In 2017, the footwear industry paid enough in duties to give every resident of Manhattan 833 grande Starbucks coffees or give all 28 million people in Southern California a pair of Ray Ban Wayfarer sunglasses. The industry could have also used that $2.88 billion tax bill to hire 48,000 new footwear workers at an annual salary of $60,000 per year. And that’s not an abstract number. It is the real amount of duties paid, and it’s a growing drag on innovation and an inhibitor of dynamic footwear design and development.
To design your way out of at least some of these charges, a few tips and ideas to keep in mind before you start designing as well as a few illustrations that show the ridiculous nature of the U.S. footwear tariff and classification system.
First, it’s important to remember, the time to engage in tariff engineering is at the inception of a style. It is too late once the style has been developed. This means that designers and line builders need to involve their customs specialists as early as possible. Also, customs specialists must understand that styling, cost, marketability, and safety, among other considerations will likely override their highly inventive tariff engineering ideas.
We’ve pulled together some insights on how to properly use footwear tariff engineering to your advantage—allowing you to lower costs and increase profitability. It’s important to fully understand the rules and the manner in which Customs and Border Protection (CBP) interprets and applies them, which is easier said than done since there are 436 ways to classify a shoe!
When considering tariff engineering for shoes, the basic variables to keep in mind are:
- material of the upper or external surface area of the upper (ESAU)
- material of the sole
- method of construction
- the presence of a foxing
- the type of shoe, whether protective, sports or athletic, open-toe or open-heel
Almost all of these, including foxing, can be manipulated to lower the duty rate, as noted below.
In the case of the external surface area of the upper, there are any number of techniques that can affect the duty rate—all of which your customs teams should know. In short, these techniques include:
- Use multiple materials (40-30-30).
- Inserts or overlays?
- Loosely-attached appurtenances.
- Cuffs-placement of origin label, etc.
- Whether or not to last.
- Permanent laces.
- Functional vs. decorative stitching
For example, a boy’s jogger with an upper of 40 percent leather and the balance textile might have a duty rate as high as 37.5% plus $0.90 per pair. Replacing half of the textile with plastic creates a majority leather upper and reduces the duty rate to 8.5 percent.
For the sole of the shoe, most companies look to add textile or leather to the bottom of a rubber/plastic sole of certain footwear to lower the duty rate. Adding leather, but not textile, fibers to the bottom of a rubber rainboot reduces the duty to 12.5 percent from 37.5 percent. However, we caution that adding leather to the sole of a textile upper generally does not lower the duty rate.
What is foxing you should ask? Foxing is a strip of material, separate from the sole and upper, that secures the joint where the upper and sole meet, usually attached by a vulcanization process and it must be applied or molded at the sole and overlap the upper and substantially encircle the entire shoe.
In a few cases (fabric upper slip-on with a foxing and a cost over $12), the presence of a foxing can lower the duty rate. To take advantage though, you should note that the location of the area of overlap when less than 60 percent but more than 40 percent. In some cases, you can lower the height of the overlap in selected areas to lower the duty rate.
When designing the shoe, you should look to see if you can replace some materials for others without damaging the integrity of the design. For example, look at vegetable fibers versus man-made fibers where a vegetable fiber upper shoe will see an import duty of 7.5% compared with the same shoe, made with a man-made fiber upper, receiving a 12.5% duty upon import. That is quite the difference just by changing the material of the upper!
A classic tariff engineering tactic that is typically used on women’s textile upper/leather outsole pumps involves hollowing out a wood heel and filling it with metal powder or screws. This technique increases the total weight to ensure that rubber/plastic represents less than 10 percent of the total weight or that the combination of textile and rubber/plastic represents less than 50 percent of the total weight. The technique reduces the duty rate by more than 70 percent, to 10 percent from 37.5%!
If that sounds like a lot to keep in mind, that’s because it is. We encourage companies not to go it alone on these technical issues but to take advantage of our new FootwearCustoms.com website. The site is free for FDRA members and a small annual fee for non-members. There, you will find real-time classification guidance, interactive sample reviews, key definitions, instructive memos, and timely notes on customs rules and rulings to help you navigate this complex construct we call footwear customs.
Matt Priest is president and CEO of America’s footwear business and trade association, the Footwear Distributors and Retailers of America (FDRA). FDRA provides its 200 member companies, and 400 brands, deep insights each month on customs rules and regulations and advocates on their behalf to lower duties in Washington, D.C.