[1] This appeal deals with the classification of all-terrain vehicles (ATVs) under the Schedule to the Customs Tariff, R.S.C. 1985 (3d Supp.) c. 41. Specifically, the issue is whether the Canadian International Trade Tribunal (the Tribunal) reasonably classified the ATVs as "motorcycles" under heading No. 87.11 as opposed to "motor cars and other vehicles principally designed for the transport of persons" under heading No. 87.03. The Tribunal's decision is reported as [2003] C.I.T.T. No. 35.

[2] For the reasons which follow, I am satisfied that the Tribunal was clearly wrong in failing to classify ATVs as "motor cars and other vehicles principally designed for the transport of persons" under heading No. 87.03 and that its decision must be set aside.

All-Terrain Vehicles

[3] An ATV is a four-wheeled, motorized, off-road vehicle with a tube chassis, and is used to transport a person and goods over rough terrain. Like virtually all other four-wheeled vehicles, the steering system on an ATV turns the inside wheels at a slightly sharper angle than the outside wheels so that the wheels track a straight line. This is known as the "Ackerman principle". Handlebar movement and operator weight shift also contribute to steering an ATV.

Customs Tariff

[4] The objective of the Customs Tariff is to establish import tariffs on goods brought into Canada. Classifications, and the corresponding tariff rates, vary from product to product, and these classifications are set out in detail in Schedule I. The Customs Tariff also gives effect to Canada's obligations under the International Convention on the Harmonized Commodity Description and Coding System, which attempts to rationalize and harmonize the classification of all trade commodities among signatory nations (see also Minister of National Revenue v. Yves Ponroy Canada (2000), 259 N.R. 238 (F.C.A.)).

[5] Under section 10 of the Customs Tariff, goods are to be classified in accordance with General Rules for the interpretation of the Harmonized System as set out in the Schedule. General Rule 1 states that classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. Section 11 of the Customs Tariff requires the Tribunal to have regard to the Explanatory Notes in interpreting these headings and subheadings. The parties agree that the goods are classifiable pursuant to General Rule 1, as belonging solely under one heading, but disagree over which heading.

[6] The competing headings for the ATVs, together with their Explanatory Notes, are as follows:

87.03 Motor cars and other vehicles principally designed for the transport of persons (other than those of heading No. 87.02), including station wagons and racing cars.

This heading covers motor vehicles of various types (including amphibious motor vehicles) designed for the transport of persons ... The vehicles of this heading may have any type of motor (internal combustion piston engine, electric motor, gas turbine, etc.).

The heading also covers lightweight three-wheeled vehicles of simpler construction, such as:

- those fitted with motorcycle engine and wheels, etc. which, by virtue of their mechanical structure, possess the characteristics of conventional motor cars, that is motor car type steering system or both reverse gear and differential.

The heading also includes:

(1) Motor cars (e.g. saloon cars, hackney carriages, sports cars and racing cars).

(2) Specialised transport vehicles such as ambulances, prison vans and hearses.

(3) Motor-homes (campers, etc) vehicles for the transport of persons, specially equipped for habitation (with sleeping, cooking, toilet facilities, etc.).

(4) Vehicles specially designed for travelling on snow (e.g. snowmobiles).

(5) Golf cars and similar vehicles

(6) Four-wheeled motor vehicles with tube chassis, having a motor-car type steering system (e.g. a steering system based on the Ackerman principle).

[emphasis added]

87.11 Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars; side-cars.

This heading covers a group of two-wheeled motorised vehicles which are essentially designed for carrying persons.

In addition to motorcycles of the conventional type, the heading includes motor-scooters characterised by their small wheels and by a horizontal platform which joins the front and rear portions of the vehicles; mopeds, equipped with both a built-in engine and a pedal system; and cycles fitted with an auxiliary motor.

Motorcycles may be equipped to protect the driver against the weather or be fitted with a side-car.

Three-wheeled vehicles (e.g. the "delivery tricycle" type) are also classified here provided they do not have the character of motor vehicles of heading 87.03 (see the Explanatory Note to heading 87.03).

The heading further covers side-cars of all kinds, a type of vehicle which is designed for the transport of passengers or goods, and which cannot be used independently. They are equipped with a wheel on one side, the other side bearing fittings enabling the side-car to be attached to, and to travel alongside, a cycle or motorcycle.

The heading excludes:

(a) Four-wheeled motor vehicles, for the transport of persons, with tube chassis, having a motor-car type steering system (e.g. a steering system based on the Ackerman principle) (heading 87.03)

(b) Trailers designed for attachment to a cycle or motorcycle (heading 87.16)

[emphasis added]

[7] The World Customs Organization has also issued a classification opinion, indicating that ATVs are to be classified within heading 87.03. It reads:

8703.21 Four-wheeled (two wheel-driven) All Terrain Vehicle ("A.T.V.") with tube chassis, equipped with a motorcycle type saddle, handlebars for steering and off-the-road balloon tyres. Steering is achieved by turning the two front wheels and is based on a motor-car steering system (Ackerman principle). The vehicle is fitted with an automatic transmission with reverse gear, chain-driven rear axle, and front and rear drum brakes. It is powered by a four-stroke single cylinder engine of a cylinder capacity of 124 cc. It is not fitted with cargo racks or with a trailer hitch.

The Tribunal's Decision

[8] Before the Tribunal, the Attorney General of Canada urged that ATVs are to be included under heading No. 87.03 by virtue of item (6) being "four-wheeled motor vehicles with tube chassis, having a motor-car type steering system (e.g. a steering system based on the Ackerman principle)" (for the sake of convenience, hereinafter referred to as "item 6"). The respondents argued that ATVs do not have the characteristics of a motor-car type steering system and therefore cannot be classified under that heading.

[9] In making its determination, the Tribunal stated that it did not see why having a steering system based on the Ackerman principle would determine the ATVs' exclusion from heading 87.11 and their inclusion in heading 87.03, even though it also found as a fact that ATVs do have a steering system based on the Ackerman principle. However, based on the expert evidence presented, the Tribunal determined that the ATVs do not have a motor-car type steering system and are therefore prima facie classifiable in both headings. The Tribunal relied on Rule 3(a) of the General Rules of Interpretation, and concluded that heading 87.11, not 87.03, provides the most specific description of the goods. Rule 3(a) reads as follows:

3. When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

The Tribunal found that ATVs were more specifically described by heading 87.11, on the basis of their historic evolution from, and certain similarities to, motorcycles, such as handlebar steering and being "ridden" rather than driven.

Grounds of Appeal

[10] The appellant now argues that the Tribunal's decision is unreasonable because it was based on an interpretation of tariff heading 87.03 that is clearly wrong.

Standard of Review

[11] This Court has consistently held that reasonableness is the appropriate standard of review of the Tribunal's decisions in customs tariff classification appeals: Yves Ponroy, supra; Flora Manufacturing & Distributing Ltd. v. Canada (Deputy Minister of National Revenue) (2000) 258 N.R. 134 (F.C.A.); Minister of National Revenue (Customs & Excise) v. Schrader Automotive Inc. (1999), 240 N.R. 381 (F.C.A.)). The reasonableness standard was described by Iacobucci J. in Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748 at paragraph 56:

An unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination. Accordingly, a court reviewing a conclusion on the reasonableness standard must look to see whether any reasons support it.

Analysis

[12] Unlike Chapter and Section Notes, Explanatory Notes are not binding on the Tribunal in its classification of imported goods. Their value in interpreting provisions of the Customs Tariff is established by Section 11 which states:

11. In interpreting the headings and subheadings, regard shall be had to the Compendium of Classification Opinions to the Harmonized Commodity Description and Coding System and the Explanatory Notes to the Harmonized Commodity Description and Coding System, published by the Customs Co-operation Council (also known as the World Customs Organization), as amended from time to time.

[emphasis added]

11. Pour l'interprétation des positions et sous-positions, il est tenu compte du Recueil des Avis de classement du Système harmonisé de désignation et de codification des marchandises et des Notes explicatives du Système harmonisé de désignation et de codification des marchandises et de leurs modifications, publiés par le Conseil de coopération douanière (Organisation mondiale des douanes).

[je souligne]

[13] In the New Shorter Oxford English Dictionary (Oxford: Clarendon Press, 1993) "regard" means "to consider, heed, take into account, pay attention to, or take notice of". Essentially, then, the Explanatory Notes are intended by Parliament to be an interpretive guide to tariff classification in Canada and must be considered within that context. To satisfy their interpretive purpose, and to ensure harmony within the international community, the Explanatory Notes should be respected unless there is a sound reason to do otherwise.

[14] In deciding that the ATVs' steering is not based on a motor-car type steering system, the Tribunal noted item 6, but rejected its application. Based on the expert evidence which it heard, the Tribunal determined that a motor-car steering system consists of six major components, of which ATVs have only three, and therefore concluded that ATVs are not covered by item 6.

[15] In my analysis, the Tribunal misinterpreted item 6. The question the Tribunal should have asked itself is not whether ATVs have these six components of a motor-car steering system, but rather, whether they have a motor-car steering system as that term is defined in item 6. By adopting the interpretation that it did, the Tribunal disregarded the fact that item 6 provides an example of a steering system that is a "motor-car type steering system", namely "a steering system based on the Ackerman principle".

[16] In essence, the Tribunal selected its own meaning of the term "motor car type steering system" and, in so doing, redefined the wording established by the World Customs Organization, whose mandate includes customs harmonization. Furthermore, the phrase "a steering system based on the Ackerman principle", which the Tribunal rejected as constituting a "motor-car type steering system", was specifically used on three occasions by the World Customs Organization: in the Explanatory Notes to heading 87.03; in the Explanatory Notes to heading 87.11; and in a customs classification opinion (supra at paragraphs 6 and 7 of these reasons). In my view, this repetition emphasizes that the reference to the Ackerman principle was chosen deliberately and was clearly intended to illustrate what constitutes a "motor car steering system".

[17] As indicated in paragraph 13 of these reasons, the Tribunal is not bound to apply the Explanatory Notes, where there is a sound reason to depart from their guidance. Expert evidence can, in some circumstances, provide such a reason. However, even in a case where the Tribunal could reasonably choose not to apply the Explanatory Notes, it does not have the authority to rewrite or ignore such Notes by redefining their terms.

[18] On a proper interpretation of the Explanatory Notes to heading 87.03 and heading 87.11, and based on the undisputed evidence that the steering system utilizes the Ackerman principle, the Tribunal acted unreasonably in concluding that the ATVs could be classified other than under heading 87.03. The mere fact that ATVs do not have three components of a motor car steering system as that term is used by industry engineers does not demonstrate that ATVs do not belong under heading 87.03, especially in view of the fact that these vehicles possess the components that have been identified in the Explanatory Notes as determinative for classification purposes.

[19] Nor did the expert evidence before the Tribunal, while indicating similarities between ATVs and motorcycles, reasonably establish that the ATVs' inclusion in heading 87.03 must be rejected. ATVs fit the description of "other vehicles" set out in that heading and more specifically described in the relevant Explanatory Notes. Heading 87.03 covers a variety of four-wheeled vehicles, as well as snowmobiles which share the ATVs' characteristics of being steered via handlebars and "ridden" rather than driven. In itself, the inclusion of snowmobiles under heading 87.03 clearly signals the wide scope that the words "other vehicles" in heading 87.03 are entitled to receive.

[20] Accordingly, I would allow the appeal with costs, and set aside the decision of the Tribunal dated May 2, 2003. Proceeding, then, to render the decision that should have been rendered by the Tribunal, I would dismiss the respondents' appeals (Nos. AP-99-114, AP-99-115, and AP-2000-08) with costs.

"B. Malone"

J.A.

"I agree

Gilles Létourneau

J.A."

"I agree

John M. Evans

J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-358-03

STYLE OF CAUSE: Attorney General of Canada v. Suzuki Canada Inc. and Canadian Kawasaki Motors Inc.

PLACE OF HEARING: Ottawa, Ontario

DATE OF HEARING: March 16, 2004

REASONS FOR JUDGMENT: Malone J.A.

CONCURRED IN BY: Létourneau J.A.

Evans J.A.

DATED: April 2, 2004

APPEARANCES:

Ms. Susanne Pereira

FOR THE APPELLANT

Mr. Brian J. Barr

FOR THE RESPONDENT

SOLICITORS OF RECORD:

Mr. Morris Rosenberg

Deputy Attorney General of Canada

Ottawa, Ontario

FOR THE APPELLANT

MacLaren Corlett, LLP

Ottawa, Ontario

FOR THE RESPONDENT

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Canada (Attorney General) v. Suzuki Canada Inc., 2004 FCA 131

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2004 FCA 131