Every company who imports goods into the U.S. has a customs broker that must bring goods into the country and follow certain regulations. The classification process is very difficult. There are 99 chapters in the tariff that leads to over 10,000 different sections where goods can be classified. It's very important that the goods fall into the right classification. There are penalties and other ramifications, financially, that can occur if imported goods are not classified properly. That's where we come in. We are experts in the proper classification of imported goods and we ensure that companies minimize their import duties.
We hope you will gain some valuable insight into the world of customs tariffs. With all the supply chain challenges the world is facing, our aim is to maximize your duty drawback dollars and boost your bottom line. We hope you'll subscribe to our podcast to stay current with each new episode in which will unveil numerous ways to improve your international trade profitability. Thanks for listening.
Every company who imports goods into the U.S. has a customs broker that must bring goods into the country and follow certain regulations. The classification process is very difficult. There are 99 chapters in the tariff that leads to over 10,000 different sections where goods can be classified. It's very important that the goods fall into the right classification. There are penalties and other ramifications, financially, that can occur if imported goods are not classified properly. That's where we come in. We are experts in the proper classification of imported goods and we ensure that companies minimize their import duties.
We hope you will gain some valuable insight into the world of customs tariffs. With all the supply chain challenges the world is facing, our aim is to maximize your duty drawback dollars and boost your bottom line. We hope you'll subscribe to our podcast to stay current with each new episode in which will unveil numerous ways to improve your international trade profitability. Thanks for listening.
Good afternoon. My name is Jill LaMadeleine. I am the vice president at International Tariff Management. I'm a licensed customs broker with over 28 years of experience. I work with International Tariff Management, who has over 35 years of experience specializing in duty, drawback classification and free trade agreement services. Joining me today are two of my colleagues, and I'm going to ask them each to introduce themselves Good afternoon. My name is Jay Charkow. I am the President of International Tariff Management, founded the company 35 years ago. We have our corporate office in Connecticut and we service all of the United States in the areas that Jill had described. And I'm Carrie Erwin. I am the director of sales. I have 20 plus years experience across many industries, different sized companies. Well, thank you both for joining me today. If anybody joined us for our previous webinar, we did one on duty Drawback, where we sat down and discussed what's involved with the Duty Drawback program and how you can initiate one. And today we're going to talk about classification. And we think that this is one of the most important things that companies don't pay enough attention to and something that they really should focus on more. And I think the best way to start is talking about who is responsible for the correct classification of items that somebody is importing into the country. Yes. So the importer is ultimately legally responsible for classifying every single item that comes into their companies. In addition to that, even if the item is not charged a duty, they still are responsible for making sure it's classified correctly. What happens in the industry is that most items are classified by the customs broker. Every company has a customs broker that must bring goods into the country and follow certain regulations. One of the problems with that is that the customs broker usually is very busy trying to get the goods through customs and spends very little time in trying to classify the goods properly. One of the things that we do is we take the time and effort and we'll get into it as to exactly why we classify the goods properly. The classification process is very difficult. There are 99 chapters in the tariff that leads to over 10,000 different sections that you can put the goods into. And it's very important that you get the goods into the right classification because there are penalties and there are other ramifications financially that can occur if they are not classified properly. And just to touch upon something you mentioned, the import brokers have a pretty good understanding of the harmonized tariff. They work with it every day. They classify items over and over. But what they don't have is the expertize to understand what the product is, what the people are actually importing. And if you're dealing with something that has a specific heading and something that you don't need to do some determining with, it's not a big deal. But many people are importing things that aren't specifically provided for in the tariff. Yeah. For example, I mean, my Fitbit here, which I love, by the way, and I keep my step count very high, but it can be classified many ways. The Fitbit can be classified as a radio transceiver. It can be classified as a navigation aid and it can also be classified as a measuring and checking device. So where the hell do you put it by the general rules of interpretation under the classification process? Going through those rules, it's determined that this classification goes to the highest number. The chapter that that occurs last in the harmonized tariff schedule and therefore this Fitbit would be classified as a measuring and checking device. And the rule that you follow and the rules are very complicated, but the rules that you follow for this particular device is it's the last item in the tariff. So even though it performs several functions, you have to go to the last item in the tariff, which would make this a measuring and checking device. And why do we go to you know, you have three headings and it can fall under all three. Why would you. Why would that rule apply to the Fitbit? Why would it be the third one? Is it because all of those headings are equally as descriptive of the product? Is that what the rule states? That general rule of interpretation? No. That general rule says that you have to go even though they all describe the product. What you have to do is go to the last item because they are all the same. The product could function as either one of those, any one of those three things that I described. You would go to the last one in the harmonized tariff schedule. Okay. So the classification process is not only finding the correct classification, it's understanding the general rules of interpretation to know which rule to follow for your particular item. Exactly. We when we approach something in doing the classification, what we do is we have a two pronged process. What we first do, and this is a very important part because there are many people that understand the tariff, but we spend a lot of time with our client and we get to understand exactly technically what the product is and how it performs. Several items when you classify it are classified by use. Other things are classified, by the way, that it appears to be. So it's important that you understand and the product. And the other prong is we understand the tariff. We understand the general rules of interpretation. We understand it through all of our experience, all of the chapters within the tariff. And there is also another thing to do when you're classifying goods, and that is the rulings Customs puts out rulings almost every day on various products. And you have to be aware of these things so that you can look and see if your product falls within that particular category. And another tool that we use is the explanatory notes which are a supplemental index to the tariff. And we use those as well when when classifying an item. And I you know, you mention that things aren't always what they appear. And we have a really good example of a client that was importing something and the broker classified it according to what it appeared to be. And it was not classified properly. You want to talk about that? Well, sure. That was a our client was importing what they thought was a pen and it looked like a pen. This looks like a pen, but this was a correction pen. And the correction pen was and we don't use them anymore, but they are used to write out things on a document. Now there's some sort of tape in everything one uses but the client was bringing it in and the broker brought it in as a pen. When we did the study and looked at it, we found that this instrument was actually a chemical product. The essential character of it was to correct the material on the paper and the chemicals in it classified it as a correction pen, although it was a chemical product. So we reclassified it under the proper classification and which was a chemical product. And the duty rate surprisingly came down and our client saved $127,000 in yearly fees and duties because we had saved them the classification. And I have a question for you. We're in that case. Was the client able because you actually made a change to the tax code? Were they able to recover any of those duties that they had overpaid? That's a very good question. And the reason is because yes, they can. And yes, they did There is a time frame where you can go back after the entry is liquidated. You can put in a correction before the entry is liquidated. Under a post entry adjustment. Or you can put in a protest after the entry is liquidated and recover the duties that period of time goes back about a year and a half. So that clients that we work with and review their classifications are very surprised that when we find a correction, we're able to save them money backwards retroactively and then they can enjoy these savings going on forever because their product is classified properly. And who would have thought a pen? I mean, I would have thought that was a pen. So that's what our expertize we are able to do that deep dove into the product and knowing the rulings and knowing customs, we're able to classify it correctly. Exactly. Whereas a broker looks at the import invoice and is making that determination, Oh, it's a pen. I'm going to classify it as a pen. We ask our clients, provide us with samples, provide us with specifications so that we can look at what your product is and then approach the tariff to determine where it falls. That makes sense. And how much is misclassified? I mean, how people are importing all the time. What percentage of imports are misclassified. So 90% of items are classified correctly. But of that, 10% that is misclassified you are able to recover maybe 80%. So 80% of those are paying too much duty on their imported items. That's a that's a big percentage of that. 10%. And we have a good example of that as well. We have a client that was importing those digital photo frames you know, the ones where the photos run through and it's a relatively new product. So it's not specifically accounted for in the tariff. When they were bringing it in, their broker had them paying 2.7% duty on it, and it was coming from China. So it had the additional 25%. They were paying an exorbitant amount of duty Well, we took a look at it and we looked at the tariff, we looked at the products. We also looked at rulings, and we found that Customs had issued rulings on this product and we were able to properly classify the product with 0% duty and only a seven and a half percent China tariff. Wow. And retroactively going back the two and a half years on the import side, we were able to save them a quarter of $1,000,000 retroactively. And they will, like you said, enjoy that savings going forward. And they're not overpaying and they're properly classifying their item, which is the most important piece. You know, it's also very interesting because everybody, when they want to reclassify their items, they're looking to save money. But there's a flip side and the flip side is if you're underpaying your duties, you could have a very serious problem with the government. So it's important not only to look for savings, but to look that look and make sure that your products are properly classified. If the government finds that goods are coming in misclassified and you're not paying the rounded duties, there could be penalties. They could put stops on your imports coming in at the ports. So that it's a flip side situation where both pieces are extremely important. The idea is you want to make sure your goods are classified properly, even if there's no duty assessed on your product. You need to make sure that the goods are in the right harmonized tariff schedule. And remain compliant. Right. Absolutely. There's an interesting, you know, I talked about the Fitbit, but everybody has an Apple Watch. And where the hell does the Apple Watch get classified It's a very. Specifically accounting. For it. It tell you that it's not specifically accounted for. They could it could be a watch. It could be a sound recording. Device, and it could be a measuring and checking device. So it's a very complicated process. In this particular case, when it was analyzed, it was determined that you have to look at and in many cases, when you classify things, you have to look at the essential character what really is this product. And in studying the Apple Watch under G. r.I three which is a very scientific way of looking at it, it determines that this is really a measuring and checking device and needs to be classified that way. So you have to look at the essential character of items as opposed to various things that it could be. What is it really doing? Yeah, and you could even assume that that would be like a cell phone, a watch. There's so many things you can label that Exactly right. And even though it has so many functions, it's a composite good. It does a lot of different things. And so you have to always refer back to those general rules of interpretation in order to determine where it properly falls. And that's an important tool when when classifying an item. Yes. So most clients we work with, we typically approach it as as we're going to look at all of your items and we're going to review the classification and provide you with, you know, an analysis of how your broker is doing. But but what is our suggestion to clients and how they should approach their classification? Yes. Because as Jane mentioned earlier, customs is always on a daily basis reviewing the rulings and reviewing the items. We recommend an annual check in with all your items, and you really want to look at somebody who is an expert who has the time to be able to put those two pieces together where we're able to really take a deep dove into your product. And we also know the rulings as well and have worked with Customs for a long time. That would be your best bet annually. And I think it's important to say that while the import broker is not maliciously doing this, they're doing their job, they're looking at your invoice and they're classifying the item. But you really need to do your due diligence and you really need to hire an expert to take a look at your product and the tariff and the rulings and the explanatory notes and put the whole package together. Yes. And even if we talked about it earlier, even if you're classifying something and there's no change in the duty rate, you need to be sure that you're using the correct classification. It falls on the importer to make sure that they're using the correct classification. And another point is, if you're participating in any free trade agreement that the United States has with 14 or so different countries, the first step in dealing with the free trade agreement requirements is to classify the item. If you are trying to ship a good to Canada And take advantage of the free trade agreement. And it's misclassified. I can tell you that you're going to have a problem because we've been involved with several clients that have come back to us that had misclassified goods going into Canada revenue. Canada takes it very seriously and wants to make sure that you're taking advantage of the right requirement in free trade agreements. Dealing with the free trade agreements is almost as complicated as dealing with the classification. But in doing free trade agreement certificates, you need to start off with the classification. As a matter of fact, we will be doing a webinar on free trade agreements very shortly. And it would be good to understand the classification process prior to getting involved in the free trade. And how it creates a foundation. Having the proper classification is like your base foundation to everything, even duty drawback. You have to have the proper classification. Exactly. And we specialize in all three pieces and they all work together and they're all interlinked. Yes. And it's just important, as you said, to have that basis of a correct classification and everything builds off of that. And I can't remember if I mentioned it at the beginning. I think I did. But we feel like this is a part of the corporate structure that a lot of companies don't pay attention to, don't give enough importance. And that's where we come in. You know, let us take a look and make sure that you're doing it properly. And make sure you're compliant and that nobody is going to get in trouble for importing things improperly. Exactly. And even working you know, I go back to our clients and I and we ask for such specifications because we're really looking for the best way to classify that item. The correct. Way. The correct way. Is the best way. Is the best way. Always. Oh, really? So what? So so people have have tuned in today, Cory, and they listen to us and we've given them some examples. But obviously we can't touch upon everything, every industry, even though we've worked across multiple a multitude of industries. So what's the next step? They feel as if they might have an opportunity to review their imports. Yes, I would say to reach out. You know, it's great to speak with your broker, but for somebody to really analyze and take a look at everything, it's best to reach out to an expert. An item is certainly that. Well, thank you all for joining us today. We hope you learned a little bit about the importance of classifying your products properly and what goes into that process. And if you have any questions or you want to reach out to us directly, I believe our contact information is on the screen. And you can reach out to Carrie or Jay or myself, and we'd be happy to answer any questions that you have. Thank you.