We were also shown two seemingly
identical shirts; the only difference was the fiber
content. One shirt consisted of 55% polyester and 45%
cotton. The other shirt consisted of 55% cotton and 45%
polyester. We may think that since they are of the same
design, same market, and probably for the same use, both
shirts would have the same tariff.
While this seems
almost logical, it is incorrect. Man-made materials
carry a higher tariff than do natural materials.
Therefore the 55% polyester & 45% cotton shirt has a 30%
duty tax while the 55% cotton & 45% polyester shirt only
carries a 16% duty tax!
Next, we learned about custom's criteria
for categorizing goods. For example, a common item such
as a tank top would have a lower duty tax if it is
categorized as an innerwear item instead of an outerwear
item. A water resistant jacket has a lower duty tax than
a non water resistant jacket.
To get around this, some
companies spray their garments with chemicals so that
they can claim the water resistant category, thereby
reducing the duty by 10%. Also, cotton pants and jeans
have an expensive tax, therefore some companies import
overalls because of their lower duty rates and then
slice the top half off and resell them as jeans.
The list continues; coats with fur
collars have a lower duty then coats without fur
collars, shorts have a higher duty than bathing suits
and seasonal items such as Christmas placemats have a
lower duty than non-seasonal items.
Finally, one of the
most interesting examples was that the buying price also
plays a part in how customs applies the duty tax. Shoes
bought for less than $6.50 a pair have a duty tax of 36%
while the very same shoes bought for $6.50 a pair have a
duty tax of only 10%. We could easily see how a buyer
will not want a discount on shoes they are planning to
import and sell in the United States.
We also heard cases of unscrupulous
business practices where owners went to jail for
misleading information regarding their imports. One
interesting example was the importer who kept bringing
coats with fur collars into the U.S. He then had the fur
collars removed once the shipment passed inspection and
sent back to the export country to be re-imported with
another shipment of coats. He reduced his cost for
tariffs, but ended in jail.
In the second half of the lecture Diane
Weinberg spoke about designing through classification in
a free trade environment. Some benefits of free trade
agreements are the reduction or no duty tax for most
products, market access for U.S. products, intellectual
property protection, the possibility to strengthen
investment opportunities, and stronger economic
relations between the U.S. and other foreign countries.
One of the most important requirements of
the North American Free Trade Agreement (NAFTA) in the
U.S. is the rule of origin. In the fashion apparel
industry, garments are considered originating when they
are: wholly obtained or produced in any of the free
trade agreement zones, such as the U.S., Canada or
Mexico. Therefore, an importer of garments made in any
one of these countries would qualify and benefit from
the rule of origin.
There is also the yarn forward rule which
says that: yarn that is spun or extruded in the FTA,
fabric that is woven or knit in the FTA, and fabric that
is cut into shaped components which are then assembled
into a finished garment in the FTA, are eligible for
reduced tariffs. Along with this comes the De-Minimis
Rules, which allow a garment 7% (sometimes 10%) by
weight of the goods to be non-originating before being
disqualified from actually being “originating”.
And then there is the tariff shift rule
which says that the component that actually classifies
the goods or “imparts the essential character to the
garment” shall apply to garments that are not wholly
originating. The best example here was the simple lace
faced tank top whose backing was not produced in an FTA
zone, but still received originating status due to the
fact that the front part of the garment, the lace, which
is the essential character of the garment was produced
in a FTA zone.
We see here how the use of originating
and non-originating materials could mean the difference
in a large percentage of tariffs. Based on this
information we can see how an importer will be
influenced in their decision on which goods to import
based on the price of the tariff they must pay, as this
price will be added to the selling price and also
indirectly affect the fashion trends as well.
If all this seems confusing, as if there
is no rhyme or reason, I would have to agree. In Mr.
Eisen’s own words “Don’t ask why; just find out which
rules apply when and where”. Custom's Applications and
tariffs are complicated and require knowledge of many
A professional expert with knowledge of the
rules and regulations of the U.S. Department of Commerce
and the International Trade Administration will be the
best or only route to follow when trying to choose the
content and origin of goods to import.
took place on September 9, 2008.