Nufarm America's, Inc. v. United States

  United States Court of Appeals for the Federal Circuit

                                       2007-1220


                              NUFARM AMERICA’S, INC.,

                                                     Plaintiff-Appellant,

                                           v.


                                   UNITED STATES,

                                                     Defendant-Appellee.

        Joel R. Junker, Joel R. Junker & Associates, of Seattle, Washington, argued for
plaintiff-appellant. With him on the brief was William N. Baldwin.

       Todd Hughes, Deputy Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for defendant-appellee. On the
brief were Jeanne E. Davidson, Director, of Washington, DC; and Barbara S. Williams,
Attorney in Charge, International Trade Field Office, of New York, New York. Of counsel
on the brief was Beth C. Brotman, Office of the Assistant Chief Counsel, International
Trade Litigation, United States Customs and Border Protection, of New York, New York.

Appealed from: United States Court of International Trade

Judge Evan J. Wallach
United States Court of Appeals for the Federal Circuit

                                          2007-1220

                                NUFARM AMERICA'S, INC.,

                                                       Plaintiff-Appellant,

                                               v.

                                      UNITED STATES,

                                                       Defendant-Appellee.

Appeal from the United States Court of International Trade, no. 02-00162, Judge Evan
J. Wallach.

                             ___________________________

                                 DECIDED: April 7, 2008
                             ___________________________

Before RADER, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and PROST, Circuit
Judge.

RADER, Circuit Judge.


       On summary judgment, the United States Court of International Trade held that

19 C.F.R. § 181.53 does not violate Article I, Section 9, Clause 5 of the United States

Constitution ("the Export Clause"). Nufarm America's, Inc. v. United States, 477 F.

Supp. 2d 1290 (CIT 2007) ("Nufarm II"). The trial court also denied Nufarm America's,

Inc.'s, ("Nufarm's") motion for class certification under USCIT Rule 23(c). Nufarm

America's, Inc. v. United States, 398 F. Supp. 2d 1338 (CIT 2005) ("Nufarm I").

Because 19 C.F.R. § 181.53 does not violate the Export Clause and the class

certification issue is moot, this court affirms.
                                             I

       Nufarm imported chemical products into the United States from Australia and the

Netherlands.    The products entered under Harmonized Tariff Schedule ("HTSUS")

Subheading 9813.00.05, which defers the import duty on goods imported for repair,

alteration, or processing until the goods are exported. Nufarm processed the imported

chemicals into herbicides and then exported that product to Canada. At the time of

export, the United States Customs Service assessed a deferred duty on the goods

under 19 C.F.R. § 181.53.

       Nufarm protested that 19 C.F.R. § 181.53 violates the Export Clause of the

Constitution.   On August 9, 2001, Customs denied the protest explaining that the

regulation imposes liability for the duty at the time of importation and not exportation.

Customs explained that 19 C.F.R. § 181.53 simply defers payment of the duty on some

goods until a later export without transforming the import duty into an export duty.

                                            II

       As a threshold matter, this court declines to entertain any challenges raised for

the first time on appeal regarding Article 303 of the North American Free Trade

Agreement ("NAFTA") and its implementing statute U.S. Note 1(c), chapter 98,

subchapter XIII, HTSUS ("U.S. Note 1(c)"). Because the Court of International Trade

has not received the opportunity to consider and decide any questions involving NAFTA

and U.S. Note 1 (c), those issues are not ripe for appeal. Henke v. United States, 60

F.3d 795, 802 (Fed. Cir. 1995) (Rader, J., dissenting) ("Courts of appeal generally will

not entertain arguments or consider issues raised for the first time in appeal. This court

only does so in rare cases to avoid injustice."). Accordingly, this court devotes its




2007-1220                                   2
attention solely to the constitutionality of the deferred duty regulation and refers to U.S.

Note 1(c) only to provide context for its implementing regulation, 19 C.F.R. § 181.53.

       When the Court of International Trade grants summary judgment, this court

reviews that decision "for correctness as a matter of law, deciding de novo the proper

interpretation of the governing statute and regulations as well as whether genuine

issues of material fact exist." Texaco Marine Servs., Inc. v. United States, 44 F.3d

1539, 1543 (Fed. Cir. 1994) (quoting St. Paul Fire & Marine Ins. Co. v. United States, 6

F.3d 763, 767 (Fed. Cir. 1993)).       This court must also interpret and enforce the

provisions of the Constitution without any deference for the trial court decision.

       The Export Clause of the United States Constitution provides: "No Tax or Duty

shall be laid on articles exported from any State." U.S. Const. art. I, § 9, cl. 5. The

United States Supreme Court has recently interpreted this clause to bar a "tax" for

harbor maintenance on exports, United States v. U.S. Shoe Corp., 523 U.S. 360 (1998)

(holding that the Harbor Maintenance Tax ("HMT") is an impermissible tax on exports

and does not qualify as a permissible user fee), and to bar a tax on export transit goods.

United States v. IBM Corp., 517 U.S. 843, 845 (1996) (holding that the United States

Constitution does not permit the imposition of a generally applicable, nondiscriminatory

federal tax on goods in export transit). Reading these cases broadly, Nufarm contends

that 19 C.F.R. § 181.53 also violates the Export Clause both on its face and as applied.

On its face, 19 C.F.R. § 181.53 expressly refers to a duty on imports, not exports:

       Where a good is imported into the United States pursuant to a duty-
       deferral program and is subsequently withdrawn from the duty-deferral
       program for exportation to Canada or Mexico or is used as a material in
       the production of another good that is subsequently withdrawn from the
       duty-deferral program for exportation to Canada or Mexico, and provided
       that the good is a "good subject to NAFTA drawback" within the meaning



2007-1220                                    3
        of 19 U.S.C. § 3333 and is not described in § 181.45 of this part, the
        documentation required to be filed under this section in connection with
        the exportation of the good shall, for purposes of this chapter, constitute
        an entry or withdrawal for consumption and the exported good shall be
        subject to duty which shall be assessed in accordance with paragraph (b)
        of this section.

19 C.F.R. § 181.53(a)(2)(i)(A) (emphases added). Thus, the regulation begins with

reference to "a good imported into the United States."          The terms "exportation" or

"exported good" are each, in turn, merely references back to the imported good.

        Sub-section (b), referenced in the last line of the provision above, states:

        Except in the case of a good imported from Canada or Mexico for repair or
        alteration, where a good, regardless of its origin, was imported temporarily
        free of duty for repair, alteration or processing (subheading 9813.00.05,
        Harmonized Tariff Schedule of the United States) and is subsequently
        exported to Canada or Mexico, duty shall be assessed on the good on the
        basis of its condition at the time of its importation into the United States.
        Such duty shall be paid no later than 60 calendar days after either the
        date of exportation or the date of entry into a duty-deferral program of
        Canada or Mexico, except that, upon filing of a proper claim under
        paragraph (a)(3) of this section, the duty shall be waived or reduced in an
        amount that does not exceed the lesser of the total amount of duty
        payable on the good under this section or the total amount of customs
        duties paid to Canada or Mexico.

19 C.F.R. § 181.53(b)(5) (emphasis added). This subsection assesses the duty on the

import based on its condition at the time of importation, thus further distinguishing this

fee from an export tax or duty.

        The Court of International Trade accurately determined that the regulation

imposes an import duty, but postpones its collection until the time of export: "The

language in the challenged regulation clearly requires that the duties in question are to

apply to the goods as a result of their status as imports, not as exports." Nufarm II at

1295.




2007-1220                                     4
       This court appreciates that an isolated clause from 19 C.F.R. § 181.53(a)(2)(i)(A)

states that "the exported good shall be subject to duty. . . ." Similarly, another isolated

phrase observes that "where a good . . . was imported temporarily free of duty for repair,

alteration or processing . . . and is subsequently exported to Canada or Mexico, duty

shall be assessed on the good." (emphases added). Taken out of context, those

passages suggest an impermissible tax or duty on exports. These excerpts, however,

are merely isolated strands of the entire fabric of the regulation. When those strands

are woven back into the fabric where they belong, the entire context shows that the

regulation imposes a duty on imports, not exports.           The opening phrase of the

regulation refers to the "imported" good. All later "exported goods" passages are merely

references, in different terms, to the imported goods.

       Moreover the phrase "the exported good shall be subject to duty" reads in

context "the exported good shall be subject to duty which shall be assessed in

accordance with paragraph (b) of this section."           19 C.F.R. § 181.53(a)(2)(i)(A)

(emphasis added). The reference to paragraph (b), as noted earlier, assesses the duty

on the good as an import and in the condition of the good at the time of import, even

though the regulation defers collection until the time of export.

       Thus, the entire regulation, read in context, refers to a duty on imports deferred

until the time of export. The duty, however, is a tax on imports, not exports.

Consequently, the regulation is not unconstitutional on its face.

       The language of U.S. Note 1(c)—the basis for the regulation in the first place—

also shows that the duty falls on imports. As mentioned before, the provision under

which Nufarm's chemicals were entered, Subheading 9813.00.05 HTSUS, provides for




2007-1220                                    5
a temporary duty-free entry for repair, alteration, or processing.       U.S. Note 1(c)

describes the operation of this temporary deferral:

      For purposes of this subchapter, if an article imported into the United
      States, for processing, under heading 9813.00.05 is withdrawn for
      exportation to the territory of Canada or of Mexico, the duty assessed shall
      be waived or reduced in an amount that does not exceed the lesser of the
      total amount of duty payable on the article that would have been payable
      on importation under chapters 1 through 97, inclusive, of the Harmonized
      Tariff Schedule of the United States or the total amount of customs duties
      paid to Canada or to Mexico on the exported article, unless such article is
      covered by section 203(a)(1) through 203(a)(8), inclusive, of the NAFTA
      Implementation Act . . .


U.S. Note 1(c), chapter 98, subchapter XIII, HTSUS (emphasis added). This language

attaches the duty to "an article imported into the United States" and assesses an

amount, on the basis, in part, of the amount "payable on importation."

      This court also perceives no merit in the challenge to the constitutionality of the

regulation as applied. This court is aware that the obligation to pay the duty only arises

upon export to a NAFTA country, but the timing does not convert the import duty into a

tax on exports.    The liability to pay this duty arises under HTSUS Subheading

9813.00.05 upon import. To ease correct assessment, the regulation merely postpones

collection of the import duty until the time of export. An imported product destined for a

NAFTA country receives a different assessment that an imported product destined for a

non-NAFTA country.      Depending on the ultimate destination of an import, the duty

assessment could even be zero. Therefore, the regulation effects a deferral to ensure

proper calculation of duty rates. None of this transforms the import duty into an export

duty. Indeed, in all circumstances the liability to pay a duty attaches at import. The




2007-1220                                   6
regulation imposes a duty on imports but defers calculation and collection of the exact

amount of the vested liability.

       In Ammex, Inc. v. United States, this court analyzed the terms imposed and

assessed.     419 F.3d 1342 (Fed. Cir. 2005).        Assessment was found to refer to a

recordation of the calculated amount of liability, while imposition was found to be the

creation, but not calculation of, a liability.      See id. at 1345 ("While assessment

determines the specific amount of liability, imposition is simply a statement that liability

exists.").   Applying these definitions to the situation at hand, 19 C.F.R. § 181.53

imposes liability upon import while postponing the assessment of the amount of the

previously imposed importation duty.

       The express due date of the duty payment in 19 C.F.R. § 181.53, 60 days after

export, also does not operate to make the regulation unconstitutional as applied. The

regulatory language that ties the due date to export does not convert the import duty

into an export tax.         This timing clause operates to set a time for the accrual and

computation of interest. Once again, this procedure does not change the imposition of

liability at importation.

       Likewise, the requirement to list a date of export on the Customs Entry Summary

does not convert this import duty into an export tax. This filing information sets the 60-

day deadline in motion. Neither this procedure nor the use of bonds to secure payment

indicates that the duty is on exports. In sum, this court detects no error in the trial

court's determination that the regulation does not place an unconstitutional tax on

exports.




2007-1220                                      7
                                              III

       Nufarm also appeals the trial court's denial of class certification. Nufarm I. The

class would consist of all individuals who paid duties pursuant to 19 C.F.R. § 181.53

(duty deferral programs). The Court of International Trade held that because 28 U.S.C.

§ 1581(a) was manifestly adequate, 28 U.S.C. § 1581(i), which covers residual

jurisdiction, was unavailable. This court's decision upholding the constitutionality of 19

C.F.R. § 181.53 renders the issue of class certification moot. Even if this court were to

allow other members into the class, their arguments regarding the constitutionality of the

regulation would fail. Consequently, the appeal of Nufarm I is dismissed as moot.

                                             IV

       In sum, because the trial court did not err in its decision regarding the

constitutionality of 19 C.F.R. § 181.53, this court affirms.

                                            AFFIRMED




2007-1220                                     8