Marubeni America Corp. v. U.S., 93-1467

• Decision Date: 07 September 1994
• Docket Number: No. 93-1467,93-1467
• Parties: MARUBENI AMERICA CORP., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 530

35 F.3d 530

16 ITRD 1641

MARUBENI AMERICA CORP., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 93-1467.

United States Court of Appeals, Federal Circuit.

Sept. 7, 1994.

Gail T. Cumins, Sharretts, Paley, Carter & Blauvelt, P.C., New York City, argued, for plaintiff-appellee. With her on the brief, were Ned H. Marshak and Peter Jay Baskin.

Saul Davis, Commercial Litigation Branch, Dept. of Justice, Washington, DC, argued, for defendant-appellant. With him on the brief, were Frank W. Hunger, Asst. Atty. Gen., David M. Cohen, Director, Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Carla Garcia-Benitez and Edith Sanchez Shea, Attorneys. Also on the brief, was Karen P. Binder, Office of the Asst. Chief Counsel, Intern. Trade Litigation, U.S. Customs Service, of counsel.

Wesley K. Caine and C. Dean McGrath, Jr., Stewart & Stewart, of Washington, DC, were on the brief, for amicus curiae, American Auto. Mfrs. Ass'n, Inc.

John B. Rehm and Munford Page Hall, II, Dorsey & Whitney, of Washington, DC, were on the brief, for amicus curiae, Ass'n of Intern. Auto. Mfrs. and Walter E. Huizenga, of Alexandria, VA, was on the brief, for amicus curiae, American Intern. Auto. Dealers Ass'n.

Before RICH, NEWMAN, and MAYER, Circuit Judges.

RICH, Circuit Judge.

The United States (the government) appeals the May 14, 1993, judgment of the Court of International Trade (CIT), No. 90-04-00210, 821 F.Supp. 1521, holding that 1989 and 1990, two door, two-wheel and four-wheel drive, Nissan ¹ Pathfinder (Pathfinder) vehicles are correctly classified under heading 8703.23.00 (8703) of the Harmonized Tariff Schedule of the United States (HTSUS) as motor vehicles principally designed for the transport of persons. We affirm.

I BACKGROUND

A. The Merchandise

The merchandise at issue is a two door, two-wheel or four-wheel drive, dual-purpose or multipurpose passenger vehicle, generally referred to as a compact sports utility vehicle. The Pathfinder does not have a cargo box or bed like a truck. Instead, its body is one unit that is configured much like an ordinary station wagon in that it has rear seats that fold forward, but not flat, for extra cargo space. These seats, however, are not removable. The spare tire is housed within the cargo space or alternatively, it may be attached outside the vehicle on the rear hatch. The rear hatch operates like those on a station wagon; it has a window that may be opened to place small packages in the cargo area without opening the tailgate. The Pathfinder is mechanically designed for both on- and off-road use.

B. Conversion to the Harmonized System.

On August 23, 1988, the Omnibus Trade and Competitiveness Act of 1988 (Pub.L. 100-418) was enacted. The Act adopted the new tariff nomenclature--the HTSUS, which became effective on January 1, 1989. The new nomenclature system developed as follows. The Trade Act of 1974 mandated that the United States participate in the development of an international product nomenclature known as the Harmonized System. The There are no HTSUS headings that expressly include vehicles for transport of goods and persons as did 692.10 TSUS. The final cross-referencing report, however, paired 692.10 TSUS, "motor vehicles for the transport of goods and persons," with 8703 HTSUS, "motor vehicles principally designed for the transport of persons;" and 692.02, "automotive trucks," with 8704 HTSUS, "motor vehicles for the transport of goods." See USITC Pub. 2051 (1988). Note, however, that the TSUS/HTSUS cross-references should not be viewed as a substitute for the traditional classification process. TSUS/HTSUS Cross Reference Clarification, 53 Fed.Reg. 27,447. Prior to January 1, 1989, the effective date of the HTSUS, the Pathfinder was classified under 692.10 TSUS (motor vehicles for the transport of goods and persons), 2.5% ad valorem. While not determinative, prior classification of Pathfinders is instructive. H.R.Con.Rep. No. 576, 100th Cong., 2nd Sess. 549-50 (1988), 1988 U.S.C.C.A.N. 1547. Legislative history also shows that any changes in the rates of duty from the TSUS to the HTSUS are consequential to the process of converting to the new nomenclature. Id. at 1581.

Harmonized System is a detailed product classification system developed through the Customs Co-Operation Council (CCC). The System provides a common core language for trade; it does not, however, carry any obligations with respect to tariff rates. To facilitate the conversion from the then existing Tariff Schedules of the United States (TSUS) to the HTSUS, a draft conversion was prepared by the International Trade Commission (ITC). The conversion report cross-references items under the TSUS with the HTSUS and vice versa. USITC Pub. 2030 (1983). This draft conversion was reviewed by government agencies, the private sector, and the trading partners. Later that year, the conversion document was republished for private sector review.

C. Proceedings below.

The Pathfinder was classified by the United States Customs Service (Customs) under 8704.31.00 (8704) of the HTSUS as a "motor vehicle for the transport of goods." Pursuant to 9903.87.00 of the HTSUS, a 25% ad valorem duty was assessed.

Nissan administratively protested this decision, pursuant to 19 U.S.C. Sec. 1514, claiming that the Pathfinder should be classified as "motor cars and other motor vehicles principally designed for the transport of persons ... including station wagons" under 8703 HTSUS. This protest was denied. Nissan then brought an action in the CIT. The CIT conducted a three week trial de novo, pursuant to 28 U.S.C. Sec. 2640, that included test driving the Pathfinder and comparison vehicles, videotape viewing, and extensive presentation of both testimonial and documentary evidence. The government argued that the Pathfinder is more like a pick-up truck; therefore, it was a "motor vehicle for the transport of goods." The CIT concluded that Customs' classification of the Pathfinder under 8704 HTSUS, "motor vehicle for the transport of goods," was incorrect, and that the correct classification was under 8703 HTSUS, "motor vehicle principally designed for the transport of persons." The duty assessed under 8703 HTSUS is 2.5% ad valorem. The United States now appeals from the judgment of the CIT. We have jurisdiction under 28 U.S.C. Sec. 1295(a)(5) (1988).

II ANALYSIS

The issue is whether the Pathfinder has been classified under the appropriate tariff provision. Resolution of that issue entails a two step process: (1) ascertaining the proper meaning of specific terms in the tariff provision; and (2) determining whether the merchandise at issue comes within the description of such terms as properly construed. The first step is a question of law which we review de novo and the second is a question of fact which we review for clear error. Stewart-Warner Corp. v. United States, 748 F.2d 663, 664-65, 3 Fed.Cir. (T) 20, 22 (Fed.Cir.1984).

The government asserts that the CIT erred by applying improper and inconsistent standards, and that the Pathfinder is not primarily designed for the transport of persons

based on the practice of Nissan and the industry.

A. Proper meaning

It is well settled that "[t]he ultimate issue, whether particular merchandise has been classified under an appropriate tariff provision, necessarily depends on the meaning of the terms of that provision, which is a question of law subject to de novo review." Lynteq, Inc., v. United States, 976 F.2d 693, 696 (Fed.Cir.1992). To determine the proper meaning of tariff terms as contained in the statute, the terms are "construed in accordance with their common and popular meaning, in the absence of contrary legislative intent." E.M. Chemicals v. United States, 920 F.2d 910, 913 (Fed.Cir.1990). "To assist it in ascertaining the common meaning of a tariff term, the court may rely upon its own understanding of the terms used, and it may consult lexicographic and scientific authorities, dictionaries, and other reliable information sources." Brookside Veneers, Ltd. v. United States, 847 F.2d 786, 789, 6 Fed.Cir. (T) 121, 125 (Fed.Cir.) cert. denied, 488 U.S. 943, 109 S.Ct. 369, 102 L.Ed.2d 358 (1988).

The two competing provisions of the HTSUS are set forth below.

8703 Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars.

8704 Motor vehicles for the transport of goods.

There are no legally binding notes to these headings that are relevant to the classification of dual-purpose vehicles such as the Pathfinder; therefore, we need only look to the common meaning of the terms as they appear above.

By the express language of 8703, "motor vehicle principally designed for the transport of persons," it is clear that the vehicle must be designed "more" for the transport of persons than goods. Webster's Third New International Dictionary of the English Language, Unabridged (1986) defines "principally" as "in the chief place, chiefly;" and defines "designed" as "done by design or purposefully opposed to accidental or inadvertent; intended, planned." Thus, if the vehicle is equally designed for the transport of goods and persons, it would not be properly classified under 8703 HTSUS. There is nothing in the legislative history that indicates a different meaning.

The government argues that "the correct standard to be utilized in determining the principal design of any vehicle must be its construction--its basic structure, body, components, and vehicle layout--and the proper question to be asked is whether that construction is uniquely for passenger transportation." This standard is clearly at odds with Customs' interpretation in its March 1, 1989, memorandum providing guidance in applying these headings to sports utility vehicles. Customs stated: ²

Design features, whether they accommodate passenger transport or cargo transport, or both, are...