The automotive industry relies heavily on the global flow of parts and components, making accurate classification within the Harmonized System (HS) critical. This complex system of names and numbers dictates tariffs and facilitates international trade, but its intricacies can be highly challenging for automotive products.

Differences that seem minor in a part description may lead to exponentially different classifications and, as a result, wildly varying duty rates. These differences can have significant financial implications for automotive businesses, impacting everything from production costs to final vehicle pricing.

The Complexity of Automotive Classification

While essential for precision, the HS system's hierarchical structure creates a minefield for automotive parts. The industry's complex supply chains and the subtle distinctions between components can easily lead to misclassification.

Consider these automotive-specific examples:

• Vehicle Parts vs. Accessory: A part directly involved in the vehicle's function such as a steering wheel (HTS-10 Digit Code: 8708945000) is classified differently than an accessory that enhances aesthetics or convenience such as a road wheel cover (HTS-10 Digit Code: 8708706045). The line can be blurry, but is essential for avoiding penalties, delays, and production costs.
• What is a Motor Vehicle? Chapter 87 encompasses many different vehicles that all fall under an “automotive” umbrella. This includes agricultural tractors, road-tractors (semi-trucks) and even golf carts. Part subheadings within 8708 delineate at the type of vehicle the component is designed for. The final vehicle platform the component is installed on is crucial for accurate classification of the component.
• Material Composition is Essential: In the automotive industry, material specifications are critical. Two identical brake hoses with a difference in their constituent material can carry two completely different classifications. Accurate identification becomes even more complex but crucial with the increasing use of advanced materials like composites.
• Specific Function is Key: Even with an article as simple as a Gear. Depending on its use can have classifications in two different chapters of the HTS. A gear for use in the engine’s timing system is classified in Chapter 84, whereas a transmission gear is classifiable in 87 due to the HS Legal Notes.
  

The Impact of Inaccurate Interpretation on the Automotive Industry

Misclassifying automotive parts due to seemingly minor differences can have significant consequences:

• Increased Production Costs: Higher duty rates on imported parts directly impact the cost of manufacturing vehicles, potentially affecting pricing and competitiveness.
• Supply Chain Delays: Delays at customs due to suspected misclassification can disrupt just-in-time manufacturing processes, leading to production downtime, and missed deadlines.
• Warranty and Liability Issues: Using misclassified or counterfeit parts can lead to warranty claims and liability issues, damaging brand reputation and incurring significant costs.
• Penalties and Fines: Inaccurate declarations can result in penalties and fines, further adding to the financial burden and potentially impacting future import/export operations.
  

Practical Tips for Accurate HS Classification in the Automotive Sector

Given the complexity of automotive classification, businesses must be proactive. Here are Tradewin's tips.

• Collaborate Closely with Suppliers: Focus on prioritizing clear communication with suppliers regarding part specifications, materials, and use. Make sure to have detailed technical documentation to support accurate classification.
• Invest in Automotive-Specific Training: Ensure your employees involved in procurement, logistics, and customs are provided specialized training on HS classification in the automotive sector.
• Utilize Automotive Industry Resources: Leverage industry-specific databases and resources that provide detailed information on automotive parts and their corresponding HS codes.
  
  • Here is an excellent resource for classification in the automotive industry to help classify your parts correctly: https://www.trade.gov/automotive-parts-tariff-codes
• Conduct Regular Audits: It is essential to review existing classifications to ensure accuracy and compliance with evolving HS regulations.
  
  

How Tradewin Can Help

The Harmonized System is a critical but complex tool for the automotive industry. Understanding the nuances of part description and their impact on classification is essential for avoiding costly mistakes. By investing in training, collaborating with suppliers, seeking expert advice, and conducting regular audits, automotive businesses can navigate the complexities of the HS and ensure accurate classification, ultimately streamlining operations and maximizing profitability.

At Tradewin, our expertise lies in helping your business navigate the complexities of global trade. Contact us today to learn more about how we can support your HS classification and trade compliance needs.