What is tariff engineering?

Tariff engineering refers to the actions that traders sometimes take to reduce the Customs duties they pay on imports into any country.

Tariff engineering can take many forms, such as :

  1. Breaking up shipments into smaller values, to remain within an untaxable bracket
  2. Changing the nature of the products imported, to attract a lower import duty rate
  3. Having the product qualified for some means of import duty exemption

By far, the most common way to do tariff engineering, is to change the nature of the products imported to fall within a lower Customs tax bracket. This works because by changing the nature of the product, the importer can declare a different HS code to Customs authorities. Customs authorities all over the world, use HS codes to determine import duties.

For example, if the import duty rate in a country for cargo vans was 10% while the import duty rate for passenger vans is 5%, a automobile distribution company may decide to install passenger seats into their cargo vans at the time of import. This would allow them to pay 5% duties on their imports. When converting the cargo vans back to passenger vans at an inland location, they would not be required to make up the 5% shortfall in duty.

However, traders should be aware that intentionally making changes like these might be illegal in some countries.

Let us look at another example of a trader doing tariff engineering in order to affect the HS Classification of product.

A manufacturer of metal machine parts may import steel in sheets or plates. This may attract an import duty rate of 10%. However, it may be the case that the import of steel in strips attracts a duty rate of 5%. If the manufacturer is able to make the switch and accept the material in stripes instead of as plates, he or she would save 5% on import duties.

The above example is generally a more acceptable way of doing tariff engineering and unlikely to run afoul of the law in any country.

Another way to do tariff engineering by changing the HS code declared to Customs for import, is to convince Customs to allow the importer to use a different HS code altogether. This is usually possible through the application of an advanced classification ruling, but only if the importer has a very strong case to present. For example, the importer may have been importing gym machines as industrial machinery into a country that taxes such items with 10% of import duty. However, the country may also tax personal equipment under 5% of duty. If the importer were to successfully make a ruling application to Customs to be allowed to import the gym machinery as personal equipment, then the importer would be able to save 5% of duty.

A final word:

The concept of tariff engineering has gained ill repute in the world of trade compliance due to bad actors making dodgy decisions to save money. However, there are several legitimate ways to use tariff engineering to reduce import duties without break the law. When in doubt it is always best to reach out to an experienced trade compliance professional for guidance.

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