Armco Steel Corp. v. Stans

431 F.2d 779
CourtCourt of Appeals for the Second Circuit
DecidedAugust 17, 1970
DocketNo. 671, Docket 34043
StatusPublished
Cited by19 cases

This text of 431 F.2d 779 (Armco Steel Corp. v. Stans) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Armco Steel Corp. v. Stans, 431 F.2d 779 (2d Cir. 1970).

Opinion

WATERMAN, Circuit Judge:

Plaintiff-appellant, Armco Steel Corporation (Armco), a domestic producer of steel, challenges the legality of action taken by the Foreign-Trade Zones Board (Zones Board) in granting authorization to the Board of Commissioners of the Port of New Orleans (New Orleans Board) to establish in their port a foreign trade subzone. The initial purpose of this subzone grant was to premit in-tervenor-appellee Equitable Equipment Company, Inc. (Equitable), a shipbuilder, to construct with duty-free steel from Japan steel barge vessels at a shipyard located within the subzone.

Foreign trade zones are areas located in, adjacent to, or nearby, ports of entry, into which foreign merchandise may be brought duty free and “stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured. * * * ” Section 3 of the Foreign Trade Zones Act, 19 U.S.C. § 81c. Such merchandise, whether in altered form or not, may then “be exported, destroyed, or sent into the customs territory of the United States. * * *” Id. If “sent into the customs territory of the United States” the merchandise “shall be subject to the laws and regulations of the United States affecting imported merchandise. * * * ” Id.

[782]*782The creation of a foreign or free trade zone for the purpose of permitting products manufactured in the zone to be subsequently imported into the United States allows an enterprise operating within the zone to take advantage of favorable differentials in the tariff schedules between the rates of duty for foreign materials used in the manufacturing process and the duty rates for the finished articles. For instance, in trade zones located in Toledo and Seattle, Volkswagen panel trucks are converted, using domestic labor and materials, into campers and are then imported. The transformation of the vehicles enables them to qualify as passenger vehicles subject to a 6.5% duty, rather than as trucks subject to a 25% duty. 19 U.S.C.A. § 1202, Items 692.10 and 945.69.1

In the instant case, the savings differential is so favorable that the duty rate otherwise payable on imported steel is reduced to zero. The parties represent that the tariff on foreign steel of the type used in this case is 7%%, while “vessels which are not ‘yachts or pleasure boats’ * * * are not articles subject to the [tariff schedule] provisions.” Id. Headnote 5. Thus, steel may be brought into a trade zone from Japan duty free and utilized along with domestic materials to construct barges. When imported from the zone the barges are non-dutiable vessels. The steel used in the construction of the vessels escapes recognition for duty purposes for it is only the end product exported from the zone, the vessels, that triggers the rate of import duty chargeable.

The events which precipitated the Zones Board’s subzone grant in New Orleans and led to this lawsuit began in January 1968 when intervenor-appellee Central Gulf Steamship Corporation (Central Gulf) 2 entered into a contract with Equitable for the construction of 233 barges for use on a LASH ship being built in Japan for Central Gulf.

LASH (an acronym for “lighter-aboard-ship”) vessels are designed to modernize the foreign shipping trade. The barges serve dual purposes: one traditional, in that cargo may be loaded on a barge at any point and the barge towed to another point; the other modern, in that each barge is a container designed to be carried aboard its “mother” ship (the LASH vessel) piggy-back style. Having a full complement of 233 barges (the number contracted for by Central Gulf to be provided by Equitable) each LASH or “mother” ship can load and carry at one time 73 container-barges. Approximately one half of the remaining 160 barges are scheduled to load or unload cargo at various domestic ports while the others load or unload cargo at foreign destinations. The principal advantages of the LASH concept are threefold. The barges are capable of travel over inland waterways and enable the loading and unloading of cargo at the “doors” of various customers. Inasmuch as three sets of barges operate independently, the “mother” ship need not delay at a port to await the return of the barges engaged in their multiple-destination journeys. Finally, because each barge is its own container, it can be expeditiously loaded onto and unloaded from the “mother” ship by means of a crane without disturbing the barge’s cargo, enabling the “mother” ship to avoid longer in-port delays and thereby relieving port congestion. The estimated loading or unloading time when a LASH ship is operating at full capacity is 24 hours compared to the normal time of 10 days for a conventional ship. It is [783]*783also anticipated that cargo damages would be reduced.

Central Gulf had also sought bids from foreign shipbuilders to construct the LASH barges in question, but decided to accept Equitable’s bid even though it was somewhat higher than those submitted by foreign shipyards. Equitable’s bid was competitive with foreign ones because Equitable planned to construct the barges with Japanese manufactured steel imported from Japan. Even when so imported the cost of the dutiable steel would be appreciably lower than the cost of domestic steel. And an added inducement to Central Gulf to accept Equitable’s bid was the possibility that the New Orleans Board might successfully apply for a free trade subzone 3 at the site of Equitable’s shipyard where the barges were to be constructed, thereby avoiding, as previously discussed, the 71/2% customs duty that would otherwise be levied on the imported steel.4 Equitable was to use its “best efforts” toward this end and, as it turned out, Equitable’s “best efforts” paid off. The New Orleans Board applied for the establishment of a subzone5 on March 18, 1968. Hearings were held before the Examiners Committee of the Zones Board on May 22 and 23, 1968.6 The committee filed its Report on June 5 which contained its findings and conclusions and a recommendation to the Zones Board that the Board act favorably upon the application. After considering the Report the Zones Board 7 issued its order granting the establishment of the subzone.

Against this background Armco attacks the validity of the Zones Board’s [784]*784order with a variety of contentions. It contends that the Foreign Trade Zone Act, 19 U.S.C. § 81a

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Armco Steel Corporation v. Stans
431 F.2d 779 (Second Circuit, 1970)

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Bluebook (online)
431 F.2d 779, Counsel Stack Legal Research, https://law.counselstack.com/opinion/armco-steel-corp-v-stans-ca2-1970.