Last April, the EU announced it was tripling the duty on high-end denim, to 38 percent from 12 percent. The spike has already begun to slow denim imports to EU territories, and has had a particularly powerful effect on California denim makers, who produce nearly two-thirds of of American high-end denim.
The bad news is that enlargement of the duty burden significantly impacts the cost of denim products, since duties account for a outsized measure of apparel’s overall costs. The good news, however, is that there are strategies to remain competitive even under the new tariff.
For example, the “First Sale” practice uses the establishment of a middleman to legitimately register lower values than normal on its imports. Here’s how it works: a manufacturer creates a new sales company that then function as a conduit between it and a European distributor. The manufacturer first sells to the middleman it created, and then to the distributor, only paying duty on the first sale.
Also, tweaking the classification of a denim product can effectively circumvent the new tariffs. The only jeans covered by the hike are women’s jeans (or girls’ jeans) made from denim. Denim is broadly defined in the tariff as follows:
Fabrics of yarns of different colors, of three-thread or four-thread twill, including broken twill, warp-faced, the warp yarns of which are of one and the same color and the weft yarns of which are unbleached, bleached, dyed grey or colored a lighter shade of the color of the warp yarns.
Since denim garments often involve the use of multiple fabrics, it might be possible to re-classify what is usually considered a denim garment as something else.
Finally, whether or not a duty applies if partially determined by a garment’s origin. If jeans use some fabric that originated in Europe, the manufacturer might be able to receive a partial exemption for the increased duty. Likewise, it’s possible to shift the origin of jeans by shifting the sewing alone to a country unaffected by the new tariff (Mexico, for e.g.). This can work even if the jeans are ultimately finished in the US.
The new EU tariff has been a contentious point of dispute ever since its passage. Many interpret the aggressive hike as retaliation for the US failing to comply with the WTO’s ruling against the Byrd Amendment, which allows the US unchecked discretion to impose duties on goods it deems “unfairly traded.”