CIT Needs More Info Before Deciding Case on 'Tariff Engineering' of Ford Vans
A vehicle imported by Ford as a passenger van to save on duties, but then immediately converted to a cargo van after importation, may have been legitimately “tariff engineered” if the seats originally included in the van were suitable for passengers, the Court of International Trade said Oct. 5 as it declined to rule either way (here). With the government arguing instead that the inclusion of flimsy seats was a deceitful ploy to illegitimately get more favorable tariff treatment, the court requested more information on the seats before it comes to a final decision.
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Ford imported the Ford Transit Connect from Turkey for several years as a passenger vehicle under subheading 8703.23.00, paying a 2.5 percent duty. After clearing customs but before paying the port, Ford removed the second row seat and made other changes to convert it into a cargo van before delivery to the customer. The duty savings were significant -- cargo vans imported from Europe were subject to a 25% retaliatory duty known as the “chicken tax,” put in place in the 1960s to counter European tariffs on U.S. chicken.
As part of the conversion, the second-row seats were unbolted and removed, along with the associated seat belts. In some vehicles, the sliding door windows were replaced with a solid panel. However, a second-row seat support and reinforcements in the side pillars added before importation to meet U.S. motor vehicle safety standards remained after the conversion, as did fittings for the seat and bracing for the safety restraints. Ford contended the conversion was “legitimate tariff engineering.” The government claims the second seat was an “artifice or disguise masking the true nature of the vehicle at importation,” and the van was instead properly classifiable as a cargo fan, CIT said.
In 2011 and 2012, amid a Trade Compliance Management Review that included a Ford entry, three import specialists at the Port of Baltimore came across several already converted examples of the Ford Transit Connect. After launching an investigation and ascertaining that the vehicles were converted into cargo vans after importation, CBP Baltimore requested internal advice from headquarters in the form of a ruling. In HQ H220856, CBP ruled that the converted Ford Transit Connects were “properly classifiable as ‘Motor vehicles for the transport of goods,’ under subheading 8704.31.00, HTSUS, dutiable at the rate of 25% ad valorem.” Ford sued after protesting the classification of its entry.
The Supreme Court has ruled that goods are to be classified in their condition as imported, but that goods “cannot escape a prescribed rate of duty ‘by resort to disguise or artifice,’” CIT said. The test that must be satisfied is, “[d]oes the article, as imported, fall within the description sought to be applied?” CIT said.
Importantly, beginning in model year 2010, Ford began including a “cost reduced” second row seat “for use in Transit Connect Cargo vans only” by removing a tumble lock mechanism, headrests and “certain comfort wires,” and wrapping the second row seat “in a cost reduced fabric,” CIT said. The government told CIT that the cost reduced seat included in the vans entered by Ford was “never intended to be sat upon, pointing to the lack of ‘comfort wires’ and indications that it ‘sags a little,’” it said.
CIT said it needed more evidence before it could decide whether Ford's vans met the test. “Although the evidence is more clear that the cost reduced rear seat excludes head rests and arm rests and is covered in a cost reduced fabric that does not match the rest of the interior fabric, the Court is unclear how the totality of these changes impacts the functionality of this seat and the overall design of the vehicle, as imported,” CIT said. “Additional information and evidence regarding this seat will better enable the Court to determine whether the vehicle’s intended purpose of transporting persons, as imported, outweighs an intended purpose of transporting goods,” it said.
(Ford Motor Company v. U.S., Slip Op. 16-92, CIT # 13-00291, dated 10/05/16, Judge Barnett)
(Attorneys: Gordon Todd of Sidley Austin for plaintiff Ford Motor Company; Beverly Farrell for defendant U.S. government)