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Proper Tariff Engineering Can be used to Achieve More Favorable Tariff Treatment

The Court of International Trade recently issued an important decision which reaffirms an importer’s right to “tariff engineer” its products by designing them to qualify for more favorable duty treatment.

In Slip Opinion 17-102 issued on August 16, 2017, the U.S. Court of International Trade agreed with Ford Motor Company that a vehicle called the Transit Connect was properly classifiable as a passenger vehicle.   In doing so, the court acknowledged tariff principles dating back to the 1800s which hold that importers may engage in legitimate tariff engineering--structuring their products, and locating their manufacturing operations in different countries to achieve favorable duty treatment.   The court also applied the well-established principle that all goods are to be classified in their condition as imported.  While this case involves the classification of motor vehicles, the principles that have been affirmed here have application to a number of products and import transactions.

Ford imported the Transit Connect into the United States in both van and passenger models.   Ford developed both models from a passenger vehicle that was being sold in Turkey. Both models had the identical additional safety features added in production so they could meet U.S. safety standards imposed by NHTSA.   Both vehicles had many of the same structural and auxiliary features.  The rear seats in the van model started out the same as the rear seats in the passenger model, but they were made a bit less expensively in later years.   The passenger model was delivered to customers in the United States in its condition as imported.  The van version was changed after Customs clearance by removing rear seats,  adding a flat floor to increase the cargo area at the expense of the passenger area, and making other modifications.  The structural features present in the van that made it a passenger vehicle at importation remained in the vehicle after U.S. processing, so it could be converted back to its imported condition if the user so desired.

The question presented was whether these Transit Connect models were principally designed for the transport of persons.  The duty rate on “passenger vehicles” is 2.5% and the duty rate on cargo vehicles is 25%.   The court agreed with Ford for a number of reasons.  First and foremost, the court applied the same standards created by the Court of Appeals for the Federal Circuit im Marubeni Am. Corp v. United States which classified the Nissan Pathfinder as a passenger vehicle.  The court’s determination in Marubeni was based on a review of the structural and auxiliary features of the vehicle.  In addition, in the Ford case, the court reviewed the Explanatory Notes to heading 8703 and found that Ford’s van fit squarely with the features that defined passenger vehicles.  The court was also impressed with the fact that many of the same features in the van version were also found in the passenger version which Customs agreed was a passenger vehicle.

The major to benefit to all importers comes from the fact that the court agreed with Ford that tariff classifications are to be made based on the condition of the merchandise at the time of entry.   If this were not the case, then Customs would be charged with following all products into commerce to see what they are made into and how they are used. The court also reviewed a number of vintage court cases where the condition of importation principle was established.  There were cases where sugars that had been made with unusual colors to obtain favorable duty treatment, cases involving the separate importation of gun stocks and barrels, and a case which sanctioned the disassembly of a pearl necklace overseas to import “pearls”  at a more favorable duty rate than pearl necklaces.   The point of all of these case is that the condition of the merchandise at the time of importation should be compared to the text of the statute to see if the imported product meets the terms of the statute.   If the product is not disguised (like hiding good tobacco leaves in bales of ordinary tobacco) and the invoicing is not deceitful, then the product should be classified based on its condition as imported.  Importantly, the intention of the importer is not relevant in these determinations.  That is, it does not matter if the importer intends post entry operations to assemble the gun parts or reassemble the pearls into a necklace because Customs must classify products based on their condition as imported.

Legitimate tariff engineering, whether it relates to structuring products or transactions has been given a huge reaffirmation by this court decision.  It is too soon to tell how Customs will react to this decision because the decision can be appealed or limited.  The case law is solid, but over the years, Customs has created some limits to the use of this concept.  This decision puts tariff engineering back on its rightful footing.  Please feel free to contact our office if you should have any questions as to how tariff engineering can be incorporated into your business.

   

Petitions for the Imposition of Antidumping and Countervailing Duties on Imports of Stainless Steel Flanges from the People’s Republic of China and India

I. Type of Action: Antidumping Duty (“AD”) and Countervailing Duty (“CVD”): PRC and India

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Recent News Articles Linking China Production to North Korean Factories-- Additional Compliance Measures May be Required

Recent news articles have reported that Chinese apparel manufacturers are using North Korean factories to assist in the manufacture of garments sold for exportation to the United States.  Based on these recent articles, the difference in labor rates, which has traditionally moved Chinese production to lower wage rate countries like Vietnam, has inspired Chinese producers to transfer some production to North Korea.  Unlike Vietnam, however, the goods made in North Korea are contraband and cannot be imported into the United States.  As a result, to hide the fact that North Korean factories are being used, the finished goods will have to be transshipped through China or third countries to the United States and falsely claimed to be products of China or other countries.

Purchasing products from North Korea is against the law and violators may be subject to criminal punishment and civil fines.  (See E.O.13570; International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.) (IEEPA). In addition, the current administration has made it a point to stop Chinese trade violations and to impose strict enforcement of the recent economic sanctions that have been put in place against North Korea. Criminal penalties of up to $1,000,000, and/or imprisonment for up to 20 years may be imposed on any person who willfully violates this law.  Civil penalties of the greater of $284,582 or twice the amount of the underlying transaction may be imposed administratively against any person who violates this law.  Of course goods made in North Korea can always be seized and forfeited by U.S. Customs.

In the past, Chinese vendors were accused of transshipping goods to the United States through third countries claiming false country of origin in order to avoid the textile and apparel quota limits that had been imposed.  There have also been multiple allegations that Chinese vendors have transshipped goods to the United States through third countries to avoid the huge antidumping and countervailing duty deposits that must be paid on those goods.  These latest news stories indicate that China country of origin problems are continuing today.

Against this background, it is recommended that importers should review their due diligence programs.  Their programs may have to be enhanced to ensure that the claimed country of origin is correct.   Please feel free to contact our office if you should have questions.

   

Petitions for the Imposition of Antidumping Duties and Countervailing Duties on Uncoated Groundwood Paper from Canada

I.  Type of Action: Antidumping Duty (“AD”): Canada; Countervailing Duty (“CVD”) :  Canada;

II.  Product: The merchandise covered by this petition includes certain paper that has not been coated on either side and with 50 percent or more of the cellulose fiber content consisting of groundwood pulp, or deinked pulp made from recycled ONP (old newspapers), weighing not more than 90 grams per square meter. Groundwood pulp includes all forms of pulp produced from a mechanical process, such as thermo-mechanical process ("TMP"), chemi-thermo mechanical process ("CTMP"), or bleached chemi-thermo mechanical process ("BCTMP") or any other process other than the bleached Kraft process. The scope includes paper shipped in any form, including both rolls and sheets.  Certain uncoated groundwood paper includes but is not limited to standard newsprint, high bright newsprint, book publishing, directory, and printing and writing papers. The scope includes paper that is white, off-white, cream, or colored.  Specifically excluded from the scope are imports of paper printed with final content of printed text or graphic. Also excluded are papers that otherwise meet this definition, but which have undergone a supercalendering process.

III.  HTS classifications: The subject merchandise is classifiable in the Harmonized Tariff Schedule of the United States ("HTSUS") in several subheadings including 4801.00.0120, 4801.00.0140, 4802.61.1000, 4802.61.2000, 4802.61.3010, 4802.61.3110, 4802.61.3191, 4802.61.6040, 4802.62.1000, 4802.62.2000, 4802.62.3000, 4802.62.6140, 4802.69.1000, 4802.69.2000, and 4802.69.3000.

IV.  Date of Filing: August 9, 2017

V.  Petitioners: North Pacific Paper Company (“NORPAC”)

VI.  Foreign Producers/Exporters

Please contact our office for a list filed with the petition.

VII.  US Importers named.   

Please contact our office for a list filed with the petition.

VIII.  Alleged Dumping Margin:

Canada: 16.88% - 54.97%;

No CVD Margin listed.

IX.  Comments:

A.  Projected date of ITC Preliminary Conference: August 30, 2017

Please contact our office for a complete projected schedule for the AD investigation.

B.  The earliest theoretical date for retroactive suspension of liquidation for the antidumping duty is October 18, 2017; for countervailing duty is August 29, 2017.  Please contact our office for a complete projected schedule for the CVD Investigation.

C.  Volume and Value of Imports:

Please contact our office for a summary of the data filed with the petition.

If you have questions regarding how this investigation may impact future imports of scope merchandise, or whether a particular product is within the scope of the investigation, please contact one of our attorneys.

   

Collecting Art in the 21st Century

At the invitation of the American Committee for Cultural Policy and the Asia Society in New York, James McAndrew spoke at a symposium titled “The Future of the Past – Collecting Ancient Art in the 21st Century” on March 18, 2012.

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