South-Western Legal Studies in Business

Painting Vehicles in Mexico Is Incidental to Assembly, Not Decorative, for Tariff Determination
Description Appeals court held that the Customs Service regulation concerning vehicle painting was inconsistent with the Tariff Schedule adopted by Congress. Under the schedule, decorative painting is subject to duty payment, but painting incidental to assembly is not. Painting during assembly is incidental, not decorative, so not subject to duty.
Topic International Law
Key Words Tariffs; Rates; Exemptions; Classifications; Customs Service
C A S E   S U M M A R Y
Facts DaimlerChrysler assembled trucks in Mexico that were sold in the U.S. The sheet metal on the trucks was given several primer coats of paint, which were baked, and then a color coat and a clear coat (the top coats) were added. Daimler believed the painting process was incidental to assembly and sought a duty exemption under the Harmonized Tariff Schedule of the U.S. (HTSUS). Customs denied the exemption. Under its regulation, which distinguished between decorative and preservative painting, Customs held that the top coats were appearance related, or decorative, and were not incidental to assembly. Consequently, they were not exempt from duty payment when the trucks were brought into the U.S. Daimler appealed.

Reversed. Courts defer to the expertise of agencies in their rule making, but must ensure that the determination of an agency is consistent with the intent of Congress. The Customs rule here violated the clear language of the HTSUS. It allows duty-free treatment of articles that were assembled abroad from components made in the U.S. That includes operations incidental to assembly, such as cleaning, lubricating, and painting. So the Daimler operation is exempt from duty payment when the vehicles are returned to the U.S.

Citation DaimlerChrysler Corp. v. U.S., ---F.3d--- (2004 WL 530732, Fed. Cir., 2004)

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