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No. 98-1356


In the Supreme Court of the United States
OCTOBER TERM, 1998

UNITED STATES OF AMERICA, PETITIONER

v.

LEVI STRAUSS & COMPANY

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

SETH P. WAXMAN
Solicitor General
Counsel of Record
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217


QUESTIONS PRESENTED
1. Whether regulations issued by the Treasury Department under the Tariff Act are entitled to deference in determining the proper tariff classification of imported goods.
2. Whether 19 C.F.R. 10.16(c) reasonably interprets the statutory phrase "operations incidental to the assembly process" in Subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States.



In the Supreme Court of the United States
OCTOBER TERM, 1998

NO.
UNITED STATES OF AMERICA, PETITIONER

v.

LEVI STRAUSS & COMPANY

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

The Solicitor General, on behalf of the United States, respectfully petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Federal Circuit in this case.
OPINIONS BELOW
The opinion of the court of appeals (App., infra, 1a-13a) is reported at 156 F.3d 1345. The opinion of the Court of International Trade (App., infra, 14a-28a) is reported at 969 F. Supp. 75.
JURISDICTION
The judgment of the court of appeals (App., infra, 29a) was entered on September 22, 1998. A petition for rehearing was denied on November 24, 1998 (App., infra, 30a). The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).
STATUTORY AND REGULATORY PROVISIONS INVOLVED
1. 28 U.S.C. 2643(b) provides:
If the Court of International Trade is unable to determine the correct decision on the basis of the evidence presented in any civil action, the court may order a retrial or rehearing for all purposes, or may order such further administrative or adjudicative procedures as the court considers necessary to enable it to reach the correct decision.
2. Subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States, 19 U.S.C. 1202, provides that, with respect to:
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[, the duty that is to be paid is to be calculated] upon the full value of the imported article, less the cost or value of such products of the United States .
3. 19 C.F.R. 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. The following are examples of operations not considered incidental to the assembly as provided under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (19 U.S.C. 1202):
(1) Melting of exported ingots and pouring of the metal into molds to produce cast metal parts;
(2) Cutting of garment parts according to pattern from exported material;
(3) Painting primarily intended to enhance the appearance of an article or to impart distinctive features or characteristics;
(4) Chemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dying or bleaching of textiles;
(5) Machining, polishing, burnishing, peening, plating (other than plating incidental to the assembly), embossing, pressing, stamping, extruding, drawing, annealing, tempering, case hardening, and any other operation, treatment or process which imparts significant new characteristics or qualities to the article affected.
STATEMENT
1. Respondent Levi Strauss & Company brought this suit in the United States Court of International Trade to recover duties paid under protest for the importations of certain denim jeans in 1993. The garments were assembled in Guatemala from components made in the United States. App., infra, 14a-15a. After assembly, the garments were subjected to a "stonewashing" operation in which they were treated with a chemical enzyme to impart a faded and artificially worn appearance that was desirable to consumers. Id. at 2a-3a.
Under Subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States, 19 U.S.C. 1202, an importer is entitled to a partial duty allowance for:
Articles * * * assembled abroad in whole or in part of fabricated components, the product of the United States, which * * * (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.
Pursuant to authority conferred on the Secretary of the Treasury "to issue rules and regulations governing the admission of articles under the provisions of the schedules" (Tariff Schedules of the United States, General Headnote 11, 19 U.S.C. 1202 (1982)), the Treasury has specified by regulation that "[a]ny significant process, operation, or treatment other than assembly whose primary purpose is the * * * physical or chemical improvement of a component * * * shall not be regarded as incidental to the assembly" and therefore does not qualify for this duty exemption. 19 C.F.R. 10.16(c). Applying this standard, the regulations specify that this duty exemption is not available for the "[c]hemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dying or bleaching of textiles." 19 C.F.R. 10.16(c)(4). The Customs Service determined that the "stonewashing" conducted by respondent falls within the scope of the exclusions described in the regulation and therefore denied respondent's request for a duty exemption. App., infra, 14a-15a.
2. The Court of International Trade has exclusive jurisdiction to review protests from Customs Service determinations. 28 U.S.C. 1581(a). The court rejected the Customs Service determination in this case and directed that the duties be refunded to respondent. App., infra, 14a-28a.
Relying on the decision of the Federal Circuit in Rollerblade, Inc. v. United States, 112 F.3d 481, 484 (1997), the court held that no deference was owed to the Treasury's interpretations of the classification provisions of the Tariff. The court stated that its statutory responsibility "to determine the correct decision" (28 U.S.C. 2643(b)) precludes any deference to the agency's interpretive regulations "under the administrative deference standard promulgated in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 * * * (1984)." App., infra, 16a n.2.
Having thus elected to ignore the agency's regulations, the court proceeded to apply a set of judicially created factors to determine de novo whether Levi's stonewashing operation is "incidental to the assembly process" and therefore within the scope of the duty exception provided in Subheading 9802.00.80 of the Harmonized Tariff. As a source for such judicially-created factors, the court looked to the decision of the Federal Circuit in United States v. Mast Industries, Inc., 668 F.2d 501, 506 & n.7 (1981). In Mast, the court of appeals held that, in determining whether a process is incidental to assembly for purposes of the tariff exemption, courts should consider (i) whether the cost and time required by the ostensibly "incidental" operation may be considered minor compared to the cost and time required for assembly of the whole article; (ii) whether the operation is necessary to the assembly process; (iii) whether the operation is so related to assembly that it was logically performed during assembly; and (iv) whether economic or other practical considerations dictate that the operations be performed concurrently with assembly. Ibid. See also General Motors Corp. v. United States, 976 F.2d 716 (Fed. Cir. 1992). The trial court found that Levi's stonewashing process "is not necessary to the assembly process" (App., infra, 23a) but, relying on its recent decision in Haggar Apparel Co. v. United States, 938 F. Supp. 868 (Ct. Int'l Trade 1996), aff'd, 127 F.3d 1460 (Fed. Cir. 1997), cert. granted, 119 S. Ct. 30 (1998) (No. 97-2044 (argued Jan. 11, 1999)), the court held that the stonewashing procedure should be regarded as "incidental to the assembly process" because "numerous economic and practical reasons" require the procedure to occur concurrently with assembly and because stonewashing is "analogous to cleaning and painting which the statute specifically lists as being minor and incidental to the assembly processes" (App., infra, 25a, 27a).
3. The Federal Circuit has exclusive jurisdiction to review the final decisions of the Court of International Trade. 28 U.S.C. 1295(a)(5). On appeal from the decision in this case, the Federal Circuit affirmed (App., infra, 1a-13a).
The court of appeals held that the Court of International Trade had properly ignored the agency's regulations and had correctly applied the Mast factors in determining that the stonewashing of the Levi pants was "incidental to assembly" and therefore within the customs exemption (App., infra, 8a). On the question of the proper deference owed to the agency's regulations, the court simply cited its recent decision in Haggar Apparel Co. v. United States, 127 F.3d at 1462, and stated that it was "bound by precedent squarely rejecting the government's assertion of deference to Customs's regulatory interpretations of tariff classifications" (App., infra, 7a).
4. The United States filed a petition for rehearing with a suggestion of rehearing en banc. We requested the court of appeals to defer consideration of that petition pending disposition by this Court of United States v. Haggar Apparel Co., No. 97-2044, in which this Court granted the government's petition for a writ of certiorari on September 29, 1998. On November 24, 1998, however, while the Haggar case was being briefed in this Court, the court of appeals denied the rehearing petition in the present case. App., infra, 29a-30a.
REASONS FOR GRANTING THE PETITION
This case presents the same question of the proper deference owed to Treasury interpretations of the Tariff Act that is currently pending for decision by this Court in United States v. Haggar Apparel Co., No. 97-2044 (argued Jan. 11, 1999). Moreover, both cases present that question in the context of the Treasury regulation (19 C.F.R. 10.16(c)) that interprets the duty allowance for operations "incidental to the assembly process" under Subheading 9802.00.80 of the Harmonized Tariff Schedule.
The petition for a writ of certiorari in Haggar was granted on the day before the decision in the present case was issued by the Federal Circuit. The disposition of the present case will be governed by the decision of this Court in Haggar. The Court should therefore hold the present petition and dispose of it in light of the decision in Haggar.
CONCLUSION
The petition for a writ of certiorari should be held and disposed of as appropriate in light of the Court's disposition of United States v. Haggar Apparel Co., No. 97-2044.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
FEBRUARY 1999