Tariff engineering

Tariff engineering refers to design, sourcing, and manufacturing decisions made primarily so that the manufactured good is classified at a lower rate for tariffs than it would have been absent those decisions. Tariff avoidance is a loophole whereby an importer pays a lower tariff by changing the intended import such that the importer has a lesser tariff burden. In contrast to illegal tariff evasion, legal tariff engineering configures the design, material, or construction to legally achieve the desired classification rather than illegally misclassifying the product or good. For tariff engineering to be legal, the good being imported must be a "commercial reality", which means any tariff engineering must be a "genuine step in the manufacturing process" or have a commercial use or identity as imported. The rule of commercial reality limits manufacturers in the ways that they attempt to use tariff engineering, by requiring that the features used for tariff engineering purposes must not be removed shortly after importing but must be sold with those features or be used as part of a legitimate manufacturing process.

Tariff engineering refers to design, sourcing, and manufacturing decisions made primarily so that the manufactured good is classified at a lower rate for tariffs than it would have been absent those decisions. Tariff avoidance is a loophole whereby an importer pays a lower tariff by changing the intended import such that the importer has a lesser tariff burden. In contrast to illegal tariff evasion, legal tariff engineering configures the design, material, or construction to legally achieve the desired classification rather than illegally misclassifying the product or good. For tariff engineering to be legal, the good being imported must be a "commercial reality", which means any tariff engineering must be a "genuine step in the manufacturing process" or have a commercial use or identity as imported. The rule of commercial reality limits manufacturers in the ways that they attempt to use tariff engineering, by requiring that the features used for tariff engineering purposes must not be removed shortly after importing but must be sold with those features or be used as part of a legitimate manufacturing process.

In US law

Tariff engineering was validated following the 1881 United States Supreme Court case of Merritt v. Welsh, which dealt with the classification of imported sugar. In this case, the importer added molasses to highly refined sugar which darkened the sugar's color. At that time, the tariff classification for sugar was based on the Dutch standard color, which generally corresponded to actual sugar quality. The Port of New York performed a chemical analysis and determined if molasses had been intentionally added to the sugar for the purpose of reclassification on the tariff schedule. After having found that molasses had been added, the Port of New York applied the higher rate of tariff. The United States Supreme Court found that even though the molasses was added, Congress had clearly stated that the test to be used was the Dutch standard test, and not any other chemical analysis. Thus, the Port of New York was obligated to classify the sugar based solely on the Dutch standard color and must only charge the lower rate of tariff. In explaining his position, Justice Matthews wrote for the majority, "Great stress is laid on the charge that sugars are manufactured in dark colors on purpose to evade our duties. Suppose this is true; 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."

See also

Repatriation tax avoidance Base erosion and profit shifting

References

Text derived from https://en.wikipedia.org/w/index.php?oldid=1343413040 under CC BY-SA 4.0; modifications have been made.