On August 9, in the latest in a long-running battle between Ford and CBP over ‘tariff engineering’, Ford won a key victory at the Court of International Trade.

The CIT agreed with Ford that its Transit vehicles, imported with second-row passenger seats removed after importation, qualify for the lower tariff rate on passenger vehicles (2.5%), and are not subject to the higher “chicken tax” (25%) on cargo vehicles. The key facts as stated by the court include:

Ford manufactures the Transit Connect 6/7s in Turkey and imports them into the United States. Although these vehicles are made to order and are ordered as cargo vans, Ford imports them with a second row seat, declaring the vehicles as passenger vehicles . . . .  After clearing customs but before leaving the port, Ford (via a subcontractor) removes the second row seat and makes other changes, delivering the vehicle as a cargo van.

CBP took the position that the second row seat “is an improper artifice or disguise masking the true nature of the vehicle at importation,” instead of what Ford argued was legitimate tariff engineering. Customs defines ‘tariff engineering’ as “the longstanding principle that merchandise is classifiable in its condition as imported and that an importer has the right to fashion merchandise to obtain the lowest rate of duty and the most favorable treatment.”  In adopting Ford’s view, the court found that the vehicles, at the time of importation, are “principally designed for the transport of persons.”

The court’s analysis is a “must read” for anyone with more than a passing interest in customs classification. The case provides a robust articulation of an expansive and legitimate foundation for tariff engineering. Basing its analysis on important historical precedent, the court pins its finding for Ford in an 1891 Supreme Court ruling that classification must be made of the imported item “in the condition in which it is imported,” and an even earlier high court decision that ruled a manufacturer may purposely manufacture goods in such a manner as to “evade higher duties.” The court further analyzed more recent CIT decisions applying them to Ford’s extensive facts.

Given the long running nature of this dispute and the amount of difference in the two tariff rates, many observers expect Customs to appeal and so the last word may not yet be written on the Ford vehicles at issue or factual applications of ‘tariff engineering’.

In today’s trade debates, the historical background is worth remembering: the 25% duty on trucks (compared to 2.5% duty on cars) was imposed by the United States in the 1960s in retaliation against Europeans for imposing high tariffs on American chickens. It was later used against Japan as Japanese vehicles began to make serious inroads into American commerce.  That high duty remains in place 50 years later. Duties invoked in haste in trade wars can become permanent.

For more information, contact: John Brew, Jeff Snyder, Frances Hadfield; Barry Nemmers

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Photo of Frances P. Hadfield Frances P. Hadfield

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving…

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving customs compliance, audits, customs enforcement, as well as import penalties.

Frances represents clients before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit, as well as in proceedings at the administrative level. She advises corporations on both substantive federal and state regulatory issues that involve U.S. Customs and Border Protection, the Federal Trade Commission, Food and Drug Administration, and U.S. Fish & Wildlife in matters pertaining to product admissibility, audits, classification, import restrictions, investigations, marking, licenses, origin, penalties, and tariff preference programs.

Photo of John Brew John Brew

John Brew is the co-chair of Crowell & Moring’s International Trade Group and a partner in the firm’s Washington, D.C. office. He has extensive experience in import and export trade regulation, and he regularly advises corporations, trade associations, foreign governments, and non-governmental organizations…

John Brew is the co-chair of Crowell & Moring’s International Trade Group and a partner in the firm’s Washington, D.C. office. He has extensive experience in import and export trade regulation, and he regularly advises corporations, trade associations, foreign governments, and non-governmental organizations on matters involving customs administration, enforcement, compliance, litigation, legislation and policy.

John represents clients in proceedings at the administrative and judicial levels, as well as before Congress and the international bureaucracies that handle customs and trade matters. He advises clients on all substantive import regulatory issues handled by U.S. Customs and Border Protection and Immigration and Customs Enforcement, such as classification, valuation, origin, marking, tariff preference programs, other agency regulations, admissibility, import restrictions, quotas, drawback, audits, prior disclosures, penalties, investigations, Importer Self Assessment and Customs-Trade Partnership Against Terrorism programs, importations under bond, the Jones Act, vessel repairs, and foreign trade zone matters.