The saga of Heartland vs. The United States Beet Sugar Association

I first learned about tariff engineering in the case of Heartland By-Products v. The United States. Heartland avoided the 6% tariff on "refined sugar product with 6% or less additional content (not counting foreign substances)" by adding molasses to the sugar, thereby taking it above the 6% threshold, importing the mixture tariff-free, and then re-refining the product after importation to extract the molasses and produce refined sugar again. They would then ship the molasses back to Canada, where they would add the molasses to another batch of sugar, and the cycle would repeat.

The entire operation hinged on whether molasses is a "foreign substance". If it is a foreign substance, then adding it to the sugar does not count toward the 6%, and the scheme falls apart. This case took a long time to resolve. I found a case in 1999 which joined the story already in progress, and it even explains some of the mechanics by which the molasses is refined out of the mixture. Here's the timeline:

  • In 1995, Heartland asked Customs, "Is molasses considered a foreign substance when added to refined sugar?" Customs responded, "No, it is not."
  • In 1997, Heartland began production.
  • In 1998, the United States Beet Sugar Association requested that Customs reverse its initial decision.
  • In 1999, Customs reversed its decision and declared that molasses is a foreign substance after all.
  • Shortly thereafter, Heartland appealed to the Court of International Trade, which reversed the reversal and declared Heartland's operation legal.
  • In 2000, the Beet Sugar Association filed a Motion for Reconsideration, which was denied.
  • In 2000, the Beet Sugar Association appealed again, and this time, the court ruled against Heartland.
  • In 2002, the case was appealed to the Supreme Court, which denied the petition for a writ of certiorari. (I.e., they declined to review the case.)
  • A bunch of other procedural wrangling occurred, arguing over jurisdiction and stuff like that. I found this 2005 case where Heartland won a (deep breath) reversal of an order of dismissal of a complaint that the court lacked jurisdiction.
  • I don't even understand this case, in which Heartland is granted summary judgment for um something.
  • At some point, Heartland successfully appealed the decision to allow the tariff to be imposed retroactively.
  • In 2009, the United States Court of Appeals ruled that their original intent was that the tariff applied retroactively. Heartland challenged the reversal, but since Customs chose not to impose the tariff retroactively after all, the court rejected the issue as moot.

I think that's the end of the story, but who knows.

Bonus chatter: If you can't get enough of tariff engineering, here's an entire presentation on the topic, with lots of examples.

Comments (9)
  1. Jeff says:

    In the 1970’s for a brief time there was no tariff on imported sugar. The result was first a drop in the price of sugar and then a large increase. See this post for an explanation

  2. Ken in NH says:

    Who wins? The lawyers, bureaucrats, and whichever pols received money from either or both sides.
    Who loses? Heartland, the people of Canada, and the people of the United States.

    1. DWalker07 says:

      And that poor molasses loses too, by being added to sugar, then refined out again, shipped back to Canada, then added again to a new batch, and so on. That molasses must get tired and feel unappreciated for its own merits; it’s just there for tax purposes.

      1. cheong00 says:

        Or they got to feel they’re good companion for the containers that used to ship them. (It makes little sense to just ship empty containers back to Canada when there are molasses to ship back too)

  3. HiTechHiTouch says:

    Regarding the 2005 case — disclaimer I’m not a lawyer — It appears Customs started trying to collecting actually money (i.e. pay us what we say you owe).

    Heartland said “The court ruled you can’t collect on imports made before the last reversal 2000”. The court said “Try to work out which shipments are under which tariff rate”. Heartland said “We tried, but couldn’t reach agreement, so please make them obey your original order”. Customs said, requesting summary judgment, “The court’s original order doesn’t apply because of all the legal wangling this is now a new case.” The court said, “This is not a new case and the previous decision applies. Customs will not be allowed to evade this court’s decision on a technicality without a full hearing, and Heartland can ask to have the decision enforced.”

    My observation: when the government takes the low road and tries to abuse the process of justice, it’s a sure bet the action is being motivated by personal interests. A prosecutor lets things get personal with a defendant, or wants the glory of bringing a big name down. Big money applies pressure via political connections for government agencies to act against the best interests of the people. People of power or ideology within agencies use the courts to impose their desires. The common good is ignored.

  4. ErikF says:

    AFAICT, I think that the 2007 judgement was regarding U.S. Customs liquidating (selling off) sugar that was seized (for non-payment?), where the judge put a stop to that, at least until this epic saga had concluded. This is indeed a strange story. Next in the series: softwood lumber!

  5. middings says:

    Ford used the Heartland dodge complete with magic recycled ingredients. The Transit Connect, a small delivery van, was built in Turkey and shipped to the USA with four seats and side windows to be tariffed as a car. In the USA, Ford then takes out the two rear seats and replaces the side windows with metal panels. Presto, it is then sold as a panel van. The replaced parts are shipped back to the factory for re-use. Wikipedia says that in 2013 US Customs told Ford the imported vans disguised as cars would be tariffed as light trucks and subject to the 25% tax. Oddly, despite no longer benefiting from a lower tariff Ford continues to import the vehicles as cars then re-work them into vans in the USA.

    Americans might remember the Subaru pickup trucks with the two plastic seats in the truck bed. With those two plastic seats, the Subaru was classified as a car and avoided the USA’s 25% tariff on light duty trucks. Later, revised US passenger safety regulations forbade the outboard seats and the Subaru was a car no more.

    Then there was the USA’s attempts to limit imports of computer memory chips made in Japan. One of the US semiconductor makers that had pleaded for relief from competition from Japanese imported memory chips also had a division that built and sold IBM-compatible mainframe computers. Then for its computer business, this US memory chip maker started importing computer mainframe storage units built by Hitachi in Japan. IIRC, Hitachi’s loose chips were subject to the import quota but not when Hitachi’s memory chips were soldered onto printed circuit boards and packaged in metal boxes as computer mainframe storage units.

    1. Drak says:

      As Raymond said in his post on the 25th:
      Ford’s solution is to produce a passenger car, and then on arrival in the United States, remove the seats and windows. (This may explain why you see paneled vans with window cutouts in the cargo area.)

    2. mikeb says:

      > Americans might remember the Subaru pickup trucks with the two plastic seats in the truck bed.

      Unsurprisingly, I had forgotten about those. At the time I wondered who would ever want or use them? Tax dodge never occurred to me.

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