HQ 115261 - Scope of Section 4004, Title IV, of the Tariff Suspension and Trade Act of 2000; Importation of Cigarettes. - United States International Trade Commision Rulings

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HQ 115261

February 22, 2001

ENT-1-RR:IT:EC 115261 GG

CATEGORY: ENTRY

Frank R. Samolis, Esq.
Patton Boggs LLP
2550 M Street, NW
Washington, DC 20037-1350

RE: Scope of Section 4004, Title IV, of the Tariff Suspension and Trade Act of 2000; Importation of Cigarettes.

Dear Mr. Samolis:

This is in response to your ruling request, dated January 19, 2001, made on behalf of five of your clients. The clients, all cigarette importers, are G.A. Andron & Co., Inc; Kretek Imports, Inc.; Phillips & King Cigar Co.; Quintin & Company; and Smokers Choice Inc. Our response also takes into account the relevant issues discussed at our meeting with you on February 21, 2001. You seek an interpretation of the scope of new legislation that may affect your clients’ operations, and in the event of an unfavorable response, request a delay of the legislation’s effective date. You state goods are waiting in bonded warehouses pending resolution of the issues presented in your ruling request. We take note of your application for expedited consideration and agree that the circumstances warrant a prompt resolution.

We also acknowledge receipt of a letter from your co-counsel, Gabriel Avram of the law firm of Finger, Parker, Avram, Martin & Roemer, LLP. Mr. Avram represents six small tobacco importers, and also requests a grace period. However, since Mr. Avram did not formally request a ruling, we are not taking his letter into consideration at this time.

FACTS:

Your clients import cigarettes that are manufactured overseas for sale in the U.S. market. The warning statements required by federal law have, up until now, been printed on stickers that were affixed to the packaging. Recently, legislation went into effect imposing new labeling and certification requirements on imported cigarettes. Warning statements must now be permanently imprinted on both the primary packaging and on any other pack, box, carton, or container in which the cigarettes are to be offered for sale or otherwise distributed to consumers. The primary packaging is the permanent packaging inside of the innermost cellophane or other transparent wrapping. You question the applicability of this new law to the cigarettes your clients import. It is your understanding that the law pertains only to the importation of “gray market” cigarettes. You state that a finding that the labeling requirements apply to all imported cigarettes will impose a hardship on your clients, because the brief time between enactment and implementation of the law afforded companies little or no opportunity to bring their products into compliance. You also contend that the application of the law to all imports would violate the General Agreement on Tariffs and Trade (GATT).

ISSUE:

Whether the new legislation applies to cigarettes manufactured overseas and intended for the U.S. market, or whether its application is restricted to imported gray market cigarettes; and If the legislation is not restricted to the importation of gray market cigarettes, whether the effective date of the legislation may be delayed; and Whether the new legislation, if determined to apply to more than gray market cigarette imports, violates Paragraph 4 of Article III of the GATT.

LAW AND ANALYSIS:

The Imported Cigarette Compliance Act of 2000 was enacted as Title IV of the Tariff Suspension and Trade Act of 2000 (Public Law 106-476). The Imported Cigarette Compliance Act has two main components: the first imposes new rules on U.S. tobacco products manufactured for export; and the second places conditions on the importation of cigarettes. The focus of this ruling is on this second component.

Section 4004 of Title IV amended the Tariff Act of 1930 by adding a new Title VIII, entitled “Requirements Applicable to Imports of Certain Cigarettes”. It provides that cigarettes may be imported into the United States only if: 1) a list of ingredients of tobacco additives is or will be submitted to the government; 2) precise warning labels are permanently imprinted on both the primary packaging as well as on any other containers in which the cigarettes will be sold or otherwise distributed to consumers; 3) the cigarettes are being imported in compliance with an approved Federal Trade Commission rotation plan; 4) U.S. trademark owners have consented to the importation of cigarettes bearing their trademark; and 5) the importer submits certificates at the time of entry attesting to the fulfillment of the above requirements.

The law provides for the imposition of civil penalties on any person who violates any of the conditions attaching to the importation of cigarettes. It also requires the forfeiture and destruction of products imported in violation of the law.

Section 4004 specifically exempts certain imported cigarettes from its requirements. The exemptions apply to cigarettes purchased by travelers for their personal use; cigarettes imported solely for analysis; and cigarettes that will not be introduced into domestic commerce unless brought into compliance.

As noted above, your clients import cigarettes manufactured abroad for sale in the U.S. market. You contend that the new import requirements apply only to “gray market” cigarettes, which for purposes of this law are cigarettes manufactured abroad that bear the trademark of a product manufactured in the United States and which are diverted from foreign markets for sale in the United States. See Senate Report 106-503 at 91. To support your position, you cite to both the title of Section 4004 - “Requirements Applicable to Imports of Certain Cigarettes” - and to the legislative history behind the statutory amendment. You reason that the use of the word “certain” in the section title indicates intent to exclude some cigarettes from the scope of the provision. Since the legislative history focuses, to some extent, on the need to restrict the entry of gray market cigarettes into the domestic market, you conclude that the purpose of the law was to impose the requirements on gray market cigarettes only.

When a statute is ambiguous, the section heading may be considered in conjunction with the statutory text to come up with the statute’s clear and total meaning. U.S. v. Wallington, 889 F.2d 573 (5th Cir. 1989). However, the title to a statute and the heading of a section cannot limit the plain meaning of the text. Carter v. United States, 120 S. Ct. 2159 (2000); Brotherhood of Railroad Trainmen v. Baltimore & Ohio Railroad Co., 331 U.S. 519 (1947). The text of Section 4004 is straightforward: it imposes requirements on the importation of cigarettes, then exempts certain classes of cigarettes from those requirements. The exempted cigarettes, as noted above, are cigarettes imported for personal use or for analysis, or cigarettes that will not be introduced into domestic commerce unless brought into compliance. Thus, an even more plausible meaning of the term “certain cigarettes” than the one suggested is that this term refers to “all cigarettes exclusive of those specifically excepted”. This interpretation would be consistent with the plain meaning of the statute and at the same time would give effect to all the words in the section heading.

Conversely, interpreting the term “certain cigarettes” to mean gray market cigarettes, and restricting the scope of the statute accordingly, would limit the plain meaning of the statutory text. As noted above, the language of Section 4004 simply speaks to the importation of cigarettes. There is no direct reference to “gray market cigarettes” anywhere in the statutory text. The issue of gray market cigarettes is raised only indirectly, to the extent that the statute requires U.S. trademark owners to consent to the importation, and to sign certificates evidencing such consent, if the cigarettes being imported bear their trademark. The intentional use of the conjunction “if” in the text clearly implies that this law covers more than just gray market cigarettes.

It is undisputed that the importation of gray market cigarettes, with their ensuing disruptive effects on the tobacco settlement agreements, was a major impetus behind the enactment of this provision. This is discussed at length in Senate Report 106-103. However, the legislative history also reveals that Congress did not intend the new law to be confined to imported gray market cigarettes. After defining gray market cigarettes as “cigarettes manufactured abroad that bear the trademark of a product manufactured in the United States and which are diverted from foreign markets for sale in the United States”, the Senate Report then states that “the requirements of section 4004 for the entry into the United States of cigarettes, whether manufactured domestically or abroad, are necessary to ensure compliance with the critical health and safety provisions of [the Federal Cigarette Labeling and Advertising Act]” (emphasis added.) The imposition of the requirements on domestically manufactured cigarettes that presumably are exported and then returned clearly indicates that the scope of the statute extends to more than just gray market cigarettes, which Congress expressly defined in the legislative history as cigarettes that are made overseas under U.S. trademarks.

You next ask whether Customs will delay the effective date of the legislation for approximately six months to allow your clients to make the changes required by the law, should Customs determine that the law applies to the importation of more than just gray market cigarettes. The law was enacted on November 9, 2000, and this particular provision went into effect 30 days later, on December 9. Customs has no authority to disregard or change the effective date of a statute. Only Congress has that power. However, the law would not apply to cigarettes imported before December 9, 2000. Therefore, cigarettes imported prior to the effective date that were then placed in a bonded warehouse are not subject to the new requirements. We bring this to your attention because you mention that some of your clients’ cigarettes are in bonded warehouses.

Finally, you object to the finding that this statute applies to all imported cigarettes, on the basis that it imposes greater obligations on imports than on domestic products manufactured for the home market. This, you state, constitutes a violation of the GATT. The United States Trade Representative, not Customs, has jurisdiction over such matters. Therefore, we suggest that you address your concerns on this issue to that governmental body. However, we do note that the law would be equally applicable to U.S.-made cigarettes and that the prohibitions in this law are not limited to cigarettes of foreign origin. Thus, the provisions of Section 4004 would also apply to U.S.-made cigarettes exported and then imported unless specifically exempted under this law.

HOLDING:

The import requirements apply to all imported cigarettes, other than those cigarettes specifically exempted by statute; Although Customs has no authority to delay the effective date of a statute, the law became effective only with respect to cigarettes imported on or after December 9, 2000. Thus, cigarettes imported prior to that time and subsequently placed in a bonded warehouse would not be subject to the new requirements; and From the Customs Service’s perspective the law will be applied equally to U.S. and foreign-made products. However, questions regarding possible GATT violations must be addressed to another agency, such as the USTR.

Sincerely,

Sandra L. Bell
Director

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