Cummins Engine Co. v. United States

Slip Op. 99-138

United States Court of International Trade

CUMMINS ENGINE COMPANY,

Plaintiff,

v.
Before: Pogue, Judge
UNITED STATES,
Court No. 96-04-01274
Defendant,

[Defendant’s motion for summary judgment is granted.]

Decided: December 21, 1999

Barnes, Richardson & Colburn, (Robert E. Burke, Lawrence M.
Friedman, and David G. Forgue) for Plaintiff.

David W. Ogden, Acting Assistant Attorney General, Joseph I.
Liebman, Attorney-in-Charge, International Trade Field Office,
Barbara S. Williams, Attorney, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice; Beth C. Brotman, Office of
Assistant Chief Counsel, International Trade Litigation, U.S.
Customs Service, Of Counsel, for Defendant.

OPINION

Pogue, Judge: Defendant, the United States, moves for summary

judgment pursuant to USCIT Rule 56. Plaintiff, Cummins Engine

Company ("Cummins"), opposes Defendant’s motion, asserting that

summary judgment is not appropriate because genuine issues of

material fact exist. Jurisdiction is predicated on 28 U.S.C. §

1581(a)(1994).
Court No. 96-04-01274 Page 2

Background

On December 5th and 28th of 1995, Plaintiff filed protests

challenging the decision of the U.S. Customs Service ("Customs") to

deny duty-free treatment under the North American Free Trade

Agreement ("NAFTA") to certain diesel engine crankshafts that

Plaintiff imported from Mexico. Under General Note 12(a)(ii),

Harmonized Tariff Schedule of the United States ("HTSUS"), 19

U.S.C. § 1202 (1995), an imported good is eligible for NAFTA

preferential duty treatment if it "originate[s] in the territory of

a NAFTA party[.]" See also 19 U.S.C. § 3332 (1994). Where a good

is not "wholly obtained or produced entirely" in the territory of

a NAFTA country, the good must undergo "a change in tariff

classification" within the NAFTA country in order to qualify as

originating from that NAFTA country. See General Note 12(b)(ii),

HTSUS.

Here, the production of the imported crankshafts began in

Brazil under the operation of Krupp Metalúrgica Campo Limpo, which

manufactured crankshaft forgings from alloy steel. Next, Cummins

de Mexico, S.A. ("CUMMSA"), a wholly owned subsidiary of Plaintiff,

imported the articles into Mexico and further processed them into

the finished crankshafts that Plaintiff ultimately imported into
Court No. 96-04-01274 Page 3

the United States.

Upon importation into the United States in June and July of

1995, Customs classified the crankshafts under subheading

8483.10.30, HTSUS (1995), covering other transmission shafts

(including camshafts and crankshafts) and cranks, with a duty rate

of 3.5% ad valorem. Plaintiff argues, however, that Customs should

have classified the crankshafts under subheading (MX)8483.10.30,

HTSUS,1 as goods originating from a NAFTA country within the

meaning of General Note 12(b)(ii), HTSUS.

According to Plaintiff, the articles were classifiable upon

entry into Mexico under heading 7224, HTSUS (1995), as

"semifinished products of other alloy steel[.]" Thus, because the

articles were further processed within Mexico into finished

crankshafts classifiable under subheading 8483.10.30, HTSUS, they

underwent the tariff shift required to be deemed goods originating

from a NAFTA country under General Note 12(b)(ii), HTSUS.

Defendant denies that the goods underwent the required tariff

shift, contending that they were already classifiable under

subheading 8483.10.30, HTSUS, upon entering Mexico. Thus, the

paramount issue before the Court is whether Customs’ determination-

1
The prefix "MX" indicates that the article is a product of
Mexico and thus accorded NAFTA preferential tariff treatment.
Court No. 96-04-01274 Page 4

-that the articles were classifiable under subheading 8483.10.30,

HTSUS, upon entering Mexico--can be decided as a matter of law.

Plaintiff alleged the following three counts in its complaint:

(1) because the crankshafts originate in a NAFTA country for

purposes of duty preferences under General Note 12(a)(ii), HTSUS,

Plaintiff’s imports should be reliquidated as duty-free under

NAFTA, see Pl.’s Second Am. Compl. ¶¶ 25, 28; (2) because Customs

"improperly denied Plaintiff’s claims for NAFTA preferential duty

treatment prior to its commencement of a NAFTA origin verification

as required under 19 C.F.R. § 181.71[,]" Plaintiff’s imports should

be reliquidated as duty-free under NAFTA, id. ¶¶ 31, 33; and (3)

because the crankshafts underwent a substantial transformation in

Mexico, they should be reliquidated duty-free under NAFTA as

products of Mexico within the meaning of 19 U.S.C. § 1304, see id.

¶¶ 36, 37. Defendant moves for summary judgment in its favor on

all three counts.2

Undisputed Facts

This matter involves imports into the United States of diesel

engine crankshafts in June and July of 1995. See Def.’s Statement

2
Plaintiff moved this Court for an order granting oral
argument. Because the issues presented are thoroughly addressed
in the parties’ briefs, however, Plaintiff’s motion is denied.
Court No. 96-04-01274 Page 5

of Undisputed Facts ¶ 1.3 The imported merchandise was exported

from Mexico by CUMMSA, a wholly-owned subsidiary of Plaintiff, the

importer. See id. ¶ 2.

The manufacture of the imported crankshafts began in Brazil

with a closed-die forging process, which involves forging between

matrices. See id. ¶ 3. After cooling, the articles were removed

from the dies, and their ends were milled (a machining process) to

allow them to be securely clamped into the machines used in the

machining operations performed in Mexico. See id. ¶ 4; Pl.’s

Counterstatement to Def.’s Statement of Undisputed Facts ("Pl.’s

Counterstatement") ¶ 1; Def.’s Mem. in Reply to Pl.’s Opp’n to

Def.’s Mot. for SJ ("Def.’s Reply") at 4-5. In addition, the

articles’ mass centers (i.e., centers of balance) were established

by machining locator center points on each end. See Def.’s

Statement of Undisputed Facts ¶ 4. The mass centers were redone in

Mexico. See Pl.’s Counterstatement ¶ 1; Def.’s Reply at 4-5. Also

in Brazil, grease pockets, 50 mm in diameter and 13 mm deep, were

machined into the flange ends with a lathe. See Def.’s Statement

3
A party moving for summary judgment must submit to this
court a "concise statement of the material facts as to which the
moving party contends there is no genuine issue to be tried."
USCIT Rule 56(i). "All material facts set forth in the statement
. . . will be deemed to be admitted unless controverted . . . by
the opposing party." Id.
Court No. 96-04-01274 Page 6

of Undisputed Facts ¶ 5. The design of the finished crankshaft

requires a grease pocket. See id. Finally, the articles were

subjected to shot blasting in Brazil. See id. ¶ 6.

As imported into Mexico, the articles possessed the general

shapes of crankshafts and were intended for use only as

crankshafts. See id. ¶ 16. In Mexico, the articles underwent at

least fourteen different machining operations, touching 95% of each

article’s surface. See Pl.’s Counterstatement ¶ 2; Def.’s Reply at

4-5. The machining processes performed in Mexico removed up to

one-third of the material from certain areas of the articles and

between one-third and two-fifths of an inch of steel from other

areas. See Pl.’s Counterstatement ¶ 2; Def.’s Reply at 4-5.

In response to a letter from Plaintiff dated June 23, 1995,

Customs issued an advance ruling, NY 811617 (July 27, 1995),

pursuant to 19 C.F.R. § 181.92 (1995), which notified Plaintiff

that the imported crankshafts were not entitled to NAFTA duty

preference. See Def.’s Statement of Undisputed Facts ¶ 17. After

Plaintiff’s initiation of this action in this Court, Customs

conducted an origin verification pursuant to 19 C.F.R. § 181.72

(1995), which confirmed Customs’ earlier findings set forth in NY

811617. See id.
Court No. 96-04-01274 Page 7

Standard of Review

Pursuant to USCIT Rule 56, 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 judgment as a matter of law." USCIT

Rule 56(d); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

In considering whether material facts are in dispute, the

Court must consider the evidence in a light most favorable to the

non-moving party, drawing all reasonable inferences in its favor,

as well as all doubts over factual issues. See Anderson, 477 U.S.

at 255; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

Nevertheless, "[w]hen a motion for summary judgment is made and

supported . . . , an adverse party may not rest upon the mere

allegations or denials of the adverse party’s pleading, but . . .

must set forth specific facts showing that there is a genuine issue

for trial." USCIT Rule 56(f).

Count I of Plaintiff’s complaint requires the Court to apply

the NAFTA origination rules. In doing so, the Court must review

Customs’ classification of the articles upon their entry into

Mexico as crankshafts under subheading 8483.10.30, HTSUS. The
Court No. 96-04-01274 Page 8

Court analyzes a classification issue in two steps: "first, [it]

construe[s] the relevant classification headings; and second, [it]

determine[s] under which of the properly construed tariff terms the

merchandise at issue falls." Bausch & Lomb, Inc. v. United States,

148 F.3d 1363, 1365 (Fed. Cir. 1998)(citing Universal Elecs., Inc.

v. United States, 112 F.3d 488, 491 (Fed. Cir. 1997)). Whether the

merchandise is properly classified is ultimately a question of

law.4 See id. Summary judgment is therefore appropriate "when

4
The Supreme Court’s recent holding in United States v.
Haggar Apparel Co., 526 U.S. , 67 U.S.L.W. 4249 (U.S. Apr. 21,
1999), raised questions concerning the standard of review
applicable to Customs’ interpretation of the meaning and scope of
tariff terms. See Avenues in Leather, Inc. v. United States, 178
F.3d 1241, 1244 (Fed. Cir. 1999). In Haggar, the Supreme Court
held that if an HTSUS provision is ambiguous and Customs
promulgates a regulation that fills a gap or defines a term in a
way that is reasonable in light of the legislature’s revealed
design, courts should afford the interpretation the deference
articulated in Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 844 (1984). Haggar, 526 U.S. at ,
67 U.S.L.W. at 4252-53.
In The Mead Corp. v. United States, 185 F.3d 1304 (Fed. Cir.
1999), however, the Federal Circuit held that Haggar does not
apply where Customs "merely issue[s] a classification ruling
implicitly interpreting an HTSUS provision." 185 F.3d at 1307.
Recognizing Mead, Defendant nevertheless argues that its legal
interpretations of the tariff schedule here should be accorded
Chevron deference. See Def.’s Reply at 2 n.2. The Court
disagrees.
Specifically, in Mead, the Federal Circuit declined to grant
Chevron deference to a Customs ruling issued under 19 C.F.R. §§
177.0-177.12 (1998). See Mead, 185 F.3d at 1307. The court
explained that such rulings "do not carry the force of law and
are not, like regulations, intended to clarify the rights and
obligations of importers beyond the specific case under review.
Court No. 96-04-01274 Page 9

there is no genuine dispute as to the underlying factual issue of

exactly what the merchandise is." Id.

Discussion

I. The NAFTA Origination Rules

The HTSUS consists of (A) the General Notes; (B) the General

Rules of Interpretation; (C) the Additional U.S. Rules of

Interpretation; (D) sections I to XXII, inclusive (encompassing

chapters 1 to 99, and including all section and chapter notes,

article provisions, and tariff and other treatment accorded

Instead, a ruling merely interprets and applies Customs laws to a
’specific set of facts.’" Id. (citing 19 C.F.R. § 177.1(d)(1)
(defining "ruling")); see also 1 Kenneth Culp Davis and Richard
J. Pierce, Jr., Administrative Law Treatise § 3.5
(1994)(discussing the scope of Chevron); Robert A. Anthony, Which
Agency Interpretations Should Bind Citizens and the Courts?, 7
Yale J. on Reg. 1 (1990)(arguing that an agency’s legal
interpretation in a formal format, such as a legislative
regulation, should be afforded Chevron deference, but that an
agency’s legal interpretation in a less formal format, such as a
letter or guideline, should not be afforded Chevron deference).
Here, Customs issued a NAFTA advance ruling pursuant to 19
C.F.R. § 181.99 (1995), determining that the imported crankshafts
did not originate in a NAFTA country. See NY 811617 (July 27,
1995). Similar to Customs classification rulings under 19 C.F.R.
177.0, NAFTA advance rulings are neither precedential nor carry
the force of law, see 19 C.F.R. § 181.100(3)(1995), but merely
apply the NAFTA laws to a "specific set of facts," see 19 C.F.R.
§ 181.92 (1995). Therefore, the principles denying Chevron
deference to standard Customs rulings in Mead apply with equal
force to the NAFTA advance ruling issued here. The Court will
not afford Chevron deference to the legal interpretations of the
HTSUS articulated in Customs’ negative origin determination.
Court No. 96-04-01274 Page 10

thereto); and (E) the Chemical Appendix.

The proper classification of merchandise is governed by the

General Rules of Interpretation ("GRI") to the HTSUS. See Orlando

Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed. Cir. 1998).

GRI 1 provides that, "for legal purposes, classification shall be

determined according to the terms of the headings and any relative

section or chapter notes . . . ." GRI 1, HTSUS; see also Orlando

Food Corp., 140 F.3d at 1440; Harmonized Commodity Description and

Coding System, Explanatory Notes (1st ed. 1986)("Explanatory Notes")

at 1 ("[T]he terms of the headings and any relative Section or

Chapter Notes are paramount, i.e., they are the first consideration

in determining classification.").5

In reviewing whether the subject goods underwent a tariff

shift in Mexico as required by General Note 12(b)(ii), HTSUS, the

Court must determine whether Customs’ decision that the subject

articles were covered by subheading 8483.10.30, HTSUS, upon

importation into Mexico is correct as a matter of law. Plaintiff

5
The Explanatory Notes "provide a commentary on the scope of
each heading of the Harmonized [Tariff] System and are thus
useful in ascertaining the classification of merchandise under
the system." H.R. Conf. Rep. No. 576, 100th Cong., 2nd Sess. 549
(1988). It has long been settled that, "[w]hile the Explanatory
Notes do not constitute controlling legislative history, they do
offer guidance in interpreting HTS[US] subheadings." Lonza, Inc.
v. United States, 46 F.3d 1098, 1109 (Fed. Cir. 1995).
Court No. 96-04-01274 Page 11

argues that this dispute requires resolution of genuine issues of

fact and that, therefore, summary judgment is not appropriate.

Plaintiff maintains that the articles were classifiable under

heading 7224, HTSUS, upon importation into Mexico.

Note 1(f) to Section XV, HTSUS (1995)(which includes Chapter

72), states that the section does not cover articles of Section

XVI, HTSUS (1995)(which includes Chapter 84). Therefore, Defendant

counters that, if the articles were covered by subheading

8483.10.30, HTSUS, upon importation into Mexico, they must be

classified as such, even if they were also classifiable under

heading 7224, HTSUS. See Def.’s Reply at 2.

Defendant relies on GRI 2(a) in arguing that the articles were

classifiable under subheading 8483.10.30, HTSUS, upon entering

Mexico. See Mem. in Supp. of Def.’s Mot. for SJ at 19-20. That

rule provides, "Any reference in a heading to an article shall be

taken to include a reference to that article incomplete or

unfinished, provided that, as presented, the incomplete or

unfinished article has the essential character of the complete or

finished article." GRI 2(a). Defendant contends the articles

possessed the "essential character" of a complete or finished

crankshaft upon entering Mexico; therefore, they were at that time

classifiable under subheading 8483.10.30, HTSUS, as unfinished
Court No. 96-04-01274 Page 12

crankshafts. See Mem. in Supp. of Mot. for SJ at 20.

Although the articles at issue may indeed have been

classifiable as Defendant maintains, the Explanatory Note to GRI

2(a) provides,

The provisions of [GRI 2(a)] also apply to blanks unless
these are specified in a particular heading. The term
"blank" means an article, not ready for direct use,
having the approximate shape or outline of the finished
article . . . , and which can only be used, other than in
exceptional cases, for completion into the finished
article . . . . Semi-manufactures not yet having the
essential shape of the finished articles . . . are not
regarded as "blanks."

Explanatory Notes at 2.

Here, it is undisputed that the articles upon importation into

Mexico had the general shape of crankshafts and were intended for

use solely as crankshafts. See Def.’s Statement of Undisputed

Facts ¶ 16. Therefore, interpreting the undisputed facts in a

light most favorable to the non-moving party, the Court infers that

the articles were "blanks" within the meaning of the Explanatory

Note to GRI 2(a). Consequently, if, upon entering Mexico, the

Plaintiff’s goods could have been provided for elsewhere as blanks,

then they were not correctly classified under subheading

8483.10.30, HTSUS, as a matter of law. Thus, despite Section XV,

Note 1(f), the Court must first address whether the articles were

classifiable under heading 7224, HTSUS.
Court No. 96-04-01274 Page 13

A) Heading 7224, HTSUS

Heading 7224, HTSUS, covers "semifinished products of other

alloy steel." Chapter 72, Note 1(ij), HTSUS (1995), defines

"semifinished products" as "[o]ther products of solid section,

which have not been further worked than . . . roughly shaped by

forging, including blanks for angles, shapes or sections." Chapter

72, Note 1 (ij) expressly covers blanks. Therefore, in reviewing

whether the subject imports were classifiable under heading 7224,

HTSUS, upon entering Mexico, the Court must address whether at that

time they were "not . . . further worked than . . . roughly shaped

by forging," so as to constitute a blank.

Chapter 72, U.S. Additional Note 2, HTSUS (1995), states,

For the purposes of this chapter, unless the context
provides otherwise, the term "further worked" refers to
products subjected to any of the following surface
treatments: polishing and burnishing; artificial
oxidation; chemical surface treatments such as
phosphatizing, oxalating and borating; coating with
metal; coating with nonmetallic substances (e.g.,
enameling, varnishing, lacquering, painting, coating with
plastics materials); or cladding.

Plaintiff argues that, because it is undisputed that the

articles had not undergone any of the processes listed above in

Brazil, they were not "further worked" within the meaning of

Chapter 72 before entering Mexico. See Pl.’s Mem. in Opp’n to

Def.’s Mot. for SJ at 10-11. The definition of "further worked,"
Court No. 96-04-01274 Page 14

however, is not limited to the note’s listed surface treatments.

U.S. Additional Note 2 expressly states that the term "further

worked" constitutes the listed surface treatments "unless the

context provides otherwise[.]" Chapter 72, U.S. Additional Note 2,

HTSUS. In this case, the context provides otherwise.

Chapter 72, Note 1(ij), HTSUS, defines "semifinished products

of other alloy steel" as products that have "not been further

worked than . . . roughly shaped by forging[.]" To read

"further worked" as limited to surface treatments would render

unnecessary the subsequent qualifying language, "than . . . roughly

shaped by forging." The Court "should construe the statute, if at

all possible, to give effect and meaning to all the terms." Bausch

& Lomb, 148 F.3d at 1367 (citing United States v. Menasche, 348

U.S. 528, 539 (1955)). Therefore, in this context, the term

"further worked" is more appropriately defined by its common

meaning, which is "to form, fashion, or shape an existing product

to a greater extent." Winter-Wolff, Inc. v. United States, 22 CIT

, , 996 F. Supp. 1258, 1265 (1998) (determining that "further

worked" as used in heading 7607, HTSUS, should be defined in

accordance with its common meaning).6

6
Defendant cites various cases decided under analogous prior
tariff provisions in support of its argument that the articles
were "further worked" within the meaning of Chapter 72, Note
Court No. 96-04-01274 Page 15

As previously noted, it is undisputed that in Brazil: (1) the

articles were subjected to shot blasting, see Def.’s Statement of

Undisputed Facts ¶ 6; (2) the articles’ mass centers were

established by machining locator center points on each end, see id.

¶ 4; and (3) grease pockets were machined into the articles’

1(ij), HTSUS. See Mem. in Supp. of Def.’s Mot. for SJ at 10-11
(citing United States v. Anderson & Co., 2 Ct. Cust. 350 (1911);
Edward W. Daniel Co. v. United States, 67 Cust. Ct. 132 (1971);
Ford Motor Co. v. United States, 19 C.C.P.A. 69 (1931); W.R.
Filbin & Co., Inc. v. United States, 63 Cust. Ct. 200, 306 F.
Supp. 440 (1969); E. Dillingham, Inc. v. United States, 61 Cust.
Ct. 33 (1968)). Each of the cited cases reviewed one of the
following prior tariff provisions: (1) Tariff Schedules of the
United States ("TSUS") Item 608.25, TSUS (1967), which provided
for forgings "not machined, not tooled, and not otherwise
processed after forging"; (2) Paragraph 319(a) of the Tariff Act
of 1930, which provided for forgings "not machined, tooled, or
otherwise advanced in condition by any process or operation
subsequent to the forging process"; (3) Paragraph 123 of the
Tariff Act of 1909, which provided for forgings "not machined,
tooled, or otherwise advanced in condition by any process or
operation subsequent to the forging process[.]"
"Where the text of a tariff provision has undergone only
minor changes from the TSUS to the HTSUS, the high values of
uniformity and predictability . . . counsel courts to credit
prior decisions interpreting the TSUS provision." Hewlett-
Packard Co. v. United States, 189 F.3d 1346, 1349 (Fed. Cir.
1999)(citing Pima Western, Inc. v. United States, 20 CIT 110,
116-17, 915 F. Supp. 399, 404-05 (1996); H.R. Conf. Rep. No. 576,
100th Cong., 2d Sess. 515, 549-50 (1988)). Here, however, the
language of Chapter 72, Note (ij), HTSUS, is significantly
different than that used in the prior provisions. Therefore,
Defendant’s cited cases are not determinative of the matter at
hand. See Mitsubishi Int’l Corp. v. United States, 182 F.3d 884,
886 (Fed. Cir. 1999)(holding that a judgment interpreting
provisions of the TSUS "does not apply to classifications made
under differing language of the more recently enacted HTSUS").
Court No. 96-04-01274 Page 16

flanged ends with a lathe, see id. ¶ 5. Defendant argues that

these processes demonstrate that the articles were "further worked

than . . . roughly shaped by forging" in Brazil, and therefore, the

articles did not enter Mexico as "semifinished products of other

alloy steel" within the meaning of heading 7224, HTSUS. See Mem.

in Supp. of Def.’s Mot. for SJ at 8-9.

Shot blasting is the use of abrasive particles to strike and

to remove dirt and oxide from the surface of a metal workpiece.

See Dep. of Robert D. Kraft at 63 (Ex. B to Pl.’s Mem. in Opp’n to

Def.’s Mot. for SJ). Interpreting this evidence in a light most

favorable to the non-moving party, it is possible to infer that

shot blasting does not constitute "further work" because it does

not appear to form, fashion, or shape the article to a greater

extent. See Winter-Wolff, 22 CIT at , 996 F. Supp. at 1265.

Regarding the mass centering, it appears that the articles

were center marked in Brazil so that they could be properly

positioned in the machinery that further shaped the articles in

Mexico, see Pl.’s Resp. to Def.’s First Interrogs., No. 11(b)(7)

(Ex. D to Pl.’s Mem. in Opp’n to Def.’s Mot. for SJ), and it is

undisputed that the mass centers were redone in Mexico, see Pl.’s

Counterstatement ¶ 1; Def.’s Reply at 4-5. Thus, it is reasonably

inferable that the mass centering was incidental--rather than
Court No. 96-04-01274 Page 17

further work--as it was performed merely in preparation for further

shaping and not to effect the final shape of the product.

It is undisputed, however, that the grease pocket machined

into the article in Brazil is 50 mm in diameter and 13 mm deep; is

not redone, processed, or touched in any way in Mexico; and "exists

for the use of the finished crankshaft in a vehicle." Def.’s

Statement of Undisputed Facts ¶ 5. The machining of the grease

pocket, therefore, literally meets the common meaning of "further

work," as it alters the shape of the article to a greater extent,

particularly since the grease pocket is designed for use in the

completed crankshaft.

"Even when merchandise falls within the literal language of

the statute, however, such literal interpretation should be

rejected if it produces a result contrary to the apparent

legislative intent." Chevron Chemical Co. v. United States, 23 CIT

, , 59 F. Supp.2d 1361, 1365 (1999)(citing Procter & Gamble

Mfg. Co. v. United States, 19 C.C.P.A. 415, 419 (1932)); see also

EM Indus., Inc. v. United States, 22 CIT , , 999 F. Supp.

1473, 1478-79 (1998)("While construing a statute so as to carry out

the legislative intent requires that the court first look to the

statutory language itself, . . . , that does not mean . . . the

court is foreclosed from also considering readily available
Court No. 96-04-01274 Page 18

guidance from the Explanatory Notes as to the intended scope of

subheadings.")(citation omitted).

The precise issue is whether the machining of the grease

pocket constitutes further work than "roughly shaped by forging"

upon entering Mexico. The Explanatory Note defines "pieces roughly

shaped by forging" as follows:

These are semi-finished products of rough appearance and
large dimensional tolerances, produced from blocks or
ingots by the action of power hammers or forging presses.
They may take the form of crude recognisable [sic] shapes
in order that the final article can be fabricated without
excessive waste, but the heading covers ONLY those pieces
which require considerable further shaping in the forge,
press, lathe, etc. The heading would, for example, cover
an ingot roughly hammered into the shape of a flattened
zig-zag and requiring further shaping to produce a marine
crankshaft, but it would NOT COVER a crankshaft forging
ready for final machining. The heading similarly
EXCLUDES drop forgings and pressings produced by forging
between matrices since the articles produced by these
operations are ready for final machining.

Explanatory Note 72.07(B) at 992.7

Pointing to the last sentence of the Explanatory Note,

Defendant argues that, because it is undisputed that the articles

as imported into Mexico were "pressings produced by forging between

matrices," a closed-die forging operation, the plain language of

7
The Explanatory Note to heading 7224, HTSUS, explains that
the provisions of the Explanatory Note to heading 7207, HTSUS,
apply, mutatis mutandis, to the products of heading 7224, HTSUS.
See Explanatory Note 72.24 at 1010.
Court No. 96-04-01274 Page 19

the Explanatory Note excludes the articles from heading 7224. See

Mem. in Supp. of Def.’s Mot. for SJ at 13. The subsequent

qualifying language, however, is more instructive. That language

provides that the heading excludes these types of forgings "since

the articles produced by these operations are ready for final

machining." Explanatory Note 72.07(B) at 992 (emphasis added).

Neither the HTSUS nor its legislative history expressly

defines "final machining." Defendant argues that "final machining"

as used in the Explanatory Note "means the less significant

machining done on forgings created by closed-die or drop forging

processes." Def.’s Mem. in Supp. of Def.’s Mot. for SJ at 15.

Accordingly, Defendant contends the Explanatory Note explains that

heading 7224 covers only articles produced by open-die forging,

excluding those produced by closed-die and drop forging. See id.

at 17-18. Because it is undisputed that the articles here were

produced by closed-die forging in Brazil, Defendant argues that

they were "ready for final machining" upon entering Mexico and were

therefore not classifiable under heading 7224, HTSUS.

Defendant’s argument has some appeal. Open-die forging has

been defined as "[t]he hot mechanical forming of metals between

flat or shaped dies in which metal flow is not completely

restricted." Metals Handbook, Vol. 14 Forming and Forging 9
Court No. 96-04-01274 Page 20

(Joseph R. Davis ed., 9th ed. 1988). An open-die forging

"require[s] significant machining to achieve a finished part."

Handbook of Manufacturing Engineering 721 (Jack M. Walker ed.,

1996).

Closed-die forging has been defined as "[t]he shaping of hot

metal completely within the walls of cavities of two dies that come

together to enclose the workpiece on all sides." Metals Handbook,

Vol. 14 Forming and Forging 2 (Joseph R. Davis ed., 9th ed. 1988).

"With the use of closed dies, complex shapes and heavy reductions

can be made in hot metal within closer dimensional tolerances than

are usually feasible with open dies." Id. at 75. Unlike open-die

forgings, "[c]losed-die forgings are usually designed to require

minimal subsequent machining." Id.

Finally, drop forging has been defined as "[t]he forging

obtained by hammering metal in a pair of closed dies to produce the

form in the finishing impression under a drop hammer[.]" Id. at 5.

Drop forging is used "where precise dimensions are required[.]" Van

Nostrand’s Scientific Encyclopedia 1611 (Douglas M. Considine ed.,

7th ed. 1989).

Under Defendant’s theory, "pressings produced by forging

between matrices" refers to closed-die forging. Thus, because drop

forging produces precise dimensions and closed-die forging usually
Court No. 96-04-01274 Page 21

requires minimal subsequent machining, Defendant argues that "final

machining" in the context of the Explanatory Note means "the less

significant machining required after closed-die or drop forging."

Mem. in Supp. of Def.’s Mot. for SJ at 19. It is undisputed that

the articles were produced by closed-die forging in Brazil; thus,

Defendant concludes the articles were not classifiable under

heading 7224, HTSUS, upon importation into Mexico.

There are, however, two main flaws with Defendant’s proferred

definition of "final machining." First, open-die forgings are also

produced between matrices, i.e., dies. See Metals Handbook, Vol.

14 Forming and Forging 9, 61 (Joseph R. Davis ed., 9th ed. 1988).

Therefore, it is not clear that the Explanatory Note’s use of

"pressings produced by forging between matrices" was intended only

to refer to closed-die forgings. Second, although closed-die

forging generally produces pieces that require only minimal

subsequent machining, this is not always the case. See id. at 75.

("Closed-die forgings are usually designed to require minimal

subsequent machining.")(emphasis added). Thus, because it is not

clear that "final machining" was intended to be limited to the type

of machining following closed-die and drop forging processes, the

Court declines to adopt Defendant’s definition of the term.

Alternatively, Plaintiff--citing the depositions of two
Court No. 96-04-01274 Page 22

industry representatives--contends that "final machining" is

analogous to "finish machining," which is known in the industry as

the machining step that creates the final shape, size, and surface

finish of an article. See Pl.’s Mem. in Opp’n to Def.’s Mot. for

SJ at 15; Pl.’s Statement of Facts as to Which There Is a Genuine

Issue of Material Fact ¶ 3.

"When a tariff term is not defined in the HTSUS or its

legislative history, the term’s correct meaning is its common

meaning." Pillowtex Corp. v. United States, 171 F.3d 1370, 1374

(Fed. Cir. 1999)(citing Mita Copystar Am. V. United States, 21 F.3d

1079, 1082 (Fed. Cir. 1994)). In ascertaining the common meaning

of a tariff term, "the court may rely upon its own understanding of

the terms used, and it may consult lexicographic and scientific

authorities, dictionaries, and other reliable information sources."

Brookside Veneers, Ltd. v. United States, 847 F.2d 786, 789 (Fed.

Cir. 1988). Although here the term "final machining" appears in

the Explanatory Notes, and not the tariff provision, the same

analysis serves as an appropriate guideline.

"Final" is defined as: "1. Forming or occurring at the end:

LAST[;] 2. Of, relating to, or constituting the last element in a

series, process, or procedure." Webster’s II, New Riverside

University Dictionary 478 (1988). In the context of metal-working,
Court No. 96-04-01274 Page 23

"machining" is defined as: "Any one of a group of operations that

change the shape, surface finish, or mechanical properties of a

[metal workpiece] by the application of special tools and

equipment. Machining almost always is a process where a cutting

tool removes material to effect the desired change in the

workpiece." 10 McGraw-Hill Encyclopedia of Science & Technology

275 (8th ed. 1997); accord Handbook of Manufacturing Engineering 52

(Jack M. Walker ed., 1996). Thus, the Court construes the common

meaning of "final machining" as the end or last step in a series of

steps changing the shape, surface finish, or mechanical properties

of a piece of metal.

This definition of final machining is consistent with the

Explanatory Note’s more general instruction that "the heading

covers ONLY those pieces which require considerable further shaping

in the forge, press, lathe, etc." Explanatory Note 72.07(B) at

992. A lathe is a machine tool that changes the shape, finish, or

size of a piece of metal by cutting off chips. See Handbook of

Manufacturing Engineering 53 (Jack M. Walker ed., 1996).

Therefore, by including the lathe in its list of tools that may

considerably further shape the metal workpiece--as well as by the

use of "etc."--the Explanatory Note indicates that the definition

of "pieces roughly shaped by forging" includes pieces that require
Court No. 96-04-01274 Page 24

considerable further shaping by machining. Those pieces that

merely require the last stage of modifying the article’s shape by

machining, i.e., final machining, are excluded.

Moreover, this line of the Explanatory Note is more

instructive because it sets out a general rule for determining

whether a metal workpiece is merely "roughly shaped by forging."

Thus, employing the definition set out in Explanatory Note

72.07(B), for metal pieces to be deemed "roughly shaped by

forging," it is paramount that they "require considerable further

shaping in the forge, press, lathe, etc.[,]" being of "rough

appearance and large dimensional tolerances[.]" Consistently,

Chapter Note 1(ij) indicates that blanks, which have "the

approximate shape or outline of the finished article[,]" see

Explanatory Notes at 2, are an example of pieces that have not been

further worked than roughly shaped by forging.

As required by USCIT Rule 56(f), Plaintiff has "set forth

specific facts showing that there is a genuine issue" regarding

whether the articles, upon their entry into Mexico, required

considerable further shaping and exhibited rough appearances and

large dimensional tolerances.

Regarding whether the articles still required considerable

shaping upon entering Mexico, Plaintiff claims that the articles
Court No. 96-04-01274 Page 25

underwent fourteen different machining operations in Mexico

covering 95% of each article’s surface area. See Pl.’s Mem. in

Opp’n to Def.’s Mot. for SJ at 3, 12 (citing Dep. of Contreras at

89-90, Ex. C). Plaintiff also states that the machining in Mexico

removed up to one-third of the material from certain areas of each

article and between one-third and two-fifths of an inch of steel

from other areas.8 See Pl.’s Counterstatement ¶ 2 (citing Dep. of

Kraft, Ex. B). Finally, Plaintiff explains that approximately 21%

of the mass of each article was removed in Mexico. See Pl.’s Mem.

in Opp’n to Def.’s Mot. for SJ at 3 (citing Dep. of Contreras at

81-82, Ex. C). Each of these facts also supports a finding that

the articles were of "rough appearance" upon entering Mexico.

Tolerances measure the accuracy of the metal workpiece’s

dimensions. See Handbook of Manufacturing Engineering 100 (Jack M.

Walker ed., 1996). A "near-net-shape" forging exhibits close

dimensional tolerances and requires little, if any, subsequent

machining to achieve the finished product. See id. Plaintiff

claims that, before entering Mexico, the articles had "tolerances

on the order of 254 microns in total tolerance on the forging

diameters." Pl.’s Mem. in Opp’n to Def.’s Mot. for SJ at 9 (citing

Dep. of Contreras at 51, Ex. C). Within Mexico, their surfaces

8
Each of the foregoing facts is undisputed.
Court No. 96-04-01274 Page 26

were "machined to within 26 microns in total tolerance on these

same diameters." Id. This approximately tenfold ratio of

tolerances between the article prior to entry in Mexico and the

finished product supports a finding that the articles exhibited

"large tolerances" upon entering Mexico.

Defendant concedes that Plaintiff has put forth evidence

supporting these points, but argues that summary judgment is

nevertheless appropriate because they are not material. The Court

agrees. Plaintiff may be able to prove at trial that each article

required considerable further shaping upon entering Mexico.

Nevertheless, the undisputed fact that a grease pocket was machined

into the article in Brazil indicates that it was "further worked

than . . . roughly shaped by forging" within the meaning of

Chapter 72 Note (ij) because the machining of the grease pocket

constituted the first step toward accomplishing the considerable

further shaping. Therefore, the subject articles were not

classifiable as "semifinished products of other alloy steel" under

heading 7224, HTSUS, as a matter of law.

B) Heading 8483, HTSUS

Having held that the articles were not classifiable under

heading 7224, HTSUS, upon entry into Mexico, the Court reviews

whether they were classifiable as unfinished crankshafts under
Court No. 96-04-01274 Page 27

subheading 8483.10.30, HTSUS, as Defendant maintains. As

previously noted, Defendant relies on GRI 2(a) in arguing that the

articles were classifiable under subheading 8483.10.30, HTSUS, upon

entry into Mexico. See Mem. in Supp. of Def.’s Mot. for SJ at 19-

20. That rule states, "Any reference in a heading to an article

shall be taken to include a reference to that article incomplete or

unfinished, provided that, as presented, the incomplete or

unfinished article has the essential character of the complete or

finished article." GRI 2(a).

Defendant argues the articles had the essential character of

crankshafts upon entry into Mexico "as it is uncontested that [they

were] the actual bod[ies] of the crankshaft[s], [were] intended for

use only as crankshafts, [had] the general shape[s] of the imported

crankshafts, and nothing [was] added in Mexico to the [articles] to

make them finished crankshafts." Mem. in Supp. of Def.’s Mot. for

SJ at 20. Plaintiff counters that the "four factors cited by

Defendant as those imparting the essential character to the rough

forgings in question are simply not relevant." Pl.’s Mem. in Opp’n

to Def.’s Mot. for SJ at 17. In addition, Plaintiff argues that

Defendant’s classification fails to take into account numerous

essential characteristics of a finished crankshaft that the subject

articles lacked upon entering Mexico: surface condition, final
Court No. 96-04-01274 Page 28

balance, and hardness. See id. at 19-20.

As previously noted, however, the Explanatory Note to GRI 2(a)

states,

The provisions of [GRI 2(a)] also apply to blanks unless
these are specified in a particular heading. The term
"blank" means an article, not ready for direct use,
having the approximate shape or outline of the finished
article . . . , and which can only be used, other than in
exceptional cases, for completion into the finished
article . . . .

Explanatory Notes at 2. Here, it is undisputed that the articles

upon importation into Mexico had the general shape of crankshafts

and were intended for use solely as crankshafts. See Def.’s

Statement of Undisputed Facts ¶ 16. Pursuant to the Explanatory

Note, then, the subject articles were at least blanks upon entering

Mexico. Therefore, employing GRI 2(a), because the articles were

not provided for elsewhere in the HTSUS as blanks, Customs

correctly determined that they were classifiable under subheading

8483.10.30, HTSUS, as unfinished crankshafts upon entering Mexico.9

9
The conclusion that the articles were properly classifiable
under heading 8483, HTSUS, as unfinished crankshafts is bolstered
by the General Notes to Sub-Chapter IV of Chapter 72, HTSUS,
which covers heading 7224, HTSUS. See Explanatory Notes at 1009.
The General Explanatory Notes instruct that semifinished products
of other alloy steel under heading 7224, HTSUS, "may be worked
provided that they do not thereby assume the character of
articles or of products falling in other headings[.]" Id.
Court No. 96-04-01274 Page 29

C) Conclusion

Because the subject articles were classifiable under

subheading 8483.10.30, HTSUS, upon entering and departing Mexico,

Customs properly determined that they did not undergo a change in

tariff classification in Mexico within the meaning of General Note

12(b)(ii), HTSUS. Thus, the articles did not qualify as

originating in the territory of a NAFTA party. The Court grants

Defendant’s motion for summary judgment on this issue.

II. Customs’ Failure to Conduct a Timely Origin Verification

Customs regulations provide,

Except where a Certificate of Origin either is not
submitted when requested . . . or is not acceptable . .
. , Customs shall deny or withhold preferential tariff
treatment on an imported good . . . only after initiation
of an origin verification . . . which results in a
determination that the imported good does not qualify as
an originating good or should not be accorded such
treatment for any other reason as specifically provided
for elsewhere in this part.

19 C.F.R. § 181.71 (1995). Here, however, although Plaintiff

submitted a Certificate of Origin,10 Customs did not conduct an

10
A Certificate of Origin is a document certifying that a
"good being exported . . . from Canada or Mexico into the United
States qualifies as an originating good for purposes of
preferential tariff treatment under the NAFTA." 19 C.F.R.
§ 181.11 (1995). To claim NAFTA preferential treatment, the U.S.
importer must "make a written declaration that the good qualifies
for such treatment . . . based on a complete . . . Certificate of
Court No. 96-04-01274 Page 30

origin verification, as prescribed in 19 C.F.R. § 181.72 (1995),

before denying the imported crankshafts NAFTA preferential

treatment.

Instead, Customs denied Plaintiff’s claim for NAFTA

preferential tariff treatment in an advance ruling issued pursuant

to 19 C.F.R. §§ 181.91-181.102 (1995). See NY 811617 (July 27,

1995). The imported crankshafts entered the United States in June

and July of 1995. By letter dated June 23, 1995, Plaintiff

requested a ruling on whether the crankshafts qualified for NAFTA

preferential treatment. In response, Customs issued its advance

ruling on July 27, 1995, determining that the crankshafts did not

qualify as "goods originating in the territory of a NAFTA party"

within the meaning of General Note 12(b)(ii), HTSUS. Subsequently,

Customs liquidated the goods, classifying them under subheading

8483.10.30, HTSUS, with a duty rate of 3.5% ad valorem. Plaintiff

protested the liquidations in December of 1995. After Customs

denied the protests, Plaintiff commenced the instant action by

filing a summons on April 25, 1996.

Some time after the filing of Plaintiff’s action, Customs

Origin[.]" 19 C.F.R. § 181.21 (1995). Here, it is apparent that
Plaintiff based its claim for NAFTA preferential treatment on a
properly executed Certificate of Origin. See Def.’s Mem. in
Supp. of Mot. for Remand to Customs and to Extend Time in Which
Def.’s Response to the Complaint Is Due, Ex. A.
Court No. 96-04-01274 Page 31

realized that it had failed to conduct an origin verification

pursuant to 19 C.F.R. § 181.71 before denying Plaintiff’s goods

NAFTA preferential treatment. Thus, Defendant moved for remand to

allow it to cure the procedural error. This Court granted

Defendant’s Motion for Remand on April 22, 1997, and Customs

conducted the verification. Upon completion of the verification,

Customs again determined that Plaintiff’s crankshafts did not

qualify as originating goods under General Note 12(b)(ii), HTSUS.

Therefore, this action resumed.

In the second count of its amended complaint, Plaintiff

claims, "In the absence of a timely origin verification, 19 C.F.R.

§ 181.71 requires that Customs liquidate merchandise claimed as

NAFTA originating at the NAFTA rate of duty." Pl.’s Second Am.

Compl. ¶ 30. Moving for summary judgment, Defendant counters that

NAFTA verification conducted after commencement of this action does

not entitle the imported crankshafts to duty-free entry as a matter

of law. See Mem. in Supp. of Def.’s Mot. for SJ at 21. Because

Plaintiff does not controvert any of the material facts set forth

by Defendant, this Court finds that it is appropriate to resolve

this issue by summary judgment. See USCIT Rule 56(i).

"As a general rule, an agency is required to comply with its

own regulations." Kemira Fibres OY v. United States, 61 F.3d 866,
Court No. 96-04-01274 Page 32

871 (Fed. Cir. 1995). Here, however, neither the statute nor the

regulation specifies the consequence of noncompliance. Therefore,

this Court must decide whether Customs’ failure to conduct a timely

origin verification automatically affords the subject imports NAFTA

preferential treatment.

"There is no question that when a government agency acts

’without observance of procedure required by law,’ courts have the

power to set aside that action." Sea-Land Service, Inc. v. United

States, 14 CIT 253, 257, 735 F. Supp. 1059, 1063 (1990)(citations

omitted), aff’d, 923 F.2d 838 (Fed. Cir. 1991). In reviewing an

agency’s procedural error for which the law does not prescribe a

consequence, however, it is well settled that principles of

harmless error apply. See Intercargo Ins. Co. v. United States, 83

F.3d 391, 394 (Fed. Cir. 1996). The judicial review section of the

Administrative Procedure Act, 5 U.S.C. § 706 (1994), instructs

that, in reviewing an agency’s procedural actions, "’due account

shall be taken of the rule of prejudicial error.’" Id. (citing 5

U.S.C. § 706). Under the rule of prejudicial error, or harmless

error analysis, the Court will not overturn an agency’s action "if

the procedural error complained of was harmless." Barnhart v.

United States, 7 CIT 295, 302, 588 F. Supp. 1432, 1437 (1984).

"The burden to demonstrate prejudicial error is on the party
Court No. 96-04-01274 Page 33

claiming the error was prejudicial." Id.; see also Kemira Fibres,

61 F.3d at 875.

Plaintiff, however, does not allege that it was prejudiced by

Customs’ failure to conduct a timely origin verification. Rather,

Plaintiff raises three policy arguments as to why Defendant’s

procedural error should automatically render its denial of NAFTA

preferential treatment void. Plaintiff argues that, if this Court

does not void Customs’ denial of duty-free treatment: (1) 19 C.F.R.

§ 181.71 would no longer have the force and effect of law; (2)

there would likely be reciprocal non-enforcement of the provision

by Canada and Mexico; and (3) judicial efficiency would be impeded

because NAFTA claimants would have to bring court actions to make

Customs conduct origin verifications. See Pl.’s Mem. in Opp’n to

Def.’s Mot. for SJ at 22.

Although this Court is mindful of Plaintiff’s justifiable

concerns, the Court will not overturn Customs’ action without a

showing that Plaintiff was prejudiced by Customs’ procedural error

in this case. See NLRB v. Seine & Line Fishermen’s Union, 374 F.2d

974, 981 (9th Cir. 1967)(explaining that each case must be

determined on its individual facts and, if errors are deemed minor,

administrative orders should remain in force notwithstanding). The

Court does not condone Customs’ failure to conduct a timely origin
Court No. 96-04-01274 Page 34

verification. Nevertheless, because Plaintiff is unable to

demonstrate that it was harmed, the Court will not void Customs’

finding that the crankshafts were not NAFTA originating goods

within the meaning of General Note 12(b)(ii), HTSUS. In any event,

the circumstances of this case indicate that Plaintiff was not

actually prejudiced.

"Prejudice, [for purposes of harmless error analysis], means

injury to an interest that the statute, regulation[,] or rule in

question was designed to protect." Intercargo, 83 F.3d at 396. A

review of the NAFTA Agreement and its legislative history indicates

that a primary purpose of the origin verification is to afford the

importer notice prior to liquidation as to whether its imports

would qualify as NAFTA originating goods. See NAFTA Agreement,

Article 506 ¶ 11, reprinted in 1 North American Free Trade

Agreements: Treaty Materials Booklet 3 (James R. Holbein and Donald

J. Musch eds., 1994)("NAFTA: Treaty Materials"); NAFTA Statement of

Administrative Action ("NAFTA SAA") at 49 ("A determination by the

customs authorities of the importing country that particular goods

do not meet NAFTA’s rules of origin . . . does not become effective

until those authorities notify in writing both the importer and the

person that completed the certificate of origin."), reprinted in 1

NAFTA: Treaty Materials Booklet 8; Uniform Regulations for the
Court No. 96-04-01274 Page 35

Interpretation, Application, and Administration of Chapters Three

and Five of the NAFTA ("Uniform Regulations"), Article VI ¶¶ 19 &

20, reprinted in 2 NAFTA: Treaty Materials Booklet 29. In

addition, NAFTA affords the importer the right to administrative

and judicial review of determinations resulting from origin

verifications. See NAFTA Agreement, Article 510; NAFTA SAA at 51-

52; Uniform Regulations, Article VIII.

Here, although Customs did not conduct an origin verification

prior to denying Plaintiff’s goods preferential treatment, it did

review and determine whether the goods qualified as NAFTA

originating goods in its advance ruling, NY 811617 (July 27, 1995),

prior to liquidation. An advance ruling may address "[w]hether a

good qualifies as an originating good under General Note 12,

HTSUS[.]" 19 C.F.R. § 181.92(6)(v). Customs issued the advance

ruling on July 27, 1995, and liquidated Plaintiff’s imports the

following September, October, and November. Thus, prior to

liquidation, Plaintiff had notice as to how Customs would treat its

imports. See 19 C.F.R. § 181.100(a)(1) & (a)(2)(ii) ("An advance

ruling letter issued by Customs . . . represents the official

position of Customs with respect to the particular transaction or

issue described therein and is binding" with respect to both the

subject articles and all identical articles.). Finally, an
Court No. 96-04-01274 Page 36

importer has the right to administrative and judicial review of an

advance ruling. See 19 C.F.R. § 181.102. Therefore, although

Customs did not conduct a timely origin verification, it did

determine whether Plaintiff’s crankshafts qualified as NAFTA

originating goods in a manner that afforded Plaintiff both timely

notice and the right to judicial review. These circumstances

indicate that Plaintiff was not prejudiced.

Second, Customs on its own recognized the procedural error

and, upon voluntary remand, conducted a complete origin

verification pursuant to 19 C.F.R. § 181.72. In so doing, Customs

acknowledged that it would reverse its earlier position if it found

that Plaintiff’s goods indeed qualified as originating in a NAFTA

territory. Therefore, although Customs did not conduct the

verification until after the commencement of this action, it sua

sponte recognized the problem and remedied it, affording Plaintiff

a meaningful verification. Because Plaintiff itself did not

recognize the procedural error, and the eventual verification

merely confirmed Customs’ earlier finding, it is difficult to see

how Plaintiff could have been prejudiced.

In sum, Plaintiff fails to demonstrate how it was prejudiced

by Customs’ failure to conduct a timely origin verification, and

the circumstances of this case indicate that Plaintiff was indeed
Court No. 96-04-01274 Page 37

not prejudiced. Therefore, applying the harmless error analysis,

this Court will not void Customs’ liquidation of the crankshafts as

non-originating under NAFTA. The Court grants Defendant’s motion

for summary judgment on this issue.

III. The Substantial Transformation Test

The marking provision, 19 U.S.C. § 1304 (1994), requires that

imports into the United States be conspicuously marked with the

name of their "country of origin." Where, as here, an article is

not completely manufactured in one country, "[f]urther work or

material added to an article in [the other country] must effect a

substantial transformation in order to render such other country

the ’country of origin’" within the meaning of 19 U.S.C. § 1304.

19 C.F.R. § 134.1(b)(1995). In United States v. Gibson-Thomsen

Co., Inc., 27 C.C.P.A. 267 (1940), the predecessor to the Court of

Appeals for the Federal Circuit held that a product undergoes a

"substantial transformation" if, as a result of further

manufacturing or processing, the product loses its identity and is

transformed into a new product having "a new name, character[,] and

use." 27 C.C.P.A. at 273 (the substantial transformation test or

Gibson-Thomsen test).

In Count III of its complaint, Plaintiff alleged, "Having
Court No. 96-04-01274 Page 38

undergone a substantial transformation in Mexico, the crankshafts

are products of Mexico for purposes of the assessment of duty and

within the meaning of 19 U.S.C. § 1304." Pl.’s Second Am. Compl.

¶ 36. Thus, despite the requirement of a tariff shift under

General Note 12(b)(ii), HTSUS, Plaintiff argues that the

substantial transformation test requires a finding that Mexico is

the country of origin of the subject crankshafts for purposes of

marking, thereby affording them NAFTA duty preference. See id.

¶ 37.

Moving for summary judgment, Defendant contends that the issue

of whether the imported crankshafts were substantially transformed

in Mexico is irrelevant as a matter of law. See Mem. in Supp. of

Def.’s Mot. for SJ at 28. Moreover, Defendant argues that the

Court lacks subject matter jurisdiction to hear the marking issue:

"It is black letter law that in the absence of an assessment of

marking duties, or the exclusion or demand for redelivery of goods

due to improper marking, none of which occurred here, the question

of how imported goods should be marked is not a protestable issue

under 19 U.S.C. § 1514." Def.’s Reply at 28. The Court, however,

does not need to address the jurisdictional question because it is

clear that, regardless, the substantial transformation test is

irrelevant to whether Mexico is the country of origin of the
Court No. 96-04-01274 Page 39

imported crankshafts as a matter of law.

First, the Court notes that the country of origin

determination for marking purposes under 19 U.S.C. § 1304 is

distinct from the determination of whether a good is a NAFTA

originating good under General Note 12(b)(ii), HTSUS. See Alcan

Aluminum Corp. v. United States, 165 F.3d 898, 901-02

(1999)(holding that the substantial transformation test was not

relevant as to whether a good originated in Canada for the purposes

of the United States-Canada Free Trade Agreement under General Note

3(c)(vii)(B)(2), HTSUS (1993)); see also General Note 12(b)(ii),

HTSUS (1995).

Second, for the purpose of determining whether a good should

be marked with a NAFTA territory as the country of origin, the

NAFTA Marking Rules have displaced the substantial transformation

test. The regulations at 19 C.F.R. § 134.1(b) provide that, "for

a good of a NAFTA country, the NAFTA Marking Rules will determine

the country of origin." "The ’NAFTA Marking Rules’ are the rules

promulgated for purposes of determining whether a good is a good of

a NAFTA country." 19 C.F.R. § 134.1(j). The Secretary of the

Treasury promulgated the NAFTA Marking Rules to be applied in the

United States at 19 C.F.R. Part 102. Section 102.11 states that,

where a good is not wholly produced in one country, "[t]he country
Court No. 96-04-01274 Page 40

of origin of [the] good is the country in which . . . [e]ach

foreign material incorporated in that good undergoes an applicable

change in tariff classification set out in § 102.20[.]" 19 C.F.R.

§ 102.11(a)(3)(1995). The NAFTA Marking Rules do not mention the

substantial transformation test in instructing how to determine the

country of origin.

The statute expressly directs that the NAFTA Marking Rules be

employed in determining whether to accord goods NAFTA preferential

duty treatment. See General Note 12(a)(ii), HTSUS ("Goods that

originate in the territory of a NAFTA party . . . and that qualify

to be marked as goods of Mexico under the terms of the marking

rules as set forth in regulations issued by the Secretary of the

Treasury . . . are eligible for [NAFTA] duty rate[.]"). Therefore,

the statute authorizes the use of the tariff shift test, instead of

the substantial transformation test, for goods not wholly produced

in one country. Moreover, Plaintiff has failed to distinguish this

case from the circumstances underlying the Federal Circuit’s

holding in Bestfoods v. United States, 165 F.3d 1371, 1375-76 (Fed.

Cir. 1999), cert. denied, 120 S. Ct. 42 (1999)(holding that it was

valid for the Secretary of the Treasury "to adopt a construction of

the federal marking statute, for NAFTA goods, that was based on the

tariff-shift approach instead of the Gibson-Thomsen approach[]").
Court No. 96-04-01274 Page 41

Therefore, because the substantial transformation test is

irrelevant to the determination of whether Mexico is the country of

origin of the crankshafts as a matter of law, the Court grants

Defendant’s motion for summary judgment on this issue.

Conclusion

For the foregoing reasons, Defendant’s motion for summary

judgment is granted.

Donald C. Pogue
Judge

Dated: December 21, 1999
New York, New York
 UNITED STATES COURT OF INTERNATIONAL TRADE

CUMMINS ENGINE COMPANY,

Plaintiff,

v.

UNITED STATES, Before: Pogue, Judge
Court No. 96-04-01274
Defendant,

Judgment

This action has been duly submitted for decision, and this

court, after due deliberation, has rendered a decision herein;

now, in conformity with said decision, it is hereby

ORDERED that Defendant’s motion for summary judgment is

granted and final judgment is entered for Defendant.

Donald C. Pogue
Judge

Dated: December 21, 1999
New York, New York