In the latest round of Trade War rhetoric is a question that has ended up in the courts, when is a passenger van really a cargo van and does this tariff engineering really justify getting around the 25% chicken tax?
In response to President Donald Trump's tariff war, automakers are find interesting ways to play the grey area of the legal system. According to BNN Bloomberg and Bloomberg news, trade attorneys are closely watching the Ford Motor Co. legal case play out in federal court. This case deals with the importation of passenger vans that are then stripped down once they clear customs and sold as cargo vans. The difference here is that Ford pays 2.5% import duty on passenger vans versus te 25% import duty on light trucks / cargo vans. This challenge against Ford brought by U.S. Customs is challenging the practice of tariff engineering. The art of building a product one way, then changing it once cleared by customs for another use. With all the increased tariffs imposed by the Trump administration this could have critical impact on a region that many automakers have used to bring in a profitable product for market needs.
According to the news stories, a ruling by the Court of International Trade ruled in Ford's favor in 2017 but is being challenged by the administration in the U.S. Court of Appeals. Regardless if the U.S. and China come to terms for a new trade agreement, there are no promises that the in place tariffs would be repealed. Ford's argument is that tariff engineering is a legitimate maneuvers for firms exploring ways to mitigate duties by project reclassification, shifting production to other countries which changes the origins of product assembly.
Trade lawyers across the country say this case will help establish legal guidelines for tariff engineering. To quote the story from BNN Bloomberg:
A decade ago, Ford began importing Transit Connect vans made in Turkey that were classified as passenger vehicles. After the vans cleared customs but before they left port, a subcontractor removed a second row of seats and made other changes to sell them as cargo vans, according to court filings. Had they been classified as trucks, the duty would have been 25 percent, a levy known as the “chicken tax” because it was imposed in the 1960s when the U.S. retaliated against Europe for slapping duties on American chicken.
The U.S. Court of International Trade has stated that under the well-established customs law, manufacturers can intentionally make a product that can avoid higher tariffs with simple changes. What cannot be done is situations such as hiding a higher quality product in a lower quality product like high grade tobacco inside a case of lower grade tobacco. This case has come down to the wording on the import paperwork of "principally designed for the transport of persons". The current administration says this is a scheme for avoiding taxes and local jobs. Ford argues that the goods must be classified in their condition as imported, regardless of later alterations and ended use by consumers.
Appeals court is expected to rule in the coming weeks.