Daimlerchrysler Corp. v. United States ( 2000 )

Slip Op. 00-124
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
DAIMLERCHRYSLER CORPORATION, :
:
Plaintiff, :
:
v. : Court No. 99-03-00178
:
UNITED STATES, :
:
Defendant. :
______________________________:
[Cross-Motions for Summary Judgment Denied.]
Dated: September 29, 2000
Barnes, Richardson & Colburn (Robert E. Burke, Lawrence M.
Friedman and Robert F. Seely), for plaintiff.
David W. Ogden, Assistant Attorney General, Joseph I.
Liebman, Attorney-in-Charge, International Trade Field Office,
Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Saul Davis), Paula Smith, Office of
Assistant Chief Counsel, United States Customs Service, of
counsel, for defendant.
OPINION
RESTANI, Judge: This Customs duty matter is before the court
on cross-motions for summary judgment. No discovery has taken
place and both parties seek judgment based on the factual record
and the court’s findings in Chrysler Corp. v. United States, 19
CIT 353 (1995), aff’d, 86 F.3d 1173, 1996 WL 132263 (Fed. Cir.
1996) (unpublished opinion) (“Chrysler”). Each party also
alleges that if judgment is not granted on its theory of the law
CT. NO. 99-03-00178 PAGE 2
applicable to the facts, material facts remain to be decided and
judgment may not be granted to its opponent.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to 28 U.S.C. § 1581(a)
(1994). The court shall grant summary judgment if the pleadings,
depositions, answers to interrogatories, together with any
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to summary
judgment as a matter of law. USCIT Rule 56(a).
BACKGROUND
The 1991 to 1994 entries of automobiles at issue include
domestic sheet metal parts which are exported and assembled into
the finished automobiles in Mexico, and in the course of that
assembly undergo a complicated painting process. Plaintiff seeks
exemption from duty for the sheet metal parts under item
9802.00.80 of the Harmonized Tariff Schedule of the United States
(codified at 19 U.S.C. § 1202 (1994)) (“HTSUS”). Item HTSUS
9802.00.80 reads as follows:
Articles ... assembled abroad in whole or in part of
fabricated components, the product of the United
States, which (a) were exported in condition ready for
assembly without further fabrication, (b) have not lost
their physical identity in such articles by change in
form, shape or otherwise, and (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.
CT. NO. 99-03-00178 PAGE 3
HTSUS 9802.00.80, Supp. I. (1999).
In Chrysler, the court opined that it was bound by the
holding of General Motors Corp. v. United States, which dealt
with the same type of product and a similar paint process.
Chrysler, 19 CIT at 354 (citing General Motors Corp. v. United
States, 976 F.2d 716 (Fed. Cir. 1992) (“GM”)). In GM, the court
followed a line of cases beginning with United States v. Mast
Indus., Inc., which limit operations “incidental to the assembly
process” to minor operations. GM, 976 F.2d at 719 (citing United
States v. Mast Indus., Inc., 668 F.2d 501, 505 (Fed. Cir. 1981)).
In GM, the court held that the following legislative history
supported that view:
The amended item 807.00 would specifically permit
the U.S. component to be advanced or improved “by
operations incidental to the assembly process such as
cleaning, lubricating, and painting.” It is common
practice in assembling mechanical components to perform
certain incidental operations which cannot always be
provided for in advance. For example, in fitting the
parts of a machine together, it may be necessary . . .
to paint or apply other preservative coatings. . ..
Such operations, if of a minor nature incidental to the
assembly process, whether done before, during, or after
assembly, would be permitted even though they result in
an advance in value of the U.S. components in the
article assembled abroad.
GM, 976 F.2d at 719 (citing H.R. Rep. No. 342, 1965 U.S.C.C.A.N.
3,416, 3,448-449). GM and Chrysler also followed Mast in
applying a set of quantitative comparisons to determine whether
the process claimed to be incidental to assembly was “minor.”
CT. NO. 99-03-00178 PAGE 4
See GM, 976 F.2d at 719 (listing three factors to ascertain
whether operation is minor); Mast, 668 F.2d 506 (same); Chrysler,
19 CIT at 355 (listing two of the factors dispositive in that
case).
The parties are now before the court because Mast has been
undermined by the Supreme Court’s decision in United States v.
Haggar Apparel Co., 526 U.S. 380 (1999) (“Haggar”). The parties
agree that Haggar, which involved the same statute but a
different product - permapressed pants, has eliminated the Mast
comparison tests. What they do not agree on is whether Haggar
also removed the minor operation limitation of Mast. Plaintiff
contends that in the course of removing the Mast quantitative
tests, and deferring to Customs’ regulatory qualitative approach,
the Supreme Court in Haggar held that “painting” was
unambiguously established in the statute as a qualitative
category of operation that preserves the exemption from duty of
the affected part. Plaintiff relies on the following language of
Haggar:
The statute under which respondent claims an exemption
gives direction not only by stating a general policy
(to grant the partial exemption where only assembly and
incidental operations were abroad) but also by
determining some specifics of the policy (finding that
painting, for example, is incidental to assembly). For
purposes of the Chevron analysis, the statute is
ambiguous nonetheless, ambiguous in that the agency
must use its discretion to determine how best to
CT. NO. 99-03-00178 PAGE 5
implement the policy in those cases not covered by the
statute’s specific terms.
Haggar, 526 U.S. at 393 (emphasis added).
Thus, plaintiff argues, in deciding that the statute was
ambiguous as to permapressing and other processes not mentioned
in the statute, so that Customs could establish regulatory exempt
and nonexempt categories of unmentioned operations, the Supreme
Court declared the three categories of operations mentioned in
the statute, “cleaning, lubricating and painting,” unambiguously
“incidental to assembly” and not subject to Customs regulations.1
Defendant, on the other hand, argues that the word
“painting” cannot be read in isolation, that the statute as a
whole is ambiguous, and that the regulations reasonably clarify
the statute. The regulation at issue reads, in relevant part, as
follows:
§ 10.16 Assembly abroad.
(a) Assembly operations. The assembly operations
performed abroad may consist of any method used to join
or fit together solid components, such as welding,
1
Prior to the Supreme Court’s decision in Haggar, Customs’
regulations were all but irrelevant to interpretation of HTSUS
9802.00.80. See Haggar Apparel Co. v. United States, No. 97-
1002, 2000 WL 1035747, at *2 (Fed. Cir. July 27, 2000) (“Haggar
II”). The court did not defer to regulations, but rather applied
the Mast test. Id. In Haggar, the Supreme Court required the
court to apply the analysis of Chevron, U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842-44 (1984), to
regulations interpreting tariff provisions. Haggar, 526 U.S. at
393-94.
CT. NO. 99-03-00178 PAGE 6
soldering, riveting, force fitting, gluing, laminating,
sewing, or the use of fasteners, and may be preceded,
accompanied, or followed by operations incidental to
the assembly as illustrated in paragraph (b) of this
section. The mixing or combining of liquids, gases,
chemicals, food ingredients, and amorphous solids with
each other or with solid components is not regarded as
an assembly.
(b) Operations incidental to the assembly process.
Operations incidental to the assembly process whether
performed before, during, or after assembly, do not
constitute further fabrication, and shall not preclude
the application of the exemption. The following are
examples of operations which are incidental to the
assembly process:
(1) Cleaning;
(2) Removal of rust, grease, paint, or other
preservative coating;
(3) Application of preservative paint or coating,
including preservative metallic coating, lubricants, or
protective encapsulation;
(4) Trimming, filing, or cutting off of small
amounts of excess materials;
(5) Adjustments in the shape or form of a component
to the extent required by the assembly being performed
abroad;
(6) Cutting to length of wire, thread, tape, foil,
and similar products exported in continuous length;
separation by cutting of finished components, such as
prestamped integrated circuit lead frames exported in
multiple unit strips; and
(7) Final calibration, testing, marking, sorting,
pressing, and folding of assembled articles.
(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
CT. NO. 99-03-00178 PAGE 7
subheading 9802.00.80, Harmonized Tariff Schedule of
the United States (19 U.S.C. 1202):
(1) Melting of exported ingots and pouring of the
metal into molds to produce cast metal parts;
(2) Cutting of garment parts according to pattern
from exported material;
(3) Painting primarily intended to enhance the
appearance of an article or to impart distinctive
features or characteristics;
(4) Chemical treatment of components or assembled
articles to impart new characteristics, such as
showerproofing, permapressing, sanforizing, dying or
bleaching of textiles;
(5) Machining, polishing, burnishing, peening,
plating (other than plating incidental to the
assembly), embossing, pressing, stamping, extruding,
drawing, annealing, tempering, case hardening, and any
other operation, treatment or process which imparts
significant new characteristics or qualities to the
article affected.
19 C.F.R. § 10.16 (1999).
Plaintiff argues alternatively that its processes abroad
satisfy the regulation because the sheet metal parts are
assembled and treated only with “preservative paint or coating,”
which is “incidental to assembly” pursuant to 19 C.F.R.
§ 10.16(b)(3). Defendant argues that plaintiff’s operations are
a significant process that completes or improves the sheet metal
components and imparts distinctive or significant new features,
characteristics or qualities to the article affected. Thus, it
argues that the painting process is not “incidental to assembly”
as provided in 19 C.F.R. § 10.16(c)(3) & (5).
CT. NO. 99-03-00178 PAGE 8
DISCUSSION
I. The term “painting” in HTSUS 9801.80.00 does
not prohibit application of 19 C.F.R. § 10.16to this case.
As Chrysler made clear, the court concluded therein that it
was bound by GM’s holding that any attendant paint processes must
be minor to qualify a part assembled abroad for duty exemption
under item 9802.80.00, and that the Mast factors applied in GM
required the conclusion that the painting process at issue was
not “incidental to the assembly process.” Chrysler, 19 CIT at
355. While both parties agree that the Mast quantitative factor
aspect of GM no longer applies, defendant argues that GM’s
interpretation of “incidental to the assembly process” as limited
to “minor” processes still controls.
The court finds it difficult to declare all of GM
effectively overruled based on the words of Haggar. The words of
Haggar cited by plaintiff can be read in various ways. They may
mean that “painting” is an unambiguous term. They also may mean
that as to “painting” the statute is less ambiguous. See Haggar,
526 U.S. at 393. No facts similar to the facts in this case were
before the Supreme Court in Haggar, while very similar painting
processes were before the appellate court in GM. Compare Haggar,
526 U.S. at 384-85 (addressing whether baking permapressed
garments was incidental to assembly process); and GM, 976 F.2d at
CT. NO. 99-03-00178 PAGE 9
717-18 (addressing whether topcoats applied to automobiles were
incidental to assembly process). Haggar had nothing to do with
painting processes. Furthermore, in Haggar II, the Court of
Appeals did not reject all of its previous jurisprudence on the
meaning of “incidental to the assembly process.” Rather, it
noted the “exemplars” in the statute and observed:
Customs has decided that some kinds of painting are
“incidental,” and others are not, the distinction in
the regulation being whether the paint operation is
primarily for preservative or for decorative purposes.
Compare, e.g., 19 C.F.R. § 10.16(b)(3) (listing
“[a]pplication of preservative paint or coating,
including preservative metallic coating . . .” as
incidental to the assembly process) with 19 C.F.R.
§ 10.16(c)(3) (listing “[p]ainting primarily intended
to enhance the appearance of an article or impart
distinctive features or characteristics” as not
incidental to the assembly process).
Haggar II, No. 97-1002, 2000 WL 1035747, at *4.
While this implicit approval of the regulation as to
painting might be dicta, the court has a difficult time rejecting
a statement that is in the very opinion that was required to
apply the Supreme Court’s statements in Haggar. Further,
although Customs’ “categorical approach” was approved in both
Haggar cases, Customs is not forbidden by either Haggar case from
prescribing additional general qualitative tests, as it does in
the regulation.
The court has already noted that a general qualitative
limitation of “incidental to the assembly process” is found in
CT. NO. 99-03-00178 PAGE 10
the relevant legislative history. The regulation reasonably
adopts this approach. It is true that general qualitative terms
such as “minor,” or “significant,” a regulatory term, are
difficult to assess. Presumably this is why Customs has tried to
define them by identifying categories of incidental or not
incidental operations, where possible. Nevertheless, Customs
cannot foresee every circumstance, and it is forced also to
employ general qualitative terms, as it does in 19 C.F.R.
§ 10.16(c)(3) & (5). This is consistent with the GM view of the
essential meaning of “incidental to the assembly process.” GM,
976 F.2d at 720. Thus, if GM still has any force, the
regulations carry out what remains of it.
The next question is, assuming arguendo that “painting” has
an unambiguous meaning in the statute, does that unambiguous
meaning of painting embrace what is at issue here so as to
prevent the application of the regulation? To answer this
question the court notes how it described in Chrysler the Mexican
operations on the sheet metal components imported from the United
States.
In the initial stages of assembly, sheet metal
components are welded together in the body shop. A
metal finishing operation takes place to locate and
detect any defects and to prepare the body for
painting. The parties disagree as to whether metal
finishing is part of the painting process. Although it
appears more closely related to the painting process,
resolution of this matter is not dispositive. The
CT. NO. 99-03-00178 PAGE 11
disputed processes all occur in connection with the
paint operation. This begins with cleaning, a
phosphate application to prepare the metal body for
primer, some sealing, anti-chip coating application,
baking, application of one or two color coats and a
clear coat, followed by more baking.
Chrysler, 19 CIT at 354 (footnote omitted). Because there was no
description in Haggar of “painting,” one cannot be sure whether
the Supreme Court would find that the term “painting” in the
statute means either all of the operations that are arguably part
of the painting process in this case, or those which might come
within a broad definition of the term “painting.”
Accordingly, the court concludes, as apparently the
appellate court did in Haggar II, that there is room for the
operation of the Customs’ regulation as to painting operations or
processes. That regulation is now the focus of the court’s
inquiry, as it was not in Chrysler.
II. The court’s decision in Chrysler does not resolve the
issue of the application of 19 C.F.R. § 10.16 to this
case.
19 C.F.R. § 10.16(b) recognizes “application of preservative
paint or coating, including preservative metallic coating,
lubricants, or protective encapsulation” as an operation
“incidental to the assembly process.” Section 10.16(c), however,
prohibits any “significant process, operation, or treatment . . .
whose primary purpose is the . . . completion [or] physical or
CT. NO. 99-03-00178 PAGE 12
chemical improvement of a component” from qualifying as
“incidental to the assembly process.” 19 C.F.R. § 10.16(c). It
goes on to include “[p]ainting primarily intended to enhance the
appearance of an article or to impart distinctive features or
characteristics” as non-qualifying. 19 C.F.R. § 10.16(c)(3). It
also regards as non-qualifying any operation which “imparts
significant new characteristics or qualities to the article
affected.” 19 C.F.R. § 10.16(c)(5).
The court in Chrysler was not required to apply the
regulation because the GM case had resolved the issue without
regard to the regulation. The court did opine that, of the paint
process as a whole, 70% was primarily for preservative purposes,
and as to the top coats it was “impossible to separate their
appearance-enhancing features from their preservative functions.”
Chrysler, 19 CIT at 355. The parties now seem to agree that all
of the steps prior to top-coating are preservative and would not
render the sheet metal parts dutiable. The dispute is now
expressly limited to the status of the top-coating processes.
The court in Chrysler did not restrict its analysis to top-
coating. Nor, as indicated, is the legal context the same as it
was in Chrysler. If the facts of this case turn out to be as
they were in Chrysler, the court would have to address the legal
issue of whether a process that is neither primarily preservative
CT. NO. 99-03-00178 PAGE 13
nor primarily appearance enhancing falls into § 10.16(b),
“incidental,” or § 10.16(c) “not incidental,” or whether the top
coats by themselves impart “significant new characteristics . . .
to the article affected. 19 U.S.C. § 10.16(c)(5).
The court declines to decide these issues in a vacuum. The
facts of this case may not be exactly as they were in Chrysler.
Either party may choose to put on different evidence which might
resolve the issue more clearly. See United States v. Stone &
Downer Co., 274 U.S. 225, 236-7 (1927) (judgment as to
classification of one entry is not res judicata as to another).
While stare decisis applies, there are exceptions to its
application. See Schott Optical Glass v. United States, 750 F.2d
62, 64 (Fed. Cir. 1984) (evidence may demonstrate decision was
clearly erroneous). See also J.E. Bernard & Co., 66 Cust. Ct.,
545, 552, 324 F. Supp. 496, 502-3 (1971) (in reappraisement case,
estoppel applied where matters in prior case were static,
factually and legally). Because of the change in the legal
climate, the parties will be allowed to offer new evidence,
although such evidence may be limited as befits the previous
CT. NO. 99-03-00178 PAGE 14
history of this matter. Accordingly, summary judgment is denied.
The parties shall submit a proposed Rule 16 order within eleven
days.
_______________________
Jane A. Restani
JUDGE
Dated: New York, New York
This 29th day of September, 2000.