Nufarm America's, Inc. v. United States

Slip Op. 07-23

UNITED STATES COURT OF INTERNATIONAL TRADE

____________________________________
:
NUFARM AMERICA’S, INC., :
:
Plaintiff, :
:
:
v. :
: Before: WALLACH, Judge
UNITED STATES, : Consol. Court No.: 02-00162
:
Defendant. :
____________________________________:

[Plaintiff’s Motion for Summary Judgment is DENIED and Defendant’s Cross-Motion for
Summary Judgment is GRANTED.]

Dated: February 15, 2007

Joel R. Junker & Associates (Joel R. Junker), for Plaintiff NuFarm America’s, Inc.

Robert D. McCallum, Jr., Assistant Attorney General, Barbara S. Williams, Acting Attorney in
Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice; Beth C. Brotman, Office of Assistant Chief Counsel, International Trade
Litigation, U.S. Customs and Border Protection, for Defendant United States.

OPINION

Wallach, Judge:

I
INTRODUCTION

Plaintiff Nufarm America’s, Inc. (“Nufarm”) argues that the requirement to file a

consumption entry and to pay duty and related fees upon export to Canada on merchandise

imported temporarily under bond, pursuant to 9813.00.05, Harmonized Tariff Schedule of the
United States (“HTSUS”) (2000), under 19 C.F.R. § 181.53, promulgated pursuant to the North

American Free Trade Agreement (“NAFTA”) Implementation Act in accordance with NAFTA

Article 303, violates Article I, Section 9, Clause 5 of the United States Constitution (“the Export

Clause”). This court has jurisdiction pursuant to 28 U.S.C. § 1581(a). Because the duties in

question are related to the merchandise’s importation and not its export, the statute remains

within constitutional limitations and Plaintiff’s Motion for Summary Judgment is denied. For

these same reasons, Defendant’s Cross-Motion for Summary Judgment is granted.

II
BACKGROUND

Nufarm imported chemical products into the United States under HTSUS subheading

9813.00.05 as articles to be processed into articles manufactured or produced in the United

States; as a result the products were entered temporarily free of duty, and duties were deferred

until the time of export.1 Consolidated Complaint (“Complaint”) ¶ 13; Answer to Consolidated

Complaint (“Answer”) ¶ 1, 13. The imported chemicals were subject to duty at the general ad

valorem rates for chemicals falling under subheading 2918.90.20,2 HTSUS, but payment of those

1
“The Temporary Importation Under Bond [TIB] classification is a special program
under the tariff schedule. The requirements of 19 C.F.R. § 181.53, among others, are permissible
conditions placed upon the option to temporarily defer duty by importing goods under bond for
specific enumerated purposes (see Subchapter XIII, Chapter 98, (HTSUS)). An importer at the
time of entry may choose either to present the merchandise under a TIB provision and post a
bond or make a consumption entry and pay the duty. HQ 228931 (August 9, 2001) (Further
Review of Protest No. 3001-00-100227).

2
HTSUS Subheading 2918.90.20 provides:

2918 Carboxylic acids with additional oxygen function and their
anhydrides, halides, peroxides, and peroxyacids; their halogenated,

2
duties were deferred because the merchandise was entered under subheading 9813.00.05.3

Defendant’s Statement of Undisputed Facts ¶ 1. Once processed, the new product was then

exported to Canada.4 Complaint ¶ 15; Answer ¶ 15. Following the export to Canada, Plaintiff

filed the required consumption entries and paid the full duty rate, applicable merchandise

processing fees, and made an offer in compromise to the United States Customs Service

(“Customs”)5 that resulted in the cancellation of liquidated damages. Defendant’s Response to

Plaintiff’s Statement of Material Facts at 2; Plaintiff’s Response to Defendant’s Cross-Motion

for Summary Judgment (“Plaintiff’s Response”) at 15; letter from Joel R. Junker to the court,

dated January 25, 2007, Docket No. 90. Plaintiff’s consumption entries were liquidated, and it

sulfonated, nitrated, or nitrosated derivatives (con.):
* * *

2918.90.20 Other………….9.3% 1/ Free (A, CA, E, IL, J, MX)

3
HTSUS Subheading 9813.00.05 provides:

Articles to be repaired, altered or processed (including processes which result in
articles manufactured or produced in the United States)………Free (CA, IL, MX)

4
There was no Canadian duty on the products at the time of export; as a result, Plaintiff
paid the full U.S. duty rate on the entered values for the imported merchandise, at the general ad
valorem duty rates applicable to goods classified under subheading 2918.90.20 during the years
in which Nufarm’s chemicals were imported. Complaint ¶¶ 15, 19; Defendant’s Statement of
Undisputed Facts ¶ 2.
5
The United States Customs Service was renamed the Bureau of Customs and Border
Protection of the Department of Homeland Security, effective March 1, 2003. See H.R. Doc. No.
108-32 (2003).

3
timely filed related protests based on the claim that assessment of duties under 19 C.F.R. §

181.53 violates the Export Clause.6 Complaint ¶ 20; Answer ¶ 20.

Nufarm’s protests on its entries at the Port of Seattle were denied on August 28, 2001,

and its protests on the entries at the Port of Chicago were denied on March 27, 2002, after

Customs’ Further Review. Complaint ¶ 22; Answer ¶ 22. Customs concluded in its

determination that the “[a]ssessment of duty per 19 C.F.R. § 181.53 was in accordance with law

and regulations,” was therefore constitutional, and denied Plaintiff’s protest in full. Complaint ¶

22 (quoting HQ 228931).

On March 13, 2003, the court consolidated Nufarm America’s, Inc. v. United States,

Court No. 02-00571 under Nufarm America’s, Inc. v. United States, Court No. 02-00162.

Motions under review in this opinion are Plaintiff’s Motion for Summary Judgment and

Defendant’s Cross-Motion for Summary Judgment. Oral Argument was held on January 17,

2007.

III
STANDARD OF REVIEW

The standard of review when determining whether an agency’s regulation violates the

Constitution involves a presumption of constitutionality on behalf of the regulation. See Motor

Vehicles Mfrs. Assn. of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 103 S. Ct.

2856, 77 L. Ed. 443 (1983) (finding that regulations enjoy a presumption of validity, albeit one

6
Plaintiff filed the following protests related to its liquidated consumption entries: Port of
Seattle Protests: Protest Nos. 3001-00-100227, 3001-00-100196, 3001-01-100049; Port of
Chicago Protests: Protest Nos. 3901-01-100296, 3901-01-100979, 3901-01-101008, 3901-01-
101135, 3901-01-101178, 3901-01-101043.

4
not as strong as that accorded to statutes promulgated by Congress). When looking at an

agency’s interpretation of a statute by Congress,7 a court is to give deference to the agency after

determining:

whether Congress has directly spoken to the precise question at issue. If the intent
of Congress is clear, that is the end of the matter . . . . If, however, the court
determines Congress has not directly addressed the precise question at issue, the
court does not simply impose its own construction on the statute . . . . Rather, if
the statute is silent or ambiguous with respect to the specific issue, the question
for the court is whether the agency's answer is based on a permissible construction
of the statute.

Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 104 S. Ct.

2778, 81 L. Ed. 2d 694 (1984). Customs regulations interpreting the tariff statute are entitled to

the heightened degree of Chevron deference. Haggar Apparel Co. v. United States, 526 U.S. 380,

392, 119 S. Ct. 1392, 143 L. Ed. 2d 480 (1999).

In determining the outcome of a motion for summary judgment, a court must look to

whether there remain any “genuine issues as to any material fact” in dispute on the matter.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 2509, 91 L. Ed. 2d 202,

211 (1986). The inquiry therefore is not into factual matters, but whether either party is entitled

to a judgment as a matter of law. Id. Under USCIT R. 56(c), summary judgment may be granted

when “the pleadings, depositions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to any material fact and that the

moving party is entitled to a judgment as a matter of law.” USCIT R. 56(c).

7
Plaintiff does not challenge the constitutionality of the related statutes in this action.

5
 IV
DISCUSSION

Plaintiff argues that 19 C.F.R. § 181.538 is unconstitutional both on its face and in effect

because it violates the Export Clause’s prohibition on placing a tax or duty on items in the course

of their export. Plaintiff’s Motion for Summary Judgment (“Plaintiff’s Motion”) at 5. According

to Nufarm, the regulation always operates unconstitutionally by its own terms because it provides

for the assessment of duties at the time of export on merchandise that was previously imported.

Id. at 5-6. Nufarm further argues that the regulation is unconstitutional in its operation, stating

8
19 C.F.R. § 181.53(a)(2) states, in pertinent part:

Where a good is imported into the United States pursuant to a duty-deferral
program and is subsequently withdrawn from the duty-deferral program for
exportation to Canada or Mexico or is used as a material in the production of
another good that is subsequently withdrawn from the duty-deferral program for
exportation to Canada or Mexico, and provided that the good is a “good subject to
NAFTA drawback” within the meaning of 19 U.S.C. 3333 and is not described in
§ 181.45 of this part, the documentation required to be filed under this section in
connection with the exportation of the good shall, for purposes of this chapter,
constitute an entry or withdrawal for consumption and the exported good shall be
subject to duty which shall be assessed in accordance with paragraph (b) of this
section.

19 C.F.R. § 181.53(a)(2)(i)(A). In addition, 19 C.F.R. § 181.53(b)(5) states:

Temporary importation under bond . . . duty shall be assessed on the good on the
basis of its condition at the time of its importation into the United States. Such
duty shall be paid no later than 60 calendar days after either the date of
exportation or the date of entry into a duty-deferral program of Canada or Mexico,
except that, upon filing of a proper claim under paragraph (a)(3) of this section,
the duty shall be waived or reduced in an amount that does not exceed the lesser
of the total amount of duty payable on the good under this section or the total
amount of customs duties paid to Canada or Mexico.

19 C.F.R. § 181.53(b)(5).

6
that the charge or exaction at issue is a duty that applies directly to exports. Id. at 8. Because

Plaintiff interprets the policy and structure of 19 C.F.R. § 181.53 as requiring the assessment of

duty as a result of the product’s export to Canada or Mexico, Plaintiff concludes that the

Constitution’s prohibition on taxes and duties on exports from the United States is violated by

the operation of the regulation. Id.

Defendant counters that 19 C.F.R. § 181.53 does not violate the Export Clause because

the liability for the duty was imposed at the time of the product’s importation into the United

States; the payment of the duty was simply deferred until the goods were exported to another

NAFTA country. Memorandum in Support of Defendant’s Cross-Motion for Summary Judgment

and in Opposition to Plaintiff’s Motion for Summary Judgment (“Defendant’s Memo”) at 2. The

Government points to duty deferral provisions in U.S. Note 1(c), chapter 98, subchapter XIII,

HTSUS, and in the subheading under which Nufarm’s goods were entered (9813.00.05, HTSUS),

as well as to NAFTA Article 303, which detail how duty deferral works and how previously

imposed duties are calculated once deferral is no longer applicable.9 Id. at 5-6. Defendant

concludes that because the duties in question are to be imposed based on an event prior to

exportation and are merely assessed at the time of exportation, the regulation is constitutional

both on its face and in operation. Id. at 15.

9
Deferred duties are waived upon export to non-NAFTA countries and imposed upon
export to NAFTA countries, with reduction of duty possible in certain circumstances. U.S. Note
1(c), chapter 98, subchapter XIII, HTSUS.

7
 A
Plaintiff Bears the Burden of Overcoming the Presumption of Validity

The Export Clause of the United States Constitution reads, “No Tax or Duty shall be laid

on Articles exported from any State.” U.S. Const. art. 1, § 9, cl. 5. This prohibition has been

construed by the Supreme Court to “categorically bar[ ] Congress from imposing any tax on

exports.” United States v. U.S. Shoe Corp., 523 U.S. 360, 363, 118 S. Ct. 1290, 140 L. Ed. 2d

453 (1998) (citing United States v. Int’l Bus. Machines Corp. (IBM), 517 U.S. 843, 852, 116 S.

Ct. 1793, 135 L. Ed. 2d 124 (1996)). Further, the Court has held that “a general tax, laid on all

property alike, and not levied on goods in course of exportation, nor because of their intended

exportation, is not within the constitutional prohibition.” Turpin v. Burgess, 117 U.S. 504, 507, 6

S. Ct. 835, 29 L. Ed. 988 (1886).

In order for a regulation to be deemed unconstitutional, Plaintiff must overcome the basic

presumption of validity. Thus, “the elementary rule is that every reasonable construction must be

resorted to, in order to save a [statute] from unconstitutionality.” Edward J. DeBartolo Corp. v.

Fla. Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575, 108 S. Ct. 1392, 99 L. Ed.

2d 645 (1988) (quoting Hooper v. California, 155 U.S. 648, 657, 15 S. Ct. 207, 39 L. Ed. 297

(1895)). Though the presumption of validity for an agency’s regulation is somewhat less than

that afforded to an act of Congress, Motor Vehicle Manufacturers Ass’n of U.S., Inc., 463 U.S.

29, Nufarm still has the burden of overcoming a presumption that the regulation follows

Congressional intent and is therefore constitutional. See Moon v. Freeman, 379 F.2d 382, 391

(9th Cir. 1967) (finding that the burden of demonstrating that a law is unconstitutional falls on

the party challenging its validity).

8
 B
19 C.F.R. § 181.53 Does Not Facially Violate the Export Clause

Plaintiff claims that 19 C.F.R. § 181.53 is unconstitutional on its face. Plaintiff’s Motion

at 6. Defendant responds that, when looking at the regulation’s language in its full context and

alongside the relevant NAFTA and HTSUS provisions, the regulation is within constitutional

constraints because the duty in question is explicitly intended to be assessed on the goods as

imported, not in relation to their status as exports. Defendant’s Memo at 14-15; see North

American Free Trade Agreement, U.S.-Can.-Mex, December 17, 1992, 32 I.L.M. 289 (1993).

NAFTA provides a system of trade preference for its member countries. Article 30310

seeks to avoid the abuse of trade preferences in the form of duty deferral by requiring that duties

be paid on non-NAFTA components of goods exported to NAFTA countries, thus guarding

against the establishment of “export platforms,” or importing goods solely for the purpose of

later exporting them in order to avoid duties that would have otherwise been assessed. Customs

implements Article 303 in 19 C.F.R. § 181.53, which reads, in pertinent part:

10
NAFTA Article 303(3) states:

Where a good is imported into the territory of a Party pursuant to a duty deferral
program and is subsequently exported to the territory of another Party, or is used
as a material in the production of another good that is subsequently exported to
the territory of another Party, or is substituted by an identical or similar good used
as a material in the production of another good that is subsequently exported to
the territory of another Party, the Party from whose territory the good is exported:
a) shall assess the customs duties as if the exported good had been
withdrawn for domestic consumption; and
b) may waive or reduce such customs duties to the extent permitted
under paragraph 1.

NAFTA art. 303(3), 32 I.L.M. at 683, implemented by the North American Free Trade
Agreement Implementation Act, Pub. L. 103-182, 107 stat. 2057 (1993).

9
 Except in the case of a good imported from Canada or Mexico for repair or
alteration, where a good, regardless of its origin, was imported temporarily free of
duty for repair, alteration or processing (subheading 9813.00.05, Harmonized
Tariff Schedule of the United States) and is subsequently exported to Canada or
Mexico, duty shall be assessed on the good on the basis of its condition at the time
of its importation into the United States. Such duty shall be paid no later than 60
calendar days after either the date of exportation or the date of entry into a duty-
deferral program of Canada or Mexico, except that, upon filing of a proper claim
under paragraph (a)(3) of this section, the duty shall be waived or reduced in an
amount that does not exceed the lesser of the total amount of duty payable on the
good under this section or the total amount of customs duties paid to Canada or
Mexico.

19 C.F.R. § 181.53(b)(5). The regulation thus specifically provides for a duty that is to be

deferred and then later “assessed on the good on the basis of its condition at the time of its

importation into the United States.” Id. (emphasis added).

Plaintiff misinterprets the language of 19 C.F.R. § 181.53 in its Motion.11 The

regulation’s language presents a clear implementation of a duty deferral process, tracking the

stated intent of NAFTA Article 303. The language in the challenged regulation clearly requires

that the duties in question are to apply to the goods as a result of their status as imports, not as

exports. Thus, 19 C.F.R. § 181.53 is not unconstitutional on its face.

C
19 C.F.R. § 181.53 is Constitutional in Effect

Plaintiff also argues that the regulation is unconstitutional in operation, claiming that

duties are imposed under the regulation not because of the fact that the goods were imported to

11
For example, Plaintiff uses the following excerpt from 19 C.F.R. § 181.53: “[W]here a
good . . . was imported temporarily free of duty for repair, alteration or processing . . . and is
subsequently exported to Canada or Mexico, duty shall be assessed on the good . . . .” Plaintiff’s
Motion at 6. The complete sentence provides that the duty is assessed on the basis of the
condition of the good at the time of its import.

10
the United States or because of their alteration, repair, or processing, but rather because the goods

were exported specifically to a NAFTA country. Plaintiff’s Motion at 9. Thus, according to

Nufarm, for all other imports the obligation to pay duty is avoided by exporting to a non-NAFTA

country and arises by failing to export, and this discrepancy amounts to a violation of the Export

Clause. Id. Defendant responds that the entire policy and structure of the regulation involves the

calculation of previously imposed but temporarily deferred duties, emphasizing that they are

import, not export, duties. Defendant’s Memo at 15. The Government further notes the

distinction between taxes and duties imposed on goods at the time of exportation versus those

assessed at the time of exportation but imposed at an earlier time. Id. Because the duties in

question were not imposed but assessed at the time of export, Defendant argues, the regulation is

constitutional in operation. Id.

The constitutional prohibition of duties on exports “does not mean that articles exported

are relieved from the prior ordinary burdens of taxation which rest upon all property similarly

situated. The exemption attaches to the export and not to the article before its exportation.”

Cornell v. Coyne, 192 U.S. 418, 427, 24 S. Ct. 383, 48 L. Ed. 504 (1904) (emphasis added); see

A.G. Spalding & Bros. v. Edward, 262 U.S. 66, 43 S. Ct. 485, 67 L. Ed. 865 (1923) (holding that

when a taxed sale occurs in the export process the tax is unconstitutional); Consolidation Coal

Co. v. United States, 64 Fed. Cl. 718, 724 (Ct. Fed. Cl. 2005) (“Both sides agree that the fee

would be constitutional if imposed solely on extraction, which would be the equivalent of the

manufacturing stage in Cornell. On the other hand, given defendant’s concession that the sale

occurs in the export process, the fee, if held to be a tax, would be unconstitutional pursuant to

A.G. Spalding if imposed at the time the coal is sold.” (citation omitted)). In Pace v. Burgess, 92

11
U.S. 372, 23 L. Ed. 657 (1876), the Supreme Court discussed the export exemption in the context

of a stamp tax placed on tobacco bound for export, stating:

The plaintiff contends that the charge for the stamps required to be placed on
packages of manufactured tobacco intended for exportation was and is a duty on
exports . . . . But it is manifest that such was not its character or object. The
stamp was intended for no other purpose than to separate and identify the tobacco
which the manufacturer desired to export, and thereby, instead of taxing it, to
relieve it from the taxation to which other tobacco was subjected. It was a means
devised to prevent fraud, and secure the faithful carrying out of the declared intent
with regard to the tobacco so marked. The payment of twenty-five cents or of ten
cents for the stamp used was no more a tax on the export than was the fee for
clearing the vessel in which it was transported, or for making out and certifying
the manifest of the cargo. It bore no proportion whatever to the quantity or value
of the package on which it was affixed.12

Id. at 374-75 (emphasis added). Clearly there is a distinction between charges imposed for

reasons independent of the export process and those in place due to an item’s export.

The duty set forth by 19 C.F.R. § 181.53 is in place due to the goods’ import into the

United States, not their export. Plaintiff mistakes the distinction in its argument by looking to

the fact that goods exported to non-NAFTA countries are treated differently than goods exported

to NAFTA countries, rather than pinpointing the time at which the duty was imposed in order to

12
Plaintiff asserted during oral argument that upholding the regulation as it is written
would be doing something no court has ever done in the application of the Export Clause. The
courts have clearly established that the proper construction of the Export Clause is that no tax or
duty can be cast upon the process of exporting goods. However, the regulation in question places
no such duty on export. Rather the duty is imposed on the goods before their export, as was
distinguished in Cornell and Consolidation Coal. Cornell, 192 U.S. 418; Consolidation Coal, 64
Fed. Cl. at 724 (citing Pace, 92 U.S. 372; Turpin, 117 U.S. at 507). Thus, the assessments made
in Pace when the Court upheld the charges on items to be exported as well as those made in
Consolidation Coal, Cornell, Turpin, and others are directly applicable here. Though in later
cases such as U.S. Shoe Corp., 523 U.S. at 369, and Moon, 379 F.2d at 389-90, courts focused
on the distinction between a tax or duty and a regulation when applying Pace, the analysis quoted
in the text above arrives at the conclusion of constitutionality using a reasoning similar to that
used here and is equally applicable in light of the guidelines provided by Cornell and
Consolidation Coal.

12
determine whether all items are similarly situated. See Plaintiff’s Motion at 9. The issue is first

whether the duty is placed on all imports alike. In such a circumstance, the deferral of duties is a

temporary option for importers, providing for the assessment of the duty at a later time, which in

this case coincides with the export of the goods. Ultimately, every importer meeting the 19

C.F.R. § 181.53 standard has the same option of paying the duty immediately or deferring

payment to a later date.13 The fact that events occurring subsequent to importation could result in

the waiver or reduction of the duty is irrelevant to the analysis of whether all goods are similarly

situated regarding its implementation.

As in Pace, the duty at issue here is not a tax on goods being exported. Rather, 19 C.F.R.

§ 181.53 implements the guidelines provided by NAFTA Article 303 and U.S. Note 1(c)

regarding import duty deferral. Much like the measure in Pace, the purpose behind these duty

deferral provisions is in part to prevent abuse, this time by discouraging the use of the United

States as an “export platform.” The regulation in question clearly meets constitutional standards

by imposing duties on imports, allowing for temporary duty deferral, and then assessing duties at

the time of export. See Ammex, Inc. v. United States, 341 F. Supp. 2d 1308 (CIT 2004), aff’d,

419 F.3d 1342 (Fed. Cir. 2005) (distinguishing “assessment,” meaning fixing of specific amounts

of liability, from “imposition,” meaning the responsibility to pay a particular duty, and finding

that assessment of duty upon export is within constitutional constraints). As the constitutional

focus is on the imposition of duties and not their assessment, the duty deferral process set forth in

19 C.F.R. § 181.53 escapes Export Clause duty exemption. Plaintiff therefore fails to meet its

13
Defendant declined to argue that the choice to use 19 C.F.R. § 181.53 to defer duty
until export constitutes a waiver of a known right.

13
burden; because the regulation operates as an import duty and not a duty on exports, 19 C.F.R. §

181.53 is constitutional in effect.

V
CONCLUSION

For the reasons stated above, Nufarm’s Motion for Summary Judgment is denied and the

Government’s Cross-Motion for Summary Judgment is granted.

____/s/ Evan J. Wallach__________
Evan J. Wallach, Judge
Dated: February 15, 2007
New York, New York

14
 UNITED STATES COURT OF INTERNATIONAL TRADE

_________________________________________
:
NUFARM AMERICA’S, INC., :
:
Plaintiff, :
:
v. : Before: Wallach, Judge
: Court No.: 02-00162
UNITED STATES, :
:
Defendant. :
_________________________________________:

JUDGMENT ORDER

This case having come before the court upon the Motion for Summary Judgment filed by
Plaintiff Nufarm America’s, Inc. (“Plaintiff’s Motion”), and the Cross Motion for Summary
Judgment filed by Defendant United States Government (“Defendant’s Motion”); the court
having reviewed all papers and pleadings on file herein, having heard oral argument by each
party, and after due deliberation, having reached a decision herein; now, in conformity with said
decision, it is hereby

ORDERED ADJUDGED AND DECREED that Plaintiff’s Motion is DENIED, and it is
further

ORDERED ADJUDGED AND DECREED that Defendant’s Motion is GRANTED.

_____/s/ Evan J. Wallach______________
Evan J. Wallach, Judge

Dated: February 15, 2007
New York, New York