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Why is Pharmaceutical Classification so Difficult?

Posted by Jim Conrad

1/27/14 10:49 AM

081116-pharma.pngI’ve always found it interesting that so many healthcare companies that import chemicals and pharmaceuticals have such a difficult time with import compliance. These companies typically have solid regulatory compliance knowledge regarding the FDA, Departments of Agriculture, Consumer Product Safety Commission and many other agencies and have access to chemists and manufacturing product experts. It’s never as easy as it appears.

As a former Director of Operations and a licensed Customs Broker, I understand how difficult it can be to stay on top of changes in the regulations that surround import compliance. The proliferation of trade preference programs offer savings opportunities but require a company to accept significant responsibilities which can be difficult to manage.  All of these programs have a foundation in the accurate classification of imported products.

The pharmaceutical and chemical industries in particular present an easy target for Customs as tariff classification by the importer is often based solely on Material Safety Data Sheets (MSDS). Importers are unaware that these MSDS’s do not generally, by themselves, contain all the necessary information to accurately classify products to the harmonized tariff. Also, chemical invoice requirements are quite specific but are frequently overlooked by importers so available information is often times sparse. A Chemical Abstract Number (CAS) is required to be displayed on the commercial invoice for goods of Chapters 27, 28, and 29.  Additional information is also required for colors, dyes, stains and related products i.e. trade name, identity and weight of components, color index number and other information. 

These missing or inaccurate import data elements are red flags in any Customs assessment. If I can pass on a few words of advice – “know your product”.  At the minimum you should gather the below information.

Classification of Drugs - The Basics

In order to be considered a drug under the harmonized tariff the substance must be:

  1. Therapeutic – used in the healing of a disease
  2. Prophylactic – used in the defense of a disease
  3. Medicine – used in the treatment of a disease as a curative substance

Of course, that’s not the end but the beginning of the questions:

  1. Is the product a separate chemically defined substance?
  2. For use in clinical trials?
  3. Organic or inorganic?
  4. Placebo or contains API?
  5. Pre-clinical trial product? FDA Phase?

Classification of Chemicals

As I note above, chemicals should not be classified with just the MSDS.  While it may have the CAS# and chemical name, it will rarely have all of the ingredients listed (just the hazardous ones).  You’ll need to know the principal use of the product (of course). You’ll also need to identify all of the functional groups in the chemical structure .i.e. hydrocarbons, aldehydes, alcohols.  Yes, that means that knowing the chemical name of the substance will not suffice (sorry).  You’ll likely need quite a bit of other information about the product that may require the skills of a chemist.  Unfortunately I’m not a chemist so we keep one on staff for the particularly ugly stuff but there is a lot of information available on the web.   Below is a list of questions that will help to drive you to an accurate HS classification of your product:

  1. Single compound?
  2. Principal use?
  3. Chemical name?
  4. Chemical structure?
  5. If not pure, what is the weight of each component?
  6. CAS#?
  7. Organic/inorganic?
  8. Know by any other names?
  9. Dissolved in anything?

Lastly, how do I know if I’m doing it right?  There are some tell-tale signs that may indicate that you need some help.  Do you get a lot of CF28 Customs Requests for Information or CF29 Notices of Action for classification changes?  Have you been advised of an upcoming Customs Assessment recently?  Do you have an unusual number of sample requests from Customs or exams? 

Reasonable Care starts with training, documenting, and auditing your work. As always,Tradewin is here if you need help through this process.

Do you find another aspect of compliance particularly challenging? Let us know in the comments below.

 

 

Topics: Classification, Healthcare

Written by Jim Conrad

Jim joined Tradewin in 2009, continuing a successful career in international logistics and trade compliance that began in 1980. He has spent more than three decades in leadership roles overseeing international trade compliance including the positions of corporate Director of Operations and as Chairman of the Board of Directors for a large U.S. shipper’s association. Jim’s technical background covers a wide range of international trade areas including harmonized tariff classification, valuation, anti-dumping and risk analysis. Jim is a graduate of North Shore Community College and majored in Business Administration at Salem State University. He is a member of the International Compliance Professionals Association and a U.S. Licensed Customs House Broker.