United States Court of International Trade

Slip Op. 22-15

Before the Court in Amcor Flexibles Kreuzlingen AG Co. v. United States, Court No. 16-00193, Slip Op. 22-15 (February 22, 2022) was Plaintiff’s challenge against CBP’s tariff classification of Formpack, a flexible packaging material imported by Plaintiff, under HTSUS Subheading 7607.20.10 as backed aluminum foil “covered or decorated with a character, design, fancy effect or pattern.” Id. 1-2. Plaintiff argued that Formpack is properly classified under Subheading 4911.99.80 as “other printed matter, including printed pictures and photographs” or alternatively under Subheading 7607.20.50 as “other” backed aluminum foil. Id. at 2. The Government opposed Plaintiff’s motion and argued that the printed Formpack was properly classified by CBP. Id. For the following reasons, the court concluded that Formpack is properly classified within Subheading 7607.20.50 as “other” backed aluminum foil, and accordingly granted Plaintiff’s motion for summary judgment and denied the Government’s cross-motion. Id.

The court reviews classification decisions de novo, 28 U.S.C. § 2640(a)(1), and will grant summary judgment when “the movant shows that there is no genuine dispute as to any material fact [such that] the movant is entitled to judgment as a matter of law,” USCIT R. 56(a). Id. at 6.

To define HTSUS tariff terms, the court relies on its own understanding of the terms and may also “consult lexicographic and scientific authorities, dictionaries, and other reliable information sources.” Carl Zeiss, Inc., 195 F.3d at 1379. Id. at 13. In this case, the court found that the Formpack was properly classified under Heading 7607 because “the printing on the Formpack materials at issue neither defines its essential nature and use, nor excludes it from classification as backed aluminum foil.” Id. at 8. Next, the court addressed the question of whether the flexible packaging materials at issue were “covered or decorated with a character, design, fancy effect or pattern.” Id. at 12. Here, the court had to define the terms of 7607.20.10 for itself because the key terms of 7607.20.10 were not defined in the HTSUS or the ENs. Id. at 12-13. The court rejected the Government’s contention that the printing on the Formpack represented a repeating “design” or “pattern” that “covers” or “decorates” the products. Id. at 13. First, according to the court, the fact that printing may reflect “an underlying scheme” was not sufficient to render it a design or pattern. Id. Second, the court explained that the example patterns enumerated by Note 1(d) to Chapter 76 — specifically, “grooves, ribs, checkers, tears, buttons, lozenges” — each involve repeating geometric or abstract designs that are decorative in nature, and bear little similarity to repeating blocks of informative text. Note 1(d) to Chapter 76. Id. at 14. Third, the court was not persuaded that the Formpack at issue was “covered” with a “character” or “characters” simply because the repeating blocks of informative text themselves consisted of “printed or written letters or symbols.” Id. Finally, the court found that the “whether or not printed” language in the main heading was significant. Id. at 15. Here, the court concluded that the Formpack was properly classified under the residual subheading 7607.20.50 because it could not qualify within the more specific subheading of 7607.20.10. Id. at 15. As such, the court granted Plaintiff’s motion for summary judgment and denied the Government’s cross motion. Id.

Slip Op. 22-17

Before the Court in Cyber Power Systems (USA) Inc., v. United States, Court No. 20-00124 (February 24, 2022) were cross motions for summary judgment regarding the proper country of origin marking on plaintiff’s five models of imported uninterruptible power supplies (“UPS”) and one surge voltage protector (“SVP”). Plaintiff had imported numerous parts, including printed circuit board assemblies (“PCBA”) from China into the Philippines. In the Philippines, the subject merchandise was assembled, connected, and tested using the Chinese parts. Plaintiff’s argued that the goods underwent a substantial transformation in the Philippines and were properly marked with Filipino origin and not subject to Section 301 duties. The Government argued that the PCBAs made in China provided the essence of the subject merchandise. Therefore, the products should be labeled with Chinese origin and should be subject to the Section 301 tariffs. However, for the following reasons the Court found that issues of fact still remained unresolved and directed the parties to prepare for trial.

As an initial matter the Court noted that “the parties dispute the underlying statutory purpose of the marking statute at issue” and resolved this issue before turning to the substantial transformation test. Id. at 6. Cyber Power argued “that the consumer disclosure provisions of the marking statute, 19 U.S.C. §1304(a), are to advise a retail purchaser where a UPS or SVP were made, … where the workmanship was put into the product to create it.” Id. at 7. The Government argued “that the main purpose of the country-of-origin marking statute is to inform the consumer where the majority of an article’s parts are manufactured.” Id. at 8. The Government also argued that the Section 301 tariffs “would be thwarted if almost all the parts of an article could be manufactured in China, then sent to a non-Section 301 country for assembly.” Id. at 8. The Court did “not agree with Defendant that the purpose of the marking statute is to inform the consumer about the country-of-origin as to the component parts of the merchandise.” Id. at 9.

The Court also did not “agree with Defendant that the purpose of the Section 301 tariffs “ Id. at 10. Specifically noting that “Cyber Power’s deliberate de-coupling from China, and its development of Philippine facilities used to make the subject merchandise, appears to be precisely in line with the intended consequences of the Section 301 tariffs.” Id.

Having resolved this issue, the Court then turned to substantial transformation, examining the Government’s positions first. “A ‘substantial transformation’ occurs ‘when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.’” Id. at 4. “Only a change in one of the three criteria … is required.” Id. at 5. “However, a change in name is generally considered the least persuasive factor.” Id. “Simple assembly does not substantially transform merchandise.” Id. at 10. The Court dismissed the Government’s argument that a simple assembly occurred in the Philippines because the position “conflicts with CBP regulations in other circumstances.” Id. at 11. The Court also dismissed the Government’s position that the country of origin of the PCBAs should govern because they are the critical component of the merchandise saying the proposed test would “undermine the objective of the ‘substantial transformation’ test, namely to focus on a change in name, character, or use.” Id. at 13. The Court also rejected the Government’s argument that “components assembled for a pre-determined use may never constitute substantial transformation” because “there can never be a substantial transformation because there will always be a pre-determined use.” Id. at 14. The Court noted that such test “is not, and cannot be, the law.” Id. at 15.

Finally the Court turned to plaintiff’s motion for summary judgment. On summary judgment “the evidence must be considered in the light most favorable to the non-moving party, drawing all reasonable inferences in its favor.” Id. at 2. The Court said that because “the court cannot conclude that the subject merchandise was ‘substantially transformed’ in the Philippines without finding facts or assessing the credibility of witnesses. Given that determinations of issues of fact and credibility are inappropriate at summary judgment, Plaintiff’s motion for summary judgment is denied.” Id. at 19. The parties were ordered to prepare for trial.

Neville Peterson LLP represented Plaintiff Cyber Power Systems (USA) Inc., in this case. We are confident we will procced to a victory at trial. The Judge did note in his opinion that plaintiff had presented compelling and detailed evidentiary support for its motion”. Id. at 15.

We are very pleased to see the Court dismiss the Government’s arguments, specifically concerning critical components and pre-assembled goods.