Some industries and companies get a head start on administrative barriers by tailoring their products to the relevant tariffs, which is known as “tariff engineering.”
Tariff engineering involves modifying products so that tariff benefits, such as a reduced rate, apply at the time of import. Unlike tariff evasion, tariff engineering focuses on understanding how duties are defined at the time of design and production in order to legally obtain a lower duty.
The process takes into account parameters such as fiber content, materials used and construction of the product prior to manufacturing.
However, it is illegal to remove the previously made modification once the product is going to be imported, because this process of “artifice, disguise and fictitious product” can result in penalties and fines. Example below
Nike’s Converse sneakers were tariff-engineered when they received a layer of felt to cover more than half of the sole of their shoes.
Indeed, footwear imports into the U.S. can be subject to up to 48 percent duty, while slippers enjoy a much more favorable rate of 6 percent.
Since “the classification of footwear depends primarily on the composition of the outsoles and uppers,” the addition of felt was incorporated to thus categorize this Converse sneaker as a slipper and not a shoe and thus take advantage of the loophole.
Another interesting example is that concerning textiles. Some products, when imported from specific countries, may have high tariffs. Women’s or girls’ blouses, shirts and shirts made of synthetic fibers may be subject to tariffs of up to 26.9 percent of the value of the goods, but they may be classified under a lower tariff rate if they have a pocket below the waist or a ribbed waistband, as stated in the Explanatory Notes to heading 6206.
These two concrete examples show that anticipating customs duties upstream is a major strategic and economic challenge.
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