By Mikah Wisner, Customs Services Director, DB Schenker
Three ways tariff-engineering can help importers save money and boost their bottom lines.
By providing duty rates for virtually every item that exists, the Harmonized Tariff System (HTS) provides duty rates for virtually every item that exists based on their material composition, product name, and/or intended function. Through the system, all products are assigned their own HTS codes, which are universal in nature and applicable across all countries, time zones, languages, and cultures.
For instance, you might want to know the rate of duty of a wool suit. A classification specialist will need to know, does it have darts? Did the wool come from Israel or another country that qualifies for duty-free treatment for certain of its products? Where was the suit assembled, does it have any synthetic fibers in the lining?
Using the HTS—which groups items into broad categories and then narrows those categories down into specific groups—shippers can correctly classify their products for duty and clearance.
3 Ways to Tariff-Engineer
Classifications, while simple enough in theory, tend to cause a lot of headaches for shippers that are transporting freight across the nation’s roadways. And while most companies understand their value, and get why the classifications are important, really comprehending the ins and outs of those classifications can be tricky.
For example, nearly every “chapter,” or classification group, comes with its own set of parameters and exceptions. One the easiest ways to understand exactly how classifications are used is through real-world examples. Here are three ways tariff-engineering can help save money:
- Women’s Shoes. There are different moves that companies make to “tariff-engineer” their goods. One of the best examples of this is women’s shoes. Ever pick up a pair of shoes in the store, inspect the sole, and notice a small piece of fabric attached to it? Well it’s there for a reason. Due to a change in regulations that took place about 10 years ago, the sole of a shoe determines its duty rate. So, where a rubber-soled shoe commands one duty, a fabric-soled shoe is cheaper to ship. Someone figured out that putting a patch on a rubber sole turns it into a fabric-soled shoe and voila! Now the shoe falls under a different classification, the duty is reduced, and the shipper saves money. It’s as simple as that. U.S. Customs updated the regulations several years ago, and has since redefined how the sole of a shoe is determined (i.e., no longer by the area of the shoe that comes in contact with the ground). The rules were changed specifically to ensure that the cheap piece of fabric did not continue to be a duty avoidance method of importers. However, even today in many shoe stores you still see the fabric bottom on the shoes (even though there is no duty benefit).
- Slash pockets. A pocket set into a garment, to which easy access is provided by an exterior slit, a slash pocket can make a big difference in how a product is classified for import. A slash pocket sewn into the collar area of a man’s shirt, for example, may push customers to ask, “Why did the manufacturer even put this here? No one even uses these.” Before cell phones and headphones came around, for example, there was no reason whatsoever for these pockets. In reality, they’re there for classification purposes. One of the parameters that defines a jacket or a pullover is a pocket, which means a garment that includes such pockets will command a lower tariff than one that lacks this feature. Slash pockets just happen to one of three or four criteria that Customs uses to make this determination, so if the shipper builds in this simple feature, it winds up paying less to import its goods into the U.S.
- Holiday goods. A venerable symbol of the holiday and of the winter season, Frosty the Snowman is considered a “winter emblem” by the HTS. But add a sprig of holly berries to Frosty’s hat and the product you’re shipping becomes a “Christmas good.” That’s because holly berries are considered a Christmas motif versus a winter motif. Therefore, Frosty would fall under the holiday classification, which will be lower than what the duty would be for the original snowman product. This is something to keep in mind if you’re importing holiday-related goods and looking for ways to reduce your overall importing duties.
These are just three examples of how good tariff-engineering strategies can help ease the cost of importing. Be sure to talk to you sales team about the opportunities, and find out if adding a piece of fabric to the sole of a shoe (which will likely wear off in four steps anyway) or a sprig of holly to a snowman’s hat is worth saving 10-12 percent on tariffs. When these simple moves can have a significant impact on your firms’ bottom line, it’s definitely worth doing.