The tariff classification of footwear with a textile outer sole has been a highly contentious issue since such footwear may be subject to duty rates approximately 25% - 35% lower than equivalent footwear with a rubber or plastic outer sole.
On October 31, 2011, President Obama signed Presidential Proclamation 8742, which was published in the Federal Register on November 3, 2011. Among other items, Proclamation 8742 added Additional U.S. Note 5 (“Note 5”) to Chapter 64 (the footwear chapter) in 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 textile material applied at the outer sole.
Note 5 states “For the purposes of determining the constituent material of the outer sole pursuant to note 4(b) of this chapter, no account shall be taken of textile materials that do not possess the characteristics usually required for normal use of an outer sole, including durability and strength.”
Note 5 and the new HTSUS provisions in Chapter 64 will become effective for goods entered on or after December 3, 2011.
As many footwear importers are aware, the new tariff provisions were intended to be rate neutral. In practice, though, we expect the tariff changes to have a variety of impacts depending on the physical characteristics of the goods. For example:
- Footwear with a textile layer or material applied to the outer sole, which is currently benefitting from lower duty rates in the HTSUS, could be reclassified into a new or existing HTSUS provision with higher duty rates;
- Footwear with a textile layer or material applied to the outer sole, which is currently benefitting from lower duty rates in the HTSUS, could be reclassified into a new HTSUS provision with a duty rate that is approximately the same as the old (lower) duty rate; or
- Certain footwear with a textile layer or material applied to the outer sole, which is currently benefitting from lower duty rates in the HTSUS, could remain classified in the exact same HTSUS provision.
Consequently, Note 5 and the new tariff modifications in Chapter 64 raise significant questions for footwear importers: What are the “characteristics usually required for normal use?” What tests will be acceptable to demonstrate the requisite degree of durability and strength? How should importers proceed if they are not certain of the footwear’s tariff classification? How should importers proceed if they disagree with Customs and Border Protection? Discussions with Customs indicate that the Agency itself is still grappling with a number of these issues.
In order to address any questions and meet statutory Reasonable Care requirements, importers have a number of options, including consulting an expert (customs broker, attorney, etc.); meeting with the import specialists at the port; speaking to the National Import Specialist; and, if possible, testing a pre-production or production sample.
We are hopeful that going forward, Customs will issue binding rulings or similar guidance addressing the above issues. However, that is speculative and it may be at least several months before the Agency provides further guidance to the trade on these issues.