 United States Court of Appeals for the Federal Circuit

                                    05-1025, -1041


                                  MOTOROLA, INC,

                                                      Plaintiff-Cross Appellant,

                                           v.


                                  UNITED STATES,

                                                      Defendant-Appellant.



       Michael E. Roll, Pisani & Roll, of Los Angeles, California, argued for plaintiff-
cross appellant. Of counsel were Mark S. Zolno and William R. Rucker.

       Amy M. Rubin, Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of New York, New York, argued for defendant-appellant.
With her on the brief were Peter D. Keisler, Assistant Attorney General and David M.
Cohen, Director; and Barbara S. Williams, Attorney in Charge, International Trade Field,
Office, of New York, New York. Of counsel on the brief was Chi S. Choy, Attorney,
Office of Assistant Chief Counsel, United States Customs and Border Protection.

Appealed from: United States Court of International Trade

Senior Judge Nicholas Tsoucalas
 United States Court of Appeals for the Federal Circuit


                                     05-1025,-1041

                                  MOTOROLA, INC.,

                                                Plaintiff-Cross Appellant,

                                           v.

                                   UNITED STATES,

                                                Defendant-Appellant.

                           ___________________________

                           DECIDED: February 1, 2006
                           ___________________________


Before LOURIE, RADER, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

       This appeal from the Court of International Trade concerns the appropriate tariff

classification for eight models of circuits used in battery packs for cellular phones.

Motorola imported the circuits in 1998 and declared them to Customs under subheading

8542.40.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). That

subheading covers “hybrid integrated circuits” and allows such circuits to be entered

duty free.

       After reviewing the entries, Customs rejected Motorola’s proposed classification

and liquidated the entries in October of 2000 under subheading 8536.30.80.          That

subheading covers “other apparatus for protecting electrical circuits” and carries a duty

rate of 3.2 percent ad valorem.      Customs based its decision on a May 1, 2000,
Headquarters Ruling, HQ 961050, which was issued in response to an earlier protest by

Motorola concerning different circuits.

       Motorola protested Customs’ decision to classify the eight circuit models under

subheading 8536.30.80. After Customs denied the protest, Motorola filed this action in

the Court of International Trade. Following full briefing, the court issued a ruling in

which it granted part of the relief Motorola sought. Motorola, Inc. v. United States, 350

F. Supp. 2d 1057 (Ct. Int’l Trade 2004).

       At the outset, the court rejected Motorola’s challenge to the classification

decision, agreeing with Customs that all eight models were properly classified under

subheading 8536.30.80.      However, the court agreed with Motorola that Customs’

previous liquidation of more than 900 entries of similar circuits as “hybrid integrated

circuits” under duty-free subheading 8542.40.00 constituted the “treatment” of those

goods as “hybrid integrated circuits” within the meaning of 19 U.S.C. § 1625(c)(2). That

statute obligates Customs to publish for notice and comment any interpretive ruling or

decision that would “have the effect of modifying the treatment previously accorded by

the Customs Service to substantially identical transactions.” Because Customs failed to

comply with that statutory requirement, the court held that Customs could not depart

from the treatment Customs had previously accorded to substantially identical circuits.

       With respect to four of the eight models at issue, the court held that the

Headquarters Ruling on which Customs relied had the effect of modifying the treatment

previously accorded to substantially identical transactions, and that Customs therefore

violated section 1625 by failing to publish that ruling for notice and comment before

applying it to Motorola. The court held, however, that the other four circuit models were




05-1025,-1041                              2
not “substantially identical” to the circuits that had been entered previously, and

therefore that Customs did not violate section 1625(c)(2) by applying the Headquarters

Ruling to those circuits. As a result, the court ruled that entries of the four circuit models

that were “substantially identical” to the models that had been admitted on a duty-free

basis had to be liquidated duty free, while the other four circuit models could be

classified under subheading 8536.30.80 and assessed a duty of 3.2 percent.

       Each party appeals from those aspects of the judgment unfavorable to it. We

affirm the court’s decision upholding Customs’ classification of Motorola’s circuits, but

we vacate the court’s decision that Customs violated 19 U.S.C. § 1625(c)(2) with

respect to some of the circuits at issue and remand for further proceedings.

                                              I

       The first issue is whether the trial court erred in upholding the classification of the

subject circuits under HTSUS subheading 8536.30.80 rather than subheading

8542.40.00. Motorola contends that all eight of the circuits at issue in this case should

have been classified under subheading 8542.40.00.

       Note 5 to Chapter 85 of the HTSUS provides that “headings 8541 and 8542 shall

take precedence over any other heading in the tariff schedule which might cover [the

subject goods].” Thus, if Motorola is correct that heading 8542.40.00 is an appropriate

subheading for its eight subject circuits, the circuits should have been classified under

that subheading, even if they might also have been covered by another subheading.

       Heading 8542 covers “Electronic integrated circuits and microassemblies; parts

thereof.” Subheading 8542.40.00 covers “Hybrid integrated circuits.” Note 5(b)(ii) of

chapter 85 of the HTSUS defines the terms in the heading and subheading as follows:




05-1025,-1041                                 3
       5. For the purposes of headings 8541 and 8542:
       ...
             (b) “Electronic integrated circuits and microassemblies” are:

                (i) Monolithic integrated circuits . . . .

                (ii) Hybrid integrated circuits in which passive elements (resistors,
                capacitors, interconnections, etc.) obtained by thin- or thick-film
                technology and active elements (diodes, transistors, monolithic
                integrated circuits, etc.) obtained by semiconductor technology,
                are combined to all intents and purposes indivisibly, on a single
                insulating substrate (glass, ceramic, etc.). These circuits may
                also include discrete components.

                (iii) Microassemblies . . . .

HTSUS, ch. 85 (1998). The parties’ disagreement as to whether Motorola’s circuits fit

within the Note’s definition of “hybrid integrated circuits” focuses on the requirement that

the active and passive elements be “combined to all intents and purposes indivisibly, on

a single insulating substrate.”

       In the Headquarters Ruling on which it relied in this case, Customs determined

that the Motorola circuits there at issue were not “hybrid integrated circuits” because

they did not meet the “combined . . . indivisibly” requirement. The Headquarters Ruling

looked to the Explanatory Notes to the HTSUS, which define the phrase in the HTSUS

as follows:

       The components forming a hybrid integrated circuit must be combined to
       all intents and purposes indivisibly, i.e. though some of the elements could
       theoretically be removed and replaced, this would be a long and delicate
       task which would be uneconomic under normal manufacturing conditions.

4 World Customs Org., Explanatory Notes, Note 8542(I)(2)(b), at 1700 (3d ed. 2002)

(emphasis in original). The Headquarters Ruling interpreted the Explanatory Notes to

require that the passive elements of the circuit be produced directly on the substrate of




05-1025,-1041                                   4
the circuit, “in the mass before the semiconductors and discrete components are added

to the substrate.” The Headquarters Ruling explained:

       Legal note 5(B)(b) requires an HIC [hybrid integrated circuit] to contain
       passive film components, and according to the EN [Explanatory Notes],
       they must be produced in the mass. We believe the drafters of the
       [HTSUS] intended the legal note and the EN to be read as a whole, one
       supporting the other. To that end, we interpret the [HTSUS’s] definition of
       an HIC as formed by layering a thin or thick film circuit, in the mass
       (nondiscrete) directly on top of the substrate. Stated another way, an HIC
       begins with a printed circuit produced through film technology, see chapter
       85 legal note 4 and the EN to heading 8534, to which are added
       components produced through semiconductor technology.

HQ 961050 (May 1, 2000).

       Customs determined that the Headquarters Ruling was applicable to the eight

circuit models at issue in Motorola’s protest, and it denied Motorola’s protest on that

ground.      The trial court agreed with Customs’ classification decision.     The court

explained that “whether or not Motorola actually removes or replaces some of the

components forming the subject merchandise is irrelevant.        The definition of hybrid

integrated circuits does not contemplate the actions of a single manufacturer or

importer.”    While Motorola “does not remove or replace the components from the

substrate or have the intention to do so,” the court concluded that Motorola had failed to

offer evidence that it was “uneconomical or impractical to remove or replace the

components from the substrate.” Accordingly, the court held that Customs had properly

classified the circuits under heading 8536 of the HTSUS.

       Motorola argues that the Headquarters Ruling on which Customs’ analysis was

based was legally flawed because the trial court relied on limiting language from the

Explanatory Notes requiring that the passive elements be formed directly on the

substrate in order for a circuit to be classifiable as a “hybrid integrated circuit.” This



05-1025,-1041                               5
court has described the Explanatory Notes to the HTSUS as instructive, but not binding.

See, e.g., Rubie’s Costume Co. v. United States, 337 F.3d 1350, 1359 (Fed. Cir. 2003);

Marubeni Am. Corp. v. United States, 35 F.3d 530, 535 n.3 (Fed. Cir. 1994). However,

we do not interpret the trial court’s opinion to have treated the Explanatory Note as

binding.

      The trial court based its ruling not on an extra definitional element imported from

the Explanatory Notes, but rather on the definitional statement in Note 5(b)(ii) that the

components in a hybrid integrated circuit must be “combined to all intents and purposes

indivisibly.” In interpreting that definitional language, the court looked for guidance to

the Explanatory Note, which explains that the quoted language means that “though

some of the elements could theoretically be removed and replaced, this would be a long

and delicate task which would be uneconomic under normal manufacturing conditions.”

4 Explanatory Notes at 1700. As the trial court explained:

      The Explanatory Note indicates that the indivisibility element is measured
      by whether it is uneconomical or impractical to remove or replace the
      components from the substrate. In the present case, Motorola has failed
      to present evidence indicating that the subject merchandise meet this
      requirement.

Because the court used the Explanatory Note for guidance as to the meaning of a

definitional term and did not treat the Explanatory Note as setting forth an additional

definitional requirement, we conclude that the trial court did not commit legal error by

referring to the Explanatory Note.

      The question that remains is whether the evidence established that Motorola’s

circuits satisfied the “combined to all intents and purposes indivisibly” requirement set

forth in Note 5(b)(ii). We agree with the trial court that it did not. Motorola’s evidence




05-1025,-1041                               6
on this point consisted of a report, an affidavit, and testimony by its employee Russell

Gyenes describing Motorola’s manufacturing process.         Mr. Gyenes stated that the

elements of the subject circuits are combined using reflow solder, and that Motorola

does not generally repair such circuits when they are defective, because Motorola’s

production process has a low defect rate and because the circuits are very inexpensive,

costing about one dollar each.      To remove the soldered components, Mr. Gyenes

stated, would require extra equipment and training, and it would risk damaging the parts

through exposure to static electricity. Customs’ expert did not contradict Mr. Gyenes,

but stated that reflow solder is a well-known means of combining circuit elements and

that Motorola’s circuits could be disassembled easily using readily available technology.

       Mr. Gyenes’ evidence merely established that in light of its quality controls and

weighing of costs, Motorola found it unprofitable to remove and replace components of

its circuits, but instead simply discarded any circuits that were defective. As the trial

court held, however, the definitional language of Note 5(b)(ii)—“a long and delicate task

which would be uneconomic under normal manufacturing conditions”—is objective.

Although evidence concerning what Motorola does with particular circuits in its

manufacturing process may be marginally probative, it does not establish whether those

circuits meet the objective definition of “hybrid integrated circuits.”    In light of the

evidence from Customs’ expert that the subject circuits could be readily disassembled,

the trial court properly concluded that Motorola had not met its burden in challenging the

tariff classification. See 28 U.S.C. § 2639(a)(1) (placing the burden of proof on the party

challenging a tariff classification). We therefore uphold the court’s decision regarding

the classification issue.




05-1025,-1041                               7
                                             II

       The second issue is whether some or all of the circuits at issue in this case

should be entered duty free on the ground that Customs had previously treated the

same or similar circuits as eligible for duty-free entry. Motorola argues that because

Customs had previously treated the same or similar circuits as duty free and had not

published its contrary Headquarters Ruling, HQ 961050, for notice and comment, it was

required under 19 U.S.C. § 1625(c)(2) to accord duty-free treatment to the circuits at

issue in this case. The trial court agreed with Motorola as to four of the eight circuit

models, but not as to the other four.

                                             A

       On October 22, 1992, and February 4, 1994, Customs issued two

preclassification ruling letters (“PRLs”) to Motorola. A PRL is a letter from Customs to

an importer advising the importer of the tariff classifications for certain of the importer’s

goods before the importer brings them into the country.          Customs issues PRLs in

response to written requests from importers or other parties.         19 C.F.R. §§ 177.1,

177.2(a), (b)(2)(ii).   The two PRLs that Customs sent to Motorola listed several of

Motorola’s circuits by their specific part numbers, and for each part number, the PRL

indicated a tariff classification. Both PRLs classified particular circuits under HTSUS

8542.20.00, the predecessor to the current subheading 8542.40.00. Like its successor,

subheading 8542.20.00 provided duty-free entry for “hybrid integrated circuits.”

       Also relevant to this appeal is a series of entries Motorola made between 1995

and 1997. During that period, Motorola imported circuits similar in some respects to the

circuits at issue in this case.    Customs liquidated those entries pursuant to what




05-1025,-1041                                8
Customs refers to as its “bypass” procedures. Under the bypass procedures, according

to Customs, importers declare a value and tariff classification for their goods when they

import them; Customs port directors may liquidate the goods as declared, without

inspecting the goods or otherwise independently determining the proper duty to be

paid.1 Motorola made more than 900 entries during the pertinent period pursuant to the

bypass procedures.      Those entries were declared and liquidated duty free under

HTSUS subheading 8542.40.00.

       In 1996, the Customs Port Director in Chicago reviewed 92 of the Motorola

“bypass” entries and determined that the circuits in those entries should be classified

under HTSUS subheading 8507.90.80, a residual subheading under the general

heading for “electric storage batteries.” Goods classified under that subheading are not

entered duty free. After Customs liquidated the 92 entries in May of 1997, Motorola

protested, arguing that the entries should have been classified under subheading

8542.40.00. In response to Motorola’s protest, Customs issued HQ 961050, but it did

not publish the ruling for notice and comment. Although Customs denied Motorola’s

protest, it disagreed with both Motorola and the port director as to the proper




       1
            Neither party points to an explicit definition of the “bypass” procedures, either
in the regulations or elsewhere.            The trial court disagreed with Customs’
characterization of bypass as “not involv[ing] any action performed by Customs,” and
cited G&R Produce Co. v. United States, 281 F. Supp. 2d 1323, 1333 (Ct. Int’l Trade
2003), for the proposition that “to place an entry on ‘bypass status’ requires Customs to
perform some action in reviewing a tariff classification.”



05-1025,-1041                                9
classification of the goods and classified the 92 entries under HTSUS subheading

8536.30.80 at a 3.2 percent ad valorem duty rate.2

       At the time HQ 961050 issued, Motorola had entered the circuits at issue in this

case under HTSUS subheading 8542.40.00, but Customs had not yet liquidated those

entries. In October of 2000, based on HQ 961050, Customs liquidated the entries

under HTSUS subheading 8536.30.00. That action forms the basis for the dispute in

this case.

                                             B

       19 U.S.C. § 1625(c) provides:

       A proposed interpretive ruling or decision which would--
       (1) modify (other than to correct a clerical error) or revoke a prior
       interpretive ruling or decision which has been in effect for at least 60 days;
       or
       (2) have the effect of modifying the treatment previously accorded by the
       Customs Service to substantially identical transactions;
       shall be published in the Customs Bulletin. The Secretary shall give
       interested parties an opportunity to submit, during not less than the 30-day
       period after the date of such publication, comments on the correctness of
       the proposed ruling or decision. After consideration of any comments


       2
            There is no overlap among (1) the parts that Customs classified under the
PRLs, (2) the parts that Motorola entered on “bypass” status between 1995 and 1997,
and (3) the parts at issue in this case. The part numbers, which are listed in an affidavit
of Motorola’s witness Russell Gyenes, are as follows:

This case              Bypass entries            PRL 894316           PRL 878763
                       1995-1997                 (Feb. 4, 1994)       (Oct. 22, 1992)
5108189Z16             5104286T01                5015189R29           5015189R07
5180569A02             5104717T01                5015189R37           5015189R14
5180572T01             5104847T01                5015189R48           5015189R21
5104035T03             5104918T02                5015189R49           5015189R24
5104091T01             5104918T03                5015189R54           5015189R28
5180569A03             5105189R20                5015189R75           5015189R30
5180581T02             5105189R57
5180649T02             5105189Z17
                       5105189Z28
                       5186210A01



05-1025,-1041                               10
       received, the Secretary shall publish a final ruling or decision in the
       Customs Bulletin within 30 days after the closing of the comment period.
       The final ruling or decision shall become effective 60 days after the date of
       its publication.

       In the trial court, Motorola first argued that HQ 961050 modified or revoked the

two PRLs issued to Motorola in 1992 and 1994, and that Customs therefore violated

section 1625(c)(1) by liquidating its goods under a different subheading without

publishing the Headquarters Ruling for notice and comment.           The court held that,

although the PRLs were “interpretive ruling[s] or decision[s]” within the meaning of the

statute, the Headquarters Ruling did not modify or revoke them because by their terms

PRLs apply and bind Customs “only with respect to the items identified in the PRLs and

not any other merchandise, even if [the other merchandise] is substantially identical.”

Neither party has appealed that part of the court’ s judgment.

       Motorola also argued in the trial court that liquidating its entries without

publishing HQ 961050 violated Section 1625(c)(2) because it had the effect of modifying

a “treatment previously accorded by the Customs Service to substantially identical

transactions.”   Specifically, Motorola argued that (1) the PRLs described above

constituted a “treatment” of “substantially identical transactions,” and (2) Customs’

liquidation of more than 900 entries of similar circuits on bypass status constituted

“treatment” of “substantially identical transactions.”

       The trial court did not directly address whether the PRLs constituted “treatment”

of “substantially identical transactions” for purposes of section 1625(c)(2). It did hold,

however, that Customs’ liquidation of Motorola’s bypass entries constituted “treatment.”

Moreover, the court held that those liquidations were “substantially identical

transactions” as to four of the eight circuit models at issue in this case. But it held that



05-1025,-1041                                11
those liquidations were not “substantially identical transactions” as to the other four

circuit models.    Customs appeals the court’s ruling that the bypass liquidations

constituted a treatment, and Motorola appeals the court’s ruling that four of its circuits

were not “substantially identical” to the circuits entered and liquidated on bypass status

between 1995 and 1997.

                                              1

       In deciding that Customs’ liquidation of more than 900 of Motorola’s bypass

entries constituted “treatment” within the meaning of section 1625(c)(2), the trial court

rejected Customs’ argument that the court should look to 19 C.F.R. § 177.12(c)(1)(ii) to

determine the meaning of the term “treatment” and should defer to the agency’s

construction of the statute pursuant to Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984).          Based on the decision in Precision

Specialty Metals, Inc. v. United States, 116 F. Supp. 2d 1350 (Ct. Int’l Trade 2000), the

court held that the term “treatment” denotes a pattern of actions by Customs, as

opposed to its articulated policies or positions. Moreover, because the court concluded

that the term is unambiguous, it held that Customs’ regulation was not entitled to

Chevron deference.      Because the court disagreed with Customs’ contention that

liquidation of bypass entries does not entail “action” on Customs’ part, it held that the

liquidations constituted “treatment.” On appeal, Customs argues that this analysis was

incorrect. It argues that the word “treatment” in the statute is ambiguous, that 19 C.F.R.

§ 177.12(c)(1)(ii) contains a permissible construction of the statute that is entitled to

Chevron deference, and that the bypass liquidations do not involve action on Customs’

part sufficient to constitute “treatment” under the regulation.




05-1025,-1041                                12
       The first step of the Chevron analysis requires the court to determine whether the

statutory term in question is unambiguous.          Under Chevron, a court decides the

statutory construction issue without deference if the court determines that “Congress

has directly spoken to the precise question at issue.” Chevron, 467 U.S. at 842-43 &

n.9; Cathedral Candle Co. v. U.S. Int’l Trade Comm’n, 400 F.3d 1352 (Fed. Cir. 2005).

Motorola cites dictionaries and the analysis of the Court of International Trade in

Precision Specialty Metals for the proposition that the word “treatment” is unambiguous

and that deference to the agency’s construction of that term is therefore inappropriate.

       Precision Specialty Metals involved a number of drawback entries that were

liquidated over a four-and-a-half-year period.         The parties disputed whether the

liquidation of Precision’s drawback entries constituted “treatment.”           Noting that the

legislative history “offers no guidance,” the court ruled that the word “treatment” denotes

a consistent pattern of actions, and it construed the statutory term to mean that

“importers may order their actions based not only on Customs’ formal policy, ‘position,’

‘ruling,’ or ‘decision,’ but on its prior actions.” 116 F. Supp. 2d at 1044.

       While that definition may be useful as a starting point, it does not answer the

precise question presented here, which is whether bypass entries of the sort at issue in

this case involve a sufficient degree of action by Customs to constitute “treatment.”

When Customs liquidates bypass entries without inspecting the goods, it may be said to

have “acted” in the sense that it has chosen not to scrutinize the entries more closely,

but it is not clear on the face of the statute that Customs has “treated” the goods as

being what the importer says they are. The question of what degree of action (as

opposed to acquiescence) is sufficient to bind Customs is not an issue that Congress




05-1025,-1041                                 13
directly addressed. We therefore hold that the trial court erred in holding that the word

“treatment” was unambiguous, and we proceed to the second step of the Chevron

analysis.

       In step two of Chevron, a court must determine whether the agency’s answer to

the question at issue is “based on a permissible construction of the statute.” Chevron,

467 U.S. at 843; see also United States v. Haggar Apparel Co., 526 U.S. 380, 385-86

(1999); Cathedral Candle, 400 F.3d at 1362. At the outset, we note that 19 U.S.C.

§ 1624 empowers Customs to make “rules and regulations” to implement section 1625,

and that 19 C.F.R. § 177.12 was promulgated through notice-and-comment

rulemaking.3 Such a formal expression of an agency’s interpretation of a statute that it

administers is normally entitled to Chevron deference. See Barnhart v. Walton, 535

U.S. 212, 221-22 (2002); United States v. Mead Corp., 533 U.S. 218, 229 (2001).

Turning to the text of the regulation itself, we believe that the agency’s answer to the

specific question at issue is a reasonable and permissible construction of the statute.

Tracking the language of the statute, 19 C.F.R. § 177.12(c) is labeled “[t]reatment

previously accorded to substantially identical transactions.” Section 177.12(c)(1)(ii)

states that

       [t]he determination of whether the requisite treatment occurred will be
       made by Customs on a case-by-case basis and will involve an
       assessment of all relevant factors. In particular, Customs will focus on the
       past transactions to determine whether there was an examination of the
       merchandise (where applicable) by Customs or the extent to which those
       transactions were otherwise reviewed by Customs to determine the proper



       3
           See 66 Fed. Reg. 37370, 37387-89 (July 17, 2001) (proposing the regulation
with others as section 177.21); 67 Fed. Reg. 53483 (Aug. 16, 2002) (responding to
comments and publishing the final rule, renumbered as section 177.12).



05-1025,-1041                              14
       application of the Customs laws and regulations. For purposes of
       establishing whether the requisite treatment occurred, Customs will give
       diminished weight to transactions involving small quantities or values, and
       Customs will give no weight whatsoever to informal entries and to other
       entries or transactions which Customs, in the interest of commercial
       facilitation and accommodation, processes expeditiously and without
       examination or Customs officer review.

The regulation no doubt advantages Customs by giving it the power to process

transactions through expedited procedures without binding itself to a “treatment” of the

goods processed in that manner. We believe, however, that Customs’ construction is a

permissible one in light of the ambiguity of the term “treatment” as it applies to the issue

presented in this case, i.e., entries liquidated under Customs’ “bypass” procedures. The

regulation permissibly focuses on “whether there was an examination of the

merchandise . . . or the extent to which [the] transactions were otherwise reviewed by

Customs,” and gives no weight to transactions in which Customs did not examine the

goods in question.4 It is reasonable to conclude that goods which are admitted pursuant

to representations by the importer and are not independently examined or reviewed by

the importer are not “treated” by Customs as classifiable under the category assigned to

them. This portion of the regulation is therefore “based on a permissible construction of

the statute” and warrants deference. Chevron, 467 U.S. at 842-43.

       It makes no difference to our analysis that the regulation was promulgated in

2002, after the controversy arose and after this litigation began. So long as an agency’s

interpretation of a statute is not a “post hoc rationalization . . . seeking to defend past




       4
             Customs’ response to comments on the originally proposed version of the
regulation reflects the agency’s concern with placing an unduly limiting construction on
the statute. See 67 Fed. Reg. 53483, 53492 (Aug. 16, 2002).



05-1025,-1041                               15
agency action against attack,” Auer v. Robbins, 519 U.S. 452, 462 (1997), or “wholly

unsupported by regulations, rulings or administrative practice,” Smiley v. Citibank (S.

Dak.), N.A., 517 U.S. 735, 741 (1996) (quoting Bowen v. Georgetown Univ. Hosp., 488

U.S. 204, 212 (1988)), Chevron deference is due even if the adoption of the agency’s

interpretation postdates the events to which the interpretation is applied.

       Accordingly, we hold that the trial court erred in refusing to give Chevron

deference to the interpretation of the word “treatment” provided in 19 C.F.R.

§ 177.12(c)(1)(ii).   We do not address the validity of the entire regulation for all

purposes, but merely defer to its determination that the admission of entries

“expeditiously and without examination or Customs officer review” does not constitute

“treatment” within the meaning of section 1625(c)(2).5 On remand, the trial court will

have to address whether the particular bypass entries at issue in this case were

processed without review or examination by Customs, and thus fall within the scope of

the regulation, or whether the goods were examined or the entries otherwise reviewed

in a manner that would take them out of the reach of the regulation.

                                             2

       As noted above, while the trial court held that Customs’ liquidation of more than

900 bypass entries constituted a treatment, it did not rule on the status of the two PRLs

that Customs issued in 1992 and 1994. The court acknowledged that Motorola raised

that issue, and it gave a detailed summary of the contentions of both Motorola and

Customs. Further, the court noted Customs’ concession that four of the eight parts at



       5
              This court has reached a different conclusion with regard to a different
portion of the regulation as applied to a different issue under 19 U.S.C. § 1625(c). See
Cal. Indus. Prods., Inc. v. United States, No. 05-1087, decided today.


05-1025,-1041                               16
issue in this case are “substantially identical” both to parts liquidated on “bypass status”

and to parts identified in the PRLs. The court, however, did not decide whether the

PRLs, or the importation of goods pursuant to the PRLs, constituted “treatment.”

Because this argument was raised below and not addressed, and because it may affect

the disposition of the case in light of our decision to vacate the court’s holding with

respect to the “bypass” entries, the trial court should decide this issue on remand.

                                             III

       Motorola also challenges the trial court’s ruling that the four parts at issue in this

case that were used with lithium chemistry batteries were not “substantially identical” to

the parts entered on “bypass” between 1995 and 1997. The result of the court’s ruling

on this issue was that, for those four parts, Motorola was denied the benefit of a prior

“treatment previously accorded by the Customs Service to substantially identical

transactions” under section 1625(c)(2).      Motorola argues that the court essentially

required outright identity between the parts instead of “substantial” identity, and it

contends that the evidence it presented proved substantial identity under the correct

legal standard.

       We do not believe that the trial court applied the wrong legal standard.            In

support of its argument, Motorola points to a portion of the court’s opinion in which the

court stated that “[a]lthough the Lit[h]ium-ion Chemistry Assemblies and the Nickel

Assemblies may be made in much the same manner and serve similar purposes, the

two sets of assemblies fall short of being identical.” On the same page of the opinion,

however, the court noted that “Motorola correctly asserts that to determine whether




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‘substantially identical transactions’ exist, the test is ‘substantial’ and not ‘exact.’” The

trial court does not appear to have been mistaken about the rule to be applied.

       Motorola further urges that this court should reverse the trial court on that issue,

because the differences between the lithium chemistry parts and the bypass entry parts

are no greater or more significant than the differences between the nickel chemistry

parts and the bypass entry parts, and that Customs conceded that the latter set of

differences did not defeat substantial identity. In light of Customs’ evidence as to the

nature of the various circuits, however, it was reasonable for the trial court to hold that

the nickel chemistry parts were “substantially identical” to the bypass parts, but that the

lithium chemistry parts were not. We therefore affirm that aspect of the trial court’s

judgment.

                                              IV

       For the reasons stated above, we affirm the trial court’s holding that Customs

correctly classified all of the parts at issue under the Harmonized Tariff Schedule of the

United States. We also affirm the court’s holding that four of the eight parts at issue in

this case were not “substantially identical” to the parts that Customs liquidated on

bypass. We vacate the court’s ruling that Customs violated 19 U.S.C. § 1625(c)(2), and

we remand the case for the court to address whether either the 900 “bypass” entries or

the PRLs constituted “treatment” within the meaning of section 1625(c)(2), as

interpreted in light of 19 C.F.R. § 177.12(c)(1)(ii).

             AFFIRMED IN PART, VACATED IN PART, AND REMANDED.




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