Ending a legal saga that began in 2013 and involved an appeal to the
The Misclassification Scheme
DOJ supported its claims that the rear seats were merely a "sham" by pointing out other aspects of the vehicles that exposed them as cargo vans merely posing as passenger vans. These features included:
-
rear doors that were designed for ease of loading cargo;
- rear seats without headrests and certain wires that provide lumbar support;
- reduced-cost fabric covering the rear seats that were different from that covering the front seats;
- lack of a cargo mat;
- lack of side airbags, speakers, handholds, or vents behind the front seats; and
- an exposed metal floor in the back area.
- Incorrectly calculating deductions for non-dutiable charges;
- Using an improper exchange rate;
- Committing classification and deduction errors related to battery electric vehicle ("BEV") status; and
- Not declaring applicable engineering and tooling costs.
- Lower duties cannot result from the addition of an artificial piece. Although
Ford's litigation in theCourt of International Trade was dropped as part of the DOJ settlement agreement, an interesting argument made by the Government was the allegation that the rear seat constituted a "disguise or artifice." This argument was ultimately not addressed by theU.S. Court of Appeals for the Federal Circuit , but it serves as a reminder to proceed with caution for those attempting to engage in legitimate tariff engineering. There is abundant caselaw precedent that distinguishes between legitimate tariff engineering and evasion of duties by resorting to disguise or artifice. The difference between these two outcomes may be that between lawful importing and potential penalties for violations. - DOJ has a dedicated
Trade Fraud Task Force .DOJ's Trade Fraud Task Force ("TFTF") is not new, but the Ford settlement may be its most eye-catching activity to date. In December, theCongressional Select Committee on Strategic Competition betweenthe United States and theChinese Communist Party (the "China Select Committee") recommended increased funding for the TFTF, which "investigates PRC transshipment, evasion of tariffs, trade-based money laundering, violations of the Uyghur Forced Labor Prevention Act, and other trade-related crimes." DOJ enforcement of customs laws has increased in recent years, and the TFTF, along with increased enforcement of the False Claims Act for international trade violations, is a driving force in that increase.
The Settlement Agreement further alleged that upon import Ford immediately removed the rear seats and seatbelts, delayed affixing labels denoting the vans as two-seat vehicles, and temporarily mislabeled the vans as four-seat vehicles.
In separate
Undervaluation Allegations
In the settlement agreement, the DOJ also alleges that Ford undervalued the Transit Connect vans in several ways, including:
-
Errors related to the valuation of American Goods Assembled Abroad components;
Penalties and Other Settlement Terms
DOJ grounded
Just over half of the of the
For the next five years, Ford must also request prospective classification rulings from
Takeaways
- Seek a ruling from CBP. It is sometimes possible to obtain a favorable classification ruling that supports valid means of reducing customs duties. "Tariff engineering," whereby a product is designed or manufactured in a certain way to qualify for a lower duty rate, is legally permissible in certain circumstances. But there is a tried-and-true method of obtaining CBP's blessing for contemplated means of duty reduction: a prospective ruling request. In this case, a prospective ruling submitted to CBP regarding
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