CIT Grants Duty Allowance for Auto Repairs Made in Response to Federal Emissions Recalls
In Volkswagen of America, Inc. v U.S., the Court of International Trade has ruled that if repairs were made pursuant to federal emissions recalls, there was sufficient evidence to conclude that the defects existed at the time of importation, and that Volkswagen was therefore entitled to an allowance for the value of the related repairs.
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In an earlier decision, Volkswagen sought an allowance against duties paid on its imported vehicles that were allegedly defective at the time of importation. In this case, the CIT ruled that evidence submitted by Volkswagen was insufficient to establish that claims for specified repairs covered defects that existed at the time of importation.
On appeal of that earlier case, the U.S. Court of Appeals for the Federal Circuit reversed inpart the CIT's decision, ruling that Volkswagen was entitled to an allowance for repairs made in response to government-mandated safety recalls. The CAFC based its conclusion on the fact that federal law prohibits the importation of automobiles not in compliance with safety standards.
In the current case, the CIT cited the earlier case and determined that federal law for safety recalls is similar to emissions-based recalls, which prohibit the importation of any motor vehicle, unless such vehicle is covered by a certificate of conformity with federal emissions laws.
Customs maintained that repairs made pursuant to a federal emissions-based recall did not establish that the defects existed at importation. To support its argument, Customs relied on an EPA report, in which an incorrect interpretation of information directed dealership technicians to install the wrong catalyst on various vehicles. In Customs' view, the fact that Volkswagen had to initiate a service action to fix mistakes made by dealers demonstrated that not all recalls relate to defects in existence at the time of importation.
The CIT ruled that this example is not an emissions-based recall, but instead a voluntary service action to fix a repair, which has no bearing on the emissions-based recalls at issue in this case.
Accordingly, the CIT found that there was a high likelihood that any repairs due to federal emissions recalls were related to defects existing at importation, and in turn, Volkswagen was entitled to claims for an allowance for repairs.
(See ITT's Online Archives or 12/14/06 news, 06121430, for BP summary of CAFC decision in Saab Cars USA, Inc. vs. U.S. where court granted duty allowance for certain port repair expenses, and denied an allowance for certain warranty expenses.
See ITT's Online Archives or 08/12/05 news, 05081210, for BP summary of 2005 CBP General Notice stating that latent defects are not eligible for reconciliation.)
Slip Op. 09-31 (dated 04/15/09) available at: http://www.cit.uscourts.gov/slip_op/Slip_op09/SlipOp.09-31rev.pdf
Slip Op. 07-47 (dated 03/28/07) available at: http://www.cit.uscourts.gov/slip_op/Slip_op07/07-47%20PUBLIC.pdf
CAFC decision 07-1518 (dated 08/22/08) available at: http://www.cafc.uscourts.gov/opinions/07-1518.pdf