## Facts

- Goodman Manufacturing, L.P. operated a furnace-manufacturing foreign-trade subzone in Texas.
- Goodman admitted Korean cold-rolled steel sheets into the subzone as “privileged foreign merchandise” under the Foreign Trade Zones Act, fixing the applicable duty rate at admission.
- Goodman used the steel to manufacture residential gas furnaces, producing 2,652 pounds of recoverable steel scrap.
- Goodman entered and sold the scrap in U.S. customs territory for $81.68.
- Customs determined the dutiable value of the privileged foreign steel used in the furnaces by subtracting only the scrap’s transaction value ($81.68) as the statutory “allowance for waste.”
- Goodman contended the allowance should instead be calculated by quantity at the steel’s original admitted value (approximately 2,652 pounds × $0.17 per pound), yielding a far larger deduction.

## Issues

1. Under 19 U.S.C. § 81c, how must the “allowance for recoverable waste” be calculated when privileged foreign merchandise is used to manufacture articles in a foreign-trade zone and recoverable scrap is later entered into U.S. customs territory?
2. Whether Customs may compute the allowance by subtracting only the scrap’s transaction value from the privileged merchandise’s value.
3. Whether the allowance may be computed mechanically by valuing waste solely by quantity at the imported merchandise’s original per-unit value.

## Decision

- The Federal Circuit reversed the Court of International Trade’s grant of summary judgment for the United States and remanded.
- The court held that subtracting only the scrap’s transaction value does not satisfy § 81c’s allowance for recoverable waste.
- The court rejected Goodman’s proposed quantity-based approach valuing waste at the imported merchandise’s original per-unit value.
- The court required an allowance method reflecting the difference between the market value of the privileged merchandise admitted into the zone and the market value of the resulting scrap.
- The court held that the trial court improperly relied on a presumption of correctness to sustain an erroneous statutory interpretation; statutory interpretation is a question of law.

## Legal Principles

- The § 81c “allowance for recoverable waste” is a substantive adjustment that must be given meaningful effect in determining the dutiable value of privileged foreign merchandise incorporated into manufactured articles.
- An allowance method that uses only scrap sale proceeds can understate the allowance because it fails to account for the loss in value when higher-value merchandise becomes lower-value scrap.
- A purely quantity-based deduction at original import value can overstate the allowance and may distort duty calculations where manufacturing changes the quantity or character of the merchandise.
- A lawful allowance for recoverable waste should be based on market-value loss: the difference between the market value of the privileged foreign merchandise admitted to the zone and the market value of the recoverable scrap.
- Courts do not defer to Customs on questions of statutory interpretation when the agency’s reading conflicts with the statute.

## Conclusion

The Federal Circuit held that § 81c requires a market-value-based allowance for recoverable waste in foreign-trade zone manufacturing, rejecting both Customs’ transaction-value-only method and the importer’s quantity-at-import-value method, and remanded for recalculation under the correct legal standard.


Goodman Mfg., L.P. v. United States, 69 F.3d 505 (Fed. Cir. 1995)