Haggar Apparel Co. v. U.S.

• Decision Date: 27 July 2000
• Citation: 222 F.3d 1337
• Parties: (Fed. Cir. 2000) HAGGAR APPAREL CO., Plaintiff-Appellee, v. THE UNITED STATES, Defendant-Appellant. 97-1002 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1337

222 F.3d 1337 (Fed. Cir. 2000)

HAGGAR APPAREL CO., Plaintiff-Appellee, v. THE UNITED STATES, Defendant-Appellant.

97-1002

United States Court of Appeals for the Federal Circuit

DECIDED: July 27, 2000

Appealed from: United States Court of International Trade Senior Judge Dominick L. DiCarlo

Ronald W. Gerdes, Sandler, Travis & Rosenberg, P.A., of Washington, DC, argued for plaintiff-appellee. With him on the brief were David E. Cohen; and Gilbert Lee Sandler, Edward M. Joffe, and Gerson M. Joseph, of Miami, Florida.

Bruce G. Forrest, Attorney, Civil Division, Appellate Staff, Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief wereDavid W. Ogden, Acting Assistant Attorney General; and William Kanter, Deputy Director, Appellate Staff. Also on the brief were Joseph I. Liebman, Attorney in Charge; and Saul Davis, Senior Trial Attorney, International Trade Field Office. Of counsel on the brief was Chi S. Choy, Attorney, Office of Assistant Chief Counsel, United States Customs Service, of New York, New York.

Sandra Liss Friedman, Barnes, Richardson & Colburn, of New York, New York, for amicus curiae Customs and International Trade Bar Association.

Before NEWMAN, MICHEL, and CLEVENGER, Circuit Judges.

CLEVENGER, Circuit Judge.

Upon remand from the United States Supreme Court, see United States v. Haggar Apparel Co., 526 U.S. 380 (1999), defendant United States seeks reversal of the United States Court of International Trade's determination that plaintiff Haggar Apparel Co.'s imported articles qualified for the partial exemption from import duties specified in Subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States, codified at 19 U.S.C. § 1202 (1994). See Haggar Apparel Co. v. United States, 938 F. Supp. 868, 874-75 (1996). Because the imported goods are disqualified from the partial exemption by application of 19 C.F.R. § 10.16(c), which we hold to be a reasonable interpretation of the governing statute, we reverse the judgment of the Court of International Trade and remand with instructions to enter judgment in favor of the United States.

I

Haggar Apparel Co. ("Haggar") designs, manufactures, and markets apparel for men. This dispute arises from a refund proceeding for duties imposed by the United States Customs Service ("Customs") on men's pants shipped by Haggar to the United States from an assembly plant in Mexico. The fabric used to make the pants had been cut to shape in the United States and then shipped to Mexico, along with the thread, buttons, and zippers necessary to assemble the garments. The pants were assembled in Mexico, and later shipped back to the United States.

While in Mexico, however, the pants were "permapressed" at the Mexican plant. Permapressing, the parties agree, is a process designed to maintain a garment's crease and to avoid other creases or wrinkles from appearing through use. While there are various ways that permapressing may be accomplished, the pants in question were constructed of fabric that had been treated in the United States with a chemical resin. After assembly, the pants were baked in an oven at a facility in Mexico just prior to being shipped back to the United States; the baking activated the chemical resin and imparted the permapress qualities to the garments.

Upon import to the United States, Customs determined that the permapressing operation took the pants outside of the classification of Subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States ("HTSUS"), which provides a partial exemption from otherwise-applicable duties. In relevant part, Subheading 9802.00.80, 19 U.S.C. § 1202, is limited to:

Articles . . . assembled abroad in whole or in part of fabricated components, the product of the United States, which . . . (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting. ¹

Customs has promulgated a regulation, 19 C.F.R. § 10.16(c) (1998), interpreting the "operations incidental to assembly process" statutory language used in the HTSUS:

(c) Operations not incidental to the assembly process. Any significant process, operation, or treatment other than assembly whose primary purpose is the fabrication, completion, physical or chemical improvement of a component, or which is not related to the assembly process, whether or not it effects a substantial transformation of the article, shall not be regarded as incidental to the assembly and shall preclude the application of the exemption to such article. The following are examples of operations not considered incidental to the assembly as provided under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (19 U.S.C. 1202):

. . .

(4) Chemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dying or bleaching of textiles . . . .

The regulation was adopted in 1975 by the Commissioner of Customs, after notice-and-comment rulemaking. See 39 Fed. Reg. 24651 (1974) (proposed regulation); 40 Fed. Reg. 43021 (1975) (final regulation).

Pursuant to section 10.16(c)(4), which specifically lists "permapressing" as an example of operations which fail to meet the requirements of HTSUS 9802.00.80, Customs denied the exception to duty. Haggar challenged the denial of its protest against such classification by filing this suit in the Court of International Trade. See 19 U.S.C. § 1515 (1994) (establishing protest and review procedures for Customs classification decisions).

The Court of International Trade concluded, pursuant to the multi-factor test established by this court's predecessor in United States v. Mast Industries, Inc., 668 F.2d 501 (CCPA 1981), that the permapressing operation was incidental to the assembly process and thus did not disqualify the pants from favorable treatment under HTSUS 9802.00.80. See Haggar Apparel Co. v. United States, 938 F. Supp. 868, 875 (Ct. Int'l Trade 1996). The court rejected Customs' contention that 19 C.F.R. § 10.16(c) controlled, finding that the regulation "conflicts with the plain language" of the HTSUS, and noting that the Federal Circuit had, in a series of prior cases, see e.g., General Motors Corp. v. United States, 976 F.2d 716, 718 (Fed. Cir. 1992), either ignored or discounted the regulation. The court also rejected Customs' argument that the regulation was entitled to deference pursuant to Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984). See Haggar Apparel, 938 F. Supp. at 875.

Customs appealed to this court, which declined to consider the regulation under the Chevron framework, and affirmed the Court of International Trade. See Haggar Apparel Co. v. United States, 127 F.3d 1460, 1462 (Fed. Cir. 1997). Customs then petitioned for a writ of certiorari to the Supreme Court, which was granted. See Haggar Apparel Co. v. United States, 524 U.S. 981 (1998). The Supreme Court vacated this court's judgment, holding that HTSUS 9802.00.80 is ambiguous, for purposes ofChevron analysis, thereby requiring courts to defer to Customs regulations manifesting a reasonable interpretation of the statute. See Haggar Apparel Co. v. United States, 526 U.S. 380, 391-92 (1999). The Court, however, declined to consider whether 19 C.F.R. § 10.16(c) was a reasonable interpretation of the "operations incidental to the assembly process" provision of HTSUS 9802.00.80, reasoning that such arguments were better presented to this court in the first instance. See 526 U.S. at 395. Accordingly, the case was remanded for further proceedings. See id.

Upon remand, we ordered additional briefing and oral argument, see Haggar Apparel Co. v. United States, 1999 WL 798028 (Fed. Cir. Aug. 20, 1999), and now hold that 19 C.F.R. § 10.16(c) is a reasonable interpretation of HTSUS 9802.00.80 (and TSUS 807.00), and that Customs properly applied the regulation in this case.

II

Regulations promulgated pursuant to rulemaking authority granted to administrative agencies are analyzed under the two-step procedure established in the Supreme Court's Chevron decision:

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. . . . [However,] [i]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

467 U.S. at 842-43. In this case, the Supreme Court has already answered the first question: HTSUS 9802.00.80 is ambiguous for Chevron purposes. See 526 U.S. at 394. Thus, our task is to "decide, not whether the . . . regulation represents the best interpretation of the statute, but whether it represents a reasonable one." Atlantic Mut. Ins. Co., v. Commissioner, 523 U.S. 382, 389 (1998).

A

In conducting the second half of the Chevron analysis, we "need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding." Chevron, 467 U.S. at 843 n.11 (citing FEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 39 (1981);Zenith Radio Corp. v. United States, 437 U.S. 443, 450 (1978); Train v. Natural Resources Defense Council, Inc., 421 U.S. 60, 75 (1975); Udall v. Tallman, 380 U.S. 1, 16 (1965); Unemployment Compensation Comm'n v. Aragon, 329 U.S. 143, 153 (1946); McLaren v. Fleischer, 256 U.S. 477, 480-81 (1921)). Instead, our inquiry is confined to the question of whether the agency's interpretation of the statute is "inconsistent with ...