The footwear industry spends more on duties than most other segments, but that could all change, thanks to looming legislation. In fact, the Miscellaneous Tariff Bill or Generalized System of Preferences program is projected to save the U.S. footwear sector as much as $2.88 billion, the amount spent on footwear duties in 2017.
Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, talks about the five footwear duty reduction initiatives on deck for 2018—and how each could impact your business.
1. The Miscellaneous Tariff Bill
What could save the footwear industry as much as $90 million in duties over the course of its three-year lifespan, the Miscellaneous Tariff Bill, which recently passed in the House but is still pending Senate approval, will provide temporary tariff cuts on footwear products that aren’t sufficiently available in the U.S. There are more than 60 footwear types covered in the MTB program, including sports footwear with outsoles and uppers of rubber or plastic, and protective active footwear for men and women.
MTB isn’t country-specific, so it can work for applicable footwear imports from anywhere in the world. To use it, however, there can’t be any domestic competition for that type of footwear, and the U.S. can’t lose out on more than $500,000 in revenue it would have earned from duties on those imports.
2. Generalized System of Preferences
The U.S. extends trade preferences for duty relief to more than 120 countries as part of its Generalized System of Preferences program, and though it expired in December, experts expect its renewal and are lobbying for the inclusion of footwear.
“The big push is to get the GSP program extended, and then our hope is that as part of that process, Congress will move on adding these limited footwear lines,” Priest said. If passed, the separate GSP Footwear Act would designate certain footwear — such as outdoor footwear and slippers — for duty-free savings.
FDRA said GSP could pass in the first quarter of 2018, and though there’s a willingness to pass it in its current state, adding footwear may be a less likely sell. “Even if that bill passes, the duty relief would not go into effect until the administration approves adding those lines,” Priest said.
3. De Minimis Reform Initiative
As it stands, under the de minimis exemption, importers can bring in $800 in merchandise value per person per day without paying duties and taxes. When it comes to e-commerce, this provision holds a lot of value for bringing product into the U.S. For now, companies are incentivized to hold product in distribution centers in places such as Canada and Mexico. Businesses then ship their e-commerce orders under de minimis rules. Leaders in Washington, D.C., are looking into adjusting the law to allow de minimis transactions through foreign trade zones, which could help drive some of that product volume into distribution centers managed as free-trade zones in the U.S., simplify logistics and lower duty costs.
4. Tariff Simplification
There are more than 436 ways to categorize footwear imports, and a long list of notes in the U.S. tariff code, which have both frustrated companies and cost them considerable time in trying to understand how to import their goods.
“Simplification is important,” Priest said. “We continue to look for ways to make it less challenging,” which includes finding ways to adjust the tariffs without raising duty rates.
5. Permanent Footwear Tariff Reduction
Footwear is largely tied to duty savings programs that can time out and leave businesses in a bind, so the search is on to secure lasting footwear trade policies. There’s been talk about reviving the Affordable Footwear Act, which could eliminate duties on children’s shoes, or other similarly concrete acts.
“We think permanency is the future of footwear trade policy,” Priest said. Footwear companies banking on GSP for duty savings have at times found themselves suddenly paying duties on imports when the program expires. “That’s not the foundation for which we think tariff reduction should take place. It shouldn’t be at the whim of a Congress that’s focused on 10,000 other things in a political year.”