
    THE JOSEPH SCHLITZ BREWING COMPANY v. THE UNITED STATES.
    [No. 20976.
    Decided January 15, 1900.]
    
      On the Proofs.
    
    The claimant exports bottled beer, using imported hops, barley, bottles, and corks on which duties have been paid. The Treasury Department refuses a drawback upon the bottles and corks.
    I. Congress, seeking to bring foreign markets within reach of home manufacturers, haveintended thatmanufacturers may use imported materials substantially duty free.
    II. The Act 1st October, 1890 (26 Stat. L., 617), provides “that where imported materials on which duties have been paid are used in the manufacture of articles” “there shall be allowed on the exportation of such articles a drawback equal in amount to the duties paid on the material used.” The right to drawback under this provision rests on exported “articles” composed in whole or in part of imported “materials.” Bottles are essential in the manufacture of bottled beer, but bottles are as complete before the brewer uses them as when they are exported; they are a finished product and not “materials.”
    
    
      
      The Reporters' statement of the case:
    The following are the facts of the case as found by the court:
    I. The claimant is a corporation, organized under the laws of the State of Wisconsin.
    II. Between the 1st day of February, 1893, and the 26th day of October, 1894, the claimant exported from the port of Milwaukee, Wis., bottled beer. The hops, barley, bottles, and corks used in the manufacture of this bottled beer had been imported into the United States from foreign countries, and duties had been paid thereon upon importation. The bottled beer was manufactured by the claimant at Milwaukee, Wis. The imported materials used in the manufacture, when exported, were identified, the quantity of the materials used and the amount of duties paid thereon ascertained, and the fact of the manufacture of the articles in the United States and their exportation were determined under regulations prescribed by the Secretary of the Treasury. The total amount of the duties paid on the materials mentioned so used and exported was $12,189.32, divided as follows: Upon the bottles and corks, $9,817.97-; upon the hops and barley, $2,371.35.
    III. The Treasuiy Department has not refused to pay the drawback upon the hops and barley, but such drawback could be paid under the regulations of the Department. It refuses to pay the drawback upon the bottles and corks for the reason stated in the following official letter, dated March 24, 1893:
    “TREASURY DEPARTMENT, Maroh &£, 1893.
    
    “Sir: The Department is in receipt of your letter of the 15th instant relative to the application of the Anheuser-Busch Brewing Association of St. Louis, Mo., for an allowance of drawback on imported corks and tin foil used, together with domestic bottles, in the bottling of beer for export.
    “The applicants represent that such corks and tin foil are imported materials used in the manufacture of bottled beer, and are therefore entitled to drawback under section 25 of the act of October 1, 1890, and they allege that such drawback is and has been allowed at your port.
    “You state that under existing law no claims on bottled beer, where the bottles are of domestic production, have been made at your port.
    “It appears, however, that in view of the Department’s decision of March 3,1886 (Synopsis 7445), authorizing allowance of drawback on imported bottles and corks used in bottling beer made wholly from imported materials, under section 3019, Revised Statutes, which seems to have been based upon the assumption that bottles and corks are ‘materials’ used in the manufacture of bottled beer, your office would hold that the imported corks and tin foil in question are entitled to drawback under section 25 of the act of. October 1,1890, were it not for a more recent decision, viz (Synopsis 10301, of October 28,1890), that ‘Imported bottles used in the bottling-of fermented liquors made in the United States wholly from domestic grain and hops are not entitled, on the exportation of such bottled beer, to drawback under the provisions of section 25 of the act of October 1, 1890.’
    “In reply you are informed that said' decision of October 28, 1890, appears to have been made upon due consideration of the question whether or not bottles, corks, and tin foil used in bottling beer for export may properly be considered as materials entering into the manufacture of bottled beer and that a negative conclusion has been reached.
    “The Department therefore decides that the present application must be denied, and the earlier decisions authorizing allowance of drawback on imported bottles, corks, and tin foil used in bottling beer for export are accordingly rescinded.
    “ Respectfulty, yours,
    “O. L. Spaulding,
    
      “Actmg Secretary.
    
    “(2826g.)
    “ COLLECTOR OE ClTSTOMS, Mew York.’1’’
    
    IV. The Treasury Department on March 31,1886, rendered the following decision:
    “Treasury DepartmeNt, March 31, 1886.
    
    “Sir: On the exportation of beer manufactured wholly of imported materials, bottled in imported bottles and corked with imported corks, a drawback will be allowed for the hops, rice, and barley used in the manufacture at the rate prescribed by the Department’s letter to you of the 25th instant, and for the bottles and corks at the rate of duty paid thereon, less the legal retention of 10 per cent.
    “Respectfully, yours, C. S. Fairchild,
    
      u Acting Secretary.
    
    “Collector oe Customs, Mew York.”
    
      The following is a circular issued by tbe Treasury Department on August 11, 1886, so far as relates to this question:
    “TREASURY DEPARTMENT, AlU/USt 17, 1886.
    
    “The following list of drawback rates is published for the information of customs officers and all others concerned.
    “C. S'. Fairchild,
    
      “Acting Secretary.
    
    “ Collectors of customs and others.
    “Alphabetical list of drawback rates established under the authority of sections 3019, 3020, and 3026 of the Revised Statutes and the acts of February 8 and March 3, 1875.
    * * * * *
    “ Bottles and corks, imported, used in bottling beer made from imported materials, same as duty paid. ”
    * -X- * -X- *
    Y. The rule announced in the official statements contained in the foregoing finding remained in force until the following ruling of October 28,1890, was made by the Treasury Department:
    “Treasury Department, October 88, 1890.
    
    “ Gentlemen: In reply to your letter of the 13th instant you are informed that, in the opinion of this Department, imported bottles used in the bottling of fermented liquors made in the United States, wholly from domestic grain and hops, are not entitled on the exportation of such bottled beer to drawback under the provisions of section 25 of the act of October 1, 1890, referred to by you.
    “Respectfully, yours,
    “O. L. Spaulding,
    
      “Assistant Secretary.
    
    “Messrs. Larzelere & Co., Philadelphia, Pa.”
    
    VI. The manufacture of beer is a complicated process, involving many different steps, consisting substantially of the following:
    1. Washing, cleaning, steeping, and sprouting the barley.
    2. Drying, storing, and crushing the barley, removing the sprouts, and crushing the malt.
    3. Making the mash by mixing the malt with water and raising the temperature and drawing off the resulting liquor or wort.
    4. Boiling the wort, adding hops, and reboiling.
    
      5. Cooling the wort and mixing it with yeast.
    6. Fermenting the wort, thereby making beer.
    7. Storing the beer to produce desired chemical changes.
    8. Clarifying the beer in casks by the use of chips and isinglass, and carbonating, for this purpose using a solution of young beer called “krausen.”
    9. Racking the beer into barrels, if to be bottled; otherwise it is drawn directly into kegs.
    "VII. The manufacture of beer for bottling for export differs from the manufacture for ordinary domestic use both because the materials must be selected with greater care, and the process must be conducted differently, in order that the bottled product may keep without change under varying conditions of climate, temperature, position, and transportation, and the beer preserve purity and clearness under all such varying conditions. Turbidity of bottled beer made for exportation must especially be avoided, as this renders the beer commercially unsalable. This is chiefly caused by the precipitation of albuminoids contained in the beer, and the differences in the process of manufacture between domestic beer and bottled beer for export are chiefly intended for the elimination of these albuminoids. It may also be caused by the germination of living yeast cells, and this is prevented by the process of pasteurization.
    VIII. The differences may be summarized as follows:
    In the process of malting a specially complete development of the angospei’n is necessary, and the process must be conducted very carefully. In drying the malt the raising of the temperature is very slow, and the process takes longer than in the case of ordinary keg beer. The mashing is conducted at a higher temperature and occupies a longer time. The malt must be stored for at least two months for bottled beer for export, as against about three weeks for keg beer. The wort must be boiled with special care to eliminate the albu-minoids. A finer grade of hops must be used to add to the ability of the beer to stay clear under all conditions. In the cooling process, which consists of running the beer over cold pipes in a glass inclosure into which filtered air is pumped, a stronger draft of air is required, in order to impregnate the wort with a larger quantity of oxygen to produce a higher fermentation and consequently fewer, albuminoids. The subsequent fermentation process requires a longer time with bottled beer for export than with keg beer, and the temperature is not allowed to rise as high. A higher attenuating jmast is used for the manufacture of bottled beer, taking out more albuminoids than the low attenuating yeast used in the manufacture of keg beer. The beer requires longer storage.
    The quality of the beer prepared for bottling, when in barrels prior to bottling, differs from the keg beer at the same stage in the fact that the keg beer has more albuminoids in it, and these-give it a bread-like taste, described as palate fullness, and increase its foam-holding capacity. This is recognized as a valuable quality in keg beer, and the absence of this quality is recognized as a detriment, unavoidable in beer bottled for export because of the necessity for eliminating the albuminoids.
    IX. After beer intended for bottling for export is placed in the barrels the following processes occur: -
    The barrels are hoisted to the required height of the filling machine, the stamp is taken off, canceled, and replaced, the keg is opened, a faucet entered in the lower hole, and the beer drawn from the barrel into the filling machine and through a proper disposal of siphons into the bottles. The bottles are then sent to the corking machines and corked; a thin metal cap is placed over the cork for the protection of the cork and a wire attached to the neck of the bottle and wound over the cork. The bottles are then placed in the steaming boxes and these boxes carried to a steaming vat which is filled with water and steam turned into the water, raising its temperature to about 150° and remaining at that temperature for about one hour; when it is cooled down to about 80° or 90°. This process, known as pasteurizing, is for the purpose of destroying living yeast cells and is necessary for beer bottled for export.
    Pasteurizing can be done in a large vessel before bottling, but the beer would become again impregnated by contact with the atmosphere when afterwards'drawn into bottles.
    This process must be conducted carefully, because if the temperature rises too high the beer gets an unpalatable taste and the albuminoids remaining in it are more apt to be eliminated, resulting in a loss of clearness, which renders the beer unsalable.
    This pasteurization may be omitted in the case of bottled beer for local use.
    The bottles, previous to their use, undergo a special washing process with hot water and soda so arranged that the bottles are filled and emptied continuously. They are then washed in a tank filled with'lukewarm water, on the outside by hand and on the inside by brushes in the washing machine, and then rinsed with cold water before being placed in the racks to be filled.
    Old as well as new bottles are used.
    X. In making bottled beer, from the time of purchase of the ingredients until the completion of the finished product, the process must be so managed as to diminish the albuminoids. When prepared as stated in the foregoing findings, bottled beer can stand the heat at the equator without being spoiled.
    XI. Beer bottled for export is understood to be beer intended for shipment, whether to domestic or foreign points, and for use other than local and immediate. When beer is bottled for local and immediate use it may be the same beer as hereinbefore described and prepared in the same manner as for export, including pasteurization, or it may be the same beer prepared in the same manner without pasteurization, or it may be ordinary keg beer, differing from bottled beer for export in the particulars described in Findings YII and VIII, and without pasteurization.
    XII. When bottled beer is sold to retailers it is delivered in cases of bottles, and an extra charge is made to the purchaser for the case and bottles, which charge is credited to his account on the return of the case and bottles. A similar practice obtains on the sale of the bottled beer by the case by retailers to their consumers.
    
      Messrs. Qeorge A. cmd WilUarn B. Kmg for the claimant:
    The first important fact shown here, but not shown in Wheeler v. The United States (75 Fed. Rep., 654), is that beer brewed for bottling is not, apart from the bottle, a completed manufacture. It is agreed not only that the bottle is contemplated both in the selection of the materials and in all the steps of manufacture, but also that it is onty when the materials making the beer are put into the bottle and corked, appearing as bottled beer, that a completed product first appears. Neither did it appear in that case that the bottled beer underwent a further process of manufacture after bottling.
    As the decision in Wheeler v. United States was made on an incomplete record, so also was it based on an unwarranted implication from the decision of the Supreme Court, in United States v. Allen, 163 U. S., 499, relied upon by the defendants.
    It is at once seen that it has no application to a case like the present. Coal is neither a manufactured article nor a material entering into a manufactured article. The foundation of the claim in this case is that the bottle is one of the materials from which bottled beer is manufactured. Bottled beer is not a raw material like coal. The materials entering into bottled beer are those on which drawback is here claimed — hops, bar-le}r, bottles, and corks. A critical examination of the case of United States v. Allen not onty destroys it as authority for this case, but shows that, since the case of Wheeler v. United States rested upon it as its sole support, that case can not bo accepted as authority.
    The Government further cites a learned and interesting-discussion of authorities defining the word “manufacture,” contained in an opinion of the Solicitor of the Treasury of December 9, 1898. . (2 Treasury Decisions, p. 991.) But this discussion is not important in view of the latest authoritative definitions on that subject in the case of Tidewater Oil Company y. United States (171 U. S., 217), an appeal from this court.
    If the. inquiry here is directed to the reason of the law for allowing drawbacks, the application to this case is very clear. The object of the drawback law is fully stated in the opinion of the Supreme Court in the Tidewater Oil Company case (supra).
    
    If the American brewer is to compete in the markets of the world — in Mexico, Japan, and South Africa — with the brewers of England and Germany, it must be by reason of his having the materials of manufacture for export purposes without enhancement of their cost by payment of a tax to the United States. He will thus meet foreign manufactux-ers on an equality in the markets of third countries. Beer can be exported to such countries only when bottled. If the American brewer is allowed to purchase hops and barley in the cheapest market and export the beer made of these, freed from tax by the drawback, and yet is obliged to purchase his bottles and corks in a dearer market or, purchasing in a cheaper market, must pay a United States tax, then he is handicapped in exporting his bottled beer in competition with other manufacturers who buy bottles without tax in the cheapest market, just to the extent of this tax on the bottles and corks. The purpose of the law is thus defeated. The foreign market is not gained and the domestic manufacture is not encouraged, since the foreign brewer competing in the open market may undersell the American, because subjected to this disadvantage. Thus every reason which led to the original enactment of § 3019 of the Revised Statutes in the act of August 5, 1861, § 4 (12 Stat. L., 293), and to the wide extension of the same law in the tariff act of October 1,1890, § 25 (26 Stat. L., 617), and its subsequent reenactments in the acts of August 28, 1894, § 22 (28 Stat. L., 551), and July 24, 1897, § 30 (30 Stat. L., 211), is equally a reason for the inclusion in the benefit of drawback of all the materials entering into the completed exported article.
    
      Mr. Assistant Attorney-General Pradt, for the defendants:
    The ruling of the Treasury Department was indorsed in the case of Wheeler v. The United States (75th Fed. Rep., p. 654), in which a precisely similar claim was made. The court, in its opinion, cites the case of United States, plaintiff vn error, v. Charles P. Allen. (163 U. S., 503.)
    The corked bottle performs the same office with respect to the beer which it contains that a keg does to keg beer. In addition to being what is technically called the “package” of the beer, it operates to retain the carbonic acid gas with which the beer is charged djiring its manufacture, and which gives it its life. It differs from the keg in being a superior package. As well, it would seem, might it be contended that the keg is a part of keg beer, the can of “ canned lobster,” the bag of “salt in bags,” the hogshead of “wine in hogsheads,” and the crate of “crated cheese,” as that bottles and corks are a part of bottled beer.
    
      And undoubted^ counsel for claimant are struck with tbe force of this argument, since they have presented evidence covering the whole ground of the process of manufacture of both keg and bottled beer, and place much stress upon the fact that it appears from this evidence that there are many elements of difference between the process of the manufacture of keg beer and that of bottled beer, although the general process is the same in each case.
    I refer in this connection to a 'valuable discussion of the meaning of the word “manufacture” found in the opinion of the Solicitor of the Treasury rendered November 30, 1898, and concurred in by the honorable Assistant Secretary of the Treasury in his decision of December 9, 1898 (No. 20404, Treasury Decisions, vol. 2, No. 24, p. 991).
    Further confirmation of the position of the Government in this case is found in the fact, as set forth in finding 11 of the agreed findings of fact, that in the course of trade, both between wholesalers and retailers and the retailers and their customers, a separate account is made of the bottles, and on return of the bottles the purchaser is credited with the value of the same. This would seem to be a species of divorcement of the beer and the bottle — the twain that counsel have so lastingly joined together in their argument. It goes to show clearly that the article that is purchased and desired is the beer and not the bottle, and that after the required article is consumed the bottle is ready to be returned to be again filled.
   Nott, Ch. J.,

delivered the opinion of the court:

The position of the claimant is in substance this:

The general purpose of the legislation involved in this suit is the imposition of customs duties which, incidentally, shall benefit domestic manufacturers and producers and their workmen. That benefit can accrue only in one way — by increasing the market price of articles manufactured or produced. But that benefit manifestly can extend no farther than the domestic markets of the country. So soon as the manufactured article seeks a foreign market the action of the tariff is reversed, and what was a benefit becomes an injury and the person helped is the foreign manufacturer and not the American. In the foreign market the American manufacturer labors under three disadvantages — he has paid greater prices for domestic materials; he has paid duties on imported materials; he has paid higher wages to his workmen. Hence in the foreign market he can not compete with the foreign manufacturer, who, manufacturing at less cost, can undersell hiin. To that extent protective legislation benefits the foreign manufacturer.

The true constituents of a system strictly protective must be that the American manufacturer shall manufacture from American products for the American market, and thereby help the American producer as well as himself. But the overproduction of modern machinery has of late years overstocked the home market, and Congress have sought by appropriate legislation to bring foreign markets within the reach of American manufacturers. To that end the legislative policy has been to allow the home manufacturer to manufacture his articles out of imported materials coming into the country practically duty free. It is manifest that if this favorable legislation is intended to put the American manufacturer on an equal footing with his foreign competitor in foreign markets it must be as broad as the articles which he manufactures, or, rather, as broad as the imported materials which he uses, so that anything and everything which enters into the cost of production shall be absolutely free from the additional cost of customs duties.

In the case now before us it is obvious that the manufacturer was compelled either to use bottles manufactured in this country or to import bottles upon which he must paj duties. As a matter of fact, he resorted to the latter alternative. He claims that these bottles are materials used in the manufacture of bottled beer; and it is but just to say that he shows that this beer is manufactured expressly for bottling and for exportation; that it can not be preserved and exported in aiy other way, and that from one point of view the bottle is as much an element of the intended product as the peculiar kind of beer which it contains. The manufacturer maintains that these duties will preclude him from competing in foreign markets with foreign brewers, contrary to what he believes to bo the legislative intent, because he can not manufacture this kind of beer for exportation without bottles, and can not afford to pay duties on bottles when his competitors do not.

Nevertheless, if the intention was to put the American mán-ufacturer upon an equal footing with the foreign manufacturer in foreign markets, the legislation of Congress has been imperfect and incomplete, and the courts, moreover, have deemed themselves confined to the words of the statutes when ascertaining the legislative intent.

The significant words of this act are “that where imported materials on which duties have been paid are used in the manufacture of articles” “there shall be allowed on the exportation of such articles a drawback equal in amount to the duties paid on the materials used.” {Act 1st October, 1890, 26 Stat. L., p. 617, § 25.)

In a case of a somewhat similar character this court held that shooks imported to be used in the manufacture of boxes were not materials within the intent of the statute, but a finished product. (Tidewater Oil Co.'s Case, 31 C. Cls. R., 90.)

In the same case on appeal Mr. Justice Brown elucidates the different meanings which maybe given to the word iimaterials,” and he points out that logs are manufactured into boards and boards are fashioned into boxes; that the steel spring of a watch is made from iron ore, but by a number of processes or transformations, and that each successive step is a distinct process bringing forth an article which receives a new and different name, and he draws the general conclusion “that the finished product of one manufacturer becomes the material of the next in rank.” (171 U. S. R., 210-216.)

In the case of the United States v. Allen (163 U. S. R., 499) the court held that the drawback authorized by this statute does not extend to imported coal, considered as an article for consumption, and the reasoning of the court leads to the conclusion that the right to a drawback must rest on an exported “article” composed, in whole or in part, of imported “materials.” It may be true that the bottles are as essential in the manufacture of bottled beer as the barley and hops of which the beer is made, but the barley and hops when they are imported are not beer, while the bottles are bottles, and as complete when the American brewer buys them as when they are exported. We may infer from the decisions that if he had imported glass, and manufactured the glass into bottles, he would have had a good claim for drawback as to any duties which had been paid upon the glass; but it must be held, under the authorities cited, that bottles are a finished product, and not “materials used” in that combination which is the subject or basis of the present suit.

The judgment of the court is that the claimant recover the drawback on barley and hops set forth in the foregoing findings, to wit, the sum of $2,371.35.  