Last month, we talked about making sure that you were ready for the next (now this) calendar year with respect to your import and export Free Trade Agreement (“FTA”) analyses, documentation, and record keeping. Even if you have embedded systems and programs that perform various sub—parts of these requirements, you still have to “feed the beast” with underlying tariff (Harmonized Tariff Schedule or “HTS”) classifications, country of origin of parts/sub-assemblies/components, and (maybe standard cost?) values.
This month we talk about one of those elements that’s a cornerstone, not only of FTAs, but of all cross-borders transaction requirements: tariff classifications. In its most simple form, an Harmonized Tariff Schedule number answers the question “what is it?” identifying an imported article to the government, via its Customs Service, The HTS number tells Customs a lot about what the importer is seeking to bring into the country’s borders and will determine, among other things if the merchandise is admissible, if it requires any special licensing, if any other government agencies (“OGAs”) have jurisdiction over the goods, and, from the importer’s perspective the most important thing: whether he has to pay any Customs duties and taxes to import his goods.
We won’t talk right now about how goods are properly classified under the Harmonized Commodity Description and Coding System (“HS”), the legal basis for the Harmonized Tariff Schedule, and, adopted by all World Trade Organization (“WTO”) member-nations, but only about how these HTS#s are managed by the typical US Importer and why January brings so much fun!
Generally, most importers keep a list of their frequently imported articles and the corresponding assigned HTS#s, most often at the part number level. In many cases, the HTS# is a unique filed in the importers ERP system’s Material Master, and each part number, i.e., each “record” contains a lot of information about the part number at issue and its attributes, among them its assigned HTS#.
In some cases, the HTS# information is kept “off system” as many smaller or older ERPs don’t have a field that can be dedicated to capturing the HTS#, and in the tried and true workhorse of the office, MicroSoft™’s Excel spreadsheet program. In such a spreadsheet, a simple database, or, of course, in the Material Master/ERP, many import-export attributes, including the Harmonized Tariff Schedule number can be captured, retained, and distributed as required.
Most importers don’t file their customs entries directly with US Customs, i.e., they aren’t “self-filers”. Rather, they duly appoint, via a properly executed Power of Attorney (“POA”) a Licensed Customs Broker (“LCB”) to file customs entries on their behalf. To assure that the broker is assigning the correct HTS# consistently across the importer’s transactions, it’s typical that the importer provide its Part Number-HTS# database to its brokers, and provide updated lists periodically, to account for new parts being added, changes in HTS#s to existing parts due to internal engineering changes, or…
OR, changes to the HTS# assigned to a given part based on NEW HTS#s issued by the government, and THIS is the January annual event for most importers! Every January, (in the U.S.), the International Trade Commission (“ITC”) who’s tasked with maintaining the Harmonized Tariff Schedule of the United States, annotated (“HTSUS”), publishes its new version. And, invariably, some HTS#s that existed last year no longer exist this year. And, invariably, there are new HTS#s which might more correctly apply to a given product previously assigned an old HTS#, and, as such, the prudent importer, wanting to be sure to meet the legal standard of ‘exercising reasonable care’ will, every January extract its part-HTS# database, where from its Material Master/ERP or not, do a pivot table of its existing HTS#s and compare those to the “Change Record” of the newly issued annual, revised HTSUS. For the 2014 Change Record, please see:
We always recommend that our clients include this annual database review in their documented Standard Operating Procedures, that they have a solid method to track any changes they make to their internal database, and that they can show with documentary evidence that they properly distributed their revised database to all appropriate parties. It’s not good enough to just do the work: it’s also essential to have the evidence to prove that it’s been done. Remember, in case of a government audit, if there’s no written proof, it didn’t happen!
So take a few minutes every January, just as you’re settling in to the January blues to review the new Harmonized Tariff Schedule number changes, fix up your database, distribute it to your brokers, an, of course, continue with your existing post-entry review process ( you have one of those, right?!) 🙂
Randi Waltuck Barnett is a Global Trade Compliance, Operations and Strategy Executive with over 15 years of experience in a broad range of verticals, across all global regions, successfully creating, implementing and assessing internal control programs for import and export laws and regulations.
 Harmonized Tariff Schedule numbers are a cornerstone of FTAs in so far as the determination of origination status is dependent upon whether an article meets the criteria identified in the specific rule of origin (“SROO”) for that given item’s HTS#, typically at the sub-heading level.
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