Appeals Court Rules that Painting is Eligible for HTS 9802.00.80 Duty Benefits
On March 18, 2004, in DaimlerChrysler Corporation v. U.S., the U.S. Court of Appeals for the Federal Circuit (CAFC) reversed the Court of International Trade's (CIT) denial of 9802.00.80 duty benefits for the top-coat painting of certain trucks assembled in Mexico.
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(In a 2000 CIT decision, the court stated that both DaimlerChrysler and the U.S. agreed that the primer coats of paint were eligible for 9802.00.80 duty benefits, but did not agree whether the top-coat painting was eligible. In a 2002 CIT decision, the CIT agreed with the U.S. that the top-coat painting was ineligible for HTS 9802.00.80 duty benefits, pursuant to 19 CFR 10.16(b)(3) and (c)(3), as well as (c)(5).)
According to the CAFC, the 1999 Supreme Court decision, U.S. v. Haggar Apparel Company, generally determined that painting is incidental to the assembly process of 9802.00.80, and that such painting includes the application of both decorative and preservative coatings.
(The Supreme Court had determined that 9802.00.80 established two different categories of operations incidental to assembly - an unambiguous category including specifically enumerated operations such as cleaning, lubricating, and painting, and an ambiguous category containing all other operations not specifically provided for. See ITT's Online Archives or 04/23/99 news, 99042222 for BP summary.)
Painting is Unambiguously Eligible for 9802.00.80 Duty Benefits
The CAFC therefore rejected the CIT's reliance on 19 CFR 10.16(b)(3) and (c)(3) to deny DaimlerChrysler its 9802.00.80 duty benefits for the top-coat painting operations, stating that 9802.00.80 unambiguously provides that painting, including DaimlerChrysler's top-coat painting, is an operation incidental to assembly and consequently qualifies for its duty benefits.
Customs Regulations (19 CFR 10.16(b)(3) and (c)(3)) are Invalid
Moreover, the CAFC ruled that Customs' distinction between decorative and preservative paint coatings in its regulations at 19 CFR 10.16(b)(3) and (c)(3) is invalid.
(9802.00.80 provides duty benefits for articles. . . . assembled abroad in whole or in part of fabricated components, the product of the U.S., 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.)
CAFC decision 03-1192 (dated 03/18/04), available at http://www.fedcir.gov/opinions/03-1192.doc
Correction to cover sheet of CAFC decision available at http://www.fedcir.gov/opinions/03-1192e.doc