In re Guggenheim Smelting Co.

121 F. 153, 1903 U.S. App. LEXIS 5339

• Court: U.S. Circuit Court for the District of New Jersey
• Decided: February 28, 1903
• Status: Published

Opinion

ARCHBALD, District Judge.¹

This case arises under section 29 of the act of July 24, 1897, 30 Stat. 210 [U. S. Comp. St. 1901, p. 3:957]> commonly known as the “Dingley Law.” The general provisions of the section are not new, having been brought forward from the “McKinley Bill,” where they first appear (Act Oct. 1, 1890, c. 1244, § 24, 26 Stat. 617), and being also found in the “Wilson Bill,” which succeeded it (Act Aug. 27, 1894, c. 349, § 21, 28 Stat. 551). The conceded purpose in each of these statutes was to encourage the establishment in this country of works where crude imported metals could be smelted or refined for export trade. In the act of 1890 metals only are spoken of, but in the act of 1894 ores as well as metals are included, and in the act of 1897 it is the same. By bringing these foreign ores and metals into the United States, and smelting or refining them here, and then exporting them again, the country has the benefit of the industry, without the refined product coming in competition with that of our domestic make, which still remains protected according to the general policy of the tariff law. According to the scheme devised to carry out this idea as set forth in the statute, the owners of works engaged in this business give bonds to the Secretary of the Treasury, and, under such regulations as he may prescribe, the works assume the character of bonded warehouses and are so designated. Ores or metals in any crude form requiring smelting or refining to make them readily available in the arts, imported for the purpose of being smelted or refined, and intended to be exported again in a refined but unmanufactured state, are permitted (under such treasury rules as may be prescribed and under the direction of the proper officer of the government) to be removed in bulk or original package from the vessels or vehicles in which they are brought into the country to the so-called bonded warehouses, where, either by themselves or in conjunction with other metals of home or foreign production, they are to be smelted or refined. On account of their ultimate destination out of the country, no duties are required to be paid on these imports, the law being satisfied if the refined product is exported again. The question which is here involved is as to the amount that must be so exported, the collector holding that no allowance is to be made for wastage in the process of refining, and the board of general appraisers taking the same view; the contention of the appellant being, however, that it is the net product that is to be taken, after the wastage has been deducted. The case turns on the construction to be given to the terms of the statute in the section referred to. That section, after declaring that the imported ores or metals may be taken without payment of duty to the bonded works where they are to be smelted or refined, goes on to provide—

“That each day a quantity of refined metal equal to ninety per centum of tlie amount of imported metal smelted or refined that day shall he set aside, and such metal so set aside shall not he taken from said works except for transportation to another bonded warehouse or for exportation, under the direction of the proper officer having charge thereof as aforesaid, whose certificate, describing the articles by their marks or otherwise, the quantity, the date of Importation, and the name of vessel or other vehicle by which it was imported, with such- additional particulars as may from time to time be required, shall be received by the collector of customs as sufficient evidence of the exportation of the metal, or it may be removed under such regulations as the Secretary of the Treasury may prescribe, upon entry and payment of duties, for domestic consumption, and the exportation of the ninety per centum of metals hereinbefore provided for shall entitle the ores and metals imported under the provisions of this section to admission without payment of the duties thereon.”

The manifest purpose of requiring a certain quantity of the refined product to be set aside is to see that the condition on which the crude metal was allowed to come into the country is complied with, to wit, that it shall be taken out. of the country again in its refined form. As often, therefore, as any of the crude, under bond, is put into the smelter, its place must be supplied by a corresponding portion of the refined, derived from the same source. It is not left as a mere matter of bookkeeping; the refined metal must be actually there. Neither is there any provision for the substitution of an equivalent derived from some other source. With extreme particularity and care each lot of imported ore or metal is followed, either in its original form or the equivalent, from the time it is admitted by the collector into the country until it passes him again on its way out. As, then, it is this refined product of the crude, set aside from day to day, that is to be exported, both under the acts of 1890 and 1894; and as the act of 1897 is in this respect identical with the other two, differing only as to the quantity required — whatever of the refined metal was to be set aside and exported under the earlier acts is to be set aside and exported under the existing act, to the extent of 90 per centum, no less and no more. It is upon this that the case depends, and it does not seem to me to be involved in serious difficulty. According to the construction contended for by counsel for the government, the quantity of refined metal set aside from day to day to replace the imported crude from which it has been produced would, under the earlier acts, have had to exactly equal it, ton for ton, as determined by the government assay. But upon the slightest consideration it will be seen that this was impossible. There is always an unavoidable waste on the figures of the assay, no matter what the metal, greater in some than in others, but always something; and as there is no provision for the substitution of refined metal derived from another source to make up the quota, in order to comply with the statute, the smelter would be compelled to pay duty on the waste, although not a pound of the refined product but what had been sent out- of the country by him. Clearly, this was not what was intended by the framers of the law. Their desire was to encourage the business of smelting and refining foreign ores and metals; the supposed inducement held out to those who went into it being that these ores and metals should come in free, provided they were taken out again after being treated. But, if the construction contended for should prevail, the smelter, instead of receiving encouragement, would actually be called upon to pay as for a privilege. The statute in terms requires that the refined metal to be set aside shall equal the crude of which it takes the place. This is not an equality, numerically, ton for ton; for that, as we have seen, would be an inequality, but an equality based on the existing conditions according to which the actual yield stands, and must stand, for the crude from which it is derived. The Treasury Department very quickly recognized the necessity for some such construction, and soon after the first act was passed directed that when the refined metal was presented for export credit should be given on the warehouse bond which had been put up, not only for the duties on a corresponding quantity, ton for ton, of the imported crude, but for an additional io per cent. Customs Regulations 1892, art. 708. It is said that this allowance was wholely unauthorized, and the case of Collector v. Balbach Smelting Company (C. C.) 81 Fed. 950, is relied upon, where it was decided by this court, Kirkpatrick, J., that no deduction is to be made on dutiable ores for waste in the process of smelting or refining, the duties being collectible according to the quantity shown by the government assay at the time of importation. There can be no question as to the correctness of this decision, nor is there any intention of departing from it. But that was a withdrawal from bond for domestic consumption, and by the express requirement of the law as well as of the treasury regulations referred to the duty was to be calculated on the basis suggested. Act Aug. 27, 1894, c. 349, par. 165, 28 Stat. 520. As is well pointed out in the opinion, any other construction would result in a discrimination in favor of the bonded as against the domestic smelter, the entrance duty, whether paid at the time of importation or .when taken out of bond, being necessarily the same. But in the case before us there is no question of duty except in the alternative for the failure to export, nor did the act in the section under discussion seek to provide one. It was simply concerned with devising a way by which, without evasion, the crude material could be allowed to come into the country without duty for the single put - pose named.

The 10 per cent, allowance conceded by the treasury was arbitrary. In some cases the loss would be less, while in some it would be greater, of which we have an instance before us where in one of the products, antimony, it is four times that amount. But it is chiefly significant because of the recognition by that department of the government specially charged by the statute with the supervision and regulation of the subject that there could not be what we may call a strict adherence to the letter of the statute, and that, whether exact or arbitrary, there must be a deduction from the amount imported' in calculating the product of the refined metal required to be exported again. With this particular construction put upon the existing law, the act of 1894 was passed, embodying its provisions in exactly the same terms; and three years later came the act of 1897, with the same provisions again, differing only in the quantity required. It is contended with regard to the latter act that it does no more than legalize the treasury regulation, the same allowance of 10 per cent, being made; the only basis for this, however, being the similarity of amount in each. But, if that be so, what is to be said of the intervening act of 1894? By permitting the law to stand unchanged as it did, it can hardly be regarded as superseding the treasury construction, but rather as allowing it to go undisturbed. If, then, as I have endeavored to show, the correct construction to be given to the act of 1890, as well as that of 1894 following it, only required that the derived product to be set aside for export should be that which was actually produced from the crude material, of which the treasury regulation was an incomplete and imperfect expression, the same collocation of words, employed in the same connection in the act of 1897, must be regarded as impressed with the same meaning; and the 10 per cent, allowance there given is not to be taken as the correction of a mistake, for there was none to be corrected, nor yet as the adoption or legalizing of a previous unauthorized practice, but as a substantive enactment giving to the bonded smelter of right just so much more than the previous acts accorded him. It was a bonus left in his hands to further encourage the industry, the former statute, although similarly actuated, not being adequate for that purpose, or at least not moved to the same generous degree.

It is said, however, that if only the actual yield is to be taken, we have a. very uncertain problem to deal with, the product differing in different cases according to the skill employed and the processes made use of. This would be material if it were a question of customs duty, the amount payable to the government not being permitted to depend upon any such variable condition. But, as already pointed out, it is not a question of duty at all, except as provision is made to prevent the evasion of one. All that is demanded of the bonded smelter is that he shall export out of the country in refined form what he brings into it in the crude, or, according to the present form of the law, a definite percentage of it. The alternative by which a duty is required, so far as he does not, is simply to enforce this, and no more. Looking at the metal brought into the country as a dutiable import, no doubt it is the government assay which is to govern, regardless of what may be the recoverable contents; but the duty to be paid for not exporting is one thing, and the refined metal presented to the collector for export by which an import duty is avoided is quite another. In the one relation the smelter must pay whatever the law says, so that, if a quantity of the refined product equivalent to that of the crude brought into the country is not forthcoming for export, the government is entitled to the import duty on the corresponding crude. But that does not regulate nor determine the quantity of the refined required to be exported to satisfy the law, nor afford a basis for construing the statute with regard to it.

It is further said that, if the contention of the bonded smelters be sustained, they will be permitted to retain a quantity of refined metal not exported, which they will be able to bring into the country for domestic consumption, free of duty, to the detriment of others who are required to pay. This argument is easily disposed of. The fact is that, even under the construction conceded by the government, this is now the case, and the only difference is one of degree. For instance, with respect to the lot of bullion specially put in evidence by the smelting company, the government assay showed 91.34 per cent, of lead, out of which 97J4 per cent, of refined metal was recovered, or 88.96 per cent, of the gross weight of the whole. Of this the government claims that 90 per cent, of the 91.24 per cent., or 82.12 per cent., must be exported, leaving in the hands of the smelter in the shape of refined metal, undutiable, 6.84 per cent, of the total lot. On the other hand, if the position of the smelting company is correct, there must be forthcoming for export only 90 per cent, of 97 per cent, of 91.24 per cent., or 80.06 per cent., leaving 8.9 per cent, of refined in their hands, which is simply 2.06 per cent, more, a fractional advantage which is of no account.

It is urged, however, that what the smelting company loses on the antimony it more than makes up on the lead, so that the net result on the whole bullion is in their favor, and that they are not, therefore, entitled to complain. But, with regard to duty, each metal stands on its own bottom, that of lead being at one rate, and that of antimony at another, each being calculated according to the amount found by the government assay. Being independently treated in this way in one part of the statute, it is hardly consistent to intermingle them, or to set off one against the other as the basis for construing another part of it. The smelter is not permitted to do so when he comes to export them. He cannot set aside antimony for lead nor lead for antimony, but each after its own kind, according to the required quantum. But what is still more to the point, while it may be true in this particular instance that the smelter is not at a disadvantage, the statute has to do not with lead bullion only, such as was here imported, but with ores and metals of every kind and description that may be brought in under the act, and we cannot assume that there would be the same equitable result with regard to all of them. Until it is shown that this would be the case, I see nothing in the argument.

It is further and finally contended that as the crude ores or metals are permitted by the statute to be smelted or refined in conjunction with others of domestic or foreign production, and when this is done there is no way of determining what percentage of the product has been recovered from the one and what from the other, there is in this an insuperable practical obstacle to the proposed construction. But I am not persuaded that there is any such real difficulty. In any case where it was claimed that the product was a mixed one, not only would the smelter be required to prove that such was its character, but also the proportions in which" the bonded metal and that of domestic or foreign production were used, and, if there was a difference in the yield from either, just what that difference was. It would be fair to assume in the first instance that it was the same from both, and on this basis, in order to arrive at the product derived from the imported crude, the smelter would simply have to deduct from his total product a proportionate amount, according to the extent of the others used. The only chance for error or evasion would be where the yield from the domestic metal was in fact less than from that brought in under bond, and then only to the extent of a proportionate part of the difference. I cannot agree that the bonded smelter could not be required to keep account and make a showing that would be satisfactory to the Treasury Department, not only as to the percentage of yield where there was no mixture as where there was. The whole conduct of bonded works of this character is expressly made subject by the statute to such regulations as the Secretary of the Treasury may prescribe, and are put under the supervision of such customs officer as he may appoint. This extends to and gives control of all necessary details, and I am not persuaded .that an effective method cannot be readily devised that will meet the exigencies of the case. I do not lose sight of the statement of Mr. Conway, the government storekeeper, that so far as his experience goes he knows of no practical way of identifying the product; nor yet of that of Mr. Merriss, the office manager of the smelting company, that trace cannot be kept of any special lot of crude metal after it goes into the smelter or refinery. But the experience of Mr. Conway, as he himself says, only extends to the particular method in vogue with him of handling the bonded material; and, as to keeping track of any special part of the product, it does not seem to me to be necessarily involved in the problem. At all events, I am not prepared to hold upon these qualified statements that there is such an inherent impracticability in determining the percentage of the recoverable contents from the bonded metal as precludes the construction of the statute now adopted.

The finding of the board of general appraisers is therefore reversed, and the collector of the port of Perth Amboy is directed to allow to be set aside and to accept for export, in satisfaction of the bonds of the Guggenheim Smelting Company, appellant, 90 per centum of the lead and antimony as smelted and refined by said company from lead bullion imported under such bonds and covered by the protests in evidence.

1 Specially assigned.