## United States Court of Appeals for the Federal Circuit

2007-1167

GRAHAM ENGINEERING CORP., Plaintiff-Appellant,

v.

UNITED STATES, Defendant-Appellee.

Stephen J. Leahy , Law Office of Stephen J. Leahy , of Hingham, Massachusetts, argued for plaintiff-appellant. Marcella Powell , Attorney, International Trade Fi eld Office, Commercial Litigation Branch, Civil Division, United States Department of Justic e, of New York, New York, argued for defendant-appellee. With her on the brief was Barbara S. William , Attorney in Charge. Also on the br ief were Peter D. Keisler , Acting Attorney General, and Jeanne E. Davidson , Director, Commercial Litigation Branch, Civil Division, United States Department of Just ice, of Washington, DC. Of counsel was Aimee Lee . Of counsel on the brief was Su-Jin Yoo , Office of Assistant Chief Counsel, United States Customs and Border Protection. Appealed from: United States C ourt of International Trade Chief Judge Jane A. Restani

## United States Court of Appeals for the Federal Circuit

2007-1167

GRAHAM ENGINEERING CORP., Plaintiff-Appellant,

v. UNITED STATES, Defendant-Appellee.

_________ __________________ DECIDED: December 14, 2007

_________ __________________ Before BRYSON, Circuit Judge , CLEVENGER, Senior Circuit Judge , and MOORE, Circuit Judge

. CLEVENGER, Senior Circuit Judge

. Graham Engi neering Corp. ("Graham") appeals fr om the final decision of the United States Court of International Trad e, which sustained t he decision of U.S. Customs and Border Protection (“Customs ”) to deny Graham’s claim for unused merchandise duty drawback pursuant to 19 U.S.C. § 1313(j)(1). We affirm. I In May of 2000, Graham imported into the United States a blow molding machine and paid the requisite duty for that machine to Customs. Section 131 3(j)(1) of Title 19 provides for a 99 percent refund of the duty paid, if the imported merchandise upon which duty has been paid is exported within th ree years from entry without use in theUnited States before exportation. In stat utory and common parlance, this particular recovery is known as an “unused merchandise drawback.” In October of 2000, Graham exported, via the port of Houston, Texas, the blow molding machine that it had imported a few mont hs earlier. Before exportation, Graham did not file a notice of intent to export as required by the Customs drawback regulation. See 19 C.F.R. § 191.35. S ubsequently, Graham filed a drawback entry requesting a refund of 99 percent of the duty previously pa id pursuant to section 1313(j)(1). Customs liquidated the drawback entry on December 21, 2001, denyin g a refund of the duty on the ground that failure to have given the r equired notice of intent to export deprived Customs of the opportunity to inspect the goods to assure its lack of use in the United States. Absent such notice, Customs deemed Graham ineligible for the statutory unused merchandise drawback. Graham timely filed a protest to the adve rse liquidation of its drawback entry. Graham asserted that the ma chine in question was unused in the United States and exported within three years of entry, and that Customs’s regulation requiring notice of intent to export as a condition of entitle ment to drawback duty under section 1313(j)(1) is invalid. Customs responded, arguing that its notice regulatio n is valid as necessary to enable Customs to ascertain, before export, if goods are entitled to an unused merchandise drawback. On July 30, 2004, Gr aham filed its complain t in the Court of International Trade against the United States for denial of its protest.

2007-1167 2II Before the Court of International Trade, no material facts were in dispute. Graham exported its blow mo lding machine (which it averred had been unused) within three years of importation and thus asserted entitlement to a section 1313(j)(1) unused merchandise drawback. Graham did not give no tice of intent to export, as required by Customs’s regulation. Cross motions fo r summary judgment framed the sole issue before the court: whether Customs’s notice of intent to ex port regulation is valid. If so, Graham did not contest its ineligibility to the requested unused merc handise drawback. If the regulation is invalid, Graham asserted that it has satisfied all the statutory requirements for the request ed drawback of duty. The Court of International Trade addr essed the statute in question, 19 U.S.C. § 1313(j)(1), which provides for the drawba ck of duty on unused merchandise if, within three years from import, it is “(i) exported, or (ii) destroyed under cu stoms supervision.” Based on the language of the statute, Graham argued that s upervision by Customs is permitted in connection with destruction of unused goods before exportation, but exportation alone, without any kind of involvement by Cust oms concerning exportation, is the only test of entitlement to the unused (but not destroy ed) merchandise duty drawback. Customs argued, to the contrary, that the statut e was silent as to how the United States could satisfy itself that goods exported actually had been unused in the United States. Customs point ed to the rulemaking author ity embedded in section 1313 itself, subsection (l), which provides that “[a]llowance of the privileges provided for in this section shall be subject to compliance with such rules and regulations as the Secretary of the Treasury sha ll prescribe.” Customs argu ed that Congress had, through

2007-1167 3its grant of specific rulemaking authority, recognized the need for reasonable regulatory action to implement and enforce the statut ory unused merchandise duty drawback. The regulation in question, 19 C.F.R. § 191.35(a), provides that “[a] notice of intent to export merchandise which may be the subject of an unused merchandise drawback claim (19 U.S.C. § 1919(j)) must be provided to the Customs Se rvice to give Customs the opportunity to examine the merchandise.” T he regulation requires that the notice of intent to export be provided at least tw o working days before the date of intended exportation. The Court of Internat ional Trade rejected Graham’s argument that Customs lacked any legal authority to assure co mpliance with the “unus ed” requirement for drawback of duty by requiring advance notice of intent to export. The court noted, correctly, that section 1313(j )(1) provides no guidance as to how Customs can assure itself that goods are exported without previous use in the United States. The court concluded that Graham’s analysis of the statute overlooked the direction from Congress to Customs to establish rules and regu lations the compliance with which would be prerequisites to the “allowance of privil eges provided for in this section.” Graham Eng’g Corp. v. U.S. , 465 F. Supp. 2d 1353, 1357 (Ct. Int ’l Trade 2006). The court further noted that the regulation in question was ad opted after notice and comment rulemaking and was intended by Customs to carry the forc e of law upon its Apr il 6, 1998 effective date. See Final Rule, 63 Fed. R eg. 10970-10995 (Mar. 5, 19 98); Proposed Rule, 62 Fed. Reg. 3082-3114 (Jan. 21, 1997) . The court also relied on the decision of this court in United States v. Lockheed Petroleum Services, Inc. , which upheld the authority of Customs to deny drawback en tries from parties not in compliance with applicable

2007-1167 4regulations. 709 F.2d 1472, 1476 (Fed. Cir. 1983). Lockheed states that drawback privileges “are expressly c onditioned, by statut e, upon compliance with such rules and regulations as the Secretary of Treasury shall prescribe.” Id. at 1474 (internal quotations omitted). The Court of International Trade thus hel d that the notice of intent to export regulation is based on statutory authority and t herefore not unlawful on its face. In so holding, the court determined that the regulation is reasonable because it notifies Customs of intent to export and thus provides opportunity fo r inspection of goods before export. Further, the court determined that the regulation is not unduly burdensome on exporters because the notice of intent to expor t requires only certification of lack of use in the United States, information regar ding importation and intended exportation, contact information, and the lo cation of the merchandise. See 19 C.F.R. § 191.35(b). The court sustained Customs’ s denial of Graham’s claim for unused merchandise duty drawback. III Graham timely appealed the final decision of the Court of International Trade. We have jurisdiction under 18 U.S.C. § 1295(a )(5). The only question before us is one of law, namely whether the notice of intent to export regulatio n is valid. We review this question independently. See Guess? Inc. v. United States , 944 F.2d 855, 857 (Fed. Cir. 1991). IV We, like the Court of International Tr ade, recognize that Congress, when enacting section 1313(j)(1), allowed for dr awback of duty upon the exportation, within

2007-1167 5three years from entry, of merchandise unus ed in the United Stat es. In the same section of the statute, C ongress provided for similar drawback of unused merchandise that is “destroyed under customs supervision.” Id. Because Congress expressly provided for supervision of destruction by Customs of unused merchandise, Graham again argues that Customs’s attempt to regulat e exportation through notice of intent to export must be unlawful as an unauthorized ex ercise of rulemaking by Customs. According to Graham, section 1313 permits no supervision of exportation of unused merchandise because Congress expressly prov ided for supervision when it deemed such necessary, as Congress did with des truction of unused merchandise. Even though Congress expressly provided for agency r egulations of the dr awback statute as conditions for entitlement to the draw back benefits, Graham argues that such regulations, when concerned with exportation, are invalid. Graham ’s argument, boiled to its essence, is that Congress must re vise section 1313(j)(1) by adding the words “under customs supervision,” or the like, to the word “exported” before regulations concerning export promulgated under section 1313(l) can have the force of law. Like the Court of International Trade, we disagree. In section 1313, Congress provided fo r a range of drawbacks, including drawbacks for imported merchandise included in articles manufactured in the United States when the manufactured articles are exported or destroyed before exportation, drawbacks for merchandise substituted for im ported merchandise included in articles manufactured in the United States slated for export or destruction, and the unused merchandise drawback at issue in this case. With regard to all of the drawback benefits

2007-1167 6of section 1313, Congress anticipated the need fo r specific rules and regulations to be devised in order to assure proper entitlement to st atutory benefits. The rulemaking authority vest ed in the agency by subsection (l) explicitly conditions allowance of t he benefits of section 1313 on compliance with regulations Customs has prescribed. The rulemaking in question here, the notice of intent to export, is essentially procedural in nature, as its purpose is simply to afford Customs the opportunity to inspect goods claimed as u nused that are scheduled for export. The regulation does not affect t he substantive statut ory provision: unused goods exported within three years of importation receiv e drawback. Congress conditioned the allowance of drawback under se ction 1313 on compliance with regulations prescribed to assure that substantive requirements for drawback are met. This mandate is simply inconsistent with any notion that Congre ss barred Customs from promulgating such regulations with regard to exportation by fai ling to provide specific authority in section 1313(j)(1) for procedural s upervision of exports. The Supreme Court has held t hat when Congress provides express rulemaking authority to an agency in order to carry out the substantiv e provisions of a statute, a regulation promulgated under su ch authority is valid, so lo ng as the regulation is “reasonably related to the purposes of the enabling legislation.” Mourning v. Family Publ’ns Serv., Inc. , 411 U.S. 356, 369 (1973). A regulat ion is reasonably related to the purposes of its statute when the regulation is not incons istent with the statute and serves to prevent circumv ention of that statute. See Thomas Int’l, Ltd. v. United States , 773 F.2d 300, 304-05 (Fed. Cir. 1985) (upholding a Treasury D epartment regulation that guards against evasion of a statutory requirement and is not inconsistent with the

2007-1167 72007-1167 8 statute). More recently, in the context of regulations issued by the Department of Veterans Affairs, this court has applied the Supreme Court’s holding in Mourning to reject an invalidity challenge to a regulat ion promulgated by t he agency pursuant to express statutory rulemaking authority. See Carpenter, Chartered v. Sec’y of Veterans Affairs , 343 F.3d 1347, 1351-52 (Fed. Cir. 2003). We thus agree with the Court of Inte rnational Trade that Cu stoms acted within its statutory powers to promulgate a nd enforce its notice of intent to export regulation. We also agree that the regulatio n is reasonably related to the statute it serves, because the regulation affords Customs the opportunity to assure itself that the goods slated for export in fact have not been used in the Un ited States and are be ing exported within the permissible time limitation. The regulation is not inconsistent with the substantive requirements of section 1313(j)(1). Because the regulation was not satisfied in this case, Customs properly rejected Graham ’s drawback entry, and the Court of International Trade correctly sustained Customs’s decision. We therefore affirm the final decision of the Court of International Trade.

AFFIRMED