Classification – Man vs. Machine
Classification under the Harmonized Tariff Schedule (HTS) can be a complicated and nuanced process, especially as you dig deeper into the tariff to the subheading and statistical levels. There are tools out there that allow you to expedite the process, but The Tool has yet to be invented that can beat out human analysis.
SCHEDULE B SEARCH ENGINE
The US International Trade Commission (US ITC) provides a searchable interface for the HTS while the Bureau of Census gives you a more robust decision-engine for Schedule B classification. There are merits to each, but they have their pitfalls as well – the only way to be sure requires a savvy user and some additional steps. Take this example, where function trumps form:
EXAMPLE 1: CHIA SEEDS AND PRIMARY USE CLASSIFICATION
If you enter “chia seeds” into the Schedule B search engine, you’re immediately taken to HTS subheading 1211.90. The heading description of 1211 is “Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes, fresh, chilled, frozen or dried, whether or not cut, crushed or powdered”.
But what if you’re planting the chia seeds? The uses described in 1211 would not cover sowing – but another heading might. HTS heading 1209 provides for “Seeds, fruits and spores, of a kind used for sowing” and would be a more appropriate place to classify the chia seeds.
Relying on search engines here would have lead us to an incorrect classification, and potentially a different rate of duty!
There are other pitfalls that require a more practiced approach in order to arrive at the appropriate classification. Industry terminology is not always in line with the HTS, and relying on items as they are described on a commercial invoice can be potentially disastrous.
EXAMPLE 2: SPICE RACKS AND SETS
An invoice listing a “Spice Rack” might contain both the rack AND the spices. U.S. Customs does not permit the classification of the spices as part of a set, and the entry would need to enumerate multiple classifications for each component – the rack and each individual spice.
Using automated searching to classify a spice rack might lead you to heading 7323 for “Table, kitchen or other household articles and parts thereof, of iron or steel”, but would completely ignore the spices themselves.
it’s all too easy to classify incorrectly by relying solely on industry descriptions. In a worst-case scenario, you may neglect to declare items that were imported – effectively smuggling items for commerce into the country, and the penalties for this can be severe!
The World Customs Organization (WCO), framers of the HTS, acknowledge the ambiguity and uncertainty of the descriptions in chapters, headings, and subheadings. To that end, they supplement the HTS with the Explanatory Notes (“ENs”).
The ENs provide more thorough descriptions and examples for some of the more nuanced elements of the HTS. While not dispositive, the ENs are an accepted supplement to the HTS for Customs organizations around the world. Disputes can often be settled through application and citation of the ENs as supporting evidence in your classifications. Most of the electronic tools and applications available cannot incorporate the ENs into their analysis, leaving you without this extremely valuable source of analysis.
EXAMPLE 3: COMPUTERS AND THE EXPLANATORY NOTES
Computers are a tricky item to classify. If you search for “computer” in the USITC search engine, your results are 8423, 9017, and 9022 – Retail scales, Hand operated input devices, and computed tomography apparatus respectively. None of these adequately describe a computer. If we use the Schedule B search engine, we are prompted to identify if the computer is “At least with a central processor, input and output unit in the same housing” or “Other”.
While it would be easier to choose “Other”, we first must understand the terms “central processor”, “input unit”, “output unit”, and “in the same housing”. The Explanatory Notes provide 7 pages of definitions and explanations to help you understand heading 8471, with specific inclusions, exclusions, and references to related headings that might further help you arrive at the correct classification.
The search engines may be able to give me an answer, but no Customs will accept “I didn’t understand what they were talking about, so just went with Other” as your explanation!
But sometimes even the ENs are not enough. Most Customs organizations around the world provide legally binding rulings that definitively establish the classification of a product. In the US, these rulings are published in the Customs Rulings Online Search System (CROSS) and can be searched, read, and applied to your own classifications.
EXAMPLE 4: INSTRUMENTS OF INTERNATIONAL TRAFFIC AND CROSS
Pursuant to 19 USC 1322(a), “vehicles and other instruments of international traffic … shall be excepted from the application of the customs laws … “. This means that instruments of international traffic can be brought into the U.S. without entry or payment of duties or fees. But what qualifies as an “instrument of international traffic”?
CROSS Rulings HQ H026715 and HQ H024922 provide the analysis and explanation. “An article must be used as a container or holder; the article must be substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic.” Then, “reuse has been held to mean using the containers more than twice”.
Using HTS search engines, one might arrive at the conclusion that steel containers of the type described in HQ H026715 should be entered under 7309 or 7310. Instead, these articles are exempt from all entry requirements.
So what does this mean for importers and exporters? By all means, take advantage of the tools available to you in this digital age – search engines, like those developed by the US ITC and the Bureau of Census can be extremely helpful and result in massive time savings. Other automated classification tools on the market, while each helpful in their own ways, would need to tie in all of the above and more.
No compliance process should be considered complete solely based on the use of these tools. An informed compliance program that incorporates both tools and understanding is integral to success.
In the U.S., it is ultimately your responsibility as the importer/exporter to ensure that all transactions are in compliance with the regulations. Star USA is ready to help you meet these obligations through education, process improvement, and strategic initiatives that keep you in compliance. Call us at 800-230-5554 or email us at email@example.com today! Visit us at starusa.org/compliance