We’ve addressed tariff engineering in previous posts, but with ongoing tariff issues and de minimis suspensions, revisiting the issue is long overdue.
To recap: With tariff engineering, importers and manufacturers design, modify, and build products to qualify for and benefit from a lower duty rate upon import. Before the design process begins, the impact of tariffs on materials, fibre content, construction, design features, and the product’s intended use is considered and reviewed. Even slight tweaks or modifications to a new or existing product (such as adding a particular component or moving a feature) are all that is needed to change the classification. Two products can look very similar, but upon further review, their classifications differ, with one qualifying for potentially lower duties and taxes. The concept and practice have a long history dating back to the late 1800s.
Two well-known examples of apparel and footwear companies/brands that regularly practice tariff engineering are Converse Sneakers and Columbia Sportswear. For years, Converse has added a felt lining covering more than 50% of the soles of its sneakers, serving no purpose other than to classify its products as slippers, thereby qualifying for a lower duty rate of 6% instead of up to 48%.
Columbia Sportswear has spent years practicing tariff engineering by designing apparel and other products with consideration of how they align with tariff codes to reduce costs. For example, certain women’s shirts are intentionally designed with small pockets below the waist that may reduce the duty rate from 26.9% to as low as 16%.
Tariff amounts are determined by the Harmonized System (HS) and are used by customs authorities worldwide to identify duty and tax rates for various products. Foreign exporters may click here to find Canada’s free trade agreement with their market; check the sections on textiles and apparel to find potential tariff engineering opportunities using guidelines for designing products that qualify for preferential tariff treatment.
Tariff engineering can be applied to a variety of products; however, it’s a complex process that requires precision and a strong understanding of HS tariff classifications and codes. Importers and manufacturers looking to apply tariff engineering in their design and development process should consult a customs broker or trade compliance specialist for guidance and help with classifications. Consider a review and analysis of your products and evaluate if changes can be made to impact tariffs. Also, ensure that the costs of manufacturing, the materials used, and product marketing don’t outweigh the benefits of the potential tariff reduction.
Click here, here, and here to learn more about tariff engineering. With proper planning and classifications, companies can discover and benefit from the cost savings.
Want more Canada market updates? Sign up for our monthly newsletter!
Pexels photo