What are the below two pictures of? If you said ‘trainers’ and an action figure of a ‘human’, from a tax perspective you’d be wrong. You’re looking slippers and an action figure of a ‘mutant’.

Welcome to the wild world of ‘Tariff Engineering’.

Import tariffs are very different depending on the type of product. But what are the boundaries of one product category and the start of another – with potentially a lower tariff? And can the boundaries be manipulated?

In the first example, Converse (owned by Nike) put a patented* thin layer of felt on part of the sole of their Converse shoes which technically classifies them as slippers from an import duty perspective. In the US, slippers have a much lower import duty (<5%) than for wholly rubber sole shoes (30%-37.5%).

In the second example, action figures of ‘nonhuman creatures’ had import duties of 7% in the US, whereas those that represent humans had import duties of 12%. In Toy Biz v US (2003) Marvel argued that X-Men (and other Marvel characters) represented ‘mutants’/’superhuman’ characters with a lower tariff. The judge agreed, stating that the action figures ‘might well resemble a human being and not be one”. They went on to state that while they can “use their extraordinary and unnatural powers on the side of either good or evil,” they are nevertheless “something other than human.”

Other examples include:

1.     Ford imported their Cargo Vans from Turkey with temporary rear seats and windows which were then removed in the US when they got through customs. This meant they were ‘passenger vehicles’ at 2.5% import duty, rather than the 25% import duty on Vans**.
2.     Mercedes imported disassembled but fully completed vans to the US. They then assembled these in South Carolina.
3.     Colombia Sportswear designs some of their women’s clothing with very small pockets just below the waist. Because of this, instead of paying 27% import duties they pay just 16%***.