CAFC Support NAFTA Marking Rules

July 2001

The U.S. Court of Appeals for the Federal Circuit held on July 26, 2001 that the NAFTA marking rules were not arbitrary and capricious as applied to peanut butter made in the United States in part from Canadian sourced materials. The case, Bestfoods v. United States was the first test of the country of origin marking rules implemented under the NAFTA.

Bestfoods makes peanut butter in the U.S. that contains varying amounts of peanut slurry from Canada. Customs ruled that under the NAFTA marking rules, Bestfoods was required to label the peanut butter as a product of Canada because there was no shift in tariff classification from peanut slurry to peanut butter. Under the NAFTA marking rules, most products are permitted to have a de minimis amount of foreign content that fails to undergo the applicable tariff shift. This rule, however, is not applicable to agricultural goods such as peanut butter.

Bestfoods argued that the exception to the minimis rule for agricultural goods was invalid because it was arbitrary and capricious. The Court held that the exception for agricultural goods was consistent with past agency practice and with the rule of origin for NAFTA duty preferences. In addition, the rule does not lead to absurd results and is not improperly based on health and safety concerns. As a result, the CAFC reversed the judgment of the Court of International Trade and the regulation remains valid.