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UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
HAGGAR APPAREL CO., PLAINTIFF-APPELLEE
THE UNITED STATES, DEFENDANT-APPELLANT
Decided: October 22, 1997
Before: RICH, NEWMAN, and CLEVENGER, Circuit Judges.
RICH, Circuit Judge.
This appeal in a so-called "American-goods-returned" case is from
the decision by the United States Court of International Trade of 25 July
1996 in case number 93-06-00343 ordering the United States to grant a duty
allowance for the goods in question. We affirm.
The merchandise at issue in this case consists of men's and women's permanent-press,
wrinkle-free trousers that are assembled in Mexico from resin- impregnated
fabric components made in the U.S. Plaintiff-appellee, Haggar Apparel Co.
("Haggar"), sells a line of such garments under the mark PRESSTIGE.
There are three types of fabric used to make the PRESSTIGE garments: pre-cured
fabrics in which the impregnating resin is cured before assembly into garments;
synthetic fabrics which require pressing, but not curing; and post-cured
fabrics that require curing after assembly into garments. While only those
garments made with the third type of fabric-the post-cured fabric-are at
issue in this case, all of the Haggar PRESSTIGE products are assembled,
tagged, and packaged in Mexico for distribution in the U.S. Indeed, except
for the brief detour required to cure the post-cured fabric, all of the
PRESSTIGE products are processed in the same plants and undergo the same
assembly, tagging, and other processing steps.
The issue in this case is whether the oven-baking process used to cure Haggar's
post-cure fabric is an operation that is "incidental to assembly"
under the tariff laws. The issue arises because the tariff provisions provide
a partial duty allowance for certain U.S.-made components that are assembled
outside the U.S. for return to the U.S. so long as the components are not
advanced in value or improved in condition "except [by the actual assembly
itself or] by operations [which are] incidental to the assembly pro- cess."
Item 807.00, Tariff Schedules of the United States (1988) (for pre-1989
entries) and subheading 9802.00.80, Harmonized Tariff Schedule of the United
The Court of International Trade, in a thorough opinion by Chief Judge DiCarlo,
correctly applied the test set forth in the decision of this court's predecessor
court in United States v. Mast Indus., Inc., 668 F.2d 501 (C.C.P.A. 1981),
to determine whether ovenbaking is an operation that is incidental to assembly.
In so doing, the court began its analysis by properly rejecting as overly
restrictive the United States' argument that the term "assembly"
means the joinder of two components. Instead, the court properly concluded
that certain minor operations are not merely incidental to assembly, but
are so integral to the process as to merge with it. The court then diligently
applied the factors applied by this court's predecessor in Mast, to analyze
the curing operation at issue in this case. After balancing the relevant
Mast factors, the court correctly concluded that the curing operation is
"incidental to the assembly process" within the meaning of the
The court next properly rejected the United States' argument that although
"incidental to assembly," the curing process may nonetheless fall
outside of the statute's tariff shelter if the process caused a prohibited
advancement in value. The court looked to the express language of the statute
and correctly concluded that the statute does not prohibit advancement in
value where the operation in question is incidental to the assembly process.
Finally, the court properly rejected the United States' argument that Customs'
regulations interpreting and applying this statute are entitled to deference
under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837, 842-44 (1984). As we have recently held in several cases,
the United States' argument is without merit. See Rollerblade, Inc. v. United
States, 112 F.3d 481, 483 (Fed. Cir. 1997) (no Chevron deference applies
to classification decisions); Universal Elecs. Inc. v. United States, 112
F.3d 488, 491-93 (Fed. Cir. 1997) ("neither this court nor the Court
of International Trade defers to Custom's interpretation of a tariff heading
on the basis of special deference pursuant to [Chevron]"). Acknowledging
the procedural importance of presumptions, the Court of International Trade
is nonetheless charged with the duty to "reach the correct decision."
Rollerblade, 112 F.3d at 484 (quoting 28 U.S.C. § 2643(b)). On appeal,
we review the findings of that court-not those of Customs-for clear error;
while we decide questions of law de novo. Universal Elecs., 112 F.3d at
The decision of the Court of International Trade was correct for the reasons
stated in its opinion. Therefore, we affirm.
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
HAGGAR APPAREL CO., PLAINTIFF-APPELLEE
THE UNITED STATES, DEFENDANT-APPELLANT
[Entered: Feb. 20, 1998]
O R D E R
A combined petition for rehearing and suggestion for rehearing in banc having
been filed by the APPELLANT, and a response thereto having been invited
by the court and filed by the APPELLEE, and the petition for rehearing having
been referred to the panel that heard the appeal, and thereafter the suggestion
for rehearing in banc and response having been referred to the circuit judges
who are in regular active service,
UPON CONSIDERATION THEREOF, it is
ORDERED that the petition for rehearing be, and the same hereby is, DENIED
and it is further
ORDERED that the suggestion for rehearing in banc be, and the same hereby
The mandate of the court will issue on February 27, 1998.
FOR THE COURT,
JAN HORBALY, CLERK
Dated: February 20, 1998
By /s/ ALEX VAN VEEN /amt
ALEX VAN VEEN
Staff Law Clerk
cc: SAUL DAVIS
EDWARD M. JOFFE
BRUCE G. FORREST
* Note: Pursuant to Fed. Cir. R. 47.6, this order is *
* not citable as precedent. It is a public record. *
COURT OF INTERNATIONAL TRADE
Slip Op. 96-110
HAGGAR APPAREL COMPANY, PLAINTIFF
UNITED STATES, DEFENDANT
Decided: July 12, 1996
Before: DICARLO, Chief Judge.
OPINION AND JUDGMENT ORDER
DICARLO, Chief Judge: Plaintiff, Haggar Apparel Company challenges the denial
of protests filed pursuant to section 515 of the Tariff Act of 1930, 19
U.S.C. § 1515 (1988). Haggar contends the United States Customs Service
erroneously denied a duty allowance for fabric components manufactured in
the United States and shipped to Mexico for assembly into men's pants. Jurisdiction
is proper under 28 U.S.C. § 1581(a) (1988). The court finds the merchandise
in question is entitled to a duty allowance.
The imported merchandise consists of men's pants assembled in Mexico from
components manufactured in the United States. (Stip. Facts ¶¶
9, 43.) Haggar markets these pants under the "Presstige" name.
The most important performance characteristics of Presstige pants are crease
retention and seam and surface flatness; the pants are "wash and wear"
garments. (Tr. at 11-12, 40; Stip. Facts ¶¶ 18-19.)
Haggar achieves its performance requirements by using a "pre-cured,"
"post- cured," or pure synthetic fabric. (Stip. Facts ¶ 18.)
Curing involves the application of heat to fabric treated with resin. Under
the pre-cured method, resin and heat are both applied at the textile mill;
Haggar purchases the fabric, cuts it to shape, assembles the components,
and presses the completed garment. (Stip. Facts ¶ 20; Tr. at 12.) Under
the post-cured approach, Haggar purchases resin-treated fabric from the
mill, cuts, assembles, and presses the garment, and bakes it in a curing
oven. Id. Both the pre-cured and post-cured methods use fabric of a cotton-synthetic
blend, which is typically sixty percent cotton and forty percent polyester.
(Stip. Facts ¶ 9; Tr. at 12.) Presstige pants made from a pure synthetic
fabric require pressing, but do not require resin treatment or baking. (Tr.
All methods for producing Presstige pants involve the same assembly and
pressing process. Id. at 13. The only difference occurs after pressing.
Id. In the post-cured method, the pants are loaded on an oven conveyer,
baked, and unloaded from the conveyer. Improper pressing of the garment
prior to the baking process will result in the product being sold as a "second,"
as proper pressing is essential to crease retention and surface flatness.
(Stip. Facts ¶ 41.) In addition, a crease defect cannot be reversed
after oven-baking. Id.
The garments at issue are Model 245 Presstige pants imported by Haggar in
1988 and 1989. (Stip. Facts ¶ 36; Haggar's Customs Protest at 3-4.)
These pants were made from fabric style 2010, which is a post-cured fabric
comprised of sixty percent combed cotton and forty percent fortrel polyester.
(Stip. Facts ¶ 39.) The fabric and other components, such as buttons,
thread, zippers, and trim items, were manufactured in the United States.
Id. ¶¶ 47-50. Haggar cut the resin-treated fabric to shape, and
exported the fabric and remaining components to Mexico, where they were
assembled into pants by Haggar's wholly owned subsidiary, Haggarmex. Id.
¶¶ 9, 43-52. Following assembly, pressing, and baking, Haggar
attached hangtags and tickets to the pants and packaged and shipped them
to the United States. (Id. ¶ 52; Tr. at 153-154.)
Upon importation, Haggar sought a duty allowance for pre-1989 entries under
item 807.00 of the Tariff Schedule of the United States [hereinafter "TSUS"],
and for the remaining entries under subheading 9802.00.80 of the Harmonized
Tariff Schedule of the United States [hereinafter "HTSUS"]. Item
807.00, Subpart B, Part I, Schedule 8, TSUS (1987); Subheading 9802.00.80,
Chapter 98, Section XXII, HTSUS (1987) (implemented into law on Jan. 1,
1989, pursuant to 19 U.S.C. § 3004 (1988)). Customs denied a duty allowance
for the post-cured, cut-to-shape fabric components, but granted the duty
allowance for all other components produced in the United States. For the
post-cured fabric Customs assessed duties at the rate of 16.5 percent ad
valorem under TSUS item 381.62.40, and 17.7 percent ad valorem under HTSUS
subheading 6203.42.40. (Stip. Facts ¶ 11.)
Customs is entitled to a presumption of correct- ness as to its factual
determinations. See 28 U.S.C. § 2639(a)(1) (1988) (presumption); see
also Goodman Mfg., Inc. v. United States, 69 F.3d 505, 508 (Fed. Cir. 1995)
(limiting presumption to factual determinations). Plaintiff bears the burden
of proving that Customs' determination is incorrect. 28 U.S.C. § 2639(a)(1).
Item 807.00(c) of the TSUS affords domestic goods exported for purposes
of assembly a partial duty allowance upon re-entry into the United States.
To qualify under item 807.00(c), fabricated components of the United States
assembled abroad must not be advanced in value abroad outside of assembly
and operations incidental to the assembly process. Item 807.00(c), TSUS.
Item 807.00 provides:
807.00 Articles assembled abroad in whole or in part of fabricated components,
the product of the United States, which (a) were exported in condition ready
for assembly without further fabrication, (b) have not lost their physical
identity in such articles by change in form, shape, or otherwise, and (c)
have not been advanced in value or improved in condition abroad except by
being assembled and except by operations incidental to the assembly process
such as cleaning, lubricating, and painting.
Item 807.00, TSUS. Pursuant to item 807.00, Customs assesses a duty upon
eligible merchandise based "upon the full value of the imported article,
less the cost or value of such products of the United States." Id.
The HTSUS provides an identical exemption under Subheading 9802.00.80.
The parties do not challenge that the imported merchandise was advanced
in value or improved in condition abroad. Further, they agree that the articles
were exported in condition ready for assembly without further fabrication
and that the articles have not lost their physical identity. (Stip. Facts
¶¶ 44-45.) Therefore in determining whether the components qualify
for an item 807.00 trade allowance, the dispositive issue is whether ovenbaking
is an operation incidental to assembly. To answer this question, the court
turns to the Federal Circuit's decision in United States v. Mast Industries,
Inc., 668 F.2d 501 (C.C.P.A. 1981).
I. The Mast Factors
To determine whether button-holing and pocket-slitting operations were incidental
to assembly of women's pants, the court in United States v. Mast examined
the following factors:
(1) Whether the cost of the operation relative to the cost of the affected
component and the time required by the operation relative to the time required
for assembly of the whole article were such that the operation may be considered
(2) Whether the operations in question were necessary to the assembly process....
(3) Whether the operations were so related to assembly that they were logically
performed during assembly.
Mast, 668 F.2d at 506. The Mast court also indicated a fourth consideration:
"whether economic or other practical considerations dictate that the
operations be performed concurrently with assembly." Id. at n. 7. These
factors are not exhaustive, and all factors may not be relevant in each
case. General Motors Corp. v. United States, 976 F.2d 716, 719-20 (Fed.
Cir. 1992). Nonetheless, the most basic question - whether such operations
are of a minor nature incidental to the assembly process - remains the focus
of the court's inquiry.
(A) Cost Comparisons
The first prong of the Mast comparisons examines whether the challenged
operation constitutes a significant proportion of the total assembly process.
To make this determination, the court must first define the scope of the
challenged operation, because in making the cost determination, the court
must weigh the expense and time costs of the challenged operation against
the cost of assembly. According to plaintiff, the court should compare only
ovenbaking against total assembly costs. (Haggar's Post Trial Br. at 1-2.)
Defendant argues the court must compare all non-assembly costs against only
pure assembly expenses. (Def.'s Post Trial Br. at 2-3.) To accomplish this
task, defendant first contends that operations included on the assembly
side of the Mast comparisons are solely those operations which encompass
the joinder of two solids. Id. at 16 & n.10. Defendant argues that,
at a minimum, the court must exclude all non-joinder operations, including
minor chopping and trimming operations, from the assembly side of the Mast
comparisons. Id. at 16-17.
Second, defendant contends the court must combine all non-joinder operations
which were excluded from the assembly side of the Mast comparisons for comparison
against pure assembly costs in order to ascertain whether the challenged
operations were more than minor improvements, and therefore, not incidental
to assembly. Id. According to defendant, fail- ing to combine all non-joinder
costs for comparison against pure assembly costs would result in a piecemeal
analysis that would undermine "item 807.00 by allowing major and significant
operations to be broken down to [a] point where each step could be called
minor." Id. at 17 (quoting General Motors, 976 F.2d at 720). Defendant
contends this court in Surgikos, Inc. v. United States, 12 Ct. Int'l Trade
242, 245 (1988) similarly combined all non-assembly operations for comparison
against pure assembly operations in determining whether the challenged operations
were minor and, therefore, incidental to assembly. Id. at 17-18.
The court disagrees with defendant's readings of General Motors and Surgikos.
Neither decision demands that all non-joinder operations must be combined
for comparison against only pure assembly functions. The Federal Circuit
in General Motors disagreed with the lower court's "piecemeal analysis"
because the lower court improperly sought to separate the various components
of a single process-coating operations during automobile assembly- that
should have been considered together. 976 F.2d at 720. The Federal Circuit
determined that isolating the various components of the coating operation
for an item 807.00 allowance would have allowed importers to argue that
each component of the challenged operation was minor, even though the operation
as a whole was a significant process, and therefore not incidental to assembly.
Id. General Motors, however, did not mandate combining all "non-joinder"
functions with the coating operations when comparing expense and time costs
against the cost of the affected components, and the duration of assembly,
as defendant now urges. If this were the case, the Federal Circuit would
have also grouped the other non-joinder processes including water testing,
detail work, inspections, wheel alignment, and final drive tests with the
coating operations in its Mast calculations. See id. at 717-18 (listing
Surgikos also fails to support defendant's position. Surgikos concerned
the assembly of surgical sheets assembled in Mexico. Although the court
in Surgikos did weigh the only two nonassembly operations - fenestration
(creating a rectangular opening in the sheet) and finish folding (functional
folding to maintain antiseptic conditions) - against the pure joinder operations,
Customs had challenged both fenestration and finish folding as nonincidental
to assembly; the joinder of the surgical sheets was the only remaining operation.
12 Ct. Int'l Trade at 243-44. Customs, by challenging all non-assembly operations
as not being incidental to assembly, necessarily mandated that the court
compare all non-assembly operations against pure assembly. The issue of
whether all nonassembly operations must be weighed against pure assembly,
however, was not before the court. The court therefore does not read Surgikos
as broadly as defendant urges.
The court finds that the minor chopping, handling and trimming operations
are not merely incidental to assembly, but are so integral to the process
as to merge with it. (See Court's Findings, Tr. at 511) (noting that such
processes are related to assembly and may also be part of assembly); see
also General Instrument Corp. v. United States, 499 F.2d 1318, 1319-21 (C.C.P.A.
1974) (finding spooling, shaping & machine pressing, cement coating,
cutting, stripping, and weaving of magnet and lead wire exported from the
United States to Taiwan where wire was wound into coils and cable harnesses
as constituting assembly for purposes of item 807.00). These minor operations
include placing a notch into the zipper to facilitate the next assembly
step, minor trimming of loose threads, simultaneous sewing and cutting of
the fly lining, the cutting apart of bands (fabric belt encircling waist)
& separation of excessive band lining, the sorting and placing of belt
loop components together on a crimping machine to bond the components together,
as well as certain supply and handling operations and various manipulations
of the fabric so as to make further assembly more efficient. (Tr. at 128-40.)
The court, therefore, rejects defendant's interpretation of assembly as
purely the joinder of two components as overly restrictive.
The question remains whether pressing is part of the challenged operation
compared against assembly. Haggar contends that the challenged operation
consists solely of ovenbaking. (Haggar's Post Trial Br. at 1-2; Haggar's
Post Trial Reply Br. at 9.) According to Haggar, pressing could not be part
of the challenged operation because Customs has considered pressing by itself
to be minor and incidental to assembly under item 807.00. Id. at 11. However,
pressing is necessary to further the curing process. (See Stip. Facts ¶
42) ("the post-curing process used on the [pants in issue] was achieved
by pressing and ovenbaking.") Although in a strict sense, pressing
is not part of curing, as the actual heat-induced transformation of the
fabric is performed during oven-baking, pressing is integrally related to
Haggar's purpose in conducting the curing process, namely to develop crease
retention and greater surface and seam flatness in its garments. (Stip.
Facts ¶ 19; Tr. at 44.)
This decision is consistent with the decision of the Federal Circuit in
General Motors. In General Motors, the Federal Circuit rejected the lower
court's delineation of the challenged painting operation as too narrow,
finding "that all coating operations performed upon the disputed components
. . . must be considered in conjunction with topcoat painting operations
to determine if coating operations, collectively, are minor incidents to
assembly." 976 F.2d at 720.
The pressing operation, like the coating operations in General Motors, did
not interfere with item 807.00's prescriptions when performed in isolation.
However, when performed prior to ovenbaking, pressing does more than simply
impart a temporary smoothness to the fabric. It begins the curing process
which, once started, imparts permanent new characteristics to the pants.
Thus, the entire curing operation in this case is analogous to the entire
finish painting operation in General Motors; the court must consider ovenbaking
in conjunction with pressing when applying the Mast test.
Application of the first Mast factor involves comparing (1) the cost of
the curing operation relative to the cost of the post-cured fabric component,
including, pursuant to General Motors, the comparison of Haggar's investment
in the curing operation versus its investment in the assembly process; and
(2) the time required for curing, relative to the time required for assembly.
General Motors, 976 F.2d at 719-21.
(i) Cost Comparisons of Curing Relative to the Cost of the Affected Components,
and to the Cost of the Assembly Process
Dividing the cost of pressing and baking ($0.0529) by the cost of the fabric
components ($3.08) indicates the curing operation constitutes 1.72 percent
of the component cost.1 (Joint Stip. at 2-3.) Further, comparing the cost
of curing (again pressing and ovenbaking, $0.0529) against the total operation
cost ($0.500) constitutes 10.6 percent. Id. The court does not find either
figure significant. See Mast, 668 F.2d at 506 (finding 15% minor [$0.003
of $0.020 in percentage terms] ).
(ii) Capital Investment Comparisons
The court in General Motors also found a capital investment determination
relevant to the cost analysis. 976 F.2d at 721. Defendant argues that proper
analysis under this factor requires the use of replacement costs, as supplied
by the parties in their cost stipulations. (Def.'s Post Trial Br. at 21,
39.) According to defendant, if the court instead were to use depreciated
costs, the qualification for a duty allowance would vary by the year the
merchandise in question would be imported, or by the age of the equipment
used on the imported merchandise. Id. at 21. Thus similarly-positioned importers
might receive disparate treatment for the same operation.
Plaintiff argues depreciation costs are proper. (Haggar's Post Trial Reply
Br. at 19, 20.) Plaintiff argues Customs' practice has been to permit depreciation
of the machinery, as in accordance with generally accepted accounting procedures.
(Haggar's Post Trial Br. at 10.) According to plaintiff, the investment
cost of the ovens was zero, as the ovens were 25 years old and fully depreciated
when they were transferred to Mexico. Id. Permitting depreciation, the only
remaining equipment for comparison would be the pressing equipment ($430,000),
which would constitute 50 percent of assembly capital costs ($857,724).
(Joint Stip. at 4) (total capital costs minus pressing & ovenbaking).
If the court did not permit the depreciation of the oven to zero, the capital
investment of the curing equipment would be $522,808, or 61 percent of the
assembly capital costs. Id. The court cannot consider either of these figures
as minor and finds that these factors weigh against granting a duty allowance
under item 807.00.
(iii) Time Comparisons
The Federal Circuit in General Motors found "where operations . . .
involve significantly automated or non-labor processes (such as baking),
this factor provides little guidance on whether operations are of a 'minor
nature.'" 976 F.2d at 720 (emphasis added). Ovenbaking is an automatic
process which accounts for nearly one-third of the total operation time.
(Revised Joint Stip. at 1) (dividing 15 minutes ovenbaking time by 42 minutes
for total operation). The court, pursuant to General Motors, does not address
this test here.
(B) Necessity and Logical Relatedness to Assembly
Mast factors 2 and 3 examine respectively whether the challenged operations
were so related to assembly that they were necessary to the assembly process,
and whether the challenged operations were so related to assembly as to
be performed during assembly. Mast, 668 F.2d at 506.
The parties have stipulated that "[t]he effect of ovenbaking is to
create crease retention and greater surface and seam flatness in the garment,
and prevent wrinkling." (Stip. Facts ¶ 55.) These features are
unrelated to assembly. The parties in fact have agreed that assembly occurs
without the initiation of the curing process - pressing - so it follows
the entire curing operation would be similarly unnecessary. (Stip. Facts
¶ 38.) The court finds that ovenbaking and pressing are not necessary,
nor related to assembly. (Court's Findings, Tr. at 455, 503, 505-506.)
(C) Economic & Other Practical Considerations
The fourth Mast factor examines whether economic and practical considerations
dictate that the challenged operations be performed concurrently with assembly.
668 F.2d at 506 n. 7.
Defendant argues that plaintiff cannot present any considerations requiring
that curing be conducted concurrently with assembly, because curing does
not begin until after assembly is completed. (Def.'s Post Trial Br. at 41-42.)
According to defendant, Mast and its progeny demonstrate that "concurrently"
with assembly only extends to actual joinder. Id. at 16 n. 10, 41-42.
The court does not agree with defendant's narrow interpretation of "concurrently."
This restrictive interpretation would, in effect, require a showing that
ovenbaking must be done during assembly because it is necessary to further
assembly. However, this inquiry is already accomplished by the necessity
requirement in Mast. The legislative history of item 807.00 demonstrates
clear Congressional intent to permit duty-free treatment of a component
manufactured in the United States if subjected to an operation "of
a minor nature incidental to the assembly process, whether done before,
during or after assembly." Tariff Schedules Technical Amendments Act
of 1965, H.R. Rep. No. 342, 89th Cong., 1st Sess. 49 (1965).
The parties agree that, if the pants were packed and shipped to the United
States immediately after assembly, but before curing, Haggar would incur
additional costs for repacking and reshipping to the distribution centers.
(Parties' Stip., Tr. at 545.) Moreover, an additional work shift would have
to be added to complete the ovenbaking and pressing at higher labor costs.
Id. at 547. Mr. Ernie Ramirez, International Accounting Manager for Haggar,
also testified that "throughput" time (total time from when the
garment is cut to when it is received by the customer) would be increased
by 3-4 days, and separating ovenbaking from assembly would result in higher
transportation costs, increased production times, the need for additional
facility investment, higher handling costs, and additional overhead expenses.
(Tr. at 347, 399-402.) Finally, Mr. Frank Bracken, President of Haggar Apparel
Co., testified that post-curing immediately after assembly was necessary
because there was a risk with post-cured fabric that permanent creases and
wrinkles would occur during shipping, and render the product "useless."
(Tr. at 39, 49-50.) Although the curing operation does not preclude assembly
from occurring, the court finds the curing of the fabric would logically
occur at this time to minimize damages and economic costs. The court holds
that economics and practicality dictate that Haggar cure its merchandise
concurrent with assembly.
The court finds the costs of the curing operation are insignificant as a
percentage of the fabricated components and of the entire operation. Moreover,
strong economic and practical considerations dictate that curing be performed
concurrently with assembly. After balancing the relevant factors, the court
finds that the curing operation is "incidental to the assembly process"
within the meaning of item 807.00, TSUS, and subheading 9802.00.80, HTSUS.
II. Advancement in Value
Defendant argues that, even if the Mast analysis results in a finding that
the operation is minor, additional inquiry is necessary to determine whether
the imported article has undergone a prohibitory advancement in value. (Def.'s
Post Trial Br. at 23-26.) Therefore, according to defendant, the court should
consider the importance to Haggar of the crease retention and the greater
surface and seam flatness as an additional factor. Id.
Defendant's arguments are meritless. Item 807.00 provides that a duty allowance
is permissible so long as the merchandise in dispute has not been advanced
in value "except by operations incidental to the assembly process."
Item 807.00(c), TSUS. Item 807.00 does not prohibit an advancement in value,
therefore, so long as the operation in question is incidental to assembly.
III. 19 C.F.R. Section 10.16
Defendant contends 19 C.F.R. § 10.16 (1988) governs the application
of item 807.00. Subsection 10.16(c) provides:
Any significant process, operation, or treatment other than assembly whose
primary purpose is the fabrication, completion, physical or chemical improvement
of a component, or which is not related to the assembly process, whether
or not it effects a substantial transformation of the article, shall not
be regarded as incidental to the assembly and shall preclude the application
of the exemption to such article.
19 C.F.R. § 10.16(c) (1988) (1989 version identical).
The court disagrees. Subsection 10.16(c) conflicts with the plain language
of item 807.00. Item 807.00 does not prohibit operations which merely impart
new characteristics to the article being assembled as the regulation provides,
but in fact permits a duty allowance for such improvements to the articles
so long as the operation imparting those characteristics was incidental
to assembly. Moreover, the Federal Circuit has strongly qualified 19 C.F.R.
§ 10.16, see Chrysler Corp. v. United States, 1996 WL 132263 at *2
(Fed. Cir. 1992) (finding the cost comparisons in General Motors "determinative"
over 19 C.F.R. § 10.16), or has ignored the regulation altogether,
see Mast, 668 F.2d at 506 (developing factors); General Motors, 976 F.2d
at 718 (citing, but not applying regulation); United States v. Oxford Industries,
Inc., 668 F.2d 507 (C.C.P.A. 1981) (applying Mast factors only). Indeed,
defendant has recognized pursuant to the court's questioning that these
decisions have cast considerable doubt on the regulation's validity. (Def.'s
Suppl. Br. at 1-2.)
Finally, although defendant argues that Customs is entitled to deference
pursuant to Chevron, U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837, 842-844 (1984), the recent decisions in Crystal Clear
Industries v. United States, 44 F.3d 1001 (Fed. Cir. 1995), and Anval Nyby
Powder AB v. United States, Slip. Op. 96-80 (Ct. Int'l Trade My 21, 1996)
may have put defendant's assertion into question. See Crystal Clear, 44
F.3d at 1003 (declining to apply Chevron deference to Customs in routine
classification decisions); see also Anval Nyby Powder AB, Slip. Op. 96-80
at 12-13 (finding "court's statutory obligation to find the correct
result limits the court's ability to give special Chevron deference"
to Customs' statutory constructions.) The court finds the Federal Circuit's
test in General Motors as determinative.
The court in applying the Mast factors finds that the curing operation performed
on Haggar's Model 245 Presstige men's pants, fabric style 2010, was a minor
operation incidental to the assembly process under item 807.00, TSUS and
subheading 9802.00.80, HTSUS. Customs is ordered to allow a duty allowance
for the components in issue.
/s/ DOMINICK L. DICARLO
DOMINICK L. DICARLO
Dated: July 12, 1996
New York, New York
COURT OF INTERNATIONAL TRADE
Court No. 93-06-00343
HAGGAR APPAREL COMPANY, PLAINTIFF
UNITED STATES, DEFENDANT
Before: DICARLO, Chief Judge.
AMENDED JUDGMENT ORDER
This action having been submitted for decision, after trial and upon due
deliberation, in conformity with the decision rendered, it is hereby
ORDERED that Customs grant a duty allowance under TSUS item 807.00 and HTSUS
subheading 9802.00.80, for Haggar's Model 245 men's pants, fabric style
2010; and it is further
ORDERED that the United States Customs Service shall reliquidate the entries
accordingly and shall refund all excess duties with interest as provided
ORDERED that the action is dismissed.
/s/ DOMINICK L. DICARLO
DOMINICK L. DICARLO
Dated: July 25, 1996
New York, New York
1 The parties stipulated that overhead costs of "factory supplies,
pressing expense, H & O repair, H & O repair parts, porters, office
security guard, boiler maintenance, cook, legal, doctor, severance pay,
unemployment, insurance (unemployment and insurance are two separate parts),
dues and subscription, telephone, employee benefits, other professional
fees, office supplies, janitor supplies, travel, auto expense[s], advertising
and building maintenance cannot be allocated to the pants at issue,"
or to a division of assembly versus nonassembly costs. (Parties' Stip.,
Tr. at 535.) The court therefore makes Mast cost comparisons exclusive of