Dal-Tile Corp. v. United States

Slip Op. 04 – 24
UNITED STATES COURT OF INTERNATIONAL TRADE
:
DAL-TILE CORPORATION, :
:
Plaintiff, :
:
v. : Before: MUSGRAVE, JUDGE
:
THE UNITED STATES, : Court No. 95-05-00679
:
Defendant, :
:
[On classification dispute over whether imported wall tile from Mexico meets statutory test for
“ceramic” and is entitled to duty-free entry under the Generalized System of Preferences, judgment
for the plaintiff.]
Decided: March 16, 2004
McGuireWoods LLP (Joseph S. Kaplan), New York City, New York, for the plaintiff.
Peter D. Keisler, Assistant Attorney General, Barbara S. Williams, Attorney in Charge,
International Trade Field Office, Commercial Litigation Branch, Civil Division, United States
Department of Justice (Saul Davis); Beth C. Brotman, Office of Assistant Chief Counsel,
International Trade Litigation, Bureau of Customs and Border Protection, for the defendant.
Howrey Simon Arnold & White LLP (John F. Bruce), Washington, D.C., for amicus curiae
Tile Council of America.
OPINION
Following trial of the issues, the parties entered into mediation with the assistance of another
judge of this Court. The attempt was ultimately unsuccessful.
Dal-Tile disputes the classification of 1984, 1985 and 1988 entries of wall tile from Mexico.
The imports were classified by the predecessor of the Bureau of Customs and Border Protection,1
1
Formerly the U.S. Customs Service.
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along with other Dal-Tile entries between 1984 and 1993, as “ceramic articles” under item 532.24
of the Tariff Schedules of the United States. They were also denied duty-free treatment under the
Generalized System of Preferences.
Dal-Tile contends that classification is appropriate under item 523.94, TSUS (“other articles
of stone or of other mineral substances . . . not elsewhere specified”). In 1993 and 1994, Dal-Tile
filed protests of all entries for the 1984-1993 period. After considering the protests, Customs
changed the classification of all the 1987 entries and some of the 1988 entries from TSUS 532.24
to Dal-Tile’s claimed classification and refunded all customs duties for those entries, which were
liquidated as Mexican products pursuant to the GSP. Dal-Tile’s claims with respect to a number
of other shipments were also settled prior to this action. Cf. Dal-Tile Corp. v. United States, 24 CIT
939, 116 F.Supp.2d 1309 (2000). Subsequently, however, Customs reverted to its original
classification under 532.24, and Dal Tile sues to have its other entries also classified, like its earlier
ones, under 523.94.
This test case covers the classification of the remaining contested Dal-Tile entries. Dal-Tile’s
claim concerns Headnote 2(a) to Part 2 of Chapter 5 of the TSUS, which defines a “ceramic article”
as
a shaped article having a glazed or unglazed body of crystalline or
substantially crystalline structure, which body is composed essentially of
inorganic nonmetallic substances and . . . is formed and subsequently
hardened by such heat treatment that the body, if reheated to pyrometric cone
020, would not become more dense, harder, or less porous, but does not
include any glass article.
TSUS, Ch. 5, Part 2, Note 2(a). The language of this statute is clear (although the history of the
reason for its having been promulgated is not). Pyrometric cone 020 is the state of energy required
Court No. 95-05-00679 Page 3
to deform a cone of a particular composition and size, and it may be achieved through different time
and temperature combinations. The question here is simply which of the parties’ proffered test
methodologies proves the presence or absence of change in samples of wall tile upon reheating to
pyrometric cone 020. If Dal-Tile prevails on its classification claim, the Court must also consider
whether the wall tile is entitled to duty-free entry under the GSP. For the reasons set forth below,
judgment will enter for Dal-Tile on both issues.
Findings
Wall tile is unlike floor tile. Floor tiles are typically installed with more grout and wider
space between them than wall tiles, which are normally fitted close together with minimal grout.
Therefore, flatness and uniformity in size and shape are less important for floor tiles than for wall
tiles, which must be pleasing to the eye when installed.
Floor tile must also resist prolonged contact with water and be more scratch resistant. They
are therefore composed of different materials than wall tile and are fired to a more “stable” or
“mature” state. By contrast, a degree of absorption is desirable in wall tile, because this allows the
back of the wall tile body, which is unglazed, to absorb moisture from the adhesive used for
installation and stick to it while it cures. To achieve the desired absorptiveness,2 wall tile body is
fired at a comparatively lower temperature than floor tile body, which results in what Dal-Tile avers
2
The relative difference in absorption between wall and floor tiles can apparently be
ascertained without the use of scientific testing. When asked to do so by counsel, two former Dal-
Tile officers were able to tell the difference between a wall and a floor tile – and even the difference
in absorption between two wall tiles – by touching their tongues to the unglazed back of the tiles.
When they performed this test at trial, both witnesses stated that their tongues stuck to the more
absorptive wall tile, but would not stick to the floor tile. Each witness performed this test
independently; one had been excluded from the courtroom during the other’s testimony and had not
observed the other perform this test or testify about the relative absorption of the tiles.
Court No. 95-05-00679 Page 4
is a not completely mature body that tends to further harden upon subsequent firings as it becomes
more fully mature.
American National Standards Institute (ANSI) 6.1.1.3.1, the industry standard for absorption
in wall tile, specifies that wall tile should have between 7 and 20 percent body weight absorption.
Dal-Tile requires between 12 and 16 percent absorption for its wall tile. This is achieved through
the use of formula “1776,” which was introduced into production at its manufacturing facility in
Monterrey, Mexico, in 1976. The use of manufacturing formulas, and their variations, is standard
practice in the industry as a means of maintaining consistent production.3 In addition to
compensating for naturally occurring chemical differences and impurities in the raw materials Dal-
Tile uses, most of the 13 variations of formula 1776 to compensate for different amounts of scrap
to be incorporated into the mixture of materials for wall tile body. The same basic materials
comprise each variation of formula 1776: clay, talc, wollastonite and scrap tile, i.e., bisquet (fired
scrap, which is usually unglazed) or desperdicio (unfired “green” scrap, which may or may not be
glazed). Talc, also known as soapstone, is used to maintain consistent porosity. The Texas talc used
in the 1776 formula is very stable and has low shrinkage. The Tennessee ball clay used in the 1776
formula adds plasticity and keeps the other materials together during forming. Wollastonite (calcium
silicate) helps maintain stability of size and porosity. Bisquet helps with degassing during firing, and
the use of both bisquet and desperdicio allow reuse of scrap tiles.
3
For example, the pyrometric cones used by both Dal-Tile and Customs to monitor the
reheating of the tiles in this matter were manufactured according to a formula controlling the
variability of the raw materials used from batch to batch. The other method commonly in use among
manufacturers is to prepare very large amounts of wall tile body in advance in order to have a large,
uniform supply of wall body on hand.
Court No. 95-05-00679 Page 5
At trial, Dal-Tile demonstrated its process of wall tile manufacture with the aid of a videotape
shot at Ceramica Regiomontana, its plant in Monterrey. The raw materials are obtained from the
same mines that Dal-Tile’s factory has used for over 50 years. The mined raw materials for the tile
body are brought into the plant in their lump or crude state, checked for quality, separately ground
to 200 mesh size, and stored in silos. At this point, the precise formulation of the wall tile body is
determined depending on the properties of each of the raw materials. Once the formula is
determined, the raw materials are weighed, ground, and mixed together with a precise amount of
ground scrap tile. After mixing, removal of iron and drying, the procedure results in spray dried
body, which has the consistency of instant coffee granules.
Dal-Tile does not sell to others the spray dried body manufactured in Monterrey, since it is
all used in the manufacture of Dal-Tile tile. Spray dried body is bought and sold on the market,
however, since many other tile manufacturers do not make their own tile body. The equipment used
to make tile comes from only a few manufacturers in Italy and is used throughout the tile-making
industry. Since all manufacturers use the same or similar equipment, any tile manufacturer who used
spray dried body manufactured at the Monterrey plant could create a substantially similar tile.
The characteristics of Dal-Tile’s tunnel-kiln fired wall tile have not changed over time. The
raw materials for wall tiles have come from the same mines, the manufacturing process has remained
essentially unchanged, Ceramica Regiomontana has used the same or more modern versions of the
basic tile-making equipment (e.g., mills, pressing equipment, dryers, except for one of the 14 tunnel
kilns which has not been updated since it was first put into use in 1955), and the 1776 formula has
been employed since 1976 to create consistent end product. It is therefore reasonable to infer that
Court No. 95-05-00679 Page 6
wall tile produced in 1976 is comparable to wall tile produced in 1986, 1996, or today.4 Indeed, Dal-
Tile’s protests for 1984, 1985 and 1988 entries resulted in reliance upon tests of samples produced
from 1988 and later by Customs’ New Orleans laboratory,5 since tiles for most of the challenged
shipments were no longer available.
ASTM C-373 is a test which is routinely employed in the tile industry to determine the water
absorption of wall tile; however it is not typically used in the industry to compare the absorption
before and after an event such as reheating. The manufacture of wall tiles does not require that they
be reheated to cone 020, and no ASTM specification for wall tile requires reheating. The language
of the statute is a “before” and “after” test. Therefore, Dal-Tile submits, even if an item is ceramic
in the commonly accepted sense, it would not fit the Customs definition of a “ceramic article” if it
becomes harder, more dense, or less porous upon reheating to pyrometric cone 020.
Neither the statute nor the C-373 standard provide guidance on how to perform a comparative
test using C-373 or on how to achieve pyrometric cone 020. The Customs Service does not have a
written protocol in place therefor. The Customs manual for ceramics testing contains only a
description of ASTM C-373. Thus, the New Orleans laboratory which tested the tile developed its
own methodology for performing the testing.
4
The only exception to this inference would be for wall tile fired in 1990 or thereabouts in
one of Dal-Tile’s three fast-firing kilns, which were acquired in that year. Dal-Tile was able to
produce wall tile meeting the 7-20% ANSI specification on these kilns, but they were unable to
consistently produce wall tile according to the stricter 12-16% Dal-Tile standard. Dal-Tile
eventually abandoned the effort. No tests of fast-fired wall tile samples were involved in this action.
5
It was averred at trial that responsibility for testing wall tile devolved from Customs’ Los
Angeles laboratory to its New Orleans laboratory in 1988 and that the Customs’ Los Angeles
laboratory had tested samples of wall tiles produced for 1984, 1985, and 1988 entries (among other
years’ entries).
Court No. 95-05-00679 Page 7
The New Orleans laboratory method involved taking one tile, cutting it into at least five
pieces, subjecting the pieces to the five-hour boil and 24-hour soak specified in C-373, testing for
absorption, and then reheating those pieces to pyrometric cone 020. The laboratory used the
time/temperature ramp of 60o/hour until cone deformation at 625o Celsius. This time/temperature
ramp was selected from charts of temperature equivalents included in the literature in the packaging
of the pyrometric cones manufactured by Orton, which are used by both Customs and Dal-Tile.
Included are data for reaching pyrometric cone 020 at 635o Celsius.
Ms. Jacqueline Simoneaux, a quality control manager and former senior analyst at the New
Orleans Laboratory testifying for the government, stated she was not aware of any rationale for
taking one tile and cutting it into five samples, other than usually having one tile to test and needing
at least five samples in accordance with ASTM C-373. ANSI also specifies that whole glazed tiles
are preferred for testing over unglazed, fractured specimens (in addition to specifying that water
absorption testing is destructive).
After the Customs samples were reheated, they were again subjected to the C-373 process
and again measured for absorption. Ms. Simoneaux testified that she elected to perform a second
C-373 test on the same samples because of the possible variations within a single tile, which she felt
made comparisons between tiles difficult. The results were incoherent. After the Customs samples
had been subjected to a 29-hour boil/soak, reheating, and another 29-hour boil/soak, they showed
that the absorption of the samples either increased, decreased, or stayed the same, depending upon
interpretation. The Customs laboratory did not use any control samples.
Court No. 95-05-00679 Page 8
After conducting physical experimentation to determine the appropriate cycles
(temperature/time) to achieve cone 020, Dal-Tile determined to test at the extremes (the slowest and
fastest rates the Dal-Tile kiln could achieve cone 020), which were 575o at 5o/minute and 700o at
50o/minute. Dal-Tile also conducted tests at 625o at 60o/hour (the rate Customs selected from the
Orton literature) and 635o at 50o/hour, which are intermediate temperature equivalents that achieve
cone 020.
For each temperature equivalent, Dal-Tile broke 15 tiles into halves. Dal-Tile then took one
half from each sample and subjected each to the C-373 procedure. Rather than reheat these samples,
Dal-Tile used their absorption measurements as a baseline, and then reheated the other remaining
halves which had not been subjected to destructive testing to pyrometric cone 020. After reheating,
the laboratory took the reheated halves and ran them through the ASTM C-373 procedure, and then
compared the data from these halves to their counterparts which had been soaked but not reheated.
As a population, when compared against the samples which were not reheated, the wall tile
samples became less absorbent after reheating to cone 020. Samples which had been reheated at
different temperatures were not compared to each other. The absorption of a few individual tiles
appeared to increase or stay the same, but such results reflected variations within the tiles, not
variations in the behavior of the tiles: the overall trend was toward lower absorption.
Dal-Tile also performed density and apparent porosity testing on the sample tiles. The results
showed that as the water absorption of the specimens decreased, the apparent porosity decreased and
the apparent density increased.6 These results were confirmed by Dal-Tile through analysis of
6
The relationship between hardness, density, porosity and absorption is that as hardness
(continued...)
Court No. 95-05-00679 Page 9
variance (ANOVA), a standard statistical technique. Theoretically, ANOVA should reveal whether
any observed changes caused by reheating to pyrometric cone 020 were statistically significant or
merely apparent. Statistical significance is defined as a result in which the F factor, an average of
certain values, is greater than the F critical (or statistically significant) factor, in this instance to Dal-
Tile’s proffer of a confidence level of 95 percent. Specifically, ANOVA examined whether the
changes observed were the differences in the mean values of the properties of absorption, apparent
density and apparent porosity within a population of tiles, half of which had been subjected to ASTM
C-373 only, and the other half of which had been subjected to reheating and then ASTM C-373. In
the testing Dal-Tile performed, the ANOVA showed that the changes observed at the extreme 700o
test and at the intermediate 625o and 635o tests were statistically significant, but that the observable
changes at the extreme 575o test were not statistically significant.
Dal-Tile also contacted Richard Haber, a professor of ceramics engineering at Rutgers
University, for assistance. Without telling him anything concerning the test methodologies Dal-Tile
and Customs had separately determined, Dal-Tile presented him with tile manufactured in 1985 and
asked him to construct a test methodology according to the statute. Prof. Haber testified that the
methodology he worked out was to split the tiles into four pieces and run ASTM C-373 on half the
samples after reheating to cone 020 and then perform ASTM C-373 testing on the other halves
without subjecting them to reheating. Except for the number of samples used, this was identical to
the methodology Dal-Tile had constructed, and he, too, testified that he felt it was reasonable to use
6
(...continued)
increases, so does density, while porosity and absorption both decrease. The reverse is also true: as
hardness and density decrease, porosity and absorption increase.
Court No. 95-05-00679 Page 10
a control and to split a tile in two before reheating half. His results showed that on average, the 1985
tiles became more absorptive, more dense, and less porous, upon reheating to cone 020.
When Prof. Haber was then informed of Dal-Tile’s results, he performed another series of
tests on tile manufactured in 1997, using the same methodology, to corroborate Dal-Tile’s results.
His testing differed from Dal-Tile’s in that the temperature ramps used to reach cone 020 at 710o
Celsius was not as rapid as that achieved by Dal-Tile because his kiln was unable to heat at the same
rate. He also used a greater number of tile samples (50) than did Dal-Tile. Otherwise, Prof. Haber’s
methodology was identical to that used by Dal-Tile. His results in the 575o and 710o tests were
consistent with those observed by Mr. Cornia and the Dal-Tile laboratory as well as with his own
results from the earlier tests on the 1985 tiles.
Prof. Haber testified that he felt very comfortable that the Customs tests proceeded from a
faulty hypothesis which assumes that the initial C-373 test does not inherently change the nature of
the tile. He testified that the ANSI and the industry recognizes that C-373 is a destructive test, even
if whole tiles are used to perform the testing. In order to test the hypothesis that C-373 was
destructive because it changed the nature of the tile itself and not simply because the tile had to be
broken in order to perform the test, Prof. Haber also performed a multiple soak test in which he
subjected 15 tiles to a succession of C-373 tests. His results for the population were that the tiles
changed between soak one and soak two, and between soak one and soak three, confirming his
hypothesis.
Both Prof. Haber and the government’s expert, Dr. Denis A. Brosnan, a professor of ceramics
engineering at Clemson University, discussed the published moisture expansion theory during their
Court No. 95-05-00679 Page 11
testimony. Prof. Haber testified that the results he observed are consistent with the findings of Dr.
Richard Bowman of SCI in Australia, who published peer-reviewed articles on the theory of
moisture expansion in tiles, which holds that items which are ceramic (in the general sense) tend to
expand when exposed to moisture which increases their porosity, either over time or when subjected
to a C-373 boiling and soaking. Dr. Brosnan did not perform his own testing on any of the wall tile
produced at the Monterrey plant; however he theorized that any expansion, e.g. from C-373 testing,
can be reversed by subjecting the expanded tile to a heat treatment of about 600o Celsius, which
would likely return the tile to a state close to its state at manufacture. Dr. Brosnan differed with Prof.
Haber about whether this sort of heat treatment, which is approximately the same temperature used
during the Customs testing, would affect the results of any subsequent testing on the same tile. Prof.
Haber testified that the tile may lose de minimis mass due to tile material likely being dissolved in
the water.
The government also presented the testimony of Robert Daniels, the Executive Director of
the Tile Council of America. Mr. Daniels testified that although the Tile Council’s laboratory
performs independent ASTM testing for its members nearly continuously, it has never been
requested to do any comparison testing for changes in porosity, density or absorption before and after
reheating to pyrometric cone 020, and that he himself has never tested tile for changes in water
absorption, porosity or density to determine if they are ceramic articles under the tariff definition.
In response to questioning by the Court, Mr. Daniels stated that he did not know why the statutory
definition was drafted the way that it was, and could only speculate as to the reason.
Court No. 95-05-00679 Page 12
With respect to the issue of whether Dal-Tile’s imports may be entered duty-free subject to
GSP, Dal-Tile presented the testimony of Delfina Estrada, the chief financial officer for Dal-Tile de
Mexico, formerly Ceramica Regiomontana. Mrs. Estrada testified that the value of materials of
Mexican origin plus the direct costs of Ceramica Regiomontana’s processing operations accounted
for more than thirty-five percent of the appraised value of the merchandise at issue in this case.
In addition, Mrs. Estrada has been the custodian of Ceramica Regiomontana’s books and
records since 1990. At trial, she testified as to Ceramica Regiomontana’s record retention policy,
stating that the company was required by Mexican tax authorities to keep the books and records
underlying its tax returns and certified financial statements for a period of ten years. Every six
months, Ceramica Regiomontana destroys the oldest six months’ worth of underlying financial
papers which are at least 10 years old. For this reason, Ceramica Regiomontana no longer has the
underlying journals, ledgers and working papers which support the company’s certified financial
statements and inventory reconciliations from 1978 to 1989.
Mrs. Estrada testified that the financial statements and inventory reconciliations that Dal-Tile
presented at trial contain the particular costs of the actual materials used in the production of the tiles
at issue in this case. Ceramica Regiomontana no longer has the underlying journals, ledgers and
working papers which support the certified financial statements from 1984 to 1988, because these
materials were destroyed in the normal course of business. Mrs. Estrada concluded that Ceramica
Regiomontana met the 35% GSP standard by adding the cost of raw materials, direct labor costs,
parts and packaging, and fixed and variable manufacturing expenses, as reflected in the annual
Court No. 95-05-00679 Page 13
figures. The value of raw materials used by Ceramica Regiomontana to produce glaze and spray
dried body – two separate and distinct components of wall tile – was included in this calculation.
Ceramica Regiomontana manufactures glaze in Mexico from several ingredients, some of
which are imported from the United States. Glaze is composed of frit, clay, silica and zinc. Frit,
which is the main ingredient in glaze and gives it its either glass or matte appearance, is
manufactured by Ceramica Regiomontana’s sister company, Materiales Ceramicos. The clay used
to make the glaze is imported from the United States, however the glaze Ceramica Regiomontana
manufacturers in Mexico is a good capable of being bought and sold in the marketplace.
Specifically, three witnesses, all officers or former officers of Dal-Tile, each testified that glaze is
bought and sold commercially, and Dal-Tile’s former CEO and board chairman testified that
Ceramica Regiomontana regularly sells glaze to other companies.
Discussion
In a challenge to the government’s classification of articles for import duty, a presumption
of correctness attaches to the government’s classification; the importer has the burden of
demonstrating that the classification is incorrect. Jarvis Clark Co. v. United States, 733 F.2d 873,
876 (Fed. Cir. 1984). Jarvis Clark instructs that a dual burden is overbroad: a court “must consider
whether the government’s classification is correct, both independently and in comparison to the
importer’s alternative . . . the importer’s alternative may have faults and yet still be a better
classification than the government’s.” 733 F.2d at 878. In other words, a court must determine the
correct classification from the evidence presented.
Court No. 95-05-00679 Page 14
The primary issue here is whether the subject articles are properly classified as “ceramic
articles” as Customs has classified them. If the articles are not “ceramic articles” but are classifiable
as “other articles of stone or mineral substances,” the subsidiary issue is whether they qualify for
duty-free entry under the Generalized System of Preferences (GSP).
I
Interpreting Headnote 2(a)
The inquiry into the classification issue begins with the language of the statute at issue. The
parties agree that the applicable statutory definition of ceramic articles is found in TSUS Chapter 5,
Part 2, Headnote 2(a). See Def. Br. at 30; TCA Br. at 11. As mentioned, Headnote 2(a) defines a
“ceramic article” as “a shaped article having a glazed or unglazed body . . . [which] is formed and
subsequently hardened by such heat treatment that the body, if reheated to pyrometric cone 020,
would not become more dense, harder, or less porous . . . .” The TSUS further specifies that the
method for testing the absorption of a ceramic body is ASTM C-373. TSUS Ch. 5, Part 2, Note 2(k).
ASTM C-373 directs that a sample of tile be weighed, then subjected to a five-hour boil and an
additional 24-hour soak before being weighed again to determine how much water the sample has
absorbed. Apparent density and porosity are measured by comparing the wet suspended and dry
weight of the sample before and after soaking.
There is no standard methodology for performing ASTM C-373 as a comparative test, i.e.,
after reheating an article to cone 020, and ASTM has not developed a protocol for comparing water
absorption before and after reheating. See A-II7 at 147, 155-156, A-IV at 475, D-II at 83-84.
7
Herein, the volumes of the Atlanta and Dallas oral records are indicated by “A” or “D”
respectively followed by the relevant volume number (Roman).
Court No. 95-05-00679 Page 15
Reheating is largely irrelevant in the commercial context unless gold or decoration is applied.
Normally, once tiles are fired and samples tested for water absorption, they are shipped and
consumed as is. Nonetheless, the TSUS specifies C-373 as the sole acceptable method to test for
water absorption in conjunction with reheating to pyrometric cone 020. Compare ASTM C-373 with
TSUS Ch. 5, Part 2, Notes 2(a) and (k). The C-373 test portion of the statutory test for ceramic
articles is not in question – C-373 is widely known and is performed on a nearly daily basis in the
industry – but neither the TSUS nor ASTM provide direction on how to perform comparative testing
to determine the change or non-change in absorption, density and porosity after reheating to
pyrometric cone 020. See TSUS Ch. 5, Part 2, Note 2(k). Nor, prior to Dal-Tile’s challenge to the
classification of wall tiles as ceramic articles, did the Customs Service have a protocol in place to
perform this testing. See A-II at 155-156.8 The parties have therefore each developed a methodology
for using C-373 in the context of a comparative test. In light of case law establishing the factors by
which courts are to evaluate the reliability of scientific evidence and the weight to be accorded that
evidence, the Court must determine which of the two produces the reliable and probative results: the
double-soak method employed by Customs or the split-tile method employed by Dal-Tile. See
Anhydrides & Chemicals, Inc. v. United States, 130 F.3d 1481, 1486 (Fed. Cir. 1997); Jarvis Clark,
supra, 733 F.2d at 876.
8
Reheating was not done on Dal-Tile tiles until 1993 when it began filing protests. On the
other hand, Dal-Tile’s representation that the paperwork was filled out by staff in the business office,
who relied upon a more general understanding of ceramics and declared that the wall tiles were to
be classifiable as ceramic articles, might reasonably be interpreted as an admission against interest,
in light of the fact that Dal-Tile also submitted at trial that the technical staff of Ceramica
Regiomontana and Dal-Tile were aware of the statutory definition of “ceramic articles” and knew
by their nature the wall tiles would not meet that definition. See A-V at 570-572. Nonetheless,
Jarvis Clark compels finding the correct classification, whatever the parties’ representations.
Court No. 95-05-00679 Page 16
The government contends it is entitled to deference on two broad arguments to suggest that
Headnote 2(a) should be interpreted to classify as ceramic some articles which become denser and
less porous upon reheating. First, it argues that the statute was meant to classify as “ceramic” all or
most wall tiles considered commercially to be ceramic. Second, it argues it would be an absurd
result if many wall tiles considered in the commercial world to be ceramic are determined to fall
outside the statutory classification for ceramic tiles. In addition, the government argues that the
changes in the tile demonstrated by Dal-Tile are de minimis and should be ignored.
Tile Counsel of America (TCA), amicus curiae, supports the government’s position. TCA
asserts that it is “uniquely qualified to provide the Court with an accurate understanding of what the
domestic tile industry considers to be ceramic wall tile” and agrees with the government that the
statute was intended to encompass all items considered commercially to be ceramic wall tile. TCA
Br. at 5-8. TCA would simplify the statute, reasoning that if an article is fired to cone 020 or higher
during manufacture, it cannot (by definition) become more dense, harder or less porous upon
reheating. TCA explains that tiles not heated to that point during manufacture are not stable and will
not be durable for a “ceramic”-intended application. TCA Br. at 11-12. TCA argues that under the
plain meaning of Headnote 2(a), the statutory reheat test is used only to determine whether the article
is a finished, usable product. TCA Br. at 12. Therefore, according to TCA, the sole purpose of the
statutory test is to determine whether an article had been fired to cone 020 when manufactured, i.e.,
whether it had become “stable,” and if it had, then any increase in density or decrease in porosity
should be regarded as de minimis. See TCA Br. at 11-13.
Court No. 95-05-00679 Page 17
A. Deference
The arguments presented implicate pure questions of law. The government is therefore not
entitled to deference with respect thereto. See, e.g., Mead Corporation v. United States, 185 F.3d
1304 (Fed. Cir. 1999). Only appropriately authoritative rules and regulations which interpret
customs classification statutes “warrant judicial deference.” See United States v. Haggar Apparel
Co., 526 U.S. 380, 390 (1999). Although the statute does not state whether the same articles are to
be tested for water absorption before and after reheating, or whether a control group may be used,
the government has failed to issue a regulation that would provide a legally binding interpretation
on that issue. In addition, there is no evidence that the government “utilized the notice and comment
rule-making process” in order to issue regulations, as was evident in Haggar Apparel (wherein
Customs set forth its interpretation in 19 CFR 10.16(C) of “operations incidental to the assembly
process” in HTSUS Subheading 9802.00.80 to exclude perma-pressing, with which the Supreme
Court agreed). 526 U.S. at 380-381, 390. The government’s interpretation of the statute, therefore,
does not meet the standard for deference.
B. Ambiguity
Headnote 2(a) requires that in order to be considered “ceramic” for TSUS classification
purposes, articles may not become more dense, harder or less porous if “reheated to pyrometric cone
020.” The language chosen by Congress refers to a specific and determinable state of energy
achieved by varying times and temperature combinations and is unique to customs classification,
because reheating to test for changes in density, hardness or porosity is not performed for
commercial purposes. See A-II at 281-282.
Court No. 95-05-00679 Page 18
In other words, classification is to be based on testing which produces empirical results. The
meaning of Headnote 2(a) is plain and unambiguous: it bases classification on the effect of reheating
subject articles to pyrometric cone 020.
As a general rule, where the meaning of the statute is plain and unambiguous, that meaning
prevails. See Muwwakkil v. Office of Personnel Management, 18 F.3d 921 (Fed. Cir. 1994). If the
statute’s text answers the question of Congress’ intent, “that is the end of the matter” and the Court
should not examine legislative history or employ other means of statutory interpretation.
International Business Machines Corp. v. United States, 201 F.3d 1367, 1372 (Fed. Cir. 2000);
Timex V.I., Inc., 157 F.3d 879, 882 (Fed. Cir. 1998); Brookside Veneers, Ltd. v. United States, 847
F.2d 786, 788 (Fed. Cir. 1988); Koyo Seiko Co., Ltd. v. United States, ___ CIT ___, ___, 110
F.Supp.2d 934, 936 (2000). Moreover, if a statute contains a specific definition, that definition
“excludes any meaning that is not stated.” Colautti v. Franklin, 439 U.S. 379, 392 & n.10 (1974)
(citing 2A Sands, Statutes and Statutory Construction § 47:07 (4th ed. Supp. 1978)). Here, the
statute plainly permits classification of articles as ceramic only if they do not become more dense,
harder or less porous after they are reheated to pyrometric cone 020.
In an analogous case, this Court’s predecessor required a precise definition of “artificial
flowers” even though that excluded merchandise generally understood in the industry to be artificial
flowers from classification under the relevant provision. Armbree Corporation v. United States,
C.D. 3278 p. 105 (1968). The plain meaning of the artificial flower provision excluded all items
except those assembled by one or more specific methods. The subject articles in that case were not
assembled by any of the enumerated methods and were therefore excluded. Testimony in the case
Court No. 95-05-00679 Page 19
suggested that the definition if read literally would exclude most artificial flowers, however the court
refused to depart from the plain meaning of the statute, since courts are “bound to determine the
intent of Congress by the language which was actually used.” Id. at 110-111.
The government argues that even where the statute appears unambiguous, a court may alter
the statute’s plain meaning based upon an examination of legislative history. However, the
government fails to point to any ambiguity or imprecision in the statute. Rather, the government
apparently objects to the statute’s precision and seeks to bypass it in order to obtain a more favorable
result.
The government also relies on United States v. Turkette, 452 U.S. 576 (1981) for the
proposition that legislative intent may trump the plain language of the statute. Def. Br. at 25. The
Supreme Court in Turkette, however, reversed an appellate court’s decision in order to adhere to the
plain language of the statute. 452 U.S. at 580-593. As the Supreme Court noted on several
occasions in that decision (and as the CCPA noted in Nippon Kogaku, 873 F.2d at 383), aids or
guides to statutory interpretation are only to be relied upon to resolve ambiguity, not to create it. 452
U.S. at 581 & 587 n.10. There is no basis to disregard the plain language of the statute and decline
to apply an objective standard to the classification of ceramics.
TCA’s description of a “classical” meaning of ceramic or the “stability” of the fired material,
which TCA points to as indicative of commercial usage, do not appear in the statute and are at odds
with a plain meaning interpretation. Likewise, TCA’s assertion that an initial treatment to cone 020
and a negative result after reheating are functional equivalents is unsupported by the evidence and
the plain language of Headnote 2(a) does not mention the initial heat treatment, only the effect on
Court No. 95-05-00679 Page 20
the body of reheating. TCA’s interpretation of Headnote 2(a) would substitute a standard based upon
heat treatment at manufacture. Congress expressly rejected such a standard.
“Although it is unnecessary to consider the legislative history because the statutory language
is clear,” International Business Machines, 201 F.3d at 1373, the legislative history of Headnote 2(a)
supports the statute’s plain and unambiguous requirement to use an objective test to determine which
tiles become more dense, harder or less porous after reheating to cone 020 and are not classifiable
as ceramic articles. As the government points out, the original draft of Headnote 2(a) proposed
basing classification upon the initial heat treatment applied during the manufacturing process. The
proposal was for any item hardened by “heating to a temperature of over 1200o F” (equivalent to 649o
C) and which met the other criteria to be classified as ceramic. See Def. Br. at 29. But that standard
was deleted in favor of the standard now before the Court – an article is not ceramic for tariff
purposes if its density, hardness or porosity changes as stated after reheating to pyrometric cone 020.
See Tariff Classification Study, First Suppl. Rep. (Jan. 1962) at 40 (“TCS”). The intent of the
legislature could not be clearer: it has based classification on the physical properties of the items
measured by the effects of reheating to cone 020, and it rejected the temperature achieved by the
initial heat treatment as a basis of classification. On this point, the TCS First Supplemental Report
removes doubt:
It can be determined if an article is a ceramic article by measuring the
physical properties of pieces of the body of such article before and after
reheating them to cone 020. If the body of the article has not previously had
sufficient heat treatment to qualify it as a ceramic article, the density and
hardness of the pieces will increase and their absorptivity and volume will
decrease.
Id. See Def. Br. at 30 (quoting id.).
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C. Absurdity
The government also argues that applying the plain language of Headnote 2(a) leads to the
absurd result of items commonly called ceramic tiles being classified elsewhere. Avoiding allegedly
absurd results in interpretation of statutory language is appropriate only to resolve ambiguities, not
to justify disregard of plain language. See, e.g., Commissioner of Internal Revenue v. Asphalt
Products Co., Inc., 482 U.S. 117, 121 (1987); 2A Sutherland, Statutes and Statutory Construction
§ 45:12 at 102 (6th ed. 2000) (statutory “interpretation cannot be justified on the ground that a result
would be unreasonable when the language of Congress would have to be disregarded”). In any
event, the government does not point to ambiguity in the language of Headnote 2(a) or offer an
alternative reading; rather, the argument is premised on the ground that it would be absurd to exclude
from Headnote 2(a) items which demonstrate “slight” changes in porosity and density. Def. Br. at
27-31.
The cases relied upon for that proposition are inapposite. They involve obvious or patent
absurdities. For example, in United States v. X-Citement Video, 513 U.S. 64 (1994), the Supreme
Court rejected the most natural grammatical reading of a statute prohibiting distribution of child
pornography and adopted a construction that avoided criminalizing the transportation of items
containing child pornography without knowledge of the items’ contents. Under a strict grammatical
reading, for example, a retail druggist who shipped an undeveloped roll of film could face severe
penalties. 513 U.S. at 69. This result would not only have been absurd, it would have been contrary
to settled principles of criminal law requiring scienter and would have put the statutes’s
constitutionality into question. 513 U.S. at 69-78. The Supreme Court thus resolved an obvious
Court No. 95-05-00679 Page 22
absurdity resulting from a purely grammatical reading of the statute which Congress could not have
intended. Here, the statutory language was clearly and deliberately inserted, the application of the
plain meaning is not absurd, and the government fails to propose a workable alternative.
Alternatively, the government argues that finding for Dal-Tile would render superfluous the
specific reference in the tariff schedule to ceramic wall tiles. It reasons that few wall tiles meeting
the commercial definition would be so classified. The Court considers this mere speculation,
however. There was no testimony to the effect that the Dal-Tile test would result in exclusion of
“all” commercial-standard ceramic wall tile from such classification, and the matter here concerns
only Dal-Tile’s slow-fired 4 1/4 x 4 1/4 wall tile and associated trim. It is true that a construction
which renders words superfluous in a statue is to be avoided, but a word is not rendered superfluous
unless it ceases to have application altogether. In NEC America, Inc. v. United States, 11 CIT ___,
681 F.Supp. 862 (1987), for example, the plaintiff in that case proposed an interpretation which
would have rendered the customs classification “radiographic and radiotelephonic transmission and
reception apparatus” superfluous as no items would be classifiable under that description that were
not also specifically listed following that description. 681 F.Supp. at 865.
Indeed, it is rather the government’s and amicus TCA’s interpretations that would render the
testing provision of Headnote 2(a) superfluous. The provision of Headnote 2(a) requiring that the
relevant properties do not change after reheating is just that – a requirement, one of several that must
be satisfied for an item to be classified as ceramic. There is no exception. The government argues
that Congress’ objective standard should be ignored for items fired in compliance with the subjective
industry standards for ceramics, see Def. Br. at 31, a standard which Congress eschewed. The
Court No. 95-05-00679 Page 23
government further claims that any tiles that were improperly fired would be too fragile to have
commercial value. Id. But broadening the “ceramic articles” definitions to include any article having
“commercial value,” as the government suggests, would render the reheating test superfluous and
introduce a completely subjective test in its place. The Court will not supplant the plain and
objective standard embodied in the statute.
D. Method Not Mandated by Statute or Legislative Intent
The government also argues that its double soak method is mandated as a matter of
legislative intent and must be followed notwithstanding its lack of adherence to scientific method.
Def. Br. at 36-37. The portion of Headnote 2(a) relied upon by the government states:
a “ceramic article” is a shaped or unshaped body of crystalline or
substantially crystalline structure, which body . . . , if reheated to pyrometric
cone 020, would not become more dense, harder or less porous . . . .
Def. Br. at 36 (emphasis added by the government).
Neither Headnote 2(a) nor the legislative history the government cites require that the same
piece of the same tile be tested for density, hardness and absorptivity both before and after reheating,
and both methods may arguably be said to fall within the language of the statute. There is no dispute
that each party’s method purports to test for changes in density and absorptivity after reheating; the
government’s method does so by testing the same piece and Dal-Tile’s does so by comparison with
a control group.
The government further argues that Headnote 2(a)’s legislative history requires testing to be
performed on the same tiles. Def. Br. at 36. The government notes that Congress stated: “‘It can be
determined if an article is a ceramic article by measuring the physical properties of pieces of the body
Court No. 95-05-00679 Page 24
of such an article before and after reheating them to cone 020.”’ Id. (quoting TCS First Suppl. Rep.
at 41). Both methodologies, however, measure the density and absorptivity of “pieces of the body”
of the same tile before and after reheating. The government does so by testing the same piece before
and after reheating whereas Dal-Tile’s method tests one piece of the tile before reheating and the
other afterwards. Again, neither method is prohibited by the legislative history provided it is capable
of producing the data Congress has required. Dal-Tile’s method is not barred and it is up to the
Court to determine which method is more reliable.
E. De Minimis Changes
Dal-Tile demonstrated at trial that the subject articles, when reheated, become more dense
and less porous. See Pl. Br. 17-18. The results of Dal-Tile’s test were observable and were
confirmed through analysis of variance (ANOVA) to be statistically significant to a confidence level
of 95%. See Pl. Br. at 19. These results were corroborated through further testing and statistical
analysis by Dal-Tile’s expert, Professor Haber. The government contends that the demonstrated
changes in the relevant properties of the subject articles are de minimis trifles which should be
disregarded under the statute. Def. Br. at 32-35. The government also contends, essentially, that any
articles that fall within the commercial standard for ceramic wall tiles must be classified as ceramic,
no matter how great the magnitude of change after reheating. Id. The government’s position is
overbroad for three reasons.
First, as above mentioned, the statute does not reference commercial definitions, it bases
classification on a before-and-after comparison which measures the effects of reheating.
Classification is not achieved on the basis of reference to commercial definitions but pursuant to an
Court No. 95-05-00679 Page 25
objective test, one that is unique in the TSUS. Nothing in the statute implicates a basis for
comparing any changes produced by reheating to “commercially-accepted variations” among the
properties of wall tiles considered “ceramic” in the industry.
Second, the government relies upon the CAFC’s decision in Alcan Aluminum Corp. v. United
States, 165 F.3d 898 (1999) for the proposition that Dal-Tile’s results should be ignored as de
minimis. The Alcan court held, however, that the de minimis rule only applies where a standard’s
purpose would otherwise be defeated. 165 F.3d at 903. Dal-Tile does not argue that even the
slightest change should control, it argues that the subject articles are not “ceramic articles” because
the observed changes of Dal-Tile’s methodology were proven to be statistically significant. The
purpose of Headnote 2(a)’s objective standard is to classify as ceramic only those articles which do
not exhibit the relevant changes after being reheated to cone 020. The statute’s purpose would be
defeated if, as the government proposes, tiles demonstrating significant change are nonetheless
classified as ceramic.
Third, as described more fully below, the changes are not de minimis even under the ASTM
C-373 specifications relied upon by the government. C-373 states that the test is accurate to +/-0.1%
on measurements made by a single operator and to +/-0.2% for testing involving multiple
laboratories. Pl. Ex. 12. The changes observed through Dal-Tile’s method conducted by a single
operator exceeded 0.2%, thus exceeding the C-373 threshold for accuracy. The results obtained by
Dal-Tile are therefore reasonable as they are produced by close adherence to the statute and do not
contradict the statute’s purpose.
Court No. 95-05-00679 Page 26
II
Test Methodology Probativeness – Whether the Subject
Articles Meet the Statutory Definition of “Ceramic Articles.”
In the context of a challenge to a scientific testing method used by the government to classify
imported merchandise, our appellate court has addressed certain factors to be considered in deciding
how much weight to give scientific testimony. Libas, Ltd. v. United States, 193 F.3d 1361 (Fed. Cir.
1999). In Libas, an importer of textiles challenged the government’s classification of certain textiles
as machine-loomed rather than hand-loomed. 193 F.3d at 1363. The CAFC found error in accepting
a government test method without examining its reliability, although the importer had presented
sufficient evidence to destroy the presumption of correctness attaching to the government’s testing
method. 193 F.3d at 1366-68. Libas held that the admissibility of the government’s test could not
be challenged because the test had become part of the official record, and it concluded that the trial
court should have, at least, applied the four factors enumerated in Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993) to assess the reliability of the evidence and the weight
to be accorded to it. Those four factors are: (1) the testability of the hypothesis; (2) whether the
theory or technique has been subject to peer review and publication; (3) the known or potential rate
of error and the existence or maintenance of standards controlling the technique’s operation; and (4)
whether the technique is generally accepted. Id. at 1366-67 (citing Daubert, 509 U.S. at 593-94).
The purpose behind the Daubert factors is to assess the scientific validity, trustworthiness
and evidentiary reliability of a scientific theory. Daubert, 509 U.S. at 589-90 & n.9. “[I]f a trial court
relies upon expert testimony, it should determine that the expert testimony is reliable.” Libas, 193
F.3d at 1366. Reliability, in turn, is the touchstone for expert testimony on scientific knowledge.
Court No. 95-05-00679 Page 27
Daubert, 509 U.S. at 589; Libas, 193 F.3d at 1365-66. Where the reliability of scientific or technical
testing is in dispute, reliability becomes a “key consideration” in the weight to be accorded to the
scientific evidence by the court sitting as the finder of fact. Libas, 193 F.3d at 1366 (citing United
States v. Velazquez, 64 F.3d 844, 848 (3d Cir. 1995)). Daubert and Libas thus place scientific
method at the heart of the reliability inquiry. See Daubert, 509 U.S. at 590 (“in order to qualify as
‘scientific knowledge’ an inference or assertion must be derived by the scientific method”); id. at
594-95 (“[t]he focus . . . must be solely on principles and methodology”).
(1) Testability of the Hypothesis
The first Daubert factor, the testability of the hypothesis behind the methodology, includes
determining whether the hypothesis can be falsified. Daubert, 509 U.S. at 593. The hypothesis
underlying the Customs test is that the ASTM C-373 procedure and the subsequent heat treatment
do not alter the tile, so that the second C-373 procedure can be performed on the very same sample.
By contrast, the hypothesis underlying the split tile-method is that the ASTM C-373 procedure is
itself destructive to the tile and that the heat treatment called for in the statute will confound the
results of any subsequent test on the same piece of tile because it will return the tile to its original
state.
Dal-Tile and Prof. Haber tested both of these hypotheses, by replicating the Customs test, by
analyzing the results of the New Orleans lab tests as well as those done in Los Angeles, and by
performing a multiple-soak test to measure the effect of the C-373 procedure on a single piece of tile.
The Customs laboratory in New Orleans appears to have developed its double-soak methodology
without attempting to test its hypothesis: the expert for the government assumed that C-373 was
Court No. 95-05-00679 Page 28
destructive only because the tile was broken into pieces, not because boiling a tile for five hours and
then soaking it for another 24 might affect the tile. A-VI at 844-845. Likewise, Dr. Brosnan never
performed any testing on the wall tiles in an attempt to confirm the Customs hypothesis or the
scientific soundness of the Customs method. A-VI at 881-884. It is significant, however, that Dr.
Brosnan did not disagree with the scientific validity of the particular elements that make up the split-
tile technique, such as taking a large sample population and using control samples against which to
check the results. A-VI at 870-74. He also agreed that ANOVA is an important technique used to
validate the results of research. Id. On the other hand, he indicated that the larger sample
populations that Dal-Tile and Prof. Haber used are not required under the terms of C-373, which he
termed a practical test, and that ANOVA is likewise not called for under the statute. See id.It is true that some of the steps that Dal-Tile and its expert took in order to check and double-
check the results of their methodology are not required by the statute. Such steps would not,
however, be required of Customs by this decision in routine ceramics testing practice. But in this
instant matter, at least, it is very the precision of such steps which confirm the reliability of Dal-
Tile’s split-tile method.
Dr. Brosnan testified that a heat treatment of 600o Celsius (pyrometric cone 020 was reached
at 625o Celsius in the Customs test) on a tile which had been subjected to a C-373 soak would return
to its original state. A-VI at 844. This directly undermines the Customs hypothesis that the same
tile would be unaffected by moisture expansion during the 29-hour soak, could be tested before and
after reheating, and that the results would be a reliable indicator of change or its absence. Dr.
Court No. 95-05-00679 Page 29
Brosnan also testified that he had heard this at a presentation the week before his testimony in April
2000, which is not likely enough time to absorb all the nuances of the theory. Id.(2) Peer Review and Publication
The second Daubert factor considers whether a method has been published and subjected to
peer review. At trial, the government criticized Dal-Tile’s methodology for not having been
subjected to either and argued against the admission of Dal-Tile’s expert testimony and the plaintiff’s
test evidence.
Both Daubert and Libas emphasized repeatedly that the factors to be considered in evaluating
the reliability of scientific evidence are flexible. “There is no iron law that the Daubert factors be
applied in Customs classification cases,” the Daubert factors are merely representative of the matters
which should be taken into account when a court assesses reliability, a matter of discretion. Libas,
193 F.3d at 1367. A rigid approach to the admissibility of scientific evidence is at odds with the
“liberal thrust” of the Federal Rules of Evidence and their general approach to relaxing traditional
barriers to the admission of scientific evidence, particularly when based on innovative, but reliable,
theories. Daubert, 509 U.S. at 588. Cf. Frye v. United States, 293 F. 1013, 1014 (App. D.C. 1923).
Daubert further cautioned against reading into the decision a “definitive checklist.” Daubert, 509
U.S. at 593. Publication is not the “sine qua non” of reliability and peer review is a relevant but not
dispositive factor in assessing reliability. 509 U.S. at 593-94. “Some propositions . . . are too
particular, too new, or of too limited interest to be published.” Id.; see also Libas, 193 F.3d at 1366-
67 (Daubert factors do not exhaust the list of possible factors to be considered when assessing
reliability, and the Daubert factors may not be applicable to every Customs case).
Court No. 95-05-00679 Page 30
The evidence presented at trial established that a methodology for a test which is only
performed for purposes of Customs classification of ceramic tile is of interest only to Customs and
to those who might import tile to the United States. It is “too particular . . . or of too limited interest
to be published.” Moreover, when Customs began to test wall tiles to determine their conformity
with the statutory definition of “ceramic articles,” there was no standard protocol developed by
Customs Headquarters. See A-II at 155-156. The New Orleans laboratory developed the double-
soak methodology on an ad hoc basis, and it, too, has not been published or peer-reviewed for
reliability by other scientists or by the courts in light of the standards for determining the evidentiary
reliability of scientific evidence. See A-II at 152. The government’s own double-soak methodology
suffers from at least the same “deficiencies” that the government ascribes to Dal-Tile’s methodology.
Although neither the split-tile method nor the Customs double-soak method had been
published or peer reviewed at the time of trial,9 the purpose of the requirement for peer review is that
submission to scrutiny “increases the likelihood that substantive flaws in the methodology will be
detected.” Daubert, 509 U.S. at 593. Dal-Tile contends this was precisely what happened when it
and an outside expert replicated the Customs tests in their own laboratories – they found the flaw
in the Customs hypothesis. Dal-Tile contends that the split-tile test was designed to eliminate that
flaw, and to ensure that what was being measured was really a change due to reheating, not due to
any alteration of the tile by the earlier C-373 testing. A-II at 285-287; A-IV at 436-440, 468-475.
Dal-Tile argues that the split-tile test itself has not been peer reviewed, but the individual elements
which make up the split-tile test (ASTM C-373, the sampling technique, the use of control samples)
9
Prof. Haber testified that he intended to publish his findings.
Court No. 95-05-00679 Page 31
have all been accepted as part of sound scientific technique. Moreover, Dal-Tile points out, the
moisture expansion theory – which led Mr. Cornia and Prof. Haber to question the reliability of a
technique which subjects the same tile twice to the same test and which has been deemed destructive
by ANSI – has been widely published. See, e.g., A-VI at 844-848, 851-855 (testimony mentioning
paper on moisture expansion delivered the previous week at the Southeastern Section of the
American Ceramics Society), A-V at 732 (testimony mentioning various papers on moisture
expansion authored by Dr. Richard Bowman); see also Pl. Exs. 44-48. In other words, Dal-Tile
argues, the work done by Dr. Bowman confirms what has been known by ANSI, an association
which sets standards for industry acceptance: that C-373 is a destructive test and so alters the nature
of the tile that it cannot be sold after testing, even if it is tested whole. See Pl. Ex. 1. The Court
concurs.
(3) Known or Potential Rate of Error
The third Daubert factor looks at the known or potential rate of error. One of the ways this
rate of error can be determined is through analysis of variance, or ANOVA. Dr. Brosnan testified
that ANOVA is not only an important technique in scientific research but is a commonly accepted
statistical method, although it is not called for in the statute or in the C-373 test method. A-VI at
870-871. ANOVA was employed by both Dal-Tile and Prof. Haber to check the statistical
significance of the results of their testing and of the results of testing performed by the New Orleans
and Los Angeles laboratories. Although not required by the statute to be employed in everyday use,
the method provides a further check on the reliability of the testing methodologies being presented.
Court No. 95-05-00679 Page 32
The analysis of the split-tile method showed that the results were reliable to a 95 percent
confidence level (a level commonly used in research) and that the changes observed in the tile
populations were statistically significant. Pl. Exs. 17, 43. The analysis of the Customs method – in
tests performed both by the New Orleans lab and the Los Angeles lab – showed that the changes
observed in the tiles were not statistically significant because in each case the F factor was
significantly below the F critical factor, and that the results were incoherent, regardless of how long
after manufacture the tiles were tested. Pl. Ex. 51; App. B. In other words, the Customs method
apparently demonstrates a high potential rate of error.
Another element of the third Daubert factor is the existence and maintenance of standards
controlling the operation of the technique. This factor became important in Libas, where the court
found that the failure of Customs to employ the “obvious and natural” method of double-blind
testing (in which the testers would perform the comparison without the knowledge of which fabric
was hand-loomed and which was machine-loomed) cast doubt upon the reliability of the Customs
testing method. Libas, 193 F.3d at 1368. Here, Customs failed to employ – or apparently even
consider – the equally “obvious and natural” technique of comparing a specimen which has been
subjected to reheating against control samples, which may not be required by the language of the
statute but is required by good scientific practice. See id. Accordingly, the Court accords the
reliability of the Customs methodology little weight. See Libas, 193 F.3d at 1366.
(4) General Acceptance
The fourth Daubert factor is general acceptance. General acceptance is the former standard
for admissibility of scientific evidence under Frye. Perhaps recognizing that general acceptance is
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“an imperfect proxy for reliability,”10 the Supreme Court stated in Daubert that Rule 702 of the
Federal Rules of Evidence permits but does not require the identification of the relevant scientific
community and an express determination on the degree of acceptance within that community.
Daubert, 509 U.S. at 594.
In this matter, to the extent that general acceptance is applicable to either method as a whole,
the relevant community (i.e., the tile-making industry exporting tiles to the United States) has not
had much of an opportunity to absorb the methods. On the other hand, the particular elements of
each methodology can be scrutinized for general acceptance or widespread use, even if the
techniques as a whole are not well known beyond a very small circle. The individual elements of
the split-tile method are well-known and generally accepted by the scientific community. The only
new part of the split-tile methodology is the means of making the comparison, which is itself based
upon the sound scientific practice of using a control. Although the case law expressly counsels
against reading Daubert as a rigid checklist or test for reliability of scientific evidence, it is at least
clear that the split-tile technique developed by Dal-Tile comes closer to satisfying the four Daubert
factors than does the method developed by Customs. Consideration of the Daubert principles thus
supports finding in favor of Dal-Tile’s methodology over Customs’ methodology.
III
The Split-Tile Method Produces a Reliable
Reading Of Change or Non-Change In a Tile Sample.
The evidence presented at trial demonstrates that Dal-Tile’s split-tile method produces
consistently reliable and probative results at several different temperatures and rates used to reach
10
Libas, 193 F.3d at 1368
Court No. 95-05-00679 Page 34
pyrometric cone 020. See Pl. Exs. 17, 43. Those results show that, with very few exceptions, when
compared to the corresponding half which had not been treated with heat the samples of tile halves
which were reheated to cone 020 at 700o, 710o, 635o or 625o Celsius became less absorptive, more
dense, and less porous, to a statistically significant degree. Pl. Ex. 17 and 43. Testifying for the
government, Ms. Simoneaux agreed that Customs would not classify a tile as a ceramic article under
TSUS 532.24 if testing shows that it becomes harder, more dense, or less porous as a result of
reheating. A-II at 143. Since the results of the split-tile method show that the tiles tested became
more dense and less porous upon reheating to pyrometric cone 020, it is therefore unnecessary also
to show that the tile has become harder.
The results of the split-tile method were confirmed by a standard statistical analysis
technique. See Pl. Ex. 17 and 43. In contrast, the government’s double-soak method produced
inconsistent and incoherent results and employed no controls. In its post-trial brief, the government
now suggests that because Daubert and Libas are applied flexibly, the Daubert factors may be
ignored. Def. Br. at 35-36. Indeed, the case for the reliability of the government’s test rests on two
propositions that require the Court to ignore the Libas inquiry altogether. First, the government
argues that Headnote 2(a)’s legislative history mandates the government’s double soak method
regardless of its reliability. Def. Br. at 36-37. Second, the government and TCA argue that the
Customs method, which involves soaking the same pieces of tile both before and after reheating to
cone 020, is more reliable than Dal-Tile’s split-tile method which employs a control group. In so
arguing, they ask the Court to bypass a proper Libas inquiry on two essential points: (1) the
government and TCA ask the Court to credit the government’s expert’s opinion testimony that the
Court No. 95-05-00679 Page 35
initial soak performed under the C-373 procedure does not affect the tile for purposes of the
subsequent reheating and soak, rather than crediting the experiment conducted by Dal-Tile’s expert
which demonstrated the existence of such an effect and the evidence of other experiments including
published research, which support these findings; (2) the government and TCA ask this Court to
accept the government’s expert opinion that normal variations in density, hardness and water
absorption within a given tile undermine the reliability of Dal-Tile’s results rather than credit solid
evidence that the potential for such an effect was negated by Dal-Tile’s use of standard research
techniques including the use of a sufficiently large sample population and statistical checks for the
significance of its results.
The government cannot square its reliability claim with the methodological inquiry required
by Libas on such bases. None of the factual arguments put forth by the government either in support
of its test or in opposition to Dal-Tile’s address reliability as it is to be considered under Libas. Dal-
Tile demonstrated, apart from the two mandated components, that only Dal-Tile’s test employed
generally accepted methods of scientific inquiry. Only Dal-Tile’s method employed a control
sample. Only Dal-Tile tested a larger sample population. Only Dal-Tile tested the hypothesis that
the first soak affected subsequent results. And only Dal-Tile subjected its results to analysis for
statistical significance using an analysis of variance. The government does not dispute that methods
employed in Dal-Tile’s test – such as a larger sample size, use of a control group, the testing of
hypotheses, and the use of statistical analyses to test the significance of results – are generally
accepted methods routinely employed in scientific research inquiry that aid in establishing the
reliability of results. Nonetheless, the government argues that two aspects of Dal-Tile’s test
Court No. 95-05-00679 Page 36
undermine its reliability: Dal-Tile’s use of a control group and Prof. Haber’s use of low and high
temperature extremes for reheating to cone 020. As discussed below, the elements of Dal-Tile’s
method which the government challenges actually make Dal-Tile’s test more reliable, not less so.
By contrast, the government’s test fails to meet any of the Daubert criteria or employ basic principles
or methods of scientific inquiry, such as using a representative sample population, using control
groups, or testing the hypotheses via, e.g., statistical checks. The government has not offered any
methodological basis to support the reliability of its own test or offered appropriate arguments for
the abandonment of the Daubert/Libas analysis in favor of other indicia of reliability.
There is no dispute that Libas guides this Court’s fact finding with respect to the reliability
of the tests put forth by the respective parties. But, none of the arguments offered by the government
or by TCA are supported by the analysis of scientific methods required under Libas. Although Libas
does not require the application of each Daubert factor in every customs case, the factors are
applicable where, as here, the question involves the reliability of scientific or technical processes.
See Libas, 193 F.3d at 1367.
The evidence presented by Dal-Tile in support of its split-tile method clearly demonstrated
the reliability of the results under a variety of conditions. The split-tile methodology that Dal-Tile
performed in preparation for trial involved far more measures to determine the accuracy of the
method and of the data than would be required of or by Customs in everyday application; however
in this matter, at least, these measures demonstrate that the split-tile method produces results which
are a more reliable reading of change or non-change than the Customs double-soak method.
Court No. 95-05-00679 Page 37
A. Sample Population Size
The parties dispute the sufficiency of the sample size necessary for reliable testing (thus
implicating the fourth Daubert factor). It is a well-known proposition in science that the greater the
number of samples chosen from a population, the greater the likelihood that the samples tested will
be representative of the population as a whole. The government’s witness who performed the test,
Ms. Simoneaux, accepted this proposition. See Def. Br. at 35-41; A-II at 177, 185-86. She testified
that one reason she began using five samples from one tile was simply that she often had just one
tile to work with, and that as soon as more tiles became available to her, she used a greater
population of tiles. A-II at 177, 185-186. In addition, she stated explicitly that the reason she chose
10 to 20 indentation sites on each sample on which to perform hardness testing was that she felt she
could get a more accurate result with a greater number of sites. Id.In this matter, Dal-Tile used 15 samples in each of its four tests while Prof. Haber used 50
samples per test. Dal-Tile confirmed the sufficiency of its sample size of 15 in two ways. First, its
expert, Prof. Haber, replicated two of Dal-Tile’s four tests using 50 split tiles instead of 15 and
obtained strikingly similar results. Second, Dal-Tile tested its results for statistical significance using
ANOVA. By contrast, the government’s tests used a sample population of five pieces taken from
a single tile. It is true, as the government points out, that the statute calls for “at least” five samples
to be used, but that is only the minimum number. Whether it is considered reasonably representative
of the shipment being classified is a question of fact. Arguing in support of the government’s
position, TCA contends that five samples are sufficient because it represents standard industry
practice for everyday testing under ATM C-373. TCA Br. at 33-34. However, the contention is
Court No. 95-05-00679 Page 38
irrelevant because the issue here is the sample size needed for reliable comparisons between different
sets of C-373 results to measure the effects of reheating.
Tile-making is not an exact science, and there are necessarily variations within tiles and from
tile to tile. The greater the number of samples used, the more representative the sample population
will be of the true population, and the less likely will the results be skewed due to variation within
and among tiles. See A-II at 290-291. A tile may have internal variations of absorption of 10 or 20
percent from one spot to another, however these variations tend to fall into a predictable pattern.
This was evident in Prof. Haber’s observation that he was getting “unusual” density results and his
subsequent discovery that the tiles he was using were all denser on one side than the other: he had
inadvertently split the tile at the line of demarcation. A-V at 620-623. Moreover, it is important not
to take such variations out of context, where the overall absorption of the tile still falls within the
range of absorption acceptable to Dal-Tile. Even though a particular spot on a tile may have 15
percent absorption and be 25 percent more absorbent than another spot on the same tile, which has
only 12 percent absorption, such variability is narrowed as more observations are compared,
eventually reaching the point of irrelevancy as the perspective becomes the average absorption of
the entire tile. The same is true when considering an entire shipment or tile population.
Thus, where the government is deciding the classification of an entire shipment of tiles based
on five samples from a single tile, it is incorrect to argue that the population of tiles (of the shipment
as a whole) is less important than a single tile. The Court therefore concludes that Customs’ use of
the statutory minimum does not undermine Dal-Tile’s contention that its larger sample size is more
representative of an entire shipment of tile than samples of a single tile, and the government does
Court No. 95-05-00679 Page 39
not otherwise argue the implications of each party’s sample size with respect to the relative reliability
of the tests. Def. Br. at 4, 35-41; Pl. Ex. 12 (“at least 5”). Further, the Court concludes that only
Dal-Tile used a sample sufficiently large enough to produce reliable results.
B. Baseline Measurement
Dal-Tile’s method employed a control group consisting of half of each tile tested, which
served as a baseline against which to measure changes in the subject articles properties after
reheating to cone 020. Pl. Br. 49-50. By contrast, the government’s method involved subjecting the
same pieces of tile to the C-373 soaking procedure both before and after reheating. In setting aside
half of each tile, Dal-Tile isolated the sole variable relevant to classification, namely the effect of
reheating the tile to pyrometric cone 020. The use of control groups is standard scientific practice,
just the kind of “obvious and natural” technique that a fact-finder would expect to see when
assessing reliability. See Libas, 193 F.3d at 1368.
The government does not dispute that the control groups are generally accepted in scientific
experimentation as aiding reliability; rather, the government makes the unusual contention that this
generally accepted aspect of scientific experiment design should be abandoned in this instance. The
government argues that each piece tested should be subject to C-373 both before and after reheating
because, the government contends, the relevant properties of a control sample taken from the same
tile is not reliable. The government is wrong for at least two reasons.
First, the government’s failure to use a control group introduces error and uncertainty into
its own test. In the government’s test, the effect of the subject tile’s physical properties resulting
from reheating the samples to cone 020 cannot be viewed separately from the effect of subjecting
Court No. 95-05-00679 Page 40
the samples to C-373 before reheating. The government contends that the effect of soaking the tiles
before reheating is nonexistent or is reversed by reheating to 600o C,11 however neither the
government nor Dr. Brosnan tested either hypothesis on representative samples of the subject
articles. A-VI at 881-84. For that matter, unrebutted evidence indicates that the tiles must be
reheated to a temperature greater than that prescribed by Dr. Brosnan to fully reverse the effects of
the soak. See Pl. Exs. 54, 48, and A-V at 732-33. Rather, the government relies on its expert’s
opinion as to the likely effect of the C-373 test on ceramic tiles generally. But that merely begs the
question: are the subject tiles “ceramic articles” under the statute if (and as apparently demonstrated
by Prof. Haber) they are indeed altered by the C-373 procedure? See Def. Br. at 39.
Second, Dal-Tile’s test is designed to minimize the effect of any variations within a single
tile on the overall results. By testing a large sample, Dal-Tiles method accounts for the possibility
that variances may exist among different pieces taken from the same tile. Dal-Tile tested sufficiently
large quantities of pieces such that a general trend emerged despite variances within individual tiles.
As an additional control, Dal-Tile tested and established the statistical significance of its results by
employing an analysis of variance (ANOVA).
Thus, as Dal-Tile has shown, the government’s method does not reliably test the effect of
reheating the subject articles because the government’s method introduces another variable which
confounds the results. This Court therefore can be certain only that Dal-Tile’s test measures the
effect of reheating to cone 020, because only Dal-Tile identified and addressed the possible effect
of other variables. Any alleged ill effects resulting from potential nonrandom selection of the control
11
See Def. Br. at 6.
Court No. 95-05-00679 Page 41
group are negated through other generally accepted elements of scientific technique, e.g., sample size
and ANOVA.
Ms. Simoneaux, the Customs analyst, and Dr. Brosnan (Customs’ expert) contradicted one
another regarding the variations within a single tile and the impact of these variations on the
methodology chosen. While Ms. Simoneaux testified that there was too much variation within any
individual tile to do a split-tile test and compare two halves of the same tile to one another, Dr.
Brosnan testified that there was too much variation from tile to tile to compare one tile to another.
A-II at 163-164; A-VI at 855-859. Both, however, came to the conclusion that the remedy for these
variations was to subject individual tile specimens to two rounds of testing, without using control
samples which were not subject to heat treatment to determine if the observed change or non-change
was really due to the reheating or was due to another factor. Id.By contrast, the split-tile method compares two halves of the same tile, one of which has been
subjected to reheating, the other which has not. Even though there may be variations within a tile,
these tend to fall into predictable patterns and can be accounted for. A-V at 622. These variations
cannot be accounted for when the same tile is put through a series of destructive tests which effect
the tile. Dr. Brosnan stated that the first C-373 test and the reheating have the effect of canceling
each other out. See A-VI at 844-847 (testimony that a heat treatment of 600o Celsius after a C-373
test would return a tile to its original state). The assertion either continues to presume that C-373
had no effect whatsoever on the tile prior to reheating, which is not proof of that hypothesis, or it
admits that C-373 altered the tile prior to reheating. Either way, the double-soak method itself is not
sufficient proof of the hypothesis that C-373 does not effect the tile. The double-soak method,
Court No. 95-05-00679 Page 42
therefore, does not provide a reliable baseline from which measurement may be made, and it comes
as no surprise that the data therefrom proved incoherent.
C. Consistency of Results at Different Reheating Ramps to Cone 020
The split-tile method was shown to produce consistent and reliable results at different
temperature equivalents for pyrometric cone 020 – both at the slowest and fastest cycles and in the
middle. Although the government focused on the extreme temperatures and reheating ramps to
which Dal-Tile and Prof. Haber had subjected their tested samples, Dal-Tile also tested to cone 020
at 625o and 635o, the very temperature equivalents listed in the Orton Literature. Dal-Tile’s results
were consistent with the results achieved at the temperature extremes. Pl. Ex. 17. Dal-Tile and Prof.
Haber explained that the reason he did not perform such intermediate testing was that his results at
575o and 710o – the slowest and fastest cycles possible with Dal-Tile’s equipment – confirmed the
reliability of the results Mr. Cornia had achieved at those extremes.12 Witnesses for Dal-Tile and
Prof. Haber represented that due to the expense and time-consuming nature of the C-373 testing,
additional testing by Prof. Haber at 625o and 635o was determined unnecessary because the results
were bound to fall between those observed at 575o and 700o. Pl. Exs. 17, 43; A-V at 720.
The government and TCA suggest that Dal-Tile’s method should be rejected because Prof.
Haber used an allegedly less reliable heat cycle for reheating to cone 020 than the government did.
Def. Br. at 10; TCA Br. at 38-39. This suggestion is misleading in that it suggests that Dal-Tile’s
method rests on the test performed by its expert, Prof. Haber, and not the tests performed by Dal-Tile
itself. TCA attempts to discredit Prof. Haber’s testimony on the grounds that the tests he conducted
12
Dal-Tile’s and Prof. Haber’s tests at 575o were both consistent in the sense that both
achieved statistical insignificance, even if they did not prove changes in porosity and hardness.
Court No. 95-05-00679 Page 43
did not conform to industry standards or were not the subject of publication. TCA Br. at 14.
However, Prof. Haber, like the government, used the standard C-373 procedure and independently
constructed a methodology similar to what Dal-Tile had constructed to accomplish a reheat test that
is unique to the statute and not the subject of industry standards. Moreover, no method for
conducting a reheat test for customs classification purposes has been published. However, Dal-
Tile’s claim in this protest is based on the tests that Dal-Tile itself conducted, the results and
methodology of which Prof. Haber confirmed. The government and TCA ignore the uncontroverted
testimony that Dal-Tile used the same heat cycle for one of its tests as the government used.
It is undisputed that both the government and Dal-Tile conducted tests using a
time/temperature ramp of 60o/hr until the proper cone deformed at 625o. See Dal. Br. at 16
(Government test), 18 (Dal-Tile test). Dal-Tile also conducted tests at 635o, 575o and 700o C using
different rates of heat increase. All four tests involved reheating to cone 020. Dal. Br. at 17. As Mr.
Cornia testified, he chose to test at extreme as well as intermediate firing rates to obtain results that
would be representative of all possible firing rates of Dal-Tile’s kilns. Id. Mr. Cornia testified that
the results of all four Dal-Tile tests showed a trend towards lower absorption. Dal. Br. at 18. Further,
these results were statistically significant at all temperatures with the exception of 575o. Id.However, it is also of some significance that Dal-Tile and Prof. Haber each independently observed
no statistically significant change at 575o. Since the government also reheated to 625o C and
concedes that reheating to cone 020 at 635o C is acceptable, only the tests of reheating to cone 020
at 575o C and 700o C are disputed by the government.
Court No. 95-05-00679 Page 44
Prof. Haber conducted additional tests which confirmed Dal-Tile’s results at 575o and 710o.
Prof. Haber testified that the results of reheating at the intermediate heating rates would produce
results between those of the two extremes he tested, mirroring the results obtained by Dal-Tile. See
Dal. Br. at 21. Although Prof. Haber stated that the results he obtained at 575o and 700o C were
different than those he would expect at the intermediate rates used by Dal-Tile, his results at the
extreme rates agreed with those Dal-Tile achieved at the same rates. His testimony is unequivocal
that he confirmed the soundness of Dal-Tile’s method and results. TCA makes much of Prof.
Haber’s “admission” that reheating to cone 020 using different reheating rates would produce
different results. TCA Br. at 39. Prof. Haber did not suggest that results of reheating to cone 020 at
625o or 635o C would fail to show a change in water absorption. Dal. Br. at 22. Thus, the fact that
Prof. Haber did not conduct additional tests at 625o and 635o does not undermine the reliability of
the tests Dal-Tile conducted at those temperatures.
The government and TCA also imply that the time/temperature ramp employed in the
government’s test (and one of Dal-Tile’s tests) is “prescribed” or “recommended” by the
manufacturer and that the rates employed by Dal-Tile in addition to those rates are somehow not
“permitted.” See, e.g. , Def. Br. at 4. However, none of the witnesses who had experience with
pyrometric cones would agree with the government’s statement that the manufacturer of the
pyrometric cones “recommended” any particular temperature or rate of heating to reach pyrometric
cone 020. A-V at 759. Even Dr. Brosnan testified that there are many different ways to reach cone
020 and that the temperature equivalents listed in the Orton literature – 625o and 635o Celsius – had
been observed over the decades to produce reliable deformation of the cone and that any of the
Court No. 95-05-00679 Page 45
reliability of deformation was not as well observed for any other temperature or rate. A-VI at 862-
864. Research papers prepared by the Orton Foundation, which manufacturers the cones, make clear
that each of the Orton cones measures various time/temperature ramps producing deformation. See
Exhibit 20 at 107 & Table 1 (data available showing deformation produced by various heating rates
exists for most Orton cones). As Table 1 of Exhibit 20 shows, a given cone will deform differently
depending upon the heating rate used and maximum temperature achieved. In fact, the Tariff
Classification Study cited by the defendant and TCA recognizes that 020 cones deform at different
heating rates. See 1962 TCS First Suppl. Rep. at 41. As the Report notes, the temperature at which
cone 020 deforms depends in part upon the rate at which temperature is increased. Neither Headnote
2(a) nor the legislative history indicates the angle of deformation of cone 020 that should be used
in reheating. Thus, there is no requirement that a particular heating rate be used to conduct the
statutory test, so long as it produces a deformation in the cone.
D. Testing Hypotheses
Daubert identifies the testability of the hypotheses as the first of four factors to be considered
with respect to the reliability of any scientific evidence. 509 U.S. at 593. In particular, Dal-Tile
hypothesized that C-373 is a destructive test that alters the density, hardness and absorptivity of the
subject articles. By contrast, the government’s method assumes that C-373 is non-destructive.
Dal-Tile tested and proved the hypothesis that C-373 is a destructive test in that it causes the
subject merchandise to absorb water. See Pl. Br. at 22, 40. This hypothesis is supported by the
research of R. Bowman who, in peer reviewed articles, established that tiles must be reheated to
approximately 900o C (well in excess of pyrometric cone 020) in order to reverse fully the effects
Court No. 95-05-00679 Page 46
of moisture absorption resulting from soaking the tiles in a manner similar to C-373. See Pl. Exs.
45, 48, A-V at 732-33. Dal-Tile’s hypothesis is further supported by ANSI, which has designated
C-373 as a destructive test. The government’s argument that ANSI designated C-373 as
“destructive” solely because tiles are split, and not because the tiles are boiled and soaked, is
incorrect, since the ANSI materials state that C-373 should be performed on whole tiles. See Ex. 1
(“use uncut, unbroken glazed samples in lieu of unglazed fractured specimens as called for in ASTM
C-373”). Since, as Prof. Haber demonstrated, the C-373 test alters the tile, A-V at 608-13, and, as
Dr. Brosnan testified, reheating reverses the water absorption that took place during C-373, A-VI
at 844-45, the effect of reheating the tiles to cone 020 is masked.
As noted above, the government never tested its hypothesis on the subject articles, and
instead relies upon the opinion testimony of Dr. Brosnan. A-VI at 881-84; Def. Br. at 39. Since the
government’s test neither isolates nor disproves the existence of any effect produced by the initial
soak on the subject articles, it is impossible to know how the initial soak affected the pieces the
government tested and how that might have affected the results of the government’s test. The
government’s method is unreliable as a test of the effect of reheating to cone 020 on the relevant
properties of the subject articles, because the effect of reheating was not isolated as a variable. As
the Libas court noted, “[t]o assess a test’s reliability, it is necessary to know what it tests.” 193 F.3d
at 1367.
TCA incorrectly suggests that Prof. Haber did not establish that the initial soak alters the
subject tiles. See TCA Br. at 27-28. TCA so argues on the ground that the changes were not
uniform from tile to tile and that some individual tiles showed changes after soaking that were
Court No. 95-05-00679 Page 47
inconsistent with the hypothesis. While Prof. Haber’s experiment showed that the effect of soaking
under the C-373 procedure was not uniform on every tile tested, he testified that, in subjecting 50
tiles to multiple soaks under the C-373 procedure, he obtained statistically significant results
showing changes in the tiles’ relevant properties after an initial soak. See A-V at 692-700. Again,
individual results vary, which is why good research practice uses sufficiently large sample
populations and analyzes variance, as Dal-Tile did here. Thus, Prof. Haber’s conclusion that the
initial soak affects the tile rests on the application of sound scientific research methods and is here
accorded such credit as is due.
Prof. Haber’s conclusion that the initial soak affects the tiles is further supported by the
published research of Richard Bowman. See Exs. 44-48. Dr. Bowman demonstrated, inter alia, that
the tiles exposed to a 24-hour soak, even after reheating, will expand. Ex. 48. Dr. Bowman’s
articles were published, thus meeting the second Daubert factor. Dal-Tile’s hypothesis that the tiles
are affected by the C-373 procedure is supported by both Prof. Haber’s analysis of the subject articles
and published research.
The government’s assertion that C-373 would not alter the subject tiles’ properties because
“tiles were made for long-term use in water without any meaningful deterioration,” see Def. Br. at
6, is incorrect for several reasons. First, the testimony upon which the government relies related to
the potential impact of steam from a bath or shower on wall tiles, not the effect of their immersion
in water for 24 hours after 5 hours in boiling water. Wall tiles are not intended for long-term
immersion in water and are therefore not designed with the same structural stability that
characterizes stable ceramic articles. Pl. Br. at 4. Second, only the glazed side of wall tiles (or floor
Court No. 95-05-00679 Page 48
tiles) is exposed to water in commercial use, whereas the C-373 procedure exposes the entire body
of the tile to water. Third, the commercial conditions cited by the government, unlike the C-373
procedure, do not expose the tiles to prolonged boiling. Thus, the general performance of tiles when
exposed to moisture under commercial conditions cannot suffice as proof of the effect of the C-373
boil/soak procedure on the subject articles.
Finally, TCA argues that Prof. Haber, in running ANOVA on the government’s results,
somehow admitted that the government’s test proved that the tiles did not change. TCA Br. at 30-31.
Prof. Haber, however, observed that the Dal-Tile test demonstrated a statistically significant change
while the government’s test demonstrated a statistically significant lack of change, and he concluded
that the different results could only be attributed to the difference in the two methodologies.
Specifically, Prof. Haber attributed the lack of change or incoherence found in the customs method
to be due to the destructive effect of C-373 on the sample population, which hypothesis Prof. Haber
tested and proved. Restated, Prof. Haber theorized that under the government’s testing method the
tiles changed twice – once by soaking, and once by heating; he did not testify that C-373 did not
change the tile samples at all.
E. Analysis and Confirmation by Statistical Method
In order to check the accuracy of its results, Dal-Tile subjected the data gathered from the
split tile tests to a standard statistical technique, analysis of variance, or ANOVA. ANOVA is not
a measure of absorption but is merely a method for determining the statistical significance of data
collected. Dal-Tile and Prof. Haber demonstrated through ANOVA that the split-tile methodology
had a low potential for error to within a confidence level of 95%, the most common standard in
Court No. 95-05-00679 Page 49
scientific and academic contexts. ANOVA also demonstrated that the potential for error in the
government’s method is much greater. See Dal. Br. at 43-44. The ANOVA on the Customs testing
in the New Orleans laboratory of the tiles from 1994 and on tests performed by the Los Angeles
laboratory of tiles from each of the years for which a protest had been filed showed that the changes
observed are not statistically significant and are consistently incoherent regardless of which year the
tiles were produced. ANOVA’s general acceptance as a statistical check on the significance of an
empirical study’s results is not in dispute. Its purpose and action is to test for potential error in the
underlying experiment. As such, it meets both the third and fourth Daubert factors.
Contrary to the government’s assertion, ANOVA does not supplant or supersede the results
of the physical test but merely helps to explain whether the results – i.e., the changes measured
between the control and experimental samples – are statistically significant. See Dal. Br. at 19. The
government’s argument that Dal-Tile failed to maintain “testing controls over the statistical
analysis,” Def. Br. at 38, reflects a misunderstanding of research method. Statistical analyses like
ANOVA are themselves testing controls. Dal. Br. at 43-44, 52. ANOVA in this instance merely
assists the Court in determining that Dal-Tile’s results can be relied upon. The government, by
contrast, failed to subject its results to any test for statistical significance. This does not advance the
probativeness of the double-soak test method before the Court.
The government does not dispute that ANOVA is an accepted test for the significance of
empirical results nor does it contest Dal-Tile’s ANOVA findings or assert that ANOVA was
improperly done. Thus, the government does not dispute that the ANOVA performed by Dal-Tile
on its results was a valid test of statistical significance. Instead, the government disputes ANOVA’s
Court No. 95-05-00679 Page 50
explanatory power. It argues that Dal-Tile “failed to demonstrate how using ANOVA statistical
analyses will obviate” the effect of differences between two pieces of the same split tile. Def.’s Br.
at 38. However, ANOVA’s very purpose and function is to determine whether a group of results is
significant despite any potential anomalies contained in individual results. See, e.g., Dal. Br. at 19.
ANOVA performs this function by providing a statistical comparison of two or more means. Since
individual factors may affect individual results, ANOVA helps determine whether, overall, the
results of a scientific test or procedure are grouped around a norm, such that variations can be
discounted. The ANOVA would not have demonstrated statistical significance for Dal-Tile’s results
if the intra-tile variations at the heart of the government’s concern prevented observation of a
significant trend. Thus, Dal-Tile’s use of ANOVA further supports the reliability of Dal-Tile’s
method, and the government’s failure to test its results for statistical significance casts doubt on the
reliability of the government’s method.
TCA’s suggestion that use of ANOVA is improper because ASTM rejected use of statistical
methods to analyze the physical properties of tile specimens under the C-373 procedure is also
without merit. See TCA Br. at 4,23-25,3 1. As noted above, ANOVA does not measure physical
properties, it merely checks the statistical significance of the results of a given study. At issue is not
the accuracy of C-373, but of a comparison between the means produced by two separate tests of
sample populations under C-373 to measure the effect of reheating the subject articles to pyrometric
cone 020. It would be inappropriate to use ANOVA to analyze individual results of C-373, because
ANOVA involves a comparison of means. It is further of no significance that C-373 has a known
rate of error (see TCA Br. at 25,29-30) because the Court need not determine the reliability of C-373,
Court No. 95-05-00679 Page 51
which is not in dispute. TCA’s assertion that the customs test was shown at the hearing to be
“accurate and precise” (TCA Br. at 4) refers only to the C-373 procedure, and that is a component
of both parties’ methods and is not in dispute. Rather, the reliability of each party’s method of
comparing different sets of C-373 results to measure the effect of reheating must be determined.
TCA also errs in arguing against use of ANOVA here on the ground that ANOVA is not used in
testing tiles for service. See TCA Br. at 31. The purpose of the tests at issue is to determine their
customs classification, not their quality for service.13
F. Relevance
The government points out that the tiles tested in Dal-Tile’s laboratories and by Prof. Haber
which generated evidence of increased density and diminished porosity upon reheating to pyrometric
cone 020 were not produced in the years of production of the entries in issue. Def. Br. at 3, 31. The
government argued that because this is true, Dal- Tile’s evidence of increased density and diminished
porosity is not probative of the tile in issue. Def. Br. at 31. The government is incorrect. As Messrs.
Turk, Orrell, and Cornia testified, (B3-19 at 62-63, S7-58,70-73, 84-85,88; A-IV 1 at 404-06) the
wall tile bodies in issue have been produced in accordance with the same formulas from the
13
As an aside, Dal-Tile submits that the split-tile technique would not place any additional
burden upon Customs, as it would not require any new equipment nor would it require any additional
tests to be performed. The Court agrees that the split-tile test actually appears less burdensome and
time-consuming than the Customs method, since it eliminates a step – instead of performing a 29-
hour soak followed by reheating and then another 29-hour soak, the 29-hour soak could be
performed on half the samples at the same time as the other half are being heated to cone 020.
Furthermore, it has not been suggested that ANOVA must be performed in connection with every
test conducted under Headnote 2(a). Here, Dal-Tile merely bolstered its position using ANOVA to
demonstrate that the physical properties of the subject articles change based on a comparison of the
mean results of the C-373 tests of the reheated and control sample groups. ANOVA is not necessary
to reach this conclusion, however Dal-Tile’s use of ANOVA to demonstrate the statistical
significance of its results aids the Court in determining that Dal-Tile’s test produced reliable results.
Court No. 95-05-00679 Page 52
commencement of production upon the opening of the factory until today. The reason there are
several formulas for producing wall tile body is to account for naturally occurring differences in the
materials used and to permit the efficient recycling of production waste whether generated before
firing (desperdicio) or after firing (bisque). See Dal. Br. at 7-8. The raw materials continue to be
produced at the same mines as the inception of production, but are natural products subject to
variation. (A-II at 275) By itself, this requires that several formulas exist in order to assure as
uniform as possible an end product. A-II, at 270-71. When desperdicio and bisque are taken into
account and consideration is given to the fact that bisque has been glazed, it is obvious even to non-
technical people that formulas must be adjusted for the sake of achieving a uniform end product. The
government suggestion that several formulae produced different end products is therefore
speculative.
G. Reliability of the Double-Soak Method
Once the plaintiff has made out a prima facie case in a challenge to a Customs classification,
the government must come forward with proof of the correctness of its method; the Court is then
required by 28 U.S.C. § 2643(b) to “consider whether the government’s classification is correct, both
independently and in comparison to the importer’s alternative.” Jarvis Clark, 733 F.3d at 878. The
government in this case has not demonstrated the correctness and reliability of its method, either
independently or in comparison to Dal-Tile’s methodology.
As discussed more fully above, using the same pieces to run two subsequent destructive tests
and then comparing the results is inherently unreliable because there is no control to which results
can be compared. Indeed, the government’s own expert witness, Dr. Brosnan, testified that the very
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temperature at which the tiles were subjected to reheating after the first C-373 test had the effect of
returning the tile to its original state. A-VI at 844-847. If it is true that the piece is returned to its
original state by heat treatment before the second C-373 test is conducted, the results cannot be a
reliable indicator of change or non-change brought about by such heat treatment: by definition, the
results will show no change. But that is plainly not the case, given the incoherence of the double-
soak results, which bear out the flaws in the Customs methodology. In some cases, the absorption
goes up after reheating, in some cases it goes down, and in some cases it stays the same. Pl. Ex. 51.
The data for porosity and density are similarly scattershot, showing no clear pattern. Id. It is this
very type of data distribution – a scattered, unfocused pattern of change – about which the
government’s witness, Mr. Daniels, testified that “one could not draw any valid conclusion as to the
characteristics of the tile.” A-VI at 917. Therefore, the incoherence of the behavior of the specimens
within each laboratory test batch and the inconsistency of these results – confirmed by Dal-Tile’s
ANOVA of the New Orleans and Los Angeles Customs results – render the Customs double-soak
method an unreliable means of testing. It cannot prove that upon reheating the tile did change, and
it cannot prove that it did not.
H. Applicability
The government also argues in favor of limiting the merchandise in issue to 4 1/4 x 4 1/4
square wall tiles. Def. Br. at 19. The denied protest giving rise to this litigation covered all wall tile
contained in the entries, but Dal Tile decided not to proceed with its claims on 6 x 6 wall tile. Both
the government and TCA argue that this Court should accept ANSI parlance in judging this case.
In ANSI parlance, “4 1/4 x 4 1/4” is a nominal designation referring not only to square tile but to
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other shapes (e.g. trim sized for same). See Exhibit 1 at ¶ 6.1.1.1. Perforce of the abandonment of
6 x 6 wall tile claims, entries of trim for 6 x 6 wall tile are no longer an issue, but the claims
concerning 4 1/4 x 4 1/4 wall tile trim remain in issue. This conclusion is consistent not only with
ANSI parlance, but comports with logic while the opposite conclusion does not. The tile products
in issue are those produced with the use of the materials and formulas in evidence and fired in slow
fired kilns; moreover, no evidence exists in the record of an intention of the parties to interpret the
phrase “4 1/4 x 4 1/4 tile” in the narrow manner that the government now proposes.
IV
Duty-free Treatment under the Generalized System of Preferences
An article must be classifiable in a GSP-eligible provision in order to enter duty-free.
“Eligible articles” may be imported into the United States duty-free if they meet three requirements:
(1) the article must be the “growth, product or manufacture” of a beneficiary developing country
(“BDC”); (2) the article must be imported directly from a BDC into the customs territory of the
United States; and (3) the sum of (a) the cost or value of the material produced in the BDC plus (b)
the direct costs of processing operations performed in the BDC must not be less than 35% of the
appraised value of such article at the time of its entry into the customs territory of the United States.
See 19 U.S.C. § 2463(b); 19 C.F.R. § 10.177(a)(2).
The sole issue here is whether the 35% requirement has been met. There is no dispute that
Mexico was a BDC during the period at issue, that the subject merchandise was a product of and
imported from Mexico directly into the customs territory of the United States, and that the claimed
tariff provision, TSUS item 523.94, was a GSP-eligible provision during the relevant period. Dal-
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Tile argues that the non-Mexican components of the direct processing costs were substantially
transformed into new and different articles of commerce, namely glaze and spray dried body, and
that these constituent parts became, when combined, products wholly of Mexico. Pl.’s Br. at 28,
referencing D-II at 38-52 & Pl. Ex. 8. It further argues that even if the non-Mexican components are
excluded from the costs of processing, the dutiable Mexican value of the wall tiles meets the GSP
threshold.
A. Substantial Transformation
Before a material of non-Mexican origin can be regarded as the “product or manufacture”
of Mexico for GSP purposes, there must first be a “substantial transformation” of that material into
a “new and different article of commerce.” 19 C.F.R. § 10.177(a)(2). A substantial transformation
occurs when a product has “lost the identifying characteristics of its constituent material” through
“a processing that results in a new article having a distinctive name, character, or use.” Torrington
Co. v. United States, 8 CIT 150, 154, 596 F. Supp. 1083, 1086 (1984), aff’d 764 F.2d 1563 (Fed. Cir.
1985) Each of these elements need not be satisfied before a court finds that a material results from
substantial transformation. See, e.g., SDI Technologies, Inc. v. United States, 21 CIT 895, 897, 977
F. Supp. 1235, 1239 (1997); Koru North America v. United States, 12 CIT 1120, 1126, 701 F. Supp.
229, 234 (1988), aff’d 155 F.3d 568 (Fed. Cir. 1998
Relevant to this matter, an earlier case contested the denial of GSP eligibility for “casting
slip,” a mixture created by blending dry ingredients, deflocculant, and dispersants in water with a
blunger. Zuniga v. United States, 16 CIT 45 9, aff’d 996 F.2d 1203 (1993). There, the plaintiff
failed to demonstrate that casting slip was either a “new and different” article of commerce or
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“commercially recognized.” The plaintiff had failed to provide any evidence of actual commercial
sales of casting slip. On the basis of the evidence presented, the Court deemed the product “clearly”
recognizable as a “simple blend” of its dry ingredients. 16 CIT at 465-66. The government here
argues that Zunega is dispositive, while Dal-Tile argues that the evidence it provided is
distinguishable from that offered in Zuniga.
In the recent case of Drexel Chemical Co. v. United States, Slip Op. 03-60, 2003 WL
21302955 (CIT June 5, 2003) the Court found that there had been substantial transformation of an
herbicide exported to the United States which had been imported in cake form into a BDC where it
was pulverized through a complex air milling process. As in Zuniga, the government had argued
that the air milling process had not changed the “identifying characteristic” of the chemical which
gave the molecule its herbicidal properties. The Court disagreed and found “that the air milling
process causes not only a physical change in the size of the particle, but also a chemical change as
valance bonds are freed, enabling the Diuron molecule to adsorb to a plant leaf.” Slip Op. 03-60 at
11. The Court thus found that the transformation of herbicide from cake form to powder was akin
to the substantial transformation of wire into “swage,” i.e., “sewing machine needle blanks,”
considered in Torrington to be “new and different article[s] of commerce” that would undergo a
second substantial transformation when processed into finished sewing needles. Torrington, 8 CIT
at 154, 596 F. Supp. at 1086.
Here, the wall tile components satisfy not only the “articles of commerce” requirement but
also the “new and different” requirement of the statute. The Zuniga Court found no market for
casting slip, which had no further purpose other than to be cast and used as kiln furniture. The
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Zuniga Court was thus unconvinced that slip was any different than a mix of its component
ingredients. By contrast, in this matter the relevant articles of commerce are spray dried body and
glaze, not casting slip, and the Court concludes that the spray dried body and glaze at issue are new
and different articles of commerce. They are not “simple blends,” like casting slip. The process of
producing spray dried body is similar in complexity to the air milling process considered in Drexel.
There was less evidence proffered on the complexity of the process to produce glaze, however it is
evident that both spray dried body and glaze require extensive analysis, processing and refinement
in order to go from raw materials to usable, saleable articles of commerce. Moreover, glaze is
bought and sold in commerce. Several witnesses in this matter testified that glaze is sold
commercially, that Ceramica Regiomontana has in the past sold and now sells the glaze it
manufactures from frit produced in Mexico by Materiales Ceramicos, its sister Company. Dal-Tile
also proved that spray dried body can be pulled from the production line and sold to another
company, which may press it into tiles or into some other article of commerce. A-VI at 922. Several
witnesses, including Robert Daniels, a witness for the government, testified that spray dried tile body
is an article of commerce purchased by many smaller tile manufacturers. D-I at 12-19, 99-101; A-IV
at 488-95; A-VI at 922. Although the Monterrey plant does not sell the spray dried body it produces,
since it uses all that it manufactures in its own production, the Court concludes that the spray dried
body that it produces is the “functional equivalent” of the spray dried body regularly sold by other
manufacturers, which in turn is of the “same general class or kind” as the spray dried body produced
by Ceramica Regiomontana.
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The Court finds that the constituent parts of the wall tile, the dried body and the glaze,
represent 100 percent of the subject merchandise and are both of Mexican origin. The subject
merchandise is of 100 percent Mexican origin and “wholly the growth, product, or manufacture of
a [BDC].” 19 C.F.R. § 10.176(c). The wall tile manufactured from these constituent parts is
therefore entitled to a presumption that it meets the requirements of the GSP. Even were that not
the case, the evidence amply demonstrates that the 35% threshold of Mexican-origin value in the
subject articles is amply met.
The Court also notes that the purpose of the GSP statute is to “encourage BDC’s to produce
goods for export, thereby fostering economic diversification and industrialization.” SDI
Technologies, Inc. v. United States, 21 CIT at ___, 977 F. Supp. at 1242 (citing S.Rep. No. 93-1298
at 5, 1974 U.S.C.C.A.N. at 7187). See also Torrington, 764 F.2d at 1563. That purpose is furthered
by the growth of jobs requiring higher or technical skills, a groundwork for building additional skills
and developing more self-sufficiency. The “GSP program, therefore, is not meant to encourage an
increase in the number of simple labor intensive jobs within a BDC.” SDI Technologies, 977 F.
Supp. at 1242 (finding that the purpose of the GSP not met by stereo rack systems claimed to be the
product of Mexico where complex manufacturing took place in China and the finishing which
occurred in Mexico – placing components in a wooden cabinet – required only a basic education and
did not change the character of the product) (citing Texas Instruments, Inc. v. United States, 681 F.2d
778, 785 (Fed. Cir. 1982)).
The testimony of several witnesses establishes that the tilemaking process at Ceramica
Regiomontana meets the purposes of the GSP program. This is not a mere finishing; Ceramica
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Regiomontana as well as its sister company Materiales Ceramicos each engage in a complex process
which requires the chemical analysis of the raw materials, the careful blending of the ingredients to
achieve a consistent outcome, the use of state-of-the-art equipment for creating the tile body,
including spray driers, strict controls on size and shape, careful matching of the body and glaze
formulas, inspection of the tiles, and daily analysis in the laboratory to confirm absorption. D-II at
38-52; Pl. Ex. 8. The testimony establishes that the process would be done substantially no
differently in a non-BDC, since the equipment, materials and process are nearly the same throughout
the industry, and indeed, the Ceramica Regiomontana plant has both the skill and the equipment to
manufacture its own tile body (something even many American tile manufacturers do not have). A-
VI at 920-922. The purposes of the GSP are served in this instance.
B. Direct Costs of Processing
Neither statutory language nor the legislative history on the law elaborates on the term “direct
costs of processing operations.” 13 Cust. Bull. 1270, C.S.D. 79-199 (1979). However, certain costs
have been generally recognized as direct costs of processing operations, including direct labor costs,
overhead, supervision, interest incurred in acquiring machinery, packaging and assists. Id.; 18 Cust.
Bull. 1085, C.S.D. 84-104; 14 Cust Bull. 1085, C.S.D. 80-208 (1980); 13 Cust. Bull. 1464, C.S.D.
1464, C.S.D. 79-312 (1979); 13 Cust. Bull. 1355, C.S.D. 79-242 (1979). In determining the direct
costs of processing operations, Ceramica Regiomontana took into account raw material consumption,
direct labor costs, parts and packaging used and fixed and variable manufacturing expenses.
Ceramica Regiomontana’s chief financial officer, Mrs. Delfina Estrada, testified that the cost system
that Ceramica Regiomontana used to calculate the direct costs of processing operations was based
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upon generally accepted accounting principles of Mexico (to which Ceramica Regiomontana strictly
adhered) and that she took a conservative approach when calculating manufacturing costs by
omitting, inter alia, applicable depreciation and taxes. A-I at 116-117A-I at 117. These accounting
principles were also relied upon by Dal-Tile Corporation in the United States to prepare
consolidated financial statements. A-I at 116. All of Ceramica Regiomontana’s cost figures appear
on the certified financial statements submitted in evidence.
Ms. Estrada testified that Ceramica Regiomontana used the full assertion method to calculate
the costs for the tile in issue, a method consistent with generally accepted accounting principles in
Mexico. A-II at 137-138. By this method, Ceramica Regiomontana calculated its costs by month
rather than calculating costs for each tile manufactured. She also stated that the latter method was
not available to Ceramica Regiomontana because the company does not identify each specific
invoice or expense on a specific tile. A-II at 139.
As to the value of materials of Mexican origin plus the direct costs of the processing
operations, Ms. Estrada attested that they accounted for 68% in 1984, 62% in 1985, 49% in 1986,
and 70% in 1988, i.e., more than 35% of the appraised value of the subject merchandise in those
years. A-I at 111-25. See 19 U.S.C. § 2463(b)(1)(B); Pl Ex. 40. She further testified that it was not
possible that the value of Mexican origin materials and the direct costs of processing was less than
35 percent of the value of the subject merchandise in any month during 1984, 1985, 1986, or 1988.
A-I at 118-125. Moreover, the testimony was to the effect that even if the value of dried body is
deducted, the respective percentages of value of Mexican origin materials only drops by, at most,
a few percentage points – far above the 35 percent threshold set forth in the GSP. A-I at 120-129.
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The Court credits her testimony and finds that even if the non-Mexican components are
excluded from the value of the wall tile the remainder still exceeds the required 35% minimum
threshold. The government argues that the value of the tile bodies may not be taken into account
under the double substantial transformation rule, but the Court concludes that the total value of the
material inputs may be taken into account. The testimony of Mr. Cornia (A-IV at 494-95) that the
glaze of the type used to glaze Dal Tile’s 4 1/4 x 4 1/4 wall tiles and dry body similar to that used
in the production of Dal Tile’s 4 1/4 x 4 1/4 wall tiles are finished intermediate products which are
bought and sold in the marketplace is unrefuted by any probative evidence. The existence of tariff
provisions for glaze establishes the fact that glaze is a recognized commercial product. See items
540.21 and 540.27, TSUS. The court therefore takes judicial notice of the commercial status of
glaze. Labor and glaze alone amount to more than 35% of dutiable value of the merchandise in
issue. A-I at 120-21.
As to dry body, the facts are similar. See A-IV at 492-94. In TCA’s effort to explain that
there is a commercially recognized group of clay products which it concedes would not be ceramic
for tariff purposes, it cites examples of unfired or lightly fired body. TCA Br. at 18. While TCA is
not a party, it proclaims its expertise with regard to commerce in clay products. For its part, the
government defers to TCA for this purpose. Therefore, in addition to undisputed proofs of record,
defendant and TCA must be held to have admitted the facts necessary for the Court to determine that
the double substantial transformation rule applies to the dry body as well.
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Similarly, the use of equivalences to reflect extra labor or production costs to manufacture
non-rectangular tile or to account for the use of more expensive glazes is a reasonable accounting
practice which the government has failed to demonstrate is capricious.
C. Admissibility of Certain Records
The government seeks to deny the admissibility of four types of business records: yearly
certified financial statements, end of year inventory reconciliations, “Countervailing Tax Reports”
submitted to the U.S. Commerce Department and statistics for the sale of tile prepared by Dal-Tile’s
accounting team in the ordinary course of business. The government seeks to exclude these
documents on the grounds that they are summaries of voluminous records and are therefore
inadmissible under Rule 1006 of the Federal Rules of Evidence because the government did not have
the opportunity to review the underlying documents.
Dal-Tile argues that the Court should not consider the government’s argument under Rule
1006 because the documents are admissible in their own right under the Rule 803(6) hearsay
exception for business records, notwithstanding the government’s right to examine the sources
underlying summary financial statements (see VWP of America v. United States, 25 CIT ___, 163
F. Supp. 2d 645 (2001), opinion after remand, 27 CIT ___, 259 F. Supp. 2d 1289, appeal docketed,
Ct. No. 03-7347 (Fed. Cir., Apr. 28, 2003)).
The Court notes that Ms. Estrada is Dal-Tile’s Chief Financial Officer and the custodian of
the company’s books and records. She authenticated the certified financial statements and inventory
reconciliations as company business records prepared in the ordinary course of business. A-I at 10-
25. (There is apparently no dispute with respect to the admissibility of the tax returns.) The certified
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financial statements are prepared annually by Dal-Tile’s external public accountant from information
contained in the company’s general ledgers and journals. A-I at 10-11. The accountant prepares the
certified financial statements regularly each year after Dal-Tile’s tax returns are complete. The
certified financial statements are prepared to satisfy the requirement under Mexican law that the
accuracy of the company’s financials be independently certified for submission to the Mexican
taxing authorities. A-I at 10.
Similarly, Mrs. Estrada’s uncontroverted testimony establishes that the other documents in
question are business records of the company. Dal-Tile prepares its inventory reconciliations
annually when Dal-Tile closes its calendar year. The purpose for which the inventory reconciliations
are prepared is to support various financial information contained in the tax returns and certified
financial statements. A-I at 12-13. Dal-Tile prepared the three annual countervailing duty reports
(Exhibits 36-38) for administrative verification by the U.S. Department of Commerce in connection
with a countervailing duty case. These documents were duly filed with the Commerce Department
after they were prepared and were, in fact, obtained from the Commerce Department for production
in this litigation A-I at 22-24, 27-32. Finally, Mrs. Estrada testified that Exhibit 39 contains statistics
of tile sales broken down by market that were prepared in the ordinary course of business. A-I at 24.
At trial, the government objected to the admission of the certified financial statements and
the inventory reconciliations under Rule 1006 on grounds that the government was not given access
to the underlying documentation when it existed. Mrs. Estrada testified that the company’s ledgers
that are more than ten years old are destroyed at regular intervals. A-I at 11-12. The government
does not suggest that destruction of these underlying documents was improper, only that the
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government did not have the opportunity to review them. The government did not object with
respect to their admissibility under Rule 803(6). The government also objected to the admissibility
of Exhibits 36-39 under both Rule 1006 and 803(6). The Court admitted the documents
conditionally, reserving reconsideration for the end of trial. A-I at 38. In its brief, the government
reiterates its objection on Rule 1006 grounds, but does not address and apparently has abandoned
its Rule 803(6) objection to the admissibility of Exhibits 36-39. Def. Br. at 44-45.
Based on Mrs. Estrada’s uncontroverted testimony, the Court concludes the financial
statements and inventory reconciliations are admissible under Rule 803(6) and the government has
waived any such objection. Accord Ford Motor Company v. Auto Supply Company, Inc., 661 F.2d
1171, 1175-76 (8th Cir. 1981) (admission of end-of-year financial statements and profit analyses);
Gerling International Ins. Co. v. Commissioner of Internal Revenue, 98 T.C. 640,652-54 (1992)
(admission of end of year financial statements). Their admissibility under Rule 803(6) obviates any
need for consideration of their admissibility under Rule 1006. See Gerling International, 98 T.C. at
654.
The parties do not dispute that the financial statements are prepared from other information
contained in the company’s ledgers and other business records. Thus they may be regarded in some
sense as summarizing some of the information contained in those records. That fact does not
preclude their admission under Rule 803(6), however, as that rule does not require that the opposing
party have access to underlying documentation as a basis for admission. Even where a document is
inadmissible under Rule 1006, that rule does not bar admission where the requirements of another
rule, such as Rule 803(6) are satisfied. See Gerling International, 98 T.C. at 654. Rule 1006 merely
Court No. 95-05-00679 Page 65
provides an exception to the best evidence rule allowing for use of summaries prepared for trial in
lieu of original documents; where as here, the documents themselves are original documents (or
photocopies) admissible under another rule, the Rule 1006 exception is irrelevant. Thus, there is no
reason for the Court to reverse its decision admitting the certified financial statements and the
inventory summaries.
Similarly Exhibits 36-39 are admissible under the Rule 803(6) hearsay exception. The
evidence is uncontroverted that the data compiled in these reports, which were prepared for
government verification, were kept in the ordinary course of a business activity. A-I at 22-24. It was
Dal-Tile’s regular practice – as required by law – to prepare such reports whenever so requested by
the Commerce Department. Id. Moreover, there is no evidence in the record that would cast doubt
on the trustworthiness with respect to the circumstances under which the reports were prepared, as
the information they contained was subsequently verified by the Commerce Department. Further,
none of the documents at issue were prepared in connection with the present dispute, which did not
arise until the countervailing duty case had ended, and there is no suggestion that they might have
been prepared to advance Dal-Tile’s position in this case.
Finally, Dal-Tile argues, and the Court agrees, that to the extent any of the Rule 803(6)
requirements are not met, the documents are admissible under the residual hearsay exception found
in Rule 807 (formerly Rule 803(24)).
Given their close scrutiny by the Commerce Department, this Court finds that the documents
were prepared under circumstances providing equivalent guarantees of trustworthiness to those under
the other hearsay exceptions of Rule 803. They are the only records available with respect to the
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points for which they are offered and there is no dispute as to their probative value. The notice
requirement of Rule 807 does not bar the documents’ admission because the government was on
notice months before the hearing of Dal-Tile’s intent to introduce the documents into evidence. The
government was not harmed because it had ample opportunity to examine and respond to the
evidence during discovery after the documents were obtained from the Commerce Department and
turned over to the government, and it could have deposed Mrs. Estrada on their trustworthiness
between the Dallas and Atlanta trial sessions but chose instead to object to their admission at trial
without having conducted such discovery. Even if the documents were not admissible in their own
right under Rule 803(6), it is preferable to consider Rule 807’s notice requirement flexibly so as not
to bar admission in the absence of prejudice. See 5 Weinstein’s Evidence 9 807.04[2] (noting
flexible approach to notice requirement). Therefore, the Court accepts into evidence all of the
foregoing documents, which had been admitted conditionally.
D. Domestic Versus Export Product
Lastly, the government argues that Dal Tile has failed to prove GSP eligibility because the
evidence in issue does not distinguish between product manufactured for the domestic market and
that manufactured for export. Def. Br. at 46-49. The Court disagrees. The only testimony of record
of arguable support for the government’s contention was brief discussion concerning “seconds” of
wall tile that were sold on the Mexican market, but there was no indication that such seconds were
of significant volume or intentionally produced. While it may be true that dutiable value must be
calculated as accurately as necessary, the overwhelming evidence indicates that pro rating would not
alter the result.
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Conclusion
The articles are to be classified under item 523.94, TSUS. They are also entitled to duty-free
entry under the GSP. Judgment will enter accordingly.
/s/ R. Kenton Musgrave
R. KENTON MUSGRAVE, JUDGE
Dated: March 16, 2004
New York, New York