Transporter instead of passenger cars: So-called 'Tariff Engineering' costs 365 million USD

The most important thing first: Customs checks are becoming stricter – especially since the new tariffs under President Trump

The U.S. Customs and Border Protection (CBP) has been scrutinizing the customs tariff numbers of imports more closely since the introduction of new tariffs under the Trump Administration 2.0. Companies must be aware that customs authorities pay particular attention to products with high customs duties.

Important to note:

• Customs classification occurs solely based on the objective characteristics of the product at the time of import. The basis is the General Rules of the HS.

• Intentional or negligent misclassification can lead to high back payments and fines.

• The CBP acts decisively in the event of violations – Ford is just one example of this.

The Ford customs dispute: Deliberate false customs classification costs 365 million USD

Ford Motor Company reached a settlement agreement with US authorities in March 2024 to pay 365 million USD. The reason: The incorrect customs classification of vehicles of the type "Transit Connect," which were imported from Turkey to the USA between 2009 and 2013.

What happened?

Ford imported over 160,000 vehicles of the type "Transit Connect" and classified them as passenger vehicles (HS 8703, 2.5% tariff), although according to US customs authorities, they should have been classified as commercial vehicles (HS 8704, 25% tariff).

The accusation

• Ford equipped the vehicles with temporary rear seats to declare them as passenger vehicles.

• Immediately after import, these seats were removed, suggesting that the vehicles were intended for cargo transport from the start.

• Other features such as a separate cargo area, lack of comfort features, and reduced safety equipment favored classification as transport vehicles.

• In addition, there were irregularities in the customs valuation, including incorrect calculations and unauthorized deductions.

The US authorities saw this as a violation with false statements to evade tariffs.

Distinction between Heading 8703 (Passenger Vehicles) and Heading 8704 (Transport Vehicles)

The customs tariff number of a vehicle determines the amount of the import duty – not only in the USA but also in the EU.

Particularly the differentiation according to the HS explanatory notes between the two headings of passenger and transport vehicles is crucial.

Vehicles for passenger transport (Heading 8703)

Typical vehicles:

• Cars (sedans, station wagons, SUVs)

• Taxis

• Sports cars, race cars

• Ambulances, prisoner transport vehicles, hearses

• RVs

Characteristics:

✔ Permanently installed seats with seat belts

✔ Comfort features: carpet, interior lighting, ventilation

✔ No fixed partition between driver and cargo area

✔ Side windows in the passenger area

✔ Flexibly usable interior for people & luggage

Commercial vehicles for goods transport (Heading 8704)

Typical vehicles:

• Vans & transporters

• Trucks & dump trucks

• Tank trucks, refrigerated vehicles

• Garbage trucks, concrete mixers

• Pick-ups with separate cargo area

Characteristics:

✔ Cargo area instead of passenger area

✔ Fixed partition between driver and cargo area

✔ Side sliding or folding doors without windows

✔ No seat belts or seats in the cargo area

✔ Functional design without comfort features

Why is this relevant?

Ford argued that the vehicles were registered as passenger vehicles. The US authorities saw it differently: The actual use and design of a vehicle counts more than its formal registration.

The classification as a transport vehicle would have cost Ford over 1 billion USD in tariffs. Instead, the company attempted to use altered equipment to gain a cheaper classification – with significant legal consequences.

Implications for Ford and companies with customs obligations

✔ 365 million USD settlement payment, of which ~183.5 million was a tariff back payment

✔ Obligation to obtain binding tariff information for future models

✔ Withdrawal of the Ford lawsuit against the US government to challenge the customs classification

This case shows how critical a correct customs classification is. Companies that speculate on lower duty collection through reassessment in the customs tariff risk not only back payments but also fines in the millions.