Share with your friends

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.


Related content

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]


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

John L. McLoughlin
Principal and East Coast Leader
T: 267-256-2614

Andy Siciliano
Partner and National Practice Leader
T: 631-425-6057

Luis (Lou) Abad
Principal, Washington National Tax
T: 212-954-3094

Irina Vaysfeld
T: 212-872-2973

Amie Ahanchian
Managing Director
T: 202-533-3247

Robert Waldrop
T: 212-954-8117

Gisele Belotto
Managing Director
T: 305-913-2779

Christopher Young
T: 312-665-3229

Andy Doornaert
Managing Director
T: 313-230-3080

George Zaharatos
T: 404-222-3292

Jessica Libby
Managing Director
T: 612-305-5533

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal