# United States **Court of Appeals**  **for the Federal Circuit**

______________________
DEL MONTE CORPORATIO N, Plaintiff

- Appellant,

v.

UNITED STATES, Defendant

- Appellee.

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2013

- 1105

______________________ Appeal from the United States Court of International Trade in No. 07

- CV

- 0109, Senior Judge Thomas J. Aquil ino, Jr.

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Decided: September 16 , 2013

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B RETT I AN H ARRIS , Pisani & Roll PLLC, of Washin gton , DC , argued for plaintiff

- appellant. With him on the brief were R OBERT J. P ISANI ; and M ICHAEL E. R OLLS , of Los Angeles, California.

A LEXANDER J. V ANDERWEIDE , Trial Attorney, Civil D ivision, International Trade Field Office, Un ited States Department of Justice, of New York, New York, argued for defendant

- appellee. With h im on the brief were S TUART F. D ELERY , Acting Assistant Attorney General, J EANNE E. D AVIDSON , Director, of Washington, DC; andDEL MONTE CORPORATIO N v. US 2

B ARBARA S. W ILLIAMS , Attorney in Charge, of New York, New York . Of counsel on the brief was Y ELENA S LEPAK , Office of the Chief Counsel, United States Customs and Border Protection, of New York, New York.

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Before P ROST , O’M ALLEY , and T ARANTO , Circuit Jud g es.
T ARAN TO , Circuit Judge

. Del Monte Corporation imports tuna products consis ting of cooked tuna, together with sauce, in a package

. U.S. Customs and Border Protection classifi ed two of those products under subheading 1604.14.10 of the Ha rmonized Tariff Schedule of the United States , which

covers tuna packed “in oil ,” because the ir sauce s in clude

some oil. In addition, Customs appraised the goods based on the price that Del Monte paid its supplier at the time of importation

, without adjust ing for approximately $1.5 million that Del Monte later received from its supplier after negotiations over the accuracy of the amount orig inally paid

. Del Monte brought suit in the Court of Inte rnational Trade contest ing tho se two agency determinations. T he trade court held that Del Monte’s goods were properly classified and valued . W e affirm.

B ACKGROUND
The imported merchandise at issue consists of tuna fillets or strips in a sauce

, packed in a sealed microwav eable pouch. There are t hree varieties : Teriy aki, Albacore Lemon & Cracked Pepper, and Yellowfin Lightly Se asoned

. In all t hree

, the tuna is not cooked or prepared in oil and is p rocessed separately from the sauce , which is added after the tuna is placed in to the pouch

. The tuna accounts for 80 per cent of the total product weight , and the sauce accounts for the remaining 20 percent. I n the Lemon Pepper and Lightly Seasoned products , the sauce contains some sunflower oil (2. 48 percent and 0. 62 per-DEL MONTE CORPORATIO N v. US 3

cent of the total weight of the pouch’s contents

, or 12.4 percent and 3.1 percent of the sauce weight

, respectively).

In late 2004, Del Monte requested a ruling on the proper classification of its goods under the Harmonized Tariff Schedule

. Customs issued a letter in March 2005 finding that those Del Monte products with oil in their

sauce s should be classified as “in oil” under subheading 1604.14.10 . Del Monte requested reconsideration

— arguing that the goods should instead be classified as “not in oil”

— but the agency again found that subheading 1604.14.10 was the correct classification.
Apart from deciding how to classify Del Monte’s goods

, Customs also had to determine how to value them. Chotiwat Manufacturing Co.

, Ltd.

, packs the products in Thailand and supplies them to Del Monte

. Chotiwat and Del Monte initially estimated that it would cost $1.67 per
case to convert the tuna and ingredients into a final product (the “conversion cost”) and that Chotiwat would be able to “recover” 40 percent of the tuna for other uses

. No f ormal agreement reflected the parties’ alleged unde rstanding, but they did prepare “ cost sheets ” to use as the basis for calcu lating the price that Del Monte would pay to Chotiwat

. I n 2005, Chotiwat sent invoices to Del Monte that d iverged from tho se estimates : conversion costs were around $3.00 per case and the amount of tuna recovered was lower than expected

. Del Monte paid the invoiced prices

, and the goods were entered into the United States

. Del Monte then initiated discussions with Chotiwat abo ut the charges. A fter 10 months, t he parties agreed that the conversion cost s were $1.87 per case and that 40 percent of the tuna could in fact be recovered for other uses

. Accordingly, Chotiwat issued a “credit note” to Del Monte for a little over $1.5 million. When Customs computed the final duties owed, it used the invoiced amount thatDEL MONTE CORPORATIO N v. US 4

Del Monte paid at importation, without taking into a ccount the subsequent $1.5 million credit.
In 2007, Del Monte f iled suit in the Court of Intern ational Trade conte sting the agency’s decision s to (1) classif y the Lemon Pepper and Lightly Seasoned products as “in oil” and (2) assess the transaction value of all entries based on the amount that Del Monte paid at the time of importation

. In October 2012, the trade court granted summary judgment for the government on both issues

. Del Monte Corp. v. United States , 885 F. Supp. 2d 1315 (Ct. Int’l Trade 2012). Del Monte appeals, and w e have jurisdiction under 28 U.S.C. § 1295(a)(5).

D ISCUSSION

A

Goods imported into th e United States are classified under the Harmonized Tariff Schedule

. Determining the proper classification requires first construing the relevant provisions of the s chedule and then deciding which prov ision encompasses the merchandise at issue. Cummins I

nc. v. United States , 454 F.3d 1361, 1363 (Fed. Cir. 2006). “[W]hen the nature of the merchandise is undi sputed, ” however, that inquiry “ collapses entirely into a question of law ” about the meaning and scope of the relevant tariff provisions

. Id. ; see also Faus Grp., Inc. v. United States , 581 F.3d 1369, 1372 (Fed. Cir. 2009).

To identify the appropriate provision for particular merchandise , we pro ceed hierarchically, first locating the proper heading before choosing among the possible su bheadings. O rlando Food Corp. v. United States , 140 F.3d 1437, 1440 (Fed. Cir. 1998). At each step , the schedule’s text and any applicable section or chapter notes take precedence in construing the provision s : when th o se sources are enough to decide the classification question

, that is the end of the inquiry

. See, e .g. , CamelBak Prod s. , LLC v. United States , 649 F.3d 1361, 1364 (Fed. Cir.DEL MONTE CORPORATIO N v. US 5

2011) ; Bauer Nike Hockey USA, Inc. v. United States , 393 F.3d 1246, 1250 (Fed. Cir. 2004) ( stating that we first

“ det ermine the applicable heading, if possible, by looking to the terms of the headings and section or chapter notes”)

. At the sub heading level

, General Rule of Inte rpretation (GRI) 6 controls and gives priority to the “terms of th ose subheadings and any related subheading notes” as well as “the relevant section, chapter, and subchapter notes.” Harmonized Tariff Schedule of the United States, USITC Pub. 4368, at GN p. 1 (2013), available at http://hts.usitc.gov/

. Included among the specified “notes ”

are Additional U.S. Notes , which Customs describes as

“ legal notes that provide definitions or information on the scope of the pertinent provisions or set additional r equirements for classification purposes ” and which are “considered to be statutory provisions of law for all pu rposes.” U.S. Customs & Border Prot., What Every Me mber of the Trade Community Should Know About: Tariff Classification 32 (2004) ; see also Harmonized Tariff Schedule of the United States, USITC Pub. 4368, at Preface p.1 (2013).

To d ecide the classification issue in this case, w e need not look beyond the tariff schedule and the Additional U.S. Notes as they read at all relevant times

. There is no dispute that Del Monte’s products fall under sub heading 1604.14 ; they are prepared or preserved tuna fish packed in an airtight container. The tariff schedule further divides such goods into two groups: those “in oil” ( su bhea ding 1604.14.10) and those “not in oil” ( subheading s 1604.14.22 and 1604.14.30). Additional U.S. Note 1 to Chapter 16 then explains that “the term ‘in oil’ means packed in oil or fat, or in added oil or fat and other su bstances, whether such oil or fat was introduced at the time of packing or prior thereto.” For fish products in which the only oil is added as part of a liquid substance introduced at the time of packing , t h is note makes clear that the goods are considered “in oil” even if the liquidDEL MONTE CORPORATIO N v. US 6

substance do es not consist entirely of oil

, and it sets no minimum threshold for the amount of oil that must be present

. Del Monte’s products were properly classified as “in oil” under subheading 1604.14.10 according to Additional U.S. Note 1. I t is undisputed that the tuna is not cooked in oil, that the tuna is placed in the packaging after being

prepar ed without using any oil

, and that a sauce contai ning some oil is then added to the pouch . That is sufficient
to describe the Lemon Pepper and Lightly Seasoned varieties as tuna “packed .

. . in added oil

. . . and other substances ” and thus to bring the goods within the scope of subheading 1604.14.10.

Del Monte ’s argument on appeal is premised on one

case, Richter Br os. Inc

. v. United States , 44 C.C.P.A. 128 (1957) . Del Monte contends that Richter Bros

. dictates the meaning of “packed in oil” for the relevant tariff provisions , and that the classification of its products was erroneously based on an earlier case, Strohmeyer & Arpe Co. v. United States , 5 Ct. Cust. 527 ( Ct. Cust. App. 1915), which was overruled by Richter Bros

. Those two cases , howe ver, concern products that dif fer from Del Monte’s in a critical respect: in both, the fish was cooked in oil, which was then partially but not entirely drained off before the fish was packed in a liquid substance , such that

s ome oil from the cooking proc ess subsequently made its way into the liquid introduced at packaging

. See Richter Bros.

, 44 C.C.P.A. at 129; Strohmeyer , 5 Ct. Cust. at 527

- 28. On those facts, Strohmeyer held that the fish was “pac ked in oil and other substances” because that la nguage was “ intended to reach any case in which oil is part of the substance in which the fish is found packed when offered for importation.” 5 Ct. Cust. at 528

. Over 40 years later, c iting revised language in the tariff prov isions, Richter Bros. found th at fish that was fried in oil

, drained, and then packed in a liquid without oil was not

“ packed in oil ” because “ no oil whatever was used in theDEL MONTE CORPORATIO N v. US 7

actual packing process.” 44 C.C.P.A. at 131. T he only oil in Del Monte’s products, by contrast, arrives in a separate

sauce that is added during packaging, after the fish is already in the pouch. Accordingly, although Richter Bros. does appear to undermine the broader declaration in Strohmeyer

, there is no disagreement between th o se two decisions as to the circumstance s present in this case.

B

I mported merchandise must be appraised, when po ssible, based on its “transaction value.” 19 U.S.C. § 1401a (a)(1) . T he “transaction value” is defined by
statute as “the price actually paid or payable for the merchandise when sold for exportation to the United States” ( plus some additional amounts )

, id. § 1401a(b)(1), and “[a]ny rebate of, or other decrease in, the price actua lly paid or payable that is made or otherwise effected between the buyer and seller after the date of the impo rtation of the merchandise into the United States shall be disregarded in determining the transaction value ,” id. § 1401a(b)(4)(B). A regulation concerning transaction value provides t hat “the price actually paid or payable will be considered without regard to its method of deriv ation [and] may be arrived at by the application of a form ula, such as the price in effect on the date of export in the London Commodity Market.” 19 C.F.R. § 1 52.103(a)(1). The same regulation also states that “[t] he word ‘ payable ’ refers to a situation in which the price has been agreed upon, but actual payment has not been made at the time of importation. ” Id.
Del Monte argues that it had agreed to a “formula” with its supplier, Chotiwat, pursuant to which actual and estimated costs would be reconciled after importation , and that the trade court erred in failing to consider 19 C.F.R. § 152.103(a)(1) in order to account for this “formula” in determin ing transaction value

. We see at least two problems with Del Monte’s position. First, Del MonteDEL MONTE CORPORATIO N v. US 8

never cited th at regulation to the trade court or argued that its arrang e ment with Chotiwat constituted a “form ula” under § 152.103(a)(1) for purposes of calcula ting transaction value. Yet the issue that Del Monte asks us to decide is “whether the [trade] court

. . . erred in not applying 19 C.F.R. § 152.103(a)(1). ”
Second, and i n any event, we are not persuaded that the arrangement between Del Monte and Chotiwat q ual ifies as a “formula” under § 152.103(a)(1)

. I n order for recognition of a “formula” to avoid swallowing the othe rwise

- strong statutory prohibition on using payments post

dating importation to alter t he tariffs owed

, 19 U.S.C. § 1401a(b)(4)(B), we think that a n agreed

- upon , pre

importation “ formula ” must be clear and definite. E ach of the Customs decisions cited by Del Monte, in which the transaction value calculation included some post

importation ad justments based on actual costs, involved at least that much. We find nothing like that here. T here

was no written contract, formal policy, or other hallmarks of a formal agreement between Del Monte and Chotiwat setting out a “formula” to be applied

. Rather , t he parties estimated costs

, Chotiwat sent invoices for more , Del Monte paid the full invoiced amount
, and the parties then negotiated for months before Chotiwat credited roughly $1.5 million to Del Monte

. On tho se undisputed facts, th ere is not e nough to over come the statutory mandate to “disregard[]” any post

- importation “ decrease in [] the price actually paid

. ” 19 U.S.C. § 1401a(b)(4)(B).

C ONCLUSION

De l Monte focuses its appeal on one legal authority for each of the two issues raised

— the Richter Bros. case for the classification issue , and the “formula” provision of 19 C.F.R. § 1 52.103(a)(1) for the valuation question

. Co ncluding that neither authority applies to the facts of this

case , we affirm the trade court’s determination that the imported merchandise was properly classified and valued

.DEL MONTE CORPORATIO N v. US 9

AFFIRMED