U.S. Customs and Border Protection wants to change the tariff code for fashion footwear, and the move would more than double the duty rate for importers.
In a Customs Bulletin published last month, CBP proposed revoking two rulings on the classification of certain fashion footwear, claiming those rulings were made “in error.”
Currently, footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials valued at more than $12 a pair (under the Harmonized Tariff Schedule code 6404.19.90), are classified as fashion footwear.
Now CBP wants these items, which include things like textile upper loafers, to be classified as athletic footwear (HTS code 6404.11.90), where sports footwear like tennis shoes, basketball shoes and gym shoes is categorized.
If the change is enacted, the duty rate would explode to 20 percent, up from 9 percent now.
What CBP seems to be missing, according to the American Apparel & Footwear Association (AAFA) is twofold: one, this proposal fails to account for the market trend toward casualization and comfort; and two, these shoes really shouldn’t be considered athletic.
“The fashion sneakers in the rulings in question, and fashion sneakers overall, are not intended for athletic purposes, and there are at most only a handful of examples of fashion sneakers being used for athletic purposes,” AAFA president and CEO Rick Helfenbein wrote in a letter to Customs on Friday.
Amid the shift in more athletic-style footwear being worn for non-athletic, more everyday purposes, the Footwear Distributors & Retailers of America (FDRA) appealed to CBP to redefine its classification of “athletic” in 2016, but the request went unanswered.
In its own comments Friday, FDRA drew on CBP’s existing definition of athletic footwear, which says it does not include “shoes that resemble sports shoes but clearly could not be used at all in that sporting activity. Examples include sneakers with a sequined or extensively embroidered uppers.”
LeBron James, it seems, was the impetus for CBP’s proposed change. The basketball player, according to FDRA, wore “an extensive embroidered basketball shoe,” the Kith x Nike LeBron 15, to play in the 2018 NBA All-Star Game, prompting Customs to reconsider its classification.
“We view this as a change in CBP’s position at this point,” FDRA said in a notice to its members. “Members should assume that if the proposed ruling is adopted, textile upper footwear with extensive embroidery and perhaps decorations such as glitter or sequins will no longer be precluded from classification as athletic in subheading 6404.11.”
In its bulletin, which was released Oct. 16, CBP allowed for a comment period that ended Friday. If its proposed change goes forward as planned, importers could be facing the new duties before year end, potentially affecting some holiday shipments.
Though the timeline for tariff code changes like this to take place “varies on a case by case basis,” according to AAFA senior vice president of supply chain, Nate Herman, “there is precedent for this to occur within 15-30 days after publication in the Customs Bulletin,” he said.
The tail end of that timeline would mean the change could come at any moment.
At this point, whether the reclassification will take effect or not “is unclear,” Herman said, adding, “While the Customs Bulletin often means that the case is closed, there is a lot of opposition to this proposal which we believe could result in Customs reviewing the case.”
If Customs doesn’t review the case, or does and settles on sticking to the status quo, there could be a heap of new headaches for brands and retailers ahead of the holiday season.
“This move could cause significant damage to the industry,” Herman said. “Not only does this more than double the tariff rate for these shoes (from 9 percent to 20 percent), but it also comes during the trade war with China.”
The footwear in question falls under President Trump’s tranche 4A China tariffs, so those coming in from the country are already being charged an additional 15 percent, which, according to Herman, “accounts for the vast majority of these products.”
“This could price many of these shoes out of the market, forcing price increases and significant margin hits that directly threaten American jobs that rely on the sale of these products,” he said.
And the problem could prove even larger than this singular category classification change.
“Our bigger concern,” FDRA president & CEO Matt Priest said Monday, referring to Customs, “is that they might be moving in a direction when they could be looking at other ways to increase duties.”