MetChem, Inc. v. United States

United States Court of Appeals for the Federal Circuit

2007-1138

METCHEM, INC.,

Plaintiff-Appellee,

v.

UNITED STATES,

Defendant-Appellant.

James Caffentzis, Fitch, King and Caffentzis, of New York, New York, argued for
plaintiff-appellee.

Saul Davis, Senior Trial Counsel, International Trade Field Office, Commercial
Litigation Branch, Civil Division, United States Department of Justice, of New York, New
York, argued for defendant-appellant. With him on the brief were Peter D. Keisler,
Assistant Attorney General, Jeanne E. Davidson, Director, and Barbara S. Williams,
Attorney in Charge. Of counsel on the brief was Michael W. Heydrich, Office of the
Assistant Chief Counsel, International Trade Litigation, United States Customs and Border
Protection, of New York, New York.

Appealed from: United States Court of International Trade

Chief Judge Jane A. Restani
 United States Court of Appeals for the Federal Circuit

2007-1138

METCHEM, INC.,

Plaintiff-Appellee,

v.

UNITED STATES,

Defendant-Appellant.

Appeal from the United States Court of International Trade in case no. 04-00238, Chief
Judge Jane A. Restani.
____________________

DECIDED: January 22, 2008
____________________

Before LOURIE, DYK, and PROST, Circuit Judges.

LOURIE, Circuit Judge.

The United States appeals from the decision of the United States Court of

International Trade classifying certain imports under subheading 7501.20.00 of the

Harmonized Tariff Schedule of the United States (“HTSUS”). MetChem, Inc. v. United

States, 441 F. Supp. 2d 1269 (Ct. Int’l Trade 2006). Because the trial court correctly

classified the imports, we affirm.
 BACKGROUND

The subject merchandise is known commercially as basic nickel carbonate. It is

obtained from the Yabulu Nickel Refinery in Queensland, Australia. MetChem, Inc.

(“MetChem”) imports it into the United States and is the only known customer of the

basic nickel carbonate produced at Yabulu.

The material is a product of what is known as the Caron process, a hydro-

metallurgical process of refining laterite ore into nickel metal sinters. The first steps of

the Caron process involve the drying and roasting of the laterite ore, followed by a

leaching of the ore with an ammonia solution that dissolves around fifty percent of the

cobalt in the ore. At that point, the ore has been liquefied into a solution of dissolved

nickel and cobalt and is treated with hydrogen sulfide to further separate the cobalt from

the nickel. The remaining nickel-containing solution is distilled to drive off ammonia and

carbon dioxide. The nickel content of the material is between fifty-two and fifty-five

percent.

Separated from the subject material, the majority of the chemically processed ore

at the Yabulu factory continues along the Caron process. The material that remains in

the Caron process is calcined, reduced, compacted, and sintered, which leads to nickel

oxide sinters. Those additional processes increase the percentage of nickel in the

product from around fifty-five percent at the stage in which the basic nickel carbonate is

removed from the Caron process, to over ninety percent when in sinter form. The nickel

oxide sinters are sold for use in the production of stainless steel and other alloys.

In March 2003, MetChem entered the subject merchandise into the United States

under HTSUS subheading 7501.20.00, which covers “Nickel mattes, nickel oxide

2007-1138 2
sinters, and other intermediate products of metallurgy: . . . Nickel oxide sinters and other

intermediate products of metallurgy,” and which entitles entries to duty-free treatment.

However, the United States Bureau of Customs and Border Protection (“Customs”)

changed the classification and liquidated the material under HTSUS subheading

2836.99.50, which covers “Carbonates; peroxocarbonates (percarbonates); commercial

ammonium carbonates containing ammonium carbamate: . . . Other . . . Other . . .

Other,” and imposes a 3.7 percent ad valorem duty.

MetChem protested Customs’ liquidation, but on October 2, 2002, Customs

rejected that protest. MetChem sought reconsideration from Customs, and on

November 3, 2003, Customs again held that the basic nickel carbonate had been

properly liquidated under HTSUS subheading 2836.99.50.

MetChem brought suit in the Court of International Trade contesting Customs’

protest denial. After trial, the court reversed Customs’ ruling and held that the subject

merchandise was properly classifiable under Heading 7501, not under Heading 2836.

MetChem, 441 F. Supp. 2d at 1272. The court found that MetChem’s basic nickel

carbonate was classifiable under 7501 because it was an “intermediate product of

metallurgy.” Id. The court held that HTSUS Heading 2836 was inapplicable because it

applied only to “[s]eparate chemical elements and separate chemically defined

compounds,” neither of which correctly described the subject merchandise. Id. at 1273

(quoting HTSUS Chapter 28, Note 1(a)). Relying on the HTSUS Explanatory Notes,

lexicographic authorities, and legal precedent, the court found that for a substance to be

considered a “separate chemically defined compound” for the purpose of Chapter 28,

2007-1138 3
Note 1(a), the substance must be chemically composed of two or more elements in

definite proportions, and the material here was not.

The government timely appealed to this court. We have jurisdiction pursuant to

28 U.S.C. § 1295(a)(5).

DISCUSSION

We review questions of law de novo, including the interpretation of the terms of

the HTSUS, while factual findings by the Court of International Trade are reviewed for

clear error. Home Depot U.S.A., Inc. v. United States, 491 F.3d 1334, 1335 (Fed. Cir.

2007); Better Home Plastics Corp. v. United States, 119 F.3d 969, 971 (Fed. Cir. 1997).

Despite our de novo review of interpretations of tariff provisions, classification decisions

by Customs interpreting provisions of the HTSUS may receive some deference under

the principles of Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). See Rocknel

Fastener, Inc. v. United States, 267 F.3d 1354, 1357 (Fed. Cir. 2001) (citing United

States v. Mead Corp., 533 U.S. 218 (2001)). However, Customs’ rulings are “not

controlling upon the courts by reason of their authority,” Skidmore, 323 U.S. at 140, and

“this court has an independent responsibility to decide the legal issue of the proper

meaning and scope of HTSUS terms.” Warner-Lambert Co. v. United States, 407 F.3d

1207, 1209 (Fed. Cir. 2005).

On appeal, the government argues that the Court of International Trade erred in

its interpretation of the scope and requirements of HTSUS Chapter 28, Note 1(a). The

government claims that the court’s interpretation of “separate chemically defined

compound” narrows the scope of Chapter 28 to such a degree that materials that are

specifically allowed under that Chapter would fail to meet the court’s definition.

2007-1138 4
Furthermore, the government contends that the language and legislative history of

Heading 7501 and the notes of Chapter 28 demonstrate legislative intent to classify

chemicals such as basic nickel carbonate under Chapter 28. The government further

argues that the court clearly erred in determining that the chemical composition of the

subject material was not stoichiometric. Alternatively, the government argues that even

if the subject merchandise can be classified under both Heading 7501 and Heading

2836, the General Rules of Interpretation (“GRI”) of HTSUS require classification under

the heading with the most specificity which, the government argues, is Heading 2836.

MetChem responds that both the court’s interpretation of “separate chemically

defined compound” and its finding that the subject merchandise is not such a compound

are correct. MetChem argues that the imported material is an intermediate product of a

metallurgical process and is therefore properly classified under Heading 7501.

Alternatively, MetChem argues that were the court to find that the subject merchandise

is prima facie classifiable under both Headings 2836 and 7501, the merchandise must

be liquidated under Heading 7501 because it is both the more specific of the two

headings as well as the later in numerical order.

We agree with MetChem that the Court of International Trade correctly held that

the subject merchandise is properly classified under subheading 7501.20.00.

When interpreting a tariff classification, we look first to the GRI that govern the

classification of goods under HTSUS. Home Depot, 491 F.3d at 1336. GRI 1 states

that “for legal purposes, classification shall be determined according to the terms of the

headings and any relative section or chapter notes.” After consulting the headings and

relevant section or chapter notes, we may consult the Explanatory Notes of the relevant

2007-1138 5
chapters, although they are not binding upon us. See Michael Simon Design v. United

States, 501 F.3d 1303, 1307 (Fed. Cir. 2007) (citing Mita Copystar Am. v. United States,

21 F.3d 1079, 1082 (Fed. Cir. 1994)). Thus, we must determine whether the subject

merchandise is classifiable under HTSUS subheading 2836.99.50 or HTSUS

subheading 7501.20.00 by relying on the headings, section notes, and chapter notes,

and referencing the Explanatory Notes when appropriate.

A. HTSUS subheading 2836.99.50

Customs liquidated the subject merchandise under subheading 2836.99.50:

“Carbonates; peroxocarbonates (percarbonates); commercial ammonium carbonate

containing ammonium carbamate: . . . Other: . . . Other: . . . Other.” While the language

of that subheading seemingly encompasses all carbonates, Chapter 28, Note 1(a) limits

the carbonates that are classifiable under that chapter:

1. Except where the context otherwise requires, the headings of this
chapter apply only to:
(a) Separate chemical elements and separate chemically defined
compounds, whether or not containing impurities;
(b) The products mentioned in (a) dissolved in water.

It is undisputed that the subject merchandise is not a separate chemical element.

We must therefore decide if the merchandise is a separate chemically defined

compound. If it is not a separate chemically defined compound, and the context does

not “otherwise require[ ],” then Chapter 28, Note 1(a) excludes the merchandise from

categorization under Heading 2836.

For guidance on the definition of “separate chemically defined compound,” we

refer to the Chapter 28 Explanatory Notes:

A separate chemically defined compound is a substance which
consists of one molecular species (e.g. covalent or ionic) whose

2007-1138 6
 composition is defined by a constant ratio of elements and can be
represented by a definitive structural diagram. In a crystal lattice, the
molecular species corresponds to the repeating unit cell.
The elements of a separate chemically defined compound combine
in a specific characteristic proportion determined by the valency and the
bonding requirements of the individual atoms. The proportion of each
element is constant and specific to each compound and is therefore said
to be stoichiometric.

The subject merchandise here does not consist of one molecular species whose

composition is defined by a constant ratio of elements. On appeal, MetChem describes

the imported material as “the product, invoiced as a basic nickel carbonate, which is in

fact, as found by the trial court, an undifferentiated mixture of a number of basic nickel

carbonates.” Appellee Br., at 16. While it is not entirely clear whether MetChem is

characterizing the imported material as a mixture of different basic nickel carbonates or

as an undifferentiated mixture of the individual molecules (NiCO3, Ni(OH)2, H2O) that

form basic nickel carbonate, the result is the same either way. A material consisting of

several chemical compounds in a variable ratio—particularly one that is variable

because of the specific details of the process by which the material is made—is not a

separate chemically defined compound because it cannot be represented by a precise

formula. Therefore, the subject merchandise is not a separate chemically defined

compound. See also Hawley’s Condensed Chemical Dictionary 289 (14th ed. 2001)

(defining “compound” as “a homogenous entity where the elements have definite

proportions by weight and are represented by a chemical formula”).

The government points to compounds that are specifically enumerated under

Heading 2836 as evidence that combinations of compounds are allowable under

Heading 2836, such as bismuth carbonate and lead carbonate. The government’s

argument, however, is unpersuasive. Chapter 28, Note 1(a) does not exclude

2007-1138 7
combinations of compounds from classification; rather, it forbids from classification

unspecified mixtures, such as the merchandise at issue. The entities cited by the

government have definite proportions by weight and are represented by a distinct and

definite chemical formula, unlike the subject merchandise. Furthermore, the entities

cited by the government are specifically listed in the explanatory notes as classifiable

entities. Therefore, even if they were not separate chemically defined compounds, they

would still be classifiable under Chapter 28 because they are specifically listed. Clearly,

that is a situation in which the context requires inclusion, even though the entity would

be excluded under Chapter 28, Note 1(a). 1

Moreover, the government points to the fact that the Explanatory Notes to

Heading 2836 explicitly include “Nickel carbonates.” The government claims that that

inclusion, and the explicit exclusion of natural basic nickel carbonate (zaratite), indicate

that basic nickel carbonate (other than zaratite) is indeed classifiable under Heading

2836. The government’s argument, however, is premised upon a misunderstanding of

the Court of International Trade’s holding. Chapter 28 does not disallow all basic nickel

carbonates from classification under Heading 2836; rather, it merely requires that an

import of basic nickel carbonate be a separate chemically defined compound in order to

be so classified. The merchandise at issue is a mixture, not a separately defined

compound, and thus is not properly classified under Heading 2836.

1
The government similarly argues that if the subject merchandise is not a
separate chemically defined compound, Chapter 28 allows its inclusion because the
context requires otherwise. We reject this argument because, unlike those entities that
are specifically enumerated in the explanatory notes, there is nothing in the HTSUS that
indicates that a mixture, such as that involved here, was intended to be classified under
Chapter 28. This is not a “context” case.

2007-1138 8
B. HTSUS subheading 7501.20.00

We now turn to the question of whether the subject merchandise is properly

classified under subheading 7501.20.00: “Nickel mattes, nickel oxide sinters and other

intermediate products of nickel metallurgy: . . . Nickel oxide sinters and other

intermediate products of nickel metallurgy.” We conclude that it is classifiable under

that heading. The subject merchandise is not a nickel oxide sinter and therefore must

be an intermediate product of metallurgy to be classified under Heading 7501. The

government does not dispute that the merchandise is a product of a metallurgical

process. However, the government argues that the merchandise is removed too early

in the Caron process to be considered “intermediate.” The government also relies on

the canon of ejusdem generis to argue that only a product with a nickel content similar

to that of nickel mattes or nickel oxide sinters should be classified as an “intermediate

product.”

It is clear in this case that the subject merchandise is an intermediate product.

The subject merchandise is removed from a metallurgical process that produces nickel

oxide sinters, which are specifically enumerated intermediate products of metallurgy.

The fact that it is removed does not change the fact that it was, before removal, an

intermediate product of nickel metallurgy. The subject merchandise is removed at a

point in the process when the chemical leaching and distilling, which is performed in

order to separate the nickel from other materials, has already occurred. These steps

have increased the nickel content from less than one percent in the laterite ore to over

fifty percent in the subject merchandise. The steps of the process left to be performed

involve purely nickel metallurgical processes, namely, calcining, compacting, and

2007-1138 9
sintering, which further purify the nickel content of the material to around ninety percent.

Clearly, the subject merchandise is an intermediate product in this process.

Furthermore, there is no HTSUS language requiring an “intermediate product of

metallurgy” to have a particular nickel content and we decline to read such a

requirement into the HTSUS. The subject merchandise is therefore properly classified

under subheading 7501.20.00. 2

CONCLUSION

Accordingly, the judgment of the United States Court of International Trade is

affirmed.

AFFIRMED

2
Because the subject merchandise is classifiable under subheading
7501.20.00 and not under 2836.99.50, we need not address the parties’ arguments
regarding which heading governs in a case in which a material is prima facie classifiable
under both headings.

2007-1138 10