No. 98-1735
In the Supreme Court of the United States
BESTFOODS (FORMERLY KNOWN AS CPC INTERNATIONAL, INC.), PETITIONER
v.
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
SETH P. WAXMAN
Solicitor General
Counsel of Record
DAVID W. OGDEN
Acting Assistant Attorney
General
DAVID M. COHEN
JEANNE E. DAVIDSON
ARMANDO O. BONILLA
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether the peanut butter manufactured by petitioner must be marked to reflect
the Canadian origin of the peanut slurry used to produce it.
In the Supreme Court of the United States
No. 98-1735
BESTFOODS (FORMERLY KNOWN AS CPC INTERNATIONAL, INC.), PETITIONER
v.
UNITED STATES OF AMERICA
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
BRIEF FOR THE UNITED STATES IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a-12a) is reported at 165
F.3d 1371. The opinions of the Court of International Trade (Pet. App. 13a-46a,
47a-67a; C.A. Supp. App. 2-13) are reported at 933 F. Supp. 1093, 956 F.
Supp. 1014, and 971 F. Supp. 574.
JURISDICTION
The judgment of the court of appeals was entered on January 25, 1999. The
petition for a writ of certiorari was filed on April 25, 1999. The jurisdiction
of this Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. Petitioner makes peanut butter from peanut slurry, which is "a gritty,
peanut-based paste" (Pet. App. 2a). Most of the peanut slurry used
at petitioner's Arkansas plant is made in the United States, but "between
10 and 40 percent * * * is made in Canada" (ibid.). In January 1993,
petitioner sought a ruling from the Customs Service as to whether the federal
marking statute, 19 U.S.C. 1304, requires petitioner to mark its peanut
butter to indicate the Canadian origin of the peanut slurry used to produce
it. Under that statute, an article of foreign origin must be "marked
in a conspicuous place * * * in such manner as to indicate to an ultimate
purchaser in the United States * * * the country of origin of the article."
19 U.S.C. 1304(a). The marking requirement applies if the imported article
has not undergone a "substantial transformation" following importation
into the United States (Pet. App. 2a, citing United States v. Gibson-Thomsen
Co., 27 C.C.P.A. 267 (1940)). Such a "substantial transformation"
is said to occur if, as a result of processing in the United States, the
imported article loses its identity and is transformed into a new product
having "a new name, character, and use." 27 C.C.P.A. at 273.
Petitioner claimed that the manufacture of peanut butter causes a "substantial
transformation" of the imported peanut slurry and that the marking
statute is therefore inapplicable. The Customs Service concluded, however,
that marking of this product is required under regulations promulgated pursuant
to the North American Free Trade Agreement (NAFTA). Under those regulations
(19 C.F.R. §§ 102, 134.35(b)), an article imported from a NAFTA
nation is considered to have undergone a "substantial transformation"
only if the processing or manufacturing steps that occur in this country
are sufficient to change its tariff classification. Applying the NAFTA rules
(19 C.F.R. § 102.18(b)(2)), the Customs Service determined that, (i)
because the peanut slurry had "the essential character of the finished
peanut butter," the same tariff classification applies to both and,
(ii) because no "tariff shift" occurred, petitioner's peanut butter
must be marked to reflect the Canadian origin of the imported peanut slurry
(Pet. App. 4a).
2. Petitioner challenged the agency's ruling in the Court of International
Trade. The court held that the regulations issued by the agency under NAFTA
were invalid because they did not apply the same case-by-case "substantial
transformation" test that governed prior to adoption of NAFTA. The
court remanded the case to the agency for application of the case-by-case
"substantial transformation" test to the facts of this case (Pet.
App. 4a-5a).
On remand, the agency concluded that "the imported peanut slurry was
not substantially transformed by being processed into peanut butter, because
the essential character of the finished peanut butter was imparted by the
peanut slurry" (Pet. App. 5a). The agency therefore ruled that marking
of petitioner's peanut butter was required under the "substantial transformation"
test.
The Court of International Trade upheld the agency's determination. The
court concluded that "peanut slurry is a form of peanut butter, and
that the processing * * * to convert peanut slurry into peanut butter did
not alter the essential character of the product" (Pet. App. 5a).
3. The court of appeals upheld the agency's determination that petitioner
is required to mark its peanut butter under the NAFTA regulations. In so
holding, the court of appeals reversed the determination of the Court of
International Trade that these regulations are invalid (Pet. App. 5a, 12a).
The court of appeals noted that NAFTA "required the Secretary of the
Treasury to adopt marking rules, based on the tariff-shift approach,"
for goods moving among the NAFTA signatory nations (Pet. App. 8a). Annex
311 of NAFTA (Pet. App. 76a-80a) specifies that an imported article is not
subject to the marking requirement if it undergoes "a tariff shift
after importation" (Pet. App. 9a). In enacting 19 U.S.C. 3314(b), Congress
expressly authorized the Secretary of the Treasury to promulgate such rules
and regulations as are "necessary or appropriate" to implement
these NAFTA provisions. Ibid. The court of appeals concluded that (Pet.
App. 9a):
[T]he effect of Congress's authorizing the Secretary of the Treasury to
promulgate regulations "necessary or appropriate" to make the
United States' marking rules comply with the requirements of Annex 311,
see 19 U.S.C. §3314(b), was to empower the Secretary to adopt a construction
of the federal marking statute, for NAFTA goods, that was based on the tariff-shift
approach * * * .
Because the NAFTA regulations properly govern this case, the court of appeals
found it unnecessary to consider whether, in the absence of those regulations,
marking of petitioner's peanut butter would have been required under the
pre-NAFTA "substantial transformation" test (Pet. App. 5a).
ARGUMENT
The decision of the court of appeals is correct and does not conflict with
any decision of this Court or any other court of appeals. Further review
is therefore not warranted.
1. As the facts of this case illustrate, the "tariff shift" test
and the case-by-case "substantial transformation" test will often
yield the same result. A good whose tariff classification and "essential
character" is unchanged is ordinarily one that has not been "substantially
transformed" (Pet. App. 5a). In the present case, for example, the
Customs Service concluded both (i) that the tariff classification of the
imported good was not changed because its "essential character"
was not altered by the processing and (ii) that the processing of the imported
good did not cause a "substantial transformation" of it (ibid.).
The question whether one or the other of these closely related standards
ultimately governs in such cases is not properly framed for review here,
for a determination of the governing legal standard would not alter the
ultimate disposition of the substantive controversy. Indeed, the legal test
that petitioner contends should govern was applied in the Court of International
Trade, and the agency's determination was upheld under that standard (ibid.).
In this context, review of the abstract question that petitioner frames
is not warranted. This Court sits "to correct wrong judgments, not
to revise opinions" (Herb v. Pitcairn, 324 U.S. 117, 126 (1945)).
2. a. Petitioner errs in asserting (Pet. 16-18) that Congress has traditionally
withheld from the agency any authority to interpret and implement the marking
requirements of 19 U.S.C. 1304. In the Tariff Act of 1930, Congress expressly
delegated broad rulemaking authority to the Secretary of the Treasury to
adopt "such rules and regulations as may be necessary to carry out"
the tariff laws, including in particular the marking requirements of Section
1304. 19 U.S.C. 1624. See also 19 U.S.C. 66.
Petitioner nonetheless asserts that, in enacting the Customs Administration
Act of 1938, Congress "explicitly denied" (Pet. 16) the agency
any authority over the marking provisions. As originally enacted, the first
sentence of the Tariff Act of 1930, ch. 497, Tit. III, § 304, 46 Stat.
687 (emphasis added), provided:
(a) Manner of Marking.-Every article imported into the United States, and
its immediate container, and the package in which such article is imported,
shall be marked, stamped, branded, or labeled in legible English words,
in a conspicuous place, in such manner as to indicate the country of origin
of such article, in accordance with such regulations as the Secretary of
the Treasury may prescribe.
In contrast, the first sentence of the Customs Administration Act, ch. 679,
§ 3, 52 Stat. 1077 (19 U.S.C. 1304(a)), provides:
(a) Marking of Articles.-Except as hereinafter provided, every article of
foreign origin (or its container * * *) imported into the United States
shall be marked in a conspicuous place as legibly, indelibly, and permanently
as the nature of the article (or container) will permit in such manner as
to indicate to an ultimate purchaser in the United States the English name
of the country of origin of the article.
Petitioner claims that, by removing the phrase "in accordance with
such regulations as the Secretary * * * may prescribe" from the first
sentence of the 1930 statute, Congress "expressly repealed" the
Secretary's authority to define, by regulation, the terms included in the
basic marking requirement.
The deleted phrase, however, concisely and directly referred to the Secretary's
authority to regulate how, not whether, imported articles were to be marked-
even the title of the relevant section of the 1930 statute is "Manner
of Marking." (Emphasis added). Instead of limiting the agency's preexisting
authority to adopt all "necessary" regulations to administer the
substantive provisions of the Tariff Act (19 U.S.C. 1624), the 1938 amendment
actually expanded it by authorizing the adoption of regulations to establish
exceptions from the marking requirements. 19 U.S.C. 1304(a)(3).1 Nothing
in the history of the 1930 and 1938 provisions supports the assertion of
petitioner that Congress sought to deny the agency a power-that had in fact
been granted in 19 U.S.C. 1624-to adopt rules and regulations to implement
the marking requirements of Section 1304.
b. Petitioner errs in asserting (Pet. 19) that, in authorizing the agency
to adopt rules and regulations to implement the provisions of NAFTA (19
U.S.C. 3314(a)(2)), Congress did not intend to confer any power on the agency
to determine marking rules for NAFTA goods. Petitioner's assertion is primarily
based on the contention that Congress had historically withheld such interpretive
power over marking requirements from the agency. As we have just shown,
however, the historical foundation on which petitioner rests this contention
is incorrect. Congress granted that authority to the agency in 1930, and
did not withdraw it in 1938. When, in 1994, Congress authorized the agency
to adopt rules to implement the provisions of NAFTA (19 U.S.C. 3314(b)),
Congress merely continued its longstanding policy of delegating interpretive
authority over marking requirements to the agency.
c. Contrary to petitioner's contention (Pet. 24-25), the NAFTA regulations
promulgated by the Secretary of the Treasury, and implemented by the Customs
Service, are entitled to deference under Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 842-843 (1984), and United
States v. Haggar Apparel Co., 119 S. Ct. 1392 (1999). The challenged regulations
are a reasonable interpretation of the requirement of Annex 311 of NAFTA
that imported NAFTA goods be exempt from marking when "the condition
of the good * * * has undergone [a] * * * change[] in tariff classification"
(Pet. App. 79a; id. at 6a).
The facts of this case demonstrate the reasonableness of the agency's regulation.
The regulation continues to apply the marking requirement by reference to
whether the imported article has undergone a "substantial transformation."
The sole difference between the two approaches is that, consistent with
NAFTA Annex 311, the application of this standard for NAFTA goods is determined
through the mechanism of tariff shift and related rules. 19 C.F.R. §
102.20 (1995). This regulatory approach seeks to accomplish the substance
of the former case-by-case adjudicatory method through a more predictable
and consistent method. As the agency has explained, the regulation seeks
to "provide the results that would be reached under a case-by-case
application of the substantial transformation rule." 59 Fed. Reg. 142
(1994); see 60 Fed. Reg. 22,314-22,330 (1995). The principal advantage of
the tariff shift rules is that they lend more certainty and uniformity to
the "substantial transformation" test. 60 Fed. Reg. at 22,313-22,314;
59 Fed. Reg. at 141.2
The Secretary has ample discretion to adopt a rule-oriented approach, in
lieu of an adjudicatory case-by-case approach, in making these determinations.
See, e.g., NLRB v. Bell Aerospace Co., 416 U.S. 267, 293 (1974); SEC v.
Chenery Corp., 332 U.S. 194, 203 (1947). In view of the specific endorsement
of the "tariff shift" method for implementing marking rules under
NAFTA Annex 311, the court of appeals correctly concluded (Pet. App. 8a-9a)
that the regulations conform to the text and the purpose of the statute
and should therefore be sustained. As the court explained (id. at 9a):
[T]he effect of Congress's authorizing the Secretary of the Treasury to
promulgate regulations "necessary or appropriate" to make the
United States' marking rules comply with the requirements of Annex 311,
see 19 U.S.C. § 3314(b), was to empower the Secretary to adopt a construction
of the federal marking statute, for NAFTA goods, that was based on the tariff-shift
approach * * * .
Petitioner argues that, in upholding this delegation of rulemaking authority
to the agency, the court of appeals "completely overlook[ed] Congress'
clear direction * * * that nothing in the Act [implementing NAFTA] shall
be construed to amend or modify any law of the United States, except as
'specifically provided' therein" (Pet. 22). The provisions of NAFTA
plainly contemplate, however, that marking rules were to be adopted, for
Annex 311 specifies that all "Parties shall establish by January 1,
1994, rules for determining whether a good is a good of a party ('Marking
Rules')." Annex 311, ¶ 1 to NAFTA (Pet. App. 76a). To accomplish
that undertaking, Congress supplemented the broad, preexisting rulemaking
authority of the Secretary to implement and administer the Tariff Act of
1930 (19 U.S.C. 1624) with a similarly broad authority to promulgate all
rules and regulations "necessary or appropriate" to implement
and administer NAFTA. 19 U.S.C. 3314(b).
The court of appeals correctly concluded that the Secretary's adoption of
a rule-oriented tariff-shift method in determining whether goods imported
from a NAFTA country are "substantially transformed" during domestic
processing constitutes a "permissible interpretation" of the governing
statutes (Pet. App. 8a-9a). By issuing that regulation, the agency was simply
utilizing the specific authority granted by Congress to fulfill the obligation
of the United States under NAFTA to adopt rules to implement the NAFTA marking
requirements.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
DAVID W. OGDEN
Acting Assistant Attorney
General
DAVID M. COHEN
JEANNE E. DAVIDSON
ARMANDO O. BONILLA
Attorneys
JULY 1999
1 The focus of the 1938 amendment was to eliminate the requirement of the
1930 statute that the article, its immediate container, and outer package
all be marked. Customs Administrative Bill: Hearings on H.R. 6738 Before
the House Comm. on Ways & Means, 75th Cong., 1st Sess. 34 (1937); see
also Customs Administrative Act: Hearings on H.R. 8099 Before the Subcomm.
of the Senate Comm. on Finance, 75th Cong., 3d Sess. 4 (1938). The debate
over the amendment focused on the theoretical implictions of the proposed
statutory language designed to eliminate the unnecessary triple marking
of the article, its immediate container, and outer package. Hearings on
H.R. 6738, supra, at 41-50. Because the proposed amendment began with the
phrase "under such regulations as the Secretary of the Treasury may
prescribe," some members of Congress expressed the concern that the
basic requirement of marking imports might become discretionary rather than
mandatory. Ibid. (emphasis added). The focus of the debate concerned how
to delineate circumstances in which the Secretary could prescribe, by regulation,
exceptions for certain articles without authorizing the Secretary to eliminate
the mandatory character of the basic marking requirement. See ibid.; Pabrini
Inc. v. United States, 630 F. Supp. 360, 361 (Ct. Int'l Trade 1986).
2 The Customs Service provided a detailed explanation of the reasons for
adopting the administrative approach set forth in the NAFTA regulations.
See 58 Fed. Reg. 69,460-69,462 (1993); 59 Fed. Reg. at 110, 141 (cited in
Target Sportswear, Inc. v. United States, 875 F. Supp. 835, 842 (Ct. Int'l
Trade), aff'd, 70 F.3d 604 (Fed. Cir. 1995), cert. denied, 517 U.S. 1208
(1996)). See also J. LaNasa, III, Rules of Origin Under NAFTA: A Substantial
Transformation Into Objectively Transparent Protectionism, 34 Harv. Int'l
L.J. 381, 383-386, 390-391, 406 (1993) (discussing advantages of rule-oriented
methodology to determine issue of "substantial transformation").