Question

DaimlerChrysler Corp. made and marketed motor vehicles. DaimlerChrysler assembled the 1993 and 1994 model years of its trucks at plants in Mexico. Assembly involved sheet metal components sent from the United States. DaimlerChrysler subjected some of the parts to a complicated treatment process, which included the application of coats of paint to prevent corrosion, impart color, and protect the finish. Under federal law, goods that are assembled abroad using U.S.-made parts can be imported tariff free. A federal statute provides that painting is “incidental” to assembly and does not affect the status of the goods. A federal regulation states that “painting primarily intended to enhance the appearance of an article or to impart distinctive features or characteristics” is not incidental. The U.S. Customs Service levied a tariff on the trucks. DaimlerChrysler filed a suit in the U.S. Court of International Trade, challenging the levy. Should the court rule in DaimlerChrysler’s favor? Why or why not?

Answer 1

The court affirmed the U.S. Customs Service’s ruling, and DaimlerChrysler appealed to the U.S. Court of Appeals for the Federal Circuit. The appellate court reversed the lower court’s decision. The appellate court determined that under the statute “painting is unambiguously an operation incidental to assembly.” The court further found that the “common meaning” of the term painting “broadly covers the application of both decorative and preservative coatings.” Thus, the “distinction between decorative and preservative coatings in the regulation *** contravenes the plain language of [the statute] as elucidated by the *** dictionary definitions” of painting, making the regulation invalid. “We therefore reject the Court of International Trade’s reliance on this regulation to deny DaimlerChrysler its duty exemption based on the top-coat painting operation.

Because [the statute] unambiguously covers painting operations broadly, DaimlerChrysler’s entire painting process, including the application of the [color] coats, qualifies.”