Tariff Engineering: Know Your Rights
What is Tariff Engineering?
Tariff engineering is the altering of certain product characteristics to avoid duties.
Is it Legal?
Yes. It has been recognized as a legal right by the United States Supreme Court in Merritt v. Welsh, 104 U.S. 694 (1881):
. . . has not a manufacturer a right to make his goods as he pleases? If they are less marketable, it is his loss; if they are not less marketable, who has a right to complain? If the duties are affected, there is a plain remedy. Congress can always adopt such laws and regulations as it may deem expedient for protecting the interests of the government . . . let it be so declared by the laws; and then the merchant will know on what he has to depend. Uncertainty and ambiguity are the bane of commerce. Discretion in the custom-house officer should be limited as strictly as possible. It has been said with much truth, “Where law ends, tyranny begins.”
The right to conduct tariff engineering is not unlimited. In Ford Motor Co. v. United States, 926 F.3d 741 (Fed. Cir. 2019), the Federal Circuit Court of Appeals ruled that Ford had improperly classified a cargo van as a passenger van to avoid higher duties. Ford put in a specially designed lower cost back seat in the cargo area that was scrapped after importation among other alterations. After entry the vans were manipulated while still in the port to remove the rear seat and footwells. The marketing materials in the U.S. for the vans indicated that they were sold as cargo vans.
What are examples of tariff engineering?
- Placing a pocket in a certain area of a garmet to enjoy a lower tariff rate.
- Importing furniture unassembled and assembling it in the U.S.
- Adding molasses to sugar
Please contact Erik Lieberman at erl@liebermanpllc.com or 202.830.0300 for additional information.