09 Feb It’s a Service, It’s a Good, No It’s a Bore
I have been meaning to do a post about the Supreme Court’s first antidumping decision in decades, but frankly the case is a yawner. The question in United States v. Eurodif is whether the importation of low enriched uranium (LEU) is a good or a service. If it is the latter, then it cannot be subject to antidumping duties, which may only be imposed on imported goods.
The contracts that gave rise to the dispute are complicated but essentially the process of providing LEUs is done in such a way that it can easily be interpreted as a good or a service. “Under a ‘SWU contract,’ the utility provides a quantity of feed uranium and pays the enricher for the SWUs to produce the quantity and assay of LEU called for. Despite their name, SWU contracts do not require that the contractual number of SWUs actually be applied to the quantity of uranium provided, rather, the enricher remains free to overfeed or underfeed so long as it delivers the specified LEU.”
The case comes down to a simple application of deference to administrative agency determinations. The contract can say it is a service, but the agency will look to the substance of the transaction. That substance led the Department of Commerce to conclude that the transaction was the sale of a good, and the Court agreed. Analogizing to the process of dry cleaning, the Court concluded that the LEU process is a sale of goods not services:
“Because an individual’s shirts are not fungible, they are tracked during the cleaning process and returned to the same customer who brought them in; there are no good reasons to treat them as owned for a time by the laundry, and no one does. And without any transfer of ownership, the salient feature of the transaction is the cleaning of the shirt, a service. Conversely, where a constituent material is untracked and fungible, ownership is usually seen as transferred, and the transaction is less likely to be a sale of services. And when the manufacturer is not only free to return different material, but also substantially transforms the material it uses, it is even more likely that the object of the transaction will be seen as a new product, not work on enduring material of primary interest to the buyer. After all, what makes the hypothetical exchange of sand for silicon processors so obviously a sale of goods is the extreme transformation brought about by the chip manufacturer.”
While I have no expertise in the matter, I can’t help but wonder whether the process of manufacturing LEU could be adjusted to more closely resemble a service by simply requiring a precise and specific quantity of uranium feed be transformed and delivered as LEU. If one wishes a tailor to manufacture a shirt, one could do so by providing three yards of fabric designated for each individual shirt or one could simply provide thirty yards of fabric and contract for the end product of at least ten shirts. Is this the sale of an untracked and fungible good or is it a service that substantially transforms ten specific units of three linear yards of fabric? Who knows, and in truth, who cares?
It’s perhaps worth keeping in mind the following from the Wikipedia entry on “goods and services,” which would suggest the conceptual and practical difficulty of any attempt to rely on a legal bifurcation of same:
The dichotomy between physical goods and intangible services should not be given too much credence. These are not discrete categories. Most business theorists see a continuum with pure service on one terminal point and pure commodity good on the other terminal point. Most products fall between these two extremes. For example, a restaurant provides a physical good (prepared food), but also provides services in the form of ambiance, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services.
Is the above so utterly alien to commercial and contract law?
“When the manufacturer is not only free to return a different material, but also substantially transforms the material is uses, it is…likely that the object of the transaction will be seen as a new product.”
While I haven’t read the decision in its entirety, it seems likely to me that the Court would see the “substantial transformation” of LEU, or of shirts, as the creation of a good, and not the provision of a service, regardless of any tracking mechanism for the constituent material.