Depending on certain factors, such as the complexity of an article or the place from which it is being imported from, the classification of an import can be tricky at times. There are however, no “tricks” to be played when making a declaration on an entry summary as importers have a responsibility to use reasonable care in making classification determinations under the Customs Modernization Act. A failure to do so could lead to delays in entering the goods, not to mention steep penalties. For this reason there are general rules of interpretation, specific heading and subheading provisions and explanatory notes to all guide you in figuring out the correct tariff number.
“Classification,” i.e., the assignment of a tariff number to a product being imported, is one part of making entry, which is the declaration to US Customs I began writing about it an earlier post. One way in which many of us have had some exposure to making an entry declaration, albeit to a another country, is that with sending a present or personal package to someone in a foreign destination. The US Postal Service has a green customs form that must be filled out and this informs (or, in “trade-ease,” “declares” to) the receiving country what the contents are inside the package.
Making an entry for a commercial quantity of imports into the US entails a bit more of a declaration, and classification is one part of the process. A tariff number is made up of 10 digits and is found in the Harmonized Tariff Schedule of the United States (HTSUS). Assigned to each tariff number is a corresponding rate of duty. It is this rate from which a calculation may be done to determine how much in duties US Customs is entitled to receive on an importation. Think of a duty as a tax, kind of like how many states subject consumers to paying a state sales tax on say, a pair of blue jeans, bought at the mall.
The HTSUS is available in hard copy and online and it contains roughly 5,000 descriptions of classifiable articles, arranged into 97 chapters and grouped into 21 sections. Two final chapters, 98 and 99, are special provision chapters allowing for things like temporary duty increases or suspensions, or a special tariff program. For example, two weeks ago President Obama announced an additional duty on certain tires from China. At some point, a tariff number reflecting this temporary duty increase is likely to be found in one of these chapters. As an aside, I have looked through a hard copy of the HTSUS at the Court of International Trade's library and it is pretty neat to see the diversity (not to mention randomness) of articles that are classifiable. Who knew that “dadoed flat jamb” even existed?! For those of you non-carpenters out there, in everyday language, this is a “door jamb,” which, according to wikipedia, is the vertical part of a door frame to which a door is secured.
I cannot provide a detailed lesson in classification here. I can tell you however, that the earlier chapters of the tariff begin with more raw or crude products, and as the chapter numbers rise, so does the complexity of the goods in terms of advanced manufacturing. For example, raw cotton is classifiable in Chapter 52 whereas blue jeans are classifiable under Chapter 62.
Groups of chapters are bunched into sections and for each one, there are section notes. Likewise, each chapter has notes specific to the articles within it, including additional notes specific to the U.S. that describe with greater detail the way in which goods should be classified. Both of the section and chapter notes should be referred to when making a classification determination.
The General Rules of Interpretation (GRI) provide the hierarchy of instructions for how goods should be classified. Each tariff number is made up of 10 digits in the following form - 0123.45.6789 - and the assignment of the appropriate classification begins by looking at the first four digits, which is referred to as the Heading.
There are 6 GRIs and when a classification cannot be determined by the headings and notes alone, then GRI 1 provides that classification is to be determined based on the subsequent GRIs and in sequential order. Therefore, where GRI 1 is insufficient for making a determination, then you look to GRI 2 and its application to attempt to correctly classify a good, and so on and so forth. Such subsequent rules provide guidance for making classification determinations, such as looking at a good's “essential character,” or what a completed article might be in the event of the importation of a disassembled good, or what to do in the event that a good is classifiable under one or more tariff headings.
Once the correct tariff number has been found, then you can see what the rate of duty is. There are 3 types of rates of duty that can be assessed on a good, the most common of which is known as an “ad valorem” rate, which in terms of dollars and cents, is typically a percentage of the total invoiced amount. As I described in my earlier post, under this assessment, an import invoiced at $1000 for which the classification had a corresponding duty rate of 5%, means that $50 would be paid to US Customs in duties.
On occasion a specific rate of duty may be applicable, such as a per piece rate like in the case of a watch movement, or based on weight, such as in the case of a certain type of cotton, classifiable under HTSUS # 5201.00.2200, which has a duty rate of 4.4 cents per kilogram. Finally, there may be combination rates where there is both an ad valorem and specific duty rate, such as in the case of watches, where the other components of a watch are all valued at ad valorem rates. Interestingly enough, due often times to historical reasons, there are some imports, like watches, that are valued not on the final complete article but on various portions which make up the article. Did I mention classification could be tricky?
As for tricks of the trade, it may be worth consulting an expert such as a licensed customs broker or trade attorney to see if your import may be classified under a preferential duty program, such as NAFTA (the North American Free Trade Agreement). Depending on where a good is being imported from, there may be an opportunity to enter your products duty free thanks to a favorable duty treatment agreement between the U.S. and another country, which your trade professional might be aware of. This would not only save the importer money, but those savings could be passed along to the “ultimate consumer,” i.e., your customer.
For more information, you can check out the US Customs Informed Compliance Publication entitled, “Tariff Classification.” Due to the complexity of classification issues, for certain products US Customs has specific publications, such as with textile costumes, children's apparel, and pipe fittings. Questions or comments? Feel free to email me at clark.deanna@gmail.com.
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