‘Tariff engineering’ is in vogue as businesses attempt to skirt duties

Would you be disturbed if your coat was officially classified as a gale or a laid, or your shoes like slippers? Companies care, however, because classifications in a favorite category can help them pay lower price rates.

While the American president Donald Trump imposes tasks on friends and enemies, the manufacturers are increasingly rethinking the classification of their products and using “pricing engineering” to incur weaker tasks, several lawyers in the supply chain and the supply chain told CNBC.

Price engineering – a practice preceding Trump – involves changing the materials of an article, modifying its dimensions or compositions so that finished products can be justified “Harmonized system code,” said legal experts.

Although most of the new prices added during Trump’s second term, the US government has Sculpted exemptions for certain productsLeaving the doors open to businesses to benefit from pricing engineering, said sales lawyers.

After Trump unveiled “reciprocal” rates of scanning in April, several foreign manufacturers moved in steel and aluminum in their end products to qualify a 25% right under Section 232said David Forgue, partner of the Chicago Barnes law firm, Richardson and Colburn.

Things, however, changed quickly in June while Trump has brought the prices closer to all steel, aluminum and 50%derivative products, with the exception of those of the United Kingdom “now that the tasks are reversed, we now see companies deleting these elements and ship them separately,” said Forgue.

There is “nothing intrinsically illegal or even annoying to take advantage of the choices of strategic design which result in the creation of different products which are subject to classification rates and at different prices,” said John Fote, a customs lawyer at Kelley Drye & Warren in Washington DC “Price engineering is one of the few things you can do to try to get it to the right and to the responsibility of the prices “.

There is more 5,000 classification codes of different products May US Customs Authority use while evaluating prices. These tariff classifications have been determined through decades of negotiations between governments and industry organizations, often varying depending on the product category.

Winnebago Industries, an American motorhome manufacturer, or recreational vehicle, said in its quarterly call in March that it planned to “work with external experts to develop and implement effective effective [tariff] Attenuation strategies, including pricing engineering and reports. “”

Anel Salman, president of economic security at Islamabad Policy Research Institute, described the law as “an intelligent art to go beyond customs”, as importers and manufacturers modify the products “just enough” to qualify for lower tasks.

The practice of tariff engineering dates back to 1882, when a coated sugar from the molasses importer to avoid higher tasks imposed with lighter sugar. In A historic decisionThe Supreme Court ruled on perfectly legal law: “As long as the goods are really billed and freely and honestly exposed to customs officers for their examination, no fraud is committed.”

Since then, companies, large and small, have continued to play failures with the American tariff classification system, several names of household successfully by successfully holding strategic products to save on tariff costs.

For example, Columbia Sportswear has never been shy as to its use of pricing engineering. “I have a whole team of people who work with designers, developers and merchants and with customs, and to ensure that during the design process that we are considering the impact of prices,” said Jeff Tooze, vice-president of customs and world business, said Jeff Tooze, Customs and Shops, said Jeff Tooze. Marketplace during Trump’s first term.

Among its modifications, the company added small zipper pockets under the size of the female shirts, which allows them to be exempt from higher tasks under American customs rules.

Likewise, shoe manufacturers Converse adds a blurred fabric At the soles of its All Stars signature sneakers, rather than the typical full size, to be classified as slippers rather than sports shoes, helping it to considerably reduce the price.

Snuggies, fluffy coverage with sleeves imported mainly from China, almost half reduced its price costs by winning a lawsuit in 2017 classifying it as a cover, not an element of clothing.

Consumer vouchers and consumption clothing, clothing and shoes sectors can find relatively easy to implement tariff engineering, said Andrew Wilson, a strategist for the supply chain at Consultancy Supplino Inc.

For more sophisticated and “highly regulated” sectors such as the automobile, aerospace, electronics and medical devices “, it is particularly difficult … because even minor changes may require in -depth validation and approval,” said Wilson.

“You could consider 12 to 24 months of additional tests, certification and validation in order to do so,” added Wilson, because it requires in -depth collaboration between departments, including design, engineering and the legal team.

An example illustrating the challenges of tariff engineering is Ford Motor. The automaker had imported its Connect vans for years as a passenger van, then removed the second row seats to sell them in the form of vans. In doing so, Ford bypassed a heavy price of 25% and has only paid an import right of 2.5%.

The United States Ministry of Justice said in His decision last year That Ford was “to classify the f vans” and that the seats of the row “were never intended to be, and have never been used to transport passengers”.

“The article must be a” commercial reality “to import. The risk is that customs [may] Find the changes to be “fraud or artifice” ,, ” [that case] Price engineering can be rejected, ”said Forgue.

“In some cases, changing certain things about a product does not change the essential character of what good is,” said Derek Scarbrough, founder of Global Logistical Connections. “If you add something to a basket, it’s always a basket,” he added.

Customs and American border control have developed a so-called “Binding regulation” system where companies can obtain official determinations on product classifications and HTS code before importation.

Adam Lees, lawyer for the law firm Harris Sliwoski, who helped customers prepare such requests for letters in power, described it as “a means for companies to obtain the official blessing of the CBP” before the expedition.

For companies, even “a small percentage of savings can be significant,” said Lees because the volumes shipped could be substantial.