Opposition Brief — Heartland By-Products, Inc. v. United States

~ “Tt me Bow, U.

FILER

! JUL 2 200

:

No. 01-1469 «~— _ Dat iin ee

IN THE

Supreme Court of the United States

HEARTLAND BY-PRODUCTS, INC.,

Petitioner,

V.

UNITED STATES OF AMERICA

AND

UNITED STATES BEET SUGAR ASSOCIATION,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF FOR RESPONDENT

UNITED STATES BEET SUGAR ASSOCIATION

IN OPPOSITION

NEIL M. RICHARDS LEWIS J. LIMAN

WILMER, CUTLER & PICKERING Counsel of Record

2445 M Street, N.W. WILMER, CUTLER & PICKERING

Washington, D.C. 20037 399 Park Avenue

(202) 663-6000 New York, NY 10022

(212) 230-8800

Counsel for Respondent United States Beet Sugar Association

QUESTION PRESENTED

Whether the court of appeals correctly deferred to the

Customs Service’s determination that the substance imported

-by petitioner was subject to subheading 1702.90.10/20 of the

Harmonized Tariff Schedule of the United States, on the

ground that a temporary additive to the substance constituted

a “foreign substance” under the subheading.

(i)

TABLE OF CONTENTS

Page

Ee ss. | ae ae IE i

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i la atineincatieninnbabniiciiibtines |

I iii a chs scalsgkianns aa iutinanbsttaninchesobadiabbids 2

lia illite etinntiinadcapiinstagbaieiiioin 2

REASONS FOR DENYING THE WRIT .....0......cceeeceeeeeeees 8

I. THE DECISION BELOW DOES NOT CON-

FLICT WITH THIS COURT’S PRECE-

PTI. sicipponknsddshisicniansiitsestnianheiots pnevendlbsacinnitatntastnaeensias 9

A. The Decision Below Is a Routine Applica-

tion of This Court’s Decisions in Mead and

BI aise hibaticdatahictsniadhctaclesidnchabstinddscinbeiibankatinnsasiiinc 9

B. The Decision Below Is Consistent With

This Court’s Tariff Classification Prece-

ON eiieia 11

II. THE DECISION BELOW IS CORRECT. ................. 16

lil. THE COURT OF APPEALS’ DECISION

WILL HAVE NO UNTOWARD CONSE-

SE IIIIITUNIITII hai dad soasaennpidanehhecbbanaesabpseunehnesendeecinaianess 19

TIE cisssterhincitiecieisiniachanicietnsiebuibiomaiipiineniaiepistilaiiineises 21

APPENDIX: United States Customs Service,

Revocation of Ruling Letter and Treatment Re-

lating to Tariff Classification of Certain Sugar

I I pS die iaicaesebicnninan la

(iii)

iv

TABLE OF AUTHORITIES

CASES

Pages

Aetna Explosives Co. v. United States, 9 Ct. Cust.

298 (1919), aff'd, 256 U.S. 402 (1921)... eeeeee 12

Alcan Aluminum Corp. v. United States, 165 F.3d

Rie, SD ccc insiistbisakesanatenisiiianisteseneubiniadsiienenen 15

Ammex, Inc. v. United States, 62 F. Supp. 2d 1148

i BE 5 SD Oe sitaesas sition ete chdenstsivenstnaseniniennanites 18

Falk v. Robertson, 137 U.S. 225 (1890).............ssccccssssreceeees 11

Fries Bros. v. United States, 4 Treas. Dec. 850

UP cases eda chases ins chide tinicbapedededlnhdgadibacebtinabsnlcabinemanipiitedapee 12

Heartland By-Products, Inc. v. United States, 74 F.

Supp. 2d 1324 (Ct. Int’l Trade 1999), rev'd,

Oe Fe is FT iinestptttticacaticnncdetsntsncosnincs l

Heartland By-Products, Inc. v. United States, 86 F.

Supp. 2d 1339 (Ct. Int’l Trade 2000) .......... eee eeeeeeeees ]

Heartland By-Products, Inc. v. United States, 264

ee he Sie ED iliieitedcrnisosinnsrninenataninnconionsas l

Inland Steel Industries, Inc. v. United States, 188

a Ce Cr. Ge NR aasetherscisnknenicsinniinteistinsensinwaten 14

Merritt v. Welsh, 104 U.S. 694 (1881) 0... eeeeeeees 11, 13

PPG Industries, Inc. v. United States, 978 F.2d 1232

Ses ate, WIPED sncciacicgnsstiebisiiesennnnibidelinsicinsebadaiipaiReateieidbnicaitanens 14

Robert G. Lynch Co. v. United States, 49 C.C.P.A.

PIED cicliscanh scien cpitianicenaleaaclaasabtis thei dlanaidiabaaiadbteslaiwas 14

Savannah Sugar Refining Corp. v. United States, 20

CR ks ee Ea eininishiaiinidiebisinetsineahiniiitiininten 11,12

Seeberger v. Farwell, 139 U.S. 608 (1891)..............csseeeeeeees 12

Skidmore v. Swift & Co., 323 U.S. 134 (1944)... eee 7,9

Smiley v. Citibank (South Dakota), N.A., 517 U.S.

IE iiss seciatikdnilia Habits acscnithiglsitaseleieiitashacceeddsiienhiacas 19

United States v. Breed, 24 F. Cas. 1222 (C.C.D.

RN: RRO RINE BOs WR i citcniesisnichsasissiinsistntinndisniahieiniacns 11

United States v. Citroen, 223 U.S. 407 (1912)........... 8,11, 12

Vv

TABLE OF AUTHORITIES—Continued

Page

United States v. Hannevig, 10 Ct. Cust. 124 (1920)............. 11

United States v. Mead Corp., 533 U.S. 218

PIER isichviibdaphiiniesnuenas acetate nie 7,9, 10, 14

United States v. Schoverling, 146 U.S. 76 (1892) ...c.c.cccc0e0- 12

Way Distributors, Inc. v. United States, 653 F.2d

Aw et NT IN ith ieicieh ish cecicetnecdhiuabeckaisuiheadavetsineans 18

Worthington v. Robbins, 139 U.S. 337 (1881) .........000-. 14, 15

STATUTES

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re elitr atleast heat ciisininnt 2

RULES AND REGULATIONS

Da NE IO ita ihiatanca scene tiheiecishaascvasacicttied nitions 20

1 Oar cchaticeasisshie shania tiabuaaliasdcansbdasciisepbaachsaleiiatsicedaas 20

LE PROCES Mier cee cic are 2 eee ee 20

Fear ai nisdbvh Sy ateblehdiasuirbsatealsipniink Wcciehsddlonissncisuidastendoeisaiie 20

Ip Rs Rh Which snsiensadpdia irra kinda cs hhanecaddincirricacecdinaicen 16

OTHER AUTHORITIES

Harmonized Tariff Schedule of the United States,

CB, 17, AGiitiomal U.S. Niatee $ coc. ccscccccicsccessceccscecasseeesse. 2

6 Oxford Dictionary of the English Language (2d

ERR atte a 17

Revocation of Ruling Letter and Treatment Relating

to Tariff Classification of Certain Sugar Syrups,

33 Cust. B. & Dec. No. 35/36 (Aug. 25, 1999)......passim

IN THE

Supreme Court of the United States

No. 01-1469

HEARTLAND BY-PRODUCTS, INC.,

Petitioner,

Vv.

UNITED STATES OF AMERICA

AND

UNITED STATES BEET SUGAR ASSOCIATION,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF FOR RESPONDENT

UNITED STATES BEET SUGAR ASSOCIATION

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-21a) is

reported at 264 F.3d 1126. The opinions of the Court of In-

ternational Trade (Pet. App. 24a-62a, 63a-71a) are reported

at 74 F. Supp. 2d 1324 and 86 F. Supp. 2d 1339, respec-

tively. The Customs Service ruling letter upheld by the court

of appeals is reported at 33 Cust. B. & Dec. No. 35/36, at 41-

47 (Aug. 25, 1999), and is reproduced infra at App. 1a-27a.

2

JURISDICTION

The judgment of the court of appeals was entered on

August 30, 2001. Pet. App. la. The petition for rehearing

and rehearing en banc was denied on December 4, 2001. /d.

at 22a-23a. On February 25, 2002, the Chief Justice ex-

tended the time for filing a petition for a writ of certiorari to

and including April 3, 2002. The petition for a writ of certio-

rari was filed on April 3, 2002. The jurisdiction of this Court

is invoked under 28 U.S.C. § 1254(1).

STATEMENT

1. Under the Harmonized Tariff Schedule of the United

States (“HTSUS”), the volume of sugar imports is controlled

by a Tariff Rate Quota (“TRQ”). The TRQ is administered

by the Secretary of Agriculture, who sets the level of the

quota. See HTSUS Ch. 17, Additional U.S. Notes 5.

With a few narrow exceptions, the TRQ applies to all

imports of raw and refined sugar. One narrow exception is

based on the amount of soluble non-sugar solids contained in

the syrup. Specifically, HTSUS subheading 1702.90.10/20

subjects to the TRQ all sugar syrups “derived from sugar

cane or sugar beets” and “[c]Jontaining soluble non-sugar sol-

ids (excluding any foreign substances . . . added or developed

in the product) equal to 6 percent or less by weight of the to-

tal soluble solids.” In contrast, sugar syrups containing a

higher percentage by weight of non-sugar solids are subject

to HTSUS subheading 1702.90.40, which provides a much

lower tariff rate for molasses and other products that do not

compete directly with sugar. Pet. App. 3a

2. In the mid-1990s, petitioner Heartland By-Products,

Inc. concocted a scheme to import sugar syrup into the

United States while avoiding the TRQ applicable to imports

of raw sugar and sugar syrups. Its plan was to take a product

otherwise classified under subheading 1702.90.10/20 and

thus subject to the TRQ and mask it so that it resembled in

f

3

form a syrup classified under HTSUS subheading

1702.90.40. Pet. App. 3a-4a.

Petitioner’s strategy was to reverse a portion of the sugar

manufacturing process. The production of crystalline raw

cane or beet sugar generally requires a manufacturer first to

crush cane stalks or to slice and boil sugar beets to produce

raw sugar juice, and then to separate the raw sugar from the

remaining syrup through a series of vacuum pan crystalliza-

tions and centrifugal separations. C.A. App. 1097.' The ex-

tracted sucrose, known as raw sugar, is in crystalline form

surrounded by a thin film of molasses. Jd. The liquid that

remains after the final centrifugal separation is known as “fi-

nal molasses,” or blackstrap molasses. No further sugar can

be obtained from it and it is not edible for human consump-

tion. Id.

Although the entire sugar manufacturing process in-

volves separating the sugar from the molasses, App. 7a-8a,

petitioner’s Canadian affiliate would do the opposite. After

deriving crystalline raw sugar by separating it from molasses

as described above, it would add blackstrap molasses and

water to the sugar prior to importation. Pet. App. 6a-7a;

App. 2a, 7a. That process yielded a solution appearing to

contain soluble solids of which slightly more than 6% were

non-sugar solids, thus bringing it within subheading

1702.90.40. After importation, however, petitioner would

simply re-remove the molasses, leaving a syrup containing

virtually pure sucrose. This sugar was then sold in competi-

tion with domestic sugar syrups and other products imported

under the TRQ. App. 7a-9a; C.A. App. 252-57. Petitioner

would return the removed molasses to Canada where the

scheme was repeated by adding the molasses to more sugar

syrup destined for the United States. Pet. App. 19a.

Citations to “C.A. App.” are to the appendix filed with the court of

appeals below.

4

3. As part of this scheme, in 1995 petitioner applied to

the local Customs Service (“Customs”) office for an advance

tariff classification ruling that its mixture was properly classi-

fied under HTSUS subheading 1702.90.40. /d. at 3a-4a. In

its request, petitioner described the mixture merely as a

“sugar syrup... composed of approximately 6.5% but not

equal to or less than 6.0% of soluble non-sugar solids of cane

and/or beet origin.” Jd. at 4a. The only other information

petitioner provided was that in the process of production,

“{g]jranular raw sugar would be combined with molasses .. .

to produce a brown sugar of approximately 93 percent polar-

ity,” which would “then be dissolved in hot water.” Jd. Peti-

tioner did not describe the purpose of adding the molasses or

the fact that the molasses was re-removed immediately after

entry into the United States. Based on this limited informa-

tion, the Customs Area Director issued an advance ruling that

classified petitioner’s syrup under subheading 1702.90.40.

Id. at 4a-Sa.

The effects of the imported syrup on the domestic sugar

industry were immediate and pronounced. Customs ob-

served that “two Louisiana sugar refiners claim[ed] to have

lost sales of 25,000 tons of sugar per year as a result of [peti-

tioner’s] importations,” and that petitioner’s imports led the

Department of Agriculture to decrease the volume of sugar

that could permissibly be imported each year under the low

TRQ. App. 9a.

In January 1998, the United States Beet Sugar Associa-

tion and the United States Cane Sugar Refiners’ Association

responded by asking Customs Headquarters to reclassify pe-

titioner’s import. Pet. App. 5a. Customs then began an ex-

tensive investigation into whether there was any commercial

reason for adding the molasses to the sugar and whether the

syrup in its imported state had any commercial use without

removal of the molasses. App. 3a. That investigation un-

covered the whole story regarding the process by which peti-

tioner recombined molasses with raw sugar for importation

5

purposes, details that petitioner had failed to disclose to Cus-

toms when it requested the advance classification ruling and

that Customs ultimately deemed “essential” to determining

the proper classification of petitioner’s syrup. Jd. at 14a.”

After almost two years of proceedings during which it

gave petitioner ample opportunity to respond to its questions,

Customs determined that petitioner’s syrup should be classi-

fied under subheading 1702.90.10/20. Ina lengthy published

Headquarters Ruling Letter, Customs provided a detailed fac-

tual and legal analysis of the syrup and its proper classifica-

tion under the tariff laws. Jd. at la-27a. Customs concluded

that petitioner’s mixture had no commercial identity or use in

its condition as imported. Jd. at 7a, 16a. Moreover, Customs

found,

[I]t makes no financial sense, absent a desire to

avoid the sugar tariff, for a conventional sugar op-

eration to either enrich a liquid (syrup or molasses)

Stream with sugar or to add molasses to such a

stream. Sugar operations separate sugar from the

liquid or molasses phase, they do not separate the

In addition to the expert views of Customs’ scientists and chemists,

the evidence received by Customs included evidence from sugar industry

representatives that petitioner’s product was not “commercially viable”

(C.A. App. 143) and had no use other than avoiding the TRQ, and that

none of their member companies had ever made such a product in the

United States, had ever been asked to make such a product, had ever sold

such a product, or was aware of any other company that did so beside

petitioner (C.A. App. 149-50); comments from Florida Crystals, the

Domino Sugar Corporation, the International Sugar Policy Coordinating

Commission of the Dominican Republic, and other industry participants

that petitioner’s fabrication of its import could have no conceivable pur-

pose and would make no financial sense absent a motive of tariff evasion

(C.A. App. 411, 424, 437, 448); and extensive evidence from members of

the domestic sugar industry of the harm that petitioner’s operation had

already caused to the United States’ sugar program (see, e.g., C.A. App.

435-38).

6

sugar and then introduce molasses to the sugar, ef-

fectively nullifying the refining operation.

Id. at 8a. This anomalous process of pre-importation addi-

tion and post-importation extraction of molasses, Customs

concluded, was an artifice created solely for the purpose of

avoiding the TRQ. /d. at 7a, 16a.

Customs also found that the molasses added to the syrup

was a “foreign substance” within the meaning of subheading

1702.90.10/20. Id. at 25a. Customs observed that “molasses

is derived as a by-product from the refining of sugar cane or

sugar beets and it is not derived as sugar from the refining of

sugar cane or sugar beets.” Jd. Accordingly, Customs found

that to introduce such a substance with all its impurities into

a syrup containing raw sugar that had already been separated

from molasses was to introduce a “foreign substance” into

the syrup. Jd. Thus, the weight of the re-introduced molas-

ses in the syrup was properly excluded when determining

whether the syrup exceeds the 6% threshold necessary to es-

cape classification under subheading 1702.90.10/20. /d.

Finally, Customs concluded that permitting petitioner’s

syrup to evade the TRQ would circumvent Congress’ clear

intent that all products competing with domestic sugar be

subject to the TRQ. Jd. at 8a-9a.

4. Petitioner challenged Customs’ ruling in the Court of

International Trade (“CIT”).° Pet. App. 24a. Approximately

three weeks before the Customs ruling was to take effect, the

CIT announced that Customs’ decision was arbitrary and ca-

pricious, and that it would grant judgment for petitioner. /d.

at 24a-62a. When the Association pointed out in its motion

for recosideration that the CIT failed even to consider the

entire administrative record as a whole, id. at 64a, the CIT

3

Petitioner’s suit was against both the United States and the United

States Beet Sugar Association, which intervened as a defendant. Pet.

App. 29a.

7

stated that it did not need to do so because the case did “not

_ involve a dispute over the facts, but over the law applied to

them,” id. at 67a.

Respondents appealed to the Court of Appeals for the

Federal Circuit, which reversed the CIT’s judgment. Id. at

la-2la. Applying this Court’s decisions in United States v.

Mead Corp., 533 U.S. 218 (2001), and Skidmore v. Swift &

Co., 323 U.S. 134 (1944), the court held that Customs’ ruling

was “entitled to deference because of its persuasiveness.”

Pet. App. 14a.: Specifically, the court observed that Customs’

ruling was “issued pursuant to a notice and comment process,

during which numerous members of the Sugar indus-

try... submitted comments in support of and in opposition

to the ruling.” Jd. at 15a. Observing that Customs’ ruling

responded to the principal issues raised in the comments it

received from the various interested parties, the court con-

cluded that “Customs gave thorough consideration to the rul-

ing” and that the “ruling is supported by a logical and well-

reasoned explanation published in the Customs Bulletin.” Jd.

The court’s decision to defer to Customs’ ruling focused

in particular on the finding that the molasses petitioner re-

introduced into its syrup for import purposes was a “foreign

substance” under HTSUS subheading 1702.90.10/20. The

court observed that because “the relevant provision of the

HTSUS does not indicate to what a substance must be ‘for-

eign’ in order to be a ‘foreign substance’ excluded from the

solids content calculation of 1702.90.10/20,” Customs was

required to “interpret the term ‘foreign substances’ in order

to classify Heartland’s sugar syrup.” Jd. at 16a. Reviewing

that interpretation deferentially as required by Mead and

Skidmore, the court concluded that-“[t]he fact that molasses

and raw sugar both are derived from sugar cane or sugar

beets does not undermine Customs’ interpretation” that “the

molasses [petitioner] adds to raw sugar to make its sugar

Syrup is a foreign substance.” Jd. As the court explained,

“[w]hen the purification of a raw product results in the pro-

8

duction of a by-product, it is not illogical or unreasonable to

conclude that the addition of that by-product to a purified or

partially-purified raw product amounts to the addition of a

foreign substance.” Jd. at 17a. Thus, the court held that the

CIT erred in concluding that a substance derived from sugar

cane or sugar beets can never be a foreign substance under

subheading 1702.90.10/20. Id.

Judge Friedman concurred. /d. at 18a-2la. He con-

cluded that because “the addition and removal of the molas-

ses from the sugar served no manufacturing or commercial

purpose, the conclusion is irresistible that the only purpose of

this strange arrangement was to create a fictitious product

that, because of the temporary presence of the molasses,

qualified for the lower rate of duty on sugar imports contain-

ing specified amount of non-sugar solids.” Jd. at 19a. Judge

Friedman agreed with Customs that granting petitioner the

benefit of a lower tariff rate based on its fictitious product

would violate this Court’s well recognized rule that an im-

porter may not evade the “prescribed rate of duty [for its

product] by resort to disguise or artifice.” Jd. (quoting

United States v. Citroen, 223 U.S. 407, 414-15 (1912)).

Judge Friedman concluded that the record fully supported

Customs’ finding that “the processing in this case is not le-

gitimate tariff engineering” but merely an effort to engage in

“disguise or artifice intended to escape a higher rate of duty,”

id. at 19a-20a (internal quotation: and citation omitted), and

that Customs was “fully justified in revoking the [advance

classification] [rJuling [l]etter that applied the lower tariff

rate based upon such ‘disguise or artifice,”” id. at 21a.

REASONS FOR DENYING THE WRIT

The narrow precedent established by the court of ap-

peals’ decision in this case is that Customs permissibly exer-

cised its revocation authority to treat the molasses in peti-

tioner’s import as a “foreign substance” under HTSUS sub-

heading 1702.90.10/20, where petitioner had sought to avoid

the proper tariff classification by seeking to secure an advan-

9

tageous advance ruling on the basis of incomplete informa-

tion, and where a subsequent and thorough investigation re-

vealed that the omitted information was critical to determin-

ing the correct classification. That decision is consistent with

this Court’s precedents, is correct, and will have no untoward

consequences.

I. THE DECISION BELOW DOES NOT CONFLICT

WITH THIS COURT’S PRECEDENTS.

A. The Decision Below Is a Routine Application of

This Court’s Decisions in Mead and Skidmore.

1. The court of appeals’ decision is a straightforward

application of this Court’s holding in Mead to the facts of

this case. Mead held that Skidmore governs the extent to

which Customs classification rulings are entitled to judicial

deference. Quoting Mead, the court of appeals explained that

the deference owed to a classification ruling depends on “its

writer’s thoroughness, logic and expertness, its fit with prior

interpretations, and any other sources of weight.” Pet. App.

14a (quoting Mead, 533 USS. at 235); see also id. (quoting

Skidmore, 323 U.S. at 140, to the same effect).

The court of appeals made no new law of any signifi-

cance in applying Mead and Skidmore to the particular facts

of this case. Instead, it simply applied the criteria identified

in Mead and Skidmore and concluded that Customs’ revoca-

tion ruling is entitled to deference. Id. at 14a-15a. In so do-

ing, the court noted Customs’ “specialized experience” in the

classification of goods, id. at 15a (quoting Mead, 533 U.S. at

234), and stressed that Customs applied its special expertise

in this case only after “a notice and comment process, during

which numerous members of the Sugar industry

... Submitted comments in Support of and in opposition to

the ruling,” id; see Mead, 533 U.S. at 234 (observing that

Skidmore deference may be appropriate in light of the

“broader investigations and information available to the

10

agency”) (internal quotations and citation omitted). Cus-

toms’ ultimate ruling, the court found, was responsive to the

principal issues raised in the comments it received, and was

“supported by a logical and well-reasoned explanation pub-

lished in the Customs Bulletin.” Pet. App. 15a.

In the absence of any textual definition of the phrase

“foreign substance” as it is used in HTSUS subheading

1702.90.10/20, the court of appeals found that Customs’ con-

sidered application of the term to the instant case was entitled

to deference. Specifically, the court held that “[w]hen the

purification of a raw product results in the production of a

by-product, it is not illogical or unreasonable to conclude that

the addition of that by-product to a purified or partially-

purified raw product amounts to the addition of a foreign

substance.” Jd. at 17a. Accordingly, the court held thet it

was reasonable for Customs to have concluded that the mo-

lasses petitioner added to its raw sugar syrup for importation

purposes constituted a “foreign substance” under subheading

1702.90.10/20.

Petitioner identifies no case construing subheading

1702.90.10/20 with which this conclusion is even arguably in

tension, for no such case exists. In the absence of any con-

trary precedent on point, the court’s decision to credit Cus-

toms’ well-reasoned, considered decision was simply a rou-

tine and fact-bound application of the principles outlined in

Mead and Skidmore to a different section of the tariff sched-

ule.

2. Similarly, review by this Court of another Mead/

Skidmore tariff case is simply unwarranted at this time. As

this Court is undoubtedly aware, Mead was decided only last

year and settled with finality the issue of “whether a tariff

classification ruling by the United States Customs Service

deserves judicial deference.” Mead, 533 U.S. at 221. This

Court in Mead resolved that question of law in the affirma-

tive. Jd. at 235. Respondent respectfully submits that scarce

judicial resources would be poorly spent were this Court to

ee

11

take another case to reaffirm a limited and Straightforward

holding of such recent vintage.

B. The Decision Below Is Consistent With This

Court’s Tariff Classification Precedents.

Petitioner’s claim (Pet. 10) that the decision below “de-

part(s]... from the principles of classification law mandated

by the decisions of this Court” is inaccurate, and is a product

of petitioner’s own mischaracterization of those guiding

principles.

1. Petitioner relies almost exclusively on two default in-

terpretive rules: that Congress is generally presumed to pre-

fer that goods be classified based on their condition as im-

ported, id. at 11-17, and that importers may generally fashion

their goods to secure the lowest duty, id. at 18-25. But as

this Court has long emphasized, those two default presump-

tions are constrained by a third, limiting rule that an importer

may not “escape[]” “a prescribed rate of duty .. by resort to

disguise or artifice.” Citroen, 223 U.S. at 415; see also Falk

v. Robertson, 137 US. 225, 232 (1890); Merritt v. Welsh,

104 U.S. 694, 704 ( 1881) (“So long as no deception is prac-

tised,” tariff classification is based on condition of goods

when they are imported); United States v. Hannevig, 10 Ct.

Cust. 124, 128 (1920) (“[T]he law is well settled that in the

absence of deception, disguise, or artifice resorted to for the

purpose of perpetrating a fraud upon the revenue, imported

merchandise must be classified with reference to its condition

when imported.”); Savannah Sugar Ref. Corp. v. United

States, 20 C.C.P.A. 272, 277 ( 1932); United States v, Breed,

24 F. Cas. 1222, 1224 (C.C.D. Mass. 1832) (No. 14,638)

(Story, J.) (“[A] mere change of form will not authorize a

party to evade a law, or escape from its priorities.”).

The precedents of this Court and the lower courts apply-

ing this rule uniformly teach that while an entity may import

a product at any stage of its manufacture so as to achieve a

12

favorable tariff rate, and may even modify a finished product

in a way that achieves a favorable tariff classification, it may

not evade an otherwise-applicable tariff by resorting to arti-

fice or disguise.* The Court made this point clear in Merritt,

which petitioner unsuccessfully attempts to rely upon in sup-

port of its argument. See Pet. 18-25. In Merritt, the Court

? Compare Citroen, 223 U.S. at 407 (drilled pearls that have not yet

been strung, a raw material with a clear commercial identity and use, enti-

tled to receive favorable tariff classification specifically provided for by

Congress and applicable to pearls that are not “strung or set”); United

States v. Schoverling, 146 U.S. 76, 79-82 (1892) (gun stocks and gun

barrels, both products known to commerce in a normal stage of manufac-

ture, classified in condition as imported despite importer’s intent to as-

semble them into shotguns, to which a higher tariff applied, after importa-

tion); Seeberger v. -Farwell, 139 U.S. 608, 611 (1891) (finished dress

goods ready for immediate sale allowed lower duty for blended fabrics

because importers had woven cotton thread into wool fabric); with, e.g.,

Savannah Sugar Ref. Corp., 20 C.C.P.A. at 277-78 (importer not permit-

ted to avoid tariff applicable to raw sugar by mixing sugar with formalde-

hyde because “[n]Jo such article was known in trade or commerce” and “it

was not prepared or made up... in its imported state... as an article

utilizable for any purpose except to be refined,”; it thus “was not intended

[to] enter the general commerce of the country in the state in which it was

imported”; and its only purpose was “experiment[ing] with the tariff law

applicable to raw sugar rather than with the product itself”); Aetna Explo-

sives Co. v. United States, 9 Ct. Cust. 298, 302-03 (1919) (import of nitric

acid mixed with sulphuric acid to prevent it from exploding not entitled

to lower duty applicable to “chemical mixture” because no commercial

advantage was gained by mixing nitric acid with sulphuric acid in this

manner, and mixture “was susceptible of no use other than as nitric acid,

which must before use be again treated”), aff'd, 256 U.S. 402 (1921);

Fries Bros. v. United States, 4 Treas. Dec. 850, 851-52 (1901) (importers

not permitted to avoid tariff applicable to vanillin by mixing manufac-

tured vanillin with benzyl-chloride because “the article imported is vanil-

lin, ...to which has been added a foreign ingredient, after its comple-

tion, ... to... disguise and mask the article,” and while “merchants have

a right to so manufacture their merchandise that it may escape the higher

rates of duty ..., this must be done during the process of manufacture,

and as part of it, not by a separate operation upon a completed article

which is specially provided for in the law”) (citing Merritt, 104 U.S.

694).

13

was unanimously of the view that, had the manufacturer there -

added coloring back to a finished product that had already

been processed to remove the color solely to avoid the tariff

laws, it would not have been entitled to the benefit of its eva-

siveness. See 104 U.S. at 704-05 (“If after the sugars are

manufactured, . . . coloring matter is artificially imposed, . . .

[t]he sugars would then have a different color from that

which belonged to them when manufactured,” and “{tJhis

might be held to be a fraud on the revenue.” ; id. at 705-06

(Matthews, J., dissenting) (duty should be assessed according

to sugar’s natural color “if, during the process of manufac-

ture, . .. color is artificially produced by foreign matter, not

necessary to the production of the sugar, and introduced for

the express purpose of counterfeiting a color of a lower

grade, in order to evade the law and escape the duties im-

posed”).

That is, in effect, exactly what petitioner did in this case.

As Customs found, “[s]ituations in which there are no com-

mercial purposes for a process, such as the addition and then

the removal of molasses from sugar to avoid classification in

a tariff provision subject to quota, cross the line of permissi-

ble fashioning to one of artifice to obtain favorable tariff

treatment by the avoidance of a tariff rate quota.” App. 18a.

Customs’ determination not to permit petitioner to enjoy the

benefit of this deception is consistent with—indeed, com-

pelled by—the longstanding rule against “disguise or arti-

fice,” and the court of appeals’ decision upholding Customs’

ruling thus fits comfortably within this Court’s tariff classifi-

cation precedents.°

Petitioner’s attempt (Pet. 24) to read Customs’ “disguise or artifice”

finding out of the record of this case reflects a misunderstanding of the

nature of judicial review of agency action. Although the CIT disagreed

with Customs’ finding on this point, the court of appeals is not bound by -

the CIT’s assessment of the administrative record. Rather, “[i]n review-

ing 2 decision of the Court of International Trade, [the Federal Circuit]

applies anew the statutory standard of review applied by that court to the

14

2. Moreover, Customs’ attention to the possible com-

merciaf uses of fentivaer’ss. syoy7. in. its imported form was an

application of a routine method of determining the identity of

a manufactured product. In Mead, for example, the Court

observed that Customs had adopted a definition of “diary” as

used in the HTSUS that “reflect[ed] commercial usage and

hence the commercial identity of these items in the market-

place.” 533 U.S. at 225 (internal quotations and citation

omitted); see also, e.g., Worthington v. Robbins, 139 U.S.

337, 338 (1881) (finding that white enamel, which had been

imported in a partially manufactured state and which could

be used for various purposes after further manufacturing

processes were applied, was not classifiable as watch mate-

rial because it could not so be used without further refine-

ment); Robert G. Lynch Co. v. United States, 49 C.C.P.A. 74,

76 (1962) (examining potential uses of imported raw sugar to

determine its proper classification under Tariff Act provi-

sions mirroring the HTSUS provisions at issue here); see also

cases cited supra note 4. Thus, examination of an import’s

commercial identify and its potential end uses is a recognized

part of the tariff classification process.

The point here is not that Customs may always tax an

import according to the form it will ultimately take in the fu-

ture after additional steps in the manufacturing process. As

petitioner notes, see Pet. 12 n.3, in the absence of a use pro-

vision in the relevant HTSUS subheading Customs generally

does not impose tariffs based on the ultimate form an import

will take when put to commercial use. Rather, the point here

is that in determining whether the present form of an import

is the product of “disguise or artifice,” Customs may inquire

agency’s decision.” IJnland Steel Indus., Inc. v. United States, 188 F.3d

1349, 1359 (Fed. Cir. 1999); see Pet. App. 10a (citing Inland Steel); PPG

Indus., Inc. v. United States, 978 F.2d 1232, 1236 (Fed. Cir.1992). Ac-

cordingly, the CIT’s decision in no way displaced the factual findings

made by Customs, and it was on the basis of those findings that the court

of appeals upheld the revocation ruling at issue.

15

into the extent, if any, of the import’s potential uses in its

current form. Cf. Alcan Aluminum Corp. v. United States,

165 F.3d 898, 905 (Fed. Cir. 1999) (“Classification is an ex-

ercise in assessing the commercial status of particular goods

....”).° That is exactly what the Supreme Court itself did in

Worthington, when it found that enamel could not be classi-

fied as watch material because it could be used for various

purposes in its current form. See 139 U.S. at 338.

Customs followed that approach here. It asked whether

there were any potential uses for raw Sugar after the molasses

was added and determined after exhaustive investigation that

there were no uses without removing the molasses from the

Sugar. That fact, Customs reasoned, supported the conclu-

sion that there was no reason for the Syrup to contain the mo-

lasses in the first place except as a disguise. See App. 16a.

The Panel rightly refused to question this approach, which

longstanding classification law supports.

3. In addition to coloring the application of the two prin-

ciples asserted by the petitioner, the “disguise or artifice”

doctrine provides an alternative basis for upholding the

judgment of the Court of Appeals, and thus the validity of the

revocation ruling. It is therefore a Significant vehicle prob-

lem that counsels against review of this case. Customs, as

noted supra, p. 6, expressly based its revocation ruling on the

principle that petitioner’s anomalous pre-importation addi-

tion and post-importation extraction of molasses was nothing

more than an artifice designed solely to circumvent the TRQ.

See also App. 7a, 16a. This conclusion was reaffirmed in the

. This Court’s tariff classification precedents are also entirely consis-

tent with Customs’ partial reliance, in determining that the molasses is a

“foreign substance,” on the fact that petitioner extracted the molasses

16

i court of appeals by Judge Friedman in his concurring opin-

ion, which agreed that “the only purpose” of petitioner’s

“strange arrangement was to create a fictitious product that,

because of the temporary presence of the molasses, qualified

for the lower rate of duty on sugar imports containing speci-

fied amounts of non-sugar solids.” Pet. App. 19a. Judge

Friedman further concluded that “[t]he record supports Cus-

toms’... factual statements, and they fully justify its legal

conclusion that [petitioner’s] importation of the sugar syrup

with molasses is merely ‘disguise or artifice’ intended to es-

cape a higher rate of duty such as a quota tariff rate. Cus-

toms, therefore, was fully justified in revoking the New York

Ruling Letter that applied the lower tariff rate based upon

such ‘disguise or artifice.” Jd. at 21a (internal quotations

omitted).

Judge Friedman’s persuasive application of the facts of

this case to the “artifice or disguise” doctrine thus provides

not only an alternate and independent basis for upholding the

judgment of Customs and of the court of appeals, but also

represents a significant vehicle problem that further counsels

against review.

II. THE DECISION BELOW IS CORRECT.

Petitioner’s true complaint is thus with the court of ap-

peals’—and, at bottom, with Customs’—weighing of the vo-

luminous record evidence in this case. Fact-intensive error-

correction of this nature is not, of course, an appropri@te basis

for certiorari. S. Ct. R. 10. In any event, the court of ap-

peals was correct to defer in this case to Customs’ final revo-

cation ruling, in light of the overwhelming record evidence

Petitioner quibbles in a lengthy footnote with a few vague “factual

and legal errors” in the concurring opinion of Judge Friedman. /d. at 24-

25 n.8. Such attempts only underscore the fact-intensive nature of this

case that makes it a particularly poor candidate for review on writ of cer-

tiorari.

17

from industry specialists and from Customs’ and petitioner’s

own experts that petitioner’s syrup had no commercial iden-

tity.

Customs’ conclusion that molasses is a foreign substance

within the meaning of Subheading 1702.90.10/20 was a logi-

cal, weH-reasoned, and straightforward application of the

plain terms of that provision. As the court of appeals noted,

“the relevant provision of the HTSUS does not indicate to

what a substance must be ‘foreign’ in order to be a ‘foreign

substance’ excluded from the solids content calculation of

[subheading] 1702.90.10/20 HTSUS. Customs therefore had

to interpret the term ‘foreign substances’ in order to classify

[petitioner’s] sugar syrup.” Pet. App. 16a. The definition of

“foreign” is anything “introduced from outside” or “not be-

longing to the place in which it is found.” 6 Oxford Diction-

ary of the English Language 51 (2d ed. 1989, 1998 reprint).

In interpreting the foreign substance provision, Customs sen-

sibly applied this common understanding and concluded that

the molasses, which had previously been removed from the

Sugar in a costly process only to be reinserted for the sole

purpose of avoiding the TRQ and then removed again before

the sugar could be put to commercial use, did “not belong[]

to the place in which it [was] found” at the time of importa-

tion.

Customs’ determination in the revocation ruling was the

product of a long, exhaustive, and fair administrative process.

Unlike the advance ruling, the revocation ruling followed an

extensive investigation that included, as the court of appeals

observed, a lengthy notice and comment period. Pet. App.

6a-7a. Customs received hundreds of pages of evidence from

numerous interested parties and scientific and technical

sources over the course of that investigation. Most tellingly,

the record revealed petitioner’s own repeated refusal, in re-

sponse to repeated requests and opportunities provided by

Customs, to explain any purpose for adding the molasses to

the sugar other than tariff evasion, or a commercial use for

——

I" iv

18

the import without re-extracting-the molasses. See, e.g., C.A.

App. 152, 156-93, 195-97, 241-43, 245, 253-58, 295-96. Pe-

titioner consistently failed to provide Customs with any evi-

dence that the addition of the molasses had any commercial

purpose other than camouflage. Petitioner’s silence on the

critical question whether its import had any use without the

removal of the molasses was powerful confirmation that the

molasses’ sole purpose was as an artificial mask.

In the face of its inability to articulate any legitimate

commercial purpose for the temporary addition of the molas-

ses, petitioner ultimately resorts to attacking the ruling as the

result of untoward political pressure. Pet. 5-6. Little need be

said in response to this claim other than that it has never been

accepted by any court to which it has been presented. As the

record makes clear, it is hard to see how Customs’ investiga-

tion could have been more thorough or exhaustive, or how its

decision-making process could have been more reasoned or

well-considered. At every stage of the revocation process,

Customs addressed with detailed and persuasive analyses the

various objections, both factual and legal, that could be

raised to classification under subheading 1702.90.10/20. See,

e.g., C.A. App. 232, 241, 245, 869-71, 887, 889-92. That

respondent and other interested parties may have communi-

cated their views to Customs does not render the proceedings

unfair or less well-reasoned. Moreover, that some of those

parties may have been interested Senators or other elected

representatives does not alter this analysis. It is quite clear

that ali parties with an interest may communicate their views

to Customs at any time without rendering a proceeding the

product of an illicit “political” consideration. See Ammex,

Inc. v. United States, 62 F. Supp. 2d 1148, 1167-68 & n.16

(Ct. Int’l Trade 1999); Way Distribs., Inc. v. United States,

653 F.2d 467, 471 (C.C.P.A. 1981). Indeed, petitioner itself

repeatedly attempted to influence Customs’ decision through

its own elected representatives. See C.A. App. 238-39; 277-

85; 300-07; 347-50; 455-56. Petitioner makes no allegations

of bribery, fraud, or any other sort of illicit breakdown in the

19

proceedings that might legitimately call Customs’ decision

into question.

lil. THE COURT OF APPEALS’ DECISION WILL

HAVE NO UNTOWARD CONSEQUENCES.

Contrary to petitioner’s hyperbolic claim (Pet. 25) that

the court of appeals’ decision will “cripple the trade commu-

nity’s ability to plan international commercial transactions,”

the decision below creates no conflict with prevailing prece-

dent and will have few repercussions beyond its immediate

impact on this case.

Other than repeating its claim that the decision below is

at odds with selected principles of tariff classification—a

claim that, as described above, simply ignores both the lan-

guage of the specific subheading and the cardinal rule that an

importer may not use “disguise or artifice” to obtain a favor-

able tariff classification—petitioner’s principal complaint

seems to be that Customs did not adhere to the advance clas-

sification ruling issued by its New York office. See Pet. 26

n.9. But as the court of appeals correctly observed, see Pet.

App. 16a, Customs Headquarters possesses clear statutory

authority under 19 U.S.C. § 1625(c) to engage in independ-

ent review of any tariff classification and to revoke or modify

any advance classification ruling on the simple grounds that

it is in error or, if not in error, no longer is in accordance with

the views of the Customs Service.® Indeed, federal regula-

tions make clear that although local Customs offices have

Moreover, the fact that Customs_revoked its advance classification

ruling-does not by itself preclude judicial deference to the revocation rul-

ing. As this Court has explained, “the mere fact that an agency interpre-

tation contradicts a prior agency position is not fatal. Sudden and unex-

plained change, or change that does not take account of legitimate reli-

ance on prior interpretation, may be arbitrary [and] capricious .... But if

these pitfalls are avoided, change is not invalidating ....” Smiley v. Citi-

bank (South Dakota), N.A., 517 U.S. 735, 742 (1996) (internal quotations

and citation omitted).

"

20

authority to issue advance rulings with respect to the pro-

spective treatment of imported articles, such rulings are al-

ways subject to further review, revocation, or modification

by Customs Headquarters. See 19 C.F.R. Part 177.°

Had petitioner desired greater certainty and reliability

regarding the classification of its syrup, it could have re-

quested a Customs Headquarters Rulings directly and with

full disclosure. See 19 C.F.R. § 177.2(a), (b)(2)(iiXB)-(C).

But it chose not to do so. Instead, petitione: provided the

local office with incomplete information, neglecting to in-

clude in its request facts and evidence that Customs Head-

quarters later described as “essential” to a proper classifica-

tion of petitioner’s import. App. 14a. As the local Customs

officer who worked on the original advance classification

letter later made clear, had petitioner provided complete in-

formation at the outset he would have referred petitioner’s

classification request to Customs Headquarters to determine

whether the import was a sham. See C.A. App. 235, 298-99.

Petitioner should not now be heard to complain about the

revocation ruling in this case simply because it reversed a

summary advance classification ruling that had been issued

Section 177.9(a) of 19 C.F.R. limits the legal effect of an advance

ruling letter “to the particular transaction or issue described therein” and

provides that it is binding only “until modified or revoked.” Section

177.9(b\(1) explains that “[eJach ruling letter is issued on the assumption

that all of the information furnished in connection with the ruling request

and incorporated in the ruling letter, either directly, by reference, or by

implication, is accurate and complete in every material respect.” Section

177.9(d\(1) makes clear that “[a]ny ruling letter found to be in error or

not in accordance with the current views of the Customs Service may be

modified or revoked.” Finally, Section 177.8(b) provides that Customs’

“Headquarters Office may from time to time issue... rulings with re-

spect to issues or transactions described . . . by requests” for advance rul-

ings, and that such Headquarters’ “rulings . . . are statements of the offi-

cial position of the Customs Service.”

21

on the basis of incomplete information, and that was always

subject under the law to revocation or modification. '°

CONCLUSION

For the foregoing reasons, the petition for a writ of cer-

tiorari should be denied.

Respectfully submitted,

NEIL M. RICHARDS LEWis J. LIMAN

WILMER, CUTLER & PICKERING Counsel of Record

2445 M Street, N.W. WILMER, CUTLER & PICKERING

Washington, D.C. 20037 399 Park Avenue

(202) 663-6000 New York, NY 10022

(212) 230-8800

Counsel for Respondent United States Beet Sugar Association

JULY 1, 2002

As Judge Friedman stated in his concurrence below, while petitioner

may have built its business in reliance on the advance ruling, it “did not

disclose to Customs the true and precise nature of the practice it proposed

to follow with regard to the import{].... If [petitioner] had fully in-

formed Customs of how it intended to deal with the import[] ..., we now

know that Customs would not have ruled the import was subject to the

lower duty.” Pet. App. 21a.