Slip Op. 03-140
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: RICHARD W. GOLDBERG, SENIOR JUDGE
THE PILLSBURY COMPANY,
Plaintiff,
Court No. 98-03190
v.
UNITED STATES,
Defendant.
[Judgment in part for plaintiff.]
October 27, 2003
Neville Peterson LLP (John M. Peterson, George W. Thompson,
Mollie R. Coyne) for plaintiff The Pillsbury Company.
Peter D. Keisler, Assistant Attorney General; Barbara S.
Williams, Acting Attorney in Charge; Saul Davis, Civil Division,
Commercial Litigation Branch, United States Department of
Justice; Edward M. Maurer, Office of Assistant Chief Counsel,
International Trade Litigation, United States Bureau of Customs
and Border Protection, Of Counsel, for defendant United States.
OPINION
GOLDBERG, Senior Judge: Plaintiff The Pillsbury Company
(“Pillsbury”) filed this action to challenge the denial of its
substitution unused merchandise drawback claims (the “drawback
claims”) made pursuant to 19 U.S.C. § 1313(j)(2) (2000). The
drawback claims were made with respect to asparagus imported from
Mexico, and asparagus grown in Washington State and exported to
Court No. 98-03190 Page 2
Canada. The Court has jurisdiction pursuant to 28 U.S.C. §
1581(a).
I. BACKGROUND
From 1991 through 1993, Pillsbury imported into the United
States asparagus from Mexico (the “designated asparagus”). The
Customs Service (“Customs”)1 classified the subject items under
subheading 0709.20.90.00 of the Harmonized Tariff Schedule of the
United States (“HTSUS”) as “Other vegetables, fresh or chilled:
asparagus.” Customs assessed duties at liquidation on the
imported asparagus, and Pillsbury paid the assessed duties. In
addition, in 1992 and 1993, Pillsbury exported from the United
States to Canada asparagus grown in Washington State (the
“substitute asparagus”).
During this period, the asparagus season began in January
and February of each year when asparagus first came on the market
from Mexico. At the beginning of the asparagus season, demand
outpaced the market’s supply of asparagus. Thus, the asparagus
offered in January obtained a high price of $100 per thirty-pound
crate. Transcript of Trial Proceedings on Oct. 2-4, 2002 (“Tr.”)
at 53. By late April, the Washington State asparagus entered the
1
The United States Customs Service has since become the
Bureau of Customs and Border Protection per the Homeland Security
Act of 2002, § 1502, Pub. L. No. 107-296, 116 Stat. 2135, 2308-09
(Nov. 25, 2002), and the Reorganization Plan Modification for the
Department of Homeland Security, H.R. Doc. 108-32, p. 4 (Feb. 4,
2003).
Court No. 98-03190 Page 3
market. There was a significant volume of asparagus on the
market by the time the Washington State asparagus were being
produced. The later Washington State asparagus received the
lowest price of the season, as little as $25 per crate. Tr. at
53-57, 281, 382.
As the asparagus were harvested, they were sold either to
wholesale and retail markets that resell the asparagus in its
fresh condition (the “fresh market”) or to processors who froze
or canned the asparagus (the “processed market”). The designated
asparagus were fresh when imported, and the substitute asparagus
were fresh when exported. Processors and the fresh market
purchasers received the same quality asparagus on any given day,
packed to different specifications. Tr. at 354. Occasionally, a
fresh market wholesaler or retailer would purchase asparagus for
the fresh market, and later freeze or can the asparagus. Tr. at
183-84. Whether asparagus was processed or sold on the fresh
market depended upon the price of asparagus: if the price of
asparagus was high, then the asparagus would rarely be sold to
canners because canners could not recover the high price paid for
the fresh asparagus; if the price of asparagus was low, then the
canners purchased and processed the asparagus because they could
recover the price paid for the asparagus.
Pillsbury timely filed 249 substitution unused merchandise
drawback claims with the Port Director of Customs in Chicago in
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1994 and 1995. A substitution unused drawback claim is for
exports of goods that are “commercially interchangeable” with the
imported goods. In the instant case, Pillsbury requested a
refund of the duties paid on the designated asparagus when the
substitute asparagus were exported.
Pillsbury’s drawback claims were denied in November 1996.
In January 1997, Pillsbury filed protests 3901-97-100290, 3901-
97-100299, 3901-97-100306, 3901-97-100319, and in February 1997
filed protest 3901-97-1003892, disputing Customs’ refusal to pay
drawback on the subject claims. On November 16, 1998, Customs
denied Pillsbury’s protests, stating:
Lead Protest 3901-97-100320. Ruling 227491, dated
10/9/98, held that there is insufficient evidence to
find that the imported asparagus and the substituted
exported asparagus were “commercially interchangeable.”
Protest Nos. 3901-97-100290, 3901-97-100299, 3901-97-100306,
3901-97-100319, 3901-97-100389.
Pillsbury filed its summons with the Court of International
Trade on December 4, 1998, challenging Customs’ denial of
Pillsbury’s protests. Upon the parties’ joint motion for trial,
2
Customs failed to date stamp the February 1997 protest
from Pillsbury when it was received. Although Pillsbury produced
a copy of a letter dated just within the ninety day time limit
for filing a protest, Customs insisted that without the stamp
date Pillsbury’s protest was not timely made. Tr. at 4-6, 432-
33. Customs’ error is the sole cause of Pillsbury’s inability to
prove the timeliness of its February protest; therefore, the
Court rules that the protest was timely filed.
Court No. 98-03190 Page 5
the Court held trial in Seattle, Washington and New York in
October 2002.3
II. STANDARD OF REVIEW
Customs’s decision enjoys a statutory presumption of
correctness, and the burden of proving otherwise rests upon the
party challenging such decisions. 28 U.S.C. § 2639(a). However,
the presumption of correctness “does not add evidentiary weight;
it simply places the burden of proof on the challenger.”
Anhydrides & Chems., Inc. v. United States, 130 F.3d 1481, 1486
(Fed. Cir. 1997). The presumption of correctness applies only to
the factual basis of such decisions, and not to their legal
component, with respect to which the Court of International Trade
3
In its opening statement, counsel for the government made
certain allegations attacking the good faith intentions of the
plaintiff. Government counsel alleged that counsel for Pillsbury
had somehow participated in the grading process and that the
participation was “done specifically for purposes of litigation.”
Tr. at 33, 34. The accusation was that “the actual grading
process for this litigation was set-up by [Pillsbury’s] attorneys
with the intent of setting it up for Customs, for the litigation,
and not as a commercial practice.” Tr. at 38. Government
counsel later clarified that the set-up was by another law firm
for another legal matter. Tr. at 40.
The subject of the allegation had years before been settled.
The current litigation was filed some four years after the matter
referred to by government counsel. The matter was clearly
irrelevant; hardly “a set-up” as alleged.
The Court can only conclude that the government was trying
to improperly influence the Court into believing that the
plaintiff entered with unclean hands. This type of behavior is
unacceptable.
Court No. 98-03190 Page 6
exercises de novo review. See Universal Elecs., Inc. v. United
States, 112 F.3d 488, 492 (Fed. Cir. 1997).
III. DISCUSSION
The sole issue of law presented in the instant case is
whether Pillsbury’s designated asparagus and substitute asparagus
are “commercially interchangeable” within the meaning of the
substitution unused drawback statute, 19 U.S.C. § 1313(j)(2). 19
U.S.C. § 1313(j)(2) provides that:
(j) Unused Merchandise Drawback –
* * *
(2) If there is, with respect to any imported
merchandise on which was paid any duty, tax, or
fee imposed under Federal law because of its
importation, any other merchandise (whether
imported or domestic), that –
(A) Is commercially interchangeable with such imported
merchandise;
(B) Is, before the close of the 3-year period
beginning on the date of importation of the
imported merchandise, either exported or destroyed
under Customs supervision; and
(C) Before such exportation or destruction –
(i) Is not used within the United States, and
(ii) Is in the possession of, including ownership
while in bailment, in leased facilities, in
transit to, or in any other manner under the
operational control of, the party claiming
drawback under this paragraph, if that party
(I) Is the importer of the imported
merchandise, or
Court No. 98-03190 Page 7
(II) Received from the person who imported
and paid any duty due on the imported
merchandise a certificate of delivery
transferring to the party the imported
merchandise, commercially
interchangeable merchandise or any
combination of imported and commercially
interchangeable merchandise (and any
such transferred merchandise, regardless
of its origin, will be treated as the
imported merchandise and any retained
merchandise will be treated as domestic
merchandise);
Then upon the exportation or destruction of such other
merchandise the amount of each such duty, tax and fee
paid regarding the imported merchandise shall be
refunded as drawback, but in no case may the total
drawback on the imported merchandise, whether available
under this paragraph or any other provision of law or
any combination thereof, exceed 99% of that duty, tax,
or fee.
19 U.S.C. § 1313(j)(2).
Section 1313(j)(2) was enacted as part of Section 632 of the
North American Free Trade Agreement Implementation Act, Pub. L.
103-182 (Dec. 8, 1993). The substitution unused merchandise
drawback system set forth therein replaced the former system of
“substitution same-condition drawback.” The old system required
that the imported and exported goods be “fungible,” that is,
“merchandise which for commercial purposes is identical and
interchangeable in all situations.” See, e.g., 19 U.S.C. §
1313(j) (1988), 19 C.F.R. § 191.2(b)(1) (1990). The new system
is “less restrictive,” only requiring that the imported and
Court No. 98-03190 Page 8
substitute goods be “commercially interchangeable.” See H. Rep.
No. 103-361, 103rd Cong., 1st Sess. 131 (1993).
The Court of Appeals for the Federal Circuit defined
“commercially interchangeable” in Texport Oil Co. v. United
States, 185 F.3d 1291 (Fed. Cir. 1999). The Federal Circuit
stated that:
Indeed, we are convinced that Congress intended
“commercially interchangeable” to be an objective,
market based consideration of the primary purpose of
the goods in question. Therefore, “commercially
interchangeable” must be determined objectively from
the perspective of a hypothetical reasonable
competitor; if a reasonable competitor would accept
either the imported or the exported good for its
primary commercial purpose, then the goods are
“commercially interchangeable” according to 19 U.S.C.
Section 1313(j)(2).
Texport, 185 F.3d at 1295 (internal citations omitted)
(hereinafter the “Texport test”). Thus, the Court must determine
whether a reasonable hypothetical competitor would accept either
the imported or the exported asparagus for asparagus’s primary
commercial purpose. If the answer is yes, then the imported and
exported asparagus are commercially interchangeable.
In the context of the instant case, a reasonable
hypothetical competitor of Pillsbury will import and export
asparagus for the fresh market and the processed markets. The
primary purpose for asparagus is for human consumption as food.
Customs argues that this definition is too broad, and that the
definition implies that apples, peaches, and all other food
Court No. 98-03190 Page 9
products would be commercially interchangeable with asparagus.
Since the only purpose for asparagus is for human consumption as
food, and the drawback claims are limited to asparagus, the Court
finds no barrier to concluding that the primary purpose for
asparagus is for human consumption as food.
To determine whether both the imported and exported
asparagus would be accepted by the hypothetical reasonable
competitor of Pillsbury, there are several factors to consider.
The Federal Circuit has identified the following evidentiary
factors:
Evidence relevant to this question would, of course,
include “governmental and recognized industrial
standards, part numbers, tariff classification, and
relative values.” See, e.g., H.R. Rep. 103-361, at 131
(1993), reprinted in 1993 U.S.C.C.A.N. 2552, 2681.
This analysis might also include evidence of arms-
length negotiations between commercial actors, the
description of the goods on bills of sale or invoices .
. . as well as other factual evidence presented by the
parties that the Court of International Trade considers
relevant.4
Texport, 185 F.3d at 1295.
Texport also cautioned that the appropriate comparison is
between the imported designated asparagus in its condition as
imported, and the exported substitute asparagus in its condition
4
The legislative history cited by the Federal Circuit in
Texport specifically mentions government and industry standards,
part numbers, the tariff classification, and relative values as
relevant evidence to determine commercial interchangeability.
However, this list is not intended to be exhaustive, nor is any
one item in the list dispositive.
Court No. 98-03190 Page 10
as exported. Texport, 185 F.3d at 1291 (Title to the exported
jet fuel had passed to the purchaser, and thus whatever the buyer
did to the jet fuel after that point was “out of Customs’
province of inquiry into commercial interchangeability.”).
Changes to the merchandise effected after importation or
exportation are outside the scope of the Texport test.
Therefore, it is irrelevant whether Pillsbury’s customer sells
the asparagus on the fresh market, or cans, freezes, or jars it.
Thus, commercial interchangeability is determined by an
“objective, market-based consideration of the primary purpose of
the goods in question.” Texport, 185 F.3d at 1295. Based on the
relevant facts, the Court must determine whether a reasonable
hypothetical competitor would accept both the substitute exported
asparagus and the designated imported asparagus based on
government and industry standards, tariff classifications,
relative values of the exported and imported asparagus, the
invoice descriptions, and the preparation and packaging of the
asparagus.
A. Government and Industry Asparagus Standards
Pillsbury introduced evidence that all of the imported
asparagus in this action were USDA Grade No. 2 or better.5
5
Standards established by the U.S. Department of
Agriculture (“USDA”) are used throughout the asparagus industry
in the United States. Tr. at 51, 185. The USDA No. 1 standard
requires that the asparagus stalk be at least one-half inch in
diameter. No less than two-thirds of the stalk length must be of
Court No. 98-03190 Page 11
However, the Texport test is based on an “objective, market based
consideration.” There was little credible evidence that the
market contracts to purchase asparagus on the broad “Grade 2 or
better” standard. Although the USDA Grade specifications weigh
in favor of ruling that the designated and substitute asparagus
are commercially interchangeable, less weight is given to this
factor and more weight is given to the industry standards.
Instead of relying on USDA standards, the designated and
substitute asparagus were traded on contract standards specific
to individual labels.6 The record evidence demonstrates that
green color. A ten-percent stalk tolerance is permitted, meaning
that ten percent of the lot does not need meet the requirements
for the USDA No. 1 standard. The USDA No. 2 standard requires
that the asparagus stalk be at least five-sixteenths inch in
diameter and not less then one-half of the stalk must be green.
The USDA No. 2 standard also permits a ten-percent stalk
tolerance. US Standards for Grades of Fresh Asparagus, 7 C.F.R.
§ 2851.3721. The USDA standards do not have any requirements for
the length of the asparagus spear. Tr. at 49.
6
The designated asparagus were imported under a variety of
Pillsbury labels, each label with its own commercial grading
specifications. Empacadora imported asparagus under the Green
Giant, County Kist, King Spear, and Mr. Lucky labels. Green
Giant’s specifications were the most stringent, and were much
stricter than the USDA Grade No. 1 standards. Pillsbury’s County
Kist label had stricter requirements than USDA No. 2. County
Kist required 85 percent green with a 10-percent tolerance,
although no spear could be more than 1/3 white in color. Tr. at
144-49. Asparagus packed under the King Spear and Mr. Lucky
labels were permitted to have more white material on the spears
that those spears packed under the Green Giant or County Kist
labels. Tr. at 189, 190-91, 195, 200-02. King Spear and Mr.
Lucky labels only required 66 percent of the stalk length to be
green. Tr. at 147. Each label would, at times, request
different diameters of asparagus representing jumbo, extra large,
large, standard, and small. Tr. at 207.
Court No. 98-03190 Page 12
many of the contract standards were stricter than USDA Grade No.
2, and were often more stringent than USDA Grade No. 1. The
contract standards also had various requirements for the length
of the asparagus spear, which the USDA grading does not specify.
Despite the differences in contract standards, the evidence shows
that the actual lengths of the designated and substitute
asparagus spears were roughly the same.
Evidence of different contract standards would indicate that
the designated and substitute asparagus are not commercially
interchangeable. However, this factor must be analyzed in the
context of a reasonable hypothetical competitor of Pillsbury, and
the primary purpose of asparagus for human consumption. A
hypothetical reasonable competitor of Pillsbury will import
asparagus both for the processed and fresh markets, the final
destination dependent upon the supply and price of the asparagus.
The substitute asparagus were not graded. Instead, a
“usable percentage” was calculated based on the Dayton grade
specifications. Tr. at 451. The Dayton grading system, as
applied by Pillsbury to the substitute asparagus, was as follows:
(1) “A” spears are those with a 3/4 inch or larger diameter
measured 5-1/2 inches from the tip; (2) “B” spears are spears
with a 5/16 to 3/4 inch diameter measured 5-1/2 inches from the
tip; and (3) “C” spears are both A and B spears with a minor
defect. The A, B, and C spears must have a minimum of 5-1/2
inches of green color. “Culls” are defective fresh asparagus,
with broken, flowered or spread spears. Although culls are still
fresh asparagus and are edible, they are not acceptable for the
fresh or processed markets. They are less than 3/8 inch in
diameter when measured 5-1/2 inches from the tip. Tr. at 396-97;
Plaintiff’s Exhibit 30 (Asparagus Raw Product Grade
Specifications, Dayton, Washington).
Court No. 98-03190 Page 13
The primary purpose of asparagus is for human consumption, a
purpose that is not altered by canning, freezing, jarring, or
selling asparagus on the fresh market. A reasonable hypothetical
competitor of Pillsbury would accept the designated and
substitute asparagus for either the fresh market or for the
processed market.
B. Tariff Classification
The asparagus shipped to Canada and the imported Mexican
asparagus are both classified under HTSUS 0709.20.90.00. This
weighs in favor of concluding the asparagus is commercially
interchangeable.
C. Relative Values of the Designated and Substitute Asparagus
The relative values of the designated and substitute goods
are usually a reliable indicator of whether goods are
commercially interchangeable. In the instant case, however, the
relative values are much less useful. The values of the imported
and exported asparagus, as reflected in the invoices, cannot be
directly compared. Several witnesses testified that asparagus
prices early in the season are much higher than the asparagus
prices when Washington State is in production. The price
difference is not due to quality differences, but rather is due
to the supply of asparagus in the marketplace.
An additional element to the price difference is the packing
costs. The packing costs for asparagus were a significant
Court No. 98-03190 Page 14
percentage of the cost of the asparagus. Tr. at 144, 242-244.
Packing types and costs are different for asparagus destined for
the fresh market and asparagus for the processed market. It was
more expensive to pack asparagus for the fresh market because
they were packed in non-reusable crates, the asparagus were of
uniform size and length, and the asparagus were often bunched.7
Tr. at 159, 233-36, 295-96. Although not typical, customers who
ordered the asparagus bunched for the fresh market would accept
unbunched asparagus. Tr. at 102-03, 126, 336. The substitute
asparagus were shipped in totes or lugs, rather than disposable
cardboard boxes or wooden crates, because the totes and lugs can
be recycled, and thus packing costs were reduced. Tr. at 394,
424. Asparagus shipped to the processed market were usually
shipped in reusable totes or lugs, which constituted a very small
portion of the asparagus price.
Because the evidence at trial showed that price differences
in asparagus are not based on the quality of the asparagus, but
rather on the supply of asparagus in the market, this factor does
not detract from the conclusion that the designated and
substitute asparagus are commercially interchangeable. Instead,
because testimony at trial showed that the asparagus quality did
not vary throughout the asparagus growing season, this factor
7
Bunched asparagus are typically 18 to 20 asparagus
spears, roughly equivalent to a pound of asparagus, banded
together in a bunch.
Court No. 98-03190 Page 15
reinforces the conclusion that the designated and substitute
asparagus are commercially interchangeable.
D. Invoice Descriptions
The designated asparagus and the substitute asparagus were
described in the commercial invoices as “fresh asparagus.” See,
e.g., Drawback Entry Number TH7-0092135-6 (May 8, 1995). This is
not surprising since all asparagus, even culls, are “fresh
asparagus” until processed.
E. Preparation and Packaging of Asparagus
An important factor in determining the commercial
interchangeability of the subject asparagus is the preparation
and packaging of the asparagus.
When harvested, the designated asparagus was cut to a length
of eight to ten inches in the field. After the initial field
cut, the picker gathered a handful of asparagus and made another
“butt cut” to make the length of the asparagus uniform. There
was also an initial culling process in the field, whereby the
obviously defective asparagus were left in the field. Tr. at 92.
The designated asparagus were washed, graded, sized, machine
trimmed to length specifications, packaged in crates, labeled,
and hydrocooled for preservation. Tr. at 62-65, 68-69, 82, 247.
The designated asparagus were packed either loose or bunched.
Tr. at 65, 182. The designated asparagus that are the basis of
Court No. 98-03190 Page 16
the disputed drawback claims were sold both to the fresh market
and to processors. Tr. at 72, 144, 183-84.
The substitute asparagus were processed less than the
designated asparagus. The substitute asparagus were trimmed
twice in the field by the pickers, and then placed in bins,
similar to the harvesting of the designated asparagus. There was
also an initial culling process in the field whereby the
obviously defective asparagus were left in the field. After the
substitute asparagus were brought to the shed they were simply
hydrocooled, and no further processing was done. Tr. at 387-95.
Clearly, there were several differences in the preparation
and packaging of the designated and substitute asparagus.
Customs maintains that because the designated asparagus were
washed, graded, sized, machine trimmed, packed in crates, and
labeled, the designated asparagus were no longer commercially
interchangeable with the substitute asparagus, which were only
culled and trimmed in the fields, and hydrocooled. Nonetheless,
the asparagus remained fresh asparagus. Also, witnesses
testified that some designated asparagus originally destined for
the fresh market were redirected to the processed market. Any
bunching or crating of asparagus did not change the condition of
the asparagus, or disqualify it from a particular use.
Functionally, the level of processing and the type of packaging
did not restrict the asparagus to a specific market. Thus, the
Court No. 98-03190 Page 17
processing and packaging of asparagus have little impact on their
commercial interchangeability.
Based on the Court’s examination of government and industry
standards, tariff classification, relative values, invoice
descriptions, preparation and packing of asparagus, and all other
testimony and admitted exhibits, the Court concludes that the
designated and substitute asparagus are commercially
interchangeable. A reasonable, hypothetical competitor of
Pillsbury would accept either the imported Mexican asparagus or
the exported Washington State asparagus for human consumption,
its primary purpose.
G. Calculation of Drawback
Although the designated and substitute asparagus are
commercially interchangeable, Pillsbury cannot receive the full
amount of the claimed drawback. At trial, it was established
that the usual commercial practice was to trim asparagus to a
length that left an 18-percent “trim.” Testimony at trial
indicated that one inch of an asparagus spear is roughly equal to
18 percent of the total weight of the asparagus spear. In the
instant case, Pillsbury shipped asparagus in lengths of 7-1/2 to
10 inches to Fraser Valley. This amounts to 2 to 4-1/2 inches of
trim, or waste, being shipped to Canada. The documents attached
to the drawback claims reflect the large amount of waste: they
indicate that approximately 50 percent of the asparagus weight
Court No. 98-03190 Page 18
shipped to Canada was waste.8 What Fraser Valley did with the
asparagus is irrelevant to the issue of commercial
interchangeability. It is relevant, however, to the issue of the
amount of drawback claimed given that Fraser Valley only paid for
the 5-1/2 inches of usable asparagus.9
Fraser Valley paid for the “usable poundage,” or the weight
of the first 5-1/2 inches of each asparagus spear. In a normal
commercial situation, 6-1/2 inches of asparagus would be shipped
to Fraser Valley to protect the end of the asparagus spear from
becoming tough. Thus, the amount of asparagus exceeding 6-1/2
inches in length was excess waste, essentially packing material.
The weight of the asparagus spear beyond the 6-1/2 inch length is
not eligible for drawback. Accordingly, Pillsbury is eligible to
claim drawback for 6-1/2 inches of each asparagus spear.
IV. CONCLUSION
The preponderance of the record evidence establishes that
Customs erred in denying Pillsbury’s claims for drawback. The
8
The Court is not in a position to determine the exact
percentage of waste based on the documents submitted to the
Court.
9
Pillsbury claims that Fraser Valley paid a higher per
usable pound price to offset the fact that Fraser Valley was only
paying for a percentage of the shipped weight. No evidence was
presented at trial to show that Fraser Valley paid a higher per
usable pound price. Since Pillsbury did not meet its burden of
establishing a higher asparagus price for Fraser Valley, the
Court is unwilling to infer that a higher price was charged.
Court No. 98-03190 Page 19
record evidence also establishes that Pillsbury is only entitled
to a portion of the claimed drawback, as discussed infra.
_________________________________
Richard W. Goldberg
SENIOR JUDGE
Date: October 27, 2003
New York, New York