U.S. Customs and Border Protection (CBP) has ruled that some plastic hangers can be classified separately from garments to save duty costs on imports.
But Elise Shibles, an attorney at Sandler, Travis & Rosenberg (STR), a law firm that specializes in international trade, warned that importers should be careful in utilizing this method.
While the separate classification carries a 3 percent duty rate—which is much lower than the tariff for less substantial and less expensive hangers that are classified as packaging material and subject to the same duty rate as the garments they accompany—a new rule could soon change that.
The duty rate for the sturdier hangers imported from China is currently 13 percent, Shibles pointed out in the STR trade report. But under the Section 301 additional tariff imposed in late 2018, it will increase to 28 percent on March 2 if the U.S. and China are unable to reach an agreement on their negotiations, which could also include an increase in tariffs on apparel and footwear of 25 percent.
However, even a 28 percent duty rate may be lower than the rates applicable to hangers classified with their associated garments. As a result, Shibles said importers may have a financial incentive to classify hangers separate from garments.
In doing so, however, importers need to take some immediate steps, including implementing a program to trace and document the origin of the hangers. That’s because importing garments from Asia while asserting a non-China origin for the hangers is likely to raise the risk of review by CBP to ensure any applicable Section 301 tariff is being paid.
Importers should also perform a cost-benefit analysis on the duty rate for the garments, the duty rate for the hangers and the cost of utilizing different types of hangers to reduce duty impact.
With all that in mind, Shibles added that using sturdy hangers and classifying them separately from apparel can still offer cost savings despite the Section 301 tariff if strategically implemented.