OT:RR:CTF:VS H166815 BGK
Mr. Donald Harrison
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5306
RE: Applicability of subheading 9817.85.01, HTSUS, to Battery Electric Honda Fit EV; Prototypes
Dear Mr. Harrison:
This is in response to your request, dated May 2, 2011, for a binding ruling on behalf of your client, American Honda Motor Co., Inc. (Honda), concerning the applicability of subheading 9817.85.01, Harmonized Tariff Schedule of the United States (HTSUS), to the Honda Fit EV, a battery electric vehicle (BEV), and related spare parts, as prototypes.
FACTS:
Honda wishes to import developmental units of the Honda Fit EV, and spare parts for maintaining these vehicles, as prototypes under subheading 9817.85.01, HTSUS, for use in a vehicle demonstration program. In its submission, Honda describes the Government’s support for the development of BEVs, state government support, and the efforts of numerous other vehicle manufacturers currently engaged in developing and testing various BEVs.
The Honda Fit EV will be powered by a lithium-ion battery and a coaxial electric motor derived from another Honda developmental vehicle, the Honda FCX Clarity, a fuel cell vehicle (FCV). According to a Honda press statement, the Honda Fit EV can achieve an estimated 100 mile driving range per charge, or 70 miles when the Environmental Protection Agency’s (EPA) adjustment factor is applied.
The purpose of the vehicle demonstration program is to allow Honda research and development associates the opportunity to gather relevant information based on “real world” use and experience. The vehicle demonstration program has two components, a small scale fleet program with three different groups, and later, a larger scale consumer program. The actual agreements between the companies and consumers have not been finalized, but you state that they will contain the following terms and conditions: (1) the vehicle will be owned by and titled to Honda, is on loan from Honda, and the borrower has no right, title, or interest in the vehicle; (2) the user must cooperate with Honda to assist in evaluating the vehicle’s performance and handling with the new technology; (3) Honda will be obtaining “hard data” related to the condition and operation of the vehicle; (4) Honda may collect other research from the user by interviews and other means; (5) Honda may inspect the vehicle at any reasonable time and place after notice to the user; and (6) the user must return the vehicle to Honda at the end of the term.
Honda will collect both “hard” and “soft” data from the users. Soft data will be collected through interviews and surveys. You have included, as a confidential attachment, the currently proposed survey for use in the interviews with the fleet users and state that it will be similar to the one designed for use with consumer lessees. Honda intends to collect information relating to overall use and satisfaction, specific features, power and performance, charging and device range, and startup time and sound of the vehicle.
In 2011, Honda plans to begin its vehicle demonstration program in the U.S. for the Honda Fit EV by importing a small number of Honda Fit EVs to be distributed to Stanford University; the City of Torrance, California; and Google, Inc. Copies of the Letters of Understanding between these groups and Honda were submitted for our review; however, as stated above, the agreements have not been finalized. In addition to the general testing and analysis completed with all lessees, there are specific goals for the individual groups. At Stanford, in collaboration with the Center for Automotive Research at Stanford (CARS), the focus will be on factors affecting the purchase of electric vehicles, transportation systems, and battery electric sustainability. The focus at the City of Torrance will be on the development of charging infrastructure, public awareness and education, community initiatives to support the use of electric vehicles, and working with city departments. At Google, in collaboration with the Google RechargeIT initiative, the focus will be on evaluating the benefits of plug-in vehicles and accelerating their adoption, along with aspects of vehicle usage, such as the reduction in CO2 emissions, energy consumption calculations, and overall energy cost calculations.
Following the initiation of the fleet component of the demonstration program, a larger scale program will be conducted with actual consumer lessees. You have requested, and been granted, confidential treatment with regard to the actual number of vehicles to be imported for the demonstration program. This part of the program is anticipated to begin in 2012 and last several years. You have clarified that Honda press release remarks regarding a 2012 release date for the Honda Fit EV are references to the consumer demonstration program, and not the commercial launch date. You also state that a commercial launch date has not been set.
In addition to the Honda Fit EVs, Honda also wishes to import spare parts for maintaining the vehicles. The spare parts include: the battery pack, battery contractor box, battery fan, driving motor, driving motor PDU, gear box, charger, DC/DC converter, electrical A/C, A/C inverter, electrical heater, heater inverter, battery ECU, driving motor ECU, and A/C ECU. You state that the parts will be used exclusively to support the Honda Fit EV development units and for no other purpose. The parts have been, and will be, exclusively developed for use in converting the basic Honda Fit into the Honda Fit EV. You have clarified that even the more general parts, such as the gear box and electrical heater have been developed exclusively for the Honda Fit EV. The replacement parts will also be subject to evaluation when installed in the vehicles, and the testing of the vehicle may result in changes to the parts.
ISSUE:
Whether the Honda Fit EV and the related spare parts are eligible for classification under subheading 9817.85.01, HTSUS.
LAW AND ANALYSIS:
Subheading 9817.85.01, HTSUS, provides duty-free treatment for “[p]rototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.” The accompanying Customs Regulations are found at 19 C.F.R § 10.91. U.S. Note 7 to Subchapter XVII, Chapter 98, HTSUS, provides as follows:
The following provisions apply to heading 9817.85.01:
(a) For purposes of this subchapter, including heading 9817.85.01, the term “prototypes” means originals or models of articles that—
(i) are either in the preproduction, production, or postproduction stage and are to be used exclusively for development, testing, product evaluation, or quality control purposes; and
(ii) in the case of originals or models of articles that are either in the production or postproduction stage, are associated with a design change from current production (including a refinement, advancement, improvement, development, or quality control in either the product itself or the means for producing the product).
For purposes of clause (i), automobile racing for purse, prize, or commercial competition shall not be considered to be “development, testing, product evaluation, or quality control.”
(b) (i) Prototypes may be imported only in limited noncommercial quantities in accordance with industry practice.
(ii) Except as provided for by the Secretary of the Treasury, prototypes or parts of prototypes may not be sold after importation into the United States or be incorporated into other products that are sold.
(c) Articles subject to quantitative restrictions, antidumping orders, or countervailing duty orders may not be classified as prototypes under this note. Articles subject to licensing requirements, or which must comply with laws, rules, or regulations administered by agencies other than the United States Customs Service before being imported, may be classified as prototypes if they comply with all applicable provisions of law and otherwise meet the definition of “prototypes” under paragraph (a).
The situation at issue is similar to Headquarters Ruling Letter (HRL) H027027, dated June 16, 2008, also issued to Honda, regarding a Honda vehicle demonstration program for the Honda FCX Clarity. Similar to the program at issue, the demonstration program began with a small scale, 30 vehicle, fleet test with government agencies, and then expanded to a consumer lessee program of initially several hundred, expanding over several years to several thousand vehicles. This program also included the importation of spare parts for the repair and maintenance of the vehicles. U.S. Customs and Border Protection (CBP) held that the vehicles were preproduction and developmental units consistent with the definition of prototypes. It was found that the vehicle demonstration program also met the requirement that the prototype be used exclusively for development, testing, product evaluation, or quality control purposes. CBP held that due to the facts presented and a study issued by the University of California at Davis’ Institute of Transportation Studies (U.C. Davis), a few hundred to a few thousand vehicles a year would be considered noncommercial quantities. Additionally, the vehicles were not sold at the end of the lease period. Therefore, CBP held that the Honda FCX Clarity development vehicles were eligible to be classified as prototypes under subheading 9817.85.01, HTSUS.
U.S. Note 7(a), HTSUS, requires that the imported article be in a preproduction, production, or postproduction stage of development and used exclusively for development, testing, product evaluation, or quality control purposes. In this case, as in HRL H027027, the vehicle uses new technology, has not been released for dealer sale, and a launch date is not yet set. Therefore, we consider these vehicles to be preproduction. Additionally, based on your discussion of the purposes of the vehicle demonstration program, we find that these importations will be used for testing and product evaluation. You state that specific areas of product research will be conducted at the three test fleet companies, and that a broad spectrum of product evaluation and “real world” testing will occur in both the fleet tests and the consumer tests. These facts, combined with the fact that Honda will be acquiring a range of both “hard” and “soft” data lead us to conclude that the imported vehicles will be used for testing and product evaluation, satisfying U.S. Note 7(a)(i), HTSUS. As the spare parts listed are designed exclusively for the Honda Fit EV, will only be used with the Honda Fit EV, and are subject to evaluation once installed in the vehicles, we also consider these to be preproduction parts imported for testing and product evaluation.
U.S. Note 7(a)(ii), HTSUS, requires that a change in design occur from current production if the article is already in a production or preproduction stage. As stated above, the Honda Fit EV, and its spare parts, are currently in the preproduction stage, so this provision is not applicable. We also note that the creation of a BEV is more than a design change from the traditional Honda Fit; and therefore, U.S. Note 7(a)(ii), HTSUS, is inapplicable.
According to U.S. Note 7(b)(i), prototypes may only be imported “. . . in limited noncommercial quantities in accordance with industry practice.” In this case, Honda will initially import a small number of vehicles for the test fleets, and later expand to a larger quantity for consumer lessees. In HRL H027027, it was found that a few hundred to a few thousand vehicles could be considered noncommercial quantities. As stated above, this conclusion was due in part to a study published by U.C. Davis, which, in a chart describing the commercialization stages for a “revolutionary new vehicle”, states that an advanced prototype demonstration of FCVs or plug-in hybrid electric vehicles (PHEV) would be composed of “100’s to 1,000’s vehicles/year, 2008-2015.” Joshua Cunningham et al., Why Hydrogen and Fuel Cells are Needed to Support California Climate Policy, 7 (Mar. 31, 2008), available at http://pubs.its.ucdavis.edu/download_pdf.
php?id=1157. This chart does not address BEVs; however, it compares commercialization stages for “revolutionary new vehicles”, for which it gives FCVs and PHEVs as examples, to “evolutionary new vehicles”, for which it gives a Gasoline Hybrid Electric Vehicle as an example. The BEV would be better compared with the revolutionary new vehicles, as it goes even one step further than a PHEV. Therefore, as in HRL H027027, a few hundred to a few thousand vehicles could still be considered noncommercial quantities.
The number of vehicles to be imported by Honda falls within this range of a few hundred to few thousand vehicles; therefore, we find the quantity to be a limited noncommercial quantity in accordance with industry practice. Additionally, while Honda states that they are unsure as to the quantity of spare parts to be imported, the parts will only be used in demonstration program vehicles. As such, the quantity should be relative to the number of imported vehicles, and thus, also not a commercial quantity.
U.S. Note 7(b)(ii) prohibits the prototypes from being sold after importation, or incorporated into other products that are sold. In this case, the vehicles are leased, and the leases require that they be returned to Honda at the end of the term. Therefore, the vehicles are not being sold after importation. The request is silent as to what happens to the vehicle after it is returned to Honda. It is important to note that after the vehicle is returned by the original lessee, it still may not be sold, except as provided for in the Customs Regulations (19 C.F.R. § 10.91(c)). Additionally, because the imported parts are only to be used in vehicles that are part of the demonstration program, the parts will not be sold or placed into something that is sold.
U.S. Note 7(c) prohibits an article from being classified as a prototype if it is subject to quantitative restrictions, antidumping orders, or countervailing duty orders. Additionally, to qualify as a prototype, the articles must comply with all other applicable licensing requirements and laws, rules, and regulations administered by agencies other than CBP before importation. Honda states that neither the Honda Fit EV nor any of the spare parts are subject to quantitative restrictions, antidumping orders, or countervailing duty orders. The submission also states that Honda has procedures in place to monitor changes in antidumping and countervailing duty orders. Honda can, therefore, avoid entering a vehicle or part as a prototype if it later becomes subject to such an order.
Honda also recognizes that the vehicles and parts are subject to numerous requirements administered by the National Highway Traffic Safety Administration and the EPA. Honda further states that it will ensure that all the vehicles and parts imported under this ruling will comply with all applicable laws administered by these and other agencies.
We find that the vehicles and spare parts meet the definition of prototype provided in U.S. Note 7(a), Subchapter XVII, Chapter 98, HTSUS, and that they will be imported in limited noncommercial quantities. Accordingly, we find that they may be considered prototypes under subheading 9817.85.01, HTSUS. Honda must ensure that none of the parts become subject to any limitations listed in U.S. Note 7(c), and that the parts and vehicles comply with all applicable laws, rules, and regulations before importation.
HOLDING:
The Honda Fit EVs and spare parts subject to this ruling may be entered as prototypes under subheading 9817.85.01, HTSUS, provided the documentation and recordkeeping requirements in 19 C.F.R. § 10.91(a) and (e) are satisfied.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special Programs Branch