Issue 271, September 8, 2000
Another chapter has been written in the sticky saga of the litigation involving the country of origin marking of Bestfoods' "Skippy" brand peanut butter. After years of legal wrangling, the Court of Appeals for the Federal Circuit has cleared the way for Bestfoods to take advantage of the ?de minimis? exception to the NAFTA tariff shift rules on country of origin marking, by striking down the regulation that would withhold that exception from certain agricultural products.

In earlier litigation, Bestfoods (formerly known as CPC International) challenged the so-called "tariff shift" rules applied by the Customs Service to determine the country of origin marking required on goods imported from a NAFTA country. Although Bestfoods? peanut butter contained only a small amount of Canadian-origin ingredients, Customs had ruled that the NAFTA marking rules required the finished product to be marked as of foreign origin. Initially, the Court of International Trade (CIT) agreed with Bestfoods that the NAFTA marking rules should not replace the traditional "substantial transformation" test that Customs otherwise applies, and it remanded the case to Customs, instructing it to apply the traditional test to Bestfoods' product. Customs then ruled that even under "substantial transformation" analysis, Bestfoods was not the "ultimate purchaser" of the Canadian-origin ingredient, and therefore the peanut butter was still required to be marked as having Canadian-origin contents. The CIT affirmed this ruling. On appeal, the Court of Appeals for the Federal Circuit reversed it, holding that the NAFTA tariff shift rules are valid and should be applied in these circumstances. The Federal Circuit remanded the case to the CIT "to permit Bestfoods to pursue any other arguments it may have as to why it should not be required to mark its product under the applicable regulations."

Taking the Federal Circuit up on this offer, Bestfoods introduced a new argument on remand at the CIT. It argued that even if the NAFTA tariff shift rules apply, its product should be subject to the "de minimis" exception to those rules because the Canadian product used in making the peanut butter is present in such small amounts. While a current Customs regulation (19 C.F.R. ? 102.13(b)) excludes most agricultural products from this exception, ostensibly because of health and food safety concerns, the Federal Circuit agreed with Bestfoods that that regulation should be struck down. The court ruled that nothing in existing law gives Customs discretion to address health and food safety concerns, and that in any event, such concerns could not reasonably be addressed by withholding the de minimis exception from agricultural products. It concluded that Customs overstepped its authority in issuing the regulation, and that Bestfoods should not be prevented from relying on the de minimis exception to refrain from marking its goods with a foreign country of origin.

Our contributing writers, Richard H. Abbey and Sarah M. Nappi, are attorneys at Ablondi, Foster, Sobin & Davidow p.c. in Washington DC and can be reached at (202) 296-3355.

Please note that due to the complex nature of the subject matter, Danzas AEI cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with Danzas AEI.