CFA Seminar Covers 'Tariff Engineering'
Apparel quotas may be going away in 2005, but tariffs and duties will still be around.
At a Sept. 21 seminar organized by the California Fashion Association and held in downtown Los Angeles, clothing makers learned they can reduce tariffs by designing intelligently or using fabrics that qualify for duty reductions.
Robert Krieger, president of Norman Krieger Inc., a Los Angeles customs broker and freight forwarder, noted there were ways to restructure a knitted cotton jacket to reduce a tariff from 15.9 percent to 7.1 percent. It’s called “tariff engineering.”
He explained designers could make the jacket reversible with a woven nylon interior that is water-resistant, qualifying the item for a category that is subject only to a 7.1 percent tariff.
“This illustrates in just one way [that] you can tariff engineer a product and do it legally,” Krieger explained. “We recommend doing this before you import the item.”
Los Angeles customs attorney Richard Wortman, who works for Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, suggested that apparel importers check the various tariff tables for apparel categories at the U.S. Customs & Border Protection Web site, www.cbp.gov, to establish how to engineer products for better tariff terms.
Krieger and Wortman recommended that importers dealing with buying agents overseas have a written agreement in place stating the terms of the business deal.
The agent’s commission should be reasonable and usual, Krieger said, noting that most agents’ fees range from 5 percent to 8 percent. Anything above 10 percent is suspect, he said, because customs officials will believe importers are trying to hide part of the apparel’s cost in the agent’s fee to avoid paying tariffs on the full cost of the goods.
“Customs believes that an agent can operate at 3 percent, and we all know that is not true,” Wortman said. “But the reality is that the normal range of 5 to 7 to 8 percent is fine. But when you get to 10, you’re dead.”
The pair also talked about the importance of establishing a wholesale price before bringing garments into the country, particularly for late shipments that will need to be rushed through during the Holiday season.
“Many of us recognize that the value of the product decreases to you if the shipment is late,” Krieger said. “If the shipment leaves late and there is nothing done prior to that, the paperwork turns up and the garment is listed as $10. If the price has not been renegotiated prior to export, customs doesn’t care. They want their pound of flesh.”
Krieger suggested apparel makers negotiate price terms in their letters of credit. For example, if goods are delivered on time, the price is $10 per unit. If they are late, the price is $5 a unit. That way tariffs are calculated on the $5 price rather than the $10 price tag. —Deborah Belgum
