OT-RR:CTF:VS H027075 GOB
Donald Harrison, Esq.
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5306
RE: Subheading 9817.85.01, HTSUS; Fuel Cell Vehicles; Prototypes
Dear Mr. Harrison:
This is in response to your correspondence of April 24, 2008 on behalf of American Honda Motor Co., Inc. (“Honda”). Our ruling follows.
FACTS:
You request a ruling that the Honda FCX Clarity, a developmental Honda fuel cell vehicle, and its related parts be classified in subheading 9817.85.01, Harmonized Tariff Schedule of the United States (“HTSUS”). Honda will be the importer of these vehicles and parts.
You state as follows. The development of hydrogen fuel cell technology has been a policy priority of the United States since at least 2003, when a proposed $1.2 billion plan was announced to accelerate the manufacture of fuel-cell powered vehicles. State governments are also actively involved in the promotion of hydrogen fuel cell technology and infrastructure. Many automobile companies in the United States and elsewhere have research and demonstration projects involving the development of fuel cell technology and fuel cell vehicles. You have
submitted various materials to demonstrate that a variety of federal and state programs have been developed to promote the use of fuel cells in vehicles and that a number of automobile companies are already producing test vehicles. You state that the actual commercial production of fuel cell vehicles is not expected for many years.
Honda has been developing and testing fuel cell vehicles for 20 years. It produced its first fuel cell prototype, the FCX-VC, in 1999. In 2002, the Honda FCX Clarity became the first fuel cell vehicle to be certified for use by the U.S. Environmental Protection Agency and the California Air Resources Board. Beginning in December 2002, Honda leased approximately 30 fuel cell vehicles to government agencies in order to obtain information on the use of these vehicles in regular fleet operations in the U.S. Beginning in 2005, Honda leased fuel cell vehicles (the second generation FCX) to three consumers in order to obtain additional information on the operation of these vehicles in “real world” conditions. Honda has collected valuable technical information from these consumers.
You describe the Honda FCX Clarity as follows. It will involve “innovative (developing) technology,” including an electric drive motor and gearbox, a compact fuel cell stack, a lithium ion battery, and a hydrogen tank. The Honda FCX Clarity will have three times the energy efficiency of a conventional gas vehicle and approximately twice the energy efficiency of a compact hybrid vehicle. Significant barriers remain with respect to this technology, including those with respect to fueling infrastructure, component costs, stack durability, and customer acceptance. The Honda FCX Clarity program will permit continued advancement of near and longer term solutions. The Honda FCX Clarity will now focus on the use and evaluation of the vehicles and their components based upon operation by actual consumers. The field program will involve three-year customer leases involving consumers in three southern California markets, based primarily upon proximity to fuel cell refuel facilities. The lease arrangements for the Honda FCX Clarity will permit Honda to develop information on the “real world” operation of these vehicles. Certain data received from the lessees will be transmitted to the Honda research and development department and used by Honda to evolve and possibly to redesign the fuel cell system and the fuel cell vehicles, including modifications and redesign to improve performance, efficiency and durability. Honda will be using the leases of the Honda FCX Clarity fuel cell vehicles to obtain certain “real world” information on the operation of fuel cell vehicles that cannot be obtained from laboratory or field tests. You state that other automakers and the federal government are also attempting to obtain this type of information.
You state that Honda will provide the Honda FCX Clarity vehicles to a limited number of lessees – “initially several hundred and over the next several years no more than several thousand.” The lease agreements are expected to be for a term of three years; the title to the vehicle will be in the name of Honda; Honda will have the right to inspect the vehicle at any reasonable time and place; the lessees will be prohibited from repairing the vehicle unless authorized and directed by Honda; the costs of regular repair and maintenance will be the responsibility of Honda; the lessees will be required to cooperate with Honda by responding to inquiries from Honda concerning the performance, handling, and use of the vehicles; and Honda will collect data based on the lessees’ use of the vehicles.
Honda will also import certain spare parts which will be used exclusively to support the Honda FCX Clarity program. You state that the vehicles and related parts will not be sold after importation into the United States or incorporated into other products which are sold; will not be subject to quantitative restrictions or to antidumping or countervailing duty orders; and will comply with the applicable requirements of other government agencies such as safety and other provisions administered by the U.S. Department of Transportation and the U.S. Environmental Protection Agency.
ISSUE:
Whether the Honda FCX Clarity vehicles and related spare parts are eligible for classification under subheading 9817.85.01, HTSUS?
LAW AND ANALYSIS:
Subheading 9817.85.01, HTSUS, provides for duty-free treatment for “[p]rototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.”
U.S. Note 7 to Subchapter XVII, HTSUS, provides in pertinent part 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 of producing the product).
. . .
(b) (i) Prototypes may be imported only in limited noncommercial quantities in accordance with industry practice.
(ii) Except as provided 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).
[Emphasis in original.]
“Prototypes” are defined in U.S. Note 7(a), in part, to be originals or models of articles that are either in the preproduction, production, or postproduction stage and are to be used exclusively for development, testing, product evaluation, or quality control purposes. Based upon the facts which you have provided, we find that the Honda FCX Clarity meets the definition of “prototypes” in U.S. Note 7(a). You state that the Honda FCX Clarity involves preproduction and developmental units. The facts are also consistent with the requirement of U.S. Note 7(a)(i) that the prototype be used exclusively for development, testing, product evaluation, or quality control purposes. The requirement of U.S. Note 7(a)(ii) is not applicable here as it applies only to originals or models of articles that are either in the production or postproduction stage. The Honda FCX Clarity is in the preproduction stage.
You state that the Honda FCX Clarity will be leased to a limited number of parties – “initially several hundred and over the next several years no more than several thousand.” You describe a 2008 report entitled “Hydrogen Revisited: Why Hydrogen Fuel Cells Are Needed To Support California Climate Policy” issued by a study group at the University of California at Davis’ Institute of Transportation Studies. You state that: “As part of its analysis of its possible commercialization of fuel cell vehicles, the Davis Report included a figure that showed a ‘representative market penetration curve for a ‘generic’ alternative vehicle option that achieves a 50% market penetration by 2050.’ . . . Among the points made in this projection were the following . . . : . . . The ‘Advanced Prototype Demonstration’ would involve ‘100’s to 1,000’s vehicles/yr’ from 2008 to 2015 . . .” [Emphasis added in your submission.]
Based upon the facts which you present, we find that the Honda FCX Clarity meets the requirement of U.S. Note 7(b)(i) that prototypes eligible for subheading 9817.85.01, HTSUS, be imported only in limited noncommercial quantities in accordance with industry practice.
The requirement of U.S. Note 7(b)(ii) for subheading 9817.85.01, HTSUS, is that prototypes or parts of prototypes may not be sold after importation into the U.S. or be incorporated into other products that are sold, except as provided by the Secretary of the Treasury. Pursuant to the facts which you have submitted, the vehicles will be leased and there is no provision for sale at the end of the lease period. You further state that “Honda will not be selling the vehicles to consumers.” Based upon the facts submitted, we find that the requirement of U.S. Note 7(b)(ii) is satisfied.
Note 7(c) provides that articles subject to quantitative restrictions, antidumping orders, or countervailing duty orders may not be classified as prototypes under heading 9817.85.01, HTSUS. You state that the Honda FCX Clarity and its parts are not subject to such restrictions or orders. Note 7(c) also provides that articles subject to licensing requirements, or which must comply with laws, rules, or regulations administered by agencies other than Customs and Border Protection (“CBP”) before being imported, may be classified as prototypes if they comply with all applicable provisions of law and otherwise meet the definition of “prototypes” in Note 7(a). You state that the Honda FCX Clarity and its parts will comply with applicable requirements of government agencies other than CBP, as required by Note 7(c).
Based upon the facts presented and the above findings, we determine that the requirements for the use of subheading 9817.85.01, HTSUS are met by the Honda FCX Clarity. Accordingly, we find that the Honda FCX Clarity and its related parts are eligible for classification under subheading 9817.85.01, HTSUS, as: “[p]rototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.”
HOLDING:
Based upon the facts presented, the Honda FCX Clarity and its related parts are eligible for classification under subheading 9817.85.01, HTSUS, as: “[p]rototypes to be used exclusively for development, testing, product evaluation, or quality control purposes.”
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch