When the Wall Street Journal profiled our firm’s approach to tariff reduction, we expected calls. What we did not expect was how many companies would read “aboveboard playbook” and assume it meant we could diagnose their tariff exposure in an hour and hand them a fix they could use tomorrow.
That is not how tariff reduction works. Not if you want it to be legal, defensible, and durable.
The Tariff Bill System: What Drives Your Duty Spend
Tariffs are the symptom. Your tariff bill is the output of a system. To change the bill, you have to audit the parts.
Classification. Are you using the right HTS codes?
Customs valuation. Are you declaring transaction value correctly and consistently?
Origin. Are you applying the correct country-of-origin rules and maintaining the documentation to prove them?
Commercial terms. Do your Incoterms and contracts match what actually happens in the real world?
Side payments. Are tooling, molds, assists, royalties, engineering, and R&D handled and documented properly?
Records. Can you prove your position with invoices, payment trails, and supplier documentation years later?
Change one part and the answer can change.
The Wall Street Journal profile touched on a few of these levers. What it could not do in a short excerpt is explain how fact-specific and document-dependent the analysis becomes once you move from general ideas to an audit-defensible approach.
What the Wall Street Journal Highlighted and What It Did Not Have Space to Explain
The article used examples that resonate because they are common: recurring charges tied to production (like mold or tooling fees) can push up declared value and, therefore, duties. In some situations, companies may be able to restructure and document those costs differently. The article also noted other levers that can apply in the right fact pattern, such as properly handling transportation costs and separating truly general R&D from product-specific R&D.
The missing context is the part that matters most: applying those tools is a precision exercise. The right answer depends on your contracts, your payment flows, what your invoices actually show, and what your suppliers can prove on paper later. That is why a single hour is rarely enough to “solve” anything.
Why There Are No One-Size-Fits-All Tariff Solutions
Most “tariff reduction” conversations start with a tactic. They should start with facts.
Two companies can sell the same product, from the same country, at the same unit price, and still have different duty exposure because their terms, side payments, and documentation are different. The same cost can be treated differently across two supply chains because the underlying contracts, invoices, and payment trails are different. And the same position can be defensible for one importer and indefensible for another solely because the paper trail is better.
If you want a quick rule of thumb, here it is: if you cannot explain your valuation position clearly and support it with clean documents, you do not have a tariff strategy.
How These Tariff Problems Show Up in Real Life
The fastest way to understand why there is no universal playbook is to look at how these issues show up in practice. The pattern is consistent: the importer thinks the situation is simple, but the documents tell a different story.
Embedded costs are the most common trap. Importers often overpay because the commercial reality and the paper trail do not match what they think they bought. A common example is tooling or molds that everyone treats as a “one-time fee,” but the invoices show the cost being recovered through the per-unit price. The importer declares the unit price, pays duty on it, and does not realize that part of that unit price is really embedded tooling. Fixing that going forward may require separating the payment stream, rewriting contract language, and making sure future invoices support the new structure. It is not something you can fix retroactively by simply deciding to “declare it differently.”
Freight and inland charges trip up even experienced importers. Many assume they can deduct freight because they have heard that “freight is excludable.” Sometimes it is. Sometimes it is not. The answer can turn on whether the deal is structured Ex Works, FOB, or something else, who is actually responsible for the charge under the contract, and whether the charges are truly separate from the price paid or payable for the merchandise. If your terms say one thing, your invoices show another, and your payments do a third, the neat theory breaks.
Royalties and license fees also surprise companies. An importer will say, “The royalty is for the brand, not the product.” CBP may still focus on whether the royalty is related to the imported merchandise and whether it is a condition of sale for export to the United States. Many companies discover the hard way that the contract language they used for business reasons creates a valuation issue they did not anticipate. Fixing it may require changes to agreements and payment terms, not just a different entry declaration.
R&D and engineering costs create trouble because the boundary is not intuitive. Companies often assume that if a cost is labeled “R&D,” it must be non-dutiable. The relevant questions are whether the cost is actually tied to the imported product, how it is scoped, how it is invoiced, and how it is recorded. Some costs are truly general. Others are effectively product-specific development embedded in the commercial arrangement. If you cannot separate the two on paper, you usually cannot separate them at the border. In 2025, we drafted more R&D agreements than we likely did in the entire prior decade.
All of these examples lead to the same conclusion: tariff work is rarely about finding a clever method. It is about aligning facts, contracts, invoices, and records so the valuation position is both correct and defensible.
A Concrete Case Study: Why “This Should Be Easy” Often Is Not
To make this more tangible, here is a composite example based on the kinds of situations we regularly see.
A medical device manufacturer had been importing a molded product from an Asian supplier for years at a stated unit price. When tariffs increased, the CFO asked a reasonable question: can we legally reduce the declared value?
We started where this analysis always starts: purchase orders, invoices, and any side agreements. The documents showed a per-unit charge that was not truly part of the product cost. It was recovery of dedicated production costs that the factory had embedded into the unit price over a projected production run.
The finance team thought of that cost as a separate business expense being reimbursed over time. The invoices treated it as part of the price per unit. And because the importer was declaring the full unit price to CBP, they were paying duty on that embedded component as well.
At that point, there was no legitimate “quick fix.” You cannot simply declare a lower value because you believe part of the unit price should have been handled differently. If you want a cleaner, more defensible position going forward, you typically need to restructure the deal in a way the documents can support. That can mean separating the payment stream into a clearly documented transaction, updating contract language so it matches what is actually happening, and aligning invoices and accounting treatment so the new structure is consistent and auditable.
The important point is not the tactic. It is the process. Even when a restructuring is possible, it is a multi-step project that requires coordination with the supplier, changes to documentation, and an audit trail that will still make sense to a CBP auditor years later. That is why “can you fix this in an hour?” is usually the wrong question. The right question is whether the facts can be improved and documented in a way that will survive scrutiny.
The Email That Captures What These Tariff Conversations Look Like
Our lead international trade attorney, Adams Lee, recently sent an email to a client that captures what these conversations actually look like. I am including it here not because it is dramatic, but because it is typical, and it shows why most tariff reduction work succeeds or fails on documentation, not creativity.
Hi [Name],
I’m happy to help with questions about appropriate valuation methods when dealing with CBP entry declarations.
With tariffs where they are, many importers are understandably looking for lawful ways to reduce entered value and, in turn, reduce their tariff exposure. The key is that some approaches are clearly permitted, while others move quickly into gray territory, and CBP tends to focus on whether the position is supported by the underlying contracts and documentation.
A few examples:
Foreign inland freight and other inland charges may be excludable when the sale is truly Ex Works and those charges are separately incurred and documented by the buyer. If the sales terms are FOB (China port), however, foreign inland freight is typically part of the transaction value and should be included.
R&D is similar. If R&D is specifically related to the product then those costs should be included in the transaction value. Some pharmaceutical companies have been able to separate general “blue sky” R&D that is general and does not apply specifically to any product, from R&D that is specifically booked towards a particular product or product line.
Royalties or other license fees that are related to the merchandise and must be paid as a condition of the sale should be included in transaction value. If such fees are not a necessary condition for the US sale, then you can exclude it.
As to the scrap value, it would probably depend on how the manufacturer is booking its cost. In your example, if the factory bought 100 pieces, but only was able to use 98 pieces, the factory incurred a total cost for 100 pieces, so the cost for the 98 units that were able to be produced would have a cost for the pieces based on the 100 purchased. Unless the factory is able to show that it actually booked its cost based on the 98 pieces it used to produce the finished goods, and that the cost of the two defective pieces was booked somewhere else not related to the cost of production, then it seems like the transaction value should be based on the cost for the 100 pieces. I get the logic of why some importers might want to shave the cost down, but I think this method is risky because I doubt the foreign supplier would be able to provide any supporting documents to justify such a valuation if and when CBP challenges that valuation.
In dealing with these valuation issues, I’m often telling importers “no” or “can’t do that” which is frustrating to some importers because they are hearing that their competitors are doing the same thing and seem to be getting away with it. If you are going 60 mph in a 55 mph zone you are still speeding and could still get pulled over, but are you more likely to be pulled over than someone going 100 mph? So I can help importers figure out where CBP has drawn the line in prior cases on acceptable and unacceptable valuations and help them figure out the risk factors to weigh in deciding how aggressive they might want to be in their valuations.
If you’d like, send me the relevant incoterms, invoices, and any side agreements (royalties, tooling and molds, R&D and engineering, services), and I can give you a more grounded view of what is defensible for your specific fact pattern.
Regards,
Adams
What You Should Expect From an Initial Tariff Call
A short introductory call can be useful. It lets us understand, at a high level, what you import, where it is made, how you are currently declaring value, and where you think the pain is. It is triage.
A one-hour consultation can often give you a genuine initial roadmap: the likely levers, the likely landmines, and what we would need to review to reach defensible answers. But if you want conclusions you can live with in an audit, one hour is usually the beginning of the process, not the end.
What We Typically Review Before Recommending a Tariff Strategy
Before we recommend a valuation approach or a tariff reduction plan you can rely on, we typically need a baseline set of materials. That starts with your product list and the HTS codes you are currently using. From there, we need your purchase orders, invoices, Incoterms, and payment terms, basically the commercial paper trail. Then we look at every payment stream that sits outside the invoice: tooling, molds, royalties, engineering, R&D, and service fees. If there are license agreements or related-party relationships, we need to understand those as well. And finally, we need to know what records your suppliers can actually produce to support the position you want to take, because a theory that depends on documents your supplier cannot or will not provide is not a theory at all.
Once we have that, we can tell you what is defensible, what is risky, what is not worth attempting, and what changes would be required to support a better outcome.
If you want to discuss your situation, request a short triage call with our international trade team. If we are not the right fit, we will tell you quickly and point you in the right direction.
Tariff Reduction and Valuation: Frequently Asked Questions
1. What should we do right now if we think we have a valuation problem?
Stop guessing and do not start “trying things” at the border. Before changing how you declare value, gather your commercial paper trail: purchase orders, invoices, Incoterms, payment terms, and all side agreements and side payments. Then identify who inside your company owns classification, valuation, and supplier communications so your story stays consistent. A valuation strategy is only as strong as the documents that support it.
2. How long does a tariff reduction project typically take?
It depends on the scope. A focused classification or documentation cleanup can sometimes be done in a few weeks. A valuation restructuring that requires contract amendments, invoice changes, and supplier coordination often takes one to three months. The timeline is rarely about legal analysis alone. It is about building a durable audit trail that will still hold up years from now.
3. Can you tell me in a short triage call whether we are overpaying tariffs?
Often, yes, at least at a high level. A short call is usually enough to spot obvious red flags and identify likely levers. But a triage call is not a substitute for reviewing the underlying documents, and it is not a formal legal opinion or a “blessed” valuation position.
4. Are tooling and mold costs dutiable?
Sometimes. It depends on who owns the tooling, how it is paid for, how it is reflected in pricing, and what the documents show. If the supplier owns the tooling and recoups the cost through per-unit pricing, CBP may treat that embedded cost as part of the dutiable value. If the importer purchases tooling separately under a clean, documented transaction (even if the supplier physically holds it), the analysis may change, but only if ownership, payment, timing, and invoicing are consistent and supportable. The paperwork controls.
5. When are royalties and license fees dutiable?
The core questions are whether the fee is related to the imported merchandise and whether it must be paid as a condition of sale for export to the United States. In practice, this often turns on contract language and real-world conduct. If you can only buy the product if you pay the royalty, CBP is more likely to view it as dutiable. If the royalty is genuinely separate from the sale of the imported goods, it may be excludable, but both the contracts and actual business practice matter.
6. Can we exclude freight, insurance, or inland charges from customs value?
Sometimes, but it depends on your Incoterms and what actually happens in practice. If your terms are truly Ex Works and you separately arrange and pay for inland freight, those charges may be excludable if properly documented. A common mistake is having Ex Works terms on paper while the supplier actually arranges the freight, pays the carrier, and invoices you for reimbursement. When that happens, CBP may treat the freight as part of transaction value regardless of what the Incoterms say.
7. Can we exclude R&D or engineering costs from customs value?
It depends on whether the costs are truly general or specifically tied to the imported product. Some companies can separate “blue sky” R&D from product-specific work, but if you cannot separate the two in your accounting records, invoices, and agreements, you usually cannot separate them at the border.
8. Are there ways to reduce tariffs without moving production?
Yes. Many companies overpay not because their supply chain is wrong, but because their classification, valuation practices, and documentation are inconsistent or incomplete. Lawful savings often come from fixing misclassifications, addressing embedded side payments, tightening contracts and invoicing, and improving recordkeeping. You are not necessarily changing what you buy. You are aligning how the commercial relationship is structured and documented with what CBP expects to see.
9. Can we fix past entries, or only future imports?
Sometimes you can address past entries through protests (if timely) or CBP’s prior disclosure process when errors are discovered. But most sustainable improvements are prospective because they require changing contracts, invoicing, and payment structures. If historical documents do not support a different valuation approach, attempting to re-characterize the past can create more risk, not less.
10. What happens if CBP disagrees with our valuation approach?
At minimum, you may owe back duties plus interest. If CBP believes the issue involves negligence or intentional misstatement, penalties can be substantial, especially when the issue spans multiple entries. In more serious cases, the matter can expand into a broader audit or investigation. The goal is an “audit-proof” position: a clear story supported by clean documents that you can hand to a CBP auditor years later.
11. Does a tariff reduction project always pay for itself?
Not always. Sometimes the numbers do not justify the effort, or the documentation constraints make the risk profile unacceptable. A short triage call is often enough to determine whether there is likely value in going deeper, and if the economics do not work, we will tell you that early.
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