CIT Denies Injunction Bid Amid Uncertainty Over Its Substantial Transformation Case Law
The Court of International Trade on Sept. 2 declined to order the release of an importer’s entries that were detained by CBP on country of origin concerns, finding the uncertainty around its own contradictory line of cases on substantial transformation was a factor in denying the bid for a preliminary injunction.
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Ruling on the likelihood of ultimate success of Cyber Power Systems' arguments, which is one of the four factors considered by courts for injunction requests, CIT found it impossible at this stage to tell how the importer’s surge protectors and power supplies would emerge from a substantial transformation analysis. “With 80 years of application in various contexts (country of origin marking, government procurement, voluntary restraint agreements, Generalized System of Preferences eligibility, drawback eligibility), the substantial transformation test should, one would anticipate, be fairly straightforward to apply,” CIT said. “It is not.”
CBP had excluded Cyber Power’s surge protectors and power supplies over concerns that they had been marked and entered as products of the Philippines, rather than of China. The products had initially raised concerns when it was discovered that a sticker that said “made in Philippines” could be peeled back to reveal printing on the packaging that said they were Chinese.
Cyber Power had argued that the goods were substantially transformed in the Philippines due to their assembly there from components from a number of countries, including China. CBP nonetheless rate advanced entries of the surge protectors and power supplies, applying Section 301 tariffs. The agency’s subsequent exclusion of the entries resulted from Cyber Power’s refusal to stop marking its products as made in the Philippines, despite a CBP import specialist’s instructions to the contrary. Cyber Power protested, and CBP denied the protest after finding the importer did not provide enough information to overturn the port’s decision.
After filing suit, Cyber Power sought a preliminary injunction compelling CBP to release the goods. CIT found the motion failed to satisfy its four-part test. First, the importer’s direct pursuit of “ultimate relief” in the case would harm consumers because, once the goods are released into Commerce, there would be no way to protect buyers from buying merchandise improperly marked. “These eggs cannot be unscrambled,” CIT said. The trade court also found that the government would face more harm than Cyber Power would if the request were granted, and that harm to Cyber Power would not be irreparable if the request were denied.
But CIT Judge Leo Gordon dedicated the bulk of his analysis to the differing interpretations of substantial transformation that the court has adopted over the years. One line of cases, culminating in Energizer Battery, found assembly of components specifically made for the final product does not effect a substantial transformation (see 1612120038). That makes it “practically insurmountable for subsequent-country, pre-determined assembly to ever constitute further work/substantial transformation of an article. And this does not bode well for Plaintiff’s likelihood of success,” Gordon said. Cyber Power’s only hope would be that the processing be complex. “Exactly what constitutes 'sufficiently complex' is a bit of a mystery though,” he said.
On the other hand, a U.S. Court of Appeals for the Federal Circuit 2020 decision on drugs from Acetris “appears to eschew the component-by-component substantial transformation analysis,” CIT said. And a decision issued by CIT in 2000 “expressly rejected a component-by-component analysis in reviewing whether articles were substantially transformed,” Gordon said.
“Perhaps the only way to make sense of these seemingly disparate substantial transformation cases is to concentrate on the courts’ analysis of the underlying statutory and regulatory purposes, and the courts’ conclusions about whether those purposes were served by a finding of substantial transformation,” Gordon said. “The court cannot yet say whether Plaintiff will succeed or not. The court will have to see how the record develops and evaluate the parties’ arguments about the statutory and regulatory purposes of the marking statute and Section 301 duties, and whether Plaintiff’s Philippine activities advance those purposes or not.”