Today we're going to talk about classification and the number one question we get is why is a proper classification important?
Anything that's brought into the United States must be classified according to the harmonized tariff schedule, and it's given a number and duties are assessed against that number. And other requirements such as federal other federal laws are applied against that number. And if the number is wrong, companies can be penalized for allowing those goods to come into the country improperly.
So it's extremely important. The first step in bringing anything into this country is to determine what the harmonized tariff number is. Individual companies importing the goods must institute the correct procedures to make sure that they classify their goods properly.
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.
Today we're going to talk about classification and the number one question we get is why is a proper classification important?
Anything that's brought into the United States must be classified according to the harmonized tariff schedule, and it's given a number and duties are assessed against that number. And other requirements such as federal other federal laws are applied against that number. And if the number is wrong, companies can be penalized for allowing those goods to come into the country improperly.
So it's extremely important. The first step in bringing anything into this country is to determine what the harmonized tariff number is. Individual companies importing the goods must institute the correct procedures to make sure that they classify their goods properly.
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.
Welcome to The Duty Drawback podcast from International Tariff Management. Here at ITM, we help our clients secure refunds and reductions of duty burdens on imported and exported goods. With more than 40 years of classification, free trade and compliance experience, in each episode, we explore real life examples of how companies are taking full advantage of numerous programs in place for both importers and exporters, and how these little known programs can yield substantial returns to their bottom lines. If you're engaged in international trade, you can expect to learn actionable tips and strategies that you can implement in your business to become a more profitable importer and or exporter. Thanks for tuning in. Now let's dive into this month's episode. Hello, everyone, and thanks for joining us today for our podcast. My name is Jill LaMadeleine and today I am joined by Jay Charkow, who is the president and the founder of International Tariff Management. Good morning, Jay. Good morning, Jill. Thank you so much for asking me to participate in this webinar. Well, I appreciate you participating with me. We are carrying on with our three part series of FAQs, what people are asking about the services that we provide specifically. We've done one on Drawback, We did one on the 301 tariffs, and today we're going to talk about classification and we want to know what the people want to know, what people are asking people who are importers, what they're most interested in. And the number one question we get is why is a proper classification important? And can you speak to that? I'd be happy to speak to that. Anything that's brought into the United States must be classified according to the harmonized tariff schedule, and it's given a number and duties are assessed against that number. And other requirements such as federal other federal laws are applied against that number. And if the number is wrong, companies can be penalized for allowing those goods to come into the country improperly. So it's extremely important. The first step in bringing anything into this country is to determine what the harmonized tariff number is. And who is responsible for determining the classification of an imported item. That's a very good question, Joe, because many companies think that the responsibility lies on their broker, who is the professional that deals with U.S. customs, and that's gotten companies into trouble because the ultimate responsibility lies within the individual company that is importing these goods into the country. And they must be responsible for putting the proper harmonized tariff code on it. They can get help from their customs broker, but they must institute the correct procedures to make sure that they put do it properly. So you mentioned that you use the harmonized tariff schedule, and I think anyone who's an importer is familiar with that. But how do you classify an item with the HHS? What tools are available to help you in that classification? Well, the to in order to classify a good one, must truly understand what that good is. The tariff classification is a very complex series of numbers and in the indications of what things should be. But the first step is to determine exactly what your product is. And once you determine that, you can go in and look through the various chapters of the tariff. But that also gets confusing. So there are in place customs rulings where Customs has looked at many, many different items and have been able to determine which proper tariff classification applies to those items. So to answer your question, you need to look at the tariff. You need to understand your product very well, and you also need to understand what customs has done. Historic about classifying similar goods under the harmonized tariff schedule. And that's sort of what we do. We have adopted a three pronged approach, and we do we find out what the product is and get a very good understanding of it. We have a very good knowledge of the harmonized tariff schedule, and then we use the rulings and the chapter notes and all of those that are in the in the tariff to help us with our assessment. Exactly. And I think one of the things that companies lack is they assign this to their customs broker, and the broker really doesn't have an in-depth knowledge of their exact product. And that's where we dig in to our clients specific products. Look up the rulings and determine exactly where the products should be classified. And can products have multiple harmonized tariff codes? The the ultimate classification has to rely in one number, but that happens to get very confusing sometimes because you can look at an item and say it belongs as a article of clothing and then you can also article of wool. So it could depend on how you define it. What happens is you have to look at the tariff in quite a bit of detail to determine the notes that are put in the beginning of the chapter to tell exactly what items should be put into what category. And at the end, sometimes you wind up with an item that could be classified, right in two categories, because it's not the tariff is not defined closely enough. So in that case, what happens is the item goes into the last number in the harmonized tariff that fits it. Right, because not everything is accounted for in the tariff. You're not going to open it up and find the exact product you have listed with the number. That's exactly right. What happens is this tariff goes back hundreds of years in reality, and as a result of that, the items that are being made today haven't even be thought of. When the tariff was put into place. So they fit into categories that can be very confusing in trying to get it into the right category. We have discovered there is no heading for an Apple iPhone, for example. That is that is true. We looked very hard for it and could never find it. So you mentioned that if an importer uses the wrong HTC code, they can get penalized. So what can a company do if they discover that they've been using the wrong classification? Well, what one company should do is they should immediately start changing on the imports that come in subsequent to the discovery, putting the right harmonized tariff on it. And then in order to be compliant with the regulations, what they need to do is go back and address their previous imports. And if they had paid too much duty, they can get back a refund. And if they've paid to do too little duty, they have a responsibility to the government to go back and pay the difference. And it's important that they do this, especially paying back the difference. Because if if customs discover it can find themselves, there can be very high fines and it can affect their supply chain with their ability to import goods in the future. And with the introduction of the 301 tariffs. Can you explain a little bit why proper classification is even more critical, why importers should pay not more attention to it, but maybe be more attuned to the proper classification? Well, for people that aren't familiar with the 301 tariffs, the Trump administration, in a way to help U.S. manufacturers wean themselves away from Chinese goods, imposed these very significant tariffs on goods coming in from China. It was done in five parts and each part had different tariffs imposed upon it. The key to it is many NHTSA numbers do not fall under the 301 tariffs. And if you're bringing in the wrong price of bringing in a product under the wrong tariff classification, you might be responsible to pay tariffs duties of 15 to 25% of the value. That wasn't necessarily wasn't necessary to pay because it was misclassified. As a side note that if companies are paying the three O1 tariffs and they do export, there are ways to get back the duties in duty Drawback. So we've talked about how important it is to properly classify an item and an importer knows their product, they know what they're importing, but they don't understand the U.S. and a broker has a very good knowledge of the tax, but they don't know the product. And we add item, take the three pronged approach. We get to know about the product, we know about the harmonized tariff, and we dig in deeply to find out the proper classification. So we regularly work with companies to review their imports for discrepancies based on that approach. So can you explain a little more about how our service works if people are interested in having their items reviewed? Yes, we we take a list of their products that they would like to classify. It could be five products. It could be 5000 products. We put them into categories because that's the way the tariff works. You need to look at the different categories. So that you can start classifying, for example, wine. If wine was sparkling wine, it goes into certain categories and if it's still wine, it would go to other categories. So we would classify we would separate the products into the major categories that they fit feed into. We would then look at the rulings, which is very important. Once we find out what the category is. We look at the rulings that have been submitted by U.S. customs of how things of that particular type are classified. And we would see if there are material falls into those categories and we would make sure that our we picked the right NHTSA number that clearly defines what the product is. So it's important to understand the product before you look at the tariff, to classify it, because you can be misdirected into parts of the HTC that have no relevance to your product and might put it into that category as opposed to putting it where it belongs. And we have experience throughout the tariff. We work with all kinds of companies in all kinds of industries that import all different kinds of products. So we have worked with many, many things. The only area we have not worked in, fortunately, is dead bodies. And the category when they come into the into the United States. So we haven't worked in that area. All right. On that note, thank you so much for joining us today. We always appreciate the opportunity to speak with you and pick your brain and find out what you're thinking. It was my pleasure. And I think it's very important that we respond back to what listeners request first. And we would be very open to any listener that has any question to contact us and we would be happy to dig in to the details and help and support them. Absolutely. And coming up in our podcast, we are excited that we're going to be participating with the U.S. Department of Commerce coming up soon. We're hoping to do two podcasts with them, so be on the lookout for those. And as always, thank you for joining us today as we talked about classification and the importance of doing it properly. We hope you've gained 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.