Ferrostaal Metals Corp. v. US

• Decision Date: 26 June 1987
• Docket Number: Court No. 86-12-01610.
• Citation: 664 F. Supp. 535
• Parties: FERROSTAAL METALS CORPORATION, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

664 F. Supp. 535

FERROSTAAL METALS CORPORATION, Plaintiff, v. UNITED STATES, Defendant.

Court No. 86-12-01610.

United States Court of International Trade.

June 26, 1987.

Baker & McKenzie (William D. Outman, II, B. Thomas Peele and Thomas P. Ondeck), Washington, D.C., for plaintiff.

Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Civ. Div., Dept. of Justice, New York City, for defendant.

Memorandum Opinion and Order

DiCARLO, Judge:

The question presented in this case is whether plaintiff's importation of steel sheet which has been annealed and galvanized in New Zealand by a process known as "continuous hot-dip galvanizing" using full hard cold rolled steel sheet from Japan is covered by the Arrangement Between the Government of Japan and the Government of the United States of America Concerning Trade in Certain Steel Products ("Arrangement"). The Court holds that the merchandise is not covered by the Arrangement since the operations performed in New Zealand constituted a substantial transformation of the Japanese full hard cold rolled steel sheet.

I

Plaintiff entered merchandise at the Port of Seattle on July 17, 1986, August 26, 1986 and September 19, 1986 consisting of unpainted galvanized steel sheet galvanized in New Zealand by the continuous hot-dip galvanizing process, and painted galvanized steel sheet galvanized and painted by coilcoating in New Zealand. The material which was subjected to the continuous hot-dip galvanizing process to produce the galvanized (or galvanized and painted) steel sheet was full hard cold-rolled steel sheet from Japan. Plaintiff's entry documents identified New Zealand as the exporting country and the country of origin.

On October 24, 1986, the District Director of Customs at the Port of Seattle issued a notice of redelivery requiring redelivery of the entered merchandise unless plaintiff furnished Customs a Japanese export certificate issued pursuant to the Arrangement. The notice of redelivery was based on a ruling issued by Customs on August 25, 1986 that continuous hot-dip galvanizing, with or without painting, is not a process that results in a substantial transformation so as to change the country of origin of full hard cold-rolled steel sheet.

On November 26, 1986, approximately one month after issuance of its Notice of Redelivery, plaintiff filed a timely protest contesting issuance of the notice. Attached to the protest was a 17-page memorandum detailing plaintiff's argument that the steel sheet was not covered by the Arrangement since it had been substantially transformed in New Zealand. The protest was denied on December 2, 1986 on the basis of the earlier customs ruling.

Plaintiff filed a summons and a complaint setting forth a claim under section 515 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1515 (1982), contesting the denial of the protest and the administrative decision of Customs as applied to the protested entries. Plaintiff simultaneously moved for an order to show cause why a preliminary injunction should not issue (1) to permit, free of any requirement of export certificates, entry and delivery to its United States customers of steel sheet which had arrived in or was en route to the United States before plaintiff learned of the applicable customs ruling, and (2) to permit, free of any requirement of export certificates, entry and sale of the subject merchandise during the pendency of this action. Jurisdiction was alleged under 28 U.S.C. §§ 1581(a) and (i).

At oral argument on the motion for a preliminary injunction, plaintiff offered proof that the merchandise was susceptible to corrosion and argued that the customs ruling effectively prevented plaintiff from delivering similar merchandise en route to the United States and merchandise subject to other protests not yet denied and incapable of review under section 1581(a). The Court did not issue an injunction, however, on the ground that the injunction would grant the ultimate relief sought by plaintiff. The Court consolidated the motion with the trial on the merits and ordered expedited review. Trial was held from March 9 through March 12, 1987, and briefing was completed on June 10, 1987.

II

This case is one which comes within the exclusive jurisdiction of the Court under 28 U.S.C. § 1581(a) (1982), which covers "any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930 19 U.S.C. § 1515." Section 1515 authorizes the review of protests filed under section 1514 challenging "decisions of the appropriate customs officer, including the legality of all orders and findings entering the same, as to — ... (4) the exclusion of merchandise from entry or delivery or a demand for redelivery to customs custody under any provision of the customs laws...." 19 U.S.C. § 1514(a)(4) (1982). Thus, the customs ruling forming the basis for the issuance of the notice of redelivery is subject to review in this action under section 1581(a). Under 28 U.S.C. § 2640(a)(1) the present case is a de novo proceeding, and the decision of the customs official at issue is presumed to be correct under 28 U.S.C. § 2639(a)(1).

The Court declines to exercise jurisdiction under 28 U.S.C. § 1581(i), the so-called residual jurisdiction of the Court. The Court exercises jurisdiction under section 1581(i) rarely, such as when the relief available in an action brought under section 1581(a) would be manifestly inadequate or when necessary because of special circumstances to avoid extraordinary and unjustified delays caused by the exhaustion of administrative remedies. Lowa, Ltd. v. United States, 5 CIT 81, 561 F.Supp. 441 (1983), aff'd, 724 F.2d 121 (Fed.Cir.1984). United States Cane Sugar Refiners' Ass'n v. Block, 3 CIT 196, 544 F.Supp. 883, aff'd, 69 CCPA 172, 683 F.2d 399 (1982); Springfield Industries Corp. v. United States, 11 CIT ___, 655 F.Supp. 506 (1987).

There is no futility in exhausting administrative remedies where the protest challenges a substantial transformation decision promulgated and subject to reconsideration by Customs. Furthermore, the current reviewability of the August 25, 1986 Customs ruling belies any perceived inadequacy or unjustifiable delay associated with the jurisdiction provided under section 1581(a). As such, jurisdiction under section 1581(a) provides plaintiff an adequate remedy notwithstanding that the action covers only the entries that are the subject of the protest denied by Customs.

III

The Court turns to the dispositive question whether the operations performed in New Zealand on full hard cold-rolled steel sheet from Japan involved a substantial transformation, thereby rendering the imported steel a product of New Zealand.

Substantial transformation is a concept of major importance in administering the customs and trade laws. In addition to its role in identifying the country of origin of imported merchandise for purposes of determining dutiable status, or, as in this case, the applicability of a bilateral trade agreement, substantial transformation is the focus of many cases involving country of origin markings, see, e.g., National Juice Products Ass'n v. United States, 10 CIT ___, 628 F.Supp. 978 (1986), and cases involving American goods returned, see, e.g., Upjohn Co. v. United States, 9 CIT ___, 623 F.Supp. 1281 (1985).

The essence of these cases is that a product cannot be said to originate in the country of exportation if it is not manufactured there. The question, therefore, is whether operations performed on products in the country of exportation are of such a substantial nature to justify the conclusion that the resulting product is a manufacture of that country. "Manufacture implies a change, but every change is not manufacture.... There must be transformation; a new and different article must emerge, `having a distinctive name, character, or use.'" Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 562, 28 S.Ct. 204, 206, 52 L.Ed. 336 (1908). The criteria of name, character and use continue to determine when substantial transformation has occurred, and the prior cases of this court and our predecessor and appellate courts provide guidance in the application of this test.

The Court finds it necessary to address two arguments raised by defendant before applying the criteria to the merchandise in question. These are (1) that name, character and use provide only part of the controlling test of whether the "essence" of the product has been altered, which may not be satisfied despite changes in name, character and use; and (2) even though changes have occurred which would ordinarily result in a finding of substantial transformation, a different result may be found in the context of an agreement designed to restrict imports, where the Court may apply different criteria requiring more substantial changes in the imported product.

Defendant's suggestion that an "essence" test has displaced name, character and use is attributed to the Court's decisions in National Juice Products, supra, and Uniroyal, Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed.Cir.1983). In National Juice Products, however, the Court specifically applied the criteria of name, character and use in determining that orange juice manufacturing concentrate is not substantially transformed in the process that converts the concentrate into frozen concentrated, or reconstituted, orange juice. Although the Court used the word "essence" in describing the character of the merchandise, the focus of the Court's analysis was the traditional character criterion: "The addition of water, orange essences, and oils to the concentrate, while making it suitable for retail sale, does not change the fundamental character of the product, it is still essentially the product of the juice of oranges." 628 F.Supp. at 991.

Uniroyal held that...