Industry Week recently ran yet another “10-step checklist” for those who are planning to offshore production of an existing or new product for the consumer market. While most of the steps mirrored every checklist that came before and contained no new advice, there was golden needle in that bale of hay that I haven’t seen before, and its one that can make or break your offshoring initiative. Step 5, get a binding ruling to determine import duties, is an often overlooked but critical step before you commit to overseas production and packaging. It can literally be the difference between healthy profit and mounting losses.
Not only can one slight difference be the difference between VAT and no-VAT markups on export, but one slight difference in opinion can mean the difference between one classification in the HTS system that carries an import duty of 5% and another classification in the HTS system that carries a duty of 10%. Literally. Consider 6204.19.40 and 6204.19.80 which are both for women’s or girls’ suits of textiles material. In the first case, the duty rate is 1%. In the second, 6.5%. That’s a difference of 5.5%. What’s the difference? In the first case, the suit contains 70% or more by weight of silk or silk waste, in the second case, under 70%. 1% difference in composition can cost you an additional 5.5%. There are hundreds, if not thousands, of other examples where a minor difference in material, packaging, or classification can have a whopping difference on your profitability. So get the ruling first. Otherwise, offshoring might not be as attractive as it looks.
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