Classifying Your Import Shipment

Presenter Korrie Thomas Director, Compliance Houston • Joined BDP in 2011 •

26 years of trade experience

• Licensed Customs broker since 1994 • Certified Customs Specialist – NCBFFA

[email protected] 281-775-8338

What is Classification? 

Determination of the appropriate HTS numerical code to identify the proper rate of duty and all statistical data for every product imported into and exported from the United States.



Products must have an appropriate classification In order to enter the United States

Why Classify? • • •

Classification linked to Participating Government Agency (PGA) requirements. Determines revenue to U.S. Government in the form of Customs Duty. Provides information for statistical reporting to Department of Commerce, Bureau of Census.

Who Classifies Goods     

Importers Customs (via Ruling Requests) Custom Brokers in tandem with importers Attorneys Consultants

The legal liability lies with the importer but also with any expert they may have employed or relied upon for guidance. Accuracy of any classification is only as good as the information received about the commodity.

Reasonable Care 





A doctrine established under the Mod Act which transferred legal responsibility for proper classification and valuation (among other things) from Customs to the importer of record. Everyone associated with the import transaction is responsible for using Reasonable Care to enter, classify and value imported merchandise. The importer of record must additionally provide any other information to CBP in order to assess duties, collect accurate statistics, and determine whether legal requirements are met.

What to Consider    

HTS Classification Country of Origin Normal Trade Relations (NTR) Full or “Statutory” (Column 2) Special Programs (C/O related) NAFTA   

 

GSP CBI Others

Special Programs (Non C/O related) Civil Aviation, Anti-Dumping, Binding Rulings

Getting Started Questions to ask: • What is the product called? (Synonyms/generic name) • What does it do? • How does it work? • How is it used? • In what industry is it used? (Commercial, Industrial, Home)

• Simple or complex?

Information Required  Detailed description of imported product, plus samples, sketches, diagrams, illustrative materials, and brochures are useful.  Breakdown by percent of component materials and respective quantities.  Principle use of goods in the U.S.  Commercial, scientific, or common designations. Any and all other pertinent information **Note: Product name is often insufficient to properly classify the goods.

Tools for Classifying Goods Support is available from:  HTS  Customs Personnel  Customs Bulletins  Ruling Module/CROSS  Explanatory Notes  Internet Subscription Services

Common Classification Problems • • •

Shipments often arrive without purchase orders and without classification Delays occur while classification being researched Inadvertent non-reporting to PGA’s

The Harmonized Tariff International 21 Sections, by industry and use 97 Chapters, by general description 5000+ headings, sub-headings

United States 22 Sections, Chapter 98 and 99 Special classes, temporary provisions

The Structure of the US HTS      

Chapters 1-97 (no Chapter 77) Commodity Provisions Chapter 98 Special Classification Provisions Chapter 99 Temporary Legislation Temporary Modifications Additional Import Restrictions

Contents of the US HTS Title Pages Table of Contents General Rules of Interpretation (GRI) General Notes (GN) General Statistical Notes (GSN) Statistical requirements for imported goods Statistical annotations Statistical reporting number Abbreviations Reporting of exports Chemical Appendix

Pharmaceutical Appendix Intermediate Chemicals for Dyes Appendix Statistical Annex A (Schedule C, Country and Territory Designations for U.S. Foreign Statistics) Statistical Annex B (International Standard Country Codes-ISO) Statistical Annex C (Schedule D, U.S. Customs Districts and Port Codes for U.S. Foreign Statistics) Alphabetical Index Change Record

Finding a Tariff Number Section Title Page

(Section Notes)

XI

Chapter Title Page

(Chapter Notes)

61

Heading Descriptions

6106

Subheading Descriptions

(International Level)

6106.20

U.S. Subheading – National Level

(Tariff Assessment)

6106.20.10

U.S. Statistical Subdivision

6106.20.1010

Example Flashlights are classified under HTSUS 8513.10.2000 “Portable electric lamps designed to function by their own source of energy…..” Chapter 85 Heading 8513 Subheading 8513.10 Rate Subheading 8513.10.20 Statistical Subheading 8513.10.2000

Section, Chapter & Subheading Notes    

Also called legal notes Have same legal weight as headings and subheadings. Have international status. Make heading and subheading both concise and precise.

Legal Notes    

   

Legal Notes define the scope of a heading (4 digits) or subheading (6 digits) and direct the user to the appropriate section, chapter, heading, or subheading. They provide lists of goods included in a particular section, chapter, heading, or subheading. For example: Note 1: …headings of this chapter apply only to… Provide lists of goods excluded from a particular section, chapter, heading, or subheading. Note 3: …this chapter does not cover… Provide specifics headings/subheadings where goods are to be classified provided they meet the definition or criteria as specifically indicated in the note Note 4: …chemically defined complex acids…are to be classified in heading 2811 (Go directly to Chapter 28) Provide definitions as they pertain to a specific situation. Statistical Note: “For the purposes of heading 2804, the term “m3” means…” Legal Notes should be consulted before you go to the tariff pages with the headings and sub headings.

General Rules of Interpretation      



Classification of goods in the tariff schedule is governed by the General Rules of Interpretation or GRI’s. This is a hierarchy; follow Rule 1-if Rule 1 does not apply, go to Rule 2 HTS provides for classification of simple articles, single materials, single functions and articles that are complete and assembled. Most products and commodities can be classified using the first three rules. Rule 4 is seldom used, and never used in the U.S. Rule 5 does not address how to classify an article, but whether certain kinds of packing are to be treated as part of the article, or classified separately. Rule 6 tells us to first look at the headings (if you don’t find what you are looking for in the headings, move on)

Treatment of Parts and Accessories   

Classified in own heading (Eo Nomine) Classified with the article if heading so provides Classified in specific heading for parts and accessories

(You are not exercising reasonable care if all parts are automatically classified with the machine)

Eo Nomine Parts 8407 8408 8413, 8414 8481 8482 8483 8484 8501 8508 8511 8535 8536

Spark-ignition Engines Diesel Engines Pumps Valves Bearings Transmissions Gaskets Motors, generators Electro-mechanical hand tools Electrical ignitions/Starting equip Switches Motor Starters (not an exhaustive list)

Additional Rules of Interpretation One rule, four parts providing guidance on use (actual, principal) of goods in the U.S. for purposes of classification. Additional U.S. Rule of Interpretation are found only in the U.S. HTS

Roadmap to Successful Classifying Use the General Rules of Interpretation, in order Consult Legal Notes, Section and Chapter notes Stick to headings, the same sub-description may appear under more than one heading Have substantive back-up for all classifications used or for any changes made by either you or by customs; Review at least annually; develop communication protocols with your customs broker.

Duty Rate Types 

Unconditionally Free – Free from all countries under “most favored nation” status whether or not a specific trade program or agreement applies



Ad Valorem - A percentage of the value of the import



Specific duty rate – figured by unit of weight or other measure

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Compound duty rate - A combination of both an Ad Valorem Rate and a Specific Rate

Duty Rate Determination  There are several ways that a rate of duty can be applied to imported goods

 Some duty applications are based on country of origin

 Special programs detailed in both the tariff book and the Customs Regulations (19CFR)  Conditions and requirements for application of a duty rate under the tariff MUST be met  Entry documents and records MUST reflect compliance with the specific requirements/claims made at the time of entry

Special Programs Generalized System of Preferences (GSP) African Growth and Opportunity Act Caribbean Basin Economic Recovery Act Andean Trade Preference Act Dominican Republic/Central America (DR/CAFTA) Caribbean Basin Trade Partnership

A, A*,A+ D E, E* J, J*, J+ P, P+ R

Free Trade Agreements Australia FTA Singapore FTA Oman FTA Colombia FTA Bahrain FTA NAFTA – Mexico Israel FTA

AU SG OM BH MX IL

Morocco FTA Peru FTA Korea FTA Panama FTA NAFTA – Canada Chile FTA Jordan FTA

MA PE

CA CL JO

Other Preferential Trade Programs There are other duty free/reduced duty programs that have nothing to do with the country of origin. Agreement on Trade in Pharmaceutical Products (K) Uruguay Round Concessions on Immediate Chemicals for Dyes (L) Automotive Products Trade Act (B)

Agreement on Civil Aircraft (C)

(19CFR) Regulations Chapter 10 Part 10-Articles conditionally free, subject to a reduced duty rate, etc.

Review this portion of the CBP Regulations to ensure that you have met all of the documentary requirements for any duty free or reduced duty program you are utilizing.

Finally… “Classification is an art, not a science” It is subject to interpretation, court cases, and precedent classification expertise is built over time Customs’ compliance expectation is 94-97% accuracy It is easy to have a “misclassification”

Thank you! BDP International thanks you for your time and participation. Our complementary webinar 101 series will continue @ http://www.bdpinternational.com/news-advisories-events/events-seminars/

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Upcoming 101 Presentations Import Topics 04/11/2013 05/09/2013 06/13/2013 07//2013 08//2013

C-TPAT Incoterms Valuation What to do when things go wrong? Entry Process/Role of the CHB

Export Topics 04/18/2013 05/23/2013 06/20/2013 07//2013 08//2013

Filing your EEI info into AES Role of the Freight Forwarder & Logistical Flows Handling Airfreight 101 Documenting your hazardous shipments Export Documents

Contact information • Korrie Thomas • • •

Phone: 281-775-8338 Mobile: 832-259-9301 Email : [email protected] 15333 JFK Blvd, Suite 700, Houston, TX 77032

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