$40 Million in Import Taxes Just Got the Boot
Collaborative advocacy by OIA and several competitive footwear brands, including Danner, Columbia and KEEN led to significant savings for the entire category and countless companies.
Import duties on outdoor footwear manufactured abroad can be as high as 37.5 percent—high enough to dissuade some brands from putting their best ideas on the market, because they’d be prohibitively expensive to produce and sell. But thanks to a coordinated effort between Outdoor Industry Association and footwear brands in the industry, several Miscellaneous Tariff Bill (MTB) petitions pertaining to footwear have been approved by the U.S. International Trade Commission (ITC), potentially saving the industry millions of dollars over the next three years.
By focusing on footwear with waterproof, breathable liners and working closely with domestic manufacturers to head off any objections at the outset, members of Outdoor Industry Association’s Trade Advisory Council were able to get 10 footwear-related MTB petitions approved, some of which reduced import duties from 37.5 percent to 0.
“Tariffs are taxes by another name,” said Rich Harper, international trade manager for Outdoor Industry Association. “Reducing taxes on those products helps members develop and grow their businesses and lower costs openly for themselves and outdoor consumers.”
Want to know how your company can take advantage of these MTB savings immediately? Reach out to OIA International Trade Manager Rich Harper
TWO CRITERIA FOR MTBs
MTBs are a way for American companies that import raw materials or finished goods to temporarily suspend or reduce their tariff obligations on some imports. There are two main criteria for MTB petitions:
- There is no domestic manufacturing of that particular product, and
- When applied, the MTB should not result in more than $500,000 in lost revenue to the U.S. Treasury.
To meet those criteria and to be successful, petitions for MTBs must be extremely specific.
For example, it’s not enough to request for a duty reduction on “waterproof footwear for men.” One MTB, Sec. 1267, crafted by Columbia VP of Global Customs and Trade Jeff Tooze, specified “protective active footwear for men (except footwear with waterproof molded bottoms, including bottoms comprising an outer sole and all or part of the upper except footwear with insulation that provides protection against cold weather) whose height from the bottom of the outer sole to the top of the upper does not exceed 15.34 cm.”
HIKING THE MTB ROAD—GOING FURTHER, TOGETHER
The last round of MTB duty reductions expired in 2012. Congress didn’t pass new regulations regarding the procedures until 2016 (see infographic), at which point Outdoor Industry Association’s Trade Advisory Council started working on drafts of petitions for 2018, 2019 and 2020 exceptions. In all, OIA and member brands filed 23 footwear-related MTB petitions. In fall 2018, 10 of them went into effect.
To get these petitions through the International Trade Commission’s approval process, brands had to show they wouldn’t create a competitive disadvantage for domestic manufacturers. Starting early in the process, members began talking with Rubber and Plastics Footwear Manufacturing Association (RPFMA), a trade group for domestically-produced footwear, and companies that manufacture footwear stateside.
“After I understood what kinds of footwear didn’t have domestic industry objections, I felt I could write something detailed enough to meet the [criteria] and help our company and the industry as a whole,” said Quinn O’Rourke, Danner’s director of compliance and logistics. O’Rourke had previously worked on MTBs with the Trade Advisory Council in 2012. He wrote two MTB petitions for this round that saved Danner money on work boots imported from overseas.
Once MTB petitions are submitted to the ITC, there’s a public comment period during which interested parties—such as domestic competitors—can object to tariff reductions they believe would be unfair. During the public comment period, members of OIA’s Trade Advisory Council reached out directly to companies that commented to seek a compromise that would neither kill the MTB nor hurt the domestic competitor, Harper said.
“Early on, we had an open dialogue,” Tooze said. “We’d write some language and send it to the [RPFMA], who’d look at it and provide feedback. Then we’d respond strategically to their specific objections, for example: ‘OK, what if we put a height restriction in there?’”
Tooze worked on four MTB petitions but said Columbia was ultimately able to apply a couple additional MTBs that another company wrote. Columbia’s savings so far are “significant in that in this particular product category, it gives us the opportunity to introduce these products into the market and invest in further innovation,” Tooze said.
Sara Bowersox, global compliance manager of KEEN, worked on two MTB petitions. She began by researching the tariff codes that affected KEEN’s products most significantly. Then she tried to identify a few specific areas to focus on. Bowersox’s goal wasn’t to get duty-free status for 100 percent of KEEN’s imported footwear, but rather to give KEEN a “boost” in terms of the savings MTBs could provide. She also wanted her work to benefit other brands in the outdoor industry, as use of MTBs is not restricted to those that write the petitions. She was aiming to help the broadest set of brands possible.
KEEN was in a somewhat unique position as a brand that both imports footwear and produces it domestically, so Bowersox said she was sort of playing “on both sides of the fence.”
“I detected a few things that represented key KEEN products and tried to put together MTB language that would support those KEEN products but that was also broad enough that other brands would be able to use it to their advantage, as well,” Bowersox said.
Creating MTB petitions isn’t something that KEEN would have been able to do on its own, she added, but with the support of OIA and other brands, the company was able to file two on behalf of the industry.
It’s estimated that industry brands pay roughly $750 million each year on import tariffs, he said. If the current round of MTBs yields as much in savings for the outdoor industry as previous rounds, it could result in an additional $40 million being redirected to innovation, jobs, and savings to the consumer—overall, roughly a 5 percent reduction in total duties owed.
Bowersox said KEEN saved more than $100,000 on tariffs from October 2018 through the end of the year. She expects the company to save somewhere in the realm of $500,000 in 2019 by applying several of the 10 footwear MTBs. She’s not sure yet exactly how KEEN will use the savings, but she anticipates the funds will benefit research and development.
O’Rourke agrees. “MTBs do reduce duties and can allow a company to reduce or maintain prices, but they also open opportunities for product development and customer experience that previously wouldn’t have existed,” he said.
That’s a huge part of the reason OIA has worked so hard on getting MTBs passed, Harper said. It’s estimated that industry brands pay roughly $750 million each year on import tariffs, he said. If the current round of MTBs yields as much in savings for the outdoor industry as previous rounds, it could result in an additional $40 million being redirected to innovation, jobs, and savings to the consumer—overall, roughly a 5 percent reduction in total duties owed.
“The duty savings were immediate, so then could take those savings and help lower costs, help develop new products, or help create new jobs,” Harper said of the last round of MTBs.
PREPARING FOR A SECOND ROUND
MTBs expire every third year, when companies have to re-petition for new exceptions. That makes it tricky to design products that will qualify for tariff reductions. KEEN, for example, is already finalizing spring 2020 products, Bowersox said, and these MTBs will expire at the end of that year.
“Our goal is to make KEEN footwear, and we’re going to make whatever innovative, productive, crazy footwear we want to make, and if we can apply an MTB to it, great,” Bowersox said. “But we’re not going to aim at those empty buckets and only make shoes that make those narrow, prescriptive features.”
The next round of MTBs affects imports for 2021, 2022, and 2023. Harper said the Trade Advisory Council will analyze the proposed MTBs from this previous round of petitions to determine what was successful and what they could improve in those that failed. His hope is that OIA members can get reapproval for existing tariff reductions and suspensions and also improve previously denied petitions to get more products added to the next round of MTBs. The OIA Trade Advisory Council will continue to work with domestic manufacturers to ensure no proposed petitions impact products made here in the U.S.
O’Rourke, Bowersox, and Tooze all said they plan to write MTBs for the next round. O’Rourke said he’ll likely try to write more next time around and work even more closely with domestic manufacturers.
“My primary lesson learned was to continuously reach out to the domestic industry to make sure permission that was previously obtained hasn’t changed,” he said.