imported liquid crystals.
The relevant tariff provisions are as follows:
Classified Under
Schedule 4. Chemicals and Related Products
Part 1, Subpart B.—Industrial Organic Chemicals
* * *
Mixtures in whole or in part of any of the
products provided for in this subpart
* * *
407.16 Other ................ 1.7 cents per pound +
13.6% ad valorem
Defendant's Alternative Classifications of CB-15, M-30
and K-15
Cyclic organic chemical products in any physical
form having a benzenoid, quinoid, or modified benzenoid
structure, not provided for in subpart A or C
of this part
* * *
Other:
405.60 Products provided
for in the Chemical
Appendix to
the Tariff Schedules..... 0.1 cents per pound
+ 20.5% ad valorem
405.62 Other ........................ 13.5% ad valorem
Plaintiff's Claimed Classification:
Schedule 6. Metals and Metal Products.
Part 5. —Electrical Machinery and Equipment.
* * *
685.70 Bells, sirens, indicator panels, burglar and fire
alarms, and other sound or visual signalling
apparatus, all the foregoing which are electrical
and parts thereof............. 3.4% ad valorem
Insofar as no genuine issue of material fact exists, the parties' cross-motions for summary judgment can be disposed of upon resolution of the issue of law presented: whether nematic liquid crystals, as imported, are classifiable under item 685.70 TSUS as parts of "indicator panels or other visual signalling apparatus," or under item 407.16 TSUS as "other chemical mixtures."
At the time of importation, liquid crystals were used exclusively in the manufacture of various LCD's.1 Liquid crystals have properties of both fluids and solids, although they also possess properties that are not found in either fluids or solids.
The liquid crystals at issue here are nematic, which respond to an electric field by randomly "twisting" along their axes, thereby changing their optical properties. To stabilize this random twisting, thus enhancing the commercial usefulness of nematic liquid crystals, a "twist agent"2 is added.3 Nematic liquid crystals are commonly found in watches, calculators, gasoline pumps, paging devices, telephones, toys, and scientific and medical equipment.
The manufacture of commercial liquid crystals begins with the synthesis of individual compounds, described by EM as:
often involving 10 or more steps ... the synthesis of individual compounds involves the chemical reaction of precise amounts of the appropriate chemical reagents at elevated temperature under nitrogen pressure, and, then, purification of the compound by vacuum distillation ... thus providing the capability to adjust the chosen physical property over a wide range whilst keeping all other properties essentially constant. Plaintiff's Brief at 7 (citing Allan Declaration, Exhibit C).
This allows EM to produce a commercial product with specific physical properties suitable for use in a particular LCD.
The finished LCD is comprised of a specific amount of liquid crystal sandwiched between two "plates," one of which must be transparent. The other may be transparent or serve as a backing mirror. Each plate has the electronic connections necessary to activate the liquid crystals. The configuration of the electronics depends upon the application of the display. Using polarizers above and below the liquid crystal sandwich, light is passed or blocked, in orchestration with the molecular orientation of the crystals, causing alphanumeric or other characters to be "displayed."
A presumption of correctness attaches to a classification by the U.S. Customs Service; to overcome the presumption, the importer must demonstrate the government's classification is incorrect, or persuade the court of the merits of a better classification. 28 U.S.C. § 2639(a)(1). See Stewart-Warner Corp. v. United States, 748 F.2d 663 (Fed.Cir.1984); Jarvis Clark v. United States, 733 F.2d 873 (Fed.Cir.1984); Schott Optical Glass, Inc. v. United States, 11 CIT 899, 678 F.Supp. 882 (1987). The government argues their classification of the liquid crystals as chemical mixtures should be upheld, with the exception of crystals CB-15, K-1 and M-30, these being properly classified under the claimed alternatives of items 405.60 and 405.62 TSUS. EM asserts the liquid crystals are not utilized for any of their chemical properties, thus necessitating their removal from the chemical schedule, nor are they a mere mixture of chemicals. The liquid crystals represent finished commercial products that have undergone substantial processing to prepare them for use in LCD's, and have no other use but as parts of LCD's. Therefore, since LCD's are analogous to indicator panels, EM maintains the liquid crystals should be classified as parts of indicator panels or other visual signalling apparatus.
The Court finds EM's argument persuasive, and holds that the importer EM has overcome the presumption of correctness of the government's classification (excepting, of course, the three crystals which the government initially misclassified, to which no presumption of correctness attaches). The better classification for the nematic liquid crystals at issue is under item 685.70 TSUS, and the government's alternative classifications are rejected.
The government's claim that Tomoegawa USA, Inc. v. United States, 12 CIT ___, 681 F.Supp. 867 (1988), mandates classification of liquid crystals under Schedule 4 is unconvincing. Because certain photographic chemicals — utilized for their electrostatic, rather than chemical, properties—were classified under Schedule 4 in Tomoegawa, the government argues that so too must liquid crystals — utilized for their physical, rather than chemical, properties — fall under the chemical schedule.
Such an argument ignores the critical fact that in Tomoegawa, the importer tried to equate the merchandise with an item (ink) specifically provided for in the tariff schedules. The essential ingredient (liquid) for that specific item was missing from the imported merchandise, and the government's classification prevailed. Here, the question is quite different; no specific designation for liquid crystals exists in the Tariff Schedules (as it did for ink), and the court must determine the correct classification as a matter of law. Thus, the utilization of liquid crystals for their physical, rather than their chemical, properties demands their removal from the chemical schedule.
In addition, liquid crystals more closely resemble manufactured commercial products than chemical mixtures. In Pharmacia Laboratories, Inc. v. United States, 66 Cust.Ct. 202, C.D. 4190 (1971), the court held Sephadex, a synthetic gel formed by a chemical mixture of polysaccharide dextran and epichlorohydrin, to be "made by a number of steps which can be designated as a manufacturing process and that it is, as the end result of such a process, a manufactured commodity," id. at 207, and rejected the importer's claim that the merchandise was a chemical mixture. See also Phillip Bros. Ore Corp. v. United States, 45 Cust.Ct. 64, C.D. 2199 (1960).
Additionally, in United States v. Shell Oil, Inc., 44 CCPA 54, C.A.D. 637 (1957), the court rejected the government's claim that "Teepol," a product used principally as a detergent, should be classified as a chemical compound or mixture. Relying on lexicographic definitions of "mixture" and "compound," the court held the import was "not produced by a mere mixing of its ingredients but by an elaborate process ... and may include different chemical compounds in relatively close association." id. at 59. Thus, Teepol was classified as a manufactured item, not specially provided for.
Similarly, liquid crystals are formed by complex chemical processes, rather than a mere mixing. Various chemical compounds form a discrete, identifiable product that can be utilized in differing proportions and combinations to produce an assortment of LCD's, depending on the physical properties required in each display. As such, liquid crystals...
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