March 5, 2012
Importing footwear with a rubber or plastic outsoles can be costly for importers, with duty rates as high as 37.5%, or more, in some cases. Ingenious footwear importers and suppliers, however, discovered that if they overlay the rubber or plastic outer sole with a textile fabric, flock, or mesh, the tariff classification changes from Heading 6402 or 6404 to heading 6405, which has significant duty implications. Importers that were able to devise a way to have their footwear classified in heading 6405 were able to achieve significant reduction in import duties. This practice is known as “tariff engineering” and can have application throughout the tariff but mostly in the footwear and apparel provisions.
In October of 2011 President Obama signed Presidential Proclamation 8742, which among other items, added Additional U.S. Note 5 (“Note 5”) to Chapter 64 (the footwear chapter) of the Harmonized Tariff Schedule of the United States (HTSUS); thereby changing the tariff classification and possibly the duty rates for certain footwear with a textile layer or material applied at the outer sole.
In general, imports of footwear into the United States are classified in HTS chapter 64, with headings 6401 through 6405 categorizing footwear according to the constituent material of the outer sole and that of the uppers. Heading 6405 covers “other footwear” not described in the first four headings of chapter 64.
Other physical characteristics, such as whether the footwear is waterproof or covers the ankle, determine narrower product groupings at the 6-digit HTS level, and still other features are specified at the U.S. tariff rate line or 8-digit level.
Duty rates on footwear range from free to 48% ad valorem. Many tariff rate lines for footwear with outer soles of rubber or plastics have duty rates of 37.5% or 90 cents per pair plus 37.5%. However, footwear with outer soles of textile materials generally fall in heading 6405, with rates that range from 2.5% to 12.5%.
Over the past several years Customs and Border Protection (CBP) has issued a number of rulings holding that a textile material applied to the surface of an outer sole otherwise made of rubber or plastics is considered the determinative constituent material under Note 4(b) to Chapter 64 of the HTS when the textile material covers the majority of the outer sole that is in contact with the ground. Note 4(b) provides that the constituent materials of the outer sole shall be the material having the greatest surface area in contact with the ground, no account being taken of accessories or reinforcement such as pikes, bars, nails, protectors, or similar attachments.
CBP has, however, expressed a number of concerns both about the tariff rate outcome and the difficultly of determining whether footwear with a textile covering over the rubber or plastic outsole should be classified under heading 6405. As a result, the United States presented the matter as a request to the World Customs Organization’s Harmonized Schedule Committee (WCO). Following its review, the WCO added a note in the Explanatory Notes which states: “a detachable textile material, applied to but not embedded in the sole” was to be disregarded in determining the constituent materials of the outer sole. Still unhappy with this, CBP obtained in the 2012 Tariff U.S. Additional Note 5 which provides:
For the purposes of determining the constituent material of the outer sole pursuant to Note 4(b) to this Chapter, no account shall be taken of textile materials which do not possess the characteristics usually required for normal use of an outer sole, including durability and strength.
The practical implication of this note is that many footwear products with textile outer soles may no longer be classified in heading 6405. We say “may” because CBP is still working on how the phrase “characteristics usually required for normal use of an outer sole, including durability and strength” should be interpreted. CBP requested input from the trade community be submitted by February 22, 2012 as to how the phrase “characteristics usually required for normal use of an outer sole, including durability and strength” should be interpreted, whether laboratory testing procedures should be used to make this determination, and the appropriate testing procedures to adapt. CBP stated that after review of the comments it will decide how best to proceed.
What Should Importers Of Footwear With Textile Outer Soles Do?
The 2012 HTSUS now includes twenty new 8-digit tariff rate lines for footwear that, in the view of the Treasury Department, would be reclassified from heading 6405 into headings 6402 and 6404 by virtue of the new additional U.S. note.
The Treasury Department indicated that these changes relating to “footwear featuring outer soles of rubber and plastics with a layer of textile material added to the surface area of the outer sole will promote, in a rate neutral manner, uniform application of the Harmonized System Convention while mitigating the administrative burden” of determining whether or not the footwear is classified under heading 6405. The new 2012 footwear classifications are:
These classifications apply to footwear with rubber or plastic outer soles covered with a textile material having the greatest surface area in contact with the ground, but not taken into account under the terms of additional U.S. note 5 to chapter 64 because the textile material does not possess the characteristics usually required for normal use of an outer sole, including durability and strength.
Footwear with a textile layer or material applied to the outer sole benefiting from the reduced rate may the reclassified at higher duty rates or at approximately the same duty rate.
The Ports of San Francisco and Long Beach have indicated that they are reviewing entries of footwear classified under HTS 6405 and submitting them on a case-by-case basis to the National Commodity Specialist Division in New York for advice. The Port of New York is not accepting ruling requests at this time pending the publication of the guidelines regarding Note 5(B).
An importer’s obligation is to exercise reasonable care in classifying its goods pending issuance of the guidelines. We recommend that importers evaluate the classification of their products taking into account the language of rule 5(B) and be prepared to submit ruling requests after the issuance of the guidelines.
If you have any questions regarding this issue, please contact Steven Spraitzar at email@example.com or at 415-288-0427 or George Tuttle at firstname.lastname@example.org or at 415-288-0425 at the Law Offices of George R. Tuttle.
Steven Spraitzar and George Tuttle are attorneys with the Law Offices of George R. Tuttle in San Francisco.
The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.
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