November, 2017
Summary Judgment at the CIT
Mark K. Neville, Jr.
If an importer finds itself at the US Court of International Trade (CIT) it is usually because the importer is seeking judicial review of a decision made by the customs authorities, US Customs and Border Protection (CBP), or the agencies administering the international trade laws. While there are other factual scenarios that lead to a CIT review, such as a party seeking judicial review of Commerce Department unfair trade remedy (read: antidumping (AD) and countervailing duty (CVD)) determinations1 or a domestic interested party seeking a CIT review of a denial of its petition asking for a review of CBP’s treatment of a competitor’s imported product, 2 the classical customs case is that of an importer challenging a CBP denial of a protest filed against a CBP decision embodied in a liquidation of the entry.
Make no mistake, however. For the past several decades the majority of CIT cases are concerned not with customs cases but with trade remedies. In those trade law cases the agencies being challenged are principally the Commerce Department and, to a lesser extent, the International Trade Commission. A cursory review of the opinions issued by the CIT in 2016 and 2017, as an example, will reveal that fully 90% of the published CIT opinions fall under that “trade law” rubric. 3 Contrast that with a Customs Court (the predecessor of the CIT) annual volume of decisions from, say, 1973 or 1974. Then you will see that the vast majority of those earlier cases dealt with tariff classification.
Apart from the cost of mounting a CIT challenge, doubtless this shift is a result of the diminished level of duty rates generally and the growth of free trade agreements. With the average duty rate in the US pegged at, perhaps, 3% there is simply not the same incentive to litigate as obtained in the days when the duty rate applied by the Customs Service was set at, say, 20% but the importer claimed a tariff provision carrying a 5% rate. A 15% swing is real money—then and now.
Parenthetically, it must be remembered here that it was the Trade Act of 1974, enacted in January 1975, which sanctioned judicial review of domestic parties’ petitions in antidumping and countervailing duty cases4 and that this step ushered in the modern era of trade remedy cases.
But let’s get back to those recent cases challenging CBP decisions.
That brings us to the CIT.
A very good example of several facets of the summary judgment practice at the CIT is presented in a recent decision, Mondelez Global LLC v.United States. 14
At stake in Mondelez was the tariff classification of a gum base, a substance that is used in making chewing gum. CBP usually employs a broad brush approach to tariff classification questions on products that are ingested, holding them to be food preparations, classified under the basket provision of tariff provision 2106.90.99, Harmonized Tariff Schedule of the United States (HTSUS). The importer wanted to classify the product under subheading 3824.90.92, HTSUS, as a “chemical product[] and preparation[] of the chemical or allied industries.”
The government’s train of thought ran along the following track-- gum base is a “food preparation” under heading 2106 because chewing gum is a “food,” a “preparation” is a substance specially prepared for a particular application, and gum base is used exclusively for manufacturing chewing gum, itself a food. The importer countered, stating that heading 2106 covers only products that are themselves “consumed as food,” not those simply used in food, and that gum base is not “consumed as food.”
The CIT sided with the importer, observing that products are not classifiable under heading 2106, HTSUS, merely because they are specifically made for use “in food.” The judge noted that the heading did not refer to “preparations for” food.
The government referred to a number of earlier rulings for support but the court rejected them because it held that in none of the cited rulings did CBO place the imported articles into heading 2106 as a food preparation because they were incorporated into food. That may be the case, as I did not review the cited rulings. In any event, I can direct you (and the court) to ruling no. H060975 (9/3/10) where CBP classified various Capol® substances into heading 2106 precisely because, while they were not foods themselves, they were to be incorporated into food. See also, inter alia, ruling nos. N097995 (4/13/10) and N181476 (8/30/11). The court rejected this argument, observing that a product is not classifiable under heading 2106, HTSUS, merely because it is specially prepared for use in food, instead the preparation must itself be food.15
The court then engaged in a close review of what is meant by “food” looking to various definitions. The government had argued that a food was for “human consumption,” which the government defined as “the act of consuming, as by use, decay, or destruction.” In contrast, the importer argued that food was a substance meant to be ingested.
Based on an earlier appellate court decision, 16 the Mondelez court defined a food as a substance that is (i) meant to be ingested or (ii) used to impart flavor or nutrients. Since the gum base itself was not meant to be ingested, and since it imparted no flavor, the remaining question was whether the gum base imparted nutritive compounds to be ingested.
The importer argued that the case was ripe for summary judgment in its favor but the court acceded to the government’s request for time to conduct discovery. The court noted that the very question that was central to the status of the gum base as a food, i.e., whether it had nutritive properties, was also central to classification in heading 3824. This is because the Explanatory Notes to heading 3824 heading show that classification in that heading may not lie, “The mixtures which are excluded from Chapter 38 by virtue of Note 1(b) are those which are of a kind used in the preparation of human foodstuffs and which are valued for their nutritional qualities.”
Further to this last point, the importer argued that it was entitled to summary judgment on the classification of gum base under heading 3824, HTSUS, because gum base’s nutritive ingredients are not released during the chewing process. The court agreed, stating (Slip Op. at 15) that the importer
The opinion ended on the note that if the government did not press forward with discovery, the court was prepared to issue judgment for the importer.
You can start with the timing of the administrative review of the liquidated entry with the protest being filed by the importer at the port through the initiating of the case at the CIT, the conducting of discovery and the framing of the motion for summary judgment. The Mondelez case is a worthwhile accompaniment to this primer lesson in substantive and procedural customs law.
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Breakdown of CIT Cases—Customs vs. Trade Issues
For the most part, the “garden variety” decision of CBP being challenged goes to the tariff classification of the imported merchandise and, in a very few instances, to customs valuation. We may regard these as “customs cases.”Make no mistake, however. For the past several decades the majority of CIT cases are concerned not with customs cases but with trade remedies. In those trade law cases the agencies being challenged are principally the Commerce Department and, to a lesser extent, the International Trade Commission. A cursory review of the opinions issued by the CIT in 2016 and 2017, as an example, will reveal that fully 90% of the published CIT opinions fall under that “trade law” rubric. 3 Contrast that with a Customs Court (the predecessor of the CIT) annual volume of decisions from, say, 1973 or 1974. Then you will see that the vast majority of those earlier cases dealt with tariff classification.
Apart from the cost of mounting a CIT challenge, doubtless this shift is a result of the diminished level of duty rates generally and the growth of free trade agreements. With the average duty rate in the US pegged at, perhaps, 3% there is simply not the same incentive to litigate as obtained in the days when the duty rate applied by the Customs Service was set at, say, 20% but the importer claimed a tariff provision carrying a 5% rate. A 15% swing is real money—then and now.
Parenthetically, it must be remembered here that it was the Trade Act of 1974, enacted in January 1975, which sanctioned judicial review of domestic parties’ petitions in antidumping and countervailing duty cases4 and that this step ushered in the modern era of trade remedy cases.
But let’s get back to those recent cases challenging CBP decisions.
Administrative Review: the Protest
The administrative process will have run its course, meaning that the importer had timely filed a protest against the CBP decision5 but the protest was denied. After CBP’s denial of the protest, pursuant to Section 515 of the Tariff Act of 1930, 6 the importer has a 180-day period within which to commence its action at the CIT. 7 A civil action contesting a denied protest under Section 515 (a) is commenced by the filing of a summons, although most cases are initiated by the simultaneous filing of a complaint as well.That brings us to the CIT.
CIT Practice
The first point to make here is that most cases at the CIT are resolved without a trial but rather on the basis of a dispositive motion. This is the reality of the modern era of CIT practice, the beginning of which we might set in 1975 with the Trade Act of 1974 or in 1980 with the establishment of the CIT, taking the place of the Customs Court. Prior to that, when the Customs Court would routinely leave New York and “go on docket” and trials would be set at the various “outports” around the country. This was a time with more of a “seat of the pants” approach marked by bench trials with live testimony and a lot less formal discovery. As noted, more often than not, substantively the CIT was called upon to review tariff classification matters. In the case of the trade remedy cases, the parties will ordinarily file a motion for judgment on the agency record. 8 The CIT will review the factual record of the proceeding at the Commerce Department and/or the ITC and decide as a matter of law whether the agency determinations were based on substantial evidence in record and in accordance with law.9Customs Cases—De Novo Review
In the case of tariff classification contests, the CIT will apply a de novo standard of review, i.e., the CIT will decide the case on the basis of the record made before the court. 10 That leads to the question, how do the parties present their case (make the record) before the CIT?Summary Judgment Practice
In tariff classification cases especially, the parties will almost invariably file for summary judgment, 11 which will be granted if the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. The moving party must show that there is no genuine dispute as to the exact nature of the imported article. 12 The party seeking to file a motion for summary judgment will try to get the opposing party to agree to facts about the imported article in the hopes of getting into the area of “no genuine dispute” about the facts. The moving party will try and get agreement on a joint statement of those facts but more usually the movant will support its motion with its own statement of “material facts as to which there is no genuine issue to be tried” or “Statement of Undisputed Material Facts” 13 in the absence of such a joint filing. In the event, many of these cases will be the subject of cross-motions for summary judgment, with both parties adopting the position that there are no factual issues in dispute and that the judge can dispose of the case on the basis of its legal interpretation of those facts. As an illustration, of the eight decisions on the merits in these 1581 (a) customs cases to this point in 2017, six involved crossing motions for summary judgment with two cases showing defendant’s motion. To make the point clear—a quick survey shows that all of the tariff classification decisions issued by the CIT this year were the subject of motions for summary judgment. This also means, of course, that none of these cases went to a live trial.A very good example of several facets of the summary judgment practice at the CIT is presented in a recent decision, Mondelez Global LLC v.United States. 14
Mondelez Case
The first point to note is that the case involved tariff classification. No surprise there. And the case dealt with cross motions for summary judgment. Again, no surprise. But the opinion demonstrates both the standards that must be met for a successful summary judgment and the rigorous textual analysis that can be employed by the CIT in a tariff classification matter.At stake in Mondelez was the tariff classification of a gum base, a substance that is used in making chewing gum. CBP usually employs a broad brush approach to tariff classification questions on products that are ingested, holding them to be food preparations, classified under the basket provision of tariff provision 2106.90.99, Harmonized Tariff Schedule of the United States (HTSUS). The importer wanted to classify the product under subheading 3824.90.92, HTSUS, as a “chemical product[] and preparation[] of the chemical or allied industries.”
The government’s train of thought ran along the following track-- gum base is a “food preparation” under heading 2106 because chewing gum is a “food,” a “preparation” is a substance specially prepared for a particular application, and gum base is used exclusively for manufacturing chewing gum, itself a food. The importer countered, stating that heading 2106 covers only products that are themselves “consumed as food,” not those simply used in food, and that gum base is not “consumed as food.”
The CIT sided with the importer, observing that products are not classifiable under heading 2106, HTSUS, merely because they are specifically made for use “in food.” The judge noted that the heading did not refer to “preparations for” food.
The government referred to a number of earlier rulings for support but the court rejected them because it held that in none of the cited rulings did CBO place the imported articles into heading 2106 as a food preparation because they were incorporated into food. That may be the case, as I did not review the cited rulings. In any event, I can direct you (and the court) to ruling no. H060975 (9/3/10) where CBP classified various Capol® substances into heading 2106 precisely because, while they were not foods themselves, they were to be incorporated into food. See also, inter alia, ruling nos. N097995 (4/13/10) and N181476 (8/30/11). The court rejected this argument, observing that a product is not classifiable under heading 2106, HTSUS, merely because it is specially prepared for use in food, instead the preparation must itself be food.15
The court then engaged in a close review of what is meant by “food” looking to various definitions. The government had argued that a food was for “human consumption,” which the government defined as “the act of consuming, as by use, decay, or destruction.” In contrast, the importer argued that food was a substance meant to be ingested.
Based on an earlier appellate court decision, 16 the Mondelez court defined a food as a substance that is (i) meant to be ingested or (ii) used to impart flavor or nutrients. Since the gum base itself was not meant to be ingested, and since it imparted no flavor, the remaining question was whether the gum base imparted nutritive compounds to be ingested.
The importer argued that the case was ripe for summary judgment in its favor but the court acceded to the government’s request for time to conduct discovery. The court noted that the very question that was central to the status of the gum base as a food, i.e., whether it had nutritive properties, was also central to classification in heading 3824. This is because the Explanatory Notes to heading 3824 heading show that classification in that heading may not lie, “The mixtures which are excluded from Chapter 38 by virtue of Note 1(b) are those which are of a kind used in the preparation of human foodstuffs and which are valued for their nutritional qualities.”
Further to this last point, the importer argued that it was entitled to summary judgment on the classification of gum base under heading 3824, HTSUS, because gum base’s nutritive ingredients are not released during the chewing process. The court agreed, stating (Slip Op. at 15) that the importer
correctly notes that if a product has nutritive ingredients but does not release these ingredients, then the mixture does not have “nutritive value” for purposes of Note 1(b) to Chapter 38 because inherent in a product having nutrition is that it provides nutrition.
The court made it clear that the mere existence of nutritional qualities for the gum base will not suffice for the government. It must show that the nutrition is not incidental or is a valuable aspect of the gum base.The opinion ended on the note that if the government did not press forward with discovery, the court was prepared to issue judgment for the importer.
Summary and Conclusion
Whenever you see a citation to a CIT decision in a tariff classification case the odds are that there had been a motion for summary judgment which had prompted the decision. With that you might reflect on the implications of that case’s history.You can start with the timing of the administrative review of the liquidated entry with the protest being filed by the importer at the port through the initiating of the case at the CIT, the conducting of discovery and the framing of the motion for summary judgment. The Mondelez case is a worthwhile accompaniment to this primer lesson in substantive and procedural customs law.
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1. CIT jurisdiction will lie under 28 USC § 1581 (c).
2. These may be challenged under 28 USC § 1581 (b).
3. In 2016, 12 of the 121 CIT decisions arose from judicial review of denied protests, and 2017 (YTD) data show 11 of 93 cases in that category.
4. This was codified at 19 USC § 1516 (d). This provision was later repealed and the judicial review of a negative determination in these cases was shifted with the Trade Agreements Act of 1979 to the newly-enacted 19 USC § 1516a. Pub. L. 96-39, Title X, 93 Stat. 300, Act of July 26, 1979.
5. Protests must be filed within 180 days of liquidation—not before liquidation and not after that 180-day mark. 19 USC § 1514.
6. 19 USC § 1515.
7. 28 USC §§ 1581 (a) and 2636.
8. Pursuant to R. 56.2 of the CIT Rules.
9. This is the standard of review set out in 19 USC § 1516a (b) (1) (B) (i). For reviews of AD and CVD cases involving free trade agreements such as NAFTA, the standard is whether re agency action was arbitrary or capricious. 19 USC § 1516a (b) (1) (B) (ii).
10. 28 USC § 2640 (a) (1).
11. Pursuant to R. 56 of the CIT Rules.
12. See Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1365 (Fed. Cir. 1998). There is a subtle distinction between a moroon for summary judgment and the much more rarely invoked motion for judgment on the pleadings under CIT Rule 12 (c). That latter motion is appropriate when there are no material facts in dispute and the moving party is entitled to judgment as a matter of law. In other words, when it can be shown that there are neither factual nor legal questions to be resolved. Micro Systems Engineeering, Inc. v, United States, Slip Ops. 17-97, 17-98 and 17-99 (CIT 2017) and cases cited therein. The court can convert a motion to dismiss into a motion for summary judgment under Rule 56 if it relies on evidence outside the pleadings. CIT Rule 12 (d).
13. This is required under Rule 56.3 of the CIT Rules.
14. Slip Op. 17-92 (CIT 2017).
15. Citing to Franklin v. United States, 289 F.3d 753, 760–61 (Fed. Cir. 2002).
16. Id.
2. These may be challenged under 28 USC § 1581 (b).
3. In 2016, 12 of the 121 CIT decisions arose from judicial review of denied protests, and 2017 (YTD) data show 11 of 93 cases in that category.
4. This was codified at 19 USC § 1516 (d). This provision was later repealed and the judicial review of a negative determination in these cases was shifted with the Trade Agreements Act of 1979 to the newly-enacted 19 USC § 1516a. Pub. L. 96-39, Title X, 93 Stat. 300, Act of July 26, 1979.
5. Protests must be filed within 180 days of liquidation—not before liquidation and not after that 180-day mark. 19 USC § 1514.
6. 19 USC § 1515.
7. 28 USC §§ 1581 (a) and 2636.
8. Pursuant to R. 56.2 of the CIT Rules.
9. This is the standard of review set out in 19 USC § 1516a (b) (1) (B) (i). For reviews of AD and CVD cases involving free trade agreements such as NAFTA, the standard is whether re agency action was arbitrary or capricious. 19 USC § 1516a (b) (1) (B) (ii).
10. 28 USC § 2640 (a) (1).
11. Pursuant to R. 56 of the CIT Rules.
12. See Bausch & Lomb, Inc. v. United States, 148 F.3d 1363, 1365 (Fed. Cir. 1998). There is a subtle distinction between a moroon for summary judgment and the much more rarely invoked motion for judgment on the pleadings under CIT Rule 12 (c). That latter motion is appropriate when there are no material facts in dispute and the moving party is entitled to judgment as a matter of law. In other words, when it can be shown that there are neither factual nor legal questions to be resolved. Micro Systems Engineeering, Inc. v, United States, Slip Ops. 17-97, 17-98 and 17-99 (CIT 2017) and cases cited therein. The court can convert a motion to dismiss into a motion for summary judgment under Rule 56 if it relies on evidence outside the pleadings. CIT Rule 12 (d).
13. This is required under Rule 56.3 of the CIT Rules.
14. Slip Op. 17-92 (CIT 2017).
15. Citing to Franklin v. United States, 289 F.3d 753, 760–61 (Fed. Cir. 2002).
16. Id.
Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.