Ford Motor Company v. United States
926 F.3d 741 (2019)
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Rule of Law:
When a Harmonized Tariff Schedule of the United States (HTSUS) provision for an eo nomine article (named article) includes language like 'principally designed for,' it inherently suggests a type of use, requiring consideration of the importer's intended use and design goals, including pre-importation planning for post-importation modifications, to determine the proper tariff classification.
Facts:
- Ford Motor Company (Ford) began importing its Transit Connect 6/7 line of vehicles into the United States from its factory in Turkey in 2009.
- Ford based the design of the Transit Connect 6/7 vehicles on its European V227 double-cab-in-van (DCIV) model and modified them to comply with U.S. safety standards, sharing a chassis and drivetrain with the Ford Focus passenger vehicle.
- At the time of importation, the Transit Connect 6/7s had a four-cylinder gasoline engine, steel unibody construction, front-wheel drive, and second-row seats with seat anchors.
- Ford designed the second-row seats in the Transit Connect 6/7s (CRSV-2) with reduced features, lacking headrests, certain comfort wires, tumble lock mechanisms, and covered in a cost-reduced fabric, specifically to facilitate their removal.
- The Transit Connect 6/7s had a Gross Vehicle Weight Rating (GVWR) of 5,005 pounds at the time of importation.
- Ford had a contract with its port processor to remove and discard 100% of the second-row seats, seatbelts, and unordered windows from the Transit Connect 6/7s immediately after importation, and to install a steel panel and cargo mat to create a flat cargo surface.
- Ford marketed the Transit Connect 6/7s exclusively as cargo vans in its brochures, and its market research indicated they had little appeal as personal use vehicles but resonated as commercial vehicles for deliveries and service calls.
Procedural Posture:
- In February 2012, the Port of Baltimore notified Ford that U.S. Customs and Border Protection (Customs) had initiated an investigation into Ford's importations.
- In January 2013, Customs determined that the subject merchandise was properly classified under HTSUS Subheading 8704.31.00, assessing a 25% duty rate, and subsequently denied Ford's protest against this decision.
- Ford filed a complaint with the U.S. Court of International Trade (CIT), alleging Customs improperly denied its protest.
- The CIT granted Ford's cross-motion for summary judgment and denied the Government's cross-motion, holding that the subject merchandise was properly classified under HTSUS Subheading 8703.23.00 (a passenger vehicle heading) and finding Ford engaged in legitimate tariff engineering.
- The United States (Government), as defendant-appellant, appealed the CIT's decision to the United States Court of Appeals for the Federal Circuit, with Ford Motor Company as plaintiff-appellee.
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Issue:
Does the phrase 'principally designed for the transport of persons' in HTSUS Heading 8703 require consideration of a vehicle's intended use and design goals, including pre-importation modifications and planned post-importation processing, when classifying imported vehicles for tariff purposes?
Opinions:
Majority - Wallach, Circuit Judge
No, the Transit Connect 6/7s are not principally designed for the transport of persons under HTSUS Heading 8703; rather, they are motor vehicles for the transport of goods under HTSUS Heading 8704. The Federal Circuit held that HTSUS Heading 8703, while an eo nomine provision, inherently suggests a type of use ("principally designed for the transport of persons"), thus requiring consideration of a vehicle's intended use and design goals. This includes examining pre-importation design decisions and planned post-importation processing, not just the physical condition at the moment of entry, consistent with precedent like Marubeni II. Upon re-evaluating the classification, the court concluded that the structural design features (e.g., shared chassis with Ford Focus, engine type, front-wheel drive, multiple windows, GVWR under 5 tons) initially favored classification under Heading 8703. However, the auxiliary design features, especially the "cost-reduced" second-row seats (CRSV-2) lacking essential comfort elements (headrests, certain comfort wires, tumble lock mechanisms, and covered in cheaper fabric), were designed to be temporary and removed immediately after importation. Ford's pre-importation design goals were clearly to facilitate this conversion into cargo vans, as evidenced by the VIN system and contract with port processors to remove all second-row seats. Furthermore, "relevant use considerations," including the Carborundum factors (general physical characteristics, manner of use, consumer expectations, advertising), strongly disfavored classification as a passenger vehicle. Ford's own market research and advertising consistently presented the Transit Connect 6/7s as cargo vans, and they were delivered to customers as two-seat cargo vans after post-importation processing. Therefore, balancing all factors, the subject merchandise's intended purpose of transporting goods outweighed its intended purpose of transporting persons. Since the vehicles did not fall under HTSUS Heading 8703, the court then determined they properly fell under HTSUS Heading 8704 ("Motor vehicles for the transport of goods"), which is a principal use provision. Applying the Carborundum factors, the court affirmed that the vehicles were principally (if not exclusively) used for transporting goods. Finally, based on the spark-ignition internal combustion piston engine and a GVWR not exceeding five metric tons, the correct subheading was determined to be HTSUS Subheading 8704.31.00.
Analysis:
This case significantly clarifies the interpretation of "principally designed for" language in tariff provisions like HTSUS Heading 8703, establishing that even for "eo nomine" provisions, intended use and design goals (including pre-importation activities and planned post-importation modifications) are highly relevant. It reinforces that Customs can look beyond the mere physical condition at the moment of importation if a manufacturer's clear intent is to circumvent higher duties through temporary configurations. This ruling could impact future tariff engineering strategies, making it more challenging for importers to temporarily include features that would qualify merchandise for lower duty rates if those features are clearly intended for immediate removal or are inconsistent with the product's ultimate marketed and utilized purpose.
