Contributors

Eric P. Weiss

Principal

Tariffs have long been used to regulate trade. Companies seek ways to reduce costs, including "tariff engineering"—modifying products to qualify for lower tariffs. While legal, improper execution can lead to severe penalties, as seen in Ford Motor Company’s recent case.

More recently, as the Trump administration plans to slap a flat-rate 25% tax on all imports coming into the U.S., tariff engineering will be of little use. However, things change quickly these days, so considering how tariff engineering – done legally – can be used to reduce costs is worth considering.

How tariffs work

Importers pay tariffs to U.S. Customs and Border Protection (CBP) upon entry. Tariffs are based on three factors:

1. Classification: The Harmonized Tariff Schedule (HTSUS) assigns tariff rates based on product type.
2. Country of Origin: Determined by where the product was made or substantially transformed.
3. Valuation: Used to calculate applicable duties and fees.

What Is tariff engineering?

Tariff engineering involves altering a product’s design to fit a classification with lower tariffs. This could mean modifying materials, assembly, or components. Courts have upheld that merchandise is classifiable "as imported," allowing legitimate tariff engineering. However, deceptive modifications meant solely to evade duties may be illegal.

Legal basis

Since the 1892 case Merritt v. Welsh, courts have upheld that importers may modify products to secure lower duties, provided they do not engage in fraud. Subsequent rulings reaffirm that a product’s classification is based on its condition at importation, barring deception.

Ford Motor Company case

Ford imported its Transit Connect vans with temporary rear seats to classify them as passenger vehicles (2.5% duty) rather than cargo vans (25% duty). CBP deemed this deceptive. The Court of International Trade sided with Ford, citing the principle of tariff engineering. However, the Court of Appeals reversed, focusing on the vehicle’s intended use. Ford ultimately settled for $365 million.

Key takeaways

• Tariff engineering is legal but must be transparent.
• Courts classify goods based on their imported condition.
• Deceptive modifications risk legal and financial penalties.
• Importers should seek CBP rulings for compliance.

By understanding tariff laws and engineering strategies, companies can legally minimize costs while avoiding regulatory scrutiny.

This article was written for Getting to Go, a buy/sell newsletter from Scali Rasmussen.