George S. Bush & Co. v. United States , 104 F.2d 368 ( 1939 )

Hatfield, Judge,

delivered the opinion of the court:

This is an appeal from a judgment of the United States Customs Court, Second Division, in reappraisement 113195-A.

Merchandise, consisting of canned clams, imported into the United State from Japan and entered at the port of Seattle, Wash., was appraised by the local appraiser at that port upon the basis of the American selling price as defined in section 402 (g) of the Tariff Act of 1930, pursuant to a proclamation by the President of the United States, dated May 1, 1934, T. D. 47031, 65 Treas. Dec. 736, issued under the flexible tariff provisions, section 336 of the Tariff Act of 1930.

Section 336, supra, so far as material to the issues here involved, reads:

SEC. 336. EQUALIZATION OF COSTS OF PRODUCTION.

(a) Change of Classification or Duties. — In order to put into force and effect the policy of Congress by this Act intended, the commission (1) upon request of. the President, or (2) upon resolution of either or both Houses of Congress, or (3) upon its own motion, or (4) when in the judgment of the commission there is good and sufficient reason therefor, upon application of any interested party, shall investigate the differences in the costs of production of any domestic article and of any like-or similar foreign-article. In the course of the investigation the commission shall hold hearings and give reasonable public notice thereof, and shall afford reasonable opportunity for parties interested to be present, to produce evidence, and to be heard at such hearings. The commission is authorized to adopt such reasonable procedure and rules and regulations as it deems necessary to execute its functions under this section. The commission shall report to the President the results of the investigation and its findings with respect to such differences in costs of production. If the commission finds it shown by the investigation that the duties expressly fixed by statute do not equalize the differences in the costs of production of the domestic article and the like or similar foreign article when produced in the principal competing country, the commission shall specify in its report such increases or decreases in rates of duty expressly fixed by statute (including any necessary change in classification) as it finds shown by the investigation to be necessary to equalize such differences. In no case shall the total increase or decrease of such rates of duty exceed 50 per centum of the rates expressly fixed by statute.

(b) Change to American Selling Price. — If the commission finds upon any such investigation that such differences cannot be equalized by proceeding as hereinbefore provided, it shall so state in its report to the President and shall specify therein such ad valorem rates of duty based upon the American selling price (as defined in section 402 (g)) of the domestic article, as it finds shown by the investigation to be necessary to equalize such differences. In no case shall the total decrease of such rates of duty exceed 50 per centum of the rates expressly fixed by statute, and no such rate shall be increased.

(c) Proclamation by the President. — The President shall by proclamation approve the rates of duty and changes in classification and in basis of value specified in any report of the commission under this section, if in his judgment such rates of duty and changes are shown by such investigation of the commission to be necessary to equalize such differences in costs of production.

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(e) Ascertainment of Differences in Costs of Production. — -In ascertaining under this section the differences in costs of production, the commission shall take into consideration, in so far as it finds it practicable:

(1) In the Case of a Domestic Article. — (A) The cost of production as hereinafter in this section defined; (B) transportation costs and other costs incident to delivery to the principal market or markets of the United States for the article; and (C) other relevant factors that constitute an advantage or disadvantage in competition.

(2) In the Case of a Foreign Article. — (A) The cost of production as hereinafter in this section defined, or, if the commission finds that such cost is not readily ascertainable, the commission may accept as evidence thereof, or as supplemental thereto, the weighted average of the invoice prices or values for a representative period and/or the average wholesale selling price for a representative period (which price shall be that at which the article is freely offered for sale to all purchasers in the principal market or markets of the principal competing country or countries in the ordinary course of trade and in the usual wholesale quantities in such market or markets); (B) transportation costs and other costs incident to delivery to the principal market or markets of the United States for the article; (C) other relevant factors that constitute an advantage or disadvantage in competition, including advantages granted to the foreign producers by a government, person, partnership, corporation, or association in a foreign country.

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(h) Definitions.' — -For the purpose of this section—

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(4) The term “cost of production,” when applied with respect to either a domestic article or a foreign article, includes for a period which is representative ■of conditions in production of the article: (A) The price or cost of materials, labor •costs, and other direct charges incurred in the production of the article and in the processes or methods employed in the production; (B) the usual general expenses, including charges for depreciation or depletion which are representative of the equipment and property employed in the production of the article and •charges for rent or interest which are representative of the cost of obtaining capital or instruments of production; and (C) the cost of containers and coverings •of whatever nature, and other costs, charges, and expenses incident to placing the article in condition packed ready for delivery.

Section. 402 of tbe Tariff Act of 1930, so far as pertinent, reads:

SBC. 402. VALUE.

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(d) Export Value. — The export value of imported merchandise shall be the market value or the price, at the time of exportation of such merchandise to the United States, at which such or similar merchandise is freely offered for sale to all purchasers in the principal markets of the country from which exported, in the usual wholesale quantities and in the ordinary course of trade, for exportation to the United States, plus, when not included in such price, the cost of all containers and coverings of whatever nature, and all other costs, charges, and expenses incident to placing the merchandise in condition, packed ready for shipment to the United States.

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(g) American Selling Price. — The American selling price of any article manufactured or produced in the United States shall be the price, including the cost of all containers and coverings of whatever nature and all other costs, charges, and expenses incident to placing the merchandise in condition packed ready for delivery, at which such article is freely offered for sale to all purchasers in the principal market of the United States, in the ordinary course of trade and in the usual wholesale quantities in such market, or the price that the manufacturer, producer, or owner would have received or was willing to receive for such merchandise when sold in the ordinary course of trade and in the usual wholesale quantities, at the time of exportation of the imported article.

The importer appealed for reappraisement, claiming that the involved merchandise, which it is conceded is dutiable under paragraph 721 (b) of the Tariff Act of 1930 at 35 per centum ad valorem, should have been appraised at its foreign or export values, whichever are higher, rather than upon the basis of the American selling price, as defined in section 402 (g), supra.

On the trial before the trial court' it was stipulated by counsel for the parties that the merchandise has no foreign values; that its export values are $2.75 per case for that imported.in five-ounce tins, and $3.68 per case for that imported in eight-ounce tins, less nondutiable charges as shown by the invoice; that should the export values be held to be the proper dutiable values of the merchandise the dutiable values are $2.5107 per case for the five-ounce tins, and $3.598 per case for the eight-ounce tins; and that should the Presidential proclamation be held valid, the appraised values are the proper dutiable values of the merchandise.

Counsel for the importer introduced in evidence the Presidential proclamation and the report of the Tariff Commission.

The trial court affirmed the appraised values, and, on appeal, the appellate division of the Customs Court affirmed the judgment of the trial court.

Counsel for appellant contend that the proclamation by the President is invalid because it was based upon am investigation by the Tariff Commission which was not made in accordance with the provisions of section 336, supra; that the Tariff Commission being unable to find the cost of production of the involved merchandise, as defined in section 336 (h) (4), accepted as evidence of such cost the weighted average of invoice prices of merchandise like that here involved in Japanese yen for the period from December 1, 1930, to September 30, 1932, and converted the Japanese-yen into United States currency at the average rate of exchange for the year 1932, contrary to the provisions of section 336 (e) (2), supra; that, in so doing, the commission failed to follow the plain mandates of the statute, and, as a result, found it necessary to raise-the duties on the imported merchandise out of all proportion to the difference in the cost of production of such merchandise and a like domestic product; and that “if the procedure followed by the commission and the President is not in violation of the terms of section 336, then the statute is an unconstitutional delegation of legislative power in that it grants to the agent discretion as to what the law shall be.” The validity of the Presidential proclamation is also challenged by counsel for appellant for other reasons, which, due to the views we hold, need not be stated here.

In its report in the instant case, the Tariff Commission stated that the cost of production of the foreign article, as defined in section 336 (h) (4), supra, was not readily ascertainable, and that, in accordance with section 336 (e) (2) (A), it “accepted as evidence thereof the weighted average invoice prices of imports from that country.” (Italics ours.)

It will be observed that section 336 (e) (2) (A) expressly authorizes the commission to accept as evidence of the cost of production of a foreign article “the weighted average of the invoice prices or values for a representative period,” in the event the cost of production, as defined in section 336 (h) (4), supra, cannot be readily ascertained.

In its report, the commission stated that—

The years 1931 and 1932 are representative with respect to the domestic cost of production of canned clams and the invoice prices of Japanese canned clams, in terms of Japanese currency. During most of 1931 the exchange rate of the Japanese yen for the dollar was not much below par, whereas since that time it has been much below par. For this reason the invoice prices of the Japanese product imported in 1931, when converted to dollar? at the then current rate of exchange, are not representative of the present or probable future invoice values in terms of dollars. The Commission has, therefore, used, for comparison with the domestic costs, the invoice prices in yen as evidence of costs of the J ipanese product during 1931 and 1988, converted to dollars at the average rate of exchange for 1938. Although the exchange rate of the yen has risen since April 1933, the rate now prevailing is not much higher than the average rate for 1932. [Italics ours.]

and that—

(C) No other relevant factors constituting an advantage or disadvantage in competition were disclosed during the course of the investigation. [Italics ours.]

The question presented, therefore, is whether the Tariff Commission had any statutory authority to take the period from December 1, 1930, to September 30, 1932 (which it did in the instant case), as a representative period with respect to the invoice prices or values in Japanese currency, and, because the “exchange rate of the Japanese yen for the dollar” was much below par in 1932, use the average rate of exchange during the year 1932 for the purpose of ascertaining the weighted average of invoice prices in United States currency for the period from December 1, 1930, to September 30, 1932.

In providing in section 336 (e) (2) (A) that the Tariff Commission might accept as evidence of the cost of production of a foreign article the “weighted average of the invoice prices or values for a representative period,” the Congress must have had in mind the conversion of foreign currency into United States currency. It certainly knew that finding the weighted average of the invoice prices or values for a representative period in foreign currency would afford the Tariff Commission no information whatsoever as to the cost of production of a foreign article.

We are of opinion that the statutory provision should be construed as though it read, the commission may accept as evidence of the cost of production of a foreign article the weighted average of the invoice prices or values in United States currency jor a representative period.

In the case of Feltex Corp. v. Dutchess Hat Works, 21 C. C. P. A. (Customs) 463, 478, T. D. 46957, this court considered the language “the weighted average of the invoice prices or values for a representative period,” contained in section 336 (e) (2) (A), supra, and said, inter alia:

It is clear that Congress, in using the term “representative period,” had in mind that conditions upon a given day or during a given month might not fairly reflect the prices at which the merchandise was imported into the United States, but in order fairly to determine invoice prices as evidence of costs of production, they should be considered over a representative period, and their weighted average over such period might be accepted. [Italics supplied.]

It was also stated in that decision that—

The statute expressly requires the commission, in certain circumstances, to select a representative period for the ascertainment of certain facts. This the commission declares it has done. Moreover, there is no evidence in the record that it was not in fact a representative period for the ascertainment of the weighted average of invoice prices as required by the statute.

What the commission did in the instant case was to find the weighted average of the invoice prices or values in Japanese currency for an alleged representative period, December 1, 1930, to September 30, 1932, and then convert the Japanese currency into United States currency at the average rate of exchange for another period, the year 1932. Obviously, the commission did not find the weighted average of the invoice prices or values for a representative period. On the contrary, it found a weighted average by using two separate periods, neither of which was representative. The formula used by the commission was not that prescribed by the Congress, but one which the commission evidently thought was better adapted to the exigencies of this particular case.

If the commission has authority to modify the formula prescribed by the Congress for finding the weighted average of the invoice prices or values, it has equal authority to change the statutory definition of the term “cost of production,” provided in section 336 (h) (4), supra. Furthermore, if the commission had authority to do what it did in the instant case, that is, apply the average rate of exchange for the year 1932 for the conversion of Japanese currency into United States currency, during which period the exchange rate was “much below pa,r,” and thereby find that the cost of production of the foreign article was far less than the cost of production of the domestic article, it, of course, had equal authority to apply the average rate of exchange for the year 1931, during which period such rate was “not much below par,” and, as a consequence, have found a much higher cost of production for the foreign product, or the commission might have followed the formula provided by the Congress and found the weighted average of the invoice prices or values of the foreign product in United States currency for a representative period by converting Japanese currency into United States currency at the proper rates of exchange for the period from December 1, 1930, to September 30, 1932, and found a cost of production of the foreign article greater than that found by the commission and less than that which the commission would have found had it applied the average rate of exchange for the year 1931.

By following its own formula, the commission found it impossible to equalize the difference in costs of production of the foreign and domestic articles by raising the 35 per centum ad valorem rate of duty provided in paragraph 721 (b), supra, 50 per centum, the maximum increase provided in section 336 (a), supra, and, accordingly, found it necessary to apply the 35 per centum ad valorem rate of duty “based upon the American selling price (as defined in section 402 (g))_ of the domestic article,” in accordance with the provisions of section 336 (b), supra. Had the commission followed the second formula hereinbefore stated, the difference in cost of production of the foreign article and the domestic article would have been much less, and consequently the customs duties necessary to equalize such differences would have been much less. Or had the commission followed the formula prescribed by the Congress, the difference in cost of production of the foreign and domestic articles would have been less than that found by the commission and greater than that which it might have found, had it followed the second formula, and consequently, the customs duties necessary to equalize such difference in cost of production would have been less than that found by the commission in the instant case, and greater than that which the commission would have found had it followed the second formula.

It is clear, therefore, that if the commission has authority to do what it did in the instant case, it has authority to find on the same facts at least three entirely different costs of production for the foreign article, and, instead of recommending to the President a rate of duty based upon findings of fact, could recommend a rate of duty in accordance with its own economic theories. Such authority necessarily involves a discretion as to whether tariff duties shall be high or low, or whether they shall be high in certain instances and low in others; a discretion, legislative in character, which the Congress has no power to delegate. Hampton & Co. v. United States, 276 U. S. 394, and cases therein cited. Obviously, the Congress did not intend to delegate any such power to either the Tariff Commission or the President.

The Congress has given the Tariff Commission wide latitude so that the difference in cost of production of a domestic and a like or similar foreign article might be properly ascertained. In so doing, however, the Congress has prescribed certain limitations and laid down certain definitions, which the Tariff Commission has no right to ignore. Hampton & Co. v. United States, supra.

It is urged upon us, in the instant case, that, as the commission is not limited in ascertaining the cost of production of a foreign article to the weighted average of invoice prices or values but may, as it did in the instant case, take into consideration transportation costs and other costs incident to delivery of the foreign article to the principal market of the United States, as provided in section 336 (e) (2) (B), supra, and also “other relevant factors that constitute an advantage or disadvantage in competition,” as provided in section 336 (e) (2) (C), supra, it had the right to take into consideration, in finding the “weighted average of the invoice prices or values for a representative period,” the comparative values of the foreign and United States currencies, and apply the rate of exchange for one period to the weighted average in a foreign currency of the invoice prices or values for another period.

The answer to that contention is that the statute does not so provide.

Whether the Congress intended that the language “other relevant factors that constitute an advantage or disadvantage in competition,” contained in section 336 (e) (2) (C), supra, should include matters pertaining to the conversion of foreign currency into United States currency is a question which need not concern us here. The Congress certainly did not intend that, in finding the “weighted average of the invoice prices or values” of a foreign article “for a representative period,” the commission should take into consideration “other relevant factors that constitute an advantage or disadvantage in competition.” It is obvious that the Congress intended that such relevant factors, if any, should be considered by the commission independently of, or supplementary to, the weighted average of invoice prices or values of a foreign article for a representative period.

A legal investigation by the Tariff Commission is a condition precedent to the issuance of a lawful proclamation by the President. Hampton & Co. v. United States, supra; William A. Foster & Co. (Inc.) et al. v. United States, 20 C. C. P. A. (Customs) 15, T. D. 45673; Norwegian Nitrogen Products Co. v. United States, 20 C. C. P. A. (Customs) 27, T. D. 45674; United States v. Fox River Butter Co., 20 C. C. P. A. (Customs) 38, T. D. 45675. That the investigation of the costs of production in accordance with the provisions of section 336 (e) (1) and (2) and (h) (4) is necessarily involved in, and, therefore, a part of, the Tariff Commission’s investigation of the difference in the cost of production of a domestic article and a like or similar foreign article, is so clear as to require no discussion, for, obviously, unless the Tariff Commission first investigates the cost of production of each of the competing articles, it cannot ascertain the difference in the costs of production of such articles. The report of the Tariff Commission to the President is competent evidence to establish whether the commission’s investigation and findings were made in conformity with the statutory requirements. Norwegian Nitrogen Products Co. v. United States, supra; United States v. S. Leon & Co., 20 C. C. P. A. (Customs) 49, T. D. 45677; Carl Zeiss, Inc. v. United States, 23 C. C. P. A. (Customs) 7, T. D. 47654.

It clearly appears from the commission’s report that its investigation of the cost of production of the foreign article and its findings with respect thereto were based upon an erroneous conception of the statutory provision relative to the weighted average of the invoice prices and values of the foreign article for a representative period, and that, had the commission ascertained the weighted average of such invoice prices or values in accordance with the statutory provision, its findings both with respect to the cost of production of the foreign article and the rate of duty necessary to equalize the difference in cost of production of that article and the domestic article would have been substantially different.

In the case of Feltex Corp. v. Dutchess Hat Works, supra, we held that the President was not bound by the “results” or “findings” reported by the Tariff Commission in determining whether the rates specified in the report of the commission are shown by the Tariff Commission’s investigation to be necessary to equalize the difference in cost of production of foreign and domestic products, and that if “the President, upon an examination of all the facts before the commission, had any legal basis for the finding” that the rates specified in the report of the commission “were necessary to equalize the costs of production, his proclamation is valid.”

In the Feltex Corp. case, supra, it appeared that the Tariff Commission had made a legal investigation, and the principles announced in our decision in that case were intended to apply only in the event such an investigation has been made. In the instant case, however, a legal investigation by the Tariff Commission, a condition precedent to the issuance of a lawful proclamation by the President, has not been made. Accordingly, the principles announced in the Feltex case, supra, have no application to the issues in the case at bar.

We must hold, therefore, that as the investigation made by the Tariff Commission was illegal for the reasons hereinbefore stated, the proclamation by the President, based upon such investigation, was without authority of law, illegal, and void; that the appraisement and reappraisement of the involved merchandise, made on the basis of the American selling price in accordance with such proclamation, were, therefore, illegal and void; that the export values are the dutiable values of the merchandise; that, in accordance with the stipulation entered into by the parties, the dutiable values of the merchandise are $2,517 per case for that imported in five-ounce tins, and $3,598 per case for that imported in eight-ounce tins; and that the appellate division of the United States Customs Court erred in affirming the judgment of the trial court.

Accordingly, the judgment is reversed and the cause remanded for proceedings consistent with the views herein expressed.