Windmoeller & Hoelscher Corp. v. United States

Slip Op. 07-166

UNITED STATES COURT OF INTERNATIONAL TRADE

__________________________________________

:

WINDMOELLER & HOELSCHER

CORPORATION, :

Plaintiff, :

Court No. 03-00722

v. :

UNITED STATES, :

__________________________________________:

Defendant.

[Plaintiff’s motion for summary judgment denied; Defendant’s cross-motion for summary judgment

granted, and action dismissed.]

Dated: November 14, 2007

Sullivan & Lynch, P.C. (Herbert J. Lynch), for Plaintiff.

Peter D. Keisler, Assistant Attorney General; Barbara S. Williams, Attorney in Charge,

International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department

of Justice (Mikki Graves Walser); Su-Jin Yoo and Chi S. Choy, Office of the Assistant Chief

Counsel, International Trade Litigation, U.S. Customs and Border Protection, U.S. Department of

Homeland Security, Of Counsel; for Defendant.

OPINION

RIDGWAY, Judge:

In this action, Plaintiff Windmoeller & Hoelscher Corporation (“Windmoeller”) contests the

denial of its protest challenging the U.S. Customs Service’s rejection of an “unused merchandise

Court No. 03-00722 Page 2

drawback” claim filed by the company.1 Windmoeller seeks to recover as drawback2 a portion of

the duties that it paid on a flexographic printing press that it imported from Germany, because two

major components of that printing press had to be returned to the foreign manufacturer after they

were damaged when they were dropped by the stevedores unloading the ship. See generally

Plaintiff’s Brief in Support of Plaintiff’s Motion for Summary Judgment (“Pl.’s Brief”) at 1-5;

Plaintiff’s Brief in Opposition to Defendant’s Cross-Motion for Summary Judgment and In Reply

to Defendant’s Opposition to Plaintiff’s Motion for Summary Judgment (“Pl.’s Reply Brief”) at 2-4.

The Government maintains that Customs properly denied Windmoeller’s drawback claim.

The Government argues, in essence, that Windmoeller imported and entered – and paid duties on

– the printing press as an (unassembled) whole, but then later exported only parts of it. And,

1

The U.S. Customs Service – formerly part of the U.S. Department of the Treasury – is now

part of the U.S. Department of Homeland Security, and is known as U.S. Customs and Border

Protection. The agency is referred to as “Customs” herein. See Homeland Security Act of 2002,

Pub. L. No. 107-296, § 1502, 116 Stat. 2135, 2308; 72 Fed. Reg. 20, 131 (April 23, 2007).

2

“Drawback” is “a refund of duty paid on imported merchandise that is linked to an

exportation (or destruction) of an article.” See U.S. Customs and Border Protection, “What Every

Member of the Trade Community Should Know About Drawback” at 7 (Dec. 2004).

There are several different types of drawback. See generally id. (discussing manufacturing

drawback, unused merchandise drawback, and rejected merchandise drawback). As the Court of

Appeals recently noted, and as discussed in greater detail below, the provision of the drawback

statute here at issue – “direct identification” unused merchandise drawback – provides for drawback

“when imported duty-paid merchandise is subsequently exported.” See Merck & Co., Inc. v. United

States, 499 F.3d 1348, 1350 (Fed. Cir. 2007) (discussing drawback under 19 U.S.C. § 1313(j)(1)).

The Court of Appeals has further noted that “[d]rawbacks are a privilege, not a right. United

States v. Allen, 163 U.S. 499, 504 (1896); see also Swan & Finch Co. v. United States, 190 U.S.

143, 146-47 (1903) (Because the drawback statute is a grant of privilege, the construction most

advantageous to the interests of the government must be adopted.).” Hartog Foods Int’l, Inc. v.

United States, 291 F.3d 789, 793 (Fed. Cir. 2002).

Court No. 03-00722 Page 3

according to the Government, unused merchandise drawback is not available under 19 U.S.C. §

1313(j)(1) when only part of the imported merchandise is exported.3 Nor, according to the

Government, is it payable when the value of the exported merchandise cannot be ascertained from

the entry documents. See generally Defendant’s Memorandum in Opposition to Plaintiff’s Motion

for Summary Judgment and In Support of Defendant’s Cross-Motion for Summary Judgment

(“Def.’s Brief”) at 2-4, 9-13; see also Defendant’s Reply to Plaintiff’s Memorandum in Opposition

to Defendant’s Cross-Motion for Summary Judgment (“Def.’s Reply Brief”).4

Pending before the Court are the parties’ cross-motions for summary judgment. Jurisdiction

lies under 28 U.S.C. § 1581(a) (2000). For the reasons outlined below, Windmoeller’s motion for

summary judgment is denied, and the Government’s cross-motion is granted.

3

Except as otherwise indicated, all statutory citations are to the 1994 edition of the United

States Code. Note also that the drawback statute was amended in 1993 to, among other things,

replace the now obsolete “same condition” drawback with the “unused merchandise” drawback

provision at issue in this action. See North American Free Trade Agreement Implementation Act,

Pub. L. No. 103-182, § 632, 107 Stat. 2057, 2192. However, Customs did not promulgate

conforming changes to its regulations for some years. Accordingly, analysis of some questions

concerning unused merchandise drawback claims may require reference to the 1998 regulations,

even though the drawback claim antedated those regulations. See 19 C.F.R. Part 191, Subpart C

(“Unused Merchandise Drawback”) (1998).

4

The Government argues in the alternative that, even assuming that unused merchandise

drawback were otherwise available under the facts of this case, Windmoeller still has failed to

establish the value of the two separate component parts of the printing press which are the subject

of its drawback claim. The Government asserts that the affidavits submitted by Windmoeller

“provide[] summary conclusions as to value, without more,” and maintains that further documentary

evidence “would be required to demonstrate the actual value of the exported articles than . . . what

has been submitted by Windmoeller here.” See generally Def.’s Brief at 4, 14-15; Def.’s Reply

Brief at 9-12. But see Pl.’s Brief at 11-12; Pl.’s Reply Brief at 5, 13-14. In light of the disposition

of this action below, however, there is no need to reach this issue.

Court No. 03-00722 Page 4

I. The Facts of The Case

Windmoeller is a manufacturer and distributor of heavy-duty printing and packaging

machinery, for commercial and industrial use. See Audiotape of Conference of Counsel with the

Court (“Tape”) at 11:04.5 In the drawback claim at issue here, Windmoeller seeks to recoup a

portion of the duties that it paid on a December 10, 1995 consumption entry consisting of six ocean

containers and seven seaworthy cases imported from Germany, through the Port of Baltimore. In

those containers and cases were components which – when assembled – would constitute a complete

flexographic printing press system (known by the trade name “Olympia Stellaflex 8L”), which had

been ordered from Windmoeller by one of its U.S. customers. See Tape at 11:29-11:40.

The various components of the printing press system were not separately classified when

they were entered into the United States. The Entry and Entry Summary (Form 7501) that

Windmoeller filed with Customs indicated that the merchandise entered was classifiable as

“[f]lexographic printing machinery” under subheading 8443.30.00 of the Harmonized Tariff

Schedule of the U.S. (“HTSUS”), dutiable at the rate of 3.1% ad valorem. See subheading

8443.30.00, HTSUS (1995); 19 U.S.C. § 1202.6 Included with the entry papers were a commercial

5

The facts set forth in this section are largely drawn from the parties’ respective Statements

of Material Facts and responses thereto, and are not in dispute. However, certain statements herein

are based on representations by counsel made in the course of a September 22, 2006 conference with

the Court. Those facts do not appear to be contested. But, in any event, they are not material, and

are set forth here solely for context.

6

Pursuant to HTSUS General Rule of Interpretation 2(a), an unassembled or disassembled

article is classified as though it were a complete or finished article. Notes 3 and 4 to Section XVI

of the HTSUS further provide that composite machines consisting of two or more machines fitted

together to form a whole or consisting of individual components intended to contribute together to

a clearly defined function are classified under the tariff provision appropriate to the principal

function of the machinery system.

Court No. 03-00722 Page 5

invoice and a packing list, both prepared by Windmoeller & Hoelscher KG of Germany (the

manufacturer, seller, and exporter of the merchandise).

The commercial invoice identified the merchandise as “1 flexographic printing press

‘Olympia Stellaflex 8L,’” with an ex-factory price of DM 3,971,543.7 The packing list detailed the

contents of each of the six ocean containers and seven seaworthy cases in the shipment. However,

neither the commercial invoice nor the packing list, nor any of the other entry papers, itemized the

values of Eltainer and the Printing Unit, or any of the other individual components of the printing

press.

As the packing list indicated, the two components at issue here – the Eltainer and the Printing

Unit – were shipped in cases (1) and (2).8 Unfortunately, on December 10, 1995 – after the

7

Although the affidavits submitted by Windmoeller state that the ex-factory price of the

Olympia Stellaflex 8L was DM 3,971,353, the commercial invoice itself – to which the affidavits

refer – indicates that the price was actually DM 3,971,543. See Commercial Invoice No. 95.328

(Oct. 31, 1995); see also Plaintiff’s Statement of Material Facts ¶ 10. The commercial invoice

further states that the ex-factory price of DM 3,971,543 includes an “after installation maintenance

and technical assistance fee” of DM 128,703, and that the merchandise’s value for customs purposes

is DM 3,842,840. See Commercial Invoice. The commercial invoice also appears to reflect a “trade

discount” of DM 318,573. See Commercial Invoice; Def.’s Reply Brief at 11-12.

According to the Government, the printing press was valued at $2,742,993 for tariff

purposes, and – at 3.1% – the assessed duties totaled $83,358.78. See Def.’s Brief at 6, 14; Def.’s

Reply Brief at 10. However, it is not clear from the record of the case whether the figure of

$2,742,993 corresponds to DM 3,971,543, or to DM 3,842,840, or to some other figure. In light of

the disposition of this action below, however, the precise value of the merchandise for customs

purposes is not material.

8

According to Windmoeller, “Eltainer” is a trademark term used by Windmoeller &

Hoelscher KG to describe a metal enclosure containing all the electronics and controls, as well as

the operational and connecting cables, necessary for the use and operation of the printing press

system; and the Printing Unit is the “essential and primary machine” of the system. See Pl.’s Brief

at 2.

Court No. 03-00722 Page 6

merchandise had been released from Customs’ custody, and as it was being offloaded from the ship

– stevedores dropped the two cases containing the Eltainer and the Printing Unit. Windmoeller

made arrangements to have the two components exported back to the German manufacturer, to

determine the extent of the damage and to take appropriate action.9 And, on January 25, 1996,

Windmoeller filed an unused merchandise drawback claim with Customs pursuant to 19 U.S.C. §

1313(j)(1), seeking a partial refund of the duties paid on the Olympia Stellaflex 8L.

In general, the provision of the drawback statute invoked by Windmoeller provides for the

refund of 99% of the duties paid if imported merchandise is exported or destroyed within three years

of importation without being used in the United States:

(j) Unused merchandise drawback. (1) If imported merchandise, on which was

paid any duty, . . . imposed under Federal law because of its importation –

(A) is, before the close of the 3-year period beginning on the date of

importation –

(i) exported, or

(ii) destroyed under customs supervision; and

(B) is not used within the United States before such exportation or

destruction;

then upon such exportation or destruction 99 percent of the amount of each

duty . . . so paid shall be refunded as drawback.

19 U.S.C. § 1313(j)(1).

Windmoeller’s drawback claim sought a refund of US$ 52,854.04 – a sum that Windmoeller

9

Apparently, it was not practicable for the German manufacturer to assess the damage and

determine the appropriate course of action while the two components remained in the United States.

See Tape at 23:16-23:42.

Court No. 03-00722 Page 7

calculated to be 99% of “the duty paid on the importation of the Eltainer and the Printing Unit.”

Pl.’s Brief at 4. Windmoeller, in turn, calculated the amount of “the duty paid on the importation

of [the two components]” by applying the 3.1% duty rate for “[f]lexographic printing machinery”

under HTSUS subheading 8443.30.00 to US$1,718,934 – the value of the Eltainer and the Printing

Unit as reported on the Shipper’s Export Declaration that Windmoeller filed with its drawback

claim. See Pl.’s Brief at 4; Pl.’s Reply Brief at 3.10

The damaged Eltainer and the Printing Unit were exported back to Germany in late January

1996. The German manufacturer eventually determined that the Printing Unit could be repaired, but

that the Eltainer was not salvageable. See Tape at 13:43-14:10; 24:09-24:22, 53:27-53:35. In the

meantime, however, Windmoeller had procured replacement components from the German

manufacturer,11 so that Windmoeller could fulfill its contractual commitment to its U.S. customer.

See Tape at 14:22-14:44, 24:22-24:33, 32:35-33:02,34:35-35:16. The two replacement components

were imported in March 1996, and were classified as “[p]arts” of “[p]rinting machinery,” dutiable

at a rate lower than the 3.1% rate applicable to “[f]lexographic printing machinery.” See Tape at

33:09-33:49, 34:31-34:35, 35:40-35:44.12 The stated value of the replacement Printing Unit and

10

According to Windmoeller, the German manufacturer’s Area Sales Manager determined

the individual component values of the Eltainer and the Printing Unit “by reviewing internal cost

of production calculations, price lists, parts records and files” that are maintained by the

manufacturer. See Pl.’s Brief at 3-4 (and authorities cited there); Pl.’s Reply Brief at 3, 5, 13-14.

11

The German manufacturer repaired the original Printing Unit, for sale to some other

customer overseas. That particular component was not returned to the United States. See Tape at

14:18-14:21, 53:27-53:35.

12

In the conference with the Court, counsel indicated that the replacement components

imported in 1996 were classified as “[p]arts,” and were dutiable at the rate of 2.2% ad valorem. See

Tape at 35:28-35:40. However, if the replacement components were classified as “[p]arts” under

Court No. 03-00722 Page 8

Eltainer – which Customs did not challenge – closely approximated the value of the two original

components as specified in the Shipper’s Export Declaration filed by Windmoeller as part of its

drawback claim. See Tape at 33:09-34:21, 59:12-1:00:13, 1:41:48-1:42:03.

The undamaged components from the December 1995 shipment had already been delivered

to Windmoeller’s U.S. customer. The replacement Printing Unit and Eltainer, imported in March

1996, were installed at the customer’s site, to complete the Olympia Stellaflex 8L flexographic

printing press system which the customer had ordered. See Tape at 32:35-33:02.

In late 2002, Customs denied Windmoeller’s drawback claim. Customs explained:

This entry is being denied based on Headquarters rulings 221415 dated February 23,

1990, 228199 dated March 26, 1999 and 228317 dated December 5, 2000. All of

these rulings state that there is no provision in the drawback statute for

apportionment of drawback on a partial exportation. They further held that since the

importation was a single product and there was no method for determining the value

of the separated exported product from the import documents, drawback could not

be paid.

Letter from Director, Drawback Branch, Customs, Boston, Massachusetts (Nov. 27, 2002) (“Letter

Denying Drawback Claim”). Windmoeller timely protested Customs’ rejection of its drawback

claim, but the protest was denied.

Although Windmoeller filed a claim against the terminal operator for the damage to the

Eltainer and the Printing Unit suffered at the hands of the stevedores, and although that claim was

HTSUS subheading 8443.90.50, it appears that the applicable duty rate actually would have been

2%. See subheading 8443.90.50, HTSUS (1996).

In any event, whether the duty rate applicable to the replacement components was 2% or

2.2%, it was lower than the 3.1% rate applicable to “[f]lexographic printing machinery.” Often,

however, the duty rate applicable to an article is lower than the rate applicable to its “parts.” See

Tape at 35:40-35:44, 40:02-40:44, 41:35-41:52.

Court No. 03-00722 Page 9

paid, the insurance did not cover all of Windmoeller’s losses. According to Windmoeller, the

company was forced to “pay duties twice,” and still has not been made whole. See Tape at 13:34-

13:42, 23:42-24:03, 25:28-25:53.

II. Standard of Review

Under USCIT Rule 56, summary judgment is appropriate where “there is no genuine issue

as to any material fact and . . . the moving party is entitled to [ ] judgment as a matter of law.”

USCIT R. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A factual dispute

is genuine if it might affect the outcome of the suit under the governing law. See id.

The parties here do not agree on every specific detail of the events underlying this action.

However, they are in agreement that there is no genuine dispute as to any material fact. And they

further agree that the sole issue presented is the question of the interpretation of 19 U.S.C. §

1313(j)(1), which is a matter of law to be determined de novo by the Court. See, e.g., Lynteq, Inc.

v. United States, 976 F.2d 693, 696 (Fed. Cir. 1992). This matter is thus ripe for summary judgment.

On review, Customs’ rulings are entitled to a measure of deference proportional to their

power to persuade, in accordance with the principles set forth in Skidmore v. Swift & Co., 323 U.S.

134 (1944). See United States v. Mead Corp., 533 U.S. 218, 234-35 (2001); Rocknel Fastener, Inc.

v. United States, 267 F.3d 1354, 1357-58 (Fed. Cir. 2001) (according deference to Customs’

interpretation of tariff provision as set forth in agency’s “informed compliance” publication); Park

B. Smith, Ltd. v. United States, 347 F.3d 922, 925 (Fed. Cir. 2003) (finding Customs’ position

entitled to deference even in absence of formal agency decision concerning specific merchandise

at issue).

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III. Analysis

According to the Government, the statutory provision on unused merchandise drawback on

which Windmoeller relies – 19 U.S.C. § 1313(j)(1) – does not permit apportionment of drawback

on the exportation of only an unused part of the merchandise covered by a consumption entry. See

generally Def.’s Brief at 2-4, 10; Def.’s Reply Brief at 3-4, 9; see also Letter Denying Drawback

Claim. The Government further maintains that drawback under that provision is not available when

the amount of duty paid on the exported merchandise cannot be ascertained based on the entry

documents, such that some separate appraisement procedure would be required. See Def.’s Brief

at 4 (emphasizing that “[a]ssuming, for the sake of argument, § 1313(j)(1) allowed the

apportionment of drawback for the exportation of parts of an unassembled imported article, which

it does not, the commercial invoice accompanying the consumption entry did not provide a value

[for] any of the parts”); see also id. at 14; Def.’s Reply Brief at 5-7, 9; Letter Denying Drawback

Claim.

In support of its position, the Government points to three Headquarters ruling letters – HQ

226473 (March 16, 1996), HQ 228199 (March 26, 1999), and HQ 228317 (Dec. 5, 2000).

According to the Government, those determinations illustrate that, in recent years, Customs has

consistently ruled that unused merchandise drawback under § 1313(j)(1) is not available under

circumstances such as those presented here. See Def.’s Brief at 4, 8, 10-12; Def.’s Reply Brief at

1-2, 7; Letter Denying Drawback Claim.

In HQ 226473, Customs considered whether pistols which were imported with magazines

and later exported without magazines were eligible for drawback under § 1313(j)(1). Customs

Court No. 03-00722 Page 11

denied the drawback claim in that case, explaining that “[i]n terms of the specific language of [the

statute], the ‘imported merchandise’ (a pistol with magazine) is not ‘exported,’” and further stating

that “there is no language in [the statute] which would permit Customs to make adjustments in the

amount paid, i.e., assuming arguendo that Customs determined that it was appropriate to pay

drawback in this situation, the value of the exported item is less than the value of the imported item.”

Customs continued:

Thus, it would seem clear that the payment of “99 percent of the amount of each

duty” would not adequately protect the revenue. 19 U.S.C. 1313(j)(1) is silent with

respect to any adjustment of the amount of drawback payable in a situation where the

exported merchandise is of a lesser value than the imported merchandise. This

reinforces our conclusion that drawback is not payable under 19 U.S.C. 1313(j)(1)

in a situation where the exported merchandise is not the same as the imported

merchandise.

Accordingly, Customs held that “[a] pistol which is imported with a magazine and exported without

a magazine is not eligible for drawback pursuant to 19 U.S.C. 1313(j)(1).” See HQ 226473; see

generally Def.’s Brief at 10-11; Def.’s Reply Brief at 2-3.

Similarly, in HQ 228199, Customs ruled that “the plain language of the statute requires that

drawback be paid upon the exportation of the imported merchandise.” In that case, Customs denied

drawback where lamps had been imported, but only defective lamp arms were returned to the

exporting country. Customs stated that “[t]here is no provision, in 19 U.S.C. § 1313(j)(1), for

apportioning the duties paid on the imported merchandise (a complete lamp) to the exported

merchandise (lamp arms).” Customs elaborated that “there is no support in the language of the

statute (or legislative history) to support a conclusion that an imported article may be disassembled

and drawback claimed on only certain parts of the article which are exported, based on an

Court No. 03-00722 Page 12

apportionment of the duties paid on the imported article.” Elsewhere, Customs stated that “[t]here

is simply no language in 19 U.S.C. 1313(j) which permits Customs to apportion drawback when a

component of the imported merchandise, rather than the imported merchandise itself, is exported.”

(Emphases added.) See HQ 228199; see generally Def.’s Brief at 11; Def.’s Reply Brief at 3.

Finally, in HQ 228317, Customs denied drawback on the exportation of individual rugs

which had been imported as sets of rugs of different sizes. Customs there expressly rejected the

importer’s claim that there was no requirement “that the complete duty paid item (in this case, a set

of three rugs) be exported in order to qualify for unused merchandise drawback.” Customs stated

that the statute on its face includes “no provision . . . for apportioning the duties paid on the imported

merchandise (a rug set) to the exported merchandise (individual rugs).” Customs further

emphasized that “[t]he value and duty paid on the individual rugs cannot be determined from the

entry documents. . . . The determination of the amount of duty paid for the individual exported rugs

can only be approximately determined, by apportionment, and requires reference to other invoices

for individual rugs and calculations of square footage.” In addition, Customs noted that a different

provision of the statute specifically provides for the distribution/apportionment of drawback where

two or more items result from the processing of imported merchandise, but that – in contrast – there

is “no language in 19 U.S.C. § 1313(j) which permits Customs to apportion drawback when a

component of the imported merchandise, rather than the imported merchandise itself, is exported.”

(Emphases added.) See HQ 228317; see generally Def.’s Brief at 11-12; Def.’s Reply Brief at 3-4.

Windmoeller contends that the three Headquarters ruling letters that the Government cites

are inapposite. See generally Pl.’s Reply Brief at 7-9. As to HQ 226473 and HQ 228199,

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Windmoeller asserts that “[i]n both cases, the exported item was not identifiable at the time of entry

and was a product of the disassembly of the imported article. In contrast, the Eltainer and Printing

Unit were clearly identified at the time of importation as functional stand alone units. . . . It is

undeniable that Customs knew at the time of entry that the shipment included the Eltainer and

Printing Unit.” See Pl.’s Reply Brief at 8. But the points that Windmoeller raises are distinctions

without a difference.

Windmoeller fails to explain why it is significant that the packing list in this case separately

listed the various components of the printing press, including the Eltainer and the Printing Unit, such

that they were “identifiable at the time of entry.” Nor is there any apparent significance to the fact

that the pistols and the lamps in the ruling letters at issue had been disassembled, while – in the case

at bar – there was no need for Windmoeller to disassemble the printing press before exporting the

Eltainer and the Printing Unit, because the printing press had not yet been assembled. It is similarly

irrelevant under the statute whether or not the merchandise that is the subject of a drawback claim

is a “functional stand alone unit[].” And Windmoeller cannot seriously contend that Customs did

not know that complete pistols and complete lamps are comprised of components, such as pistol

magazines and lamp arms.

As with HQ 226473 and HQ 228199, Windmoeller also seeks to distinguish HQ 228317 on

the grounds that the exported items there at issue (individual rugs) “were not identifiable at the time

of entry.” See Pl.’s Reply Brief at 8-9. However, as discussed above, there is no apparent

significance to that fact. Nor can it be argued with a straight face that Customs did not know that

the imported merchandise (rug sets) were comprised of individual rugs.

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Windmoeller further notes that HQ 228317 emphasized the problem of “accurately

determin[ing] the value of the individual rugs being exported.” Id. Windmoeller seeks to contrast

the situation here, where it proffered information concerning the value of the Eltainer and the

Printing Unit which was obtained from the German manufacturer. But Windmoeller misses the

point. It would have been possible to have the individual rugs separately appraised for purposes of

calculating drawback (or to have somehow otherwise determined the rugs’ value), just as

Windmoeller solicited information on the valuation of the components at issue in this case. The

fundamental essence of Customs’ concern, however, was that the value of the individual rugs could

not be ascertained from the entry papers. The same is true of the Eltainer and the Printing Unit here.

Contrary to the Government’s claims, there is nothing in either the language of the statute

or the legislative history which would preclude Customs from granting drawback under 19 U.S.C.

§ 1313(j)(1) under circumstances such as those presented here.13 The plain language of the statute

will bear either the meaning asserted by Windmoeller, or the meaning that Customs gives it. To the

extent that the Headquarters ruling letters cited by the Government suggest otherwise, their

reasoning is flawed.14

Nevertheless, the ruling letters cited by the Government demonstrate – at a minimum – that

13

Although nothing in the statute or legislative history would prohibit Customs from

apportioning drawback under 19 U.S.C. § 1313(j)(1), the Government correctly observes that

Congress expressly provided for apportionment elsewhere in the statute. See Def.’s Reply Brief at

4 n.1 (citing 19 U.S.C. § 1313(a) (1996)). Congress could have expressly provided for

apportionment in § 1313(j)(1) as well, but did not do so.

14

This flaw in the reasoning of the Headquarters ruling letters interpreting 19 U.S.C. §

1313(j)(1) undercuts, to some degree, the deference to which Customs’ interpretation of the statute

is otherwise entitled. See section II, supra.

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Customs’ consistent practice in recent years has been to deny drawback under 19 U.S.C. §

1313(j)(1) where the value of the exported merchandise cannot be ascertained from the entry papers.

Similarly, the ruling letters establish – at a minimum – that the phrase “imported merchandise” in

§ 1313(j)(1) has been consistently interpreted by Customs in recent years to exclude mere parts of

the merchandise as entered.

Windmoeller points to two different Headquarters rulings letters in an attempt to demonstrate

that Customs’ interpretation and application of the drawback statute has been characterized by

“[v]acillation and inconsistency.” See generally Pl.’s Reply Brief at 9-11. As a threshold matter,

it bears emphasis that the two Headquarters ruling letters that Windmoeller cites predate by almost

a decade the ruling letters on which the Government relies. Thus, by definition, those earlier ruling

letters cannot call into question the fact that Customs’ consistent practice in recent years has been

to deny drawback under 19 U.S.C. § 1313(j)(1) where the value of the exported merchandise cannot

be ascertained from the entry papers. Nor can those earlier ruling letters detract from the fact that

the phrase “imported merchandise” in § 1313(j)(1) has been consistently interpreted by Customs in

recent years to exclude mere parts of the merchandise as entered. But – even apart from their dates

– the two ruling letters that Windmoeller invokes do little to advance its cause.

Windmoeller first cites HQ 217982 (July 1, 1985) (also known as “CSD 85-48”), in which

Customs considered whether drawback was available for a crystalline chemical which was dutiable

on an ad valorem basis, and which was imported in non-reusable metal drums. At the time of entry,

the value of the metal drums had been added to the value of the chemical for purposes of assessing

customs duties. Later, the chemical was melted and pumped into semi-bulk containers, where it

Court No. 03-00722 Page 16

returned to its crystalline form. Customs authorized drawback on the chemical, but ruled that –

since the value of the metal drums in which the chemical was imported had been added to the value

of the chemical for purposes of assessing duties at the time of entry – the value of the metal drums

had to be deducted from the total value of the imported merchandise before drawback was

computed. See HQ 217982/CSD 85-48; see also Pl.’s Reply Brief at 10; Def.’s Reply Brief at 4-6.

Windmoeller argues that “[s]imilar to Windmoeller’s situation, the metal drums [discussed

in HQ 217982/CSD 85-48] were known and identifiable to Customs at the time of entry; duty was

assessed on an ad valorem basis; and there existed a valid method to identify the value of the

separated items.” See Pl.’s Reply Brief at 10. HQ 217982/CSD 85-48 is a bit cryptic; but the salient

point – which later Headquarters ruling letters underscore – is that, in that case, the value of the

metal drums, as distinct from the value of the crystalline chemical, could be ascertained on the face

of the entry papers. See, e.g., HQ 228199 (explaining that, in HQ 217982/CSD 85-48, “the

determining factor was that the value of the designated merchandise could be determined from the

entry papers”) (emphasis added); HQ 228317 (emphasizing that, in HQ 217982/CSD 85-48, “the

determining factor was that the value of the designated merchandise could be determined from the

entry papers”) (emphasis added). In contrast, in the case at bar, the entry papers specified the value

of the flexographic printing press as a whole. The entry papers did not separately itemize the values

of the Eltainer and the Printing Unit, or any of the other individual components of the printing press.

The second Headquarters ruling letter that Windmoeller points to is HQ 719606 (Aug. 24,

1987). There, although complete subway cars had been imported, Customs authorized drawback

(albeit under a different provision of the drawback statute) for non-conforming subway car shells

Court No. 03-00722 Page 17

which were to be crushed under Customs’ supervision. See HQ 719606; see also Pl.’s Reply Brief

at 10-11; Def.’s Reply Brief at 6-7. Windmoeller emphasizes:

Ruling 719606 cautioned that the importer must conclusively establish the amount

of duty paid on the car shells removed from the subway car. Like the subway car

importer, Windmoeller has the burden of establishing the duty paid on the Eltainer

and Printing Unit when duty is assessed on an ad valorem basis on the value of the

entire shipment.

Id. Windmoeller concludes that it has “employed a valid method of determining the[] values” of the

Eltainer and the Printing Unit here. Id.

Windmoeller correctly observes that “Customs authorized drawback [in HQ 719606] even

though the [subway] car shells were not the ‘imported merchandise,’” as the Government here

defines that term. See Pl.’s Reply Brief at 11. However, as noted above, not only did HQ 719606

involve a different provision of the drawback statute, but it also predated the more recent

Headquarters ruling letters that evidence Customs’ consistent interpretation of “imported

merchandise” as that phrase is used in 19 U.S.C. § 1313(j)(1) – the drawback provision at issue in

this action.

Most significantly, Windmoeller ignores Customs’ ultimate holding in HQ 719606 – that

drawback was authorized “as long as the actual amount of duty paid on the rejected merchandise is

identifiable from entry documents.” See HQ 719606 (emphasis added); see also id. (explaining that

“[t]his ruling holds that imported merchandise not conforming to sample or specifications” is

eligible for drawback “provided the duty paid on the exported merchandise is identifiable from

ENTRY documents,” and that “[d]rawback is allowed on the subway car shells insofar as the

importer is conclusively able to establish the amount of duty paid for the particular item of rejected

Court No. 03-00722 Page 18

merchandise. The Customs officer must be able to verify from the entry documents the amount of

duty paid on the car shell, apart from the merchandise that is not rejected.”) (second emphasis

added). In short, like HQ 17982/CSD 85-48, HQ 719606 hurts Windmoeller far more than it helps.

Distilled to its essence, the question that this action presents is not whether Customs could

grant drawback under 19 U.S.C. § 1313(j)(1) where only an unused part of the entered merchandise

is exported, such that the value of the exported merchandise cannot be ascertained from the entry

papers and some additional appraisement procedure would be required. Rather, the question is

whether Customs must do so. Simply stated, nothing in either the statute or the regulations

mandates that Customs devise and undertake any special appraisement procedures of the sort that

Windmoeller’s reading of the statute would seem to require. Moreover, at least in recent years,

Customs has consistently refused to undertake such procedures in circumstances similar to those

presented here.

At least at first blush, this result may seem harsh. But the facts of this case – while quite

sympathetic – are unusual. And, in any event, Windmoeller was not without other options

(although, to be sure, each of those options had its pros and cons).

Thus, for instance, if Windmoeller had initially decided to import the various individual

components of the printing press separately, in different shipments, those components could have

been entered (and invoiced) separately15 – and any components damaged by the stevedores then

15

As the Government emphasizes, “[h]ad the Eltainer and the printing unit been imported

separately, different duties and values would have applied.” See Def.’s Brief at 14. In this instance,

the separately entered Eltainer and Printing Unit would have been classified as “[p]arts,” and would

have been dutiable at a rate somewhat lower than the 3.1% ad valorem rate applicable to the

complete printing press system, which was classified as “[f]lexographic printing machinery.” See

n.12, supra.

Court No. 03-00722 Page 19

would have been eligible for drawback under Customs’ interpretation of 19 U.S.C. § 1313(j)(1). But

no doubt there were a host of logistical, financial, and commercial considerations that militated in

favor of shipping the components together, and entering the merchandise as a complete printing

press.16 Windmoeller made a business decision.

Further, even though it imported the merchandise as a complete printing press, Windmoeller

nevertheless would have been entitled to drawback under Customs’ interpretation of § 1313(j)(1),

if Windmoeller had chosen to export the entire printing press – including not only the damaged

Eltainer and Printing Unit, but also the other undamaged components as well. Again, however, there

were no doubt a host of logistical, financial, and commercial considerations that weighed in favor

of returning only the damaged components to the German manufacturer, and retaining those that

were undamaged. Windmoeller made a business decision.

Indeed, even though Windmoeller elected to export only the damaged components, it could

have avoided much of the expense that it complains of here if it had chosen to have those

components returned to the United States after repair (rather than procuring and importing

replacement components instead). When the repaired components were re-imported, Windmoeller

would have owed duties only on the value of the repairs. See subheadings 9802.00.40 &

9802.00.50, HTSUS (1996). Again, however, there were no doubt a host of logistical, financial, and

commercial considerations that counseled in favor of procuring and importing replacement

16

For example, importing all the components of the printing press system in a single shipment

presumably yielded savings for Windmoeller on logistics and transportation. Further, as note 12

(above) explains, the tariff rate applicable to an article is often lower than that applicable to its parts

(although that was not true in this case).

Court No. 03-00722 Page 20

components, rather than awaiting repairs. Windmoeller made a business decision.17

Perhaps it is even possible that the outcome in this action might have been different if the

values of the Eltainer and the Printing Unit could have been ascertained from the entry documents.

See generally Tape at 43:00-43:37, 46:32-48:28; cf. HQ 217982/CSD 85-48; HQ 719606. But see

Tape at 49:27-49:32, 49:59-50:11. But that is another case for another day. For purposes of this

action, it suffices to say that neither the statute nor the regulations require Customs to devise and

undertake special appraisement procedures and grant drawback under 19 U.S.C. § 1313(j)(1).

IV. Conclusion

For all the reasons set forth above, Customs did not err in denying Windmoeller’s drawback

claim under 19 U.S.C. § 1313(j)(1), and its related protest. Windmoeller’s motion for summary

judgment is therefore denied, the Government’s cross-motion is granted, and this action is

dismissed.

Judgment will enter accordingly.

/s/ Delissa A. Ridgway

Delissa A. Ridgway

Judge

Decided: November 14, 2007

New York, New York

17

In fact, in this case, the German manufacturer determined that one of the two components

at issue – the Eltainer – was damaged beyond repair. See section I, supra.

UNITED STATES COURT OF INTERNATIONAL TRADE

__________________________________________

:

WINDMOELLER & HOELSCHER

CORPORATION, :

Plaintiff, :

Court No. 03-00722

v. :

UNITED STATES, :

__________________________________________:

Defendant.

JUDGMENT

This action having been duly submitted for decision; and the Court, after due deliberation,

having rendered a decision herein;

NOW, therefore, in conformity with said decision, it is

ORDERED that Plaintiff’s motion for summary judgment be, and hereby is, denied; and it

is further

ORDERED that Defendant’s cross-motion for summary judgment be, and hereby is, granted;

and it is further

ORDERED that the determination of the Bureau of Customs and Border Protection denying

Plaintiff’s protest of the denial of its drawback claim be, and hereby is, sustained; and it is further

ORDERED, ADJUDGED, and DECREED that this action be, and hereby is, dismissed.

/s/ Delissa A. Ridgway

Delissa A. Ridgway, Judge

Dated: November 14, 2007

New York, New York