Ford Transit Argument
Last week, the Federal Circuit hear arguments in the classification case involving tariff engineering and the classification of the Ford Transit.
You can read my prior takes on this fascinating case here and here.
An audio recording of the argument is available here. Listen to the argument and let me know what you think.
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The Court focused on the interesting question of whether the use of the vehicle after importation is relevant to its classification. This was not a general question of whether Ford was improperly skirting the chicken tax by disguising a cargo van as a passenger wagon. Rather, the question goes to the heart of interpreting tariff language.
The Court’s inquiry boils down to this: Is Heading 8703 (motor vehicles principally designed for the transport of persons) an eo nomine provision that describes merchandises solely on the basis of physical characteristics? Or, is it an eo nomine classification that also suggests a specific use? If either is true, the use of these vehicles to transport goods rather than people after importation would be evidence against Ford’s proposed classification. Moreover, is it possible that the “principally designed” language is sufficient to transform the Heading into a classification based on principal use provision?
Prior tariff engineering cases have not focused on classifications that are dependent on the use of the merchandise. In the argument, a Circuit Judge suggested that fact may be sufficient to distinguish the prior cases and make end use or design intention more relevant. The Judge's question suggests that if the rear seats Ford used in the 6 and 7 model Transits were never intended for passenger use (even if legal for that use), they might be a design feature that allows owners to use the Transit as cargo vehicles.
Another issue that caught the attention of the Court seems to be whether the timing of the conversion matters. The panel asked whether it would matter if the conversion to a cargo vehicle were done by dealers after delivery? The government appeared to concede that if some of the vehicles are sold as entered as passenger vans, then the classification as such would be correct. This strikes me as a problem for the government. If it would be OK for the dealer to make the modifications after delivery, what legal basis is there to say the importer can't do the same thing after entry?
There is over a century of law affirming the principle that importers may configure merchandise in a manner to avoid duties provided the merchandise is properly described to Customs for review without artifice or disguise. There is also a well-established body of law that post-importation use does not matter for the classification of merchandise under an eo nomine tariff description. That said, the Federal Circuit's questions indicate that it make be looking at this case through the new(ish) lens it created in GRK Canada in which the Court allowed itself (and the Court of International Trade and Customs) to consider evidence of use consistent with an eo nomine designation that inherently suggests a use.
So now we wait and see whether GRK impacts the outcome of this case. My guess is that both sides are already considering how they will make this case interesting enough to get the attention of the Supreme Court. No matter who loses, that is likely to be the next stop.
You can read my prior takes on this fascinating case here and here.
An audio recording of the argument is available here. Listen to the argument and let me know what you think.
The Court focused on the interesting question of whether the use of the vehicle after importation is relevant to its classification. This was not a general question of whether Ford was improperly skirting the chicken tax by disguising a cargo van as a passenger wagon. Rather, the question goes to the heart of interpreting tariff language.
The Court’s inquiry boils down to this: Is Heading 8703 (motor vehicles principally designed for the transport of persons) an eo nomine provision that describes merchandises solely on the basis of physical characteristics? Or, is it an eo nomine classification that also suggests a specific use? If either is true, the use of these vehicles to transport goods rather than people after importation would be evidence against Ford’s proposed classification. Moreover, is it possible that the “principally designed” language is sufficient to transform the Heading into a classification based on principal use provision?
Prior tariff engineering cases have not focused on classifications that are dependent on the use of the merchandise. In the argument, a Circuit Judge suggested that fact may be sufficient to distinguish the prior cases and make end use or design intention more relevant. The Judge's question suggests that if the rear seats Ford used in the 6 and 7 model Transits were never intended for passenger use (even if legal for that use), they might be a design feature that allows owners to use the Transit as cargo vehicles.
Another issue that caught the attention of the Court seems to be whether the timing of the conversion matters. The panel asked whether it would matter if the conversion to a cargo vehicle were done by dealers after delivery? The government appeared to concede that if some of the vehicles are sold as entered as passenger vans, then the classification as such would be correct. This strikes me as a problem for the government. If it would be OK for the dealer to make the modifications after delivery, what legal basis is there to say the importer can't do the same thing after entry?
There is over a century of law affirming the principle that importers may configure merchandise in a manner to avoid duties provided the merchandise is properly described to Customs for review without artifice or disguise. There is also a well-established body of law that post-importation use does not matter for the classification of merchandise under an eo nomine tariff description. That said, the Federal Circuit's questions indicate that it make be looking at this case through the new(ish) lens it created in GRK Canada in which the Court allowed itself (and the Court of International Trade and Customs) to consider evidence of use consistent with an eo nomine designation that inherently suggests a use.
So now we wait and see whether GRK impacts the outcome of this case. My guess is that both sides are already considering how they will make this case interesting enough to get the attention of the Supreme Court. No matter who loses, that is likely to be the next stop.
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