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Federal Circuit reverses trade court, “tariff engineering” case involving motor vehicles

Federal Circuit reverses, “tariff engineering" case

The U.S. Court of Appeals for the Federal Circuit today reversed a 2017 decision of the U.S. Court of International Trade concerning the tariff classification of motor vehicles imported from Turkey.

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The Federal Circuit found that precedent required looking at the intended use of the motor vehicles—in this case, motor vehicles for the transport of goods (subject to customs duty of 25%) versus motor vehicles “principally designed” for the transport of persons (subject to a 2.5% rate of customs duty) depending on classification under the Harmonized Tariff Schedule of the United States (HTSUS).

The case is: Ford Motor Co. v. United States, 2018-1018 (Fed. Cir. June 7, 2019). Read the Federal Circuit’s decision [PDF 208 KB]

Background

The car company manufactured vehicles in Turkey and imported them into the United States. The vehicles were made to order and were ordered as cargo vans (subject to customs duty at a rate of 25%). The company manufactured and imported the vehicles with a second row seat, declaring them as passenger vehicles (subject to customs duty at a rate of 2.5%). 

After clearing customs but before leaving the port, the car company (using a subcontractor) removed the second row seat and made other changes, and delivered the vehicles as cargo vans. 

Customs and Border Protection (CBP) determined that the inclusion of the second row seat was an improper artifice or disguise that was masking the true nature of the vehicles at importation and that such vehicles were properly classified under subheading 8704.31.00 of the and subject to a 25% customs duty. The car company countered that this was “legitimate tariff engineering.”

The trade court found that the subject imports were properly classified under subheading 8703.23.00, HTSUS, as motor cars and other motor vehicles principally designed for the transport of persons, and thus granted the car company’s motion for summary judgment. Read TradeNewsFlash

Federal Circuit

The Federal Circuit today reversed.

The appeals court noted that HTSUS heading 8703 “inherently requires looking to intended use” of the vehicle and that the word “principally” clearly indicates that a vehicle’s intended purpose of transporting persons must outweigh an intended purpose of transporting goods and further, that in making this determination, “both the structural and auxiliary design features must be considered.”

The Federal Circuit noted that “this appeal presents one of the very limited circumstances where the relevant heading, HTSUS Heading 8703, is an eo nomine provision for which consideration of use is appropriate because HTSUS Heading 8703 inherently suggests looking to intended use.” The appeals court then found that on balance, the structural design features, auxiliary design features, and inherent or relevant use considerations established that the vehicles were not classifiable under HTSUS Heading 8703 because the vehicles were not principally designed for the transport of persons.

 

For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:

Doug Zuvich
Partner and Global Practice Leader
T: 312-665-1022
E: dzuvich@kpmg.com

John L. McLoughlin
Principal and East Coast Leader
T: 267-256-2614
E: jlmcloughlin@kpmg.com

Andy Siciliano
Partner and National Practice Leader
T: 631-425-6057
E: asiciliano@kpmg.com

Luis (Lou) Abad
Principal, Washington National Tax
T: 212-954-3094
E: labad@kpmg.com

Irina Vaysfeld
Principal
T: 212-872-2973
E: ivaysfeld@kpmg.com

Amie Ahanchian
Managing Director
T: 202-533-3247
E: aahanchian@kpmg.com

Robert Waldrop
Principal
T: 212-954-8117
E: rwaldrop@kpmg.com

Gisele Belotto
Managing Director
T: 305-913-2779
E: gbelotto@kpmg.com

Christopher Young
Principal
T: 312-665-3229
E: christopheryoung@kpmg.com

Andy Doornaert
Managing Director
T: 313-230-3080
E: adoornaert@kpmg.com

George Zaharatos
Principal
T: 404-222-3292
E: gzaharatos@kpmg.com

Jessica Libby
Managing Director
T: 612-305-5533
E: jlibby@kpmg.com

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