“Tariff Engineering” is fashionable because companies are trying to avoid the duties

Would you take care of it if your coat was officially classified as a windbreaker or raincoat or your shoes as slippers? Probably not. However, companies take care of it because classifications in the context of a preferred category can help you pay lower collective bargaining prices.

Since US President Donald Trump imposed duties for friends and enemies equally, the manufacturers are increasingly rethinking their products and grabs “tariff engineering” in order to fulfill lower duties, shared several customs lawyers, supply chains and shipping experts CNBC.

Tariff Engineering – a legal practice that is preceded by Trump – includes the change in the materials of an article, the change in its dimensions or compositions so that the finished products can be justified in order to fit in another “Harmonized system code”, “ Experts said.

Although most of the new tariffs added in Trump’s second term Exceptions for certain products worked outThe commercial lawyers left the doors open to companies that benefit from the engineering tariff.

After Trump unveiled comprehensive “mutual” tariffs in April, several overseas manufacturers changed to bundle steel and aluminum elements into their end products to qualify a lower 25% Section 232said David Forgue, partner of the Chicago law firm Barnes, Richardson & Colburn.

However, things changed quickly in June, when Trump increased tariffs for all steel, aluminum products and derivatives to 50%, with the exception of those from Great Britain “after the tasks are now the other way around, we now see that companies remove these elements and send them separately again,” said Forgue.

There is “none of inherently illegal or unfavorable when it comes to using strategic design decisions that lead to different products subject to different classification and service for tariffs,” said John Footen, a customs lawyer at Kelley Drye & Warren in Washington DC “Tariff Engineering” is one of the few things you can do to do it and your Duty to reduce. “

There is over 5,000 different product classification codes This US customs authority uses the assessment of the tariffs. These classifications for tariffs have been determined by negotiations between governments and industrial piles for decades, which often vary depending on the product category.

Izzy Rosenzweig, founder and CEO of the logistics company Portless, said that one of his customers who manufactured hoodies has demolished synthetic materials for cotton in their production and saves more than 15% of the service costs.

Winnebago Industries, an American manufacturer of motorhomes or leisure vehicles, announced in his quarterly winning call in March that it should “work with external experts to develop and implement effective (tariff) damage strategies, including tariff technology and retreat”.

Aneel Salman, Chairman of Economic Safety at the Islamabad Policy Research Institute, described the law as “Clever Art of Outsmarting -zoll” when importers and manufacturers optimize the products “just enough” to qualify for lower duties.

The practice of tariff technology can be attributed to 1882 if an importer of coated sugar with molasses avoids higher tasks that are imposed for lighter sugar. In a pioneering judgmentThe Supreme Court decided the law completely legally: “As long as the goods are really invoiced and freely and honestly exposed to the customs officials for their examination, no fraud is committed.”

Since then, companies, BIG and Small, have continued to play chess with the US tariff classification system, with several known names successfully implementing strategic product bans to save tariff costs.

For example, Columbia Sportswear has never been shy about the use of tariff engineering. “I have an entire team of people who work with designers and developers and merchandisers, and to ensure that we take into account the effects of tariffs during the design process” Marketplace during Trump’s first term.

The company added small zip shirts under the waist to his changes, so that they can be freed from higher duties under satisfaction The US customs rules.

Likewise shoe -conscious showers Converse adds Fuzzy-Felt fabric Regarding the soles of his characteristic all-stars gymnastics shoes and not the typical whole scrubber, which are categorized more as slippers than as sports shoes to drastically lower the tariffs.

Snuggies, the fluffy blanket with sleeves, which were mainly imported from China, almost halved their tariff costs by winning a lawsuit in 2017 that classified it as a blanket.

Rapid consumer goods and clothing, clothing and shoes can find it relatively easy to implement tariff engineering, said Andrew Wilson, Supply Chain strategist at Consultancy Suppino Inc.

It is particularly difficult for demanding and “heavily regulated” sectors such as automobiles, aerospace, electronics and medical devices … because even slight changes may require comprehensive validation and approval, “said Wilson.

“You may be looking for a further 12 to 24 months of tests, certification and validation to do this,” added Wilson, since a comprehensive cooperation between the departments, including design, engineering and legal teams, is required.

An example of illustrating the challenges with the engineering tariff is Ford Motor. The car manufacturer had imported his Transit Connect van as a passenger car for years and then removed the seats of the second row to sell it as a cargo transporter. Ford Avoid a high 25% tariff And only paid an import duty of 2.5%.

The US Ministry of Justice said in His decision last year That Ford “false-classified freight transports” and that the back-row seats were never “thought and never to wear passengers”.

“The article must be a” commercial reality “in import. The risk is that customs (May) can determine the changes as” fraud or art start “(in this case) that the tariff engineering can be rejected,” said Forgue.

“In some cases, changing certain things in a product does not change the essential character of what the good is,” said Derek Scarbrough, founder of global logistical connections. “If you add something to a shopping cart, it’s still a shopping cart,” he added.

US customs and border control has developed a so-called development “Binding Raying” system If companies can receive official provisions on product classifications and HTS codes before import.

Adam Lees, a lawyer of the law firm Harris Sliwoski, who helped the client to prepare such judgment requests, described it as a possibility for companies to receive the official blessing of CBP before shipping.

However, some companies can be prevented from looking for such official decisions because a potentially unfavorable judgment could restrict. “They put with what they said, and if they do not agree, they suddenly can no longer go under the radar,” said Scarbrough.

– Dylan Butts from CNBC contributed to this report.