Ford Motor Co. v. U.S.
| Decision Date | 29 August 1997 |
| Docket Number | Slip Op. 97-121.,Court No. 92-03-00164. |
| Citation | 979 F.Supp. 874 |
| Parties | FORD MOTOR COMPANY, Plaintiff, v. UNITED STATES, Defendant. |
| Court | U.S. Court of International Trade |
Stein, Shostak, Shostak & O'Hara (S. Richard Shostak); Ford Motor Company (C. Harry Gibson), for plaintiff.
Frank W. Hunger, Assistant Attorney General of the United States; David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, A. David Lafer, Senior Trial Counsel, (Michael S. Kane); Joseph I. Liebman, Attorney in Charge, International Trade Field Office (Amy M. Rubin); Sheryl French, Attorney-Advisor, Office of the Assistant Chief Counsel, United States Customs Service, of counsel, for defendant.
Before this Court are cross-motions for summary judgment pursuant to U.S. CIT R. 56 regarding the assessment of duties by the United States Customs Service ("Customs") at the rate of twenty-five percent ad valorem under Items 692.02 and 945.60 of the Tariff Schedules of the United States ("TSUS")1 on certain engines and transmissions imported and installed by plaintiff Ford Motor Company ("Ford") in trucks in a Foreign Trade Subzone ("FTSZ" or "FTZ"). The trucks were entered in eleven consumption entries, which were filed at the Port of Louisville by Ford as importer of record between December 30, 1985 and February 7, 1986. This Court has jurisdiction pursuant to 28 U.S.C. § 1581(a) (1988).
In the early 1980's, Ford announced plans to operate in a FTSZ in Louisville, Kentucky, which would encompass a motor vehicle assembly plant it operated there, to assemble imported engines and transmissions into both trucks and automobiles. In its Louisville plant, Ford assembled both passenger cars (Bronco II's) as well as trucks (Rangers) using the same assembly line, but the duty rates corresponding to the completed cars and trucks were different. Ford's rationale for operating in the Louisville FTSZ was to take advantage of Customs laws and regulations that would enable Ford to minimize the duties paid on imported engines and transmissions assembled into both cars and trucks.
The existing duty rate in 1985-86 for completed passenger cars was 2.6% ad valorem under Item 692.10, TSUS. The existing duty rate at that time for imported engines and transmissions was 3.3% ad valorem under Item 660.48, TSUS for engines and under Item 692.32, TSUS for transmissions. The existing duty rate in 1985-86 for completed trucks was 25% ad valorem under Item 945.69, TSUS.
With respect to cars assembled in the FTSZ, the duty rate applicable to completed cars in which imported engines and transmissions were assembled was lower than the duty rate applicable to the imported engines and transmissions entered as parts. In order to take advantage of the lower rate applicable to completed cars, Ford had to select "Non-Privileged Foreign" ("NPF") status on the Customs 214 Forms when the engines and transmissions to be assembled into cars entered the FTSZ. When "NPF" status was selected for these engines and transmissions, Ford would not pay duties on the entered parts until they were assembled into completed cars. Thus, Ford had an incentive to enter engines and transmissions destined for cars in "NPF" status.
In contrast, the duty rate applicable to completed trucks was substantially higher than the duty rate applicable to engines and transmissions for trucks which were entered as parts. Because a single assembly line located in Ford's Louisville FTSZ operation produced both completed cars and trucks simultaneously using the same imported parts, Ford had to claim "NPF" status for the engines and transmissions to be assembled into completed cars, while simultaneously ensuring the engines and transmissions for trucks were not placed in "NPF" status. Rather, Ford intended to select "Privileged Domestic" ("PD") status for the engines and transmissions which entered the FTSZ destined for use in trucks. By selecting "PD" status, Ford could pay the lower component duty rate up front before the engines and transmissions entered the FTSZ and thus reduce somewhat the duties on the finished truck. The imported engines and transmissions assembled into finished trucks in the FTSZ would be assessed lower duties corresponding to the parts rate when they were entered into the commerce of the United States, enabling Ford to avoid paying duties at a higher rate when the completed trucks entered the United States. Engines and transmissions which entered the Louisville FTSZ in "PD" status were thus non-dutiable because all duties had been paid on these parts upon their entry into the United States and before they entered the FTSZ.2
Accordingly, in order to pay the lowest possible duty rate on the imported engines and transmissions, Ford had to claim "NPF" status for engines and transmissions assembled into completed cars, which had a lower duty rate than for unassembled parts, while simultaneously ensuring that engines and transmissions assembled into completed trucks were not placed in "NPF status," which would make them dutiable at a higher rate for finished trucks. Ford intended to enter the engines and transmissions for trucks in "PD" status. Under these circumstances, the operation of the FTSZ was a complicated venture.
In late 1984, prior to activating the FTSZ, Ford appointed Mr. Moe Tullock as the FTSZ Coordinator or Agent at Louisville. Mr. Tullock was instructed that when foreign transmissions and engines for use in manufacturing trucks were entered into the FTSZ, he was to pay duties on the parts before they entered the FTSZ at the 3.3% ad valorem rate applicable to transmissions and engines, and thereafter designate the entries as "PD" on the Customs 214 Forms. (See Pl.'s Mem. in Supp. of Mot. for Summ. J. ("Pl.'s Br.") at 8.) This treatment made it possible to avoid paying the 25% ad valorem rate when the parts left the FTSZ and entered the United States in completed trucks. Instead, when the completed trucks left the FTSZ, having already paid duties on the engines and transmissions, Ford would be entitled to enter the engines and transmissions duty-free. Mr. Tullock was similarly instructed that with respect to parts to be used in the assembly of automobiles, he was to declare them as "NPF" and pay no duty on them until they left the FTSZ incorporated in completed cars. At that point, the parts would be dutiable at the 2.6% ad valorem rate applicable to finished automobiles.
Under Customs regulations, an importer was required to separately maintain both "NPF" and "PD" merchandise located within the FTSZ, and Ford was responsible for ensuring that it remained in compliance with applicable United States Customs requirements and regulations. Customs advised Ford to keep domestic and imported parts separate and to maintain inventory records tracking all parts that entered the FTSZ, especially tracking those parts Ford paid duty on and those it did not. Before the initiation of operations in the FTSZ, Ford proposed an inventory control methodology using the "first-in-first-out" system, but this proposal was rejected by Customs.
In the beginning of January 1986, Mr. Tullock experienced difficulty with his supervision of the FTSZ. He failed to pay duties on engines and transmissions to be incorporated into trucks before they entered the FTSZ and erroneously designated them as "NPF" on the Customs 214 Forms. The eleven entries at issue in this case were prepared by Mr. Tullock and filed with Customs during the period December 1985 through early February 1986. The entries at issue described the subject merchandise as "transmissions for trucks" or "engines for trucks" as opposed to completed trucks and entered the engines under TSUS 660.48 and the transmissions under TSUS 692.32 at a duty rate of 3.3% ad valorem. Duties were not paid on the parts before they entered the FTSZ, and the parts were designated as "NPF" instead of as "PD" on the Customs 214 Forms. The documents detailing the eleven entries were replete with errors, including incorrect product descriptions, duty rates and tariff item numbers. In his affidavit, Mr. Tullock testified that he suffers from a medical condition that resulted in a complete loss of memory with respect to the circumstances surrounding the entries. Mr. Tullock stated
I have no explanation as to exactly how the wrong foreign trade zone status designation was placed on the form 214. I was aware that the intent of the operation was to pay a duty rate of 3.5% on parts used for Ranger production. I felt at the time I had been trained in the proper preparation of the documentation, and was unaware that documentation as submitted would fail to achieve this end.
I first became aware of the wrong foreign-trade zone status designation on the CF 214 forms when Ford Dearborn Headquarters officials came to Louisville to assist me and identified the problem. Up until that time, I had believed that with the assistance of the local Customs officials and our Customhouse broker that all details of the operation has been handled appropriately.
(App. to Pl.'s Br. ("Pl.'s App.") Ex. 3 at 1-2.)
At some point in late January or early February 1986, Ford met with a Customs import specialist in Ohio and disclosed the errors made in entering the engines and transmissions into the Louisville FTSZ. Ford representatives requested the import specialist allow them to amend the entry documents, but the import specialist advised Ford such amendments were not permitted by the United States Customs laws and regulations. In mid-February 1986, Ford discontinued its operations in the Louisville FTSZ.
The eleven entries subsequently were liquidated on December 1, 1989 with duties assessed at the rate of 25% ad valorem....
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