Cummins v. United States

 United States Court of Appeals for the Federal Circuit

                                      05-1482


                             CUMMINS INCORPORATED
                   (formerly known as Cummins Engine Company),

                                                    Plaintiff-Appellant,

                                          v.


                                 UNITED STATES,

                                                    Defendant-Appellee.


      Lawrence M. Friedman, Barnes, Richardson & Colburn, of Chicago, Illinois,
argued for plaintiff-appellant. With him on the brief were David G. Forgue and Ilya A.
Bakke.

       Barbara S. Williams, Attorney in Charge, International Trade Field Office,
Commercial Litigation Branch, Civil Division, United States Department of Justice, of
New York, New York, argued for defendant-appellee. With her on the brief were Peter D.
Keisler, Assistant Attorney General, and David M. Cohen, Director, of Washington, DC.
Of counsel on the brief was Beth C. Brotman, Office of 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 Donald C. Pogue
 United States Court of Appeals for the Federal Circuit

                                        05-1482


                              CUMMINS INCORPORATED
                    (formerly known as Cummins Engine Company),

                                                          Plaintiff-Appellant,

                                            v.

                                   UNITED STATES,
                                                          Defendant-Appellee.

                           __________________________

                              DECIDED: July 17, 2006
                           __________________________


Before NEWMAN, MAYER, and RADER, Circuit Judges.

MAYER, Circuit Judge.

      Cummins Inc. appeals the United States Court of International Trade’s grant of

summary judgment, which held that the crankshafts imported by Cummins into the

United States did not originate in Mexico and were not entitled to preferential treatment

under the North American Free Trade Agreement (“NAFTA”). Cummins Inc. v. United

States, 377 F. Supp. 2d 1365 (Ct. Int’l Trade 2005). We affirm.

                                      Background

      Under the United States’ tariff laws, products that “originate in the territory of a

NAFTA party” are entitled to preferential duty treatment.         General Note 12(a)(ii),

Harmonized Tariff Schedule of the United States (“HTSUS”); see also 19 U.S.C. § 3332

(2000). One way a product may so originate is if it is “transformed in the territory” of a
NAFTA party. General Notes 12(b)(i)–(iv), HTSUS. One manner in which a good can

be transformed, as is relevant to this case, is by undergoing a “change in tariff

classification” “to subheading 8483.10 from any other heading.”           General Notes

12(b)(ii)(A),12(t)/84.243(A), HTSUS. Here, Cummins contends that the crankshafts it

imports into the United States undergo such a tariff shift in Mexico from heading 7224 to

subheading 8483.10.30, and are thereby entitled to preferential duty treatment.

      The facts surrounding the production of the crankshafts are undisputed.

Production begins in Brazil, where Krupp Metalurgica Campo Limpo creates a forging

having the general shape of a crankshaft. This forging is created from a closed-die

forging process, which involves forging alloy steel between matrices. After forging, the

excess material that was squeezed out of the matrices, called “flash,” is removed by a

process called trimming.      The trimming is done on a separate machine within

approximately ten seconds of the forging press operation. Because the process of

trimming can distort the forging, the forging is then coined. Coining involves applying

pressure to the forging, which is still hot and malleable, in a closed die. After coining,

the forging is subjected to shot blasting. Shot blasting uses abrasive particles to strike

the surface of the forging to remove dirt and oxide from its surface. The forging is then

cooled, and its ends are milled so that it can be securely clamped into machines in

Mexico for final machining operations. The last manufacturing process performed in

Brazil is mass centering, in which the forging’s center of balance is determined and

locator center points are machined into each end.

      After these processes are performed in Brazil, the forging is imported into Mexico

by Cummins de Mexico, S.A. (“CUMMSA”), a wholly owned subsidiary of Cummins. As




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imported, the forging has the general shape of, but cannot yet function as, a crankshaft.

After importation into Mexico, CUMMSA performs at least fourteen different steps on the

forging that cover over 95% of its surface area resulting in a useable crankshaft, which

Cummins imports into the United States. It is undisputed that the crankshaft imported

into the United States is classifiable under subheading 8483.10.30 of the HTSUS, which

covers “[t]ransmission shafts (including camshafts and crankshafts) and cranks . . . .”

      The Court of International Trade addressed nearly identical facts in an earlier

case involving the same crankshafts. Cummins Engine Co. v. United States, 83 F.

Supp. 2d 1366 (Ct. Int’l Trade 1999) (“Cummins I”). The crankshaft manufacturing

process there was nearly identical to the one here, except that a grease pocket was

milled into the forging in Brazil. The court held that machining the grease pocket in

Brazil precluded classification under heading 7224 upon importation in Mexico, because

it was further working the product beyond roughly shaping it by forging.

      After Cummins I, Cummins filed for an amended advance ruling letter from the

United States Customs and Border Protection (“Customs”), based on the grease pocket

being machined in Mexico instead of Brazil. Despite the change in the manufacturing

process, Customs determined that the crankshafts did not originate in Mexico.

Crankshafts Processed in Mexico from Forgings of Brazilian Origin; Originating Goods

Under NAFTA, Ruling 964019 (Dec. 13, 2000). Prior to issuing its decision, Customs

submitted the question to the World Customs Organization (“WCO”), which issued a

classification opinion, approved by the member states 31 to 1, determining that the

proper classification of the forgings imported into Mexico was under heading 8483, not

heading 7224. Classification of Certain Forgings for Crank Shafts, Doc. No. NC0317E1




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(Oct. 10, 2000), available at Amendments to the Compendium of Classification Opinions

Arising from the Classification of Certain Forgings for Crank Shafts in Subheading

8483.10, Doc. No. NC0379E1 at 3 (March 8, 2001).            However, Customs did not

expressly rely upon the WCO decision in denying Cummins preferential treatment.

      In response to Customs’ advance letter ruling, Cummins filed an action in the

Court of International Trade under 28 U.S.C. § 1581(h).1          While that action was

pending, Cummins imported into the United States a test shipment of three finished

crankshafts marked as originating in Mexico, which Customs classified under

subheading 8483.10.30, HTSUS. Cummins protested this classification, arguing that

the proper classification was (MX)8483.10.30.2 After protesting Customs’ classification

of the test shipment, Cummins filed an action under 28 U.S.C. § 1581(a). The trial court

consolidated the two actions, but later found the section 1581(h) action moot in light of

the one under section 1581(a).

      The court determined on summary judgment that the articles imported into

Mexico were properly classified under subheading 8483.10.30, not heading 7224, and

accordingly did not undergo a tariff shift and were not entitled to preferential treatment

under NAFTA. Cummins appeals the trial court’s grant of summary judgment, and we

have jurisdiction under 28 U.S.C. § 1295(a)(5).




      1
               Under 28 U.S.C. § 1581(h), the Court of International Trade may review
pre-importation Customs’ rulings if the party commencing the action demonstrates that
“he would be irreparably harmed unless given an opportunity to obtain judicial review
prior to such importation.”
      2
             The prefix “MX” signifies that the article is a product of Mexico, and is
accorded preferential treatment pursuant to NAFTA.


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                                      Discussion

      We review the trial court’s grant of summary judgment on tariff classifications de

novo. Gen. Elec. Co. – Med. Sys. Group v. United States, 273 F.3d 1070, 1071 (Fed.

Cir. 2001) (citation omitted). A classification decision involves two underlying steps:

determining the proper meaning of the tariff provisions, which is a question of law; and

then determining which heading the disputed goods fall within, which is a question of

fact. Universal Elecs. v. United States, 112 F.3d 488, 491 (Fed. Cir. 1997) (citing Intel

Sing., Ltd. v. United States, 83 F.3d 1416, 1417-18 (Fed. Cir. 1996)). However, when

the nature of the merchandise is undisputed, as it is here, the classification issue

collapses entirely into a question of law. Gen. Elec. Co., 273 F.3d at 1071 (citing

Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1366 (Fed. Cir. 1998)). Although

our review is de novo, we accord deference to a Customs’ classification ruling in

proportion to its “power to persuade” under the principles of Skidmore v. Swift & Co.,

323 U.S. 134 (1944). United States v. Mead Corp., 533 U.S. 218 (2001); Mead Corp. v.

United States, 283 F.3d 1342, 1345-46 (Fed. Cir. 2002) (citations omitted). In addition,

“Customs’ relative expertise in administering the tariff statute often lends further

persuasiveness to a classification ruling, entitling the ruling to a greater measure of

deference.” Mead Corp., 283 F.3d at 1346.

      It is undisputed that the crankshafts imported into the United States are properly

classified under subheading 8483.10.30. The disputed issue is whether the crankshafts

undergo a tariff shift in Mexico.   That is, do the crankshafts enter Mexico under a

different tariff heading than they leave Mexico?    The trial court concluded that the

crankshafts do not undergo a tariff shift as they are classified under subheading




05-1482                                    5
8483.10.30 upon import into and export out of Mexico. Cummins contends that this

classification was error, and the proper classification of the product upon import into

Mexico is under heading 7224, which covers “[o]ther alloy steel in ingots or other

primary forms; semifinished products of other alloy steel.”

      “The General Rules of Interpretation (GRI) govern the classification of goods

within the HTSUS.” Hewlett-Packard Co. v. United States, 189 F.3d 1346, 1348 (Fed.

Cir. 1999). Under GRI 1, the classification “shall be determined according to the terms

of the headings and any relevant section or chapter notes.” As noted above, Cummins

contends that the goods imported into Mexico are properly classified as “semifinished

products of other alloy steel” under heading 7224. Chapter 72’s notes expressly define

“semifinished,” in pertinent part, as “products of solid section, which have not been

further worked than . . . roughly shaped by forging, including blanks for angles, shapes

or sections.” Chapter 72, Note 1(ij), HTSUS. Thus, if the product imported into Mexico

has been further worked beyond being roughly shaped by forging, it does not fall within

heading 7224. The parties dispute the meaning of the term “further worked.”

      Cummins relies on Additional U.S. Note 2 to Chapter 72, which defines “further

worked” as subjecting the product to one of several expressly listed surface treatments.3



      3
              Additional U.S. Note 2 to Chapter 72, HTSUS provides:
                     For the purposes of this chapter, unless the context
                     provides otherwise, the term “further worked” refers to
                     products subjected to any of the following surface
                     treatments: polishing and burnishing; artificial
                     oxidation; chemical surface treatments such are [sic]
                     phosphatizing, oxalating and borating; coating with
                     metal; coating with nonmetallic substances (e.g.,
                     enameling, varnishing, lacquering, painting, coating
                     with plastics materials); or cladding.
(first emphasis added).


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It is undisputed that none of these surface treatments are performed in Brazil, and

Cummins contends that so long as none of these specific operations are performed

prior to importation into Mexico, the product has not been “further worked.” The trial

court rejected this argument in Cummins I, and we do so now.

       The definition of “further worked” in Chapter 72 is expressly inapplicable where

“the context provides otherwise.” Here, to read the term “further worked” as referring to

only these specific treatments would lead to a nonsensical result. In particular, this

definition would render the phrase “than . . . roughly shaped by forging” meaningless

and contravene the well-established principle that a statute should be construed “if at all

possible, to give effect and meaning to all the terms.” Bausch, 148 F.3d at 1367.

       Absent an applicable express definition or contrary legislative intent, we must

construe the term “further worked” “according to [its] common and commercial

meanings, which are presumed to be the same.” Carl Zeiss, Inc. v. United States, 195

F.3d 1375, 1379 (Fed. Cir. 1999) (citing Simod Am. Corp. v. United States, 872 F.2d

1572, 1576 (Fed. Cir. 1989)). Here, the plain meaning of “further worked,” when read in

context, means working the product beyond the point of roughly shaping it by forging.

The trial court, relying in part on Winter-Wolff, Inc. v. United States, 996 F. Supp. 1258,

1265 (Ct. Int’l Trade 1998) (construing “further worked” in the context of subheading

7607.11.30), defined “further worked” more precisely as “to form, fashion, or shape an

existing product to a greater extent.” We agree that this definition is suitable in the

context before us.

       Here, the product was forged and then trimmed, coined, shot blasted, milled, and

mass centered in Brazil. Cummins suggests that these are steps within the “forging




05-1482                                     7
process.” However, the relevant language is not “further worked beyond the forging

process” but “further worked than roughly shaped by forging.” The government cites

evidence that the act of forging is understood in the industry as being distinct from the

additional operations performed by Cummins in Brazil.         In particular, the Forging

Handbook provides that trimming occurs “[u]pon completion of the forging operation.”

Forging Handbook Forging Industry Association, Forging Handbook 153 (Thomas G.

Byrer 1985). This handbook also describes coining as a “finishing operation.” Id. at

155; see also Product Design Guide for Forging 110, 140 (Forging Indus. Assoc.)

(describing coining as a “finishing operation” to improve dimensional accuracy and

expressly defining it as a “post-forging” process). Significantly, Cummins agreed that

trimming (and hence every step thereafter) takes place “after forging.” Moreover, milling

the ends of the forging product is outside of the forging process and constitutes working

the product beyond roughly shaping it by forging, namely forming, fashioning, or

shaping it to a greater extent.   Thus, the product imported into Mexico from Brazil

cannot be classified under heading 7224.

      Although the Explanatory Notes to the HTSUS are not controlling, see, e.g.,

Rocknel Fastener, Inc. v. United States, 267 F.3d 1354, 1360 (Fed. Cir. 2001),

Cummins relies on them in arguing that the goods imported into Mexico are only rough

forgings. In particular, Cummins relies upon an Explanatory Note to heading 72.07,

which applies mutatis mutandis to heading 7224.4        Based on this note, Cummins



      4
             The Explanatory Note to heading 7207 provides the following discussion
under the caption “pieces roughly shaped by forging”:
             These are semi-finished products of rough appearance and
             large dimensional tolerances, produced from blocks or ingots
             by the action of power hammers or forging presses. They


05-1482                                    8
contends that the product imported into Mexico requires considerable further shaping,

and has therefore only been roughly shaped by forging without being further worked in

Brazil. As noted above, however, the evidence supports that “forging” is a discrete

process from the additional steps performed in Brazil, and the forged product was

further worked in Brazil.

       We agree with the trial court that the forging is properly classified under heading

8483 upon importation into Mexico. GRI 2(a) provides that “[a]ny reference in a heading

to an article shall be taken to include a reference to that article incomplete or unfinished,

provided that, as entered, the incomplete or unfinished article has the essential

character of the complete or finished article.”      GRI 2(a), HTSUS.       In addition, the

Explanatory Notes to GRI 2(a) provide that this rule applies “to blanks unless these are

specified in a particular heading. The term ‘blank’ means an article, not ready for direct

use, having the approximate shape or outline of the finished article or part, and which

can only be used, other than in exceptional circumstances, for completion into the

finished article . . . .” Explanatory Note II to GRI 2(a). Here, the product imported into

Mexico had the general shape of a crankshaft and was intended for use only in



             may take the form of crude recognisable shapes in order that
             the final article can be fabricated without excessive waste,
             but the heading covers only those pieces which require
             considerable further shaping in the forge, press, lathe, etc.
             The heading would, for example, cover an ingot roughly
             hammered into the shape of a flattened zig-zag and
             requiring further shaping to produce a marine crankshaft, but
             would not cover a crankshaft forging ready for final
             machining. The heading similarly excludes drop forgings and
             pressing produced by forging between matrices since the
             articles produced by these operations are ready for final
             machining.
Explanatory Note to Heading 72.07 (emphasis in original).


05-1482                                      9
producing a finished crankshaft. In fact, certain operations done in Brazil, such as

milling the forgings’ ends, were done solely to simplify the operations in Mexico in

completing the crankshaft.    As such, the forged product imported into Mexico was

properly classified under subheading 8483.10.30. Accordingly, it did not undergo a tariff

shift and was not entitled to preferential treatment under NAFTA when imported into the

United States.

       Finally, Cummins contends that the trial court erred by improperly relying upon

the WCO classification opinion. While such an opinion is not given deference by United

States courts, it can be consulted for its persuasive value, if any. Cf. Sanchez-Llamas

v. Oregon, 548 U.S. ___, Nos. 04-10566, 05-51, slip op. at 17-21 (June 28, 2006)

(rejecting the argument that U.S. courts are obligated to comply with interpretations of

the Vienna Convention by the International Court of Justice (“ICJ”)); Corus Staal BV v.

Dep’t of Commerce, 395 F.3d 1343, 1349 (Fed. Cir. 2005) (observing that World Trade

Organization decisions are accorded no deference); Timken Co. v. United States, 354

F.3d 1334, 1343-44 (Fed. Cir. 2004). The Supreme Court has rejected any notion of

deference or obligation to a foreign tribunal’s decisions. In so doing, it observed, “If

treaties are to be given effect as federal law under our legal system, determining their

meaning as a matter of federal law ‘is emphatically the province and duty of the judicial

department,’ . . . .” Sanchez-Llamas, slip op. at 19 (quoting Marbury v. Madison, 1

Cranch 137, 177 (1803)). Like the ICJ’s interpretation of the treaty terms in Sanchez-

Llamas, the WCO opinion is not binding and is entitled, at most, to “respectful

consideration.” Id. It is not a proxy for independent analysis.




05-1482                                     10
       Here, the court accorded no deference to either the WCO opinion or the

categorization by Mexico’s Customs authority.        Instead, it independently construed

“further worked,” based solely on the tariff terms and the principles set forth in the GRIs,

and consulted the WCO opinion and Mexican categorization only as persuasive

authority. The court properly construed the statutory terms as they are written. See

Corus Staal, 395 F.3d at 1349; cf. Suramerica de Aleaciones Laminadas, C.A. v. United

States, 966 F.2d 660, 668 (Fed. Cir. 1992) (“While we acknowledge Congress’s interest

in complying with U.S. responsibilities under the GATT, we are bound not by what we

think Congress should or perhaps wanted to do, but by what Congress in fact did.”).

                                        Conclusion

       Accordingly, the judgment of the United States Court of International Trade is

affirmed.



                                       AFFIRMED




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