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 factors.

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.

This event took place on September 9, 2008.