Shoes and Pricing - A Factor You Probably Never Thought About

Ever wonder why a plain looking pair of shoes cost more than the fancier looking one? Is it that the “no-frills” sandal offers a more “classic” and “elegant” look than the decorative one?

Well… not necessarily… Oddly enough, depending on the classification, i.e., the tariff number, of the shoe in question, the duty rate can go from a mere six percent (6%) to that of thirty-seven point five percent (37.5%) (and this is the rate for imports from countries that we have good trade relations with - it is 66% if being imported from others – ouch!)

On a $100 pair of shoes, that is the difference in the shoe costing $106 versus $137, which as an aside, can really add up given that here in NYC, we used to have a provision on apparel that it was tax-free so long as it was under $110.

That means that a pair of shoes for $106 really did cost that much, so just escaping having to pay tax made a difference. While a $25 difference in price may not break the bank however, the shoe at $137 really translates into a total cost of nearly $149 once you add on the tax.

Simply put, importing a shoe with a lower duty rate is better for both the importer (greater chance of selling the shoe) and the consumer (cheaper price – you hope anyway!)

So why would a plain sandal cost less anyway?

This is because while the material of a shoe, i.e., of leather, versus plastic, or a rubber/plastic combination, etc., plays a role in determining its tariff classification and the rate of duty, so does the amount of this material across the surface area of the “upper” part of the shoe, which in everyday language means, the top part of the shoe, for all intents and purposes.

US Customs measures the external surface area of the upper as the surface you see covering the foot when the shoe is worn. [US Customs Treasury Decision (T.D. 93-88)]

In general, the external surface area of the upper (ESAU) for footwear classification is taken to be the constituent material having the greatest external surface area, no account being taken of accessories or reinforcements such as ankle patches, edging, ornamentation, buckles, tabs, eyelet stays or similar attachments. [Chapter 64, Note 4(a) of HTSUS]

Many factors are considered when making an ESAU determination for footwear with uppers consisting of different materials. [NY J81564, 3/26/03] For example, the type and construction of the shoe, the completeness and visibility of the materials, its plausibility, and the manner in which ornaments are attached, are among the considerations to be weighed. [NY J81564, 3/26/03]

Customs has found that in the case of footwear for which the upper consists of two or more materials, where a material clearly constitutes a significant portion of the ESAU, then it is considered more than a mere accessory or reinforcement. [HQ 085381, 11/21/89]

Customs has further found that when material in the upper is neither an accessory nor reinforcement, it is considered a part of the constituent material of the upper external area. [HQ 081646, 3/27/89]

All of these factors can lead Customs to conclude that footwear is correctly classified under the tariff number that corresponds to a high rate of duty.

Questions/comments? Post below or email me at clark.deanna@gmail.com