Slip Op. 00-122
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: RICHARD K. EATON, JUDGE
_____________________________________
:
E. I. DU PONT DE NEMOURS AND :
COMPANY, :
:
Plaintiff, :
:
v. : Court No. 96-12-02657
:
UNITED STATES, :
:
Defendant. :
_____________________________________:
[Defendant’s motion for summary judgment is denied; Plaintiff’s cross-motion for summary judgment is
granted.]
Domestic manufacturer and exporter of titanium dioxide pigments brought action contesting
denial by United States Customs Service of its claim for manufacturing substitution drawback pursuant
to 19 U.S.C. § 1313(b) (1994). Defendant moved for summary judgment, seeking dismissal of action.
Plaintiff manufacturer cross-moved for summary judgment, requesting approval of proposed drawback
contract, reliquidation of drawback entry, and payment of drawback claim. The Court of International
Trade, Eaton, J., held that Plaintiff had satisfied the requirements of 19 U.S.C. § 1313(b) and was
therefore entitled to manufacturing substitution drawback.
Decided: September 20, 2000
Crowell & Moring LLP (Barry E. Cohen and John I. Blanck, Jr.), for Plaintiff.
David W. Ogden, Assistant Attorney General; Joseph I. Liebman, Attorney in Charge,
International Trade Field Office; Amy M. Rubin, Civil Division, Department of Justice, Commercial
Litigation Branch, for Defendant.
OPINION
Court No. 96-12-02657 Page 2
EATON, JUDGE: Before the Court are cross-motions for summary judgment filed pursuant
to USCIT R. 56 by Defendant United States of America (“Government”) on behalf of the United States
Customs Service (“Customs”) and Plaintiff E. I. du Pont de Nemours and Company (“DuPont”) with
respect to DuPont’s claim for manufacturing substitution drawback under 19 U.S.C. § 1313(b) (1994).
The Court grants summary judgment in favor of DuPont.
JURISDICTION
The Court has exclusive jurisdiction over any civil action commenced to contest Customs’
denial of a protest under 19 U.S.C. § 1515 (1994). See 28 U.S.C. § 1581(a) (1994); see also
Mitsubishi Electronics America, Inc. v. United States, 44 F.3d 973, 976 (Fed. Cir. 1992).
BACKGROUND
DuPont is a domestic corporation engaged in various industrial enterprises worldwide. This
action concerns DuPont’s pigments business and, specifically, its importation of titaniferous raw
materials for the manufacture and subsequent export of “Ti-Pure” brand titanium dioxide pigments. At
issue is DuPont’s entitlement under 19 U.S.C. § 1313(b) to a drawback upon exportation from
December 1988 through March 1989 of 60 shipments of “Ti-Pure R-960" titanium dioxide pigment
manufactured in the United States.
Court No. 96-12-02657 Page 3
On December 3, 1991, DuPont submitted a proposed drawback contract1 under 19 U.S.C. §
1313(b), seeking manufacturing substitution duty drawback2 for the titanium appearing in any
prospective exports of Ti-Pure titanium dioxide pigments manufactured with the use of four titaniferous
ores (“feedstocks”). (Compl. at ¶ 5.) On December 6, 1991, DuPont filed a Manufacturing
Drawback Certificate, No. G82-0000542, claiming a $37,540.00 drawback for titanium appearing in
exported Ti-Pure R-960. DuPont designated as the basis of this claim the titanium contained in the
substituted feedstock synthetic rutile, entry No. 86-247171-2, which was imported on April 3, 1986.
1
A party seeking drawback for exported articles under 19 U.S.C. § 1313(b) is required
to submit a proposed drawback contract to Customs. See 19 C.F.R. § 191.21 (1996). A party’s
entitlement to receive a drawback is dependent upon Customs’ approval of the proposed contract.
See id.
2
“Manufacturing substitution duty drawback” generally, is the refund of duties paid on
goods imported into the United States when those goods, or domestic goods of the same kind and
quality, are used in the manufacture or production of articles which are subsequently exported. See
NEVILLE, PETERSON & WILLIAMS, CUSTOMS LAW & ADMINISTRATION § 17.1 (3d ed. 1999). The
authority for allowing this drawback is found in 19 U.S.C. § 1313(b), which allows a manufacturer to
recoup duties paid for imported merchandise if it uses merchandise of the “same kind and quality” to
produce exported articles in accordance with the statute. See 19 U.S.C. § 1313(b). The statute
provides:
If imported duty-paid merchandise and any other merchandise (whether
imported or domestic) of the same kind and quality are used in the
manufacture or production of articles within a period not to exceed three
years from the receipt of such imported merchandise by the manufacturer
or producer of such articles, there shall be allowed upon the exportation
. . . of any such articles, notwithstanding the fact that none of the imported
merchandise may actually have been used in the manufacture or
production of the exported or destroyed articles, an amount of drawback
equal to that which would have been allowable had the merchandise used
therein been imported . . . .
Id.
Court No. 96-12-02657 Page 4
Following correspondence between the parties, Customs denied DuPont’s proposed drawback
contract, revised on or about March 4, 1994, stating that DuPont failed to comply with the “same kind
and quality” requirement of Treasury Decision (“T.D.”) 82-363 because titanium was never isolated as
an element during DuPont’s manufacturing process. (Compl. at Ex. 5.) Customs emphasized that the
titanium actually used in the manufacturing process was always combined with another element, i.e.,
oxygen, and that DuPont was actually seeking titanium only as part of the compound titanium dioxide,
and not as a discrete element. (Compl. at Ex. 5.)
On April 5, 1996, Customs liquidated the drawback entry at issue, refusing to allow the claim
for drawback. DuPont protested the liquidation, which was denied by Customs on July 19, 1996.
DuPont commenced this action on November 25, 1996.
3
T.D. 82-36 endeavored to amplify the statute:
Under the drawback law (19 U.S.C. 1313(b)) drawback contracts have
been approved since 1958, permitting the substitution of one domestic
compound for a different imported compound when an identical element
is sought for use in manufacturing an exported article. . . . [S]ubstitution is
allowed of primary source materials to obtain a sought element even
though the domestic material would be subject to a rate of duty if imported
different from that assessed on the designated merchandise, if use of the
different materials does not require significant change in the manufacturing
process.
T.D. 82-36, 16 Cust. B. & Dec. 97, 97-98 (1982) (emphasis added); see also 19 C.F.R. §
191.2(x)(1) (1999); 63 Fed. Reg. 10,970, 11,008 (1998).
Court No. 96-12-02657 Page 5
In its Memorandum in Support of its Motion for Summary Judgment, the Government asserts
that DuPont’s drawback proposal fails to satisfy the statutory requirements for manufacturing
substitution drawback. (Def.’s Mem. Supp. Summ. J. at 6, 11.) The Government further claims that
DuPont’s use of various feedstocks, and its failure to isolate the titanium as an element during its
manufacturing process, takes its drawback proposal outside the scope of the requirements of T.D. 82-
36, which purports to set forth the parameters within which different raw materials may be used as
sources of a metallic element to satisfy the “same kind and quality” requirement of 19 U.S.C. §
1313(b). (Def.’s Mem. Supp. Summ. J. at 7, 11.)
In its Opposition to Defendant’s Motion for Summary Judgment and Memorandum in Support
of Cross Motion for Summary Judgment, DuPont contends that it is entitled to manufacturing
substitution duty drawback because its manufacturing process satisfies the criteria found in the
applicable statutory and regulatory requirements. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at 3.)
Specifically, DuPont contends its operations comply with the requirements of 19 U.S.C. § 1313(b) and
T.D. 82-36. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at 3.) Oral arguments on the parties’ cross-
motions for summary judgment were heard by the late Judge Dominick L. DiCarlo on January 7, 1999,
and again before this Court on May 9, 2000.
FACTS
Court No. 96-12-02657 Page 6
In the manufacture of its titanium pigments, DuPont uses the following imported and domestic
feedstocks: (1) rutile; (2) synthetic rutile; (3) titanium slag; and (4) ilmenite. (Pl.’s Mem. Supp. Cross-
Mot. Summ. J. at 5; Def.’s Resp. Pl.’s Material Facts Not In Disp. ¶ 1.) DuPont’s production process
involves combining feedstocks and various cleansing agents in a “reaction vessel” where the materials
are heated, refined, and then combined with oxygen to
form titanium dioxide. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at v; Def.’s Resp. Pl.’s Material Facts
Not In Disp. ¶ 2.)
The first step in DuPont’s process involves heating a blend of the feedstocks in the reaction
vessel with petroleum coke and chlorine. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at vi; Def.’s Resp.
Pl.’s Material Facts Not In Disp. ¶ 4.) During the second phase of the process, additional chemicals
are introduced into the reaction vessel to remove all of the excess waste materials, thus yielding pure
titanium tetrachloride. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at vi; Def.’s Resp. Pl.’s Material Facts
Not In Disp. ¶ 5.) In the third stage of the process, the pure titanium tetrachloride is combined with
oxygen at a high temperature, causing a reaction in which the atomic bonds between the titanium and
the chlorine split. The titanium then bonds with oxygen atoms to form pure titanium dioxide. (Pl.’s
Mem. Supp. Cross-Mot. Summ. J. at vi; Def.’s Resp. Pl.’s Material Facts Not In Disp. ¶ 6.) At no
time is titanium isolated as a discrete element, but rather is generated in the form of titanium dioxide.
Court No. 96-12-02657 Page 7
This titanium dioxide is then used in the manufacture of pigments.
STANDARD OF REVIEW
Summary judgment is appropriate “if 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(d);
see also Marathon Oil Co. v. United States, 24 CIT __, __, 93 F. Supp. 2d 1277, 1279 (2000). The
Court should deny a motion for summary judgment if there are material facts in dispute that “might
affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). As there are no remaining questions of material fact in dispute, summary judgment is
proper in this case. Accordingly, the statutory presumption of factual correctness for Customs
decisions under 28 U.S.C. § 2639(a)(1) is not relevant to this case. See Goodman Manufacturing,
L.P. v. United States, 69 F.3d 505, 508 (Fed. Cir. 1995); Marathon Oil, 93 F. Supp. 2d at 1279.
DISCUSSION
The question of law before the Court concerns the proper interpretation of the phrase “same
kind and quality” as contained in 19 U.S.C. § 1313(b). Because much of the briefing in this case was
accomplished before the United States Court of Appeals for the Federal Circuit issued its decision in
International Light Metals v. United States, 194 F.3d 1355 (Fed. Cir. 1999) (“ILM”), great attention
Court No. 96-12-02657 Page 8
was given by both parties to T.D. 82-36. In ILM, the Federal Circuit found that Customs did not seek
“Chevron”4 deference for T.D. 82-36 and declined to grant deference sua sponte. See ILM, 194 F.3d
at 1361. In the instant case, it is unclear whether Customs is seeking Chevron-style deference.5
Because Customs’ position is unclear, this Court, like the Federal Circuit, declines to grant Chevron
deference to T.D. 82-36 sua sponte.6 See ILM, 194 F.3d at 1361.
4
Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837
(1984), requires courts to give deference to an agency’s reasonable interpretation of a statutory
ambiguity. See Chevron, 467 U.S. at 843-45.
5
The text of the Government’s Memorandum in Support of Summary Judgment merely
asserts that Customs has the authority to issue rulings and that these rulings “must be consistent with the
statutes they interpret; if a court finds that the two cannot be applied harmoniously, the statute must
prevail.” (Def.’s Mem. Supp. Summ. J. at 11.)
At the May 9, 2000 oral argument, counsel for the Government stated that, “[a]lthough . . .
[Customs’] denial was worded in terms of the proposed contract’s failure to meet the conditions of
T.D. 82-36 . . . any suggestion that the Court can look solely to the conditions contained in the T.D.
and ignore the statute is simply wrong.” (Transcript of May 9, 2000 oral argument (“Tr.”) 3:15-22).
6
Had the Government requested that Chevron deference be extended to T.D. 82-36,
this Court would have declined to do so in any event. There is no evidence that, prior to issuance, T.D.
82-36 was subjected to the type of formal rulemaking procedures that are a condition for Chevron-
style deference. See Christensen v. Harris County, 120 S.Ct. 1655, 1662 (2000); Mead Corp. v.
United States, 185 F.3d 1304, 1307 (Fed. Cir. 1999), cert. granted, 120 S.Ct. 2193 (2000) (No. 99-
1434); Genesco, Inc. v. United States, 24 CIT __, __, 102 F. Supp. 2d 478, 484 (2000).
In addition, it appears to be the position of the Customs Service that T.D. 82-36 is not entitled
to deference. In 1978, when it changed its system of designation of materials published in the Customs
Bulletin, the Customs Service stated that henceforth the designation “Treasury Decision” would be used
for documents that “contain information of an official nature which does not constitute legal precedent
but for which a publication citation is required.” T.D. 78-414, 12 Cust. B. & Dec. 920 (1978)
(emphasis added).
Court No. 96-12-02657 Page 9
Thus, this Court finds itself in the same posture as the Federal Circuit in ILM, and is therefore
bound by that court’s construction of 19 U.S.C. § 1313(b). In ILM, the Federal Circuit found that
titanium sponge was eligible for drawback when titanium scrap was used in its place in a manufacturing
process which required titanium metal. See ILM, 194 F.3d at 1367. The Federal Circuit held that the
scrap satisfied the statutory requirement that the “merchandise” (titanium scrap) be of the “same kind
and quality” as the imported “merchandise” (titanium sponge) for which it was substituted. See id. The
Federal Circuit reached its conclusion even though the scrap, unlike the sponge, contained other metals
which were salvaged as part of the manufacturing process, and even though the welding step of the
manufacturing process took longer when scrap was used. See id. at 1366. In its decision, the Federal
Circuit found three factors to be compelling:
First . . . it is undisputed that the titanium in the scrap was identical to the
titanium in the sponge that ILM imported. Accordingly, the titanium in the
domestic scrap was ‘of the same kind and quality’ as the titanium in the
imported sponge. Second, there is no dispute as to the amount of
titanium that was in the scrap. As a result, the amount of a drawback to
which ILM would be entitled based upon the titanium in that scrap and the
titanium in the imported sponge could be precisely determined.
Court No. 96-12-02657 Page 10
Third, the government’s position results in a “no scrap” rule, one for which
we find no support in the statute.
Id.
By applying the three factors that the Federal Circuit found compelling in ILM, this Court
concludes that DuPont is entitled to drawback. First, as in ILM, it is undisputed that the titanium
contained in each of the source feedstocks is identical. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at v;
Def.’s Resp. Pl.’s Material Facts Not In Disp. ¶ 2.) Therefore, the titanium contained in the imported
and domestic feedstocks is of the “same kind and quality” under 19 U.S.C. § 1313(b). See ILM, 194
F.3d at 1366. As the court in ILM explained, the underlying statutory purpose for section 1313(b) is
to “facilitate honest drawback claims for such stable commodities as sugar, which present fungible
difficulties, i.e., difficulties in accounting for whether the imported merchandise has actually been used in
the particular article.” Id. As a result of this underlying purpose, the court reasoned that the phrase
“same kind and quality” should be applied only to the sought element contained in a source material,
and not to the source material as a whole or the impurities contained therein. See id. Thus, although
different ores may be made up of a number of elements, the “same kind and quality” standard applies
only to the element used in manufacturing the exported article.
Second, as in ILM, the amount of titanium contained in the imported and domestic feedstocks
can be precisely determined. There is no dispute on this question. During the May 9, 2000 oral
Court No. 96-12-02657 Page 11
argument, counsel for the Government stated, “[W]e don’t necessarily disagree that the titanium content
can be determined.” (Tr. 29:20-21.) At that same argument, counsel for DuPont stated, “The amount
of titanium metal can be calculated easily.” (Tr. 28:5-6.) Indeed, the amount of titanium, in pounds, for
both the imported and exported merchandise is stated on the Manufacturing Drawback Certificate.
Customs has never disputed the accuracy of this calculation. As there is no dispute that the amount of
titanium can accurately be determined, the second ILM factor has been satisfied. The Government, as
something of an afterthought, asserts that a ruling in favor of DuPont would place an undue burden on
Customs because of the difficulty involved in calculating the proper amount of DuPont’s drawback.
(Def.’s Resp. Pl.’s Supplemental Submission Supp. Summ. J. at 7.) According to the Government, the
rate of duty on the imported merchandise for which drawback is claimed (synthetic rutile) was an ad
valorem rate on the value of the ore, rather than on the value of the titanium content. (Def.’s Resp. Pl.’s
Supplemental Submission Supp. Summ. J. at 7.) The Government argues that any drawback would
entail the difficult task of apportioning the duty paid between the synthetic rutile’s titanium content and
the other elements contained therein. (Def.’s Resp. Pl.’s Supplemental Submission Supp. Summ. J. at
7.) However, since the uncontroverted Manufacturing Drawback Certificate contains the necessary
percentages for making the calculation, this burden would not seem to be a sufficient reason for denying
DuPont its relief. Furthermore, the Government’s argument that the four source feedstocks were not at
the time of this action classified under the same tariff provision and are, therefore, not of the “same kind
and quality,” is not compelling. (Def.’s Resp. Pl.’s Supplemental Submission Supp. Summ. J. at 6-7.)
Court No. 96-12-02657 Page 12
This Court need not grant formal deference to T.D. 82-36 to note its statement of the self-evident, i.e.,
“[s]ame kind and quality does not . . . depend on the tariff schedules and never has. Often items
classified under the same tariff provisions and subject to the same duty are not the same kind and
quality and vice versa.” T.D. 82-36, 16 Cust. B. & Dec. 97, 98 (1982).
Third, this Court, like the Federal Circuit, finds no support for the Government’s argument that,
during the manufacturing process, titanium must be extracted as a discrete
element from the various feedstocks in order to comply with the requirements of T.D. 82-367 and 19
U.S.C. § 1313(b). (Def.’s Mem. Supp. Mot. Summ. J. at 13.) The situation in the instant case is
remarkably similar to that in ILM, where the Federal Circuit did not require an extra step in the
manufacturing process in order to comply with the government’s “no scrap” rule.8 See ILM, 194 F.3d
at 1366. “We see no reason why ILM should be required to undertake such an additional step when it
is undisputed that the same materials (including the titanium) would have to be combined again to obtain
the final export product.” Id. As it is undisputed that DuPont extracted the sought element titanium in
7
While the Court has declined to grant Chevron deference to T.D. 82-36, the
Government’s argument regarding the requirement under T.D. 82-36 that the sought element be
isolated during the manufacturing process is relevant to this discussion because it was specifically
addressed by the court in ILM.
8
The Federal Circuit in ILM found “no support in the statute” for Customs’ “no scrap”
rule, which it described as follows: “[I]f . . . ILM had first expended the time and money to extract the
titanium sponge from the scrap, then mixed the extract with other metals to form ingots from which
exported articles were made, the government would allow drawback,” but not if these extra, and
unnecessary, steps were not taken. ILM, 194 F.3d at 1366.
Court No. 96-12-02657 Page 13
the useful form of titanium dioxide, this Court cannot hold that DuPont’s drawback claim is inconsistent
with the requirements of 19 U.S.C. § 1313(b). See id.
Finally, we turn to the question of whether or not the substitution of another feedstock for
synthetic rutile would sufficiently alter DuPont’s manufacturing process so as to defeat the notion that
the feedstocks are of the same kind and quality. Both parties agree that, no matter which feedstocks
are combined for use in DuPont’s manufacturing process, the steps involved, the order of the steps, and
the chemicals used remain constant. (Pl.’s Mem. Supp. Cross-Mot. Summ. J. at 5-7; Def.’s Resp.
Pl.’s Material Facts Not In Disp. ¶¶ 3, 9.) There is also agreement that the substitution of other
feedstocks for synthetic rutile would alter the time used to complete the steps, the amount of chemicals
used in the process, and the amount of waste produced by the procedure. However, these changes are
not changes in process, but merely routine adjustments in procedure that are made to take into account
the relative purity of the ore.9 Indeed, any questions regarding changes in the manufacturing process
are rendered largely academic since, in actual practice, the various ores are almost always combined to
produce a mixture with a constant titanium dioxide content. (Def.’s Statement of Facts ¶ 22.) Once
9
No single ore category contains an exact amount of titanium dioxide. Rutile contains
“more than 92% titanium dioxide”; synthetic rutile contains anywhere from 90-95% titanium dioxide;
slag contains anywhere from 75-90% titanium dioxide; and ilmenite contains anywhere from 35-70%
titanium dioxide. (Def.’s Statement of Facts ¶¶ 12-15.) Thus, the manufacturing variations in time,
chemicals, and waste that could occur among the different feedstocks could also occur with feedstocks
in the same ore category.
Court No. 96-12-02657 Page 14
again, this Court finds the decision in ILM instructive. The Court in ILM found that changes in a
manufacturing process are acceptable for the purposes of allowing substitution drawback. There, the
Federal Circuit found that “a thirty-six hour increase in welding time, in the context of a manufacturing
process that normally takes two to three months to complete . . . [was not] significant enough to thwart
the statutory objective of facilitating honest claims of drawback.” Id. In the case at bar, the
adjustments to the procedure are not substantial enough to “thwart the statutory objective of facilitating
. . . drawback.” Id.
CONCLUSION
For the foregoing reasons, the Government’s motion for summary judgment is denied, and
DuPont’s cross-motion for summary judgment is granted. Accordingly, Customs is instructed to
approve the proposed drawback contract as revised by DuPont on or about March 4, 1994,
reliquidate the drawback entry, and pay DuPont’s drawback claim in accordance with this decision.
Judgment will be entered accordingly.
Richard K. Eaton, Judge
Dated: September 20, 2000
New York, New York
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: RICHARD K. EATON, JUDGE
_____________________________________
:
E. I. DU PONT DE NEMOURS AND :
COMPANY, :
:
Plaintiff, :
:
v. : Court No. 96-12-02657
:
UNITED STATES, :
: