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Court Upholds Tariff Engineering in Vehicle Classification Case

The U.S. Court of International Trade ruled recently that Ford Transit Connect vans are properly classified as vehicles designed for the transport of persons under HTSUS 8703.23.00 (2.5 percent duty). U.S. Customs and Border Protection had classified the vans as vehicles for the transport of goods under HTSUS 8704.31.00 (25 percent duty). In so doing the court upheld the principle of tariff engineering, which applies to other goods besides those at issue.

The court states that the vans at issue are built to order and ultimately delivered as two-passenger cargo vans. However, they are manufactured and imported with a second row seat and associated structural features designed to meet U.S. safety standards for passenger vehicles. The second row seat is removed, and certain other changes are made, after the vans clear customs and before they leave the port, but many of the safety features remain in place after this processing.

CBP argued that this scheme is an improper artifice or disguise masking the true nature of the vans at importation, but the court agreed with Ford that it is instead legitimate tariff engineering, upholding the principle that importers have a right to manufacture goods in a manner so as to secure a lower duty rate. The court rejected CBP’s argument that previous case law requires inquiry into a product’s intended purpose. Requiring CBP to examine the purpose and genuineness of the steps in the manufacturing process as part of its classification process would appear to be at odds with the Supreme Court’s guidance on disguise or artifice, the court said, which emphasises changes to appearance rather than physical characteristics. Such a standard would also “impair the timely and sound administration of the customs laws.”

Reiterating that classification is based on the characteristics of the product at the time of importation, the court concluded that the structural and auxiliary design features of the vans at issue that were present at importation indicate that the vans were designed more for the transport of persons than goods.

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