Classification - A Necessary Evil

Posted by The Tradewin Team
Blog originally posted on 11/08/2016 01:57 PM


Accuracy of your HTS classifications is as important as ever.  Have you reviewed your current classification database? Are you aware there could be fines and penalties for incorrect tariff codes.  Coming up, Tradewin will have a two part blog series outlining the importance of accuracy, but first, a reminder of why it is so important!

HTS Classification is a necessary evil. Unfortunately, it is an evil that must be revisited often. There are various ways to approach harmonized tariff classification from doing it yourself, hiring a third party service provider, or just putting the pages up on the wall and throwing darts at it to determine which HTS Classification to use.  (While the last one is a great way to relieve the stress of classification, I personally would not recommend this method).

Let’s face it, the Harmonized Tariff Schedule is not the easiest thing in the world to read, use or interpret. And while you may not realize it, the repercussion of using incorrect tariff codes can be devastating. More and more, US Customs is cracking down on companies for using incorrect tariff classifications and the consequences can be staggering.

How can you be so confident in your classifications that there is no cause for concern if Customs does come knocking? The first step is recognizing if you have a problem. That problem may be lack of resources, lack of HTS classification knowledge or not knowing where to start. As my grandfather often says, “If you don’t know where to start, go back to the beginning”.

Here are few steps you can take today to get started:

  • Determine how old your HTS Classifications are. Have they been reviewed in the last 3 years? The Harmonized Tariff Schedule of the United States is updated annually, and often times it is updated a few times each year.

  • Determine who assigned your classifications and the level of confidence in those HTS Classifications.

  • Take a look at where and your HTS Classifications are being stored and maintained. Are you using a database, spreadsheet, notebook, stone and chisel? How secure is your data?

  • Take a look at the justifications you have for the classifications assigned. What information and resources where used to arrive at these classifications? What are your legal justifications for the classifications you are using?

  • If you are in the business of “parts” (i.e. auto parts, air craft parts, etc.) determine what percentage of your parts are classified under a “Parts of” provision such as 8803.90 or 8708.99. If the vast majority of your products are under a “parts of” provision, this is a huge Red Flag. While there certainly are items that fall under these HTS Classifications provisions, there is a good chance that a lot of them are actually provided for under other HTS Classification headings.

  • Ask yourself this question “Having done the above, do I believe I am showing Reasonable Care in my classification process?”  Be honest with yourself.

Why is having the correct HTS Classifications so important? Simply put, a lot is riding on that 10 digit number.

HTS Classification is used to determine the following:

  • Import Duties

  • Free Trade Agreement qualification

  • Quota limitations for import of certain goods

  • Flagging for some ADD/CVD cases

  • Flagging for some Other Government Agency requirements

  • Statistical reporting to the US Government

HTS Classification can be painful, but making the investment in doing it right pays dividends.

In an industry where compliance is king and Reasonable Care is a standard that is constantly becoming more stringent, it is imperative to get HTS Classification right.

The good news is, Tradewin can help. Besides, engaging with a compliance expert such as Tradewin allows you to focus on other things.

*This was originally posted in 2014, but it has been revised for accuracy and freshness. 


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Topics: Classification

Blog originally posted on 11/08/2016 01:57 PM

The Tradewin Team

Written by The Tradewin Team

Since 1997, Tradewin has been providing expert import and export advice to clients all over the world. Combined, our skilled team of Customs brokers, lawyers, accountants and other professionals possess more than 400 years of experience. Together, we've helped thousands of clients save more than $50 million in duties, guiding them through the ever-changing and complex arena of international regulations as effortlessly as possible.